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Operator: Hello, everyone, and thank you for joining us today for the CNO Financial Group Third Quarter Earnings Call. My name is Sami, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to your host, Adam Auvil, from CNO to begin. Please go ahead, Adam. Adam Auvil: Good morning, and thank you for joining us on CNO Financial Group's Third Quarter 2025 Earnings Conference Call. Today's presentation will include remarks from Gary Bhojwani, Chief Executive Officer; and Paul McDonough, Chief Financial Officer. Following the presentation, we will also have other business leaders available for the question-and-answer period. During this conference call, we will be referring to information contained in yesterday's press release. You can obtain the release by visiting the Media section of our website at cnoinc.com. This morning's presentation is also available in the Investors section of our website and was filed in a Form 8-K yesterday. Let me remind you that any forward-looking statements we make today are subject to a number of factors, which may cause actual results to be materially different than those contemplated by the forward-looking statements. Today's presentation contains a number of non-GAAP measures, which should not be considered as substitutes for the most directly comparable GAAP measures. You'll find a reconciliation of the non-GAAP measures to the corresponding GAAP measures in the appendix. Throughout the presentation, we'll be making performance comparisons, and unless otherwise specified, any comparisons made will refer to changes between third quarter 2025 and third quarter 2024. And with that, I'll turn the call over to Gary. Gary Bhojwani: Thanks, Adam. Good morning, everyone, and thank you for joining us. Starting on Slide 4. CNO once again delivered a strong quarter, demonstrating our capabilities to generate consistent, repeatable results and execute on our strategic plan. We remain focused on growing earnings and improving profitability. To do so, we have taken action on 2 items that we expect will accelerate operating ROE improvement through 2027 by an additional 50 basis points. First, the execution of a second Bermuda treaty; and second, changes to our Worksite Division's fee services business. Further details will be provided later in our prepared remarks. Sales results in the quarter were excellent, including record total new annualized premiums of $125 million, up 26% and double-digit insurance sales growth in both divisions. We also delivered our 13th consecutive quarter of strong insurance sales and our 11th consecutive quarter of growth in Producing Agent Comp. I'll cover these results in more detail in each division's comments. Operating earnings per diluted share were $1.29, up 16%. Earnings continue to benefit from favorable insurance product margin and solid investment results, reflecting growth in the business and expansion of the portfolio book yield. New money rates have exceeded 6% for 11 consecutive quarters now, while maintaining portfolio quality. Capital and liquidity remained above target levels. We returned $76 million to shareholders in the quarter and $310 million year-to-date. Book value per diluted share, excluding AOCI, was $38.10, up 6%. Paul will go into greater detail on our financial performance. Turning to Slide 5. Nearly all of our growth scorecard metrics were up for the quarter. As a reminder, our growth scorecard focuses on 3 key drivers of our performance: production, distribution and investments in capital. I'll discuss each division in the next 2 slides. Paul will cover investments and capital in more detail during his remarks. Beginning with the Consumer Division on Slide 6. The Consumer business delivered another quarter of excellent sales results and our 12th consecutive quarter of sustained growth. Nearly all product lines were up most by double digits. Steady execution and our dedication to serving the middle income market continue to fuel our growth. Life and Health NAP once again posted double-digit growth in the quarter up 27%. We are pleased with our Life business results, including total life insurance up 33%, and record direct-to-consumer life insurance sales up 56%. Our D2C results benefited from 3 key factors: First, process and technology enhancements continue to drive sales productivity. Second, we have been proactively diversifying our direct marketing away from television to include more web, digital and third-party channels. Non-TV lead sources combined generated 72% of all D2C life sales in the quarter. Lastly, our D2C results were bolstered by increased direct marketing spend by some of our third-party partners. We don't expect this level of spending to repeat in the fourth quarter, which is traditionally the lowest selling quarter of the year for the D2C channel. Our approach to partnerships is intentionally selective, ensuring that distributors complement our existing capabilities and target markets that are different from our typical customer base. This strategy enables us to conduct rapid experiments with minimal investments that augment our in-house development and testing. Sustained growth in our health results continues to underscore strong customer demand for practical solutions to protect against out-of-pocket gaps in medical coverage and the growing cost of health care. Total Health NAP was up 21%, which marks 13 consecutive quarters of growth. Supplemental Health was up 23% and long-term care was up 7%. Medicare Supplement was up 33%. Medicare Advantage policies sold, which are not reflected in NAP were down 24%. Our Medicare results reflect a growing shift in consumer preferences from Medicare Advantage to Medicare Supplement, reversing a decade-long trend. As many of the leading MA sponsors pare back plans and benefits, more customers are moving to Medicare Supplement plans. With more than 11,000 people in the U.S. turning 65 every day, overall demand for Medicare products continues to grow, and we have an opportunity to continue to expand the total number of households we serve. Annuity collected premiums were up 2% in the quarter, our ninth consecutive quarter of growth. Collected premiums in the quarter totaled nearly $475 million, our third highest quarter of all time. Average account size was up 5% and in-force account values were up 8%, exceeding $13 billion for the first time. Our captive distribution and the long-term relationships that our agents establish with their clients add stability to our annuity blocks. We delivered our 10th consecutive quarter of brokerage and advisory growth. Client assets in brokerage and advisory were up 28% and hit a new record, surpassing $5 billion. Total accounts and average account size were each up 13%. When combined with our annuity account values, our clients now entrust us with more than $18 billion of their assets, up 13%. Agent productivity and retention continue to support our sustained sales momentum. Producing agent count grew for the 11th consecutive quarter and registered agent count was up 6%. Investments in technology continue to enable customer experience enhancements and drive operational efficiency. For example, accelerated underwriting on a portion of our Simplified Life products delivered an 89% instant decision rate on submitted policies in the quarter, up 11%. Next, Slide 7 in our Worksite Division performance. As a reminder, our Worksite Division encompasses 2 primary components: insurance products and fee services. First, insurance product sales are the larger part of our Worksite business, which once again delivered record sales and our 14th consecutive quarter of growth. I'll touch on our third quarter performance shortly. We have a long and successful history of selling insurance at the Worksite. We like the profile and growth of this business. The second component is our fee services business which was added through the acquisitions of Web Benefits Design in 2019 and DirectPath in 2021. This includes benefits administration technology and education, advocacy and communication services. This business is small, representing less than 1% of total C&O revenue and contributing a pretax annual loss of approximately $20 million. In October, we decided to streamline our Worksite operations and exit the fee services business to sharpen our focus on the core insurance business and align resources to proven growth areas. We expect the exit process to be substantially complete in the first half of 2026. After several years of strategic investment, Worksite fee services has not met our expectations for financial performance or in delivering new insurance customers. Additionally, competition has intensified with lower cost alternatives and new technologies disrupting our market position. Paul will provide more detail on the financial impacts of this decision, which we expect to be favorable to earnings and return on equity. It was the right strategic decision for CNO, and it was not made lightly. We remain grateful to the associates who supported this business and thank them for their service and dedication to our clients and customers. It is important to emphasize that we remain fully committed to our Worksite insurance products and distribution. Worksite insurance sales have never been stronger. The division adds valuable diversification and balance to our model. Turning to our results in the quarter. We delivered another record performance for insurance sales with Worksite Life and Health NAP up 20%. This represents our seventh consecutive quarter of record NAP growth and our 14th consecutive quarter of overall NAP growth. Highlights included Life insurance sales up 24%; Hospital Indemnity insurance up 53%; Critical Illness insurance up 17%; and Accident insurance, up 15%. Strategic growth initiatives contributed significantly to our Worksite NAP performance. Our geographic expansion initiative delivered 42% of the NAP growth in the quarter, marking the seventh consecutive quarter of growth from this program. Recent investments in training and sales tools continue to enhance agent productivity. Worksite recruiting was up 5% in the quarter and agent productivity was up 15%. Producing agent count was up 9%, our 13th consecutive quarter of growth. As supported by our strong results, we remain bullish on Worksite insurance growth in the fourth quarter of 2025 and beyond. And with that, I'll turn it over to Paul. Paul McDonough: Thank you, Gary, and good morning, everyone. Before turning to my remarks on the quarter, I'd like to first comment on our second reinsurance treaty with our Bermuda affiliate. Effective October 1, we have ceded approximately $1.8 billion of Supplemental Health U.S. statutory reserves and we'll see 50% of new Supplemental Health business from our Indiana domiciled Washington National Insurance Company to our Bermuda reinsurance company. We are proud to deepen our commitment to the Bermuda insurance community with this transaction. We are actively exploring additional transactions with our U.S. and Bermuda regulators, which, in aggregate, position us better to carry out our mission of serving middle-income consumers. Turning to the financial highlights on Slide 8. We had another strong quarter across both operating earnings and capital, reflecting favorable trends in insurance product margins, investment income, and continued expense and capital discipline. The expense ratio was 18.6% in the quarter and 19.0% on a trailing 12-month basis. The income was modestly unfavorable to expectations due to underperformance in our Worksite fee services business. We continue to manage to our capital and holdco liquidity targets while deploying $60 million of excess capital on share repurchases in the quarter. This contributed to an 8% reduction in weighted average diluted shares outstanding. On a trailing 12-month basis, operating return on equity was 12.1% and 11.2%, excluding significant items. For the third quarter, we are recording an impairment of $96.7 million in nonoperating income on the goodwill and intangibles associated with the acquisitions of Web Benefit Design and DirectPath. This impairment reflects updated financial projections for the fee services side of our Worksite business, considering recent performance and an increasingly competitive market. Additionally, as Gary previously discussed, in October, we decided to exit the Worksite fee services business. We anticipate that decision will result in charges estimated to be in the range of $15 million to $20 million, which will also be reported in nonoperating income. The timing of the exit charges will be primarily in the fourth quarter of 2025. We expect this exit decision together with the new Bermuda treaty will improve operating return on equity starting in 4Q '25, with the full effects emerging over the next 5 quarters through year-end 2026. The bulk of the ROE improvement relates to the exit of Worksite fee services and stems from the elimination of pretax operating losses previously associated with the fee income segment as well as the effects of the Q3 impairment and exit charges on shareholders' equity. I'll elaborate on the ROE impacts in a moment when I get to the guidance slide. Turning to Slide 9. Total insurance product margin was strong in the quarter. All major product categories were up year-over-year, reflecting growth in the business and mostly favorable underlying trends. In other annuities, the prior period results benefited from reserve releases due to higher mortality on larger closed block policies. A Sup results reflect higher claims year-over-year but improved results sequentially. Life margins reflect lower advertising spend in our traditional life business, partially offset by higher policy benefits in interest-sensitive life. Finally, our annual actuarial review resulted in a $41.3 million favorable impact to operating income. This was driven by net favorable assumption updates, including most notably, favorable lapse rates in Supplemental Health and surrender rates in fixed index annuities, partially offset by unfavorable morbidity within Medicare Supplement. Consistent with past years, we're calling this out as a significant item in the quarter and presenting the margin on this slide ex significant items. Turning to Slide 10. We continue to deliver strong net investment income results. Q3 marks the 11th consecutive quarter, the new money rate has exceeded 6% and the eighth consecutive quarter of growth in total net investment income. The average yield on allocated investments was 4.91%, up 10 basis points year-over-year. The increase in yield, along with growth in the business drove a 7% increase in net investment income allocated to products for the quarter. Investment income not allocated to product results reflect alternative investment income results better year-over-year, but slightly below our long-term run rate expectations. Lower option forfeitures as a result of lower annuity surrenders and lower in-the-money options, and lower NII from general account assets as the robust capital return in the last 4 quarters has reduced excess capital. Our new investments in the quarter comprised approximately $812 million of assets with an average rating of single A and an average duration of 6 years. Our new investments are summarized in more detail on Slide 22 of the presentation. Turning to Slide 11. Our-high quality and liquid portfolio is producing solid and consistent results. Approximately 97% of our fixed maturity portfolio at quarter end was investment-grade rated with an average rating of single A reflecting our up-in-quality bias over the last several years. Turning to Slide 12. Our capital position remains strong with our primary capital and liquidity metrics in line with targets. Turning to Slide 13 and our 2025 guidance. Over the next 5 quarters, we anticipate the combined impact of the exit from the fee services business and the new Bermuda treaty will lead to 50 basis points of incremental operating return on equity over and above our previous projections for the 2025 to 2027 period. So we are revising our operating return on equity target for 2027 to an improvement of 200 basis points, up from the prior target of 150 basis points versus a run rate of approximately 10% in 2024. We are narrowing our operating earnings per share range to $3.75 to $3.85 while maintaining the same midpoint. This adjustment reflects, among other things, an expense ratio of approximately 19%, down from the prior range of between 19.0% and 19.2%, an effective tax rate between 22% and 22.5% compared to the prior estimate of approximately 23%, and fourth quarter fee income approximately $2 million below 4Q '24, reflecting lower fee income from our distribution of Med Advantage products due to the shift towards Medicare Supplement products and away from Medicare Advantage products, as Gary touched on, and no impact from the results of the Worksite fee services business, which we will include in nonoperating income beginning in 4Q as we exit that business. We are raising our guidance for excess cash flow to the holding company to a range of $365 million to $385 million, up from $200 million to $250 million, which incorporates the impact of our new Bermuda reinsurance transaction. Finally, no change to our target capital, holdco liquidity and leverage targets. And with that, I'll turn it back to Gary. Gary Bhojwani: Thanks, Paul. CNO delivered another strong quarter. Our performance continues to demonstrate the strength of our business model and our capabilities to generate consistent, repeatable results. We remain well positioned to grow sales across both divisions, drive improved profitability and importantly, keep delivering on our promises to customers and stakeholders. We entered the fourth quarter with meaningful momentum and we once again expect to end the year strong. Thank you to everyone who joined us in September for our CNO Investor Briefing on the Consumer Division. As a reminder, the webcast and materials from that session are available in the Investor Relations section of our website cnoinc.com. We thank you for your support of and interest in CNO Financial Group. We will now open it up to questions. Operator? Operator: [Operator Instructions] Our first question comes from Ryan Krueger from Keefe, Bruyette, & Woods. Ryan Krueger: My first question was on the really strong D2C sales. Can you give us a little bit more color on how much new partnerships are contributing and kind of how to think about those relative to your D2C volumes, excluding these newer partnerships? Gary Bhojwani: Maybe I'll make some general comments, and then I'll let Paul fill in some of the precise numbers and growth rates and so on in terms of what we disclosed. As I mentioned in the prepared remarks, Ryan, we're very selective about who we work with. I'll give you an example. We believe there's a material opportunity in the Hispanic market. We don't think we're well positioned to tap that on our own. So we partnered with somebody to help us with that. It's those types of things that we are partnering with folks on. It is in addition to what we're doing relative to shifting from our dependence on television advertising. We expect that growth to continue very nicely. As we did reference because some of the growth in Q3 was due to a pull forward of some advertising expenses and so on by our partners, we don't think the fourth quarter will be quite as strong, but we do believe we will continue to see good solid growth there. Paul, do you want to backfill any of the numbers or percentage growth rates that we disclosed? Paul McDonough: Ryan, consistent with our general practice of not providing specific guidance, I won't provide any here, but I would just echo Gary's comments directionally in terms of what you should expect. Ryan Krueger: Got it. And then just a quick one. Is the current roughly $20 million annual earnings loss from the services business, does that flow through the fee income line from a reporting standpoint? Paul McDonough: It does. It's always been part of the fee income segment. And so you should see that segment, all else equal improve on an annualized basis by about $20 million. Operator: Our next question comes from John Barnidge from Piper Sandler. John Barnidge: How do you view the opportunity? Just kind of following up on the comments about actively exploring additional transactions. The total addressable market for remaining health life and long-term care liabilities that could be available to Bermuda. Paul McDonough: John, it's Paul. I'll take a first crack at that. So the question is how much more might we cede to Bermuda? I won't give you specific quantitative answer. But I will say that we are looking at opportunities to see additional business. We are looking at life in particular, which we think has some benefit, including, among other things, the diversification across products. As you know, we currently have FIAs, now we have Sup Health ceding some life reserves would increase the diversification. We continue to actively explore additional transactions with our U.S. and Bermuda regulators. And I would just emphasize the comment we made in our prepared remarks, which is that, in aggregate, the Bermuda platform positions us better to carry out our mission of serving more middle-income consumers in what are very often underserved markets. John Barnidge: And my follow-up, once DirectPath and Web Benefits Design fully wrapped up in the first half of '26, does it seem reasonable that the direct expense ratio should fall given that, that wasn't necessarily a profitable business? Paul McDonough: So John, the $20 million annualized impact is really all in, including the expenses that were attached to that business. So that's really the expectation at a high level that you should see flow through in the wake of exiting that business. Operator: Our next question comes from Joel Hurwitz from Dowling & Partners. Joel Hurwitz: Paul, on the assumption review, any ongoing earnings benefits from the updates and any statutory impacts? Paul McDonough: Sure. So on a GAAP basis, the only go-forward impact that's notable is in Sup Health, that $2 million quarterly. And then on a stat basis, I'll invite Jeremy to weigh in, our Chief Actuary. Jeremy Williams: Yes. Thanks, Paul. No, there's no statutory impacts related to any of the unlocking. Joel Hurwitz: Okay. Got it. And then just 2 quick ones on the fee service exit. One, how much of your Worksite insurance business is linked to these platforms that you're shutting down? And then in terms of that $20 million of a GAAP loss, is that equivalent to sort of what the cash impact was from those businesses? Gary Bhojwani: Yes, I'll take the first question, Joel. We don't expect any material adverse impact to our Worksite insurance sales. I would point out, indeed, that's part of the reason we're exiting this business. It just hasn't delivered enough cross-selling and support and so on. We've been able to grow the insurance business and expect to continue to grow the insurance business without the support or the cross-sell of the fee business. So we expect minimal impact to the insurance sales in Worksite. Paul? Paul McDonough: Yes. So the second part of your question, Joel, I think, is the $20 million pretax GAAP earnings a reasonable proxy for cash flow. And just thinking out loud, honestly, that I haven't thought of the specific question. But I think there aren't any significant delays in the cash impact as opposed to the GAAP accruals. So I think so, Joel. Operator: Our next question comes from Wilma Burdis from Raymond James. Wilma Jackson Burdis: Is there any way you could help us think a little bit more through the forward cash benefit or impact from the Supplemental Health business? And maybe if you can talk about -- I know that relates to a specific sub, but just give a little bit more detail there on the portion of that business that will be going through that sub. Paul McDonough: Wilma you were breaking up quite a bit there. I'm not sure I got your question. I think you're asking about the go-forward impacts of the Sup Health assumption update. Wilma Jackson Burdis: Yes. On cash. Paul McDonough: On cash, okay. Jeremy, do you want to take that one? Jeremy Williams: Sure. So certainly, on a cash basis, with the movement of the new business, the flow piece, there's certainly some reduction in strain there. I don't know the exact numbers specific to that, but certainly you would see some reduction in strain and some additional cash flows related to that. Wilma Jackson Burdis: Okay. And then can you guys hear me? Paul McDonough: Yes, I can hear you Wilma but you're just breaking up a little bit. Wilma Jackson Burdis: Breaking up a little bit, sorry. Along the lines of my -- similar lines of my first question, is the $20 million freed up from the fee services business? Is that going to also be a cash impact? I guess what I'm trying to get at here is just maybe help us think a little bit about the forward cash benefits from these 2 actions. Paul McDonough: Got it. Yes, so similar to Joel's previous question. I think that certainly, the expenses supporting the fee services business are real-time cash. And on the revenue side, there aren't material deltas between the cash flow and the GAAP accruals. So I think the simple answer to your question, Wilma is yes. Operator: Our next question comes from Jack Matten from BMO. Francis Matten: I had one more on the Bermuda transaction and more around the uses of kind of the additional cash flow you're seeing this year. Is something you're kind of planning to earmark for shareholder returns next year? Or are there incremental, I guess, investments in the business and growth or capabilities that you're planning to make? Paul McDonough: Sure. So Jack, clearly, we'll have elevated cash at the holdco in the fourth quarter in the wake of their new Bermuda treaty. And we will nevertheless be measured in our level of share repurchases as we continue to invest in sales growth and in the previously announced 3-year tech modernization project. We view these to be an attractive strategic trade-off as both will contribute over time to earnings growth and improved return on equity. Directionally, I would say that you should view our 3Q '25 share repurchase levels as more indicative of go-forward levels than the more elevated levels that we had in 4Q of last year and the first half of this year. Absent, of course, more compelling uses of that capital, we haven't changed in any way, how we think about deploying excess capital. We'll put it to the best and highest use in practice that has and will likely continue to translate to some level of share repurchase activity. Francis Matten: Got it. And on the revised or raised ROE target, just on the cadence of that, should we think about the, I guess, more of a step-up next year since a big driver is just the divestiture of the fee business and then maybe a smaller step in 2027. I guess any other kind of puts and takes we should think about regarding the -- just the cadence of the ROE uplift? Paul McDonough: Yes, that's the right way to think about it, Jack. Initially, we said expect 150 basis points of '25 to '27 off of a run rate of approximately 10% to '24. And we said, including 50 basis points in 2025. We're on track to deliver that. The benefit from the exit of fee services together with the second Bermuda treaty will begin to emerge in the fourth quarter, but won't really have a material impact until we begin to move through 2026. So yes, the incremental 50 bps is really in the '26, '27 period. Gary Bhojwani: Jack and Paul, I'd just like to add one other perspective on that. I think it's important to note that even when we hit that 12% ROE that is not a stopping point. We have to continue to improve. Right now, we've made public commitments to our shareholders about things we have line of sight for. But I want to emphasize, even when we get there, and hopefully, we get there sooner, and we're able to, again, increase the target and again, talk about instead of '27 talk about '28, '29, we have to continue to improve. So this team is geared around continuing to look for ways to improve. It's just at the moment, we're only willing to commit to things we have line of sight for. But you should not interpret that as accepting that number and the stopping point. It's anything but it's nothing more than a way point. We have to continue to get better. And so we're constantly looking for things. And if we're lucky, we're good and we're lucky, we'll be able to say something about that before 2027 and increase that target. Again, that is our goal. Operator: [Operator Instructions] Our next question comes from [ Joseph Bamllero ] from Jefferies. Joseph, your line is open. Gary Bhojwani: Operator, we're not hearing anything. I don't know if you can hear something, but we cannot. Operator: No, I don't believe Joseph is there. Paul McDonough: We can skip to the next question, operator. Operator: No problem at all. Our next question comes from Jack Matten from BMO. Francis Matten: Just one more on the Medicare Supplement business. I guess can you talk about what you're seeing regarding claims trends and what the assumption review impact this quarter? I think in the last quarter, you talked about expecting a 10% average rate increase in your filings with some moving into next year. Is that still roughly your expectation? Paul McDonough: Jack, yes, so the annual actuarial assumption update did incorporate the trends that we've seen. So no real surprise there and no real change in those trends. And as you've pointed out, we have the opportunity each year to address claim trends with pricing and trying to get to that information. So let me circle back on that once I put my finger on it. Jeremy Williams: Yes. This is Jeremy. I'll go ahead and jump in. We've certainly filed something around the neighborhood of the 10 and expect to get something in that realm. So you're correct. Operator: Our next question comes from [ Joseph Bamllero ] from Jefferies. Suneet Kamath: It's Suneet Kamath from Jefferies. I think we might have an issue with me using his passcode. Can you hear me? Paul McDonough: Yes. Hi Suneet, we can hear you. Suneet Kamath: Okay. Perfect. Sorry about that. My first question, just on acknowledging the strong NAP in consumer. We did notice that the producing agent count was sort of flattish, maybe up just a little less than 1%. And I guess I'm just curious if we're running into sort of a tough comp issue there. And if that continues, does that start to put some pressure on the consumer NAP? Or are you going to be able to continue to grow as you have been? Gary Bhojwani: Suneet, this is Gary. We expect to continue to grow. You are correct that the comps are getting tougher, but we do continue to expect to grow. Conventional wisdom has always held that as employment market softens, more people are interested in trying out a commission-only career. So we expect that to start to help us in coming quarters based on what we're seeing. We also like the results we're getting from a number of our efforts to bring agents in. All of that said, Suneet, if you force me to pick, I've been consistent about this for a few years, I'm still way more focused on productivity. Productivity is way more important than agent count. So ideally, we try and do both. But if I had to prioritize, I'd prioritize productivity and that continues to move nicely. Suneet Kamath: Got it. Okay. And then I guess on the impairments, I know the numbers aren't huge, but you did reference that you've invested in these businesses and now are exiting them. Does this episode make you think differently about inorganic growth as a use of capital? Or do you just kind of feel like this one kind of got away from you and you're going to continue to look for inorganic opportunities? Gary Bhojwani: This is Gary again, Suneet. Let me, I guess, be plainspoken about it. There are clearly some lessons we need to take from this. So I want to make sure that you and our shareholders do not think that we are simply saying this is just one that got away. We have to get better. We have to learn from this. And the responsibility for that is mine. So it doesn't sound like we're making excuses or anything like that. So there's definitely is causing us to rethink how we want to handle acquisitions. We'll be presenting a pretty detailed analysis to our Board about lessons learned. So we're taking this very seriously. It will definitely impact the way we move forward. All that said, I do want to make sure that our shareholders also don't lose sight of some of the things that have gone really well. I mean we've got minority stakes we've taken in partners like Tennenbaum and Rialto and Victory Park and so on that have done very, very well for us. So there are some good skills here. Some people have done some really good work. There are some lessons that need to be learned from these particular investments. And you can rest assured, we're taking that very seriously and it will definitely give me pause as we think about other inorganic opportunities. There's no question about that. Suneet Kamath: That's good to hear. If I could sneak one more in just on the Bermuda, should we be thinking about sort of the cadence of you guys thinking about reinsuring in-force business as maybe one deal a year, and that's kind of what you're shooting for? Is that a reasonable way to think about it? Paul McDonough: Suneet, I think that's reasonable. Yes. I don't think it would be reasonable to expect that we would do more than that. And at some point, with our existing book other than new business will probably hit the right amount of in-force reserves that are ceded. There is a balance, and it's certainly not 100% ceded to Bermuda. So we're not there yet, but at some point, we would reach that sort of right balance. But for the time being, yes, as we mentioned, we're exploring an additional business that we might see to Bermuda. Operator: We currently have no further questions. So I'd like to hand back to Adam for some closing remarks. Adam Auvil: Thank you, operator. Thank you all for participating in today's call. If you have any further questions, please reach out to the Investor Relations team. Have a great rest of your day. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Hello, and thank you for standing by. Welcome to Portillo's Third Quarter 2025 Conference Call and Webcast. I would now like to turn the call over to Chris Brandon, Vice President of Investor Relations at Portillo's to begin. Chris Brandon: Thank you, Operator. Good morning, everyone, and welcome to the Portillo's Third Quarter 2025 Earnings Call. With me today are Mike Miles, Chairman of the Board and Interim Chief Executive Officer; and Michelle Hook, Chief Financial Officer. You can find our 10-Q, earnings press release and supplemental presentation on investors.portillos.com. Any commentary made here about our future results and business conditions are forward-looking statements, which are based on management's current expectations and are not guarantees of future performance. We do not update these forward-looking statements unless required by law. Our 10-K identifies risk factors that may cause our actual results to vary materially from these forward-looking statements. Today's earnings call will make reference to non-GAAP financial measures, which are not an alternative to GAAP measures. Reconciliations of these non-GAAP measures to their most comparable GAAP counterparts are included in this morning's posted materials. Finally, after we deliver our prepared remarks, we will be happy to take questions from our covering sell-side analysts. And with that, I'll turn the call over to Mike. Michael Miles: Thanks, Chris, and good morning. Although I've had the opportunity to meet many of you over the years at different venues, this is my first time speaking with you as Interim CEO of Portillo's. I was also in this role back in 2014 and '15 after our founder, Dick Portillo, retired. So, it's not my first time. And as most of you know, I have been Chairman of the Board for the past 10 years. I have been back in the seat for a little over a month, and everything I have seen only reinforces my confidence that Portillo's has a long runway for growth ahead. Each time we enter a new market; our first restaurant is overrun with passionate fans who have been waiting for years for Portillo's to come to town. And the first restaurants opened outside Chicago in California and Arizona, have matured well over the years. We'll do over $10 million in our Buena Park location this year. I'm also impressed with the capability of the company today compared to 10 years ago from the talent and training we have in our restaurants to the energy and commitment at the restaurant support center to the experience and perspective we have on the Board of Directors. Although I've had the privilege of seeing all that develop gradually from the Board level over the past decade, it's that much more pronounced being back in the RSC in Oak Brook every day after a 10-year gap. What hasn't changed is the Portillo's experience. Our unique craveable menu, outstanding value, genuine hospitality and lines that move quickly. Those were the ingredients for the success of Portillo's a decade ago, and they are the foundation of our success today. And the reason that our 98 restaurants averaged $8.6 million in annual sales and contributed $163 million of restaurant-level EBITDA over the last 12 months. Although we have a leadership transition at Portillo's, our first priority remains with our customers and restaurant-level teams. Our operators have rededicated themselves to QSAC, our timeless focus on Quality, Service, Attitude and Cleanliness. And we approach every guest visit with a commitment to make their day. As you know, in the third quarter, Portillo's announced a strategic reset, slowing development in 2025 and 2026, and refocusing our operations on delivering an outstanding guest experience. As we shared with our second quarter results and when we communicated this reset, we added too many locations too quickly and too close together over the past 24 months, particularly in Texas. This has produced a number of restaurants with initial volumes that are not sufficient to deliver healthy economics. As a result, we have slowed development to the extent we can, limiting openings in 2025 and 2026 to sites with already signed leases. Quite a few sites in the pipeline were pushed back or dropped. Michelle will speak to the associated costs we recognized in this quarter. We also have to address the low-volume restaurants we opened and are working to drive trial and get the labor equation right at these locations. Going forward, we plan to have more time and distance separating our openings in new markets. We're also deploying a smaller format restaurant that can deliver good unit economics at $4 million or $5 million of sales. It's worth noting that we already profitably operate several smaller restaurants in Chicago that perform well out of similar footprint and with sales in the $4 million to $5 million range, including Portillo's #1 in Villa Park. It took years of great customer experiences at #1 and dozens of other restaurants like it in the Chicago market to build the Portillo's brand to the point where # 43 opened in 2016 in the South Loop will do over $20 million in sales this year. So our development strategy will reflect a return to a more gradual pace, avoiding cannibalization and letting great experiences drive more visits and ultimately more restaurants. And we will design and build new Portillo's that can succeed at today's new market initial volumes, which are industry-leading, but not yet at the level we achieve over time in established markets. At the same time, we have focused on driving more transactions. Our most important lever remains the Portillo's experience, the Italian beef sandwich, perfect crinkle-cut fries, family recipe chocolate cake, made-to-order salads, all with the speed and at price points that compete with QSR, but served with a genuine hospitality and a fun and unique atmosphere. It's a powerful customer proposition and executing it well, has always been our formula for same-store sales growth. We're also leveraging our Portillo's Perks loyalty program that we launched earlier this year. Although it's still scaling, we have already had success using it to stimulate visits. And especially in some of our new markets, we're looking to expand our reach by leveraging affiliate marketing and catering and delivery partners to help drive trial and get that first taste of Portillo's into more new mouths. In closing, I want to thank our team members, especially those in our restaurants for their continued focus on creating outstanding guest experiences during this period of transition. And I'd like to thank our partners and investors for their support and confidence in this beloved brand. I know I speak for the entire Board in saying that we believe in Portillo's and our ability to create shareholder value more than ever. In a couple of weeks, we will celebrate a major milestone when we cut the ribbon for our 100th restaurant in Kennesaw, Georgia. It will be an exciting moment for all of us and a reminder that while we've accomplished a lot, we're really just getting started. I will now hand it over to Michelle to review the details of the third quarter results. Michelle Hook: Great. Thank you, Mike, and good morning. During the third quarter, revenues were $181.4 million, reflecting an increase of $3.2 million or 1.8% compared to last year. Our revenue growth in the quarter was driven by non-comp restaurants. Restaurants not in our comp base contributed $5.6 million of the total year-over-year increase in revenue during the quarter. Same-restaurant sales declined 0.8%, which decreased revenues approximately $1.2 million in the quarter. The same-restaurant sales decline was attributable to a 2.2% decrease in transactions, partially offset by an increase in average check of 1.4%. The higher average check was driven by an approximate 3.2% increase in certain menu prices, partially offset by a 1.8% decrease in product mix. We do not foresee taking any additional pricing actions in the remainder of this year. As such, our effective price increase for the fourth quarter is estimated to be in the range of 2.5% to 3%, pending the impact of our fourth quarter Portillo's Perks offers. Moving on to our costs. Food, Beverage and Packaging costs as a percentage of revenues increased to 34.5% in the quarter from 33.7% in the prior year. This increase was primarily the result of a 6.3% increase in our commodity prices, partially offset by an increase in our average check. In the quarter, we experienced increases in several categories, including our primary proteins of beef, chicken and pork. We continue to forecast commodity inflation of 3% to 5% in 2025 with the most significant pressures coming from beef. Labor as a percentage of revenues increased to 26.6% in the quarter from 25.8% in the prior year. The increase was primarily due to lower transactions, incremental wage increases, higher benefit costs and deleverage from our newer restaurant openings. This was partially offset by an increase in our average check and labor efficiencies. Hourly labor rates were up 3.3% in the third quarter of 2025. We continue to estimate labor inflation of 3% to 4% for the full year. Other operating expenses increased $2.3 million or 10.8% in the quarter, compared to the prior year, which was primarily driven by the opening of new restaurants and an increase in repair and maintenance, utilities and advertising expense. As a percentage of revenues, other operating expenses increased to 12.9% from 11.8% in the prior year. Occupancy expenses increased $1.4 million or 14.7% in the quarter compared to the prior year, primarily driven by the opening of new restaurants. As a percentage of revenues, occupancy expenses increased 0.7% compared to the prior year. Restaurant level adjusted EBITDA decreased $5.3 million to $36.7 million in the quarter from $41.9 million in the prior year. Restaurant level adjusted EBITDA margins decreased 330 basis points to 20.2% in the third quarter versus 23.5% in the prior year. We continue to experience more significant pressures on our margins from our non-comp restaurants. We currently estimate our restaurant-level adjusted EBITDA margins to be in the range of 21% to 21.5% in 2025. Our General & Administrative expenses increased by $1.7 million to $20 million or 11% of revenue in the quarter from $18.3 million or 10.3% of revenue in the prior year. This increase was primarily driven by $3.3 million in dead site costs. This increase was partially offset by a $1.1 million net benefit resulting from the CEO transition. This benefit was due to forfeiture of equity awards, offset by other transition costs. Following CEO transition costs in the third quarter and projected Board-approved retention payments, we have adjusted our G&A target for 2025. Our updated estimate for fiscal year 2025 G&A is now $76 million to $79 million. Preopening expenses increased by $1.5 million to $3.3 million in the third quarter of 2025, compared to $1.7 million in the prior year, primarily due to the number and timing of activities related to our planned restaurant openings.  During the quarter, we recorded a noncash impairment charge of $2.2 million related to our legacy Barnelli's trade name, primarily due to an increase in the discount rate. This pasta concept is available at nine co-branded restaurants in our Chicagoland market. Neither the Portillo's trade name nor goodwill was impaired. This impairment charge has been adjusted out of our reported adjusted EBITDA. Please refer to our adjusted EBITDA table in the earnings release and 10-Q for additional adjustments recorded this quarter. Adjusted EBITDA was $21.4 million in the quarter versus $27.9 million in the prior year, a decrease of 23.4%.  Due to the change in our estimated G&A expenses this year, we now expect adjusted EBITDA of $90 million to $94 million for fiscal year 2025. Below the EBITDA line, interest expense was $5.7 million in the quarter, a decrease of $0.8 million from the prior year. This decrease was driven by a lower effective interest rate of 6.9% versus 8.3% for 2024. At the end of the quarter, we had $77 million drawn on our revolving credit facility. Our total net debt at the end of the quarter was $323 million. We have approximately $69 million of available capacity on the revolver. Income tax benefit was $1.2 million in the quarter compared to expense of $2.5 million in the prior year.  Our effective tax rate for the third quarter was impacted by a decrease in our valuation allowance. Our effective tax rate year-to-date was 20.4%. We expect the full year tax rate to be approximately 21% to 23%. Cash from operations decreased by 32.3% year-over-year to $48.7 million year-to-date. We ended the quarter with $17.2 million in cash. We believe our efforts towards simplicity, a revised approach to new market entry, and a restaurant model with healthy unit economics will support our growth potential and drive long-term shareholder returns.  Thank you for your time. Operator, please open the line for questions.  Operator: [Operator Instructions] Our first question comes from Sara Senatore with Bank of America.  Sara Senatore: Isiah on for Sara. Just seeing that other restaurant OpEx saw pressure just due to advertising expense, but the traffic decline seems to have accelerated quarter-on-quarter. Could you guys speak to marketing efficacy in the quarter and just how you think about marketing strategy going forward, especially in the light of Denise joining back in September?  Michelle Hook: Yes, Isiah, keep in mind that our marketing, it's in two spots. One, as you mentioned, is in OpEx, but then in G&A as well, we do have marketing spend in there, just more geography for you on the P&L. Yes, absolutely, we continue to believe that we need to drive trial and awareness, specifically in our newer markets. And so as we look at campaigns we have ongoing in Dallas, we're making investments in Houston as well, where we have five restaurants today. And we continue to believe that that's a good investment to make as we drive that trial and awareness.  Now having said that, here in our core market of Chicagoland, that still is extremely important to us. We need to make sure that we continue to message the brand and look at our value proposition here. And so we make investments here as well. We have a campaign going on in Chicagoland as we speak right now to continue to message the brand here in our core markets. So we continue to believe in that investment and that that's a good payback for us now and as we look into the future.  Sara Senatore: I appreciate the clarification. And just as a follow-up, appreciating that you guys aren't taking price or planning to in 4Q, pricing does seem to be running towards the high end of the industry range. How do you guys view your value perception among guests and just your broader value proposition?  Michelle Hook: Yes. In terms of pricing, so when we look at where we were at this quarter and then when you look at where the September inflation data was, food away from home was at 3.7%. So we're definitely indexing under that. As I mentioned, we're not planning to take price this quarter. As we go into next year, we'll look at that in relation to our inflationary cost pressures. But as Mike mentioned, we continue to believe that we need to drive traffic into our restaurants. And so we have to be mindful of when and where we take price. Operator: Our next question comes from Brian Mullan with Piper Sandler. Brian Mullan: Just a question on development. I guess, one, is there anything you can say around the openings you expect in '26 as you sit here today? Presumably, what will open next year is already underway in some form or fashion has been planned. And then just related to that, if you were going to make any kind of pivot on development beyond next year, I would think it wouldn't be until 2027. So maybe just talk about what scenarios you're contemplating? Is there a world in which you don't build for a while, and you focus on the existing assets? Are there a lot of things just open-ended beyond next year? Michael Miles: Yes, Brian, as we said, we're going to plan to open 8 restaurants next year, and you're spot on that a number of those were already in flight. And so, you'll see some additional restaurants in Dallas and Houston, which if we could do it all over again and wave a magic wand, we might not open in 2026. We've probably pushed them out. But we, we've got some other great sites in the pipeline. And as we look ahead to 2027, it's our intention to continue to grow and to grow gradually, as I discussed. So, you won't see us open a bunch of more restaurants in '27 in either the Dallas or the Houston market, but you'll see us expanding in other markets that are growth opportunities for us. We'll probably have our second opening in the Atlanta market in 2027 and look to other locations for growth beyond that. Operator: Our next question comes from Gregory Francfort with Guggenheim. Gregory Francfort: This is Arian Razai on for Greg. I wanted to ask about the beef cost. And I know it's early, but can you help frame the early thoughts in commodity into the next year? And also maybe like touch on labor inflation guidance. It seems like a lot of companies like are seeing like below 3% wage like year-over-year, but I'm seeing you guys are still like above that. I don't know if it's regional or any outlook on that or any commentary would be super helpful. Michelle Hook: Yes. So in terms of beef cost, obviously, we saw, we've seen pressures on beef all this year. As we go into next year, we don't see any easing on beef costs. We're still putting together plans. I think you've seen other companies who have a more concentrated basket on beef signaled more mid-single digits. We're again putting together that plan. We'll have more information on what we think '26 is going to look like in January for you all. But I imagine what you're hearing today, we're not in any different boat than those folks are. But just for context, about 30% of our basket is beef. So we, that is more heavily weighted for us, but there's still a broader basket for us and with some offsets as we look into next year as well that we think can help mitigate some of those pressures. On the labor front, year-to-date, we're at about 3%. We came into the year forecasting 3% to 4%. So we're at the lower end of the range. I wouldn't say that there's necessarily more geographical concentration for us. We continue to give increases to our team members within each year. We don't pay minimum wage anywhere. When you look at our average hourly rate, we're above $17 an hour. So we feel really good about where we sit today, but we still need to make investments in markets and existing team members, but nothing I'd call out in terms of concentration of where those increases are. Operator: Our next question comes from Chris O'Cull with Stifel. Christopher O'Cull: This is Ella on for Chris. Mike, I appreciate your prepared remarks on the quarter, but can you elaborate on what enabled the company to deliver a bit better comp performance than what you guided to in the business update? Michael Miles: The comp performance in the third quarter was helped out some by our Perks program, which we're beginning to scale and are beginning to learn more about how to use. It's great that we have such an engaged customer base, and they, so when we use the Perks program to stimulate visits, we get an immediate response to it. And we did a little bit of that in the third quarter, and it's helpful both with respect to lapsed guest activation, also getting folks to try new things that are on the menu. And then we've also sent a couple of offers to the entire base that have had a really nice response. And that was a bit of an upside for us in the third quarter. Christopher O'Cull: Great. Just a follow-up on the fourth quarter comp. So the full year comp guidance of down 1% to down 1.5% imply a pretty big decrease in the fourth quarter, both on a 1-year and 2-year basis. Curious, how is the quarter-to-date comp look like and any color on that? Michelle Hook: Yes. We're not going to comment on any Q4 comp information other than what you just said, Ella. I will say, though, when you look at what we're lapping in Q4 of last year, we did have a positive comp . So we have a little bit tougher lap coming into Q4, and there's still a lot of unknowns. I mean you all see what's going on in the industry. So it's very fluid right now. We do have a large seasonal catering business here in our core as well. So that can be impactful to us in Q4. So still some unknowns for us, but we feel comfortable about the guide that we put out there. Christopher O'Cull: Thank you so much. Operator: Our next question comes from Dennis Geiger with UBS. Please proceed with your question. Dennis Geiger: Hi. This is Paul Hao on for Dennis. Thank you so much for the question. I guess my first question is more of a clarification. I understand you don't want to talk about anything about 4Q trends. But just curious if you could provide some color on the comp cadence through third quarter and how did sales and traffic trend exiting like towards the end of the quarter? And then just a follow-up, I'm wondering if you could elaborate a little bit more on what you have seen in terms of consumer behavior and if there's any notable shifts that you'd like to highlight by either age or income cohorts? Thank you. Michelle Hook: Yes. When you look at intra-quarter trends, Mike mentioned we pulled some Portillo's Perks levers. So when you look at, in July, we ran $1 hotdog week offer. In September, we ran a 50% cheeseburger week offer. And so those were more impactful versus, say, a August comp performance, but that was obviously driven by levers that we pulled with the Portillo's Perks program. And so that's just a little bit of intra-quarter color. There's always, in September, you have more pressures, but I think we did a nice job of pulling some of those levers with the Perks program to help mitigate some of those pressures, which is why our comp performance came in a little bit better than what we were projecting. In terms of the consumer, I think you all see what we see. It continues to be a very fluid situation. It continues to be pressured, but it's something that we've been facing all year, and we continue, like the rest of the industry to do what we can to mitigate some of those headwinds. Operator: Our next question comes from Jim Salera with Stephens Inc. Please proceed with your question. James Salera: Good morning, This is Tyler Prause on for Jim. Thanks for taking our questions. Just kind of a follow-up to the last question to get started. Several of your QSR competitors have called out an outsized impact from the Hispanic and younger consumer cohorts. Just curious if you saw any noticeable step change during those cohorts during the quarter. Michelle Hook: Yes, Tyler, we did not see anything that I would call out as noticeable. We've continued to call out just some pressures that we've had, specifically in our drive-thru channel. I'd say that was a little bit more pronounced in Q3 versus some of the other channels, but nothing specifically with like a Hispanic or other consumer cohort that I would call out. James Salera: Great. That's helpful. And just kind of shifting gears here. You previously called out more of a focused marketing effort in Texas. Can you talk a little bit how that's going? And additionally, with Portillo's now in several unique markets such as Arizona, Texas, Florida and soon to be Georgia, which are effectively at different stages of awareness building, how are you developing a cohesive marketing message to communicate to these different markets effectively? Michael Miles: Yes. It's a great question, Tyler. And I think at a couple of levels. First, tactically, we're pulling just about every lever that we know how in Texas to try and get people to try more Portillo's. It's really the kind of thing where we build our brand by people experiencing it. So everything that we can do to get folks to give us a try from sampling events to offers that we make through the Perks program to some market-wide offers that we're trying in Dallas and we'll be shortly employing in Houston. All those things help to get us our first visit, and I think that's important to get the ball rolling. And that's really the way that Portillo's has built the brand in every market going back to Chicago for the last 40 or 50 or 60 now years. I do think there's a germ of a big idea that you also referenced in your question about how we have a cohesive program for new markets. We really have not ever sort of cracked the code on communicating what Portillo's is all about to people who have never heard of us before. We really rely on the Chicago expatriate community to drive our sales in new markets. And they do a great job. The first couple of restaurants we opened in a market just, we can't keep up with all the demand. People drive for hours to get to those restaurants. But we need to have a clearer way to communicate to folks who have never heard of Portillo's before and don't know somebody from Chicago, what's so great about it. And you heard somebody mention Denise, who's our new CMO. She's working on that. And it's not the kind of thing that's going to happen overnight, but it is something that we'll be developing over the course of 2026 so that as we go to new markets like Atlanta and beyond, we've got another way to get people to try Portillo's and experience it. James Salera: Very helpful. That's all from us now. Operator: We have reached the end of our question-and-answer session, which concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings and welcome to the Diversified Energy Third Quarter 2025 Results Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Douglas Kris, Senior Vice President, Investor Relations and Corporate Communications. Thank you. You may begin. Douglas Kris: Good morning and thank you all for joining us today and welcome to our Third Quarter 2025 Results Conference Call. With me today are Diversified's Founder and CEO, Rusty Hutson; and President and CFO, Brad Gray. Before we get started, I will remind everyone that the remarks on this call reflect the financial and operational outlook as of today, November 4, 2025. These outlooks entail assumptions and expectations that involve risks and uncertainties. A discussion of these risks can be found in our regulatory filings. During this call, we also reference certain non-GAAP and non-IFRS financial measures. Our disclosures regarding these items are found in our earnings materials, on our website and in our regulatory filings. I will now turn the call over to Rusty. Robert Hutson: Thank you, Doug, and thank you all for joining the call today. As the Founder and CEO of our company; I'm extremely proud of the business we have built, the capabilities of our team of professionals, the quality of our assets and the strength of our business model. I'm also excited for the future of Diversified Energy. Our company is well positioned as a consolidator of choice for PDP assets. We have established tremendous momentum over the past 12 months. We have significantly increased the scale and capabilities of our company. Our cash flow is strong, our balance sheet is secure, our assets are performing, our business model is proven and we have access to capital. Our teams continue to deliver results and innovative solutions while also giving back and serving those in need in our communities. We also developed a winning language that highlights the culture of our company. One part of our winning language is be where your feet are, which emphasizes a focus on relentless execution. I'm pleased to say that in 2025 and specifically in the third quarter, our teams delivered and delivered in a big way. So I'm pleased and excited for Brad and I to share the terrific results our teams delivered in the third quarter. Our company continues to be a unique, but consistent investment opportunity. Our business model focuses on optimizing cash flow from our portfolio of low-decline energy assets. We complement this foundational business model with growth from strategic acquisitions and disciplined capital allocation. Importantly, we continue to illustrate our differentiated positioning as a triple thread and this triple thread is that Diversified Energy offers investors elements of value, growth and yield. This balanced approach provides confidence and stability across market cycles. I mentioned the strength and consistency of our business model in my earlier remarks. Our company and our assets have and continue to produce a consistent stream of cash flow. We still believe in the value of real tangible cash flow and we continue to believe that companies that produce cash flow for their investors are valuable and investable. We all see the valuations that are being placed on companies in technology, some of which have 0 revenue and others that have significantly less cash flow than Diversified. Over the long term we believe that markets will return to investing in companies that produce cash flow. I want to highlight and emphasize that we have significantly transformed and strengthened our company in 2025 with the acquisitions of Maverick Natural Resources and most recently Canvas Energy, which is anticipated to close prior to December. Our acquisition-driven growth strategy continues to demonstrate how a material change in scale can unlock operational leverage enabling us to deliver robust cash flows and create long-term value for shareholders. This value creation is reflected in our year-over-year growth in EBITDA and cash flow, which nearly doubled. Additionally, our increased guidance following 2 strong quarters with Maverick and ongoing portfolio optimization underscores our disciplined focus on driving efficiencies through our tested asset integration playbook. I want to commend the efforts of our employees. Their hard work and determination allow us to deliver outstanding results and live by our culture of GSD, which stands for get stuff done. Our team has positioned Diversified for an exciting future. I'm confident we will continue to deliver compelling operational and financial results. While the market for oil and natural gas producers has remained dynamic throughout 2025, we have a foundational belief that if it's challenging, there is opportunity. For those of you following along with our third quarter 2025 results slide deck, which we posted to our IR website last night, I will cover a few slides and then turn the call over to Brad to discuss highlights from our financial results. After Brad's remarks, I will provide some closing thoughts before opening the call for your questions. Starting on Slide 3. We continue to focus our capital allocation strategy around our 4 key pillars that are deliverables to judge us by: systematic debt reduction, return of capital through dividend distributions and share repurchases and growing our portfolio of cash generating assets through accretive strategic acquisitions. As you can see here, we have built on these pillars in 2025. In the first 3 quarters of 2025, we reduced debt principal by approximately $203 million and returned approximately $146 million to shareholders through dividends and strategic share repurchases representing approximately 15% of our current market capitalization. Worth noting, we have demonstrated a track record of disciplined capital allocation with approximately $2.2 billion in shareholder returns and debt principal repayments since our IPO in 2017. As the founder of our company, this impressive ability to generate cash flow not only makes me proud, but it also excites me about our future. Importantly, we believe our shares remain a compelling investment at current levels and we will continue to take advantage of the current cycle and market dislocation to opportunistically repurchase shares. Together, these actions demonstrate the power of our disciplined and flexible capital allocation strategy and the quality and consistency of our portfolio of cash generating assets. Our team accomplished all of this while integrating our transformational Maverick acquisition. We sit today with both the field level and corporate level processes fully integrated on time and on schedule. With a line of sight to additional synergy capture following our closing of Canvas Energy, we are well positioned to continue to be a market leader in consistently returning capital to shareholders. We continue to demonstrate that Diversified is a disciplined company that invests in cash generating assets in the energy industry and we will remain focused on our key strategic pillars. Turning to Slide 4. As we officially announced in early October, we are moving our primary equity listing to the New York Stock Exchange, redomiciling to a U.S. corporate entity and will change our financial reporting to SEC and GAAP compliant filings. We believe these steps will provide strategic capital markets benefits for all shareholders regardless of geography. We will also retain an international listing and continue to trade on the London Stock Exchange. Importantly, this change is expected to enhance trading liquidity, increase exposure to the deeper capital pool of U.S. investors and facilitate new passive investment through indexation and ETF ownership. As a notable reference point, since the company executed the initial dual listing approximately 20 months ago, we have seen an almost 400% increase in daily trading volume and an expansion in U.S. ownership to over 65% of shares outstanding. The work streams continue to progress and currently anticipate the New York Stock Exchange primary listing to commence trading on November 24. Turning to Slide 5. I was pleased to have the opportunity to work in partnership with the Governor of West Virginia to launch a first of its kind agreement that provides additional financial assurance for the retirement of effectively all Diversified wells in the State of West Virginia. This innovative public-private partnership with our insurance partner, OneNexus, is a secure dedicated fund that establishes a common sense solution and a new standard for operators, which I anticipate will be a blueprint for others to follow. Perspective and approach is the solution for our industry and we need to continue to focus on solutions at work. Several of the highlights and administrative mechanics of the fund are listed here. The $70 million investment over 20 years utilizes the power of investment compounding over several decades to increase the funds to a potential of approximately $650 million, which has the capacity to fund the retirement of all of the approximately 21,000 Diversified wells in West Virginia and represents approximately 30% of our balance sheet liability. We intend to continue to have our next level well retirement group safely and cost effectively retire our wells along with the wells of other operators and for the State of West Virginia. And with this agreement in place, we intend to grow that subsidiary in a meaningful way. Turning to Slide 6. Diversified has developed a disciplined acquisition framework, which we utilize to analyze and evaluate deals. Because we operate with size and scale in multiple basins across the United States, our company has optionality to participate in significantly more acquisition opportunities or not to participate in overvalued sale processes ensuring we are buying attractively valued assets that fit into our business model and not reaching on valuation or strategic fit. This disciplined approach and valuable flexibility is a linchpin of our capital allocation strategy. The recently announced Canvas acquisition is a perfect example of an in-basin opportunity that checks all the boxes with multiple avenues for upside that were not underwritten in our valuation, including strategically monetizing undeveloped acreage, implementing targeted synergies and/or exploring joint development agreements to accelerate additional value creation. This simple yet elegant strategy of acquiring assets at attractive valuations using low cost investment-grade financing allows us to capture a profit spread and with our operational excellence and portfolio optimization, improve our return on investment. With this playbook, we are building a resilient platform of cash flow-generating assets. Turning to Slide 7. Our stewardship operating model is supported by our long-tested Smarter Asset Management practices, which optimize the cash flow from the assets we acquire through production optimization and expense efficiency. A great illustration of our field team's efforts is the Fallowfield Compressor Station where our Appalachian team identified, acquired and integrated an underutilized and underperforming compression asset. Notably, with this opportunity, they were able to eliminate compression fees, improve production volume meaningfully, add third-party volumes and increase revenue while laying the groundwork for coal mine methane environmental credits. This project is a textbook example of the value our teams deliver every single day with our Smarter Asset Management focus. As we are fond of saying the assets we acquire are not bad assets, they just lack focus. This margin enhancement cash generating example demonstrates our focus on optimizing and increasing returns from our portfolio of assets. Our daily priorities require us to look for, find and execute activities that enhance margins. Our daily priorities drive additional cash flow and long-term value for shareholders. Our daily priorities; which are safety, production, efficiency and enjoyment; are unique to Diversified and are enabling us to continue to generate resilient, consistent free cash flow. With that, I'll turn the call over to Brad to discuss our financial performance and portfolio optimization results in greater detail. Bradley Gray: Thank you, Rusty. I share Rusty's excitement for Diversified's future and my confidence in our teams, in our assets and in our ability to generate consistent reliable cash flow has never been higher. We'll now turn to Slide 8. Before sharing the highlights of our financial and operational results for the third quarter, I would like to focus on the right side of the slide. This presentation very simply illustrates how our accretive growth of cash generating energy assets paired with best-in-class operational and corporate infrastructure translates into material bottom line growth. For the third quarter starting with production, the daily production exit rate for September was approximately 1.14 Bcf per day and our quarterly production averaged over 1.13 Bcf per day. Approximately 65% of our produced volumes were generated in our Central region. The growth in our low-decline resilient production base has put the company in a great position to participate in LNG exports, data center energy demand and benefit from the growing demand for our products while continuing to supply energy to our local communities and commercial customers. Total revenue was approximately $500 million and our adjusted EBITDA was $286 million for the third quarter with an EBITDA margin of 66%. Our third quarter adjusted EBITDA was a record for our company. And as the 1 member of our leadership team that joined Rusty before our public offering, I'm very proud of the quality and scale of the company we have built. As we continue our integration processes and improve the combined company cost structure, we anticipate that we will be able to maintain our historical approximately 50% cash margins. Notably, our portfolio optimization processes in the third quarter allowed us to generate approximately $74 million in additional cash proceeds. The quarter's free cash flow was $144 million, which is burdened by approximately $9 million of nonrecurring and transaction cost. Our net debt stood at approximately $2.5 billion for the quarter and we improved our overall leverage by 20% since year-end 2024 achieving a leverage ratio within our target level of 2x to 2.5x net debt to EBITDA. And with over $400 million in liquidity, our balance sheet strength is giving us the optionality and flexibility to navigate and potentially take advantage of volatile markets and commodity price cycles. Additionally, our investment grade rated nonrecourse stable ABS notes helped to contribute to our financial resilience and ensure that we maintain our discipline to consistently reduce outstanding debt. In summary, our team's strong execution of our strategy to acquire stable consistent cash generating energy assets enabled strong free cash flow generation and allowed us to continue to prioritize returning capital to shareholders and paying down debt. Now turning to Slide 9. Active portfolio optimization is a continuous evaluation and execution process that we undertake with our dedicated and skilled team of professionals. Since 2023, we have taken advantage of increasing opportunities to monetize the large inventory of undeveloped acreage that we have accumulated, which notably we ascribed 0 value as part of our acquisition processes. We utilize our deep operator relationships and our market experience to generate additional extremely high margin unlevered free cash flow to deploy toward value-creating opportunities within our capital allocation framework. In fact year-to-date, we have generated approximately $143 million in divestment proceeds and we've repositioned that cash for strategic share repurchases and 2 highly accretive acquisitions while we've also meaningfully lowered leverage. Collectively, these opportunities provide cash generating levers to ultimately grow our business and bring forward the hidden or unrealized value of our assets. By reallocating the cash flow from our portfolio optimization programs, we can also support and do support superior shareholder returns. Turning to Slide 10 now. One of the main benefits of our 2025 Maverick acquisition is that we have created multiple drivers of cash flow generation and growth. Our expanded asset portfolio benefits from a low-decline production profile, commodity diversification, a disciplined hedging program and the potential for additional upside from anticipated operational and administrative synergies. The chart on the bottom of this page highlights the impact of our meaningful expanded asset portfolio and we have delivered both sequential and year-over-year growth in free cash flow. Turning to Slide 11. Translating these results into comparable data points, you can clearly see that Diversified is a leader in return of cash to shareholders not only with a fixed dividend comparable to yield focused energy sectors, but also through the deployment of strategic share repurchases that outpaces other E&P peers. And since our IPO, we have returned approximately $2.2 billion in shareholder returns and debt payments, which shows the strength of our strategy to acquire cash generating assets and to operate them with excellence. These shareholder returns show our commitment to create value. However, we do believe the current share price does not reflect these attributes and is not adequately valuing the strength of our business model to generate real cash flow. We believe our shares remain undervalued impacted by macro headwinds, including allocation of investment funds to extremely high valued companies. And over the past 5 years, we have delivered a 310% EBITDA growth averaging over 60% annually. Based on historical EV to EBITDA multiples and peer comparisons, our valuations suggest meaningful upside potential. And with our primary listing on the New York Stock Exchange and full SEC reporting, we believe we are at an inflection point and with these needed catalysts positioning our shares for a re-rating that could drive a significant increase in share price. Now turning to Slide 12. We continue to maintain momentum into the second half of the year and with the completion of the Maverick integration, we have increased financial guidance 7% on adjusted EBITDA and 5% on adjusted free cash flow. Importantly, we anticipate generating between $900 million to $925 million in adjusted EBITDA and more than $440 million in adjusted free cash flow. Pro forma for the full year of Maverick, we would have delivered over $1 billion of adjusted EBITDA, which is a phenomenal achievement for our company. The company is positioned on a path that creates a unique and compelling investment opportunity. We are very pleased with how the year has progressed and we are confident in our ability to execute at a high level for the balance of the year and beyond. And to wrap up my comments, I want to say thank you to all of our teams for their excellent work this year and this quarter. Our company is well positioned to grow and generate consistent cash flow for our shareholders. This positioning of strength is due to hard and smart work from our skilled team of professionals. I'll now turn the call over to Rusty for some final thoughts. Robert Hutson: Thanks, Brad. Before we take questions, I want to provide some final thoughts on why we believe our successful strategy investment attributes will allow us to rise to the top of the list of peers within the Russell 3000 Index. On Slide 13, we continue to emphasize we are a differentiated energy producer that seeks to optimize existing long life and often overlooked and undervalued cash generating U.S. energy assets. We maximize value in a unique way by minimizing traditional E&P risks, growing our revenue streams, optimizing our asset portfolio and being good stewards of our capital by generating real consistent meaningful cash flow. For this slide, we are highlighting and emphasizing that Diversified offers unique investment attributes, which we believe make us a compelling addition to any portfolio especially those benchmarked to the Russell 2000 or 3000. With our large operational scale, vertical integration and corporate infrastructure that leverages a leading technology platform, we know how to grow and we know how to drive value from growth. We have executed this ability over 30 times over the past 8 years. Out of a list of 3,000 small cap companies; our business strategy, our ability to generate real and consistent cash flow and our commitment to shareholder returns makes us a company that is investable. Additionally, we believe the triple thread of attractive investment attributes are as follows: as a value stock that trades at an attractive 3.8 EV to EBITDA, as a growth stock with attractive top line revenue growth of 80% year-over-year and bottom line free cash flow growth of over 150% year-over-year and as an income stock with an attractive current dividend yield of approximately 9%. We believe the anticipated structural trading and listing changes are an additional meaningful catalyst to drive renewed investment from investors and a strong addition to any portfolio. We have been steadfast in executing our strategy since our IPO driving strong financial and operational performance. The right company, right time mindset for the type of assets we manage delivers consistent free cash flow and returns to shareholders and serves a fundamental role in sustaining the U.S. energy markets. Before I turn the call over to the operator for Q&A, I'd like to again recognize our employees for their outstanding achievements and contributions this quarter and this year. Without their focus, commitment and excellent teamwork in the field and in the corporate office, these results would not be achievable. With that, I'd like to turn it over to the operator for the Q&A portion of today's call. Operator? Operator: [Operator Instructions] Your first question comes from Tim Rezvan with KeyBanc Capital Markets. Timothy Rezvan: I wanted to start either for Rusty or Brad. You highlighted leverage now in that target range of 2x to 2.5x. So it gives you a little more optionality going forward. So when you think about uses of free cash flow at this point, is it safe to say that you're really fans of the repurchases where shares are trading or do you think at all about keeping some liquidity aside for maybe investing in the equity portion of future ABS deals that you do with Carlyle? I'm just trying to understand kind of the uses of free cash flow and if that at all is a consideration on future M&A. Robert Hutson: Thank you, Tim, for that question. I think it really comes down to what's the best use of cash at the appropriate time. And right now we have a lot of liquidity, we have $400-and-some million of liquidity. We've made it very clear that our shares are significantly undervalued. So that's an option obviously. Transactions and growth in the business is another option. So we're always highly focused. We kind of have an understanding of our needs over the next short term and kind of how we want to play our cash outlays. But it's always going to be focused on what's the best return for our shareholders at that time. And so I think right now we obviously are very disappointed on where the shares are trading and we think that it's very undervalued. So you could see us, I would say, put that cash to work there for the immediate time. And then obviously growth is always on our calendar and on our horizon. Brad, I don't know if you wanted to add anything there. Bradley Gray: I agree with Rusty's comments. We have grown the business significantly and we have the Canvas Energy acquisition closing coming up here towards the end of the month and so we'll be using some of that liquidity in that transaction as well. But yes, the valuation on our shares right now, as we said in our comments, we don't think is reflecting the value that we've built in this company. Timothy Rezvan: Okay. I appreciate that. And then switching gears a little bit on the second question. I wanted to ask about this Mountain State Plugging Fund. The release came out a month ago, but it seems like a pretty transformational event. I think you used the phrase a blueprint for other states. So can you talk, Rusty, about any conversations you're having with other states? Is it your hope that this can be replicated across your Appalachia footprint? Is this something that maybe is easier to get in a red state versus a blue state? Just kind of curious on how we should think about that growing because that has been a big concern for investors and you've been on your front foot addressing it. So just trying to understand sort of the next steps on that process. Robert Hutson: Yes, sure. I think I explained it to our governor, the Governor in West Virginia, and he actually said this during his remarks. It's a win-win for the industry and for the state of West Virginia because we came up with a practical common sense solution for something that's always been out there that nobody has really wanted to address. And so for us to be able to say, look, every well in the state of West Virginia will have a financial assurance of being retired over a long period of time, which we don't want to retire these wells. We're producing them right now. And I said this also, Tim, is that even if every dollar was available right now to plug every well in the country or even in the State of West Virginia or any state, it would still take over 100 years to plug them all just simply because of the capacity. We represent 40% of the plugging capacity in the Appalachian Basin right now and we're doing everything we can do with the resources we have and we would not even come close to plugging all the wells in the State of West Virginia in 100 years. It's just not doable from a time perspective, weather perspective and all that. So this is a meaningful way of taking care of a retirement obligation and we believe that the other states, especially in Appalachia, should take notice. We obviously want to enter into arrangements like this, but we just covered 30% of our asset retirement obligation in that 1 transaction. Think about if we did a state like Pennsylvania, we'd be at 60% of our total asset retirement obligation. So these are meaningful transactions. They're common sense. They're win-wins for the state and the regulatory agencies and the company. And I, for the life of me, don't understand why this hasn't been more of a precedent in prior years, but we're going to make it a precedent for our company and we're hopeful and the Governor of West Virginia said this, he's hopeful that other operators will step up and do the same thing. Operator: Next question, Charles Meade with Johnson Rice & Company. Charles Meade: I wanted to ask a question about what you're seeing in the ABS market. It's been in the news a little bit I think probably pretty far afield from you guys. But I think there's a lot of us on this call that we're still coming up to speed and learning the nuances of the ABS market. So I wonder if you could talk about if you're seeing any changes in the availability appetite, cost of capital in that market. Robert Hutson: I'm going to let Brad answer this question. I'm just going to say this. The ABS market, now we've been doing this since 2019 I believe. That was the first time that we deployed capital through an ABS transaction. It's a great product for us because of the type of assets we have; long life, low-decline, very predictable type production and cash flows. It has become more and more popular as you've seen throughout the industry, but the access to that capital is still very -- or I should say the appetite for it is high. And we do a lot of meetings and conferences around this. Brad and his team do a great job of getting us in a place to do these transactions. But the low cost of capital helps us in being able to bid on our transactions. But Brad, you can speak to the overall appetite for this at this point. Bradley Gray: Yes. So Rusty mentioned that we did our first ABS in 2019 and so similar to the Mountain State Plugging Fund, we did the first operated ABS in the industry. So we're proud of that and we have seen the industry from a PDP perspective follow utilizing that source of financing. Our business model and the success of our business model is really built on 3 things. One is acquiring assets at attractive valuations. Two, utilizing low cost of capital to finance that growth. And then three, having the operational excellence. And so from an ABS perspective, we do believe that that does provide us with a low cost of capital. The other thing, and we said this in our comments, is it allows us to have a disciplined approach to delevering the balance sheet and not creating future problems for our shareholders. And so with that structured amortization built into the ABS notes, we believe that's positive. Charles, what I would tell you is the depth of this market is vast. Private debt and private debt capital is very deep in the United States. This asset class investors, primarily insurance companies, have become very comfortable with investing in this asset class. It matches up well with their maturity schedules and how they like to match assets and liabilities. And Diversified has been the company that's issued the most in the industry. So the last thing I would say is a differentiator for us is that not only have we built a solid reputation as a quality issuer, but when you match that with being a quality operator, the investors in these notes really like that. There are other companies that have issued ABS notes that are likely doing it for different reasons than just financing the business and growth and so that can create challenges. But overall, the market is deep and we think it's a good option for us with the type of assets we have. Charles Meade: Got it. That is helpful color. And then my follow-up, I wanted to ask if you could give us any update or characterize the drilling or the joint development agreements you guys have in some of your Western Anadarko assets, if anything happened in 3Q that's notable on that front? And if you see some potential for either expanding or having a new JDA once you close Canvas on those assets? Robert Hutson: Yes. I think that the joint development that we have going on right now in the Cherokee Basin in Oklahoma with a very established and reputable drilling company, we love those returns. Those returns in that have been tremendous. We've been 35% I believe on average and no working interest held. IRRs are through the roof. And so those assets have been tremendous for us. It's been steady as you go. I mean every year at the beginning of the year, they've given us a drilling schedule and they've stuck to it and that's been a big win for us. But nothing out of the ordinary other than just par for the course. We're moving forward with them on a quarterly basis and we're seeing great results. Obviously through our portfolio optimization plans programs, we are always evaluating our acreage both in the Permian and in Oklahoma and in other areas now and there could be more for that in the future as we talk more about the Appalachian Basin. But I think that what we're seeing right now is that we've looked at all of our acreage. We're high grading it in terms of what we want to participate in alongside a good partner and then what we want to divest. And you could see other JDAs come to the forefront in the future maybe in the Permian or in the Oklahoma area as we evaluate and kind of summarize what we want to participate alongside somebody else in. And this acreage, I'm just telling you, it's valuable. We've gotten a lot of inquiries around our acreage both in Oklahoma and in the Permian and really has been kind of an eye opener for us. But we want to make sure that we're being very selective on how we manage through that and get the best value we can to the company and to our shareholders. Operator: Next question, Tim Hurst-Brown with Tennyson Securities. Tim Hurst-Brown: I just had 1 quick follow-up on the plugging fund. So I think, Rusty, you said that West Virginia represents 30% of the group's discounted ARO of $883 million. I'm just wondering whether we should expect some adjustment to that ARO figure in the Q4 to reflect the deal you've done with West Virginia. Bradley Gray: Tim, this is Brad. I'll take that. The current accounting guidance -- under the current accounting guidance, we will not be making an adjustment in that discounted ARO on our balance sheet. We will be adding an asset as we grow this and invest this $70 million over time and that will grow and compound over time as well. But effectively, one of the items that we've discussed since we started this roll-up strategy is the concern around the asset retirement obligation and how is the company going to meet that obligation. And so with this Plugging Fund, we have set in motion the offset of that liability. And as Rusty indicated, this is the common sense patient solution that will provide the funding to meet the needs of those retirement obligations. So the way I look at it is I take that liability on our balance sheet and I say okay, we've accounted for and taken care of 25% to 30% of that liability, now on to the next one. So it will take time, but that's fine. Robert Hutson: But don't let the accounting rules be mistaken for addressing the liability because this is a -- as Brad said, this addresses the liability on those wells in West Virginia. It doesn't mean that the accounting is going to match up in terms of offsetting the liability on the balance sheet. There will be an asset that's built up over time. But this is a -- utilizing this insurance product, it does address the liability for the long term and that's what we were more focused on rather than the accounting around it. Bradley Gray: And Tim, one other way that you can look at this fund just structurally is just think of it like a long-term pension obligation or any type of long-term obligation. I mean that's what we're funding it with today's dollars so that future obligations can be funded. Operator: Next question, Paul Diamond with Citi. Paul Diamond: Just wanted to talk a quick bit about the portfolio optimization. Can you talk about the cadence or timing go forward in these efforts? Is it something we should think about annualized an average number or more of they just kind of spot transaction when they come, they come? Bradley Gray: Paul, thanks for your question. We actually have a slide in our investor presentation that highlights the success of that portfolio optimization program over the last several years and we've produced some real cash flow. And we do think, as Rusty indicated, that there are some opportunities that we've got good visibility and line of sight into the continued success with those programs with the assets that we've acquired and acreage positions that we've acquired. It's difficult on a quarterly basis to kind of plan out what those would be. However, what I would say is on an annual basis, we believe that for the foreseeable future, a $40 million to $50 million baseline level of revenue from these type of programs is achievable. And then where we have opportunities to improve on that, we will through the evaluation processes that Rusty indicated. But on from a go-forward basis, we believe that $40 million to $50 million is an appropriate way to look at the business. Robert Hutson: And Paul, the other thing about that is is that cash that's generated off those sales gives us some flexibility around some of the pillars that we talked about; the share repurchases, the ability to grow the business, utilizing cash whether it be with the Carlyle transactions and the equity portion of those transactions or lowering leverage. And so it just gives us added flexibility that we didn't pay for and I keep saying that because it's key. We did not pay for these undeveloped value transactions that we're getting. So I just want to make that clear. Paul Diamond: Understood. Appreciate the clarity. And just a quick follow-up. On the other side of the portfolio optimization efforts, you guys have the Appalachian Compressor Station. Can you talk about whether, I guess, are those more spot or those one-off or should we expect more of a trend of kind of those small ball acquisition infrastructure type of things rolling up? Bradley Gray: Well, Paul, I would say that it's definitely not a one-off because our teams have been doing it now for 8-plus years. And that is the -- as Rusty said, it's a textbook example of our Smarter Asset Management program. And so when you have an empowered and authorized workforce looking for ways to succeed on our daily priorities of production efficiency and safety, that's what we get. And so this was an asset that was run by another operator that was not core to them. It was core to us. It was more valuable to us. We made a good deal on it and we're leveraging a significant return on that acquisition we made of that facility. So we're constantly looking for those opportunities. I mean just going back to the second quarter, we highlighted a pipeline system that we acquired out in Western Oklahoma that allowed us to return numerous wells back to production and we eliminated significant amount of compression cost by being able to utilize centralized compression versus wellhead compression. So these are -- again it's just an example of what we do on a daily basis. Operator: Next question, Tim Moore with Clear Street. Timothy Michael Moore: Congratulations on the quarter. My first question is to offset the maturity decline curve besides your acquisition strategy edge. Can you maybe give us a sneak peek or a sense of maybe next year's workover count, the initial plan there? Do you think it will be a higher count than this year? Bradley Gray: We'll look to provide some guidance as we move into the first quarter and we get our Canvas Energy acquisition completed and then that will have some capital guidance for next year. What I can tell you is that our teams have already gone through a process to high grade projects, to build a portfolio of projects that they will rank and then commodity prices will have some impact on that I'm sure. But I would look towards the first quarter when we release our year-end results to provide some more clarity and guidance on that. Timothy Michael Moore: Understood. And my second question, it relates to kind of the cost synergies being implemented at Maverick, the timing of that. I'm just wondering Canvas is obviously a much smaller acquisition, there's some synergies integration there. I'm just trying to get a better sense of maybe how you think about downtime between medium-sized acquisitions not just tiny small ones. I mean you did Summit in East Texas pretty quickly for integration before Maverick and then Crescent Pass right after Oaktree. Do you think about a minimum gap of months for some of these bigger ones acquisitions just to implement best practices or do you have a team in place now big enough to kind of tackle a couple of ones? Robert Hutson: Well, I think your final comment there kind of relates to the way we look at it. We've got a tremendous team that has done this so many times and it's all about people and processes and making sure that you take care of the people and then into the processes. And our guys know how to do these things and so there are steps that they do, they go through the process. We kind of have a plan as to how long it takes to do each one of those processes. But our technology teams, our field operations, all the way; they all know how to manage these integrations and so it's really incredible. When you look at Maverick and the size and scale of that transaction for us to be able to get it completely integrated within 5, 6 months, I mean that's tremendous. And we're sitting here today, we're going to reap the benefits of those synergies a lot faster than we originally anticipated because we were able to integrate it so fast. And so it's really about the people and the processes and the ability to deploy that technology and the platform that we've built to integrate these things in a speedily way. I don't know if you want to add anything. Bradley Gray: Just 1 quick item. Our CIO, David Myers, would be disappointed if I didn't say this. But as Rusty said, people, process and systems. And that's what we're focused on and committed to is making sure that we've got the right people on the team, then the right business processes of which we can apply our technology and our systems too. Timothy Michael Moore: That's terrific color, Rusty and Brad, and definitely speaks to your capability to tackle more acquisitions in the near term. Thanks a lot. That took care of my questions. Operator: Thank you. I would like to turn the floor over to Rusty for closing remarks. Robert Hutson: Well, thank you all for attending today and we look forward to wrapping up the year and meeting again with you in the first quarter to talk about the year-end results. Thank you and have a great day. Operator: This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.
Operator: Welcome to the MPLX Third Quarter 2025 Earnings Call. My name is Shirley, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin. Kristina Kazarian: Thank you, Shirley. Welcome to MPLX's Third Quarter 2025 Earnings Conference Call. The slides that accompany this call can be found on our website at mplx.com under the Investor tab. Joining me on the call today are Maryann Mannen, President and CEO; Kris Hagedorn, CFO; and other members of the executive team. We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as our filings with the SEC. With that, I'll turn the call over to Maryann. Maryann Mannen: Thanks, Kristina. Good morning, and thank you for joining our call. I'd like to take a moment to recognize Mike Hennigan. At the end of the year, Mike will be stepping down as our Executive Chairman. Mike's guidance has been tremendously valuable to our Board, to me and our entire leadership team. We thank him for his service as well as all of his contributions. He will be missed. Delivering on our commitment to return capital, MPLX increased its quarterly distribution by 12.5% for the second consecutive year. The increase is supported by our multiyear track record of mid-single-digit growth and reflects conviction in our growth outlook from recent capital deployment. Our growing portfolio is expected to support this level of annual distribution increases over the next couple of years. In the third quarter, MPLX generated adjusted EBITDA of $1.8 billion. Strong performance through the first 9 months has contributed to year-to-date adjusted EBITDA of $5.2 billion, reflecting growth of 4% over the same time frame in the prior year. Distributable cash flows of $1.5 billion, which supported the return of $1.1 billion to unitholders. We are committed to returning capital to unitholders, primarily through a secure and growing distribution, but also through unit repurchases as we believe our equity remains undervalued. MPLX is optimizing the competitive position of its portfolio as we pursue mid-single-digit adjusted EBITDA growth anchored in the Marcellus and Permian Basins, advancing our strategic commitments. During the third quarter, MPLX closed on 2 strategic acquisitions. First, the remaining 55% interest in the BANGL NGL pipeline system. Full ownership of BANGL and its expansion opportunities enhance our Permian platform as we connect growing NGL production from the wellhead to MPLX's Gulf Coast fractionation facilities and export terminal joint venture currently under construction. We are progressing the expansion of BANGL from 250,000 to 300,000 barrels per day, which we expect to enter service in the second half of 2026. Second, MPLX closed on the acquisition of a Delaware Basin sour gas treating business. Integrating our newly acquired sour gas treating assets with MPLX operations is ongoing. Additionally, we are completing construction of the second amine treating plant at the Titan complex. This will increase sour gas treating capacity from 150 million cubic feet per day to over 400 million cubic feet per day expected by the end of 2026, driving the returns we expect from the acquisition and expansion. The sour gas treating capabilities will allow us to capitalize on additional growth opportunities. These sour gas treating assets are adjacent and complementary to our existing natural gas system in the Delaware Basin. They expand MPLX's treating and blending operations, attracted to our current and new customers who are increasing crude drilling activity in the lower-cost sour gas window on the eastern edge of the Northern Delaware Basin and the assets increase access to natural gas and NGL volumes. We are advancing our strategic growth objectives in the Permian. Secretariat, our seventh processing plant is expected to be online at the end of 2025, bringing total regional capacity to 1.4 billion cubic feet per day. And we fully own the BANGL pipeline system integral to MPLX's Permian NGL chain, which is expected to add incremental EBITDA in 2026. Construction is progressing on schedule and on budget for the first Gulf Coast fractionation facility and LPG export terminal. The location of our LPG dock is advantaged as it will allow vessels to avoid congestion and reduce fuel consumption, lowering cost for shippers. MPLX will not have direct commodity price exposure as MPC will purchase the LPG production from the fracs and market globally through its marketing business across the new export terminal, demonstrating the strength of our strategic relationship with MPC. The first frac export terminal and purity pipeline are expected to enter service in 2028 with full run rate in late 2029. Within natural gas, MPLX and its partners announced they will construct the Eiger Express pipeline, having secured firm transportation agreements with investment-grade shippers. Upon completion, expected in mid-2028, the pipeline will transport natural gas from the Permian Basin to the Katy area of Texas. Eiger will have connectivity to the Traverse natural gas pipeline, which connects supply between Agua Dulce and the Houston area and will provide shippers optionality and access to multiple premium markets on the Gulf Coast, driven by demand pull for LNG exports. The continued build-out of our Permian to Gulf Coast natural gas system enhances that value chain with additional growth opportunities. Favorable market outlook supports our operations in the Marcellus, Utica and Permian Basins. MPLX is positioned for long-term natural gas volume growth in these key operating regions, and we expand our integrated value chains and execute our wellhead-to-water strategy. This year, over 90% of MPLX's total investments are being allocated to opportunities within our natural gas and NGL Services segment. The progress and execution of our strategic commitments give us conviction in the sustainability of our mid-single-digit adjusted EBITDA growth outlook for 2025 and beyond. Our approach to growth is structured to deliver mid-teens returns on our investments and mid-single-digit adjusted EBITDA growth. We do this by constructing processing facilities on a just-in-time basis, maximizing the utilization of existing assets, optimizing value chains and strengthening our strategic partnership with MPC. In the Marcellus, our largest operating region, construction of our Harmon Creek III processing plant and fractionation facility aligns with producer drilling plans. This new complex will feature a 300 million cubic feet per day gas processing plant and a 40,000 barrel per day de-ethanizer supported by producer commitments. In the second half of 2026, we anticipate our gas processing capacity in the Northeast will reach 8.1 billion cubic feet per day and fractionation capacity will reach 800,000 barrels per day, positioning MPLX to handle growing production from the Utica and Marcellus. As demand for natural gas-powered electricity rises, MPLX is well positioned to support the development plans of its producer customers. In our Crude Oil and Product Logistics segment, we are focused on expanding gathering infrastructure, enhancing butane blending at terminals, growing volumes organically and pursuing high-return projects to maximize asset utilization. With a strong pipeline of organic opportunities, we are well positioned to generate resilient cash flows that underpins our commitment to deliver long-term value and return capital to unitholders. Now let me turn the call over to Kris to discuss our operational and financial results for the quarter. Carl Hagedorn: Thanks, Maryann. Slide 12 outlines the third quarter operational and financial performance highlights for our Crude Oil and Products Logistics segment. Segment adjusted EBITDA increased $43 million when compared to the third quarter of 2024. The increase was driven by higher rates, partially offset by higher operating expenses. Pipeline volumes were flat, while terminal volumes were down 3% year-over-year. Moving to our natural gas and NGL Services segment on Slide 13. Segment adjusted EBITDA increased $9 million compared to the third quarter of 2024 as contributions from recently acquired assets and higher volumes were partially offset by higher operating expenses. Gathered volumes increased 3% year-over-year, primarily due to production growth in the Utica. Processing volumes increased 3% year-over-year, primarily from increased production in the Utica and Marcellus. Permian processing volumes increased 9% compared to the second quarter of this year. Processing volumes in the Utica have increased 24% year-over-year, showing the value of the liquids-rich acreage. Marcellus processing utilization was 95% for the quarter, reflecting robust producer activity in the region. Total fractionation volumes increased 7% year-over-year, primarily due to higher ethane recoveries in the Marcellus and Utica. Moving to our third quarter financial highlights on Slide 14. Adjusted EBITDA of $1.8 billion increased 3% from the prior year, while distributable cash flow of $1.5 billion increased 2% over the same time frame. MPLX returned nearly $1 billion to unitholders in distributions and $100 million in unit repurchases. During the quarter, MPLX issued $4.5 billion in senior notes, the proceeds of which were primarily used to fund our acquisition of the Delaware Basin sour gas treating business and to increase cash from the BANGL acquisition and associated debt repayment. MPLX ended the quarter with a cash balance of $1.8 billion and plans to utilize this cash in alignment with our capital allocation framework. MPLX maintains a solid balance sheet with leverage below our comfort level of 4x. Now let me hand it back to Maryann for some concluding thoughts. Maryann Mannen: Thanks, Kris. Our distribution increase of 12.5% announced last week marks the fourth consecutive year of double-digit increases, resulting in annualized base distribution growth of greater than 50% over the past 4 years. Through prudent capital allocation, cost control and operational optimization, MPLX has achieved a 7% compound annual growth rate in both adjusted EBITDA and distributable cash flow over the past 4 years. Year-to-date, we've returned $3.2 billion to unitholders. As we've stated before, adjusted EBITDA growth at MPLX will not be linear. We anticipate growth in 2026 will exceed that of 2025, supported by throughput growth on existing assets and new assets being placed in service. Our growing portfolio is well positioned to sustain this level of annual distribution increases over the next couple of years, and we do not expect MPLX's coverage ratio to fall below 1.3x. In summary, MPLX is well positioned to capitalize on opportunities that fit our strategic road map as we execute our plan targeting mid-single-digit adjusted EBITDA growth. As a strategic asset for Marathon and with the distribution increase, MPLX is expected to provide $2.8 billion annually to MPC through its growing distribution. Our unwavering focus on safety and operational excellence, strategic growth opportunities and strong financial flexibility enable us to consistently drive cash flow growth. This, in turn, supports our commitment to delivering peer-leading capital returns to unitholders. Now let me turn the call over to Kristina. Kristina Kazarian: Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to a question and a follow-up. If time permits, we'll reprompt for additional questions. [ Shirley ], we're ready for questions, please. Operator: [Operator Instructions] Our first question comes from John Mackay with Goldman Sachs. John Mackay: I wanted to start on the EBITDA growth outlook. You guys have done a bunch of projects, M&A this year. Maryann, I was wondering if you could kind of walk us through how you're thinking about the go-forward growth outlook now for EBITDA, both kind of level and duration relative to how you were framing up kind of the similar target of mid-single-digit EBITDA growth at the beginning of the year before we had some of these announcements. Maryann Mannen: Yes. Thanks, John. Thanks for your question. So as I mentioned in my prepared remarks, when we look at our growth rate '24 to '25 and then we look at it also from '25 to '26, we believe '25 to '26 will actually deliver stronger growth than we did '24 to '25. As you know, we've also been talking about our EBITDA growth over a 3-year period. And when we look at that, it's been roughly 7% for the last few years. We see the ability to continue that as we look into 2026 for right now for those acquisitions and other projects that we put into place. So maybe let me take a minute and talk about how we see that unfolding to address your question of how do we think about it in the beginning of the year, certainly versus how we're looking at it now. When we look at 2026, as an example, a couple of things really begin to come online and increase that growth that I was referring to. So as you know, we mentioned BANGL, the incremental 55% ownership will now be additive to 2026 EBITDA targets. As I mentioned, Secretariat will come online at the end of this year, and that ramp-up into 2026 will again deliver incremental EBITDA throughout 2026. We'll also have the full rate of Preakness II that comes -- came online in the third quarter of '24. And so we'll have full ramp-up as we head into 2026. And then the sour gas investment that we made, as you know, will reach full run rate by the end of 2026 as Titan -- the next phase of the Titan treatment plant comes online. So we'll see that incremental EBITDA coming from Titan as well. And then there's a few other projects, as you know. And then heading into '27, we obviously have full rate for Titan, consistent with the way that we've shared with you as we talked about the EBITDA potential on that transaction. And then also Agua Pipeline, as an example, another project that we just announced that will bring EBITDA into 2027. I'll take you actually to '28 and '29 just for a moment. But in '28, we'll have the first frac in the LPG export dock come online and then obviously heading into full run rate as the second one comes online in '29 as well. So those projects, either organic or those acquisitions, I think, supports our ability to continue to grow that mid-single-digit growth. Let me pause there, John, and see if I've answered your question. John Mackay: That was great. I appreciate the color. Maybe just as a second question from my side, I would love to hear a little bit more about the power LOI, maybe just steps to converting that, how we think about the opportunity set for you, returns, et cetera. Maryann Mannen: Yes. Thank you for that. As you saw, we issued that, excuse me, a press release this morning and appreciate it. It is an LOI in this early stage. One, we think the opportunity with MARA is important, critically important for us as we evaluate the opportunity set around data centers and AI. We think for MPC, this obviously creates in-basin demand. And then ultimately, at what we would consider to be a very low cost or no-cost transaction here in its early evaluation, we will provide -- we will provide gas. And then in return, we receive lower cost, reliable power, which, in fact, will get passed on to our producer customers. But time-wise, this is certainly not a 2026 project. It will be beyond 2026, John. Operator: Our next question comes from Manav Gupta with UBS. Manav Gupta: I would like to start by saying I'm the big fan of Mike Hennigan, but he's left the company in very good hands. So congratulations, Maryann. My first question to you is, can you elaborate a little more on the Permian sour gas opportunity? And it's my understanding you do not need to permit more AGI wells to run this asset at full capacity because that's where the gating factor is. If you could talk a little bit about those things. Maryann Mannen: Thank you for your question, and we agree with you as it relates to Mike Hennigan. So on the Permian sour gas opportunity, as we shared, we've got about $0.5 billion of incremental capital that gets us to all of the investment economics that we shared. That includes getting the treatment -- the amine treating Titan facility as we call it, from 150 to 400 and the next AGI well. There is no other incremental asset gas injection well necessary to meet the economics on the project as we have outlined for you so far. Manav Gupta: Perfect. My quick follow-up here is, as you evaluate all these data center opportunities, would there be more letter of intent of similar nature? And how you're seeing that pipeline? And then the bigger question is, some of your peers have said this opportunity set is so big that we are even open to generating and selling electricity using our natural gas. Is that something which MPLX could be open to if the right opportunity arises or you're more comfortable being the supplier of natural gas but not the generator of electricity, if you could talk about that? Maryann Mannen: Yes, of course. Thanks for the question. As you know, when we look at the Northeast, we are handling, touching 10% of U.S. natural gas consumption every day. So our ability to continue to evaluate where in this opportunity set that we can best support our producer customers is a place that we are spending time evaluating, et cetera. Again, this MARA is the first step for us as we continue to evaluate those opportunities. I'm going to pass it to Greg who's been spending quite a bit of time looking at how and where MPLX can continue to pursue opportunities. Gregory Floerke: Manav, it's a great question. The first, obviously, as Maryann said, being a large player in the midstream business and touching a lot of gas, we aggregate gas at our processing plants, similar to interstate pipelines and some of the other projects you've seen. So we certainly have the ability to co-locate similar to the MARA project, where we have a co-located facility and we can sell gas and buy power and increase reliability. The -- in terms of generating the power, the solar turbines and the Caterpillar reciprocating engines that constitute most of the prime movers for generation behind the meter are assets that we deploy by the hundreds across our system. So we know how to install, operate and maintain these units, running all of our gas compression. And so we have that capability. On the refining side of Marathon, we actually self-generate power at some of the refineries. So we have the capability, but it's a separate business case in terms of moving from providing gas and processing to move into the power generation business. So that's something that we'll keep all options open and continue to look at, talk to a lot of people and see where that goes, if anywhere. Operator: Your next question comes from Theresa Chen with Barclays. Theresa Chen: Going back to the Titan complex and the early days of integration after the recent close. As you continue your investment here in the build-out, has there been any shift in commercial activity with your customers? Any incremental interest in your services now that you have the set of assets within your portfolio? Maryann Mannen: Theresa, thanks for the question. I would tell you, integration with our sour gas acquisition, which we refer to as North Wind has gone very well as we exited the quarter roughly processing at 150. You may have also heard and will echo some of the comments that those producer customers who we are working for in the region have commented on. I think they're pleased with the fact that MPLX now owns this asset. We're working diligently. They were customers of ours in that basin prior, and this adds more opportunity for us to continue to work closely with those key customers. One of the other things that we talked about when we were together the last time was the potential for processing. Some of our contracts are about 2 to 3 years, they're third party. And as we look at the ability to accelerate growth in that region, being able to take on incremental processing would be a place that we would look to grow beyond that integration. The other thing that I would mention is we continue to look at the project, and as I shared with John earlier, passing the look at how EBITDA will grow, we expect to be complete so that by the end of 2026, as we head into EBITDA generation, those projects will be completed, and we'll be able to see the full benefit supporting our customers in the basin. I'll look to Greg to see if there's anything else that he wants to add because he's been overseeing the strength of that integration. Gregory Floerke: Thanks, Maryann. We've been spending most of the time towards the last few weeks of the quarter and then into the early first quarter, integrating the assets and working with producers to ramp up volume. We've had -- we're integrating people into our existing team in West Texas, and that's going very well. And we're also integrating systems, accounting systems, operating systems and trying to integrate the systems together. And -- we've got great feedback from our customers. We're meeting with our customers. I think they're excited about our ownership and operation of the system and moving to the next level as we continue to deploy the assets. Titan 1 train in the commissioning process late in the quarter and into the prior month and the third train of Titan 1 and then Titan 2 Civil and [indiscernible] underway for that plant to come into service latter part of '26. Theresa Chen: And then related to the LOI with MARA, Maryann, going back to your comments about how low or no cost is going to be, can you just frame that up in terms of what would be the nature of any potential CapEx related to this? And if there's not so much of like a CapEx or economic moat, what positions you to win this agreement? And what would position MPLX in your regions of service given the competition out there to win incremental agreements? And with this transaction specifically, what are the next steps? Maryann Mannen: Yes. Thanks, Theresa. Look, I think one of the benefits that we see from this transaction is the potential for in-basin demand, right, the growth on that in-basin demand. So essentially, the way that this LOI will continue to be structured is we will provide gas, I'd like to say, at the tailpipe of our plants. And then in return, so to speak, right, we will have the ability to have lower cost, more reliable power to provide to our producer customers. So again, when I say low or no cost, there really isn't anything that we need to do in order to facilitate that transaction. In terms of the opportunities there, we're continuing to evaluate how that might go forward. But as we stand right now, this LOI, we think, has the potential to increase in-basin demand. Operator: Our next question comes from Burke Sansiviero with Wolfe Research. Burke Sansiviero: Just looking at Slide 9, can you please walk through some of your assumptions for in-basin demand growth and incremental takeaway capacity to underwrite the 10% Marcellus and Utica gas growth through 2030? Mainly curious if you expect new greenfield pipelines to be built out of Appalachia. Gregory Floerke: This is Greg. I'll speak to that. The -- we continue to grow in the Marcellus and the Utica, primarily the Marcellus through incremental plant construction. You see our Harmon Creek III plant in Washington County, PA is in construction and supported by customer contracts. We also have seen growth over the last 12 to 18 months in the Utica as we fill existing capacity in that system that was built years ago and as rigs moved away, capacity freed up, but we're filling that capacity. We're at over 70% utilization in the Utica now, at 95% a new high in Marcellus in spite of being our largest area and processing over 7 Bcf a day of gas -- of rich gas and liquids that come with that. So we are -- our customers -- producer customers who own the residue gas at the back of our plants have commitments and are finding the capacity to exit the basin. There's also in-basin demand growth both for power generation, both coal-to-gas power plant -- coal to gas switching at existing plants and then new plants as well as behind the meter, whether data center or other power generation. So I think there's in-basin demand growth. Obviously, MVP coming online was a big adder to takeaway capacity, and we continue to see increases in capacity announced on that system, particularly as the downstream pipeline system is debottlenecked. So we feel that our producers with the positions they have, both in firm capacity and capacity that opens up that maybe other producers don't use, have growth, the ability to continue to grow even in the Marcellus where the volumes are high and utilization is high. Burke Sansiviero: Just [indiscernible] as you continue to build out the Permian position, do you have visibility on filling the full 300,000 barrels per day on BANGL with NGLs from your own plants? Gregory Floerke: Yes. We have visibility to -- with the seventh -- we'll have 6 plants with the seventh plant with Secretariat coming online and other production from third parties connected to BANGL. We're confident in filling that -- the capacity on that pipeline. Operator: [Operator Instructions] Our next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just as I think about, I guess, the long-term EBITDA growth, [Technical Difficulty] going to be in the mid-single-digit growth on a multiyear basis, would organic [Technical Difficulty] to underpin that? Or would there need to be a certain amount of inorganic initiatives as well to complement that to get to mid-single digits or higher? Maryann Mannen: Jeremy, you were cutting out a little bit, but I think your question was, do we need M&A and organic growth opportunities to meet mid-single digit over the longer period of time. I think that's what your question was. So let me try to address that. As you've seen over the next couple of years, tried to lay out how we see that EBITDA coming to fruition. But certainly, when we look at organic opportunities, we -- those that fit our strategic lens, et cetera, we're executing on those. I gave you a few examples. But we also see the opportunity, again, assuming that those M&A opportunities would meet our strategic rationale, provide us that mid-single-digit growth and give us the mid-teens returns, we do see opportunities for incremental M&A to continue to build out mid-single-digit growth. I hope that was your question, Jeremy. Jeremy Tonet: So it sounds like organic alone wouldn't get to mid-single digit, there would need to be acquisitions to get there over a multiyear period. Maryann Mannen: Yes. I think that's fair. When you look at the size of our EBITDA, look at if I can do rough math for you, just a $7 billion EBITDA, we're approaching $0.5 billion worth of growth. We've shared with you the opportunity set in nat gas and NGL and we'll continue to focus our resources in the Permian. We will also concentrate on the base business. We never lose focus on the base business and including JVs and opportunities there as well. But given the size of that EBITDA growth, likely that we will see inorganic opportunities as well. Carl Hagedorn: Jeremy, this is Kris. I might just add to that as well, though. One thing I do want to note is you've heard about all of these acquisitions we've recently done. This also provides additional growth opportunities of new organic projects for optimization and growth. So that backlog of what I would call capital projects is going to continue to grow. So we have backlog looking into '26, '27 as we sit today, '28. As Greg and Shawn continue to see these assets come online, they're also going to identify more opportunities for more organic projects as we progress. Jeremy Tonet: That's helpful. And if I could get one last one in, just as far as the distribution growth policy, how should we think about that over time post the two 12.5% raises recently here? Maryann Mannen: Yes. Thanks, Jeremy. So as I mentioned, we look at a couple of years and see a path to 12.5% distribution growth for the next couple of years. That's how we're seeing it today. And beyond that, we'll continue to evaluate. But for the next couple of years, in addition to '24 and '25, that's how we see 12.5% distribution growth. Operator: Our final question comes from Michael Blum with Wells Fargo. Michael Blum: Just wanted to go back to a prior comment made about evaluating potentially bringing power to a data center project since you do operate a lot of -- you have a lot of experience operating those anyway. Is that something that you're actively evaluating and in discussions with potential customers or just more something that's sort of a longer-term potential item? Gregory Floerke: Yes. We're not -- no intent to mention that we're actively evaluating it really is that we have capability and optionality if it made sense in the future. Michael Blum: Okay. Perfect. And then I just wanted to ask like high level, if you could refresh us a little bit. I think there's a view out there that crude oil prices are going to be lower for some period of time here. So can you just discuss how that could impact your Logistics segment either positively or negatively? Shawn Lyon: This is Shawn. Just on the crude oil and project logistics side of the business, if you look at our volumes continue to be strong really in all areas. And really, that is anchored and really part of our partnership with Marathon Petroleum. And that's where the 2 together and that partnership continues to give us a really strong foundation. But I think as we look out, it's strong -- we continue to see strong demand or strong throughput. Carl Hagedorn: Yes. And Michael, this is Kris. What I might add to that, you'll remember that on the crude oil and project logistics side of the business, those contracts with Marathon have significant minimum volume commitments, and they're also capacity type arrangements. So if you go back all the way to kind of the COVID year, you'll remember, they didn't really see that big of a dip in what would be probably the most extreme, hopefully, we ever see when it comes to EBITDA from that segment. So that segment is very well protected. Gregory Floerke: I would add -- this is Greg. I would add that from a producer standpoint, we're still seeing strong demand for -- whether it be gas, NGLs or crude oil, we're not seeing changes in plans in terms of producer activity. Kristina Kazarian: All right. Operator, do we have any other questions today? Operator: At this time, I'm showing no further questions. Kristina Kazarian: Great. With that, should you have more questions or would you like clarifications on the topics discussed this morning, please feel free to reach out. Members of our Investor Relations team will be available to take your calls. Thank you so much for joining us today. Operator: Thank you. That does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Good day, everyone, and welcome to the Thomson Reuters Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead. Gary Bisbee: Thanks, Jenny. Good morning, and thank you for joining us today for our third quarter 2025 earnings call. I'm joined today by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following their remarks. [Operator Instructions]. Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS and other supplemental financial measures, which are discussed on this special note slide. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations department. Let me now turn it over to Steve Hasker. Stephen Hasker: Thank you, Gary, and thanks to all of you for joining us today. Momentum continued in the third quarter with revenue in line and margins modestly ahead of our expectations. Total company organic revenues rose 7% with the Big 3 segments growing by 9%. In addition, healthy revenue flow-through, beneficial revenue mix and good cost discipline boosted margins, driving profit ahead of expectations. We are reaffirming our full year 2025 revenue and profit outlook, including our expectation for approximately 9% organic revenue growth for the Big 3 segments. For the full year, our total and organic revenue growth is trending closer to 3% and 7%, respectively, rather than the higher end of the ranges at 3.5% and 7.5% for 3 reasons that are unrelated to our AI innovation momentum. First, a slower ramp of commercial print volumes; secondly, several recent U.S. federal government cancellations and downgrades; and third, slightly softer bookings trends at corporates following internal sales organizational changes aimed at improving future cross-selling. We see these as temporary factors not related to our growing innovation and AI-driven momentum, which continues to build. This is best illustrated by our Legal Professionals segment accelerating to 9% organic revenue growth in the quarter, up from 8% in the first half of 2025 and 7% last year. And this is driven by continued Westlaw momentum and strong double-digit growth from both CoCounsel and Cocounsel drafting. Outside of legal, we continue to see double-digit growth from a number of key franchises, including SafeSend, Confirmation, Pagero, Indirect Tax and our international businesses to name a few. Looking to next year, we're updating our 2026 financial framework. We continue to expect organic revenue of 7.5% to 8%, including approximately 9.5% for the Big 3. And we now see larger year-over-year margin expansion and higher free cash flow than in our prior outlook. On the product front, customer feedback on the Agentic AI launches over the summer has been very positive and initial sales trends are encouraging, especially for the CoCounsel legal integrated offer, Westlaw advantage and CoCounsel for tax, audit and accounting. The competitive dynamics for our core content-enabled technology offerings for Westlaw, Practical Law and our tax engines remains stable. We see incremental competition in the AI assistant space, which is an exciting white space growth opportunity in which CoCounsel remains a clear market leader. Our capital capacity and liquidity remain an asset that we are focused on deploying to create shareholder value. We recently completed the $1 billion share repurchase program announced in mid-August, and we remain extremely well capitalized with a net leverage of only 0.6x at quarter end. We remain committed to a balanced capital allocation approach, and we continue to assess additional inorganic opportunities. With our estimated $9 billion of capital capacity through 2027 after the completion of the buyback, we are positioned to be both aggressive and opportunistic. Now to the results for the quarter. Third quarter organic revenues grew 7%, in line with our expectations. Organic recurring and transactional revenue grew at 9% and 4%, respectively, while print revenue declined 4%. Adjusted EBITDA increased 10% to $672 million, reflecting a 240 basis point margin increase to 37.7%, higher than anticipated due to healthy operating leverage and good cost discipline. Turning to the third quarter results by segment. The Big 3 segments delivered 9% organic revenue growth. Legal organic revenue grew 9%, improving from 8% in the first half of 2025 and 7% for all of last year. Continued momentum from Westlaw and CoCounsel were key drivers. Organic revenues in corporates grew 7%, driven by offerings in our legal, tax and risk portfolios and the segment's international businesses. Tax & Accounting organic revenues grew 10%, driven by our Latin American and U.S. businesses. Reuters News organic revenues rose 3%, driven by growth in the agency business and our contract with LSEG. And lastly, Global Print organic revenues declined 4% year-on-year. In summary, we're pleased with our Q3 results. I'll now comment briefly on questions that we've heard in recent months about the value of our content, specifically Westlaw in an AI environment and whether it could be replicated by large language models or newer AI competitors. We remain very confident in Westlaw's differentiation, which we believe has increased significantly with the development of Deep Research and Agentic AI and the recent launch of Westlaw Advantage. It is very important to understand that litigation is high stakes work with no room for error and significant consequences for being wrong. As a result, professional-grade legal research and workforce tools -- workflow tools need to deliver comprehensive, accurate and up-to-date outputs through trusted solutions with robust data privacy commitments. This is a very high bar, particularly given the scale, complexity and constant change of the legal ecosystem. In the United States, there are hundreds of court systems and tens of millions of annual rulings. We collect content from more than 3,500 sources in multiple formats, and it is completely unstructured. On an annual basis, we process more than 300 million documents into Westlaw. In addition, we have valuable and proprietary second source content, including practical law. Collection of source content is just step 1. Our more than 1,500 attorney editors armed with cutting-edge technologies turn the massive volume of unstructured data into structured proprietary content and intelligence. This includes linking cases, codifying statutes and regulations, authoring head notes and increasingly creating new content for our AI offerings. In total, our team delivers more than 1.6 million editorial enhancements per year. Primary law content, including case law, statutes and regulations is a significant majority of what users search in Westlaw and 85%, I repeat, 85% of this content has been editorially enhanced. So 85% is editorially enhanced. These enhancements are proprietary to Westlaw and make the source content far more valuable. Let me provide a few brief examples. First, the West Key Number System is our proprietary taxonomy or subject classification of the law. It covers more than 140,000 precise legal topic categories, capturing the law at an extremely granular level. The organization of case law, statutes and regulations against this taxonomy is key to the delivery of comprehensive and accurate results, allowing Westlaw users to zero in on very specific points of law. Second, KeyCite, our proprietary citation network has more than 1.4 billion connections linking legal matter with the taxonomy. KeyCite verifies whether a case, statute or regulation is still good law and finds accurate citing references to support legal arguments. And lastly, Headnotes are summaries of the important issues of law within a case and are indexed against the key number system. This allows users to efficiently and accurately pinpoint the cases that best match their facts and desired outcome. To illustrate how the Westlaw content and editorial capabilities deliver value in an AI world, this slide outlines the key steps in our Agentic approach for Westlaw Advantage. As you can see, our AI agents leverage Westlaw's breadth and depth of content. And critically, the extensive expertise of our editorial teams and the significant editorial enhancements that we create differentiates our agents, the output of which is delivered as professional-grade research that lawyers can trust. This graphic highlights another important differentiator for Westlaw. When doing legal research, validating research results is a key final step in the process. This is doubly important with any AI outputs, which need to be checked for inaccuracies and hallucinations. In Westlaw, we have the leading tool set to deliver these validations, bringing confidence to our users that their citations are accurate and their legal arguments are correctly characterizing the law. The validation process leverages several tools I've already mentioned, including Key Number System, KeyCite and Headnotes. In addition, litigation document analyzer reviews legal briefs before they are submitted to the court, identifying inaccurate citations and misstatements of law. Combined with the industry's most robust editorial curated content set, the Westlaw tools provide lawyers with assurance that their legal arguments are on point, and they have done all that they can to prepare for court. While general purpose models can find cases to potentially make a legal argument, delivering against the industry's need for comprehensive, accurate and current research is an extremely high bar. Our market-leading content, our editorial enhancement and our sophisticated tool set have been built over decades to consistently deliver this standard while meeting the industry's data privacy and security needs. Looking forward, we see the evolution of AI from information retrieval and summarization to more complex Agentic workflows as an opportunity for Thomson Reuters that reinforces the value and critical importance of our content and editorial expertise. In complex multistep work, quality content to ground the outputs and subject matter expertise to train and fine-tune the AI are critical to delivering professional-grade results. Our innovation focus is squarely on leveraging these assets leading content and the deepest bench of domain experts in our end markets to deliver agentic solutions that are difficult, if not impossible, to replicate. I'll now turn it over to Mike to review our financial performance. Michael Eastwood: Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk through revenue growth before currency and on an organic basis. Let me start by discussing the third quarter revenue performance for our Big 3 segments. Organic revenue grew 9% in the third quarter, continuing the strong trend from recent periods. Legal Professionals organic revenue grew 9%, improving from 8% in the first half, driven primarily by Westlaw, CoCounsel, CoCounsel Drafting and our international businesses. Government grew 9% in the quarter. In our Corporate segment, organic revenues grew 9%. Recurring revenue grew 9%, while transactional rose 5%. Direct and Indirect Tax, Pagero, Practical Law and our international businesses were key contributors. Looking forward, the Corporate segment growth rate is likely to moderate in the fourth quarter due to the softer-than-planned bookings growth Steve mentioned. Tax & Accounting delivered another strong quarter with organic growth of 10%. Recurring and transactional revenues grew 9% and 12%, respectively. Our Latin America business, SafeSend, UltraTax and the Cloud Audit family of products were key drivers. Moving to Reuters News. Organic revenue rose 3% for the quarter, driven primarily by growth at the agency business and from the news agreement with the data and analytics business of LSEG. Reuters revenue included approximately $7 million of transactional generative AI content licensing revenue in the quarter compared to $8 million in the prior year quarter. Finally, Global Print revenues decreased 4% on an organic basis. On a consolidated basis, third quarter organic revenues increased 7%. At the end of Q3, the percent of our annualized contract value or ACV from products that are Gen AI-enabled was 24%, up from 22% last quarter. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $606 million, up 9% from the prior year period, with the margin rising 220 basis points to 41.7%. Moving to Reuters News. Adjusted EBITDA was $42 million with a margin of 19.9%. Global Print's adjusted EBITDA was $46 million with a margin of 37.1%. In aggregate, total company adjusted EBITDA was $672 million, a 10% increase versus Q3 2024, reflecting a 240 basis point margin increase to 37.7%. Turning to earnings per share. Adjusted EPS was $0.85 for the quarter versus $0.80 in the prior year period. Currency had a $0.01 positive impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. For the first 9 months of 2025, our free cash flow was approximately $1.4 billion, down 3% from the prior year. Changes in working capital, which are largely timing related, were the largest driver of the decrease. I will also provide a quick update on our capital allocation. In late October, we completed the $1 billion NCIB or share repurchase program we announced in mid-August, acquiring approximately 6 million of our shares. I will conclude with a discussion of our 2025 outlook and 2026 financial framework. As Steve outlined, we are reaffirming our 2025 outlook across all metrics. Our total and organic revenue growth is trending closer to 3% and 7%, respectively, rather than the higher end of the ranges at 3.5% and 7.5% for 3 reasons unrelated to our AI innovation momentum, as Steve mentioned. I will provide a bit more color. First, our Global Print segment has seen a slower-than-expected ramp in commercial print volumes thus far in 2025, which we believe will impact total organic revenue growth by approximately 25 basis points for the year. As a reminder, 10% of our print revenues from commercial where we print books for third-party publishers. Second, our government business, while holding up well overall, has faced a handful of recent downgrades and losses related to the federal efficiency programs that we believe will be an approximate 20 basis point drag to full year organic revenue growth. Third, as I mentioned earlier, we have seen softer bookings trends at our Corporate segment, reflecting the impact of internal sales organizational changes aimed at supporting an increasingly integrated product proposition and driving improved future cross-selling. While these changes have contributed to a slower sales build in 2025 versus our initial expectations, we remain confident in our corporate product portfolio and the segment's growth potential. Note, these organizational changes were only made at our Corporate segment and do not impact our Legal Professionals or Tax & Accounting segments, which have separate sales organizations. Despite these headwinds, we remain confident in achieving our 9% Big 3 organic revenue growth outlook for the year with strong innovation-led momentum continuing in our Legal Professionals and Tax & Accounting Professionals businesses and from our international markets. Turning to the fourth quarter. We expect organic revenue growth of approximately 7%, including approximately 9% for the Big 3. Legal Professionals is likely to again deliver 9% organic revenue growth, assuming no incremental government headwinds materialize. We expect the Q4 adjusted EBITDA margin to be approximately 39%, which includes select onetime investments we are making to transform and increasingly automate how we work. Looking beyond 2025, we are updating our 2026 financial framework to incorporate a more positive margin expansion and free cash flow outlook. We reiterate our outlook for 7.5% to 8% organic revenue growth, driven by approximately 9.5% growth at the Big 3 segments. We are confident in delivering the revenue acceleration this implies driven by positive underlying momentum, the execution of our innovation road maps and to a lesser extent, easier comparisons in several areas, including at Reuters News and Corporates. We now expect to deliver approximately 100 basis points of adjusted EBITDA margin expansion, up from our prior view of 50 or more basis points. Healthy operating leverage, combined with early benefits from using AI and technology to reengineer how we work, provide confidence in this outlook. We are also raising our free cash flow outlook for 2026 to approximately $2.1 billion, which is the upper end of the prior range of $2 billion to $2.1 billion. Our expectations for capital intensity and tax rate remain unchanged. We are currently in our 2026 planning cycle, and we'll provide more detailed 2026 guidance on our Q4 conference call in February. I will now turn it back to Gary for any questions. Gary Bisbee: Thanks. Jenny, we're ready to start the Q&A. Operator: [Operator Instructions] And our first question is going to come from Drew McReynolds from RBC. Drew McReynolds: Appreciate all the detail as usual. Two questions for me. I guess, first on the government and corporate headwinds. I guess the question is ultimately, what's kind of recurring into next year? And for corporates, I believe the organic revenue growth target is 9% to 11%. Just wondering how comfortable you still are with that? And then secondly, Steve, great kind of rundown essentially of the moat within Westlaw. I know it's early days on Agentic AI. Can you comment on the customer kind of reaction to what Agentic is doing from their perspective? And are they able in these first iterations to notice the difference between what you're offering and maybe some others that don't have the deep content access? Stephen Hasker: Yes. Drew, great questions. Let me start with Corporates, and then I'll ask Mike to supplement that. Then I'll go to government, then I'll go to Westlaw. So please be patient, but we'll work our way through these questions. So look, the Corporates sales softness is a bit frustrating because it's temporary and it's self-inflicted. So 2 points. One, we remain even more confident in the end market opportunity. We've said for a while that the TAM is the biggest opportunity for us in Corporates relative to the other segments. And it's the area in which we have the lowest penetration of our legal, tax and risk products. So we think it's our biggest opportunity. And our product set is, we think, pristine and well received by customers. And so we started to see glimpses of this promise last year, as you'll remember, with 10% growth. And underpinning that, we've seen a really nice escalation in our NPS scores across the segments and including in Corporates. But what we haven't seen is an uptick in cross-sell. So at the start of this year, we expanded our global account footprint, and we asked our salespeople to sell more than one product grouping. And I think in retrospect, we got a little ahead of our sort of commercial systems and our infrastructure in doing that. So we've left some of our salespeople, I think, a little disorganized relative to the opportunities and relative to where they were last year. So not up to our high standards. We're through this. We'll learn from it, and we'll be better for it. We've got no more changes in the pipeline and very confident in the 9% to 11% for next year. So that's on the Corporates side. Mike, what would you add to that before we go to government? Michael Eastwood: Terrific summary, Steve. Stephen Hasker: Okay. All right. So government -- so I'd say a couple of things. Our solutions in government, whether they be related to the legal side or the sort of law enforcement and risk side are very well aligned with the administration's agenda around efficiency and law enforcement. And we've seen good growth in state and local. And on a federal level, I think the teams have done a very good job this year in asserting the must-have status of our solutions. And so I think up until the end of the third quarter was so far so good. We had a couple of downgrades and cancellations at the end of the third quarter, which I think has us watching this one vigilantly. In the medium to long term, Drew, we are very confident in the value proposition, both the federal, state and local because tools like Westlaw Advantage and CoCounsel and our various tax solutions drive efficiencies for the government agencies. And of course, our law enforcement work through CLEAR and TRSS is very well aligned with the agenda of this administration, as I said. So medium to long term, we're confident about government, but it is a turbulent environment, and we just wanted to signal that. Unclear as to what it will look like for the next 12 months. But medium to longer term, we're very confident. So let me turn to Westlaw. So as you know, we put in the marketplace Westlaw Advantage, which is the first Deep Research and Agentic research product. The reaction has been very, very strong from customers as it has been to CoCounsel legal and the integration of those products. I'll give you the example of one customer that I've spent some time with that I think is emblematic of the broader environment. He is the managing partner of a major firm in New York City. He spent his career as a litigator and is well known as such. And he was describing how his career has been spent in conference rooms going back and forth with his colleagues and his partners, refining his arguments. Since he's had access to Westlaw Advantage, he is doing much more of that back and forth with our tool than he is with his partners. And so in the early going, there is a change to his behavior in terms of getting to the best, most refined arguments, anticipating the opponent's rebuttals and arguments and anticipating the likely judge's reaction. So we're very excited by the work that Mike Dane and Omar and others have done in developing this product, and we're going to keep investing behind it so that the verification and validation tools that I alluded to get better and better and the product itself gets richer and deeper. Mike, would you add anything there? Michael Eastwood: Nothing to add, Steve. Stephen Hasker: All right. Thanks, Drew. I hope that addresses the questions. . Operator: And our next question is going to come from Vince Valentini from TD Cowen. Vince Valentini: Can I just go back to the government for a second? I just want to make sure I'm clear on what the driver is. Is the government shutdown having an impact or these cancellations happened before that? And can you clarify, do you do work for ICE? Michael Eastwood: Vince, in regards to the first question, the downgrades, cancellations occurred prior to the shutdown. The shutdown has very minimal impact on our monthly -- quarterly revenue based on what we know today. So this occurred prior to the government shutdown. Steve, do you want to address the ICE question? Stephen Hasker: Yes. I mean we -- Vince, I won't go into the specifics of the work we do with various government agencies because it's subject to confidentiality clauses. But we do work with a number of departments on a range of law enforcement matters, and we do that consistent with our trust principles at all time. Vince Valentini: Can I maybe rephrase it? Maybe I shouldn't have been so specific. Is there any chance that the government spending is being temporarily redirected and that's impacting some of the contracts with you and that will ebb and flow over time, but should come back? . Stephen Hasker: It's a little -- I mean, I definitely think that this administration is putting much more emphasis on some things rather than others. And there is a sort of a process of adjustment to that, Vince. But as I said, in response to Drew's question, our tools achieve 2 things for government agencies. One is efficiency and the other is they are essential tools for law enforcement. So we're confident that our must-have status will be maintained and enhanced over time. But there is a level of turbulence as some programs get cut in this adjustment. Michael Eastwood: Yes, Vince, we're continuing -- we'll continue to work with our federal customers on kind of 3 big areas: Efficiency, national security and fraud prevention. We are confident our tools and offerings will be able to support them midterm, long term. Vince Valentini: I'm going to count that as one, Gary, I apologize, but it was 1a and 1b. Just the second question, you got a nice call out on the Amazon call last week on being one of their key customers for their transform product, they call it, they say Thomson Reuters has been able to manipulate 1.5 million lines of code per month 4x faster than they could with previous systems. I'm wondering, is this part of an initial effort to automate more of your internal cost structure and processes? And is there more of this to come over the next couple of years? And what could that potentially mean for future margins? Stephen Hasker: Yes. Thanks, Vince. So we're determined to be on the forefront of this AI transformation in 2 ways. One, in terms of our product development, particularly in and around Agentic AI and Deep Research. And that's an example in the -- first example in the legal space with the launches back at ILTACON in August. Second example, ready to review and then in December, January, ready to advise in our Tax & Accounting, and we're excited about those. We were pleased to see the reference from Amazon. This relates to the internal application of AI and automation tools. So we are applying our own tools, so CoCounsel Legal and CoCounsel for Tax, Accounting and Audit to Norie Campbell's General Counsel team and also to Mike's finance, audit and accounting teams, and we're seeing really promising results from the application of our own tools. We're also, as Amazon alluded to, working with the best tools available to drive automation. I'll defer to Mike as to the sort of financial implications of this, Vince. But rest assured, we're going to be at the forefront in terms of automating everything we do with a singular goal of being able to scale faster and more efficiently and deliver better products and services to our customers. Michael Eastwood: Yes, Vince, a few thoughts. As noted in my prepared remarks, we do anticipate some onetime investment in Q4 2025 to help us transform and increasingly automate how we work. To Steve's point, as we look into 2026, certainly, we view the example that you questioned and Steve addressed as opportunities to help us expand our EBITDA margin. It's one of the reasons why we were able today to expand our EBITDA margin expectations for 2026 by 100 basis points. We're not discussing guidance today beyond 2026, but I think these developments certainly are encouraging for the long term. Vince, while we have the mic, it might be helpful for everyone if I just clarify, when we say for 2026, increasing margin by 100 basis points, that will be 100 basis points off the actual result for fiscal year 2025. Just wanted to clarify that point. Operator: And our next question is going to come from Jason Haas from Wells Fargo. Jason Haas: In the prepared remarks, you made a comment about seeing some incremental competition in AI assistant space. So I was curious if you could just unpack that comment a little bit more. What was meant by that exactly? Stephen Hasker: Yes. Jason, thanks for the question. So the point that I'm trying to make is that we are not seeing any additional competition in our core franchises. So that's legal research and legal know-how and the tax calculation engines, whether that's UltraTax, GoSystem tax or ONESOURCE. So those core franchises have the same competitive dynamics today as they did 12 months ago or 3 years ago. Where we have seen the entrance of new players is in the AI assistant space. Now that is a greenfield sort of white space opportunity for us. And it was the reason that we went out and acquired Casetext and then added Materia and the fantastic team from Materia on the top of that. So that's a white space opportunity for us around CoCounsel, and that's where we see the entry of new players. We're happy with where we sit in that marketplace. We've got some very aggressive product development plans. And I think most importantly, customers are responding well to CoCounsel and its various offerings. So I hope that clarifies. Jason Haas: That's very helpful. And then I wanted to follow up on the Tax & Accounting business. It looks like the organic constant currency growth decels from 11% to 10%. I know these are rounded numbers. But I was curious if you could comment on that. And then can you just talk about your confidence in that accelerating to the 11% to 13% organic growth that you expect in 2026. Michael Eastwood: Yes, Jason, we do have some fluctuations quarter-by-quarter within the Tax & Accounting professional business. We remain confident in delivering 11% for calendar year 2025. And then for 2026, as a reminder, our guidance is 11% to 13%. We work very closely with Elizabeth Beastrom and her team there. We have very strong confidence in delivering 11% to 13% for 2026. We referenced SafeSend in our prepared remarks, which was the acquisition in January of this year, which is performing incredibly well. We expect that to continue into 2026. Steve mentioned Materia, they're additive, which is the recent acquisitions that we did. So we remain quite confident, Jason, with Tax & Accounting professionals. Stephen Hasker: Yes. I would just supplement that the end market is a very healthy one. We start our synergy customer conferences down in Florida tomorrow. We're very much looking forward to that and getting excited about getting together with thousands of our customers in person. The Tax & Accounting and Audit spaces remain a very robust end market with a critical need, and that's shortages of talent. And so Jason, as we develop Ready to Review and Ready to Advise and continue to refine those propositions, we think that, that is going to meet or even exceed the needs of our customers, and that gives us confidence around the 11% to 13% going forward. Operator: And our next question is going to come from Manav Patnaik from Barclays. Manav Patnaik: Steve, I appreciate the slide with the data and the moats there because I think we've heard that as well. But to your earlier answer on the competition is more on the workflow side, and that's why you acquired Casetext, et cetera. Can you help us with any sense of sizing of workflow for you guys and the growth rates there? Because obviously, a lot of these legal tech companies are raising a lot of money at high valuations, citing higher growth rates. So just trying to get a sense of your business there. Stephen Hasker: Yes. Manav, I mean, it's all a bit squishy at the moment, right? We sort of probably monitor the same source as you in terms of how competitors are performing and what sort of growth rates they're seeing, what their ARR levels are at the moment. And what I would tell you is that CoCounsel is at least on par or outpacing everybody else in terms of its size and its growth rate. So it is a competitive landscape insofar as there are lots of promises being made by lots of different new entrants. Where we differentiate ourselves is in the integration of our content and our expertise. So it's not only the content Westlaw, Practical Law and so forth, Checkpoint on the Tax & Accounting side. It's the expertise that 1,500 reference attorneys bring that are able to train the behaviors of an agent to produce a more accurate, more reliable outcome that is supported by pristine data privacy and protection. So a long way of saying, in the early going, we're at or outpacing the newer competitors. And we're very confident -- I hope not arrogant, but we're very confident about the sort of medium- to longer-term prospects given the assets that we bring to this competition. Mike, what would you add? Michael Eastwood: That's a good summary. Stephen Hasker: Okay. All right. I hope that helps. Manav Patnaik: Yes, that was helpful. And I guess just on -- I just had one question on M&A. So I think we all get a sense of all the tuck-in type of deals that you guys are doing and probably that continues. But in the past, Steve, you've talked about potentially larger ones. So just trying to get an update on where the market is at. Is it valuation, timing, like just some more thoughts there. Stephen Hasker: Yes. We're sort of happy -- we're very happy with the tuck-ins that we've done over the last couple of years. Each and every one of them in different ways has performed and been additive to the experience that we're providing in the Big 3. So we'll continue to look for those opportunities centered around our Big 3 segments. If we were to do something larger, it would be in the areas where we really see great promise. So areas like risk, fraud and compliance, building on CLEAR, the CLEAR data set and areas like IDT, Indirect Tax, and e-invoicing where Pagero is showing really good growth and growth that looks to be pretty considerably above some of the market comparables. And so those are the areas where we'd be prepared to go a bit bigger. I think at the moment, the assets that are of interest are still fully valued in the sort of portfolios in which they sit. So the question is, do we see a bit of an adjustment and some price that would allow us to create value for our shareholders, not just the exiting shareholders. And that's what we'll just continue to monitor and stay rigorous and disciplined around. Michael Eastwood: Steve, in addition to indirect tax, risk, fraud and compliance, I would just add international. Certainly, we'll be very selective there as we've discussed in the past. But Adrian Fognini, who leads our international business, we are looking at a few potential assets internationally. Operator: Our next question is going to come from George Tong from Goldman Sachs. Keen Fai Tong: You're continuing to target 9% to 11% organic growth in Corporates next year. Can you elaborate on how achievable that growth is without any additional changes to the sales organization or the pace of cross-selling? Michael Eastwood: Sure, George. Happy to start there. I think we've discussed with you and others in the past that Q4 is our largest quota period for a given year. That applies to Q4 2025 for Corporates. October net sales and bookings were quite encouraging, George. And if we look at our sales pipeline, coverage ratio for both the remainder of Q4 and also Q1 2026, once again, encouraging. Given that those changes have now been solidified and the focus is on execution, the way I think about it, George, a very simple formula. If you have great products and you have strong customer demand and you have a growing TAM, the likelihood of success is pretty damn good if you execute and have the right talent. I think you can check the boxes on each of those variables in the formula that I just mentioned there. So that gives me quite confidence. But if you look very tangibly, the October net sales and bookings, secondly, again, the November, December pipeline coverage and then also the Q1 pipeline coverage gives us confidence in achieving that 9% to 11% as we go into 2026, George. Keen Fai Tong: Got it. Very helpful. And then can you talk a bit about your pricing strategy in light of the increasing value that you're providing with your AI products? So do you have plans for accelerated pricing increases, for example, in your multiyear contracts? And how overall do you expect pricing to evolve going forward? Stephen Hasker: Yes, George, look, it's a great question, and it's one that we are very focused on, and we have some fairly vigorous debates amongst ourselves, particularly between the product folks and the commercial excellence folks and our salespeople. Our principle is price to value. So the extent to which we're driving significant efficiencies in the practice of law or in the practice of audit, tax & accounting, we want to make sure that our products and services are aligned to that. Just a reminder, we do not price on a per seat basis. So to the extent to which work is able to be done by fewer people, we will be a beneficiary of that, not a victim of that, if you like. And so it's a work in progress. I think in the early going, our pricing has proven to be competitive and is driving growth for us. It is profitable growth. I would say so far, so good. But this is one of those ones where we're just constantly looking for signals from the market and refining our approaches. Michael Eastwood: Yes, George, I would just supplement. As we go into '26, I'm somewhat optimistic that we could have some additional opportunity over the spectrum. Operator: Our next question is going to come from Aravinda Galappatthige from Canaccord Genuity. Aravinda Galappatthige: I wanted to discuss sort of the -- where we are in terms of the rate of innovation and product intensity. Obviously, we've seen a lot of activity from Thomson and even the industry in general. Is it fair to sort of characterize the present sort of position as sort of getting close to peak in terms of new product launches and so forth and sort of the next phase will be more about penetration. I mean, I'm trying to sort of connect that with sort of the underlying tone of margin expansion you're talking about. I know that you've been -- I think last disclosed number was about $200 million in incremental investments to sort of drive these growth opportunities. I'm trying to sort of assess whether we may be at sort of the crest of that. Any thoughts that you care to share on that front? Stephen Hasker: Yes, Aravinda. I'll start, and Mike may want to add. I obviously stay very close to David Wong and Joel Hron's product innovation plans and also our TR Ventures fund, who are looking across the landscape at different start-ups and also the sort of everything that our partners are doing. I would say -- you're going to see our rate of innovation accelerate and improve over the next few quarters and well into '26 and '27 based on that which we've previously invested in and that which is coming through the pipeline. What I think, though, will happen in the broader landscape, and it's hard to tell. So this is looking at a crystal ball, is that the rate of innovation for the highly specialized tools like ours that are trained on reservoirs of content and thousands of expertise will continue to improve. I think where things might flatten out is in the sort of general purpose horizontal tools. And certainly, our customers are starting to understand the difference. And so that, I think, will be one change in the sort of landscape. But again, I think anyone who will tell you they know exactly what's going to happen in this environment is probably slightly deluded. Michael Eastwood: Yes. Aravinda, a couple of points there. Please, please do not correlate our confidence in expanding our margin in 2026 with us investing less. We will invest over $200 million this calendar year '25 in AI, Gen AI. That will continue into 2026. We're able to expand our margins in 2026. One, you're aware of our operating leverage, but we have opportunity back to the prior questions to automate how we work. I think it was Vince who asked the question illustratively about the AWS reference. So we will continue to invest. And to Steve's point, the rate of innovation and intensity will continue. That $200 million plus will continue into 2026. Aravinda Galappatthige: And maybe my follow-up for Mike. I mean, on the last call, Mike, I think you talked about sort of your framework for capital allocation and how that potentially leaves $400 million to $500 million for buybacks. Obviously, given the movement in the stock, you've sort of shown the flexibility to step up beyond that. Should we sort of take that forward even in the -- going into '26 that notwithstanding that framework, you have the ability and the willingness to sort of step up in terms of your repurchase program? Michael Eastwood: Yes. I think, Aravinda, I would maintain the framework when you think about mid- to long term. But I think the key there is when we see the opportunity to step up, we will, which I think -- that was very tangible with our decision in mid-August to announce the $1 billion NCIB share buyback, which we completed at the end of October. We constantly discuss capital strategy, capital allocation with our Board. In our next Board meeting, we'll have the next discussion in regards to capital strategy, capital allocation. Could we step up? Again, possibly, no decision has been made there. So I would maintain the framework of the $400 million to $500 million. But also, I would kind of supplement that framework with our ability and willingness to step up when we deem appropriate. On the topic of capital allocation, I would just remind you, Aravinda, and others that as we go into the January board meeting, we will propose another 10% increase in our common dividend, which would be the fifth year consecutively on that. Operator: And our next question is going to come from Maher Yaghi from Scotiabank. Maher Yaghi: Great. Steve, you have very well articulated why Westlaw has a strong standing to benefit from AI. But can you tackle maybe how you see AI advances affecting your tax business? Do you believe that business has similar defensive capabilities to continue to gain market share as well as you're doing in legal? And the second question is the revenue acceleration you're expecting in 2026 versus 2025. I know it's maybe too early, but can you maybe just let us know which segment of the Big 3 you're expecting to see most of the acceleration coming from? Stephen Hasker: I'll defer the second question to Mike. On the first one, yes, we're sort of equally excited about the application of AI, Agentic AI, Deep Research to our tax business as we are legal for a couple of reasons. So in terms of the end market, the tax & accounting profession does not need to undertake the same sort of magnitude of change management. So for example, many tax & accounting and audit engagements are not priced on a per hour basis and not on a billable hour. They are value-based. And so there's not that same business model hurdle to overcome that the legal profession is currently working its way through, firstly. Secondly, there is, as I said before, a pretty acute talent shortage that technology needs to address. So we actually think our tax & accounting customers are even more receptive to AI and technology in terms of improving their outputs and work and enabling, for example, tax professionals to automate the tax return process and move to more value-added advisory services for their clients and the technology enables that. So that's the first part. As we think about applying AI, particularly Agentic AI to our product set, the sort of narrative up until now is that generative AI doesn't do math. Well, our tax calculation engines do the math. And what the agents enable us to do is automate all of the shoulder activities. So the document ingestion, all of the preparation and then they work with the tax calculation engine, whether it's UltraTax, GoSystem Tax on ONESOURCE. And then they're able to do the follow-up, all of the calculation checks and the e-filing. And so that's really what Ready to Advise is. It's the addition of agents to our pre-existing tax calculation engine. And then Ready to Advise is the use of agents to find all of the opportunities for a tax & accounting professional to provide advisory services on more efficient tax strategies for their clients. And so we think that the AI will enable us to expand the role that we play in the success of the tax & accounting profession, enable them to get into more advisory services and achieve growth on that basis, while at the same time, overcoming this talent shortage. Mike, the question on revenue. Michael Eastwood: Sure. In regards to 2026, just to remind everyone, we do have ranges for 2026 for each of our Big 3 segments. Legal for 2026 is 8% to 9%. Corporates is 9% to 11%. Tax & Accounting, 11% to 13%. Part of your question, Maher, is in regards to which segment would have the largest absolute growth. Tax & Accounting Professional, I believe, will have the largest absolute increase in organic growth rate for 2026 versus 2025. Just to reiterate those reasons; number one, the recent acquisitions of SafeSend, Additive and Materia will continue to scale for us. Next, Steve has mentioned Ready to Advise and Ready to Review, which are new launches for us. We consistently talk about our Latin America business, Domínio, which we remain quite optimistic about. Over the last 11 years, it's grown 20% CAGR over that time horizon. We expect that to continue. And then lastly, kind of underpinning UltraTax continues to perform well. Operator: Our next question is going to come from Kevin McVeigh from UBS. Kevin McVeigh: Great. I think in the slide deck, you talked about AI-driven innovation, the momentum continuing. On the legal side, I guess, just the timing, like the Agentic launches you did over the summer of '25, are they already starting to kind of permeate the base? Or is that something that continues to scale over the back half of '25 and into '26. I guess I'm just trying to understand the sequencing of maybe things that have already been launched as opposed to things that were launched over the summer. Michael Eastwood: Yes, Kevin, really good question. Great timing there. For everyone's benefit, we launched those in mid-late August as part of ILTACON. We're already seeing the benefit, and we'll just see more penetration, Kevin, in Q4 and throughout 2026. I would call out each of our general managers within legal professionals that are really driving hard, which is indicative of the 9%. Aaron Rademacher, who is driving the small law firm; Liz Zimick in Mid-Law, Steve [indiscernible] with our largest firms. And then we have John Shatwell in Europe, which I think each of these segments, we're seeing progression already with the launches. And with the momentum we have with the launches of CoCounsel Legal, Westlaw Advantage, that will continue. October, we had another great month of sales. With these new product launches, we expect that to continue for the remainder of Q4 and then throughout 2026. So we're already reaping the benefits, Kevin. Kevin McVeigh: That's super helpful. And then just the comments on the Tax & Accounting. Is there any way to think about the experiences of maybe the Big 4 as opposed to maybe the top 10 and maybe mid-market as you think about the go-to-market motion with the enhanced product from a Gen AI perspective? Michael Eastwood: Yes. Kevin, just to remind everyone, the Big 4 and the next 3 largest firms, we call it the Global 7, they are included within our Corporates segment, not Tax & Accounting Professionals. But Steve, you may want to comment in regards to the different motion as you think about those G7 versus the remainder of Elizabeth's Tax & Accounting. Stephen Hasker: Yes. I mean what I would say is there's increasing similarity across the G7, as we call them, relative to the big 4. In other words, firms 5, 6 and 7 are very sophisticated, increasingly global and investing heavily in technology, and we think we'll be a beneficiary of that going forward. I think though the mix does change a little bit as you get to the sort of top of the ladder there in that they're more likely to take an API from us and build on the top of it versus take the sort of full end-to-end product. So the kinds of work we do in the go-to-market motion is slightly different, Kevin. But the opportunity, I think, is equally weighted across that customer base. And if you go all the way into the smaller firms, which Brian Wilson serves from a go-to-market perspective, he and his teams. They're ready for turnkey solutions that work, that are reliable and that build upon their existing tax calculation engine. And so there's a lot of receptivity at that end as well. Operator: And our next question is going to come from Andrew Steinerman from JPMorgan. Unknown Analyst: This is [indiscernible] on for Andrew. Most of my questions have been answered. So maybe I'll circle back on the government headwinds just to clarify. Am I correct in saying your updated guidance only contemplates cancellations that you saw at the end of the third quarter? And I guess maybe just to give us a little bit more comfort on the go forward. Could you maybe talk a little bit more about if those cancellations were driven by reductions in spending at certain departments you serve? Or was it layoffs? Just any color there would be great. Michael Eastwood: Certainly, in regards to our forecast, we always contemplate what has occurred, plus we always look at the upcoming pipeline. So we have contemplated within our forecast any other activity that might transpire in Q4. So we believe that has been reflected already. And then in regards to the reasons for it, there's been a reduction in the actual spending levels in these agencies, which was the main driver. Operator: And our next question is going to come from Stephanie Price from CIBC. Stephanie Price: Just a few quick clarifications for me. Mike, I think you've kind of alluded to it for a few times in the call, but can you talk about the drivers that are causing the increase to the fiscal '26 EBITDA guide to 100 basis points versus 50 basis points prior. I think you mentioned some efficiencies, but anything else you wanted to add on there? Michael Eastwood: I would say 2 -- Stephanie, 2 primary drivers. One is the operating leverage at roughly 7%, 7.5%. We generate about 110 basis points of natural operating leverage, which is sustained in our business. The second key factor is our focus on transforming and automate how we work. So if you take those 2, that would be more than 100 basis points, but leads to a third key factor, which relates to a question earlier, is we're continuing to make investments, and we'll continue to make investments wherever we see the returns are sufficient there. But the 2 key drivers of margin expansion, operating leverage and then our internal initiative to transform and automate how we work. Stephanie Price: Perfect. And then for the Legal segment, organic growth accelerating quarter-over-quarter to 9%. I think in the prior question, you mentioned some new product launches. Just curious if there was anything else you wanted to call out there in terms of shifts in demand or adoption rates within Legal. Michael Eastwood: I think the new product launches certainly help us significantly there. Retention rates continue to be very good within that business. Pricing is relatively stable there. Certainly, Stephanie, we always add talent as part of our operating mechanism. So I think those are the key drivers for us. Steve, you may want to add... Stephen Hasker: The only thing I'd add is way back at our Investor Day a couple of years ago, where we started to talk about this AI journey, we did, at that time, speculate that the TAM in Legal would grow, and it would grow on a sustained basis. I think we're starting to see that. What we're starting to see is law firms wrestle with the idea of spending more on technology and potentially less on real estate and still trying to sort of work their way through the headcount implications. I think it's too early to sort of call that one way or another. But we're starting to see that TAM expand. And we think that, that's going to be a multiyear phenomenon and one that we plan to have the products and the propositions to fully benefit from. Operator: Our next question is going to come from Doug Arthur from Huber Research. Douglas Arthur: Yes. I think most things have been covered. Steve, you mentioned the acute talent shortage issues in some of the big accounting firms. Is there a similar narrative in legal or not so much? Stephen Hasker: Not so much, Doug. It's -- as someone who started my career at PW as it was called then, Mike did the same. Kids are just not as enamored of the profession as they were in our day. And so whether it's the big accounting firms or the midsize or even the smaller shops, they're just having a really hard time getting talent in the door at the entry level and then going through the apprenticeship that's required. And it's an acute problem, and it's been growing for a number of years. If you look at the number of people who are getting qualified as CPAs, it has fallen dramatically in recent years. And all the while, the number of audits goes up, the complexity of audits goes up, the number of tax returns goes up, the complexity of those returns go up. And the advice that, that small, medium and large businesses need from their tax & accounting professionals intensifies. So the demand characteristics are really healthy. It's the supply of talent that's the problem. And that's where the technology has a really, I think, exciting and important role to play. And that's why we're investing heavily to meet or exceed those demands. Operator: And our next question is going to come from Toni Kaplan from Morgan Stanley. Toni Kaplan: Your large competitor in legal has talked about one of the benefits of its partnership with Harvey is increasing distribution. I was hoping you could talk about, Steve, how you're thinking about partnerships right now. You have the content, you have the AI capabilities. So it doesn't seem like you need to partner with others. But is there an advantage to doing that because of increasing distribution? Or is there a disadvantage of going that route? Stephen Hasker: Toni, I won't comment on their approach. But what I will say is that we're very confident in our position of having CoCounsel for Legal, which is now fully integrated with our content and editorial expertise. So we don't see the need for partnerships, the likes of which one of our competitors has entered into or 2 of our competitors have entered into together. Where we are partnering is where there are point solutions, AI-driven point solutions, for example, in sort of the debt capital markets and its application to legal profession or in very, very specific area of the law, where we think an innovative team has developed a solution that can work in with CoCounsel. So we're keen to explore that ecosystem. But in terms of distribution, we obviously have the leading distribution in the industry at the moment. So we don't see a need there. But thanks for the question, Toni. Gary Bisbee: All right. I think that brings us to the end of our time. So thanks, everybody. Have a good day. Stephen Hasker: Thank you. Michael Eastwood: Thank you. Operator: And this concludes today's call. We appreciate your participation. You may now disconnect.
Michael George McLintock: Okay. Good morning, everyone. Thank you all for coming today. For those of you who don't know me, I'm Michael McLintock, Chairman of ABF. Before we get into the detail of the results, I just wanted to make a few remarks in relation to our announcement today that we are undertaking a review of the group structure. As a Board, we do, as a matter of course, regularly assess the appropriateness of the group structure. However, the current review is more substantive and has been running for a while and has reached the point where there are 2 options, to stay as we are, or to split into the separate businesses of retail and food. Above of our consideration is whether our retail and food businesses have now reached a point in their development where they would each benefit from greater independence and a clearer line of sight into their respective activities. We believe both businesses have exciting opportunities ahead of them, but separation might lead to better understanding, which is something that should benefit our food businesses, especially. I emphasize that no decision has yet been made. Splitting the group into 2 freestanding businesses is a complex proposition, and we need more time to confirm feasibility. Nevertheless, the fact that we're saying something today reflects the fact that there is a fair chance of the separation occurring, and making the announcement gives us the opportunity to consult with all our stakeholders without fear of leading potentially sensitive information. I'm leading the review and has been carried out in consultation with our largest shareholder, Wittington, who have indicated that in the event of the split, they intend to maintain majority ownership of both parts of the group. So no decision has yet been taken. You will appreciate that there is a limit to what more I can say at the moment. But we look forward to discussing with all our stakeholders, and we will, of course, provide an update as soon as it is practicable. And with that, I'll hand over to George to take you through. George Weston: Thank you, Michael. Good morning, and thank you all for joining us. We are here, of course, this morning to review ABF's annual results for the 52 weeks ending the 13th of September 2025. Before I go into the results, I wanted to say and make clear that I fully support the Board's review, and I have been and will continue to be closely involved and working with the Board throughout. I'm delighted to be joined by Joana Edwards ABF's Interim Finance Director. Joana will give a detailed review of our financials shortly. And I've also invited Eoin Tonge to join us this morning in his role as Interim Chief Executive of Primark. A lot of good work has been happening in Primark over the last few months and lots more to come. And so I've asked Eoin to give you an update on that this morning. Our financial results for the group this year show sales down 1% and adjusted operating profit down 12%. This was due almost entirely to sugar's profits going from close to GBP 200 million in 2024, down to only breakeven in 2025. That's the result of the sharp drop-off in European sugar prices in the summer of 2024. Prices sadly have remained persistently low since then. The rest of our businesses delivered robust financial results against the challenging external backdrop sanctioned as of the tariffs and all. We've kept though our interim and final dividends in line with last year, and we've announced today a new buyback program of GBP 250 million, which will be completed in 2026. We're really quite confident about the future. 2025 was a year of intense activity in ABF. As you know, we're about building brands and businesses that will deliver growth, cash generation and strong return generations. And to that end, we invested GBP 1.2 billion of capital to hear across Primark and our food businesses. We're now well through about wave of investment in our food businesses. A number of large multiyear projects were either completed recently or will be completed in the next few months. These are exciting growth projects that will still be delivering value, I think, in 50 years' time. Another thing we've been doing is fixing businesses. I said in April that we had 3 loss main business that we would take action to address and we have. Firstly, and sadly, we closed our Vivergo bioethanol plant in the U.K. The regulations in any other country in the world would have meant this business was profitable, but it was the right thing, therefore, to do, to fight for its survival. However, the U.K. government decided not to make the intervention we needed, and we couldn't tolerate continued losses and so it's gone. Secondly, we substantially restructured our beet manufacturing footprints in Northern Spain, reducing the number of facilities from 3 down to 1. This follows recent action to exit our sugar businesses in Mozambique and in Northern China, and I'll talk more about sugar later. Thirdly, we reached an agreement to acquire Hovis Group. Combining their production and distribution with ours will deliver significant cost synergies and will enable innovation. This will create a U.K. bakeries business that's sustainably profitable. The transaction is subject to CMA approval, and we're working closely with them through their review. Alongside reinvestment in our business, we've delivered strong capital returns to shareholders in 2025. This included just under GBP 600 million through buybacks in the year. And over the last 3 years, we've returned GBP 3.2 billion to shareholders through dividends and share buybacks. Before Joana goes through the financial results in detail, I'll share some color. In Primark, we've reviewed our focus on a number of initiatives to drive like-for-like sales growth. And the business is in mid-flight on a lot of very good work. This includes improving price perception and improving our product offer. Progress in the U.K. has been really encouraging. The business is back on a stronger footing and there's more to come. We still got work to do in Europe, but we know what's required and there are plans in place. The consumer environment though, was weak, particularly in the U.K. but also in Europe. And Primark's like-for-likes declined in the year. Space growth was well executed and profit delivery was good. Grocery performance was as we had expected. Our international brands are growing, but that is being masked by declines in U.S. oil and U.K. bread. Ingredients performed well. In both grocery and ingredients, we're benefiting from sustained investment in those businesses. Sugar profit was breakeven this year, excluding the loss in our Vivergo bioethanol plant. We've made progress, but there's still more work to be done, which I'll cover later. Agricultural profit was lower this year due to one-offs and less contribution to our joint venture. With that, I'll hand over to Joana. Joana Edwards: Thank you, George, and good morning, everyone. So let me take you through the results in more detail. Group revenue was GBP 19.5 billion, which at constant currency was 1% below last year. Of note, this year, there was a negative impact of foreign exchange translation of approximately GBP 450 million. Group adjusted operating profit was GBP 1.7 billion, a decrease of 12% at constant currency due to the reduction in sugar profits. At actual rates, the decline was 13% again, an adverse translation impact of around GBP 50 million, mainly from sterling strengthening against the U.S. dollar but also from some of our African currencies. So let me take you through the performance by segment. Starting with retail, and I've got a couple of slides on Primark. Looking first at sales, which grew 1% to GBP 9.5 billion. Like-for-like sales declined 2.3% and the dynamics in this were very different between the 2 halves of the year and also different in the U.K. and Ireland compared to Continental Europe. In the U.K. and Ireland, like-for-like sales declined 6% in the first half. The clothing market declined in a weak consumer environment, particularly within elements of our Primark's shopper space. In the second half, Primark's U.K. trading showed a good sequential improvement. Like-for-like sales were broadly flat, and Primark gained market share. This was a result of a number of initiatives to strengthen our value proposition and product offer. In Europe, the shape was the opposite. A strong first half was followed by weaker trading in the second half. As George said, we have more to do in some of our European markets. Eoin will talk this morning about the actions we've been taking in the U.K. and our plans for similar initiatives in Europe. Our store rollout program contributed 4% to growth with good execution across our key markets in Europe and the U.S. Primark's adjusted operating profit grew 2% to GBP 1.1 billion, and adjusted operating profit margin was 11.9%. Excluding a nonrecurring benefit in the year of around GBP 20 million, the underlying margin was broadly in line with last year's margin. Gross margin improved in 2025 due to favorable foreign exchange, supplier efficiencies and effective markdown management. And our focus on cost optimization and efficiencies broadly offset wage inflation, and a significant step-up in investment across product, brand and digital initiatives. Part of those efficiency savings come from the investments we've made in technology and automation in recent years. Moving to grocery. Sales of GBP 4.1 billion were in line with 2024 and adjusted operating profit decreased 4% at constant currency. Our 2 largest international brands, Twinings and Ovaltine, delivered good sales growth, supported by investment in marketing, strong commercial execution and product innovation. These figures also benefit from consolidating our acquisition of the Artisanal Group in Australia. As expected, lower sales and profit in both U.S. oils and Allied Bakeries led to an overall decline of 4% in grocery adjusted operating profit. Ingredient sales of GBP 2 billion were in line with last year at constant currency. Our yeast and bakery ingredients businesses, AB Mauri, delivered good underlying growth. This was offset by the impact of hyperinflation accounting treatment in Argentina. In specialty ingredients, most of our portfolio performed well. Our enzymes and Health & Nutrition businesses had particularly strong growth, offset by lower sales in one of our pharmaceutical businesses. Prior year acquisition in specialty use and bakery ingredients contributed to growth. Adjusted operating profit for Ingredients grew 16% at constant currency. This was supported by a continued focus on productivity savings across our supply chain and good management of input costs. As expected, sugar sales declined 10% and the segment had an adjusted operating loss of GBP 2 million. The operating loss in our Vivergo bioethanol plant of GBP 36 million is included here and separately captured within disposed and closed operations. In the U.K. and Spain, low European sugar prices and high beet costs drove significant operating losses. As we said back at the interim results in April, our cost base in Spain is structurally too high. Since then, we have completed restructuring in our northern beet operations to reduce our footprint from 3 facilities to 1. We will continue to reduce costs and improve efficiency in our operations. In Africa, performance was mixed. We had good growth in Malawi and Eswatini, whereas droughts impacted production costs and profitability in Zambia and South Africa. In Tanzania, there was an impact from sugar imports that were higher than usual. Our new sugar mill began production last week and will significantly increase domestic supply. George will talk in more detail shortly about the building blocks to improve profitability going forward. Agriculture sales decreased 1%, and adjusted operating profit decreased from GBP 41 million in 2024 to GBP 25 million in 2025. This reflects two things: a reduced profit contribution from our joint venture, Frontier, as a result of exceptional weather conditions; and secondly, one-off costs in the year. Our specialty feed and additives business performed well, and we had good growth in our dairy business. Sales in our compound feed business remained soft. I showed this slide at the interims in April. In a year where there was a significant focus of the implications of U.S. tariffs, this is a reminder that ABF's exposure to the U.S. is modest at around 9% of group revenue, and at least around half is domestically sourced. Moving to adjusted earnings and adjusted earnings per share. Two things I want to highlight here. Firstly, on tax. The adjusted effective tax rate was 24.2% this year, similar to the tax rate at the half and up from 23.1% last year. This was mainly due to the introduction of Pillar 2 tax rules, which increased our tax rate in Ireland. We expect the group's effective tax rate in 2026 to remain broadly in line with 2025. Secondly, you can see that the adjusted earnings per share have benefited from the share buyback. We estimate the accretion to EPS on a cumulative basis since the start of the buyback to be about 7%. Note, basic earnings per share includes exceptional charges of GBP 188 million compared to GBP 35 million in 2024 as well as losses on closure of business of GBP 32 million. Free cash flow was GBP 648 million compared to GBP 1.4 billion last year. There are 2 reasons for the reduction. On one hand, the lower operating profit, and on the other hand, the year-on-year movement in working capital. In 2024, as I explained at the interims, there was a working capital inflow of GBP 305 million, which was mainly due to Primark's inventories reducing to more normal levels after all the supply chain disruptions the year before. In 2025, there was a working capital outflow of GBP 95 million, mainly due to slightly higher Primark inventories. You can see capital expenditure at GBP 1.2 billion, which was in line with last year, and I'll come on to the details of that spend shortly. One point to note on cash tax. In 2025, it was lower than last year due to a one-off EU state aid refund of GBP 25 million. Without this benefit, we expect tax cash in 2026 to be moderately higher. Our balance sheet remains strong and continues to support investment and shareholder returns. A few things to highlight on this slide. Firstly, you can see that working capital was broadly in line with last year. Secondly, the lower cash balance of GBP 0.4 billion reflects the shareholder returns we made in the year, both in dividends and share buyback. Finally, the pension surplus. This continues to grow and is very significant at GBP 1.6 billion, underlining the strength of our financial position. Turning now to cash and liquidity. Our year-end net debt position, including lease liabilities, was GBP 2.6 billion compared to GBP 2 billion last year. This is due to the cash reduction I just explained. Our leverage ratio was 1x and is an increase on last year, but well within our capital allocation policy. Total liquidity was GBP 2.2 billion, and this robust position underpins our ability to continue investing in growth, while maintaining resilience and flexibility. Our capital allocation policy prioritized disciplined investment to drive long-term growth. In 2025, we invested GBP 1.2 billion across the group, around 40% in Primark where we continue to roll out stores, invest in our depot network and add new technology. The remaining 60% was in our food businesses. A large amount of the spend was on multiyear projects that have either completed in 2025 or will complete in 2026. It is worth noting that across ABF, around GBP 100 million of this year's CapEx investment was in technology, including automation to drive efficiency in our supply chain and new ERP systems to strengthen efficiency and decision-making in the businesses. We expect CapEx to remain at a similar level in 2026. Part of our capital allocation approach is to return excess capital to shareholders, both through dividends and share buybacks. Starting with dividends. We are proposing a total dividend of 63p, which includes an interim dividend and a proposed final dividend in line with 2024. That's a reduced level of dividend cover, but reflects our confidence in the outlook for the group. In terms of share buybacks, during 2025, we completed GBP 594 million of buybacks. And looking at our total shareholder returns in the last 3 years, we have returned GBP 1.6 billion in paid and proposed dividends and GBP 1.6 billion in share buyback. And today, we have announced an additional share buyback program of GBP 250 million, which we expect to complete in the 2026 financial year. These shareholder returns, alongside our continued capital investment in the business, demonstrates our disciplined approach to capital allocation and our commitment to delivering long-term value for shareholders. I'll finish on the outlook for 2026. For the group overall this year, we expect to deliver growth in adjusted operating profit and adjusted EPS. I won't read out the segmental guidance in detail as you have it both on the slide and also in the RNS. In Primark, we continue to expect the consumer environment to remain subdued. We are focused on a number of initiatives to strengthen our value proposition with a view to driving like-for-like sales growth. And we expect new space to contribute around 4% to sales. Next year's margin will reflect investments in growth. We expect overall profit in grocery and ingredients will be broadly at this year's level. In sugar, we expect some improvement in profit. And with that, let me hand you back to George. George Weston: So the biggest change in Primark this year has been the leadership. You all want to know who the permanent CEO will be. I can tell you that we're well underway with the selection process, and I'll update you once the decision has been made. I would hope that we can do that early in the new year. But I'm extremely pleased with what Eoin has achieved in the interim role over the past 7 months. He successfully brought together and empowered the leadership team in Primark. He's driven forward a number of critical trading and operational initiatives across product, technology, route-to-market, supply chain and marketing, and these are progressing at pace and will better position Primark for future growth and expansion. A key priority for Eoin and the team has been how best to unlock the growth potential of Primark's proposition, both in like-for-like sales growth and space expansion. We recognize the competitive challenges in our marketplace and the customers today take a more complex route to purchase in our stores. However, two things are clear. One is the continued differentiation of Primark's value proposition, offering unbeatable prices for great quality clothing; and two, is the strength of our brand. Two weeks ago, I was in Kuwait with Eoin and others for the opening of our first store in the region. No shopping center in the Middle East has seen a store opening like it. The queue was 300 meters long at its opening and 4 hours later, it was still 200 meters long. The average basket size was 27 items. Our ambition on new space continues and was well executed this year. However, we're also rebalancing our focus on to driving sustainable like-for-like growth across our markets and putting a renewed emphasis on strengthening our proposition, including on price perception and our product offer. Clearly, the last 12 months of trading have been very challenging. Consumer sentiment in both the U.K. and Europe has been weak and particularly so for core customer base -- for Primark's core customer base. In that environment, though, we need to execute better. And with that, I'll hand over to Eoin to share his thoughts. Eoin Tonge: Thank you, George, and good morning, everyone. It's nice to be here with you all. So it's been a busy 7 months on the key areas of focus that George just mentioned, I think there was already a lot of work going on in Primark. I think what we've done is really just challenge ourselves to take a hard look at our operating environment, and then be very precise about what we're going after. The consumer backdrop is challenging. Our customers have more and, in some cases, newer choices in the value space. We also recognize our world has evolved, as George has said. The customer journey to our stores is more fragmented and more complex than it used to be. We fundamentally believe that our core proposition has never been more relevant to consumers, but we know we have some work to do to enable our customers to rediscover our value disruptor edge. Primark is the original value disruptor, and we remain that today. We need to make sure that it is always front of mind for our customers. So let me tell you what we're doing in approaching this. Our priority in all markets is like-for-like sales growth. This is about sharpening our value proposition, starting with price and specifically price perception while at the same time, strengthening our product, starting with womenswear, better integrating our customer engagement and, of course, continuing to develop our digital capabilities to enable all of this, all the while thinking hard as to how we attack the significant white space available to us. And driving cost optimization to enable further investment in the proposition. So let me give you color on all of those items, starting with value and price perception. Look, we still have the lowest prices in all the markets we operate in. As always, we've continued to reduce our prices whenever we've seen our competitor prices below ours to maintain our price leadership in every market. As a reminder, around 85% of our products are priced at GBP 10 or equivalent or less. But in today's environment, we need to keep reminding customers of this unbelievable value, especially as we broadened our product offering. There is actually more to do here, but we've made some progress in the year. We started off with a campaign in April called Never Basic. It was to remind customers of the extraordinary entry price prices that we have in our essentials. We also refreshed our in-store communication, so our prices are now much more visible to customers, top basic stuff, but retail is all basic stuff. In some markets where the need is greater, we will increase this further. But we want to do more to get more assertive on communicating our value credentials to customers. We recently launched Major Find, which simply put is wow product at wow prices. Limited edition fashion items at low price points to create a standout must-have deal. We started that in the U.K. and Ireland, and we'll be rolling that out into Europe in the coming month or so. Early days, but we've seen that this type of initiative is resonating with customers hungry for value and will drive both footfall and attachment sales. This is just the first example and going forward, you'll see us really doubling down on communicating our value proposition to customers and getting a lot more disruptive to remind them what Primark is all about. Low prices are, of course, only one part of our value equation. You need to have a differentiated quality product offering to go with them, which brings me on to what we're doing on product. Primark continues to offer a great quality essential clothing and fashion, and we've been developing our ranges nicely throughout the year. About half of our range is womenswear, which includes fashion, accessories, underwear, nightwear and footwear. It's the engine of our like-for-like growth, so no surprise that when we started to focus on our product evolving, we focused here in womenswear first. We've been building and promoting talent in our team, including some leadership changes, and we've developed a much more targeted womenswear strategy overall. I'll give you a flavor of elements of that. Primark has always been about making fashion trends more accessible to every consumer. The best example last year was our investment in performancewear and the very strong results at delivered. Our product is high-quality, stylish with strong innovation and fabric, all at affordable and accessible prices, really Primark at its best. Another big initiative is coordination. We've seen last year that as we've done a better job of curating ranges for customers, we get a strong like-for-like benefit. Our Paula Echevarría collection is the best example of this, which has continued to grow. And the sales in our last campaign were up 7% on the same launch last year. We'll be doing more of this coordination approach for ranges this year. Primark is famous for everyday essentials, and I'd call out our success in nightwear in particular, where we're leveraging our strength to respond to newer trends. If anyone has seen the recent viral moments and store sellouts in a number of our pajama prints, it really feels like the old Primark again. Overall, these actions we've taken in womenswear are delivering results. We've seen a strong sequential improvement in womenswear sales in the second half of 2025 compared to H1 particularly in the U.K. where the initiatives were combined with increased marketing support. Progress hasn't just been in Womenswear. Kidswear also progressed well last year. A key driver there has been newness, both in own label and through the successful expansion of our licensed offer. As an aside, I feel there is much more we can do to leverage the benefit of our strong relationships with key brands in culture, including Disney and Netflix. I'm not going to talk much about menswear today, but we're making many of the same developments that I've spoken about in womenswear. Growth in performancewear is a great example of that. Our lifestyle categories, however, such as Health & Beauty and Home, which account for about 10% of our sales, really had a tough year and contributed significantly to our like-for-like challenge last year. We've got more work to do in those categories, but I believe there is still a lot of opportunity as we sharpen our proposition. On to customer engagement. We're really at the foothills of integrated customer engagement around our compelling value proposition. That said, we made some progress this year, which I think is setting us up well. We've been using paid social marketing for a number of years now, which has driven good conversion with strong ROIs that discontinued last year, particularly in the U.K., and, again, with good uplifts delivered. For example, increased revenue from paid media was up 30%. Increased efficiency of paid media was up 5%. We've also continued with our brand affinity campaign in Germany and our brand awareness campaign in the U.S. The impact we've seen on our brand metrics has been positive, but more to do to optimize our marketing approach. Towards the end of the year, we had our first truly integrated performance marketing campaign in the U.K., which focused on denim, which has been a tough category for us for a few years now. The In Denim We Can campaign was a multichannel campaign, including out-of-home, paid social media, TV advertising and visual merchandising. The response has been good, not just because our denim sales have been up 12% in the U.K. following the campaign. It has also had a positive impact on our brand metrics, including consideration and brand reappraisal. There's so much to go after as we continue to integrate and optimize our brand and marketing approach. The initial focus, as George has mentioned, has been in the U.K., but we'll expand this to other markets in the coming year. What's underpinning our more integrated customer touch points is continued investment in our digital assets. We've continued to invest in the customer experience on our website, including better functionality. We've had 177 million visits to our primark.com website last year, an increase of 24%. Customers are spending more time on our website and are viewing more of our products. Critically, 20% of the website visits this year have -- customers have used the stock checker, which is the best measure of intent to convert. Plus, our CRM database continues to grow. It's reaching 4 million customers, and our survey data shows that e-mails have been a strong driver of store visits. And finally, we launched our Primark app in the year. It's only in Ireland and Italy so far, but the results have been good, and we're going to roll that out into other markets this year, including the U.K. Our Click & Collect service now has been available from all British stores since the end of May. It's contributing nicely to growth, and the metrics have remained very strong. The average basket size was around 25% higher than the U.K. average. And we've had at least a 40% attachment rate when people come into stores to pick up their Click & Collect, again, with higher average basket size. Our data shows that 1 in 4 Click & Collect customers have not shopped with Primark for at least 2 years prior to the first Click & Collect purchase. Importantly, there's plenty more to do to optimize the range and drive customer awareness. Over 1/3 of our U.K. customer base are still not aware we offer the service. Given our comfort level on the customer and the financial metrics of the service in the U.K., we're exploring the potential to offer Click & Collect service in other markets over the coming years as part of more integrated market growth plan. New space contributed 4% of sales growth in 2025. We opened 23 stores in Europe and the U.S. In the U.S., it included our first stores in Texas and Tennessee. There is, of course, a lot going on in the U.S. at the moment with tariffs and the consumer reaction to increased pricing across the market. But we have an exciting year ahead. The number of store openings will be our largest yet in this current year and includes a flagship in Manhattan, which is obviously significant from a brand awareness perspective. We also opened the first stores with our new design concept in Europe last year. This enables us to expand our footprint across different store sizes, while still maintaining strong sales entities. It will be a key enabler for smaller store openings outside of key cities. As George talked about, we had a great time opening our first franchise store in Kuwait a couple of weeks ago, which had an amazing initial reaction. And we're getting ready for 3 openings in Dubai early in the calendar year 2026. Franchising is an important new capability for Primark and has the potential to open up significant new market opportunities in the future. We're confident that our store rollout program, which now includes franchise, will continue to contribute 4% to 5% of sales growth for the foreseeable future. To continue investing in the customer value proposition, we have to drive continued cost optimization. As with any retailer, cost optimization is focused within stores, in our supply chain and in central operations. There's still a lot of opportunity to go after, and we made decent progress last year. We now have self-checkout in 195 stores. Self-checkouts have the potential to reduce labor hours in a typical store by about 10%. They also help the customer experience if executed well, and they have not driven increased stock loss. LED lighting is now in over 320 stores and, on average, has reduced our energy consumption by 35%. We are making some progress with a number of ongoing projects in our warehouses to either fully or partially introduce labor-saving automation. And we've also identified opportunities to drive savings in our central costs. For example, we announced this year that we're moving to a global business service arrangement for certain central functions. Of course, cost optimization will, of course, be a multiyear project. And finally, on sustainability, although it is lost focus in some circles, it hasn't at Primark. You can see from the metrics we are making good progress. Given our scale and volumes, I'd particularly like to call out what Primark is doing to drive circularity and fashion. This is all about keeping products and materials in use for longer, for making them more durable as well as aiming to reduce waste over time. This includes embedding circular design principles into how products are created. We've made really good progress here. 20% of all Jersey and 8% of all denim products are now circular by design as defined by our standard, which, again, considering our scale, really brings to life how we are really making a difference. 74% of our clothes are now made from recycled or more sustainable materials. We are reviewing our approach to sustainability. We believe there is an opportunity to make more progress if we focus on a smaller number of more impactful activities. We'll update more on this review through the year. So that's Primark. Hopefully, you'll see we have a clear plan of focus, and let me hand you back to George, and I'll come back to your questions. George Weston: Thank you, Eoin. Now let me take you through our food businesses and starting with grocery. We're building grocery brands and businesses to drive long-term profitable growth and strong cash generation. We're investing more in marketing to both drive volume growth and underpin strong brand equity, and we're growing our portfolios through product innovation as we respond to global consumer trends like premiumization, convenience and health and wellness. You can see our current footprint on this chart. We focus on geographies with attractive long-term demographics and market fundamentals. Typically, these are English-speaking and with growing populations, either naturally or from immigration. And we're investing in the capacity and the capability to be able to grow in new and existing market channels as well. Given the breadth of ABF's portfolio, I'll focus today on just 3 of our key brands. And I start with Twinings, which is one of our largest and our fastest-growing brand. Twinings has had consistently good volume-led growth in recent years, something like 3%, 4% compound. This has delivered meaningful growth in market share in three of its largest markets, the U.S., France and Australia. And in the U.K., Twinings has had very meaningful growth in market share in fruit and herbal infusions and in benefit plans. Twining's growth reflects disciplined and patient execution. It's included a focused program of product innovation supported by clear consumer insights and testing and we've increased the effectiveness and sufficiency of our advertising to deliver strong returns, that somewhat sits behind the volume growth. And as you know, our strategy is to maintain the strong position that Twinings hold in black tea and leverage that to grow in wellness teas. Consumers are looking for great tasting and naturally caffeine-free beverages that are good for you. In 2025, our growth rate for both green teas and herbal infusions was in the high single digits, and benefits blends grew double digits. Twinings has an exciting and very long runway for continued growth. This includes expansion in our smaller markets as we start to deploy our now proven blueprint for growth. Markets such as Italy, the Nordics and the Middle East, which I saw the other day, all grew well this year. Ovaltine is the other large-scale growth engine within our international brands. We've made some progress in recent years, but we've also had to navigate some headwinds. In 2025, we had to manage through a steep increase in cocoa raw material costs. Inevitably, the need for price increases led to some tough negotiations with retailers and that impacted volumes. It also led to consumers in less affluent countries walking away from the category. But we're now through that. Ovaltine is a brand with a unique taste. It has very strong brand awareness and equity in the markets where we sell. This means we can leverage our strong base and market share in powder products to grow through innovation, including expansion into both ready-to-drink and importantly, ready-to-eat products. Sales growth in our ready-to-eat portfolio was in the high single digits this year. This included strong volume level growth in our Crunchy Cream chocolate spread, think Nutella but better and the launch of successful innovations in Thailand, China and Switzerland, often based on that Crunchy Cream starting point. Moving then across the United States and to Mazola. We're delighted to have become the #1 branded cooking oil in the U.S. We took that position 3 years ago, and we've held it for the last 3 consecutive years. Our market share now excludes that of #2 and £3 branded players combined. We've remained well invested in advertising and store activation for Mazola, while others have pulled back long-term investment in our brand. Mazola share of voice in the cooking oils category increased from around 50% last year to around 80% in 2025. It's hardly a surprise that we should be piling on market share as we are. This year, we've launched our new 2-gallon format, which targets consumers looking for value, and we made good operational progress with reliability and efficiency following heavy investment in our packing plant in Argo in Chicago. There is a headwind, however. Mazola's core consumers are the Hispanic population in the U.S., particularly first-generation immigrants. And we've seen those consumers come under pressure and significantly pull back on expenditure. Expenditure amongst Hispanics is well down in the States. We believe and really hope that this effect will be transitory, but it will impact volumes in 2026. So I focused on just 3 of our brands this morning. However, this slide is a reminder that we have a large and diverse set of grocery businesses across a breadth of markets and there continues to be a lot of activity across the portfolio in 2025. This shows a small number of examples. We're activating our brands through marketing and in stores. We're growing through different channels, including Amazon, which I think we've really got a grip on now. And we're launching new products to meet consumer needs, including convenience and wellness. And we're adding new capacity to drive growth and efficiency. Also to note that our grocery portfolio includes our U.K. bread business, Allied Bakeries, and the operating loss this year was a significant drag on overall profitability in the grocery sector. Clearly, the acquisition of Hovis, subject, of course, to CMA approval and the associated cost synergies would be very accretive to the profit of our grocery sector. Moving then to Ingredients. Our yeast and bakery ingredients business, Mauri, delivered very good underlying growth this year. This reflects the breadth of our global reach with sales in more than 100 countries. We remain well positioned in the Americas and Europe, in particular, while growing our presence in fast-growing markets in Asia. Our new yeast plant in the north of China should be commissioning in this year. We're leveraging our well-established routes to market for yeast as we expand our portfolio of other products and technologies associated with baking. And we're growing our global network also, food scientists and technology centers to develop products to meet changing consumer trends. This includes demand for healthier, more flavorful bakery options. To share an example of that. In the U.K. this year, we've just about commissioned a new production line to make sourdough ingredients through fermentation to supply into the U.K. bakery market. That's Mauri. Turning now to our portfolio of specialty ingredients businesses, which overall performed well in 2025, particularly in enzymes and in Health & Nutrition. We know there's more that we need to tell you about all these businesses. They've been growing well. They're now quite sizable part of our total ingredients business. However, to do that, any justice would take a lot more time than we have available this morning. I look forward to doing it on another occasion. We're increasingly clear on our strategic priorities for specialty ingredients. We know the technologies we want to focus on, the capabilities we want to build on in the markets we want to service. We know we can't go everywhere, and we can't do everything. More to share with you going forward as we grow in these areas and as we continue to invest in some exciting opportunities. I expect growth will continue to be both organic and through acquisitions in our specialty ingredients portfolio. Sugar. Let me start with Africa, which accounts to close to half of ABF's sugar revenue. As you all know, in our African markets, the fundamentals are extremely attractive in terms of population and GDP growth. Sugar consumption traditionally grows faster than GDP. Our businesses are well positioned for the long-term market growth opportunities. We have really good cane estates and factories, and they're both getting better. And we have strong market positions and leading retail brands, well-established routes to market for those brands as well. The brand metrics we possess for all our major European sugar brands are ones that any leading FMCG company would absolutely die to have. Tanzania, Zambia and Malawi are our key growth markets. And I'll note here that Zambia, which this year has been our best of our sugar business, is listed on the Lusaka Stock Exchange. The most recent market capitalization for Zambia, Sugar was just over $900 million. We own 75% of that business. In Tanzania, we'll accelerate growth with our new sugar mill. It will double our capacity in that market, which is just as well because the population is forecast to double by 2050. Tanzania is already a deficit market and it's going to remain so. But we have a strong market position with industrial customers, and we have the leading market -- leading retail brand, Bwana Sukari. Our new factory, ABF Food's largest single investment over the last couple of years, that factory started up last week. And in the medium term, we'll expect the return on that investment to be something around 20%. This is a plant which will still be there in 50 years' time. In Malawi, our business entered into a partnership with part of the World Bank this year to enable investment in infrastructure for water irrigation. Our businesses in a number of parts of our African sugar businesses are the partner of choice for international and local organizations on development opportunities to drive positive change for local communities and economies where we operate and we benefit from those partnerships significantly. That's Africa. The other half of our sugar business is in Europe. And in 2025, these businesses were loss making. We need to see a recovery in European sugar prices to get them back into profitability, and I'll talk about those dynamics in a moment. But just first, as a reminder of our market positioning, our businesses are in the U.K. and Spain. They're both deficit markets and, therefore, they should in times of European sugar deficit trade at a premium to other markets. And the U.K. The U.K. has some additional protection from both the English channel and from Brexit. British Sugar has built its customer relationships on its product quality, its reliability and security of supply. And these factors support a price premium. Our market share is well over 50% of the U.K. sugar market. Beet prices, though, have been -- sorry, British Sugar is also a very low cost and highly efficient producer. It's at the bottom end of the cost curve among European sugar producers. Beet prices, though, have been too high in the U.K. We negotiated a significantly lower price in this year's campaign that sugar that's coming out of the ground now, and that has given us a cost saving of about GBP 50 million. And we've negotiated already a further reduction in next year's beet price. So that is for crop that will go into the ground in March, April of '26. In our Spanish business, Azucarera, the deterioration in market conditions demonstrated to us what we already know, which was new, which was that the cost base in our beet factories was too high. So we've significantly reduced our beet manufacturing footprint in Northern Spain. We couldn't address that cost inefficiency. We've removed about GBP 20 million of cost and will create other efficiencies as well, 3 beet facilities down to 1. It's pivoted, and this is the most important point. Our Spanish business to cane refining rather than beet processing. In fact, refining has increased from 20% of the business to about 80%. The business becomes a much more back-to-back trading business, which will help reduce the risk and the volatility in Azucarera. We'll look at other opportunities to further reduce costs in Spain. We believe they are available to us. We're still confident that in time, supply and demand will rebalance in Europe. Price tends to fix price. Beet acreage should continue to come down as beet prices come down and sugar prices will then improve. We also think that there will be some removal of manufacturing capacity beyond our reduction of capacity in Spain. The market recovery will be slow pace. It won't happen in '26. Our European operations are well placed for when it does. So to bring all this together on sugar, the actions we've taken in the last couple of years have fundamentally reshaped ABF sugar businesses. We've restructured our business in Spain. We've exited weak businesses in Mozambique and China. We took the decision to close our Vivergo bioethanol plant. We now have a clear strategic focus within our remaining businesses. In Africa, the growth potential is extremely exciting. In the U.K., British Sugar can compete toe to toe on cost with any European competitor. Because this wasn't the case in Spain, we've changed the game there and shifted our focus to refining. Recent and future capital investment in sugar is aimed at unlocking the growth opportunities in Africa and also aimed at reducing our energy costs in U.K. We expect these investments in both parts -- in both Africa and Europe to deliver strong returns. To reinforce the point, this slide shows the pro forma operating profit and return on average capital employed for our remaining sugar businesses over the 5-year period to 2024. This is what we've had through that period. These would have been the returns. It shows that the sugar businesses generate a sensible profit and a sensible return on investment through the period, and we're confident we'll get back to these sorts of levels when the European market recovers. Briefly then on agriculture, where I have sympathy for the teams within agri. Some of the very good work done in parts of the business were masked by one-off costs and our joint venture, Frontier, performed very poorly, really due to a combination of exceptional weather impacts. For our agricultural business, the focus in recent years has been to grow our portfolio of value-added specialty products and services. And these continue to grow well in 2025, in particular, Premier Nutrition, another extremely good year, and our enzymes business, AB Vista, performed well as well. We also saw good growth in dairy where we're making progress with the integration of our full service offer for U.K. dairy farmers. In summary then, I come back to what I said at the outset. ABF is focused on building brands and businesses that would deliver profitable growth and cash generation over the long term. For Primark, our focus is on driving sustainable like-for-like growth. Profit is holding up well and the white space opportunities are exciting. Three things I'd say on food. The first is our international grocery brands have good momentum and are returning to profit growth after a period of elevated reinvestment. Ingredients performance is good, and we believe there's much more to come, especially in specialty, where we have real clarity of focus. And in sugar, the fundamentals are strong in Africa, and we're well placed when sugar prices recover in Europe. Our balance sheet remains strong. On capital expenditure, we're well through the major capital investment cycle for food. We've been able to make the right investments in long-term growth while also though delivering strong returns to shareholders through dividends and buybacks. So I'm confident in the group outlook for 2026, although much depends on the consumer environment, which is particularly unpredictable or miserable at moment. But looking further ahead, I feel very positive about the group's medium- and long-term prospects for growth. So thank you for listening so patiently through what has been quite a long presentation. Before we go on to Q&A, I'd just like to make a couple of points about the review that Michael announced earlier. I'd like to make it clear that what we're currently looking at in this review is either the separation of Primark and food businesses by way of a demerger or the maintenance of the status quo. If we do proceed to demerge, I would hope to continue as CEO of the food businesses. And as you know, we're conducting a selection process for a permanent CEO for Primark. Whatever the outcome, the culture, the long-term values, the stewardship of ABF will remain fundamental to the success of our businesses. I want to finish with 2 important points. Firstly, that we have a fantastic food business with a highly attractive portfolio huge potential and deep global expertise across our people, all of which I look forward to talking about more in the future as it's less well understood than retail. Secondly, Primark is flourished with the ABS structure, and over 60 years, we've created an incredibly strong international brand with a powerful customer proposition. What we're reviewing now in more depth is whether there's a better structure available going forward, for these 2 brilliant businesses. You'll appreciate, as Michael mentioned, that we can't give you all that much more detail at this stage other than what we've said today. I hope you will, therefore, please focus your questions on the results. And we look forward to discussing this more in the future when we're in a position to do so. And with that hope in mind, may I have the first question. Warren Ackerman: It's Warren here at Barclays. I know you're going to want us to talk about the financials for inevitably by grabber. So can you say a little bit more, if possible, just in terms of the motivation and kind of timing, I guess, on this. Is it a governance issue? Is it a valuation concern? And is there anything at this stage you can say on tax liabilities, legal dissynergies? I know it's early stages, but any kind of like framing on this because I think it's so long as I covered the stock, I never really thought it's on the table, so kind of what's changed in your mind as the first one. Then I will get on to the actual financial. Look Eoin, are you able to say anything about the kind of investment you're expecting for Primark in 2026 above the line in terms of digital because it seems like your margin guidance is slightly lower? I think it was flat and now it is slightly below flat. Is that because the investment is a bit higher? And if so, where is that investment kind of targeted? And finally, just on sugar. We've been in a big downgrade cycle in sugar. Do you think we've now troughed on sugar? And beyond '26, is there any kind of reason to think there's any long-term erosion in the sugar profitability? George Weston: On the review briefly, it's about governance. It's about long-term governance. And within that governance line, I think there are 2 different issues. The first one is food where I think we couldn't quite frankly, been getting the scrutiny from the investment community that would serve us well because most of the scrutiny has been about retail, and perhaps we want to put that right. And then on Primark, it's really about oversight of what is now a very big and very complicated business. And just maybe there's a better oversight model available to us than the brilliant model that we've been running with for 60 years. So you go -- well, that was 60 years, that worked absolutely fabulously. And now looking into the future, maybe it's time to do something different. It's a big call. In terms of timing, I would imagine that we would have come to a conclusion about whether to stay together or pull ourselves apart by the interims and the process of actually getting there will take 18 months or so. I don't think we've got anything to say about tax because we haven't been able to investigate. This is the purpose of the review is to dig deeply into those sorts of things. So we have a prima facie case to separate, but we don't have all that detail. Shall I just do the sugar kind of has anything changed? Whenever you get into these downturns, there's always that kind of bare case that said that the world will never go back to where it was. You see the same thing when you get into boom times. And really, in the end, supply and demand seldom sells out. There are a couple of areas of, they're not so much watch-outs, but they are sort of changes going on. The first one, I think, I think we have to accept that GLP-1s are going to take a couple of percent off sugar -- off food production in Europe and sugar included in that mix. The second one, I used to think that the money that we -- the good returns we made through selling power -- we had 2 big combined heat and power stations attached to the sugar factories, and we've always done very well selling electricity. I thought that with the growth of renewables, that would erode, with the growth of demand for electricity with AI installations, maybe that demand won't go away. But I think GLP-1s, I think you've got to kind of model maybe we'll lose a couple of percent of volume across Europe. Eoin Tonge: Maybe I'll also let Joana square the circle as to what you've been saying in terms of guidance. But just in terms of how we're thinking about the investment, I mean some of the things I've already spoken about in the presentation. So we're probably -- I'd say we're nudging up our digital marketing spend, not a huge amount year-on-year, I would say. Most of the kind of, I would say, investment is coming from a combination of investing in price through initiatives like major find and also marketing support around those initiatives and other sort of trade initiatives like, for example, rolling out more performance and so on. So that's where the investment in margin is coming from. Some of that is funded by well -- actually, I'll let you square the circle on guidance. But that's how we're thinking about the step-up on investment. Joana Edwards: Just to really square that circle. So margin, 11.9% for FY '25, as we know, anyway, we had there a one-off of GBP 20 million. So what we said is we'll be slightly below. It's not the margin that is the leading point. It is the creation of demand. So it is all those efficiencies we talked about, foreign exchange being a tailwind, particularly in the first half. We've got some efficiencies certainly from the work that we've been doing on supply chain. Eoin mentioned what we're doing on the central costs. But yes, the point is those will be used to fuel the drive of top line growth, which is what we want to focus on, first and foremost. So guidance, slightly below the 11.7%, which would be the underlying margin for FY '25. Adam Cochrane: Adam Cochrane at Deutsche Bank. A couple of questions on Primark. And just one little one on the separation, if I may. I'll get that one out of the way. Can we just confirm that both the food business and Primark on a cash flow basis are cash flow profitable and can fund their own investments? That's the only one on the separation. In terms of Primark itself, the marketing spend something we've been waiting for, for a while to reinvigorate the brand. You've done it in a few different markets. Can you just talk a little bit more about what success you've had with the marketing spend? And most importantly, how are you managing the message between fashionability and price? Because some of your advertising campaigns, I thought they look very trendy fashion led rather than price-led. Is that something that you're going to rebalance going forward. And then the franchise opportunity in the Gulf. Can you just talk a little bit more about what that looks like? Is it a model that can be expanded beyond the Gulf? Or is it something quite specific to the Gulf? Eoin Tonge: So yes, look, I think I think it's a mixed bag, I would say, on success on marketing spend. I just have to be kind of honest with that. And I think you're probably right to say that there has been a little bit too much on the fashion side of representation of the brands, but maybe not enough on price. I was interested when I was in Germany that we're looking at our brand campaign. It was very hard to see the price, actually. And fundamentally, we're a value disruptor, and then we've got to remind people of that all the time. So I think there probably is a little bit more balance we have to get there. It's like that's the classic challenge of a value operator, say, how do you kind of project the quality of the products, but at the same time, remind people of the unbelievable price. So I think that's what we've just got to do more and more of. I think there were elements of we can which showed that a lot of the comfort you got was actually about the unbelievable prices we had. But I agree that the top line advertisement looked a little bit too fashioning. So yes, more to do. I think it's fair to say the brand metrics, as I said in the presentation, that we've seen in the States are encouraging in awareness. I mean it was only -- we only did it in the New York area. So it's only in the New York area where we've had those sort of kind benefits. So look, we've got a great brand. We've got a great set of products, we've got to sharpen our comps. I think that's the message. I think franchise is a significant opportunity beyond the Gulf actually. I think the Gulf is proving what the model can do. But look, the Gulf is probably the most tried and trusted franchise market in the world. So we just have to be -- I don't want to be naive to know that this is where a lot of people do relatively well. So our brand is definitely resonating, it's very exciting with loads of opportunities in all the Gulf states actually. So I wouldn't -- we started in Kuwait because our partner is based in Kuwait. But obviously, we've got plenty of other opportunity outside of Kuwait. That's going to be the focus for the next period of time, but it does open up the opportunity. For sure, it does open up the opportunity. It's about getting good partners. But if you can get good partners in different regions, I think there's some real opportunity in the future. Richard Chamberlain: Richard Chamberlain, RBC. Three for me, please. Just one on Primark. What are the plans now for the Click & Collect offer, now it's been fully rolled out to the U.K.? I know you're planning to take that to other markets in due course. Second, on the sugar profit guidance. I think you guys are looking now for a small profit in fiscal '26. How much of that improvement from the loss, I guess, in the last year will come from lower beet costs? I seem to remember you were saying I think GBP 50 million or something before. Is that guidance still valid? And then I guess on the proposed separation. Any early thoughts, short about sort of amount of financial leverage that the stand-alone food business could support? I mean, presumably, it could theoretically take on some significant on-balance sheet debt in future. Is that going to be the plan or too early to say? Eoin Tonge: I do collect relatively quickly. I mean I think, look, the U.K., we obviously did a lot of testing U.K., right? But in that time, we obviously developed a capability. And so that's good. And as I said in the presentation, the metrics, financial; metrics and the customer metrics, are very compelling. It's fair to say. So we will be rolling it out into other countries. But the timing might take -- it might take a bit of time. There is some supply chain fixes we need to have a more kind of sort of sustainable, repeatable click and collect and online model. So a bit more to do on that. But actually, in some ways, I don't think we are any way defensive at the time we've taken to get where we've got to on Click & Collect. We've had to work it through and get the model right and then we'll take our time in other markets as well. George Weston: On sugar, the total beet cost this year will be GBP 50 million less than the total cost last year, but the average selling price will be lower and we'll offset all of that just about. We have multiyear deals, a number across a chunk of our volume. And as the this year -- actually, year-on-year, the price has gone up slightly, but more of the high-priced contracts have rolled off. So that's what's going on in U.K. beet. Look, I'm tempted to say we can't tell you anything about kind of leverage ratios and stuff like this in a business that we haven't decided to create yet. So perhaps I'll stop there. I'd just remind you that the same majority shareholder is going to be in the same position in both. And you can look back and think about how any majority shareholder thinks about leverage. Unknown Analyst: The first one is also on the separation, but it should be quick. I think it's pretty clear, but is it the case that you are only looking at the 2 options, i.e., a demerger and maintaining the status quo? There's no other strategic review of specific segments or anything like that? The second question is on Primark margin. I just wanted to clarify, what are the moving parts? Is it mostly going into gross margin? Or is it going into OpEx? And within that, do you think there's room to move on price, whether that's price mix, the hero products that you mentioned with wow, products at wow prices, et cetera? Do you think there's movement around price? And then the final question is just on the cash return. Obviously, there's some volatility in the buyback over the last few years now. In hindsight, do you think it would have been better to stay at a GBP 450 million run rate and deliver consistent cash return? Or do you think you will follow basically earnings and the cash flow going forward? Joana Edwards: So the margin tailwinds, both the gross margin level and operational efficiencies as well, we've talked about the move on some of the central functions into our GS. But we also have got some efficiencies on the supply chain, on stores. Those stores are still driving some of those efficiencies. FX is going into the gross margin. So there are different components, both in terms of the gross margin and the operational margin. But as we said before, it is not about the margin. It is how we use those to drive the top line. Eoin Tonge: I would basically on room on price. I mean, I think, look, we're not going to invest in prices for the sake of investing in price, right? Like I think you have to be quite targeted to where you're going to invest in price. I think we will over the next 24 months invest in price, so give me 24 months, not to be a guidance point. But it needs to be targeted and needs to be focused. Joana Edwards: Sorry, just before the cash returns and the volatility in the share buyback, I think our capital allocation policy is quite clear. If we got enough cash, then we will look at distributing some of that. So having a GBP 450 million doesn't tie in with our capital allocation policy. We had less cash at the end of this year than we had at the prior year, GBP 250 million feels right, even though we were at 1x. Geoff Lowery: Geoff Lowery, Rothschild & Co Redburn. Can you just step back about Primark for a minute and help us understand what has sort of sat behind the slightly lackluster LFL? Is this items into basket? Is this footfall? Is this particular category? And you've drawn a distinction between price and price perception, which is a really interesting one. Which of those is the bigger issue in terms of what your data says about the business? And I guess that plays into the sort of ultimate question here, which is, your margin has mostly recovered the pre-COVID type levels. The sales densities nominal have been under some pressure. Is that the right shape do you think over time for a discounter and a price-led strategy with your evolving geographic mix? Eoin Tonge: That's lots in there question. I think it's a bit of at all actually in terms of what have been impacting like-for-like. Baskets have been tough, I think, pretty much across all markets. Where we've seen creeping ASP through price, it's being offset by units per transaction, which means that consumers have sort of capped at their spend level. So we've definitely seen that and some of that's been a bit more extreme in the countries where it's been tougher, right? I think footfall has also been a bit of a challenge in certain places. And again, it's been a bit -- I think there's lots of factors to that. Some of that is market, some of that is our positioning into the marketplace. And then I think we've had some headwinds on categories. Last year, particularly the lifestyle categories have been tricky. And I think womenswear up until kind of more recently has been tricky as well. So I think it's been a bit of everything. So that would kind of suggest that it's kind of market and us, right? And I'm trying to focus on what we can control and as I said before, I still believe we've got the right proposition, just how we execute and communicate against it is going to be key. I think that's a really good -- I mean, that's a tough question because the answer I think, is nuanced by market. And this is where I think we've also got to get a little bit better as sort of how we're deploying our approach by market. I mean, the U.K. is obviously our more mature, most mature markets. So you always have your frame of reference around that. But I think actually, we can be continuously more price-led, I think, in certain other markets. And we've still got quite a lot of operating leverage to go after. So I think it's -- I have to be a bit more kind of nuanced in terms of my answer and be a bit more kind of -- we have to understand exactly how the best win in each of the markets that we operate in. I still think we can. There are certain markets that are just going to be tough, like Germany. We've talked about Germany before and it's not going to be a big future for near-term future. It might be in the medium to long term, but it's not a big near future. That being said, we're opening up our first store in Germany for the first time in a couple of weeks' time. So I'm going there because we still believe in the future of the market, but it's a tough market. So anyway, it's a long answer to a very interesting question. Hopefully, that helps. Clive Black: Clive Black from Shore Capital. A couple if I may. Firstly, on food, notwithstanding the separation, is there any parts of the assortment or the portfolio that you still feel need some care and attention after the busy year you just had? And then around future CapEx. Firstly, you made a fantastic statement about plants returning in 50 years, we'd probably 6-feet under well before that. But in terms of returns on your food investments, what thresholds are you looking for in that respect? And maybe highlight some of the big projects for the current year? The reason I asked that is you said you've gone through quite a hump of food investment, but still the group is looking at GBP 1.2 billion of CapEx or thereabouts. And then lastly, just on Primark. How do you characterize the U.S.A. in terms of its maturity profile? Some years ago, this was the sex and violence of ABF. Where do you see the States today for the business? George Weston: I don't think I'm portraying too many secrets in saying that we sign off CapEx projects at a minimum of 15% year 3. That's certainly the start. We then start to ask whether we believe it. And look, I mean, we know in some of these very big projects to get to settled state output can take a while. But really what we've been looking at in all these projects is long-term competitive position, while I talk about 50 years. It's why -- we wouldn't have done Tanzania if it hadn't been for the brand metrics. We're supporting that. Similarly, Australian developments are on the back of the positions that we've already got. Where do we head our portfolio? Look, I don't want to just talk about the bad stuff. I want to talk about the good stuff, too. I really do, would love to have a longer session with a group of fellow-minded people about the potential for Primark or our enzyme business or the health and -- the position or what we think we can do with Ovaltine over the years. There's so much there that I think is underappreciated. Yes, look, there are always problems. We've lost a major account, as you all know, in our Animal Feed business, we'll get on and do something about that. But really, I think the better use of all our time is accelerating the growing bits, the attractive bits and making sure that you kind of prevent bad stuff from happening again. Yes, of course, we've had to take some action on things like Vivergo on Spanish sugar. But really the future of the food group is about growing the lovely bits, much more than it is about fixing the last few kind of headaches. It will come to fruition. We'll have the capacity expansion in yeast extracts, that's really good. We'll have the yeast plant in Northern India. The market is oversupplied at the moment, so we won't get an immediate return of that. We'll get the flour mill in Victoria complete, that will reduce our cost there and solidify our position in the Victorian market. We'll be a long way through the capacity expansion at World Foods Polish site. We'll have the sourdough plant up and running quite soon. We'll have the blending plant at enzymes done by January. What have I missed out? Was it the cross food? Ovaltine Nigeria. We have the most fantastic Ovaltine business, obviously, in Switzerland, to be Swiss is to eat Ovaltine in all its manifestations. The population of Switzerland, I think, is 11 million, which means that the Nigerian population grows by Switzerland every 15 months. And we have really good brand awareness in Nigeria. But we've never had a cost base to really access that market because we've been importing product tariff paid out of China. So that's an exciting one. Eoin Tonge: I think -- well, as I said, there's a lot going on in the U.S. I mean we are 33 stores. And I think for a maturity level in the U.S., that's pretty immature for a market the size of the U.S. Although we've been there 10 years with COVID slap bang in the middle of that. So I think this year is going to be an important year. We're going to open up more than 10 stores, including Manhattan. We're going to do a little bit more brand marketing as well, particularly in the New York area to support that. There's obviously a huge amount of noise in the marketplace going on at the moment. So we have to kind of see how that all settles that. I hope it does. But I mean, like we're still -- that's still really early days. You'd like to think in kind of a U.S. growth plan. But we're not going to do anything stupid either. We've been kind of thoughtful. We've made some mistakes. We've learned from the mistakes. We're making money but we've got -- so we've still got to be pretty kind of thoughtful as to how we expand. So it could take another 10 years to get to maturity. But I still think the proposition works well there, if we can kind of get the awareness in the right way. Monique Pollard: It's Monique Pollard from Citi. I have 3 questions, if I can, they're all on Primark. The first one, Eoin, given your focus on the price investments being very targeted and specific, I was just interested in sort of how you think about the overall price landscape and whether or not you benchmark to secondhand clothing platforms, like Vintage as well, when you're thinking about that price proposition now, given the rise of those platforms? The second question was just whether you had any views at all on the potential for the closing of the de minimis loophole in the U.K. budget and what benefit that could potentially bring to the competitive landscape in the U.K. overall? And then the final question was just on second half U.K. trading. So obviously, a massive improvement there. And you've mentioned a lot of the focus you've put into the customer value proposition driving that. Just wondered if you had any views on whether the competitive landscape, so M&S and the cyber issues that have been well understood, had, had any benefit there or weather benefits, et cetera? Just trying to understand sort of how much you think was external factors versus your own internal? Eoin Tonge: The overall pricing landscape, I mean, it is interesting, actually, we haven't changed our pricing that much this year to reduce pricing to make sure we're still at the lowest entry price point. So that's demonstrating that it's not a very competitive market from a pricing perspective. We don't benchmark to the secondhand market. Maybe we should, but I think it is quite a different market. I mean, we look at it quite a lot, but we don't benchmark to it. I mean a lot of product on vintage in the U.K. is Primark. So it's going to be hard for us to benchmark to that one. The pricing has been more competitive, I would say, in Europe. So I think that's where we see more kind of pricing pressure. In H2 in the U.K., I think I'm going to be a bit more bullish and say it's all to do with us rather than to do it -- it's always to do with the external market. But the impact of M&S and it was more a switch between M&S and Next than it was elsewhere. And I think we just executed better. George Weston: De minimis, gee, we had hoped to see some actions taken in the budget. The Europeans are well on the way to close the loophole, Americans have done it. And we've been working very hard to provide the treasury with information about the value add of High Street versus the value-add of this method of trading. Also we'd point out that given the closure of parts of the U.S. market, the rest of the world is getting a lot of pressure out of Chinese manufacturers. And we really should be taking steps to preserve our own position. So I hope so. But until we see the budget, it's likely to be one -- sorry, if it came through the one nice thing out of the budget amongst a bunch of things that perhaps weren't cyber to you. Alexander Richard Okines: Warwick Okines, BNP Paribas. Just a similar question to Monique's, but looking at Europe. Eoin in particular, I was wondering if you could just reflect on the sharp decline in like-for-likes in the second half in Europe? How much of that do you think was you versus the market? Was there a particular change in cannibalization effects or deliberate cannibalization effects in H2? And what does that mean for European like-for-like looking forward? Eoin Tonge: Look, I think most markets in Europe are feeling the pinch. I mean if you look at all the metrics about European clothing markets, they're all struggling at a market -- like high-level market level. And they're all competitive, right? It's not like there's a sort of a new competitive kind of theme in European markets, they are all competitive. I think we've had a bit of cannibalization. I think you probably would have quantified the kind of 1/4 of the impact is that like -- I thought you don't want me to say this, but there have been some weather impacts, like particularly Iberia quite struggled in the second half of the year. And I think places like France, I think have become more competitive actually. So back to my answer, I'm not more competitive. I think are very competitive, and a bit tougher, particularly in this kind of tougher environment. So it's a bit of everything, to be honest work, like I have to be -- it's a bit of everything. And it just goes back to the same thing again. We just got to execute well. The proposition is good, we've got to execute well. But I think European markets are going to just take a little bit longer to recover. Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Just to build on a couple of questions earlier, maybe on Primark again, sort of 3 questions, I guess. The U.K. is where you spent a lot of time. I think you've talked to a lot of initiatives to reinvigorate the Primark there. Does it give you confidence you can actually now see sustained positive like-for-likes in the U.K. over the coming year, 2 years sort of time period? Otherwise what should we be looking for in the U.K. as a proof of the efforts you're making continuing to deliver? That's the first one. The second one, I think you've talked about cost optimization, clearly also talking about investment for growth. I guess the question is, at Primark level sustained growth in like-for-like terms means what in terms of operating margin? Is a mid-11 sort of margin consistent with healthily growing like-for-likes in the business, how should we think about it? And again, third one also on Primark. Is the medium-term CapEx what we've just seen today, GBP 497 million, GBP 500 million, something that we've seen today, is that a good run rate to think about for Primark CapEx? Eoin Tonge: All good questions. I think U.K. like-for-like, well, I mean I think you should measure us on U.K. like-for-like. Look, I think there's a lot still to go after in the U.K. So I don't -- I'm still kind of optimistic about where we can go in the U.K. We've only just rolled out Click & Collect. All of the initiatives that I talked about here, there's more to come on all the initiatives that we talked about, performancewear, more coordination, et cetera. So I think we can -- like we shouldn't be trying to aspire to get to more sustainable like-for-likes in the U.K. We still got like -- I mean, our brand is phenomenal in the U.K., the brand awareness, the consideration, all that sort of thing. So there's still a lot to go after. I think margin, I think, we would say around these levels. I don't think it's around these levels feels, we can kind of make the model work for sustainable like-for-likes. We always have said before, which we still believe is that the margin is the outcome. But the strategy is to drive the like-for-likes. But around these levels feels right. And then CapEx, yes, I think at a similar level. I think similar levels, although there's sort of -- franchise, obviously, is quite a capital-efficient way of expanding. So there might be a bit of give from that. I think what the take might be more investment in digital. So I think that's similar levels is probably okay for now. George Weston: I think the depot spend will be similar, too, for a little while, yes. Eoin Tonge: And some of that's actually also to support digital as well. Joana Edwards: Where we'll see the decrease side is where we hit the bar. This year, still same level and then starting to go down a little. George Weston: Is there anyone online? No, there's no one online. Thank you all very much for coming. And we've got some pressies for you all by the way of thanks, little bribe. And if not before, we'll see you next year. And in the meantime, it's a bit early to say, happy Christmas, but we're getting there. Thanks a lot. Joana Edwards: Thank you.
Operator: Good morning, all, and thank you for joining us for the CDW Third Quarter 2025 Earnings Call. My name is Carlie and I'll be coordinating the call today. [Operator Instructions] I'd now like to hand over to our host, Steven O'Brien with Investor Relations. Floor is yours. Steven O'Brien: Thank you, Carlie. Good morning, everyone. Joining me today to review our Third Quarter 2025 results are Chris Leahy, our Chair and Chief Executive Officer; and Al Miralles, our Chief Financial Officer. Our earnings release was distributed this morning and is available on our website, investor.cdw.com, along with the supplemental slides that you can use to follow along during the call. I'd like to remind you that certain comments made in this presentation are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. Those statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Additional information concerning these risks and uncertainties is contained in the earnings release and Form 8-K we furnished to the SEC today and in the company's other filings with the SEC. CDW assumes no obligation to update the information presented during this webcast. Our presentation also includes certain non-GAAP financial measures, including non-GAAP operating income, non-GAAP operating income margin, non-GAAP net income and non-GAAP earnings per share. All non-GAAP measures have been reconciled to the most directly comparable GAAP measures in accordance with SEC rules. You'll find the reconciliation charts in the slides for today's webcast and in our earnings release and Form 8-K. Please note all references to growth rates or dollar amount changes in our remarks today are versus the comparable period in 2024 with net sales growth rates described on an average daily basis, unless otherwise indicated. Replay of this webcast will be posted to our website later today. I want to remind you that this conference call is the property of CDW and may not be recorded or rebroadcast without specific written permission from the company. With that, let me turn the call over to Chris. Christine Leahy: Thank you, Steve, and good morning, everyone. I'll begin with a high-level overview of our third quarter financial and strategic performance and share some thoughts on the balance of the year. I will take you through a more detailed look at our results, capital strategy and priorities and full year outlook. We will move quickly through our prepared remarks to ensure we have plenty of time for Q&A. Third quarter results underscore the power of our full stack full life cycle solutions. The team executed well in an extremely dynamic and complex environment. For the quarter, consolidated net sales were $5.7 billion, up 4% above last year. Gross profit was $1.3 billion, up 5%. Non-GAAP operating income was $531 million, down 1%; non-GAAP net income per share was $2.71, up 3%; and we delivered adjusted free cash flow of $209 million. These results reflect the power of strong execution when coupled with our extensive portfolio of products, services, solutions and diverse customer end markets. They also reflect the power of our deep end market knowledge and strong durable customer relationships. You see the benefit of this in our government education results, armed with insights into evolving protocols, funding mechanisms and budget priorities, our team drew on their combined deep industry expertise and trusted customer relationships to guide clients through an unprecedented period of change. During the quarter, customer priorities remained focused on must-dos, such as security enhancements and client device upgrades that are foundational to enabling modern work. And once again, major capital investments were heavily scrutinized. Corporate and small business customers also prioritized preproduction AI trials to prove out use cases to validate concepts and ROIs. These priorities led to strength in cloud, software and services. Let's take a deeper look at how customer priorities and unique market dynamics shaped performance across our end markets and portfolio in the quarter. As always, there are 3 main drivers of our results, our balanced portfolio of customer end markets, the breadth of our products, services and solutions and relentless execution of our 3-part strategy. First, our balanced portfolio of diverse customer end markets. We have 5 U.S. sales channels: Corporate, Small Business, Healthcare, Government and Education. Each channel is a $1 billion-plus business annually. Additionally, our U.K. and Canadian operations together delivered sales of $2.5 billion last year. Our scale allows us to segment our businesses into customer end markets with dedicated sales professionals, industry experts and technical resources who deeply understand the unique priorities of each market. When end markets behave differently from each other, the diversity of our customer base serves us well. The benefit of our scale and end market diversity was evident once again in the third quarter. Small Business delivered double-digit growth in top line and gross profit as customers continue to lean more into technology in this dynamic environment. Growth was powered by success delivering cloud and client device solutions. While still nascent, we saw an uptick in AI workstations, which are particularly well suited for small businesses. Functioning as mini AI servers capable of running AI models locally at the network edge, AI workstations enable rapid prototyping and deployment of advanced models, helping small businesses innovate faster. Corporate delivered mid-single-digit top line growth with low single-digit gross profit. The team's ability to address customer focus on mission-critical priorities drove excellent performance in security and cloud gross profit and top line. Client Devices also remained a priority increasing mid-single digits in top line and double digits in gross profit. The team's success addressing these priorities offset lower demand for infrastructure solutions. The public team executed well within unsettled end markets, delivering 1% top line growth with low single-digit gross profit. Government net sales increased 8%. State and local delivered an impressive quarter with double-digit net sales and gross profit growth, which more than offset the anticipated decline in federal. Both teams navigated the post-DOGE landscape with agility and precision, with the federal team showcasing our strategic value to their agency customers, laying a solid foundation for future growth. Growth in higher ed was offset by an expected decline in K-12 and total education net sales declined 9%. Gross margin benefited from a shift in K-12 mix away from Chromebooks coupled with strong cloud and software growth and the teams delivered combined gross profit growth despite the decline in net sales. Similar to education, health care gross profit grew faster than its 7% top line growth. Growth was driven by cloud solutions that deliver clinical continuity and security, which remain top priorities. The dynamic in the quarter was consistent with the strong performance in the prior 4 quarters. We are watching for signs of customer hesitancy caused by changes in funding, particularly among health care clients relying on Medicare payments, which can constitute up to 30% of their cash flow. Standout performance was delivered once again by our U.K. and Canadian operations together reported as other, which increased net sales by 9%, and -- both teams executed extremely well under unsettled conditions. U.K. net sales increased by double digits and Canada by mid-single digits. Profitability in both markets grew faster than net sales. Clearly, this quarter's results demonstrate the power of the first driver of our performance, our balanced portfolio of customer end markets. It also demonstrates the power of the second driver of our performance, the breadth of our full stack full life cycle offerings. The team's ability to address customers' top priorities drove balanced performance across the portfolio. Hardware top line increased 3%. Following last quarter's strong solutions Hardware performance, the lumpiness in enterprise projects we have seen in recent years continued, and growth was more muted with strength in NetComm and Servers, partially offset by a decline in storage. Consolidated client device growth continued at a healthy 7% pace with growth across most end markets, partially offset by declines in K-12 and Federal. Software increased 4% with excellent gross profit performance driven by cloud and security. Beyond security, top customer software priorities included network resiliency, next-generation customer service and support and application suites tied to operating system and device refresh. Services was the standout performer up 9% top line and contributing 9% of total CDW top line this quarter, up from 5% in 2020. Strong performance was powered by double-digit top line and profit increases in CDW professional and managed services. This quarter, Services delivered nearly 1/3 of our total gross profit growth and bolstered gross margin. And that brings us to the final performance driver this quarter, the impact of our strategic investments, investments designed to create better outcomes for our business and for our customers, investments that are focused on enhancing our customer-facing capabilities and our internal capabilities, which together drive profitable growth by improving how we operate and how we serve. During the quarter, we made progress on our company-wide evolution to embed AI into the core of how we operate, serve and grow, a strategy designed to drive productivity and efficiency and empower our coworkers. From conversational AI and cdw.com that enhances product discovery and improved sales conversion to intelligent agents that streamline presales qualification and self-directed agents created by our coworkers, we are embedding AI across the enterprise. Efforts, while earlier in the adoption cycle, are already translating into better coworker and customer experiences as we scale AI across our business, we are unlocking new levels of agility, efficiency and service quality. Our AI offerings enable our customers to unlock value as well. As with prior waves of innovation, customers are focused on translating AI's potential into measurable business impact. This is particularly true for customers looking to harness AI to leapfrog traditional barriers and gain a competitive edge. And just like our prior innovation cycles, while eager to accelerate adoption and capture value, many customers don't have time or resources for trial and error and need a trusted partner to guide them. That's where CDW comes in. With our deep expertise and comprehensive portfolio, we are delivering enterprise-grade AI solutions that are practical, secure and scalable. Whether it's intelligent search, workflow automation or embedded AI powered diagnostics, our solutions unlock real business value without the complexity or cost of building from scratch, while avoiding pitfalls and ensuring long-term success. A standard example of this is a recent engagement with a national service company, an engagement where CDW designed a comprehensive AI data hardware and software solution. By integrating CDW Advisory Services, development cloud architecture and hardware prototyping, our solution delivers cloud-native architecture, embedded systems and centralized observability tools, all tailored to the customer's unique operational needs. The solution includes AI-powered diagnostics and real-time performance dashboards, which together create a smarter, more scalable infrastructure. The outcome: data-driven decisions that are enabling smarter operations with greater efficiency, like predictive maintenance and supply chain management and data that unlocks new revenue streams aligned to their business goals. This project exemplifies our value proposition for customers, deliver enterprise-grade technology and AI capabilities in a way that's accessible, customizable and outcomes driven. This is the heart of our value proposition, driving tangible business outcomes that meet customers where they are. Our value proposition shines in AI where we help customers move beyond the hype to unlock tangible value. That leads me to our expectations for growth for the remainder of the year. Given our year-to-date performance and current market conditions, we are maintaining our prudent full year outlook, which calls for U.S. IT market growth to be in the low single digits on a customer spend basis with CDW growth premium of 200 to 300 basis points. Clearly, we are operating under a lot of unknowns, including the duration of the government shutdown which could not only impact federal results, but could have an impact on other end markets, including health care and education. At the same time, the wildcards we spoke about last quarter, including recessionary conditions, higher inflation, increased geopolitical unrest and outside changes to announce tariffs persist. I know many of you may be wondering what we expect for 2026. As is our custom, we are in the middle of our planning process, and we'll provide our thoughts on our year-end conference call. As we look forward, regardless of market conditions, our focus remains squarely on execution, leveraging our competitive strength to deliver consistent customer value and controlling what we can control. In a time of unprecedented technological change and uncertain market conditions, our value proposition has never been stronger. Customers are turning to CDW as a trusted partner to help them navigate complexity, unlock opportunity and drive meaningful outcomes. We're confident in our strategy, grounded in our capabilities and committed to delivering results. With that, let me turn it over to Al, who will share more details on our financial performance. Al? Albert Miralles: Thank you, Chris, and good morning, everyone. I will start my prepared remarks with details on our third quarter performance, move to capital allocation priorities and then finish with our remaining outlook for 2025. Third quarter gross profit of $1.3 billion was up 4.6% year-over-year. This was above our expectation of low single-digit year-over-year growth, as our teams captured increased demand for Software and Services alongside continued growth in Client Devices and NetComm in this complex and dynamic environment. Similar to the second quarter, we did not see any meaningful levels of pull forward related to tariffs or other factors. Gross margin of 21.9% was up 10 basis points over the prior year's third quarter, back in line with our overall expectations of roughly flat to 2024 levels. Gross margin was also up meaningfully 110 basis points quarter-over-quarter, driven by the impact of a higher mix of netted down revenues, continued strong growth in services and a slight mix out of client devices sequentially despite the category's continued solid growth. Every channel grew year-over-year except education, as our customers balance priorities across our diverse portfolio. Demand for CDW professional and managed services continued to be strong at 14%. This can be seen in net sales transferred over time or CDW's principal. Overall, cloud infrastructure, SaaS and security offerings were strengths in the quarter. These are offerings included in the category of net sales transferred at a point in time or CDW's agent or netted down sales. Netted down revenues continue to represent an important and durable trend within our business, representing 36% of gross profit up from 35.7% in Q3 2024 and up meaningfully from 32.9% in the prior quarter. Customers across end markets outside of Education and Federal continue to invest in client devices, driven by Win 10 end-of-life and the enablement of modern work practices. On the solutions front, Software and NetComm growth continued, although storage was softer in the quarter as demand for hardware upgrades in the data center space remains uneven. I would also like to highlight how our small business and international teams are executing exceptionally well in a challenging macroeconomic environment. Alongside this, our public teams continue to manage shift in government priorities and funding, which I'll touch on a bit more in the outlook section. Our teams navigated this dynamic environment for both CDW and our customers delivering results that exceeded our expectations and demonstrated the power of our diverse end markets. Thank you to our team for your efforts. Turning to expenses for the third quarter. Non-GAAP SG&A totaled $725 million, up 8.7% year-over-year and consistent with our expectations that asymmetrical timing of expenses compared to 2024 would inflate the year-over-year expense growth comparisons in Q3 and Q4 of 2025. This increase in expense was primarily driven by commissions related to higher gross profit achievement and the impact of higher performance-based expenses relative to the prior year. Notwithstanding the efficiency ratio of non-GAAP SG&A to gross profit for the quarter was 57.7%, representing progress back towards our sweet spot in the 55% to 56% range. We continually work to structurally align our business for stronger future expense leverage. Coworker count at the end of the quarter was approximately 14,900 down both year-over-year and quarter-over-quarter with customer-facing coworker count of 10,700 down slightly year-over-year. Our goal is to balance growth, expansion of capabilities and exceptional customer experience with greater efficiency, and cost leverage from our broader operations. Non-GAAP operating income was approximately $531 million, down 0.6% versus the prior year. Our non-GAAP operating income margin of 9.2% was up 50 basis points from the second quarter, but down 50 basis points from the prior year third quarter of 9.7%. Net interest expense was relatively flat year-over-year. Our non-GAAP effective tax rate was marginally below the low end of our range at 25.1%. Non-GAAP net income was $357 million in the quarter, up 0.6% on a year-over-year basis. With third quarter weighted average diluted shares of 131.8 million, non-GAAP net income per diluted share was $2.71, up 3% versus the prior year third quarter and above our expectations of flat to modestly up year-over-year. Moving to the balance sheet. At period end, net debt was $5.2 billion, roughly flat with the prior quarter. Liquidity remains strong with cash plus revolver availability of approximately $1.8 billion. The 3-month average cash conversion cycle was 11 days, below the low end of our target range of high-teens to low 20s. This cash conversion outcome reflects our effective management of working capital, including disciplined management of our inventory levels, even as hardware sales remain firm and client device growth continues. As we've mentioned in the past, timing and marketing dynamics will influence working capital and the cash conversion cycle in any given quarter or year. We continue to believe our target cash conversion range remains the best guidepost for modeling working capital longer term. Adjusted free cash flow was $209 million in the quarter, bringing us to $668 million year-to-date. This reflects 68% of non-GAAP net income moderately below our stated rule of thumb of 80% to 90% of non-GAAP net income, but relatively in line with our expectations given the role timing plays throughout the year. We expect a seasonally strong fourth quarter free cash flow to move the full year 2025 free cash flow back closer to the rule of thumb. We utilized cash consistent with our 2025 capital allocation objectives during the quarter, including returning approximately $150 million in share repurchases and $82 million in the form of dividends. As a reminder, we began the year targeting to return 50% to 75% of adjusted free cash flow to shareholders in 2025. Right now, we are clearly ahead of the pace through the third quarter having returned $747 million to shareholders or 112% of adjusted free cash flow. That brings me to our capital allocation priorities. Our first capital priority is to increase the dividend in line with our non-GAAP net income. We're announcing an approximately 1% increase in our dividend to $2.52 annually, our 12th consecutive year of an increase. We will continue to prudently manage our dividend with respect to the growth environment and target a roughly 25% payout ratio of non-GAAP net income going forward. Our second priority is to ensure we have the right capital structure in place. We ended the quarter at 2.5x net leverage within our targeted range of 2x to 3x. We will continue to proactively manage liquidity, while maintaining flexibility. Finally, our third and fourth capital allocation priorities of M&A and share repurchase remain important drivers of shareholder value. We continually evaluate M&A opportunities that could accelerate our 3-part strategy for growth. Given our actions to date in 2025, we now expect to meaningfully surpass our return of capital of 50% to 75% of adjusted free cash flow to shareholders via the dividend and share repurchases in 2025. While we remain active in the M&A market, our consistent year-to-date cash flow has allowed us to be opportunistic towards share repurchases as we deem our stock to be attractive at these valuations. Now turning to our outlook. Throughout 2025, we navigated a complex environment with appropriate level of prudence, a view that we've maintained despite our strong results. We've been laser-focused on controlling what we can control and supporting our customers only as we only know how to do in this dynamic market. Given the recent government shutdown, we believe our continued prudence is warranted. Our remaining 2025 outlook assumes continued frictional impacts in the Government Education segments, potential funding shortfalls for health care customers and a level of general economic uncertainty and caution. It does not, however, factor in recessionary conditions, higher inflation, increased geopolitical unrest and outsized changes announced tariffs. As always, as the landscape changes next year, we will provide you with updates each quarter. With these factors in mind, we are holding our full year 2025 view of low single-digit growth for the IT market. We continue to target market outperformance of 200 to 300 basis points on a customer spend basis. Our expectations for low- to mid-single-digit gross profit growth for the full year is unchanged. We continue to expect second half gross profit contribution to be slightly above the first half, but lower than the historical split of 48% and 52%, and we continue to expect 2025 gross margins to be roughly consistent to 2024 levels and remain well above rates from 3-plus years ago. Finally, we continue to expect our full year non-GAAP net income per diluted share to grow low single digits year-over-year, as we focus on profitable growth, exceptional customer outcomes and effective execution of our capital allocation priorities. Please remember, we hold ourselves accountable for delivering our financial outlook on a constant currency basis. On that note, our expectation for currency is to be a slight tailwind to reported growth rates for the year. Moving to modeling thoughts for the fourth quarter. We anticipate gross profit to grow at a low- to mid-single-digit rate year-over-year and to be down low- to mid-single digits sequentially, relatively aligned to historical seasonality. Moving down the P&L. We expect fourth quarter operating expenses to be modestly down quarter-over-quarter, aligned with gross profit, but reflecting some investments back into the business. This will result in non-GAAP SG&A as a percentage of gross profit to be higher than both the fourth quarter of 2024 and the third quarter of 2025. As a reminder, operating expense levels in 2024, particularly in the second half of the year, benefited from lower performance-based attainment and thus reversal of incentive compensation accruals. This muted the run rate expense load in the second half of last year. Finally, we expect fourth quarter non-GAAP net income per diluted share to be down slightly year-over-year and down sequentially, impacted by the aforementioned factors. This concludes the financial summary. As always, we'll provide updated views on the macro environment and our business on our future results calls. With that, I will ask the operator to open it up for questions. [Operator Instructions] Thank you. Operator: [Operator Instructions] Our first question comes from Amit Daryanani from Evercore ISI. Amit Daryanani: I guess, Chris, maybe just to start with the public vertical, especially the federal part has been challenging this year. Can you just talk about how much of the current shutdown is potentially impacting your guide, so what are you embedding in December quarter from public federal contribution? And then do you think the dollars that are lost from shut down right now you end up catching this -- you end up having a bit of a catch-up eventually when the government opens or is that an optimistic scenario? Christine Leahy: Yes, Amit, sure. Look, let me first say that the teams have done a really outstanding job navigating in the post-DOGE landscape and building momentum as we went into the shutdown that we expect to pay off on the other side. But all that said, look, we are -- we have taken a conservative view of Q4 understanding that we've got some pipeline and backlog going into Q4 and some run rate business associated with those agencies who are open. So Q4 is not a 0 quarter, we have plenty of business there. But with regard to the agencies that aren't open, obviously, we're constrained in building that pipeline. But we are there working with customers to make sure we're the ones that they turn to when we get out of the shutdown. So when we think about the guide, I'd say, look, it's conservative for Q4. We think it's smart to be prudent. We presume the shutdown lasts and persists through the quarter and that's what we built into our model. All that said, as in past shutdowns, you're exactly right, typically, history shows that it's not lost sales, it's just timing. And then when the shutdown ends, the sales have shifted in timing and can take some time, so it's a little bit extended time frame to come back in. But absolutely, we don't view that as an optimistic outlook. We view that as what we would traditionally see and what we've managed in the past. And Amit, look, I'd say this is just 1 more curveball in the many curveballs that have hit us in 2025 and the team is managing well. Amit Daryanani: Perfect. And if I could just follow-up, the small business growth at 14% was really impressive, and I think it actually accelerated by a couple of points versus June even. Can you just double-click on what is driving that strength? And do you think the trends that we see in SMB are a good leading indicator to what should happen to the overall business going forward? Just from a historical perspective, do you think it's a good leading indicator or not? Christine Leahy: Yes. So Amit, small businesses been, I would characterize it as incredibly resilient, coupled with outstanding execution by the team. And I'd also observed that over the past year to 18 months, we've seen small businesses leaning even more heavily into technology to try to gain a competitive advantage in like level the playing field. So there's been a shift, a slight shift, I'd say, in the uptick in demand in the small business arena. And those businesses have just shown to be very resilient. In terms of an indicator for the rest of the segments, unclear, I think we need to be a little cautious about that right now, just given how resilient small business has been and so we're going to keep a watchful eye across all the end markets, but certainly, the team has done a great job and the small businesses are hanging tight. Operator: Our next question comes from Keith Housum from Northcoast Research. Keith Housum: I appreciate the opportunity here. In terms of the PC and the endpoint market, obviously, it's been a really good year for these devices. And it looks like things are going to continue for another quarter or 2. But as you look out to 2026, expectations that funding will continue for PCs or perhaps shift in other ways or there could be a pretty tough headwind for you guys in '26? Christine Leahy: Yes, look, I characterize it as follows: We continue to see solid demand. We often get asked what inning we're in, and we're in that kind of later stage of the mid innings. So if you had me pin it down, I'd say, sixth inning and probably rounding around to the seventh inning stretch. So we continue to see healthy demand, and we'd expect that to continue over the next few quarters. Now look, we are getting past the end-of-life cycle. And as we get past that, we tend to see it trickle out. But we do not -- we don't see it slowing down over the next couple of quarters. So when you think about the drivers, right, we've got replacement of Windows 10 end-of-life transition. We also are seeing heightened focus on GenAI productivity initiatives. And we said before that AI PCs were not as a large portion of what we are converting. We are seeing that pick up. So that would be another tailwind for PCs. So we feel good about the next couple of quarters. Keith Housum: Great. And then in terms of the government funding, can you remind us how much the federal government perhaps funds, education, health care and how that contributes to their spending? Christine Leahy: Yes. Okay. So the Fed funding of education at the K-12 level is generally the subsidies during COVID were big funding mechanisms, but typically, the states are the main funders for the K-12 level. And we've been seeing over the past 2 years and helping our customers revert back to the typical funding sources, which is typically state and local. On the high ed side, we've got -- we're paying attention closely with our customers on grants that might be canceled and things like that. But they're also in a battle for students. So I'd just say that the technology they're investing in is all about winning the race for students, and we're seeing that pick up quite nicely. We had a nice higher ed quarter. And with regard to health care. Look, we're keeping a watchful eye on that because there are some policy potential changes that could impact the income streams for health care systems, and so we're keeping a watchful eye. Again, though, I'd just say that health care systems, as you've seen in the last 7, 8 quarters, have been leaning into technology in a way that I haven't seen in previous years to drive clinical -- clinical continuity, to drive security and equally to drive competition in their industry. So we're keeping a watchful eye, but I feel very comfortable and the team feels very comfortable that we will navigate through funding changes, it's part of what we do. We're able to pivot and find where the sources of funding are coming and help our customers through that. Operator: Our next question comes from Erik Woodring from Morgan Stanley. Erik Woodring: Chris, in each of the last 4 earnings you've referred to the spending environment as complex or challenging. And I'd love if you could just maybe expand a bit on what is so complex about this environment? And I say that just because CDW has seen basically every type of cycle in its long history. You have been able to grow through those past cycles. This year, we're obviously just seeing a bit more muted gross profit dollar growth of some negative compares. So really just trying to get your viewpoint on really how this complexity is different from history and how it's impacting your gross profit dollar growth? And then a quick follow-up. Christine Leahy: Yes, it's a great question. And if I had to boil it down to 1 thing, I would say volatility. Uncertainty might be the word most people would use. But as I think about this past year in particular, the curveballs that have come at every organization rapidly, and without necessarily a lot of time to adjust, have had technology buyers, business owners, schools, all institutions adjusting to the volatility and, therefore, not having a certainty and predictability to invest, that has been a primary reason it's been so uncertain and helping customers unpack both investments and make decisions around new architectures with AI. So we've got questions around new technology, AI; funding shifts that can happen month-to-month; there has been a hesitancy to make commitments on some larger pieces of technology. It's been hard to run a business. Now that said, it feels very much now that the leaders of these institutions are kind of getting used to the unpredictability, the unevenness and just starting to really pick up and move forward with mission-critical needs and investing behind technology because they feel like they otherwise are going to get behind. So it's really that policy bouncing around, the funding changes that we hear about, the geopolitical world that we live in and the macro uncertainty, the uncertainty around inflation and everything that's impacting the economy. But I'll tell you, for me, it really ultimately comes down to this unpredictability that we've been living in for about 9 months. Erik Woodring: Okay. Very fair. And Al, just as a quick follow-up. You have been very transparent over the last few quarters about the kind of variable comp headwind you're facing this year. I'm wondering if we take a step back, what type of gross profit dollar growth does CDW have to see to return back to your kind of 10%-plus EPS growth algo of old? Any color there would be super helpful. Albert Miralles: Yes. Just a couple of things. First, I would just note for 2025, which we've talked about as a bit of a period of transition for us but also traction and we're seeing that traction above our expectations, so important in that regard. If you actually take the effect of the '24 compare on expenses, and we talked about kind of these incentive compensation accruals from prior year, we would look like our gross profit and our non-GAAP operating income are a bit closer to parity. So and I would say that is consistent with this period of transition after a pretty dynamic couple of years. To your question, Erik, what's it going to take to get the further traction and get upwards of high single digits, double digits on EPS? I think what we need to see is a sustaining of that gross profit growth and the spend, continuation of our progress on gross margin and then importantly, a great focus on profitable growth and getting back to operating leverage. We believe kind of with those variables in place and getting operating leverage, we will start to see that efficiency ratio come back down towards the sweet spot and then I would say then you're going to see the compounding effects down the P&L. So that's what we're focused on. It's obviously a balancing act with all those things, including investing, but that's what the horizon looks like for us. Operator: [Operator Instructions] Our next question comes from Samik Chatterjee from JPMorgan. Samik Chatterjee: Chris, maybe if we can start on the services side, pretty strong growth there. Maybe if you can dig a bit deeper in terms of the nature of opportunities you're seeing, particularly the ones associated with the AI deployments you're seeing from your customers? And any thoughts in relation to M&A and further consolidating the services opportunity for the company? And I have a quick follow-up. Albert Miralles: Yes, Samik, I'll take that. This is Al. Really strong results on services top line for the quarter. Underneath that 9%, it was 14% growth in managed and professional services. So a couple of themes or practice area details I'd share there. Number one, data and AI definitely a focus; continued focus on security, as you would expect; and then cloud has been a really persistent contributor from a services perspective. We've got a new leader in our services space. We are very, very focused on refining exactly where we play and where the best growth opportunities are, and we're seeing some of the early benefits from that. So as we look forward, Samik, I would expect that the life netted down revenues, services has the potential to be kind of an outlier in terms of growth contribution, and we feel encouraged by the progress we're seeing at this juncture. I'll just remind you, too, just in terms of just spotting our progress here. If you go back a few years, Samik, services was about 5% of our net sales; this quarter, it was 9%. And so if we can continue on this growth path, we think it's going to be a meaningful contributor to our top and bottom line. Samik Chatterjee: Okay. Okay. And then just curious, you made a comment about the data center upgrades from your corporate customers, in particular, sort of being uneven. Any thoughts on what's the primary driver there? We understand the macro is challenging. But obviously, in terms of investment, is it really the AI sort of decision-making that's driving this unevenness? Or is it more evaluation of public cloud? What are you seeing on that front in terms of what's sort of causing this lumpiness in those decision-making processes? Albert Miralles: Sure, Samik. I would point it more to some of the variables that Chris pointed out that is the overall uncertainty in the environment, the macro and geopolitical trends that we're seeing that are causing a bit of a start and stop in terms of bigger projects. So you saw it over the last couple of quarters, Q2, we saw a bit of a surge, particularly in the enterprise space with bigger projects that aided solutions growth there. And in this quarter, we saw a pullback in that regard. And I think that while we will continue to say, we think it's inevitable that the refresh and the recovery needs to happen in solutions, it's clear that it's going to be more uneven than we anticipated. Now to your question on is AI a factor? I think it's probably a variable, but I would lead more with just the overall macro geopolitical environment, the level of uncertainty causing companies to just question the, is this the time to get on with the spend? or could we kick the can a bit more? Operator: Our next question comes from Harry Read from Rothschild & Co. Harry Read: Just looking at SG&A and the year-on-year growth rate, both on a 1- and 2-year view, it looks like it's accelerating quite a lot. But forgive me if I heard it wrong, I think you said that year-over-year margin should expand in Q4, that's EBITDA over gross profit. So just could we have some clarity on what's driving quite a sharp deceleration on SG&A growth, if you do expect gross profit growth year-over-year to slow a little bit? And then maybe if you could break down if that's largely driven by front office wages or back office wages? Albert Miralles: Harry, it's Al. I'll go back to my comments: The biggest variable is comparing against our compensation and think kind of bonus plans and the like from the prior year post-Q1, from last year, while our gross profit was declining and below our expectations, we were pretty considerably taking down those comp expense items where this year, we don't have that. So it is more than anything, Harry, to compare of that. Again, I'll go back to my comment that if you adjust for those factors and you look at both this quarter and the full year, we would expect that gross profit and expense growth would be much more at parity. So I call that kind of for the full year evenness between gross profit and operating income. Now I do believe that kind of part of the calculus here is that we've had obviously very strong growth in the pandemic period and we had deep reduction flattening for 2 years, we did make considerable reductions in our expense base. But in some respects, 2025 is, again, that year of transition where you get back to parity or gearing of our expenses relative to gross profit. So as we look forward and with the expectation that growth can persist and should persist, then you're going to -- you're going to return to operating leverage, and again, to an efficiency ratio that we would be much more comfortable with in that 55%, 56% range. Harry Read: Yes, that makes a lot of sense. And then just a short one. It looks like SBC as a percent of GP is kind of hitting the top end of the range of what it's been historically. Just any thoughts in of what that margin could be into Q4 and then the rest of -- then into 2026? Albert Miralles: Yes. Harry, sorry -- and I think you might be speaking to the compared to the prior year in that regard and it looks like we are up considerably. Harry Read: Yes. I'm just looking at the [indiscernible] in the quarter. Yes, and then just looking generally what it's been on a quarterly basis as a percentage. Albert Miralles: Yes. I don't think if you look back over time, it's going to look outsized on a percentage basis to any other metric. But what you are seeing from the prior year is we had a larger equity program that came down considerably based on the actual results over a 3-year period and so 2024 was aided by the reduction of that equity expense where we don't have that happening in '25. So '25 on an absolute basis and ratio basis should look reasonably normalized versus previous years where you didn't have that distortion. Operator: [Operator Instructions] Our next question comes from David Vogt from UBS. David Vogt: Chris, maybe one for you. Can you help us understand and parse out sort of the impact on health care? I guess what we're trying to think through is how much of it is sort of the lingering effects of sort of the efficiency efforts over the past year versus the government shutdown? And how do we think about sort of the effects of those 2 different dynamics at play going into 2026, just to get a level set for how we should think about that market growth next year? And then I have 1 for Al on margins. Christine Leahy: Yes. In terms of health care, look, when we look over the last several quarters, health care has really been, frankly, on fire. And you'll recall, we talked about a number of investments we've made across the health care segment, both in terms of industry experts, innovation centers, et cetera. And that's really been, in our view paying off in solidifying our relationship as a trusted adviser as the health care institutions are leaning into technology. As we think about the go forward, look, we're just going to be very, very clear and very watchful about the trickle-down effect that I had mentioned before, some funding shifts from income stream shifts. We just got to keep an eye on that. But we've been through periods like that before. And you tend to see things like M&A, you tend to see consolidation, and you tend to see movements within the industry itself, all of which requires technology support, so that's an area where we think we could see a second order impact from funding changes. But I'll come back to the notion that what we're doing with our customers in health care right now is not just foundational and optimizing it really is the future of care. And that we believe is sustainable over the long term. So we might see some lumpiness in health care based on funding. But again, we work hard and know our way around the funding mechanism. David Vogt: Great. And then, Al, for you, it looks like on a profitability basis, if we make an adjustment for netted down, you guys had a relatively strong performance outside of netted-down gross profit. Should we think about that margin sort of accretion going forward as we mix to maybe fewer client devices in the overall portfolio and some more margin-rich solutions going forward outside of the netted down piece? Just trying to get a sense for how that trends? I know you're still in the planning phases for 2026, but you've had relatively good results in traditional gross margin outside of netted down. So I just wanted to get a sense of how you're thinking about that going forward. Albert Miralles: Yes. Thanks for the question, David. Look, very near term, and particularly for Q4, I wouldn't expect much of a change there. We have seen stability over the last couple of quarters and so that's certainly encouraging that those non-netted down margins have held up. As we look forward, David, I think that a mix out of client would marginally benefit there as well. If things play out as we would hope on the services front that will also aid those margins. So I'd say modestly, you could see some tick up, but I'll reserve the right to give you more detail as we get into 2026. Operator: Our next question is from Adam Tindle from Raymond James. Adam Tindle: Chris, I wanted to start, I know you're in the middle of the planning cycle for 2026. Just reflect on how this cycle is maybe similar or different than prior years? And curious on the strategic part of that discussion in particular. The Services narrative here is obviously very strong on this call. I wonder how you and the Board think about potentially value creation in the services business and how that works? Would it make sense for maybe even larger scale M&A in Services, would be helpful? Christine Leahy: Sure. Let me just start with the end. When we think about value creation, we think about high growth, high relevance offerings to our customers and what they need now and into the future. So as you know, we've been investing heavily behind our capabilities that are industry-specific and that could be expertise, technology specific. We've been investing heavily in both our professional advisory services and our managed services. And we view those as integral to the value creation for customers going forward. As we've said now for a couple of years, our full stack, full life cycle, full outcomes approach is it's like multiple flywheels working together. Customers don't buy point products anymore, they buy outcomes, they buy solutions, and services have now just become part and parcel of those solutions. So as we go into next year and as we've been doing this year, we keep a close eye on M&A opportunities, but you can certainly continue to see us invest behind services. And I think as Al said earlier, you'll see growth -- overweighted growth in those areas that are particularly relevant and important right now. Adam Tindle: Got it. And maybe just a quick follow-up for Al. You talked about Q4 guidance on gross profit dollars being relatively in line with seasonal trends historically, but also talked about some pretty conservative assumptions in the public sector business understandably. I wonder if you could just unpack a little bit more of the buildup, what might be offsetting that weakness in public sector to drive more seasonal trends in gross profit dollar growth and your level of visibility into that? Albert Miralles: Yes. Thanks, Adam. A couple of things. First, on the government federal front, just keep in mind that Q4 is low season, so while we did adjust down our expectations for the quarter, we had the fact that it has less weight on the quarter overall, number one. As Chris suggested, we walked into Q4 with some pipeline, and we have some regular run rate business with agencies that are still open. That being said, we definitely did kind of take out the pen to take down some expectations on government. It's just when you add all those variables, it doesn't end up being an outsized component adjustment, if you will. So that's number one. Number two, on the question of the, are there any offsets there? There are a couple of minor offsets that is the, we walk into a quarter, so we have a pretty good idea of pipeline and what it's going to take to convert that pipeline. And so a couple of other channels that would be more favorable contributors would include small business that has very good momentum and then I would point out the U.K. that, again, has both a very healthy pipeline, but has been executing really well. So they serve as some offsets to government, but net-net, it's a modest take down for the quarter. Operator: At this time, I would like to hand back to Chris Leahy for any further remarks. Christine Leahy: Thank you, Carlie. Before we wrap up, I want to extend my sincere thanks to our nearly 15,000 coworkers around the world. Their expertise, dedication and passion are the driving force behind our continued success. I'd like to thank our customers who trust us every day. I also want to thank our more than 1,000 leading and emerging partners for their trust and collaboration in delivering innovative, outcome-driven solutions; and to everyone joining us on today's call, thank you for your time and support. Al and I look forward to speaking with you again in the new year. Operator: As we conclude today's call, we'd like to thank everyone for joining. You may now disconnect your lines.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Orthofix Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the conference over to Julie Dewey. Please go ahead. Julie Dewey: Thank you, operator, and good morning, everyone. Welcome to Orthofix' Third Quarter 2025 Earnings Call. We appreciate you joining us. I'm Julie Dewey, Orthofix' Chief IR and Communications Officer. Joining me on the call today are President and Chief Executive Officer, Massimo Calafiore; and Chief Financial Officer, Julie Andrews. Before we get started, please note that our earnings release and the supplemental presentation accompanying this call are available on the Events and Presentations page of the Investors section of our corporate website at orthofix.com. Also, this call is being broadcast live over the Internet to all interested parties, and an archived copy of this webcast will be available in the Investors section of our corporate website shortly after the conclusion of this call. During this call, we'll be making forward-looking statements that involve risks and uncertainties. All statements other than those of historical facts are forward-looking statements. We do not undertake any obligation to revise or update such forward-looking statements. Factors that could cause actual results to differ materially are discussed in our most recent filings with the SEC and may be included in our future filings with the SEC. In addition, on today's call, we will refer to various non-GAAP financial measures. Please refer to today's news release announcing our third quarter 2025 results for information regarding our non-GAAP results, including our reconciliations of these non-GAAP financial measures to our U.S. GAAP results. Additionally, and unless otherwise stated, all net sales percentage changes discussed will be on a pro forma constant currency year-over-year basis, excluding the impact from the discontinuation of the M6 artificial disc product lines, and all results of operations that we will refer to will be on a non-GAAP as-adjusted basis. We have posted a pro forma P&L, excluding M6 on our website to assist you with updating your models. We will update it on a quarterly basis for the remainder of 2025. Moving to today's agenda, Massimo will open with comments on our performance and business updates. Julie Andrews will then review the specifics of our third-quarter results and our 2025 financial guidance before we open it up for questions. With that, I'll now turn the call over to Massimo. Massimo Calafiore: Thank you, Julie. Good morning, everyone, and thank you for joining us today. Orthofix delivered another strong quarter, reinforcing our track record of consistent execution and financial discipline. We achieved solid year-over-year and sequential revenue growth, led by strong performance in our U.S.A. Spine and Orthopedics businesses. This marks our seventh consecutive quarter of adjusted EBITDA margin expansion and sustained positive free cash flow generation, clear evidence of our disciplined approach to operational efficiency and cost management. In our U.S. Spine Fixation segment, net sales increased 8%, with procedural volume up 10%, both ahead of Q2 and the prior year. This above-market growth was fueled by the continued adoption of our 7D FLASH navigation system and strong momentum across our spine portfolios. Lateral grew 24%, while Posterior Cervical and Anterior Lumbar both grew 17% and MIS Lumbar grew 18%. We are seeing encouraging momentum from recent distributor transitions, which are expanding our commercial reach. Our top 30 U.S. distributor partners grew net sales 25% year-over-year in Q3 and 33% on a trailing 12-month basis. A clear validation of our go-to-market strategy and its ability to unlock accelerated growth. As we continue to optimize our channel, we are confident that this trajectory will drive further market share gains and long-term value creation. 7D unit placements in the U.S. are up year-to-date compared to prior year, and our Voyager earn-out program continues to outperform with customers surpassing their purchase commitments by over 50% on average. The 7D technology remains a key differentiator, enhancing surgical precision and workflow efficiency and is central to our ability to win share in a competitive market. Now let's turn to one of the most exciting developments in our spine portfolio, the limited market release of our new VIRATA Spinal Fixation system. Every aspect of VIRATA from our proprietary pedicle screw design to intuitive instrumentation that integrates seamlessly with 7D FLASH navigation is engineered to optimize the surgical workflow, boost surgeon confidence and accelerate procedural adoption. All key differentiators that we fully intend to capitalize on to capture market share. To put this into perspective, the U.S. pedicle screw market valued approximately $2 billion in 2025 is projected to grow at a steady 4% to 5% CAGR through 2030, fueled by an aging population and increasing spinal disorders. Like our successful North Star procedure cervical system, we believe VIRATA will set a new standard in pedicle screw fixation. Driven by its integration with 7D, we expect VIRATA will become a meaningful growth driver following its fully launch in the second half of next year. And beyond VIRATA, we are advancing our data-driven deformity strategy with access to preoperative planning and patient-specific rods beginning in Q1 of next year, further strengthening our competitive edge. Our Orthopedics business also had a standout quarter with U.S. Orthopedics growing 19%, marking the fifth consecutive quarter of double-digit growth. This performance was driven by the successful global launch of TrueLok Elevate and supported by new product introductions, including the FITBONE Bone Transport and the FITBONE Trochanteric lengthening nail. We are proud to be the only company in the U.S. offering a complete suite of internal and external limb reconstruction solutions and our dedicated focus on this $2.6 billion market is yielding strong results. Our Bone Growth Therapies, BGT team continues to excel, delivering above-market growth of 6% by leveraging cross-selling opportunities and multiple access points to reinforce our market leadership position. Looking ahead, we remain focused on 3 strategic priorities: sharpening commercial execution to drive deeper market penetration and adoption of our 7D FLASH navigation system, improving gross margin through targeted operational initiatives and maintaining disciplined capital allocation with a continued focus on adjusted EBITDA expansion and free cash flow generation. As we look towards 2026, I believe we are well-positioned for our next phase of profitable growth. With a streamlined differentiated product portfolio, optimized spine commercial channel and unique enabling technologies, we are ready to deliver a transformative innovation that benefits both surgeons and patients. With a healthy commercial pipeline, well-defined and transformative innovation road map and strong execution, we believe we have a clear path to sustain growth that outperforms the market, driving margin expansion, free cash flow generation and positive shareholders' returns. Thank you for your time and continued support. With that, I'll now turn the call over to Julie Andrews to review our third-quarter financial results and our 2025 guidance. Julie Andrews: Thank you, Massimo, and good morning, everyone. Before we dive into the numbers, a quick reminder. All net sales growth rates I'll reference today are on a pro forma constant currency basis, excluding the impact of net sales related to the discontinuation of the M6 artificial cervical and lumbar discs. These are non-GAAP financial measures as outlined earlier in the call. I encourage you to review the reconciliations in our press release and the supplemental materials posted on our website, which include pro forma results through Q3 to support your modeling. In Q3, we remained focused on distributor transitions in spine and biologics and surgeon-driven innovation. Through disciplined resource allocation, we're prioritizing high-return opportunities that support share capture in U.S. Spine and Orthopedics, margin improvement and free cash flow generation, positioning us for sustainable, profitable growth. Total global net sales reached $203.4 million, a 6% increase over the prior year, driven by strong performance in our U.S. Spine and Orthopedics segments. Our Spine Fixation business saw a meaningful step-up from Q2, continuing to outperform the market. Orthopedics saw strong results from FITBONE products and the TrueLok Elevate launch. I will now take you through the net sales results by product segment. Global Spinal implants, biologics and enabling Technologies delivered $108.6 million in pro forma net sales, up 6% year-over-year. Growth was supported by targeted distributor transitions in key geographies, which is positively impacting both our U.S. Spine and Biologics businesses. U.S. Spine Fixation saw increased procedure volume of 10%, partially offset by a price decrease at a major account as previously disclosed. Propelled by expansion into new markets and deeper penetration within established regions, international Spine Fixation net sales grew by 8.6% year-over-year. Bone Growth Therapies achieved $61.2 million in net sales, reflecting 6% growth outperforming the market. We expect BGT growth to remain above market rates of 2% to 3%, driven by new surgeon additions and competitive conversions, especially in the fracture channel. Global Orthopedics grew 6% to $33.6 million in the third quarter, led by 19% growth in the U.S. as a result of the market release of TrueLok Elevate and the FITBONE Bone Transport nail. International Orthopedics grew 1%, consistent with expectations given variability in stocking distributor and tender order timing that can occur from quarter-to-quarter. Moving down the P&L, pro forma non-GAAP adjusted gross margin reached 72.1%, up 80 basis points from Q3 2024, driven by the discontinuation of M6 and productivity improvements, partially offset by unfavorable geographic mix due to increased net sales in international spinal implants, biologics and enabling technologies. Pro forma non-GAAP adjusted EBITDA was $24.6 million or 12.1% of net sales with year-over-year margin expansion of 230 basis points, led by the discontinuation of M6. As Massimo noted, this marks our seventh consecutive quarter of EBITDA margin expansion, underscoring the scalability of our model and operational discipline. We generated positive free cash flow of $2.5 million, ending the quarter with $65.9 million in total cash, including restricted cash, supporting continued innovation and financial flexibility. Moving on to 2025 full-year guidance. We are narrowing our full-year pro forma net sales guidance range to $810 million to $814 million with a midpoint of $812 million, unchanged from prior guidance of $808 million to $816 million. This guidance range excludes revenue from the discontinued M6 product lines and implies fourth quarter pro forma net sales will be approximately $219 million. These projections are based on current foreign currency exchange rates and do not account for any further changes to exchange rates for the remainder of the year. We are raising the bottom end of our full-year 2025 pro forma non-GAAP adjusted EBITDA guidance range to $84 million with an updated range of $84 million to $86 million and a midpoint of $85 million, representing 200 basis points of adjusted EBITDA margin expansion at the midpoint versus 2024. We continue to expect to generate positive free cash flow for the full year, excluding the impact of restructuring charges related to the discontinuation of the M6 product lines. Now for some specifics on P&L line items for 2025. We expect gross margins to be approximately 72% for the second half of the year. We continue to expect operating expenses to improve by approximately 200 basis points this year versus 2024. We now expect stock-based compensation expense of approximately $28 million to $29 million and adjusted depreciation and amortization of approximately $38 million for the full year and interest and other expenses of approximately $5 million per quarter. In keeping with our standard practice, we anticipate providing formal 2026 guidance on our Q4 call in February. Delivering long-term shareholder value will continue to be paramount in 2026 and beyond, driven by our heightened focus on disciplined profitable growth, positive free cash flow generation and strategic capital deployment. Momentum in the Spine, BGT and Orthopedics businesses is projected to continue, supported by a robust innovation pipeline, consistent commercial execution and ongoing margin expansion efforts. We remain confident in our ability to deliver strong operational and financial performance through the remainder of 2025 and believe our strategic positioning, disciplined execution and resilient business model provide a solid foundation for sustained value creation in the years ahead. With that, I'll turn it back to Massimo for closing comments before we open the line for questions. Massimo? Massimo Calafiore: Thanks, Julie. I want to thank our Orthofix team and our committed commercial partners for their contribution in Q3. This was a strong and successful quarter. And I am incredibly proud of our team's disciplined execution and the way we are strategically positioning Orthofix for continued success in 2025 and beyond. Our Spine, Bone Growth Therapies and Orthopedics businesses are demonstrating sustained momentum, reinforcing our confidence in a successful close to 2025 and positioning us well for 2026. With operational rigor, a solid financial foundation and a clear path for innovation-led growth, Orthofix is well-positioned to deliver long-term value for our shareholders and advance our strategic priorities. Operator, let's now open the line for questions. Operator: [Operator Instructions] Our first question will come from the line of Tom Stephan with Stifel. Thomas Stephan: I want to start, I guess, 2 questions, one kind of near-term revenue, one long-term. kicking things off with near term. Just on 2025 revenue guidance, beat 3Q on pro forma by about $3 million, but the midpoint of guidance was unchanged. And I think 4Q revenue implies a slight decel to about 4% growth from 6% in 3Q. So Julie or Massimo, maybe if you can talk about some of the moving parts with the implied 4Q '25 revenue figure and maybe what held back sort of a flush through of the 3Q top line beat. Julie Andrews: Yes. Tom, thanks for the question. We set our guidance where we feel it's appropriate for the year. I think we had a very strong Q4 last year, and so we're up against a little bit of comparability. And so we feel like we set it appropriately within the range of what we expect for the fourth quarter. Thomas Stephan: Got it. Makes perfect sense. And then one a bit more long-term, I guess. So as we think about the 2027 financial targets on revenue, Julie, maybe to stick with you. Can you just help us a bit with sort of the path to the 6.5% to 7.5% CAGR. Do we think about both 2026 and 2027 within that band to get there? Or is growth maybe more weighted to either '26 or '27? And then maybe if you can talk about kind of key puts and takes for 2026 on the top line, that would be great. Julie Andrews: Sure. Thanks, Tom. We're not providing 2026 guidance today. But in speaking about our long-range plan, I think it will be a little bit more weighted towards 2027. Primary drivers of that, we will have a full launch of VIRATA in 2027. So we're launching that -- we talked about launching that midyear next year. So that will be a full launch. In addition, we've talked a lot about the TrueLok Elevate launch, which we are now in full launch of, but that is a market development type of launch. And so we will see continued acceleration of that and deeper acceleration of that into 2027. Massimo Calafiore: Yes, Tom, let me add some other -- some more color. And you see the momentum that we're getting with the addition of our new distributors -- and this is ongoing. It's very successful, and we're going to still going to get the benefit in '26 and '27. So I think that the foundation of the company is much stronger since we started 2 years ago. The pipeline is very strong. So I'm very optimistic about what we can achieve in the later year of our long-range business plan. Operator: Our next question will come from the line of Mike Petusky with Barrington Research. Michael Petusky: So I guess I wanted to try to drill down on the strength in U.S. Spine. Can you sort of talk about what you think are the most key drivers in that strong result? I mean, is it 70 pull-through? Is it the distributor transition? Can you just talk about what's driving sort of above-average market growth in U.S. Spine? Massimo Calafiore: Thank you, Mike. Look, I think that there are 3 key points for us. One, we are seeing encouraging momentum from this recent distributor transition. If you think about -- if you drill down, the top 30 of our U.S. distributor partners grew net sales 25% year-over-year in Q3 and 33% on a trailing 12-month basis. And this is a clear validation that the tough decision that we took starting our tenure start to paying off. And all of this is bringing more capital-efficient commercial partners that can help us to drive the profitable growth that we want to achieve. At the same point, we want to be a company that leads with innovation. our pipeline from the product standpoint is very exciting. There is a lot of support for what we are doing with VIRATA, a very successful alpha launch so far. And of course, our pinnacle of our Strategy 7D, which keeps driving positive momentum. Our placements are up year-over-year. Our Voyager and our program is being -- still being a very -- a great success. And just remember that on average, our customers are surpassing 50% of our customers are passing their commitment on usage of our implants. So a great foundation to build up our spine business. Michael Petusky: Okay. Great. And then just a quick one for Julie. I would certainly expect, I guess, Q4 free cash flow to be strong relative to each of the first 3 quarters. I'm just curious, though, you had a very strong free cash flow quarter last Q4, last year's Q4. I -- is there any chance that you could exceed that figure this Q4? Or should we model more conservatively? Julie Andrews: Yes. I mean I think what we've guided is that we'll be free cash flow positive for the second half of 2025. We haven't specifically given a number for the quarters or specifically said what that number is. What I would say is, I think I wouldn't expect it to probably be at the same level as last year. I think we're forward placing some inventory to get a good start to next year. So I expect a little bit more in capital usage and inventory from a working capital standpoint. But I would expect, again, that we'll be free cash flow positive for the second half of the year. Operator: [Operator Instructions] Our next question will come from the line of Jeff Cohen with Ladenburg Thalmann. Jeffrey Cohen: I have one and a follow-up. Firstly, could you talk about distributor increases and transition, particularly domestically? Have you transitioned from existing ones to the current ones? Or have the current ones expanded? Massimo Calafiore: I think it is a combination. So we start to consolidate our distribution, distributor partners in some areas. So instead of having multiple agent distributor in serving same account, we start to consolidate to the one that we believe can scale in the future. And of course, we look geography by geography in areas where we want to win. And then we can add or add new distributors to start to attack specific region of the country where we saw -- we didn't have a good presence. So I could say that it is a combination of the 2, expansion and consolidation. Jeffrey Cohen: Got it. And then as a follow-up, could you talk about this PBT with TrueLok Elevate as far as the one study that was published on increased peripheral vascularization? Would you expect there to be more studies and publications that are currently being done or in the future? Massimo Calafiore: Yes. We believe in clinical validation of our product. So it is in the pipeline for us to participate. But at the same time, we see a lot of interest in the surgeon community around the procedure. So I will not be surprised if other centers are going to start to study the specific surgical technique. So very excited about the opportunities. There is a specific focus of our organization on validate what we do with Elevate, and we are ready to build a great story around that. Operator: And that will conclude our question-and-answer session. I'll turn the call back over to Julie for any closing comments. Julie Dewey: Thank you, everyone, for joining us today. We sincerely appreciate your time and interest in Orthofix. If you have any questions, as usual, please reach out. We look forward to continuing the conversation next quarter. This concludes today's call. Operator: This concludes our call. Thanks for joining. You may now disconnect.
Carlos Almagro: Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS' Third Quarter 2025 Earnings Video Conference. TGS issued its earnings release yesterday. If you did not receive a copy of the release, please contact us at investor.tgs.com.ar. Before we begin the call, I would like to inform you that this event is being recorded. [Operator Instructions] I would also like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions or company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Accounting Reporting Standards, IFRS, and are stated in constant Argentine pesos as of September 30, 2025, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin. Alejandro Basso: Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2025 third quarter earnings and highlights. To begin the call today, I will start by sharing some of the most recent news about the company. As you remember, back in June '24, a private initiative was submitted to the government to expand the transportation capacity of the Perito Moreno pipeline by 14 million of cubic meters per day. As a result, ENARSA launched a tender offer in May. By the closing of the tender on July 28, only TGS had presented a bid. The project was finally awarded to TGS on October 17. The expected CapEx amount is $560 million, and it involves the construction of 3 compressor plants as well as the expansion of the Tratayén compressor plant, totaling an additional 90,000 horsepower. By April 2027, we must commission the incremental capacity while operating and maintaining the Perito Moreno pipeline for a 15-year period. We are also entitled to commercialize the incremental capacity and collect a dollar-denominated unregulated tariff during the period, after which the facilities will be reverted to ENARSA. Last week, we filed this project with the RIGI authorities in order to obtain the approval soon and get the tax benefits this regime provides. In addition to that project, TGS will invest another $220 million to expand the capacity by 12 million of cubic meters per day for its regulated pipelines between Salliqueló and Great Buenos Aires by adding 20 kilometers of pipeline and increasing compression capacity by 15,000 horsepower in one of the compressor plants. Moving to Slide 4. I will briefly highlight the key financial results for the third quarter of '25. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant Argentine pesos as of September 30, '25, following the provisions established by the IFRS for financial reporting in hyperinflationary economies. As seen in the slide, we reported a total net income of ARS 112 billion during the third quarter of '25 compared to ARS 68.8 billion reported in the same quarter of '24. These higher earnings were mostly explained by the better performance of the liquids business, which contributed with a higher EBITDA of ARS 37 billion and the continuous EBITDA growth in the midstream business segment, which rose by ARS 14.5 billion. In the quarter, we also recorded lower negative financial results amounting to ARS 31 billion, which boosted our third quarter earnings, but were partially offset by the natural gas transportation EBITDA decline of ARS 10.5 billion. Moving on to Slide 5. EBITDA for natural gas transportation business in the third quarter of '25 totaled ARS 102.4 billion, which is slightly below the almost ARS 113 billion recorded in the third quarter of '24. The ARS 10.5 billion EBITDA reduction in the regulated business segment was mainly due to that the tariff adjustment from August 24 to August '25, which resulted in a ARS 29.2 billion revenues nominal increase were insufficient to offset the inflation adjustment effect of ARS 42.2 billion. In addition, operating expenses rose by ARS 2.4 billion, while revenues also increased by ARS 4 billion, mainly due to incremental interruptible transportation services provided during the third quarter of '25. On Slide 6, you can see how EBITDA for the liquids segment tripled amounting to ARS 55.2 billion during the third quarter of '25 compared to ARS 18.2 billion reported in the same quarter of '24. Most of the EBITDA increase was explained by the higher volume exported of 61,000 metric tons, rising for 43,000 to 104,000 metric tons, which contributed to a higher EBITDA by ARS 18 billion. In addition, higher ethane volumes of 38,000 metric tons were sold, rising from 53,000 to 91,000 metric tons and adding ARS 11.7 billion to the third quarter EBITDA of '25. This higher volume is mainly related to a higher production, which increased from 173,000 tons to 315,000 metric tons as a result of the higher richness of the natural gas process in this quarter and the 3-week program plant shutdown for maintenance works implemented during the third quarter of '24. In addition, EBITDA increased by ARS 13.2 billion due to higher butane prices in the domestic market following the deregulation of the butane price under the Program Hogar starting January '25, which allow us to sell at export parity price. To a lesser extent, operating expenses decreased by ARS 5.4 billion and monetary effects were positive by ARS 1.1 billion. The positive effects on EBITDA were partially offset by ARS 8.9 billion extraordinary expenses incurred as a result of the March 7 flood, which we expect to recover from the insurance company in the coming months. Additionally, natural gas price increased from $3.1 to $3.4 per million BTU, which impacted negatively the EBITDA in ARS 4.3 billion. Turning to Slide 7. EBITDA from midstream and other services rose to ARS 61.2 billion compared to ARS 46.7 billion in the third quarter of '24. This increase was mainly driven by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta, totaling almost ARS 21 billion. Transported natural gas billed volume rose from an average of 29 million cubic meters per day in the third quarter of '24 to 32 million cubic meters per day during this quarter. The natural gas conditioning volume also increased from an average of 16 million cubic meters per day to 29 million cubic meters per day. In addition, the monetary effect increased EBITDA by ARS 3.2 billion. These effects were partially offset by ARS 10.4 billion in higher operating expenses. As seen on Slide 8, we recorded a positive variation in the financial results amounting ARS 31.1 billion. This was mainly due to a ARS 43.4 billion increase in income from financial assets given the much higher yields achieved in the domestic financial investments. Additionally, inflation exposure loss decreased by ARS 10.7 billion. These positive effects were partially offset by a higher foreign exchange loss amounting to ARS 21.8 billion during the third quarter of '25, following the Central Bank's decision to make the U.S. dollar exchange rate float starting early April and the consequent depreciation of 15% compared to the 16% rate in the same quarter of '24 under the previous regime of 2% monthly crawling peg. Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased by 22% or ARS 160 billion during the third quarter of '25 to ARS 875 billion, equivalent to approximately $638 million at the official exchange rate. EBITDA generation during the third quarter amounted to almost ARS 219 billion, of which 47% was generated by the regulated transportation business and 53% by the nonregulated businesses. CapEx for the period amounting to 87 billion. Working capital decreased by ARS 36.4 billion, and we paid interest amounting to ARS 29 billion and income tax payment totaled ARS 61 billion. In addition, we obtained short-term loans by ARS 28.6 billion. We finally recorded higher yields from our financial investment by ARS 53 billion in real terms, resulted mainly due to the higher increase of the foreign exchange rate over inflation of this quarter. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions. Thank you. Carlos Almagro: [Operator Instructions] The first question is from Santiago from Allaria. The question is regarding the CapEx to be made in the expansion of the transportation system and our final tranches. How is the breakdown of the deployment of the new $780 million? So this is the first question. Alejandro Basso: Well, regarding the deployment of the $780 million from the expansion project, for this year, we have some advances to suppliers amounting and some part of the works amounting up to $150 million. Then for the following year '26, we are expecting to spend $450 million and the remaining $27 million in the first 5 months of '27. The financing of the project, we already have almost 70 million bank loans to fund the imports, which is a regulatory requirement under [indiscernible]. And we are currently considering other source of financing for the remainder. Carlos Almagro: Second question is regarding the insurance claim status for the [indiscernible] event. If you can share what is the total expected recovery amount from the insurance and the time line for collecting the payment? Alejandro Basso: Regarding the recovery amount, we are estimating this amount could be more than $50 million. And the expectation for the collection maybe $10 million this year and the remainder in the following year, I don't know, maybe in the second quarter. Carlos Almagro: We have a question from [indiscernible] regarding the strong recovery of the liquids in this quarter. If we can comment on whether the current levels of production and margins are sustainable into fourth quarter of this year? And how do we see prices in 2026? Alejandro Basso: Okay. Well, regarding the level of production at [indiscernible] level, which was driven by the very -- the richness of the gas stream coming from Vaca Muerta. You know that nonconventional gas is replacing the conventional and also the increase in oil production with associated rich gas, the level of the richness of the gas is higher. And I could say that this level of richness could be substantial for the next years, okay? Regarding the fourth quarter in special, well, it's a different time of the year. So the gas production is lower in the fourth quarter as compared with the third quarter. So the richness could be there, but the gas production should be lower. In spite of that fact, the gas stream coming in our plant is higher than the total capacity of the plant. So it's going to be a sort of arbitration between these 2 variables. Regarding prices for '26, well, current level of international prices are lower than we used to have a couple of months ago. So maybe liquids prices could be lower than the average of this year, but you can know it's very hard to anticipate that. Carlos Almagro: Next question is from [indiscernible]. Well, this is her first question is regarding what you just explained regarding the liquid business in the future. And her second question is if we expect an acceleration in cash CapEx deployment until year-end. Alejandro Basso: Regarding our CapEx, our cash CapEx is going to be higher than previous levels as we have already started out with the private initiative project, okay, in the Perito Moreno expansion. As I previously mentioned, we are expecting to spend $150 million this year, mostly in the last quarter. Carlos Almagro: Next question is from [indiscernible] regarding the Perito Moreno pipeline that we provide all the explanation that we can share. And his second question if we are interested in participating in the project to build a brand new gas pipeline to [indiscernible] provide gas to LNG facilities that is planning [indiscernible] by 2027 and 2028. Alejandro Basso: Well, regarding the new gas pipeline, currently, we are evaluating our participation in this project. I cannot anticipate any news on that by now. Carlos Almagro: Next question is from George [indiscernible] Securities. He was expecting to pay significant cash income taxes against -- again next quarter? Alejandro Basso: George, well, regarding income tax payments, the payments could be quite similar in the fourth -- in the fourth quarter as compared with the third one, okay? The bulk of the income tax payment was paid in May this year. And then you have advances that are quite similar from June to April next year or March next year. So as compared fourth quarter with third quarter, the payments should be in pesos quite similar. Carlos Almagro: Next question from Daniel Guardiola. When do we expect to reach FID for the Tratayén facility? Alejandro Basso: Well, we are working very, very hard on the project. The FID could be in the first quarter of next year, hopefully. Carlos Almagro: Next question from [indiscernible] well, his question was answered because it was regarding initial project that was answered. Next question from [indiscernible] well, his question regarding the initial project was answered and both questions are regarding the initial project, so it was answered. [indiscernible] with partners or perhaps how many companies engaged with both of this -- from the balance sheet perspective of the participation on the in the project and joining with partners or perhaps tapping equity markets? Alejandro Basso: Well, we are working on that. The idea is to have partners especially in the part of the liquids project that comprise of the transportation and fractioning and dispatching facilities. Our idea is to go with partners in that part of the project, and we are working on that. Up in equity markets, I think that's not -- we are not analyzing that at this moment. Carlos Almagro: Next question from [indiscernible] regarding the financing of the CPM project that Alejandro explained. Another one, [indiscernible] asking the same question regarding the financing of the Perito Moreno pipeline project [indiscernible] capacity of the CPM? Alejandro Basso: Well, the answer is yes with additional [indiscernible] expansion of the CPM, our extreme business is going to benefit from that with higher volume also, okay, to the limit of the capacity of our pipeline, of our gas treatment facilities, okay? In the pipeline, we have plenty of space in the [indiscernible] pipeline. Carlos Almagro: [indiscernible] first 9 months of 2025 [indiscernible] the beginning of September that impacted on the 9-month period. Another question from Guido from Allaria regarding the Perito Moreno [indiscernible] project and we provided all the information that we can share. [indiscernible] same question regarding the financing of the Perito Moreno that we explained. Another question from [indiscernible]. For the time being, we have no other question. This concludes the question-and-answer section. Now we will turn to Alejandro for final remarks. Alejandro Basso: Well, thank you all for participating in this year's third quarter '25 conference call. We look forward to speaking with you again when we release our '25 fourth quarter results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.
Operator: Good day, and welcome to the Bioventus Inc. 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 Dave Crawford, Vice President, Investor Relations. Please go ahead. David Crawford: Thanks, Megan, and good morning, everyone, and thanks for joining us. It is my pleasure to welcome you to the Bioventus 2025 Third Quarter Earnings Conference Call. With me this morning are Rob Claypoole, President and CEO; and Mark Singleton, Senior Vice President and CFO. Rob will begin his remarks with an update on our business and our 2025 priorities, and then Mark will review the third quarter results and discuss our 2025 financial guidance. We'll finish the call with Q&A. The presentation for today's call is available on the Investors section of our website, bioventus.com. Before we begin, I would like to remind everyone that our remarks today contain forward-looking statements that are based on the current expectations of management and involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A Risk Factors of the company's Form 10-K for the year ended December 31, 2024. As such factors may be updated from time to time in the company's other filings made with the Securities and Exchange Commission. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws. This call will also include references to certain financial measures that are not calculated in accordance with U.S. generally accepted accounting principles or GAAP. We generally refer to these as non-GAAP or adjusted financial measures. Important disclosures about and definitions and reconciliations of those non-GAAP financial measures to the most comparable measures calculated and presented in accordance with GAAP are available in the earnings release on the Investors section of our website, bioventus.com. Now I will turn the call over to Rob. Robert Claypoole: Thank you, Dave. Good morning, everyone, and thanks for joining our call today. Bioventus delivered another solid quarter as we continue to make significant progress with our strategic priorities while helping patients recover so they can live life to the fullest. With strong third quarter results and solid growth expected for the fourth quarter, we are reiterating our full year guidance on all metrics while continuing to offset $5 million of tariffs and foreign exchange impacts. Let's take a closer look at our third quarter and the 3 priorities I introduced at the start of the year, driving above-market revenue growth, continuing to expand our profitability and accelerating free cash flow generation. First, third quarter revenue of $139 million advanced 8% on an organic basis, which represents an acceleration of more than 200 basis points compared to our organic growth for the first half of the year. Our team generated above-market growth across each business, achieving mid-single-digit to low double-digit organic growth, which reflects the strength and the breadth of our portfolio. I'll briefly share a few highlights with respect to our progress and momentum. You may recall that we projected that growth in our pain treatments and surgical solutions businesses would accelerate in the third quarter, which is clearly reflected by our results. With pain treatments, our leading HA therapies continued to outpace market growth as recent account wins gained traction powered by DUROLANE's clinical differentiation, the effectiveness of our dedicated commercial team, robust private payer coverage and significant opportunities for geographic expansion. And our surgical solutions business delivered another solid quarter with growing momentum in bone graft substitutes as we increase awareness with both existing and prospective customers of our strong clinical and health economic value proposition. We expect this positive trend to continue into 2026 as we continue to execute our growth strategy. In addition, restorative therapies organic revenue growth -- excuse me, restorative therapies organic revenue grew double digits again, thanks to the focus and commercial execution by our great Exogen team. It's important to note that our performance across HA, DGS and Exogen, our 3 largest products, demonstrates the strength of our portfolio, which helps fuel investment for our mid- and long-term growth drivers. Let me provide a little more detail on the exciting developments for 2 of these growth drivers within our pain treatments business, peripheral nerve stimulation, or PNS, and platelet-rich plasma, or PRP. I'll start with PNS. As a quick reminder, peripheral nerve stimulation helps patients who suffer from chronic peripheral pain, and we believe it represents a very attractive growth opportunity for Bioventus. U.S. market of approximately $200 million is expected to exceed $500 million by 2029 and grow above 20% annually. And we believe that the recent acquisition of Nalu by Boston Scientific clearly validates the potential value of the PNS market and could accelerate awareness and adoption. As you know, at the end of the third quarter, we began our limited launch of StimTrial and TalisMann following the successful FDA 510(k) clearance, and we look to expand aggressively. Although it's early, we're tracking ahead of our expectations on the projected number of StimTrial procedures and the conversion rate to our permanent TalisMann solution. This confirms our hypothesis about the strategic importance of adding a trial lead to our PNS portfolio. Equally important, we are receiving very encouraging feedback from physicians and patients regarding our differentiated technological design, including the power, size and ease of use. It's an exciting time for Bioventus to be launching this game-changing technology, and we're just getting started with expanding our commercial organization, educating physicians and increasing our overall presence in this rapidly growing segment. So, while it's early, we're looking forward to the significant growth opportunity ahead of us. And with respect to our new PRP system, Excel, we have also received positive customer feedback about this addition to our portfolio. As you may recall, the Excel system reduces procedural time and provide a customizable treatment solution for different patient applications. We recently progressed from our limited launch to training our entire HA sales team. And consequently, we expect sales to steadily increase over the remainder of this year and throughout 2026. We believe the combination of P&S and PRP is a significant expansion for Bioventus and will provide at least 200 basis points of profitable growth in 2026 and shifts our overall portfolio towards markets with higher growth potential. Longer-term, we believe both of these innovative technologies will deliver sustainable growth and become meaningful drivers of significant value for Bioventus. Turning to our second focus area, expanding profitability. Our third quarter adjusted EBITDA increased by 13%, with our adjusted EBITDA margin expanding by over 200 basis points. This performance further demonstrates the powerful combination of our above-market organic revenue growth peer-leading gross margins and operational efficiencies, a combination that enables us to not only drive operating leverage, but also simultaneously invest in our future growth. We remain on target to achieve our previously communicated 100 basis points of adjusted EBITDA margin expansion for the year and the increased profitability in Q3, combined with our reduced interest expense, generated a 200% increase in adjusted earnings per diluted share as we delivered $0.15 per diluted share in Q3. And with respect to our third focus area, we continue to significantly accelerate cash flow as cash from operations in the third quarter nearly tripled versus the same period last year. And we drove a cash conversion ratio of over 100% in the quarter. Year-to-date, cash from operations is up 88%, and we are on pace for our full year cash from operations to nearly double compared to last year. In conclusion, thanks to our highly engaged team members across the globe, we made significant progress this quarter to deliver on our 3 priorities, and we're primed to close out a strong 2025. Bioventus has entered a new phase of our transformation, and we are well positioned to drive above-market profitable revenue growth, along with strong consistent cash flow on an annual basis as we aim to become a $1 billion high-growth, high-margin, high cash flow company that creates significant value for our shareholders. I'll turn the call over to Mark. Mark Singleton: Thank you, Rob, and good morning, everyone. Let me begin by saying that I am proud of our team's hard work and dedication to transform Bioventus. Over the last 8 quarters, we have generated at least mid-single-digit organic revenue growth, significantly improved profitability and strengthened our balance sheet. But this is just the start of what we can achieve. I'm confident that with strong focus and disciplined execution, we will continue to advance our business and create significant shareholder value. Turning to our headline results for the third quarter. Revenue of $139 million was unchanged compared to the prior year due to the impact of our advanced rehabilitation divestiture at the end of last year. 8% organic revenue growth was a result of strong performance across all areas of our portfolio. Adjusted EBITDA of $27 million was $3 million higher than the prior year and represented an increase of 13%. Again, foreign currency exchange rates had an unfavorable impact for the quarter as we incurred an unplanned loss of nearly $0.5 million. For the year, we've now absorbed more than $2.5 million in unplanned impacts from FX rate movements. Adjusted EBITDA margin of 19% expanded 220 basis points compared to the third quarter last year. This was the result of higher gross margin and disciplined spending. Now let me provide some additional commentary on our quarterly revenue. In pain treatments, revenue accelerated from the first half and advanced 6% in Q3. As growth in HA benefited from strong volume growth of DUROLANE and recent account wins, which we previously highlighted. Surgical solutions revenue grew 9%, driven by growth in ultrasonics as we broaden awareness of our value proposition of enhanced precision and control for surgeons, reduced patient blood loss and increased operating room efficiency. In addition, as Rob mentioned, we saw improved growth this quarter in BGS and expect further acceleration in the fourth quarter. Shifting to restorative therapies. Revenue declined 29% due to the divestiture of our advanced rehabilitation business. Excluding the impact of the divestiture, organic growth was 11% as the Exogen team delivered another strong quarter. Finally, revenue from our international segment decreased 4% compared to the prior year, while organic growth climbed 10%. Our international segment is on target to deliver double-digit organic growth in 2025. We believe this positive trend can continue given our new leadership, market expansion opportunities and enhanced commercial execution. Moving down the income statement. Adjusted gross margin of 75% was 50 basis points higher than the prior year period as favorable product mix offset the impact of tariffs. Adjusted total operating expenses and R&D expenses declined by $3 million as increased investment in our growth initiatives was more than offset by direct expense savings related to the divestiture of our advanced rehabilitation business. Now for the detail on our bottom-line financial metrics. Adjusted operating income increased $3 million compared to the prior year to $24 million. Adjusted net income of $13 million nearly tripled compared to the prior year period. This growth is a result of our increased gross margin, decreased operating expenses and lower interest expense. And finally, adjusted earnings of $0.15 per share for the quarter, an increase of $0.10 compared to the prior year. Now shifting to the balance sheet and cash flow statement. Consistent with our planning assumptions, we generated significant cash flow for the second quarter, second straight quarter. Cash flow from operations totaled $30 million, representing an increase of $20 million compared to the prior year. The stronger cash flow was driven by higher profitability, lower interest expense and a significant reduction in onetime cash costs. We ended the quarter with $42 million in cash on hand and $323 million in outstanding debt, which included $25 million drawn on our revolving credit facility. During the quarter, debt decreased $19 million, and we expect to repay the remaining $25 million outstanding under the revolving credit facility by the end of this year. As a result of the lower debt outstanding, our net leverage ratio declined to below 3x at the end of the quarter. We are confident our projected strong cash flow and increase in adjusted EBITDA will drive our year-end net leverage below 2.5x and our debt outstanding to under $300 million. We believe this reduction in our net leverage and debt will drive additional interest expense savings and enable greater optionality for capital deployment moving forward. Finally, as Rob mentioned, we are pleased to reaffirm our 2025 financial guidance, which we initially provided on March 11. This includes organic revenue growth of 6% to 8%, adjusted EBITDA of $112 million to $116 million and EPS of $0.64 to $0.68. Our guidance does incorporate the full year impact of $5 million of the current expectation of tariffs in 2025 and the year-to-date impact related to foreign exchange rates. Our guidance does not assume additional impact from the U.S. dollar fluctuation in the final quarter of the year. In closing, we continue to execute our business plan and believe we are well-positioned to create shareholder value through strengthening our growth, profitability and cash flow this year and over the long-term. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from Chase Knickerbocker with Craig-Hallum. Chase Knickerbocker: Rob, maybe just to start on pain growth. Can you just give us an update on kind of market performance in Q3? And then if you could share DUROLANE growth specifically, I think that would be helpful. Question there is just is DUROLANE kind of driving all of the growth. What are you seeing out of the more legacy 3 and 5 shot businesses, just kind of the puts and takes within Pain. Robert Claypoole: Thanks, Chase. I'll start off and turn it over to Mark for some of the numbers there. Yes, I think what you saw in the third quarter here is our pain business overall accelerating backed by our HA therapies and DUROLANE in particular and feel really good about executing on our growth plan for the back half of the year as we continue to gain additional volume, particularly in large accounts. As for the market, the market is going to fluctuate on a quarterly and yearly basis within the HA space and -- but it remains a key part of the OA treatment continuum. And our focus, as you know, is always going to be to grow our volume above that market growth regardless of where it's at, while maintaining a lot of price discipline. So, excuse my voice today, but we believe that we're very well-positioned to do that, to keep growing above the market, given our clinical differentiation and private payer contracts and large dedicated sales team. So, we feel good about growing the business in that market even if there's some fluctuation. And then like I said, I'll turn it over to Mark to get into some of the details on DUROLANE and the rest of the portfolio. Mark Singleton: Yes. Thanks, Chase, for the question, and thanks, Rob. Overall, our growth in third quarter, DUROLANE did lead the growth of our portfolio, but that's with the differentiated product that we have there and the strong sales force and contract positioning we have, that's what we expect and also as the market moves towards a single injection overall. GELSYN did have some volume growth, but there's a little bit more price pressure there as we all know about for a while in the market. But overall, I feel like it was a good quarter and delivered on what we had committed to in our second quarter call. Chase Knickerbocker: And then maybe just on surgical. Guide implies some acceleration into Q4, I think, in that surgical business. Can you just speak to kind of what you're seeing so far in October and if those distributors that have ramped that are going to kind of support that Q4 result. Can you just kind of speak to how productive they've been as they've gotten up to speed? Robert Claypoole: Yes, Chase, I won't get too specific about October but let me reply and let me know if you have any follow-up questions on it. So again, sorry about my voice this morning. But first, what you're referring to there is bone graft substitutes. And we mentioned in our previous calls that our back half acceleration for Bioventus overall will be driven in part by BGS and you see that clearly reflected in our Q3 results. And that's thanks to our distributor partners and also because we bring a really strong clinical and economic value proposition to that -- to the $1 billion market that we're targeting. And I think what you see in the numbers is that we're getting better every day with raising awareness of the total value that we bring to our customers. And that's gaining traction with clinicians and with supply chain leaders. So, for your question there, we're going to keep stepping up our commercial efforts, and we're looking forward to building on our momentum with BGS in the quarters and the years ahead. And we remain very confident about the other part of surgical business with ultrasonics. We're well into the double-digit growth stage this year-to-date, and we expect that to continue next year and beyond. And again, for that one, that's because of our game-changing technology, where we continue to believe we have the opportunity to change the standard of care in this space. So, for surgical overall, we remain very positive, and that includes for both PGS and for ultrasonics. Chase Knickerbocker: And just last for me. If we think about what's needed with Talismann to make that offering competitive in the market, I guess, what does it take to make that business kind of take off? Do you need to generate some data sets? Is it just kind of commercial execution? I mean maybe just speak to kind of what you're going to do on the clinical data side to kind of prove out that platform. Robert Claypoole: Yes. Thanks. Well, first, just for everybody's perspective, launch, as I mentioned, is going very well, the pilot launch, and we're receiving a lot of positive feedback from customers about first having a trial in our portfolio and also about the power and the size and the ease of use of our perm technology. So, in terms of moving forward, the real key to success is scaling this business commercially. Keep in mind that the business is extremely -- and team has been extremely small for us. We were holding back for the launch of both StimTrial and TalisMann. And now that we have those exciting -- that exciting technology in our portfolio, we're building up that commercial organization. So, that is really the key, along with increasing awareness of our technology across the market. And that's what you're going to see us doing much more aggressively in the months ahead. And of course, we'll keep you updated on it. But overall, we're really looking forward to the path forward with this big growth driver for Bioventus. Operator: The next question comes from Ross Osborn with Cantor Fitzgerald. Ross Osborn: Congrats on the progress here. So, starting off with ultrasonics, what levers do you have there to drive penetration within the spine opportunity? And how are your medical affairs efforts progressing? Robert Claypoole: Yes. Thanks, Ross. For ultrasonics, I touched on it before there, but it's -- I'll reiterate, we really have phenomenal technology in this space. And it's because our technology, it provides control to the physician, and it saves time, and it delivers many patient benefits. And so, our greatest lever with this high-growth business for us is raising awareness about the value that our technology provides. And we can do that through a number of different ways through our commercial organization and also, as you alluded to, through medical affairs. And what we're doing is stepping up in a significant way our medical education efforts, and that includes bringing on new talent into our organization over the last quarter and significantly improving the targeting and the content and the frequency of that medical education, again, so that we can help customers understand the value that our technology brings. So that's the biggest key to continuing to penetrate that spine space and beyond. Ross Osborn: And then when you think about profitability for the company, is this a good base level to start thinking about your model? Just curious how you're pairing growth with savings as you try to penetrate and develop new markets such as PRP. Mark Singleton: Could you just repeat the questions on we're comparing growth I didn't hear. Ross Osborn: How you're balancing growth with profitability, especially as you're developing new markets? Mark Singleton: Yes. Yes. Thanks for clarifying, Ross. Yes. Overall, I mean, we've, in our guidance, committed to expanding our margin by 100 basis points, and that's what we're still committed to do for full year 2025. And over the medium and long-term, I mean that's something that with our peer-leading gross margin of 75%, we get the really good growth that we're capable of. And then really, it's up to the opportunity we have to invest in products and also delivering expansion back to investors. And so that's been part of what we've done over the last few years. That's part of what we look to do over the medium and long-term. We look into 2026, that's our intention to do that as well, but we're also going to balance that commitment to expand margin with investments and the great opportunities to invest like ultrasonics that we just talked about, like P&S that we talked about and also our international business. So those are exciting investment opportunities for us, but we're also still committed to balance that margin expansion with being smart about investing while we have a great opportunity in the market to do so. Operator: The next question comes from Caitlin Cronin with Canaccord Genuity. Caitlin Cronin: I guess just to start off on the guidance philosophy, just some color on why you decided to maintain the guidance into Q4? And then any color into dynamics and expectations going into 2026? Mark Singleton: Thanks, Caitlin. Overall, we set our guidance in March early on, and we've been consistent with that throughout the year. And when you look at the midpoint of our guidance, it implies a slight acceleration in the fourth quarter from what we've delivered to date, and we feel good about that commitment. And so that was the decision behind keeping the guidance the same and feel like that's a good -- the range that we set at the beginning of the year was a little tighter than we normally would. So overall, we still feel good about our guidance for 2025. When we look into 2026, at this point in time, we're really excited about the 2026. We talked about our growth opportunities in P&S and ultrasonics and international, but we're not going to give guidance for 2026 right now. But we do have some exciting opportunities as we've talked about throughout the call and look forward to sharing our thoughts on 2026 in the March earnings call. Robert Claypoole: And I'll just add on to that, Caitlin. I think what you're seeing in the third quarter here is just the power of our business. We achieved what we said we'd do, grew the business by 8%. We increased the margin by 200 basis points, generated $30 million in cash, and we're carrying that momentum into the fourth quarter and into 2026. So, like Mark said, we're not giving guidance, but it's -- our growth strategy is in full action. We really feel like we've entered a new phase here. And we're leveraging our core businesses, which are driving that above-market profitable growth to invest in and drive our faster future growth businesses with Ultrasonics, B&S, PRP and international. So, we'll give you a lot more detail on that when we provide our guidance for next year, but we feel good about the path ahead. Caitlin Cronin: And then just with Exogen continues to be strong. Were the same dynamics going on with commercial execution that really drove the strength this quarter as in prior quarters? Or was it something else? Robert Claypoole: Yes, it's consistent with what we've shared in the past. This is now -- we've generated double-digit growth in restorative therapies for 2 quarters in a row, and it validates the positive combination of focus, fantastic leadership and team, the right strategy, smart investments and stronger execution and which in turn is demonstrating a favorable ROI on our investments. So, I can't say enough about the great team and what they're doing with that business. What you're seeing is sustainable growth for Exogen after 5 years of decline. And we believe that we can grow this business to over $100 million with that combination that I mentioned, thanks to the dedicated team and our proven technology, which truly helps patients recover so they can live life to the fullest. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Rob Claypoole for any closing remarks. Robert Claypoole: All right. Thanks, everyone, for your interest in Bioventus. Once again, we delivered a solid performance throughout our business in the third quarter, and we are confident in our ability to build on our momentum to deliver above-market revenue growth, improve profitability and accelerate our cash flow to create significant shareholder value. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to the MPC Third Quarter 2025 Earnings Call. My name is Shirley, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin. Kristina Kazarian: Welcome to Marathon Petroleum Corporation's Third Quarter 2025 Earnings Conference Call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab. Joining me on the call today are Maryann Mannen, CEO; John Quaid, CFO; and other members of the executive team. We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our SEC filings. With that, I will turn the call over to Maryann. Maryann Mannen: Thanks, Kristina, and good morning. I'd like to take a moment to recognize Mike Hennigan. At the end of the year, Mike will be stepping down as Executive Chairman. Mike's guidance has been tremendously valuable to our Board, to me and our entire leadership team. We thank him for his service as well as all of his contributions. He will be missed. In the third quarter, we delivered strong cash generation of $2.4 billion. Utilization in the quarter was 95% as we executed our planned refinery turnarounds safely and on time. Our team delivered 96% capture despite significant market-driven headwinds. Year-to-date, capture is 102%. This compares to the prior year's level of 95%. We believe this demonstrates our commitment to deliver sustainable, improving commercial performance in varying market conditions. We have generated $6 billion of operating cash flow, excluding changes in working capital and have returned $3.2 billion to shareholders through the third quarter. Last week, we announced a 10% increase to MPC's dividend, reflecting our confidence in our business outlook. We believe that we should be able to lead in cash generation through cycle, delivering peer-leading results. In October, our blended crack was over $15 per barrel, which is seasonally strong and more than $5 per barrel or 50% higher than the same time period last year. Diesel and jet demand are up modestly across our system, while gasoline is flat to slightly lower. The product inventory draws reported last week signal strong demand. Gasoline and distillate inventory levels remain below five-year averages. Current market fundamentals are indicative of tightness in supply and supportive demand, which we believe will persist into 2026. Throughout the quarter, we completed several transactions advancing our strategic objectives and optimizing our portfolio. We sold our interest in an ethanol production joint venture. As the partner's strategic goals evolved and diverged, an opportunity came for MPC to exit the partnership at a compelling multiple. MPLX acquired a Delaware Basin sour gas treating business and the remaining 55% interest in the BANGL NGL pipeline. These transactions further MPLX's growth profile. MPLX increased its distribution this quarter, reflecting conviction in its growth outlook. We now expect to receive $2.8 billion annually from MPLX. MPLX continues to target a distribution growth rate of 12.5% over the next couple of years, which would imply annual cash distributions to MPC of over $3.5 billion. We are driving value and positioning MPC to be industry-leading in its own capital return program. With our competitive integrated refining and marketing value chains and durable midstream growth driving increasing distributions from MPLX, we believe MPC is positioned to deliver industry-leading cash generation through all parts of the cycle. Now I'll hand it over to John to discuss our financial performance. John Quaid: Thanks, Maryann. Moving to third quarter highlights. Slide 4 provides a summary of our financial results. This morning, we reported third quarter adjusted net income of $3.01 per share. We delivered adjusted EBITDA of $3.2 billion and $2.4 billion of cash flow from operations, excluding changes in working capital. MPC returned over $900 million to capital -- of capital to shareholders in the quarter with repurchases of $650 million and dividends of $276 million. Slide 5 shows the sequential change in adjusted EBITDA from second quarter to third quarter and the reconciliation between adjusted EBITDA and our net results for the quarter. Third quarter adjusted EBITDA of $3.2 billion was largely in line with the prior quarter. R&M segment results on Slide 6 were strong with adjusted EBITDA of $6.37 per barrel. Our refineries ran at 95% utilization, processing 2.8 million barrels of crude per day and several of our refineries achieved monthly throughput records in the quarter, including Robinson in Detroit in the Mid-Con and Anacortes in the West Coast. Mid-Con margins strengthened sequentially, but were offset by declining margins in the U.S. Gulf Coast and the West Coast. Turning to Slide 7. Third quarter capture was 96% with headwinds in the West Coast and the Gulf Coast. Jet to diesel differentials compressed. We faced lower clean product margins and inventory changes contributed headwinds to capture. The downtime of our Galveston Bay refinery resid hydrocracker was also a headwind to capture of almost 2% across the whole system with a larger effect on our Gulf Coast results. Slide 8 shows our Midstream segment performance for the quarter. Segment adjusted EBITDA increased 5% year-over-year. MPLX is executing its growth strategy, targeting its natural gas and NGL value chains and remains a source of durable cash flow growth for MPC. Slide 9 shows our renewable diesel segment performance for the quarter. Our renewable diesel facilities operated at 86% utilization, reflecting improved operational reliability. Margins were weaker in the third quarter as higher diesel prices and RIN values were more than offset by higher feedstock costs. We will continue to optimize our renewable operations, leveraging their logistic and pretreatment capabilities. Slide 10 presents the elements of change in our consolidated cash position for the third quarter. Operating cash flow, excluding changes in working capital, was $2.4 billion. And in the third quarter, MPLX completed acquisitions of over $3 billion and issued debt in connection with those acquisitions to finance them. Also, as we discussed with you last quarter, our second quarter share repurchases were influenced by the anticipated proceeds from the sale of our interest in the ethanol joint venture, which closed in July. At the end of the quarter, MPC had cash of nearly $900 million and MPLX had cash of approximately $1.8 billion. Turning to guidance on Slide 11. We provide our fourth quarter outlook. We are projecting crude throughput volumes of 2.7 million barrels per day, representing utilization of 90%. The Galveston Bay resid hydrocracker is expected to be at full operating capacity before the end of the month, enabling optimization of our Gulf Coast system. Turnaround expense is projected to be approximately $420 million in the fourth quarter with activity mainly focused in the West Coast. We are completing our multiyear infrastructure improvement project at our Los Angeles refinery in the fourth quarter with start-up scheduled to align with the conclusion of planned turnaround work before the end of this month. These improvements are intended to strengthen the competitiveness of our Los Angeles refinery and position us to remain one of the most cost competitive players in the region for years to come. Operating costs for the fourth quarter are projected to be $5.80 per barrel. Distribution costs are projected to be approximately $1.6 billion and corporate costs are expected to be $240 million. With that, let me pass it back to Maryann. Maryann Mannen: Thanks, John. We delivered a strong quarter in Refining and Marketing. Safe and reliable operations are foundational. Operational excellence is integral. The commercial team is optimizing decision-making as we leverage our value chains and capture opportunities the market presents. We are optimizing our portfolio through strategic investments. Fourth quarter refining cracks have started out stronger than seasonal averages. Current fundamentals highlight the market tightness and support our enhanced mid-cycle outlook into 2026. Our integrated value chains and geographically diversified assets position us to lead in capital allocation and offer a compelling value proposition to our shareholders. Let me turn the call back to Kristina. Kristina Kazarian: Thanks, Maryann. As we open your call for questions, as a courtesy to all participants, we ask that you limit yourself to one question and a follow-up. If time permits, we will reprompt for additional questions. Shirley, could you please open the line for questions? Operator: [Operator Instructions] Our first question comes from Neil Mehta with Goldman Sachs. Neil Mehta: Maryann, congrats on the Chairmanship as well. The question I had was really around capture rates in the quarter. We've gotten so used to you putting up north of 100%, 96% felt a little softer. And I think you called out some stuff in the script a little bit about the RHU, but also some West Coast dynamics around diesel and jet. I was wondering if you could unpack that for us here. Maryann Mannen: Yes, certainly. Neil, thanks for your question. So absolutely, in the quarter, we generated 96% capture sequentially down from the second capture -- second quarter capture, excuse me, of 105%. I would say that the West Coast was the leading driver in the quarter. It accounted for more than 50% of the capture change. we actually saw clean product margins fall about 40% in the West Coast. The jet premium to diesel narrowed. In fact, it actually moved from a benefit to a negative. And then, of course, as you know, secondary product margins were clearly a headwind. So, again, West Coast really the majority of the driver for the sequential change in capture. Second, and John, as you said, mentioned it in his remarks as well, the RHU, and Mike shared with you sort of the status of that on our last earnings call. Obviously, its downtime impacted the quarter and then also the jet to diesel there. Year-to-date, as I mentioned, our capture is at 102% through the third quarter, and that compares to 95% the prior year quarter. So what we are hoping that you see is the sustainable changes that we have been working on over the last few years will continue to serve us well. Our headwinds were certainly a challenge. Fourth quarter, as you know, is typically our strongest quarter for many reasons, and we'll share a little bit more with you there. But we certainly don't see the fourth quarter being any different than we have in prior quarters as well. So let me pass it to Rick, and he'll give you some incremental color as well, Neil. Rick Hessling: Yes. Neil, just a couple of comments additional to Maryann. So we are off to a good start in the fourth quarter. We've seen the jet and product margins go right back to normal levels. So that's quite encouraging. we're one month through the quarter, but signals look promising. And the other item that I'd add on 3Q specifically is we built butane inventory in 3Q, and we're heading into blending season. So as we go into 4Q now, the building of inventory hit that we took in 3Q will be a tailwind in the fourth quarter. So we look to be in really good shape here, Neil, heading into the fourth quarter. Neil Mehta: Yes. And then the follow-up is just on return of capital. It was a little bit lighter from a buyback perspective than, again, I think where the Street was modeling. Can you just talk about how you're thinking about the share repurchase on the go forward? Maryann Mannen: Yes, certainly. happy to do so, Neil. Thank you. No change in terms of the way that we view our primary return of capital using share buyback. As you know, essentially, what we've said and you heard, we've announced a 12.5% distribution increase at MPLX, and that brings about $2.8 billion back on the MPC side. So, our ability, as we said, given the differentiation with our midstream distribution should allow us to lead in capital returns. And you can see that on a year-to-date basis, shared those statistics there with you. No change, Neil, in our ability to continue to lead in share repurchase, no change in the way we view it. And it will be, as you know, the primary return of capital going forward. Operator: Our next question comes from Manav Gupta with UBS. Manav Gupta: So I'm going to start with the West Coast. We understand capture can move around a bit. It should not matter that much. But when we look at the West Coast, one big refinery has closed in your backyard. Another one will most likely close in the next three to four months. And yes, there are some product pipelines that might show up, but they might not show up for three years. So I'm just trying to understand, given the setup and the upgrade you are doing at your refinery, could we see you generate above mid-cycle margins on the West Coast for next maybe 8 or even 12 quarters? Can you talk a little bit about that? Rick Hessling: Yes. Manav, this is Rick. So you point out some very dynamic items that are happening in the West Coast. Let's maybe walk through them one by one. So, as we look today, I think you're well aware, we're looking at a $40 crack today. And we've got one closure that's happened, one that appears that it may happen early next year. And this is just simply supply and demand. The market is efficient and the market is responding and showing you that the market is efficient. So when we look at the overall market, there's a couple of lenses I'd like you to view it from is we optimize not only the West Coast, but along with the Pacific Northwest. So when we look at our system, it's no different than what we look at when we look at our Mid-Con region, which, as you know, is highly integrated, so is the West Coast and Pacific Northwest. What I mean by that, Manav, is when you look at Anacortes and you look at Kenai and you look at L.A., which we have invested in and continue to invest in as the largest, most dynamic, complex, efficient refinery in the California region, we believe we have a competitive advantage that not only exists today, but will exist far into the future. And when you maybe back away even from L.A., Manav, and you look at Anacortes and Kenai, we're able to optimize those two refineries to fill the short that is in the San Francisco region. So all three of those assets are complementary to one another. In terms of the pipelines that are rumored to come into the region, I would say that's a big if. I would say those projects, I would say, are ambitious and at earliest might be 2029. But when we look at the overall structure of the market, Manav, the incremental barrel coming into the marketplace continues to be a waterborne barrel. They have a timing and a transportation cost that we can and will beat all day long, and that does set the market and that, therefore, is an incredible incremental advantage to Marathon Petroleum, not only for the West Coast, but for the Pacific Northwest. Maryann Mannen: Manav, it's Maryann The other thing that I might add to Rick's comprehensive response to your question would be, as you know, our LAR project is coming online in the fourth quarter and intended to meet not only NOx reduction emission requirements, but also greater efficiency and improvement in EBITDA. And that project will benefit us in 2026 as well, and that comes online in the fourth quarter. That's the West Coast -- another West Coast benefit also. Rick Hessling: Manav, maybe not to come over top of Maryann, but an item I meant to bring out, and I just -- it slipped my mind is we have a significant feedstock advantage in the West Coast. And if you look even six months ago versus where we're at today, when you look at the closure that just happened and the one that's about to happen in 2026, we are buying more local California crude today than we ever have. Actually, it's 2x greater than we had in the past. at a significant advantage. So while our advantages were great even before that happened, that just continues to stress why we're so committed to California. And the feedstock advantage is real and really helps us compete quite well with those waterborne imports. Manav Gupta: Perfect. My quick follow-up here is I'm going to focus a little bit on MPC dividend growth. Maryann, you provided a very detailed response to John McKay's question on the MPLX call. And as you walk through the growth pipeline of projects in MPLX, it's pretty clear that MPLX could support distribution growth of 12.5% for two or maybe even three years. Now when we couple that with the buyback and how that lowers the dividend burden, would it be fair to say that at this point, if refining cracks hold even mid-cycle or maybe slightly below mid-cycle, MPC is in a very good position to raise its dividend by 10% for the next couple of years, at least, supported by distribution from MPLX and the buyback that lowered the dividend burden? Maryann Mannen: Manav, well said. The answer to that is yes. As you know, over the last few years, we've taken over 50% of the equity out through our share buyback initiative. For the last three years, we've raised the MPC dividend 10% per year and then prior to that 30%. But as you clearly state, and our commitment to continue to use our share buyback as a critical lever to return capital to our shareholders that share count will continue to decline, making it obviously supported by our mid-cycle environment, our belief there, making that dividend opportunity clearly possible for the next several years at MPC as well. And as I mentioned on the MPLX call, we see a couple more years of 12.5% as we continue to deliver that mid-single-digit growth. So should -- both of those things should be extremely supportive. Operator: Our next question comes from Doug Leger with Wolfe Research. Douglas George Blyth Leggate: Maryann, congrats from me as well. Please pass our best regards on to Mr. Hennigan as he officially moves into retirement. I have two quick ones, hopefully. Can you address the CapEx specifically for refining relative to the guidance you gave at the beginning of the year? It seems you're running a little hot. I'm just wondering if something is changing there or if it was cadence or if there's some other explanation as to why we should or should not be paying attention to that. And my follow-up is a simple one. I want to hark back to the balance sheet and buybacks and just get your simple perspective. Obviously, we've had extraordinary share performance from MPC. One could argue elevated valuations certainly elevated margins for the time being. and a slowdown in the buyback, I believe the slowest in the fourth quarter of 2021, I think, might be weighing on your shares today. So my question is simply, are you prepared to lean on your balance sheet to buy back your shares? Maryann Mannen: So, Doug, let me try to address some of those, and then I'll pass it to John to give you a little more color. I think we've probably said this before, but at the risk of maybe repeating, no one quarter or for that matter, any one given month is meant to be indicative of the way that we view share buyback. And frankly, if you look consistent with what we've shared, we are comfortable with roughly $1 billion on our balance sheet. Last quarter, for a lot of reasons, we ended lower than that. And you know we delivered strong share buyback performance. So, again, no one quarter should be indicative of how we view that. We remain committed to using share buyback as the element of return of capital, and we'll consistently do that. As I shared earlier, the benefit of that growing distribution from MPLX two years now at 12.5% and growing should also be supportive for us to be able to lead in the return of capital. I think the other part of your question was, would we use our balance sheet? In other words, would we take on debt? And we don't see taking on debt at MPC to buy back stock as something that we would do. Having said that, we do believe that our margin delivery will allow us to continue to lead in share repurchases. I'm going to pass the question back to John, and he can give you some color on capital, and then I'll follow up. John Quaid: Doug, so yes, certainly looking at capital, I think what you're seeing there is as we're looking across our value chains and where we're positioned, we're finding really good opportunities to drive investments, whether it's operationally or commercially to drive reliability, drive mix and yields and really drive margin and capture. So I think that's partly what you're seeing in the numbers this year. And maybe I'll turn it back to Maryann because I know she had a comment to follow up there as well. Maryann Mannen: Yes, thanks. And thanks, John. The one thing that I wanted to be clear, we have not given guidance yet for 2026. And as you know, consistent with the way that we always have, we'll provide you full year guidance. But I think as you are thinking about planning, you should assume that 2026 capital will be below 2025. And we'll give you incremental color on the next quarter call, but you should assume capital will be below 2025. Operator: Our next question comes from Sam Margolin with Wells Fargo. Sam Margolin: Maybe we could drill into this jet to diesel dynamic because it seems like it was pretty influential. And you said it's normalized now. But if you just look at the shape of sort of what underlying crack spreads did for the quarter, it was volatile, right? There were a few like sort of big pulses higher and then it came in. I mean how much of the, I guess, abnormal jet to diesel relationship in the quarter, would you attribute to kind of unusual volatility across the array of commodities versus something more structural or any other macro effect you want to call out? Rick Hessling: Sam, it's Rick. So we have not seen a volatility between the jet, diesel differential to this extent. I can tell you throughout the length of my career, Sam, it was unprecedented. And I really think it was a combo of inventory and supply driven. We did have some inventory switches on the diesel side and then jet took the opposite position, and it just caused an imbalance for the better part of a month, 1.5 months, and it's certainly corrected itself, but we do not see it structural whatsoever. Sam Margolin: Okay. That's helpful. And then maybe taking a step back, just to the macro because nobody has asked about demand yet given all the moving parts of the quarter. But what's interesting about this environment is that a lot of indicators that normally correlate to demand don't look that strong. Consumer sentiment is very low. PMIs are basically below 50 everywhere. And yet refining margins are still very high. And so I guess this is a question about kind of the conditions you're seeing today and what that means for kind of what a real mid-cycle margin environment looks like. It looks very much like the mid-cycle might be lifting higher based on kind of long-term capacity trends and indicators today, but would love your perspective on that. Rick Hessling: Yes, Sam. So let me start by saying we tend to believe we have some of the best indicators in the United States with the breadth and depth of our refining and marketing business throughout the United States. Every day we're demand signals. So while there are a lot of surveys out there, I would tell you we have what we would call hard facts, and we feel very good about what we're seeing today and going forward. But if I were to take a step back just for a moment, I mean, as you know, global demand continues to grow, whether it's the IEA or OPEC or almost any institution, everyone continues to upgrade their global demand views by several hundred thousand barrels a day. But more so closer to home here, Sam, when we look at diesel and jet, we continue to see modest growth and saw that in the third quarter, and we're seeing that here again to start the fourth quarter. And gasoline, it depends on the region within gasoline, but gasoline is flattish to slightly lower to prior year, which to us is a very strong signal. And as you know, we're in max diesel mode everywhere, driven by the diesel crack, and we are seeing strong signals not only on over-the-road, but container business as well, harvest season. So we're getting a lot of positive signals today, Sam, that would lead us to be very bullish looking forward here into the near term. And then if I even zoom out a little bit further, Sam, you continue to see the slightest bit of disruption in a region that is causing cracks to blow out greater than what they have in the past. A good example is the West Coast today. You know there's operating issues out on the West Coast as well as a closure. But then even go to the Mid-Con where we're seeing outsized cracks for this time of year because of a disruption. To me, as -- if an outsider is looking in, I would say this is a primary example of how tight this market is from a U.S. perspective. And then globally, when you look at drone attacks, I woke up and read another article yet this morning on a Russian refinery getting hit with another drone. That's sending the market in turmoil, especially from a diesel perspective. We're having good success, Sam, taking diesel to Europe because the whole Russian product export portfolio has been turned upside down. So that is advantaging U.S. refiners like us who have a really strong appetite to export on the Gulf Coast. Operator: Our next question comes from Paul Cheng with Scotiabank. Paul Cheng: Maryann or maybe this is for John. You guys have mentioned that the third quarter, one of the impact on the margin capture is on butane inventory build. Can you give us some idea that how big is that impact, whether it is in the dollar per barrel or percent of capture rate? Secondly, that I want to go back into California. With the new pipeline proposal and all that, we know that, I mean, not all of them probably will be materialized, but I suppose that at least one may be materialized. And so how you guys will position yourself? And also that I think Rick has said that you believe the main import avenue is going to be waterborne. Will MPC be an active and aggressive player in that market and already organized a range imports coming in given your L.A. logistics that you will be able to easily bring import. So trying to understand that how you have positioned yourself. John Quaid: Paul, it's John. I'll start with the inventory question you had on capture. Rick mentioned earlier, there were a few different inventory changes, I would say, that affected capture. One that Rick mentioned earlier, you would expect every season, right, as we're building LPGs to get ready for blending season. We also had some VGO we built ahead some FCC turnarounds that kind of bridge the quarter and then probably some other pieces as well, Paul. But I mean, it was -- if you add all those up, it's -- it gets you to a pretty good effect on capture quarter-to-quarter. Paul Cheng: John, do you -- can you quantify? Is it, say, 3%, 4%, 1%, and any kind of color? John Quaid: Yes, it's probably closer to 3% to 5%, Paul. Rick Hessling: Paul, it's Rick. So let me start with the pipeline question. So, there are, as you mentioned, several announcements out there. And if one of them goes through, I would say that's if. If one does and it comes -- the origin comes out of the Mid-Con, I would say, Paul, that's extremely positive for us. Most pundits on the one coming out of the Mid-Con would say that about 100,000 to 200,000 barrels per day could come out of the Mid-Con. And as you know, Paul, we've got about 800,000 barrels per day through our 4 plants that come out of the Mid-Con. So we feel like we would benefit significantly with that draw coming out of the Mid-Con. Now I will pause though and say that's a big if because when you look at a tariff that's yet to be set on if a line comes out of the Mid-Con. As best we can tell, it's about 1,000-mile pipe that would need to be laid across several states. It's long haul, and it would most likely or potentially cross governmental administrations. So there's a wildcard there. So there are a lot of ifs on the cost and the likelihood of it happening. But if one would come out of Mid-Con, we see it as quite bullish for us. On the second part of your question, on the waterborne market, from a commercial perspective, we absolutely have a significant advantage with our L.A. asset and our Pacific Northwest assets. However, Paul, if we see a trading opportunity in the waterborne market, we will look at it just like we look at every other market. But I would tell you at this 10 seconds, that would not be a primary focus of ours. Our focus is to really bring the value out of our fully integrated value chain between the West Coast and Pacific Northwest. Paul Cheng: Okay. So if I interpret you correctly, it means that you do not have planned to be a consistent and active importer of product into California market? Rick Hessling: Paul, I wouldn't tell you if I was or wasn't, but it's a nice try, Paul, but I won't tell you that. We look at every opportunity to make money. Maryann Mannen: You're welcome, Paul. Maybe just one last wrap on the capture question, just to be sure. As you know, over the last several quarters, one of the things that we've been trying to do is continue to provide color on the things that are sustainable, that -- which Rick and his team are working on to provide that sustainable excellence in terms of our commercial performance. And the lion's share of that change that we talked about this particular quarter was really market-driven. That's the volatility I talked about the jet versus diesel, the clean product margins, et cetera. And then as you know, as a result of that volatility, then the secondary product headwinds can be significant for us. And you know that they are obviously largely not within our control as well. The one that was, and that's where we've shared with you the progress was the Gulf Coast part of that, and that was the downtime that we experienced on our RHU and Mike shared with you the intent to bring that back up and obviously expect to have that operational for much of the fourth quarter. That would be the piece that I would tell you was sort of ours. But largely, when you look at the change quarter-over-quarter, it was largely market-driven for all of the reasons that I shared. I hope that's helpful for you as well. Operator: Our next question comes from Theresa Chen with Barclays. Theresa Chen: Building off of Rick's comments about how Mid-Con product margins would likely improve if Kinder and Phillips 66 pipeline gets built. Is the same true for PADD 4 if [ Dyno ] project -- the [ Dyno ] project goes through considering that you do also have a Salt Lake facility and given the relatively low CapEx and minimal looping that, that would require, would that also improve netbacks for you in that region? Rick Hessling: That one is a little tougher to call, Theresa. This is Rick, by the way. But I would tell you where we see our significant advantage in Salt Lake City is we are the largest refiner in Salt Lake, and we have a significant feedstock advantage with the amount of black and yellow wax we run in that region. And so regardless, if something comes in and/or out of that region, the project that you're referencing is of such de minimis volumes, we don't see it affecting us really negatively. And so we really like where our assets at because of the reasons I've mentioned and our ability to clear our product to other areas of the country, i.e., Vegas, Arizona, et cetera. Theresa Chen: Understood. And on the light heavy outlook, what are your expectations on how those differentials evolve from here? What do you think are the key drivers and keeping the geopolitical instability and general macro volatility in mind? Rick Hessling: Yes. Up until now, Theresa, I would tell you that TMX has been the key driver. I would say most have been projecting the differentials to get wider, but increased Far East demand through TMX pipeline has really kept Canadian inventories low and differentials tighter than expected. However, as Far East demand appears to be waning, we believe this could provide some relief to those differentials. So we expect sour differentials to widen slightly in Q1 on incremental OPEC production and incremental Canadian production, especially as we enter the diluent blending season and production grows. The one area that I would like to point out is we've certainly seen depressed ASCI prices as grades are under pressure due to more challenging export environments, both within the U.S. and China. So we believe this is extremely positive. As you know, we're a big player in the ASCI market. We have a ton of exposure of our barrels priced against an ASCI benchmark. And just as a reference, ASCI prices are $2 weaker than earlier in the year, and the forward curve is one of the weaker 4Q, 1Q ASCI curves that I've seen and we've seen in the last five years as offshore production continues to be quite bullish. The latest number I looked at is it looks like it's slightly above 2 million barrels a day for the first time since 2020, a lot of big exploration projects coming online. So we're quite bullish on the AI as we're seeing that not only in current ASCI markets, but in the future forward curve. I hope that helps answer your question. Operator: Our next question comes from Jason Gabelman with TD Cowen. Jason Gabelman: I wanted to start on the West Coast. It's been a heavier turnaround year in that region, and it seems like that's going to continue into 4Q. So just wondering what's driving that? And then more broadly, it looks like turnaround spend is going to be a bit higher than what you had previously guided to. So wondering if that's related to what's specifically going on in the West Coast? And then I have a follow-up. Michael Hennigan: Jason, this is Mike. On the West Coast, primarily, we're running the refinery currently, but we do have our FCC and our alky down. We started that turnaround in the third quarter. And then we're coming up with the project that Maryann talked about, our [indiscernible] project will come up here in the next few weeks. So we should be in a good position to capture that in the West Coast. So at this point, we'll be able to run hard on the LAR refinery. From the turnaround cost side, some of it has went up, specifically at LAR GBR. That was primarily around opportunities on growth projects and ER projects, mainly around some reliability, which allows us -- put us in a position for better capture, both on the West Coast and the Gulf Coast. John Quaid: And Jason, it's John. I might just kind of add on to Mike's comments. So certainly, you're seeing the number, you can add the fourth quarter to get to a number for the year. But as we look to '26, that's a number we see coming down. And after '26, we see that trend continuing as well, just to give you a little bit of a forward look. Jason Gabelman: Great. And my follow-up is maybe just on margin capture. And your indicators don't include some regions that were really strong in 2Q and 3Q, the Pacific Northwest and the Rockies. And I suppose some had thought that strength would offset some of the headwinds that you had mentioned. So can you just talk about your ability the past couple of quarters to capture the strength in the Pacific Northwest and the Rockies. Has that driven that distribution cost number higher, which came in above estimates? Or do you feel like your system is kind of well situated at this point to capture those dislocations in the market? John Quaid: Jason, it's John. I'll start with distribution costs and then turn it over to Rick to talk about kind of those regional cracks as you noted. So again, just to take a step back, right, this is our cost that we look at to kind of get our product to markets across all our refinery systems, again, a little bit of a different convention for us. Certainly, like you said, the number is a little bit higher than our guidance, but that really reflects commercial decisions Rick's team is making every day about products, which markets we go to and where we see the most margin opportunities. Some of those might have higher distribution costs, if you will, but we're going after relatively higher margin. And the only other thing I would offer, again, that can move quarter-to-quarter based on those decisions. But if you look at it on a barrel sold basis versus our normal throughput basis, you look year-to-date, this year, year-to-date last year, it's pretty much the same number, but it can move quarter-to-quarter, but it reflects those commercial decisions Rick and his team are making. And I'll turn it over to Rick to talk about kind of your regional question. Rick Hessling: Yes, Jason, the regional question is a dynamic one because as we look, and I'll just talk about California for a moment. So, in California, especially in 3Q, you had the dynamic between the cracks between San Fran and LAR. Now we would -- we will and can take some of our Anacortes product and take it and back it into San Francisco and backfill the San Francisco market. But the swings that we have seen between the PNW and the California market, which I always break into two, San Francisco and LAR are quite significant. So in any one given quarter, there are times when one region is outclipping the other, but it's a tough call to make consistently throughout the quarter. And in a lot of cases, in 3Q, I would tell you the PNW actually trailed parts of California for a negative for our margin pull-through. So it's quite dynamic, and we do all we can to move around and optimize it to take advantage of the highest margin areas within that region. Operator: Our next question comes from Matthew Blair with TPH. Matthew Blair: Could you give your thoughts on the RD market going forward? Given these losses, are you considering shutting your California RD asset? And do you have any explanation on why D4 RINs aren't at stronger levels now on our supply/demand, it looks like D4 is in shortage this year. We see a lot of companies operating at pretty low utilization, implementing economic run cuts and yet the D4 market still seems pretty depressed. So if you have any thoughts on that, that would be great. Maryann Mannen: Yes. So maybe just a couple of comments, and then I'll pass it to John to give you some of the specifics to your questions with respect to our renewable diesel segment. As you know, in the very beginning of the year, one of the things that we said was in terms of operation, the only investment that we were considering was anything to ensure reliability, and that really hasn't changed. As you know, there's been a tremendous amount of backdrop as we think about the regulatory environment that continues to ebb and flow, still decisions that are pending with respect to how resolution will happen, et cetera. So it is a place where we are ensuring that our operations are running as efficiently as possible, but there's certainly some headwinds when we look at margins, feedstock, et cetera. And as we went out to work on this project, we felt like we had some very favorable, I'll call it, metrics with respect to this project when we look at its location, we look at the center of demand, logistics, et cetera. Feedstock was a place where we felt strongly that we wanted to further optimize as well. So very small part of the portfolio. We're ensuring that we can run it as efficiently as possible, but you don't really see us putting capital to work in this space. But let me pass it to John, and he can answer some of the specifics for you. John Quaid: Matthew, it's John. Maybe just building off some of Maryann's comments, and I'm sure you've heard similar comments from some of our peers. On some of those regulatory items, there's probably more unknowns than knowns right now. Lots of things need to play out there. We're looking at that D4 RIN just like you are as well as maybe LCFS credits, and you could kind of go down the stack there. Certainly seeing margins improve some in the fourth quarter, but it really feels like we got to get into 2026 before we're going to get some clarity there. As Maryann noted, we're going to work on driving the most value out of the assets we have given where we are in Martinez and what we can do there. So we'll keep focused on that. But I think there's just a lot of uncertainty. You're seeing other players come out of the market, and we'll just have to keep an eye on it as we go into 2026. Matthew Blair: Great. And then maybe just to expand the conversation on crude dips. You talked about favorable dynamics on WCS and ASCI. We're also seeing wider moves in areas like ANS, Bakken and Syncrude so far in the fourth quarter. So I guess, fair to say that this would be an additional tailwind on capture this quarter. And do you have any sort of -- any other insights on what's pushing these other grades wider as well? Rick Hessling: Yes. Matthew, it's Rick. So I'll start with ANS. That is the one that is the most logical to explain because when you look at the TMX barrels that have entered the market there and the closures, the demand for ANS has gone down significantly. So the differential has had to widen out to compete. And then we're seeing stronger than what we would have expected Bakken production and Syncrude production. So quite nice tailwinds, both from a production perspective in those two fields that is driving those differentials wider for us. John Quaid: And Matthew, it's John. Just to add on one more thing kind of when you think about for modeling purposes, the way we do our blended crack numbers and our market metrics, we include those dips in those numbers. So when we do capture, it's above and beyond what's going on here. It would certainly drive margin, but it's not going to be a capture tailwind. I just -- we're a little different than what some of our peers do around their indicators. So I just wanted to remind you. Operator: Our next question comes from Phillip Jungwirth with BMO. Phillip Jungwirth: The Gulf Coast and Mid-Con are expecting to run a higher percentage of sweet crude in the fourth quarter than they have in prior quarters. Just given what should be increased availability of crude, I was hoping you could talk through the planned crude slate and also just what you're seeing in the market as far as sourcing more advantaged barrels. Rick Hessling: Yes. Phillip, it's Rick. So from a sweet perspective, GBR really sits right at the mouth of incredible amounts of sweet discounted crude. So we're highly advantaged to run it at GBR. And then at Garyville specifically, we will toggle between sweet and sour depending on the price and the economics. I will tell you, we're starting to see a few more looks at what we see as Iraqi barrels that are becoming more promising and getting a slight hint that we might lean into those a little bit more so. But generally, the increased sweet and the amount of sweet you're seeing is just because of where we're logistically set up and the toolkit for Garyville is really well positioned to run a lot of sweet barrels. In addition to that, we do run, I think, as you know, a lot of Canadian heavy barrels that we feed into the RHU that are highly discounted as well, and we see that discount becoming slightly larger in the coming quarter. I hope that helps you, Phillip. Phillip Jungwirth: Yes. No, that's helpful. And then when you look at the need for waterborne refined product imports into California, can you touch on available dock space just to bring volumes in? I know you're utilizing some of this through your other refineries. But from an industry's perspective, how much of dock space you view is utilized? And is that at all a bottleneck to future supply as additional refineries close? Rick Hessling: Phillip, you've identified something that certainly is a deterrent and headwind for waterborne imports. Even prior to imports needing to go up significantly because of the recent announced closures and one to come. the docks have always been the wildcard on the West Coast. And the reason is you have fog, you have delays, you have unexpected waterborne incidents that are far less ratable than having a refinery in the state. So when we look at not only the docks, but when we look at weather concerns, when we look at high freight rates today, which is also causing the arb to be where it's at and cracks be where it's at, we see all of these as significant tailwinds for us. Operator: Our final question comes from Ryan Todd with Piper Sandler. Ryan Todd: Maybe a couple of follow-ups on earlier ones. On the renewable diesel side, the -- you mentioned a lot of the uncertainty that -- which there's still a ton of uncertainty out there regarding various policies, one of which is the treatment of foreign feedstocks. What sort of impact could this have on your access to or approach to feedstock at Martinez if you continue to see penalties there? And maybe on the RD side as well, are you at a ratable run rate at this point in terms of kind of monetization or booking of PTC credits? Or is there still movement one way or the other there? Maryann Mannen: Yes, Ryan, thanks for the question. So really on foreign feedstock, that is still being debated. But as we know right now, there is a potential for a 50% limitation on that from foreign feedstocks. As I mentioned earlier, one of the things that we were really focused on was ensuring that we could optimize our feedstock when we ran our initial economics on the Martinez project, we were looking at largely a soybean-only feedstock. And then as we did our transaction with Neste and had access to other foreign feedstocks as well as other local advantaged feedstocks, we saw that as a benefit and actually improved the economics of the project. Today, I think we can largely source and have benefit with our partner, Neste and our access. So we don't see this as necessarily being significantly limiting to us. I think the question longer term is what does the administration do and whether or not that 50% stays in place and would have obviously broader market impact or whether or not they are able to delay the implementation of that as they are resolving the RVO issue and also other elements associated with go forward as well as the historical review of that. So, for us, less of an impact, but it will be obviously a market-driven decision as they decide how they're going to implement that 50% foreign feedstock. John Quaid: And then Ryan, it's John. Just to add on to that, as Maryann said, we've got really strong logistics, not just water for international, but actually rail offload for domestic coming in at Martinez. That puts us in a good spot to pivot wherever the market goes. And then on your -- I figured we couldn't get off the call without a 45Z question. Again, as a reminder, we made some changes to our structures there back in April, and that really got us a big chunk of those credits. There's some little pieces here and there we're still pursuing. There's a piece back in Q1 we haven't given up on kind of getting, but I think you're largely seeing the production tax credit in the numbers right now. Ryan Todd: Great. Maybe one CapEx or a question overall on the overall business. I appreciate the provided details in the release on many of the projects that you have going on, either on the refining or the midstream side. Can you talk about some of the macro opportunity set that has you leaning in a little more here in the near term into some of the project spend, particularly on the midstream side? And then should we see that trend back towards a more normal level as we look out a couple of years? Maryann Mannen: Yes, Ryan, sure. Thank you. So when we look at the midstream, our growth opportunities are focused in the Permian, as you see, really trying to build out our nat gas and our NGL value chain. So most recently, we put some capital to work to acquire a sour gas treating set of assets. And the reason why we think that's so important is we believe that this is some of the best rock in the Permian in this Delaware Basin, Lea County. The challenge with that is producers move into that region is it is a sour gas, high H2S CO2 and requires a certain level of treatment to blend it down to be able to further process. But in this area, this is very close, adjacent and complementary to the assets that we are currently operating and fit very nicely with the producer customers that we are currently supporting. That EBITDA will improve in 2026 as the second follow-on amine treating plant comes online, bringing our EBITDA to its projected run rate by the end of 2026. So contributing in 2026, frankly, and beyond to incremental EBITDA. Additionally, we talked about some other projects. First of all, BANGL we took the remaining ownership, an incremental 55%. And so that ownership will be another EBITDA growth into 2026. Similarly, the full year benefit of our Preakness II plant. And then Secretariat, another processing plant in the Permian, bringing our processing capability to 1.4 will come online at the end of this year and therefore, be incremental. And then if we look at even longer term, we talked about our fractionation and LPG export dock. So two fracs coming online, one each in 2028 and 2029 along with our export dock, and that will add incremental EBITDA in both of those years. As we look at nat gas and NGL demand, frankly, you look at the growth of NGL, you look at gas to oil ratios, we see demand, LPG pool, the strength of the producer customers in that region really as all very supportive long term to that growth as well. And then that growth allows us the ability to increase the MPLX distribution, bringing back at least this year about $2.8 billion, which supports MPC's ability to lead in capital return. Again, as we bring that back, our goal, as we've always said, is to lead in the return of capital through all parts of this cycle, and that is extremely supportive of -- we think extremely supportive of our ability to do so. Let me pause there and see if I've answered your question. Kristina Kazarian: All right. With that, thank you for your interest in MPC. Should you have more questions or want clarifications on topics discussed this morning, please contact us. Our team will be available to take your calls. Thank you for joining us this morning. Operator: Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Good morning, and welcome, everyone, to the Spotify Third Quarter 2025 Earnings Call. Today's conference is being recorded. [Operator Instructions]. At this time, I would like to turn the conference over to Bryan Goldberg, Head of Investor Relations. Please go ahead. Bryan Goldberg: Thanks, operator, and welcome to Spotify's Third Quarter 2025 Earnings Conference Call. Joining us today will be Daniel Ek, our CEO; Alex Norström, our Co-President and Chief Business Officer; Gustav Söderström, our Co-President and Chief Product and Technology Officer; and Christian Luiga, our CFO. We'll start with opening comments from the team and afterwards, we'll be happy to answer your questions. Questions can be submitted by going to slido.com, and using the code #SpotifyEarningsQ325. Analysts can ask questions directly into Slido, and all participants can then vote on the questions they find the most relevant. If for some reason, you don't have access to Slido, you can e-mail Investor Relations at ir@spotify.com, and we'll add in your question. Before we begin, let me quickly cover the safe harbor. During this call, we'll be making certain forward-looking statements, including projections or estimates about the future performance of the company. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed on today's call, in our shareholder deck and in filings with the Securities and Exchange Commission. During this call, we'll also refer to certain non-IFRS financial measures. Reconciliations between our IFRS and non-IFRS financial measures can be found in our shareholder deck in the financial section of our Investor Relations website and also furnished today on Form 6-K. Daniel Ek: All right. Thanks, Bryan, and hey, everyone, and thanks for joining us. Overall, it was a very strong quarter, especially on the user side. We reached a significant milestone surpassing 700 million monthly active users beating our guidance, and we were right in line with subscribers, and we also beat on revenue, gross margin and operating income. Given that this is a year of transition for me, I've been reflecting on what has proven time and again to drive the company forward. And when I strip everything else away, it really comes back to the same thing, our user fundamentals. It's where everything starts and everything stops. And as this quarter shows, the user side of the business is really strong. Engagement continues to strengthen across music, podcasts, video and audiobooks. And people come to Spotify and they stay on Spotify. And this is across all markets and formats. Gustav will give you more color on the pace of shipping during this year of accelerated execution and the impact it's having, but the data is clear. Our multi-format strategy is working exactly as we hoped. And with that foundation in mind, let me talk about how we think about building the business. I've said this before, but it's worth repeating. We don't optimize for quarterly results. We optimize for lifetime value because at our scale, very few metrics shift quickly. The decisions we're executing on today were set in motion well before they show up in the numbers. In some cases, this means we made these calls many quarters ago or in some cases, even years. But that doesn't mean we get a free pass on our performance. Our job is to make smart investments that create more value over time, and we fully expect you to hold us accountable for them. Our goal is to deliver extraordinary results, and that means having both a great product and a great business. And those things aren't in conflict, they compound each other. So take our partner dynamics as one example. I get asked about these relationships all the time. When we signed new multiyear licensing deals with our partners, the market mostly assumes it's a zero-sum game. There's a winner and there's a loser, and everyone tries to figure out who fell into what camp. Our view is different. We don't think it's a zero-sum game at all. Quarter-to-quarter, the math may not immediately be obvious, but here's what actually happens. Those deals give us the flexibility to innovate and move us closer to our long-term financial goals. We can build new products. We can launch new features, experiment faster, and that drives better user outcomes, more growth, higher engagement, stronger retention, which then drives a better business. It's a flywheel and a playbook we've run many, many times. Our partners also do better, so both sides win. And that's what good long-term investments look like. Before I hand it over to Alex, one note. So following today, I have one earnings call left as CEO. As you know, I'll be transitioning to Executive Chairman on January 1 with Alex and Gustav stepping into their roles as co-CEOs. You'll hear more from them today than you typically would and on our Q4 call in February, they'll run points. And with that, I'll turn it over to Alex. Alex Norström: Thanks, Daniel. No pressure. Our Q3 results once again highlight just how well positioned Spotify is as we keep pushing boundaries through innovation and bringing even more value to artists, podcasters, authors and users around the world. A few weeks ago, we had our leadership team come together in New York for strategy sessions. Gustav and I shared our thoughts about Spotify's future and how it will evolve over the next few years. I can't remember a time when the company was more aligned, and this is just having an outsized impact on our performance. To build on what Daniel said, the real magic is in our ability to ship faster and smarter, and you'll hear more from Gustav about this in a minute. And these efforts there driving user growth across the top of the funnel, which then propels the flywheel and fuels the strength of our overall business. Now when you look at MAU in isolation, the global rollout of our enhanced free experience was a key contributor, bringing millions of new listeners into the Spotify ecosystem. It's having a huge impact on engagement and retention, which we know is the key leading indicator of even more growth and even more conversion. On the subscriber side, we saw continued growth across all regions, and users are spending more days and more hours on Spotify than ever before. Notably, we continue to take market share, even in our most competitive markets. We also saw steady retention rates following the rollout of our recent price increases across more than 150 markets. These results show the power of the product and the loyalty of our subscribers. And as we look at the growth across these 3 content verticals at Spotify, I want to share just a few highlights. In music, we continue to help artists reach massive global audiences. This past quarter, we saw artists break multiple streaming records across genres, and we've seen a number of new artists emerge as global fan favorites climbing our streaming charts at record pace. We also hosted several immersive fan activations and intimate performances. We launched in-app experiences that celebrate some of the most iconic discographies. And we continue our partnership with FC Barcelona, which just unites fan communities around the world, proving to be a strong user recruitment tool for us, for Spotify. Daniel also mentioned the relationship with our music label partners and publishing partners. Over the quarter, we finalized groundbreaking direct license deals, bringing value to artists, song writers, rights holders and Spotify. What's good for Spotify is also good for the industry we support, which, of course, include music, podcast and audiobooks. I was just excited to now capture the opportunities that these deals unlock. In podcasts, more than 390 million users have streamed the video podcast on Spotify. That's a 54% increase year-over-year. We now have almost 500,000 video podcast shows on our platform. Time spent with video content has more than doubled year-over-year, driven mostly by video podcast. And this consumption has increased by more than 80% since the launch of the Spotify Partner Program or SPP. We also recently announced that we're bringing some of our top video podcast from Spotify Studios and The Ringer to Netflix starting in early 2026 in the U.S. with more markets to follow. We want our creators to grow and scale their audiences around the world, and in turn, this also puts up an interesting monetization opportunity for Spotify. This partnership extends our ecosystem building new fans and serving up this wider distribution channels. And in audiobooks, we are continuing to reshape the category, fueling growth and discovery across the publishing world. In just 2 years, Spotify has now introduced tens of millions of new younger listeners to audiobooks. We've brought audiobooks to 14 global markets and have more than tripled our catalog in English language markets to over 500,000 titles. More than half of our eligible premium users have played an audiobook and the number of people listening to an audiobook rose 36% year-over-year with listening hours up even more. We also recently launched add-on subscriptions for premium users, giving listeners more choice, opening up the format to new potential fans worldwide and enhancing the experience itself. It is still work to be done to continue to grow the entire book industry, but it is incredible progress. And it's so great to see so much enthusiasm for these offerings. I also want to quickly speak to our ads business. Last quarter, we talked about the need to recalibrate and to improve our execution. We remain confident in our long-term strategy and the dynamics are improving. We're really pushing hard to build for the long term. And while these changes will take some time, we believe that will yield significant results in the years ahead. So overall, our strong performance this quarter is proof that our work isn't just adding up. It's compounding. We're seeing faster growth, higher efficiencies and a product that's getting better and better as we continue to add value and solve problems for users, artists, creators and authors. Now I'll pass it over to Gustav. Gustav? Gustav Söderström: Thanks, Alex. So this quarter really brought the year of accelerated execution to life. There's incredible momentum and the things we've been investing in for years such as personalization, interactivity and ubiquity are really paying off. We've been doubling down on what's working as we relentlessly try to build the most valuable experience in the world. And while we spent much of last year and part of this laying and building foundations, the pace of shipping and the speed of iteration are now at record levels. We both strengthened the core experience and added new value with a variety of first-to-market features and improvements in almost every facet of the product. That's the balance we're constantly trying to drive towards, enhancing what millions already love about Spotify while also expanding into new areas, make the platform even more attractive for users and creators alike. And the results clearly show that this is growing both MAU and subscribers. Over just the last few months, we've shipped more than 30 new core features. That's more than all of last year, actually, and we're not even done with the year yet. We have a comprehensive list of these in our Q4 infographic that's on our newsroom, but I wanted to share a few that really stand out as we focus on giving listeners more control, more ways to discover and more ways to connect. First, as Alex just mentioned, we roll out big enhancements to our free tier, the first real update to it since 2018, with the majority of users starting their Spotify journey on free and our bold ambitions to continue to attract new users of streaming, it was critically important to make this experience even better. And building on what Alex said, it's now a much more competitive offering. Improvements are really resonating globally, and we're already outpacing our planned growth in MAU. For the true audio fans, we also finally launched Lossless audio for Spotify Premium users, along with mixing tools and support for third-party DJ decks. We know that these were some of the most anticipated features and users around the world have responded really enthusiastically to it's arrival. Now on social, you've heard me talk a lot about, you know that users are constantly trading content and recommendations back and forth between each other. With our new in-app messaging feature, we made it even easier to share and discuss music, podcasts and audiobooks with friends. And since our launch in the initial markets just a few months ago, almost 25 million users have sent nearly 200 million messages already. We feel that we're unlocking a new powerful way for users to connect on Spotify. Something many of you on this call have long been asking for is an Apple TV version of Spotify, which now has a dramatically improved user experience as it's built natively for the platform. What I really love about this specifically is that while the reason we had previously held off on a dedicated or native Apple TV app, was that the extra development cost just wasn't worth it for us. But we were able to drastically reduce this cost by leveraging AI, where we could actually translate our general iOS application to TVOS. I think this is interesting because this speaks to the ways that we are not truly able to use AI to quite drastically accelerate our productivity and development. In last quarter's Q&A, I talked a lot about how excited we are about AI in general and specifically the potential arrival of new form factors. While there are lots of bold predictions out there, we think Spotify would benefit as products become even more media focused as they extend to new hardware experiences that are always in your ears and on your face. So perhaps you caught the live demo on Spotify on Meta AI's latest Meta Ray-Bans at the recent developer event. This integration allows users to connect, stream and fully control Spotify. And we're excited to be featured as an example of one of the new and one of the most requested innovations in this space. Then there is, of course, our new partnership with ChatGPT, which is another example of the ways we're expanding our ubiquity strategy, helping users discover and engage with Spotify in new ways wherever you are. Once you've connected your Spotify account with ChatGPT, you can ask ChatGPT to create things like the perfect playlist for the countdown to your 2025 rap experience, maybe a playlist with the Zen-like vibe for when your in-laws come to visit for the holidays, whatever you think of. Now I also want to highlight features that we previously announced that continue to gain popularity. The first is Jam, which lets friends listen together in real time. We recently hit 100 million monthly listening hours on Jam this quarter with over 200 million users sharing content monthly. It's proven to be a big driver of both top line growth and retention. Listening to Spotify in cars is also outperforming every expectation that we had, and it's become a huge part of users' daily engagement. In fact, there are 245 million people now listening in cars, which is 34% of MAU and 15% all consumption hours. And zeroing in, just on the U.S., this puts us well ahead of all other subscription-based audio services. All of these features and enhancements, they lead to richer experiences that in turn leads to deeper engagement and that deeper engagement drives value for everyone in the ecosystem. So with that, I'll pass it over to Christian to share more details about the numbers. Christian Luiga: Thanks, Gustav, and thanks, everyone, for joining us today. Let me cover the quarter results and then give some perspectives on our outlook. In quarter 3, MAU grew by 17 million to 713 million in total, exceeding our guidance by 3 million. We added 5 million net subscribers finishing at 281 million, up 12% and in line with guidance. Total revenue was EUR 4.3 billion and grew 12% year-on-year on a constant currency basis. Premium revenue rose 13% year-on-year on a constant currency basis, driven primarily by subscriber growth. Our advertising business was consistent with prior year results on a currency-neutral basis. And as expected, our automated ad sales channels saw strong growth in the quarter. On a like-for-like basis, excluding the near-term impacts from the optimization of our licensed podcast and the rollout of the Spotify Partner Program, we had a mid-single-digit constant currency advertising growth. We continue to see 2025 as a transition year for ads business and expect growth to improve in the back half of 2026. Moving to profitability. Gross margin came in at 31.6%, 50 basis points ahead of guidance and expanding roughly 50 basis points year-on-year. Our outperformance here was primarily driven by changes in prior period estimates for rights holder liabilities, nearly all related to the first half of 2025. Excluding these amounts, our gross margin would have been modestly ahead of guidance due to content cost favorability. Operating income of EUR 582 million was EUR 97 million above forecast, of which social charges had a positive impact of EUR 41 million, and that was due to the share price movements. As a reminder, we don't forecast share price movements in our outlook for the business since they're outside of our control. The remaining variance to guidance was driven by favorability in marketing timing, and personnel and related expenses as well as the gross margin outperformance. Finally, free cash flow was EUR 806 million in the quarter. We ended the quarter with EUR 9.1 billion in cash and short-term investments and we repurchased $77 million in shares in quarter 3. Year-to-date and through November 3, we have repurchased $410 million in shares. As we announced last quarter, our focus is to opportunistically buy back shares, primarily to offset the dilution arising from our employee equity programs. If we then look ahead to guidance. In quarter 4, we are forecasting 745 million MAU, an increase of 32 million from quarter 3 and 289 million subscribers. Our subscriber outlook implies net additions of 8 million, which is slightly below prior year net adds due to the expected small amount of churn we see when we raise prices. This year, we have new pricing in more than 150 markets versus 6 in the prior year. In addition, we recently rolled out the enhanced free tier globally, and we are encouraged by the early benefits we're seeing to our funnel. We view this business as set up well for conversion and continued healthy subscriber growth in 2026. We're also forecasting EUR 4.5 billion in total quarter 4 revenue, representing an improved constant currency year-on-year growth rate of around 13% versus the 12% we just delivered in quarter 3. We're also forecasting a year-on-year ARPU growth of around 2% on a constant currency basis. We expect a quarter 4 gross margin of 32.9% and operating income of EUR 620 million. In summary, we are pleased with how the business is tracking into year-end. As Daniel mentioned, we will continue to make investments to generate long-term growth and returns for the company. While this can lead to quarter-to-quarter variability in terms of margin progression, we believe this is the right approach that sets us up well to advance towards our long-term goals. Turning to 2026. While it's too early to provide guidance, I do want to point out that our first quarter gross margin typically sees a sequential step down from the fourth quarter from advertising seasonality, and we expect the same for quarter 1, '26. Beyond this, we are confident in our path and expect '26 to be another year of healthy revenue growth, disciplined reinvestments and margin and cash flow improvement. With that, I'll hand it back to you, Bryan. Bryan Goldberg: Great. Thanks, Christian. Again, if you've got any questions, please go to slido.com, #SpotifyEarningsQ325. We'll be reading the questions in the order they appear in the queue with respect to how people vote up their preference for questions. Bryan Goldberg: And our first question today is going to come from Jason Helfstein on profitability. Can you talk through the puts and takes around gross margins across your premium and advertising segments in the third quarter? And how should we think about gross margins in the fourth quarter and 2026? Christian Luiga: Thank you, Jason. Yes, we are happy. Gross margin expansion is happening for the company this year. And as you are pointing out, there is a pressure more on the premium side than on the advertising side. That is really nothing really to worry about. We started this year by letting you know that we are moving -- starting up the SPP program and moving over some of our podcast videos and podcast to utilize that content to give higher quality into the premium side. And when we do that, we recognize that cost now and premium instead of in advertising. That shift doesn't mean anything on the total company level, but it actually then dampens a bit the margin on the premium side, and improves it on the advertising side. As we started this in quarter 1 this year, it will come through all through the year and therefore also impact quarter 4 in the same way. Bryan Goldberg: Our next question is going to come from Jessica Reif Ehrlich on superfan potential. The major record labels have hinted at what's to come for a premium superfan tier. Will this product be created by the major labels for all DSPs? Or will there be a Spotify specific product? Alex Norström: Jessica, like I mentioned, in calls -- in previous earnings calls, we keep a very high bar for our products. We simply ship products when they're ready. But what I can tell you really is that we are in deep collaboration with most of the relevant rights holders out there. Let me also just give you an example of why this is a good strategy, putting add-ons on Spotify on top of our premium subscription. A few months ago, we launched what we call Audiobooks+, which is a recurring option for people to use when they hit the wall of 15 hours in the markets where we have audiobooks. The uptake on that specific add-on subscription has been really, really good. What's more is that on top of that, users are also buying top-ups. So really, what we're seeing is our ARPU levels that we've never seen before. So we're really encouraged by this as we keep adding -- as we keep launching add-ons on other further verticals and as part of ecosystem. Bryan Goldberg: Okay. Our next question or a few questions here from Justin Patterson on AI. What impact do you believe AI will have on the music ecosystem and how does the ChatGPT integration fit into that? And in your collaboration with the labels, you also alluded to building products that create new revenue streams for the industry. Could you expand on what that means for royalties? Gustav Söderström: This is Gustav. Thanks, Justin. I'll take that question. There are a couple of questions in here. I'll start sort of at a very higher level of what it means. One way to think about -- it means different things for us. For a consumer, it means a couple of things. First of all, you should expect, in general, recommendations to just get a lot better as the industry, including us, switches to what is called generative recommender systems. These will -- these are using generative AI to understand much more of what the consumer is doing. One way to think about this is that recommendations are moving from just looking at passive clicks and saves and so forth, but actually understanding content and understanding you and specifically and very exciting for us, even understanding English. This is why you can talk to the Spotify DJ in English, and it actually understands what you mean and can give you personalized recommendations. And I think if you play that out, what you should expect at a higher level is just much more user control, what we internally call Personalization 2.0, where you can literally talk to Spotify as if it was a person and it understands your specific taste. So you can tell Spotify that you're actually tired of this specific genre now and you want to listen to something new that we have never seen in your listening data. So we can never predict it. But you can tell us, this is what you should expect, different level of personalization, different level of user control. On ChatGPT specifically, this is part of our ubiquity strategy. One way to think about Spotify is that we've always tried to be where the users are. If the users are on Sonos, we're on Sonos. If they're in the car, we're in the car. If they're on Google, searching for music, we're on Google and a lot of people are on ChatGPT. So of course, we're going to be in ChatGPT. What's exciting about this is that you can do more than on many of the other platforms that we integrated in. The beautiful thing about ChatGPT is that you can combine the power of ChatGPT to understand the world and use cases with Spotify understanding you. So now you can ask for a playlist related to something that happened in the world. But instead of that playlist just being the same for everyone on ChatGPT, it's also going to understand your Spotify user taste and make it personal to you. This combination has never been possible before. And on your last question of products that we build with the industry, -- the way we think about this and generative AI for music is that just as with piracy, we think someone needs to work with the industry and with the artists to make this technology available for them in a legal way where we don't ask for forgiveness and where artists can actually participate and make money. That's why we're doing this. Bryan Goldberg: Okay. Our next question is from Eric Sheridan on video strategy. Can you discuss the potential implications of your partnership with Netflix for video podcasts of the Ringer? How does this impact your overall strategy with respect to driving more video consumption on the platform? Alex Norström: Good questions, Eric. So at the heart of it is that we believe in being creator first. So what we think is that when the creator wins, we win. And as creators optimize to create their best shows and interviews, which is really what they're focused on, they wanted to syndicate to everywhere. And we believe, of course, in helping them to reach audiences in as many places as possible, which is consistent with our core philosophy on being creator first. And also, of course, to help them monetize as much as possible. the partnership with Netflix that you're asking about is really a meaningful opportunity for both of these beliefs and just a natural extension of our ecosystem. And what's more is that we're already seeing some strong interest from creators who want to use Spotify as sort of their distribution hub, if you will. And to your second question more specifically, typically, when we have shows that originate on Spotify, we put them on YouTube. Historically, that's just been driving even more awareness about the show and where it originated. And typically, what we see is just net incremental usage on Spotify coming from that. So very encouraged and very exciting to have this new Netflix partnership being rolled out as we speak. Bryan Goldberg: Okay. Next question from Rich Greenfield on premium conversion. In your Instagram post, Gustav mentioned that free users liked the recent upgrades to their free functionality. Have you seen any changes to the rate of upgrade from free to premium as a result? Gustav Söderström: Thank you, Rich. Yes, we are excited by all the features we launched, and we hope several of you are excited about specifically the Apple TV features as well. What we see is indeed more usage. And the way to think about Spotify is that you have a few proxies for what is ultimately retention and subscription value. And it is more usage and specifically more usage, more days of the month, which we call active days. And so what we try to optimize for is more engagement per day, but specifically also more days per month. And we know over time that this simply leads to more conversion. In fact, we coined the phrase many years ago that is -- that says the more you play, the more you pay eventually, which is why we always try to maximize engagement, both in the free tier and in the paid tier. So we are very certain that this will go the way it's always gone. People are using the service more, which is going to create more good news for us, both free and paid in the future. Bryan Goldberg: We got another question from Jessica Reif Ehrlic this time on the leadership transition. Gustav and Alex, as you prepare to take over as co-CEOs in January, what are you most excited about in your respective areas? Alex Norström: Thanks for that, Jessica. I'll start, Gustav, and then you can run in. I'm honestly really excited because I know that the ambition level is going up. And this has been the case. We've always had an increasing ambition level at Spotify. And we have this just amazing platform. The user fundamentals are really firing on all cylinders. Daniel spoke to this in his remarks. With that, we sort of have -- and we have the 3 verticals that we have out there right now, all of which are producing results. And so we really have a platform to stand on that we can leverage to fulfill these new ambitions. And as you heard us talk about before, we now hit roughly 3% of the world's population. 3% of the world's population is subscribing to Spotify on a recurring basis every month they come back. And with these 3 verticals, we really have like a very expansive TAM. We believe that most of the people in the world are interested in music. Most of the people in the world are interested in even the more expansive stuff like books and podcasts and video on top of that. So this just puts us in a very good position to fulfill this new ambition of getting to 1 billion subscribers. Gustav Söderström: So I'll fill in. And in a way, nothing has changed in terms of why I'm excited. But in a way, some things are actually new. So I've managed to be excited about Spotify for over 17 years. And the reason I've been excited about Spotify for 17 years is still the same, which is what Daniel mentioned initially that if you just look at the opportunity, music specifically, but also podcasts and books, but music specifically is probably the single biggest TAM you can find. I think it's even bigger than social networking or anything. There's no one in the world that really doesn't like music at all. So it is the sort of the biggest TAM you can participate in. And -- that's been the case for a long time. But what is specifically exciting for me right now is that we are in one of these big macro shifts, the AI macro shift. That is -- I've said this before, but it's for me, certainly the most exciting since the smartphone came along. And so if you look at those 2 together, when you enter one of these macro shifts, where you know from a product point of view, and I'm a product guy, you're going to get to reinnovate things and things are going to change. You kind of want to be in a position where the TAM is really big, you have a strong, healthy company with a lot of talented people behind you. So that's exactly where I find myself right now. That's why I'm excited. Bryan Goldberg: We've got a related question from Justin Patterson on time spent. You've often talked about a TAM in the billions of users. How do you think about the time spent opportunity for music and non-music content given new categories like audiobooks that have been additive to listening hours? Daniel Ek: Yes, Justin. So I think much of this has been said already by both Gustav and Alex around the TAM and the opportunity. But I guess maybe to take a step back and what I think is more important, like what is the super power of this company. And I think the super power of this company is really into mix between building great product experiences and figuring out how to monetize those product experiences at a level which is different from almost any other platform because the reality is we deal with a lot of professional content where there's an expectancy for us to figure out monetization from the start. It's not something we can wait for and figure out in a few years. So that's really the superpower of this company. And when you then look at that from a TAM, not necessarily in numbers of users, but in time spent, it turns out that there's all of this amazing content that's out there, all of these amazing experiences that are out there that, for whatever reason, may not yet be at a user experience that is attractive to people or at a price point that makes it accessible to people. And when you think about Spotify, that's really been at the intersection where we've been innovating. I think not only did we do that for music, not only did we do that for podcasting, but I think with audiobooks, that's certainly been our bet too, which is we just think that there is a lot more people that cares about audiobooks than what the market was showing at the time. And that's part user experience and it's part business model. Now it turns out that there's plenty of other things out there that has considerable time spent that also doesn't necessarily have the right user experience nor the right business model. And when you add AI to the mix of that, there's -- that's a foundational technology that's going to enable totally new user experiences and business models, too. So we're really excited about it. And I think when you look at sort of the AI world at the moment, of course, it's the foundational models and you have the sort of core assistant models that are doing incredibly well. But we aren't yet seeing a lot of these entirely new consumer experiences in AI having massive traction. But we think that there will be over the coming years, and we think we have the opportunity of being a net beneficiary of that. Bryan Goldberg: Okay. Our next question is from Rich Greenfield on advertising. Looking at a 2-year stack of advertising revenue growth, FX neutral, you've decelerated from 31% in the third quarter of 2024 to 7% in the third quarter of 2025. And you've repeatedly talked to softness in pricing over the past several quarters. How do you return to robust ad growth? Christian Luiga: Thank you, Rich, for the question. And let me start, Christian here, and then I hand over to you, Alex, if you want to pitch in something. You are completely right. I mean we have a like-for-like single-digit growth now, mid-single-digit growth now in the quarter 3. And we came from a much better position before when it came to growth levels. We did set a new long-term strategy that we believe in, and we are very confident that we will succeed with. It's not if, it's when. We came out in quarter 2 and expressed the progress and said that we are a little bit behind, and we need a little bit more time. But we do see really good progress on the programmatic side. And the question is when that programmatic side is then growing so much in amount that it compensates for the direct sales. And that needs then a little bit more of the DSPs. Now we have Amazon and Yahoo coming on board in quarter 3 and to be on board and add value and then also the customers to shift more into the programmatic sales. And that is progressing well, but the inflection point is a little bit further out than we expected before quarter 2. But as I said in my remarks also, we see that we're expecting to be back on the growth that we want in the second half of 2026. I don't know if you want to add something there, Alex. Alex Norström: Rich, my friend. I'll add something to this. So when it comes to ad sales, it's a question of when, not if it's going to happen, right? We remain confident in the long-term strategy that we put in place, and I'm seeing that the dynamics really are improving to Christian's earlier points. So as it's not yet -- while it's not showing up in the top line, we are making progress. As you can see in the deck that we sent out, the transformation of the ads business is really growing, in particular, in the new auction channels or biddable channels. And in Q3, we signed new DSP partnerships with Amazon and Yahoo. We also gave advertisers programmatic access to not just our audio inventory, but also our growing video inventory. So we are pushing hard to build for the long term. And while these changes will take some time, I do believe they'll yield significant results in the years ahead. Bryan Goldberg: All right. Our next question comes from Deepak Mathivanan on price increases. Can you talk about the elasticity and consumer behavior you're seeing after recent price increases in markets like Australia, where the magnitude was slightly higher? And what does it inform about potential in markets such as the U.S.? Alex Norström: Well, Deepak, as you know, we don't discuss elasticity and the specifics when it comes to pricing. But what I can tell you, and I want to reiterate is that price increases are part of our strategy. You've seen this over the last couple of years. And of course, we will continue to do so, but in a thoughtful way. And this is always based on a number of different factors. The important thing is that we're committed to pricing that reflects the value that we provide. And as we've talked about many times, Daniel mentioned it earlier. We've mentioned the V2P ratio that we want to balance over time. And we will act when the time is right for each specific market, and we'll do it at the appropriate price based on those market dynamics. Bryan Goldberg: Okay. Our next question comes from Benjamin Black on our label relationships. You've now struck deals with all major labels from a high level. What do you think you've achieved? What added rights or added flexibility do you have? Do you still have the flexibility to pursue your nonmusic bundling strategy? Alex Norström: Benjamin, typically, we don't discuss the specifics of these partners, but I wanted this time actually give you a little bit more color. As you may have heard, we're about to conclude another renewal round with all of our partners. And this is a very significant moment for us. For the first time in our history, we've got new modernized deals in place with all of the top 5 U.S. publishers. Now these are new structures. They're true win-win deals that we built to address the core objective for both sides. And for our publishing partners, these agreements better recognize the value that songwriters create across our different offerings. For Spotify, to your specific question here, these deals secure broader video rights that we've long needed. This was a critical strategic objective for us because it unlocks our ability to innovate and launch more products and features that you've seen us rolling out, which in turn grows the entire pie for everyone. And it just positions us to make continued progress towards our longer-term business goals. I'm super excited to just expand these partnerships with the wider industry as well as we focus on building a great future for music. Bryan Goldberg: All right. Our next question is going to come from Eric Sheridan on -- a follow-up on the advertising. Can you discuss the forward path to revenue growth and gross margin trajectory for your ad-supported efforts? How much is the current advertising environment weighing on your third quarter reported revenue growth? And how do your new partnerships on the DSP side set the operation up for growth in 2026? Christian Luiga: Just let me go back a little bit to the answer we just gave, Eric. First of all, on the margin side, as I elaborated in our first question today, the advertising business is actually benefiting from the move of SPP into the premium side, and that will continue through quarter 4. So starting quarter 1, we won't have that year-on-year benefit on the advertising margin. And when it goes to the revenue side, I mean, and getting all these things in place, One of many things that we do this year to improve and drive the advertising revenue is to bring up the auction-based revenue. And you see that, and Alex alluded to that, you can see that in our slides that it is actually growing healthy. And it's more when that inflection point comes when that growth actually surpasses the flatness or slight decline we have in the direct sales. We are not so much focused on the current ad environment because we have so much momentum in this transformation. So we feel very positive about with current situation that we will get into a healthy growth then in the second half of 2026. Bryan Goldberg: Our next question comes from Michael Morris on video strategy. You've described video as a very exciting opportunity. In October, you agreed to license 16 of your own video podcasts to Netflix. How will this partnership enhance your video growth ambitions? And is there a risk that Spotify engagement declines or that Netflix builds its own competitor over time? Gustav Söderström: Thanks, Michael. This is Gustav. I'll start here. As you said, we are indeed very excited about video podcast and SPP has driven significant interest from the creative community, and we now have almost 500,000 video podcasts and shows on our platform. And as you heard Alex mention, we're seeing meaningful uptake, more than almost 400 million, 390 million users stream the video podcast on Spotify, which is a 54% increase year-over-year. So this is really working for us. The way to think about this is that we are building our experience better all the time on mobile, but also as we talked about on TV sets. But if you think of this from a creative point of view, this gives us the ability to give creators a tremendous opportunity. This is a choice for creators. We don't decide for them where they want to be. They can be on Spotify and any other platform. But now we can offer the creators the opportunity to be on Spotify, but also get distribution on Netflix, which is ultimately very good for podcasters, and it also gives us revenue opportunities. This is the way to think about it. It's part of our ubiquity strategy. And it's really important that while we build a good user experience, we also need to have a very strong creator offer. So this has really strengthened our creator offering, which is why we're seeing this growth, while more and more creators want to be on Spotify with their video. Bryan Goldberg: A related question from Rich Greenfield on the TV opportunity. We recently saw you updated your Apple TV app to make it far more video focused. How significant is TV-based usage to Spotify today as a percentage of overall usage? And how does it play into your video advertising aspirations? Gustav Söderström: Thanks, Richard. So to back out, the reason we are building our TV experiences is that it's part of a ubiquity strategy. What we've seen time and time again, and Alex has talked about this as well is as soon as you start using Spotify in more situations, whether that's in the car, on desktop, on a TV, your usage goes up, your time spent, your active days per month goes up and your retention goes up. So at the core of it, this is part of our retention and ubiquity strategy. Now in terms of the opportunity, we think that we see really exciting engagement metrics. We're very happy with the usage, and we think we have plenty of room to grow in terms of users. So we're very excited about the usage, and we think we have a lot of room to grow on the amount of users. Now this obviously also helps advertising, but it's not the core reason we're doing it. The core reason is because ubiquity drives engagement that drives retention for us. Daniel Ek: And on a specific note, we heard your complaints on the Apple TV app. So we hope you're happy, Rich. You can now use the new app. Bryan Goldberg: Okay. We've got another question from Michael Morris on pricing. You recently raised prices in bundled service markets such as Australia and the U.K. The increases in Australia were larger on a percentage basis than those in the U.K. Why were the U.K. changes smaller? And do you expect future price increases to more closely look like those in Australia or those in the U.K.? Alex Norström: Thanks, Michael. So we -- when we adjust prices in markets, we take into consideration a number of different factors. We look at things like household income. We look at things like maturity of the market. We look at things like specific value to price ratio if there's a specific different offering in that market. And all of this we take into account. And when the timing is right, we do it and we do it in the magnitude that is right for that market. Bryan Goldberg: All right. We've got time for a few more questions. I got a follow-up one from Deepak Mathivanan. Gustav, AI models are getting much better in formats like video and audio. As a platform, do you see opportunity for Spotify to help artists with AI tools for their music creation process? Can you talk about Spotify's strategy to enable AI tools for creators? Gustav Söderström: Thanks, Deepak. So certainly, we do, and this is what I mentioned previously when we talked about the industry initiatives. What we think is important is that someone does this in a way where artists in the music industry can get to participate and to choose if they want to use these tools. There's obviously a lot of excitement, but also a lot of fear around these tools. So we are trying to be the ones who do this responsibly. And we're very excited about that. I don't want to talk more about the specific at this time, but that's what we're trying to do. But it's also important to remember that it's not only for music. We think AI tools are also very helpful for podcasters and for authors. So we want to help all creators with these kinds of tools. Bryan Goldberg: Our next question is from Batya Levi on engagement. Can you talk about the impact on engagement and conversion to paid from the enhancements added to the free tier? How should we think about impact on margins and monetization opportunities down the road? Alex Norström: Thanks, Batya. First of all, the process is working. We're taking share even in the most competitive markets. And since you kind of asked, here comes a mini sermon on subscriptions growth from me to you. So the key to subscriptions growth is really a strong funnel. And to build a strong funnel, you need really 3 things. One is, of course, engagement, and we've talked about that earlier in the call. And our engagement, the listening hours on Spotify and also the active days that Gustav spoke to, they're growing. And they're growing, thanks to the numerous product launches that we have. This means that we keep people on the platform, which is, again, very important for a strong funnel. And the second thing that's important is that when we adjust prices, when we raise prices, you need minimal churn. And that's also what we're seeing. Third of all, and then to your point, as specific question, is about intake. For healthy subscriptions growth, you need a good replenishment of MAU. And as you can hear us talk about this quarter, that really is the standout number. Our MAU is increasing to higher levels than we expected. And as MAUs grow, we also see engagement grow. And as the engagement of the MAUs grow, we typically see much higher levels of conversion. Every time that we have made a change to the free product and it's generated more MAU in the history of Spotify, it's led to more business growth down the line. So we just have to trust the funnel. Bryan Goldberg: Our last question today is going to come from Jason Bazinet. You've taken some price increases in a few markets, but the price gap between Spotify and rivals varies by market, and you talk about your philosophy regarding price increases and specifically, what metrics give you more confidence to price the service well above versus just above your competitors? Alex Norström: Thanks, Jason. Well, the answer is sort of embedded in a part of your question here. We pay attention to competition, but what we pay attention the most attention to is obviously our own offering. And we care a lot about the value to price ratio. You've heard Gustav talk about how we've shipped much faster in this last quarter. There's more than 30 product -- 30 features that's been shipped in the product and users are loving it, right? So the important thing for us is just keep continuing to improve the value to price ratio, meaning raising value and relentlessly just build the best product out there. The best product will always win. And then when we look at our product and the value that it reflects, we will then take steps to understand if we need to adjust the price or not. And again, like I said many times before, it's based on specific market dynamics. Gustav Söderström: And some of the things give us confidence is, as we've said many times, engagement, day spent per month, where we know that we are well, well ahead of our competitors. Daniel Ek: Maybe just an addition from my side, too. I think implied in the question is that perhaps there's a comparison of music to music competitors. But in many markets where we act now, Spotify is not just a music service anymore. It is a music podcast and an audiobooks service. In some markets, we haven't yet gotten to with our audiobooks offering. So as you look at our pricing, we are factoring in the value, not just in music, but in all of the verticals that we act as well. And I think this is an important addition to add because in a lot of the markets, their perception of what Spotify is, is just very different than what it is in other markets as well. Bryan Goldberg: All right Great. Thanks, everyone, for the questions. That concludes the Q&A session today. I want to hand the floor back over to Daniel for some closing remarks. Daniel Ek: All right. Thanks, Bryan. Well, I think the headline here is quite simple. The business is healthy. We're shipping faster than ever, and we have all the tools we need. We have pricing, product innovation, operational leverage and eventually the ads turnaround to deliver both revenue growth and profit expansion. I said earlier, it all comes back to user fundamentals, and that's where we are. 700 million users who keep coming back, engagement at all-time highs, we're building Spotify for the long term. And as I transition to Executive Chairman, I couldn't be more confident in what's ahead. Alex and Gustav have been instrumental in getting us here, and I'm excited to watch them take Spotify to the next level. Thank you, everyone, for joining today. Bryan Goldberg: Okay. And that concludes today's call. A replay will be available on our website and also on the Spotify app under Spotify Earnings Call Replays. Thanks, everyone, for joining. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Cohen & Company's Third Quarter 2025 Earnings Call. My name is Alicia, and I'll be your operator for today. Before we begin, Cohen & Company would like to remind everyone that some of the statements the company makes during this call may contain forward-looking statements under applicable securities laws. These statements may involve risks and uncertainties that could cause the company's actual results to differ materially from the results discussed in such forward-looking statements. The forward-looking statements made during this call are made only as of the date of this call, and the company undertakes no obligation to update such statements to reflect subsequent events or circumstances. Cohen & Company advises you to read the cautionary note regarding forward-looking statements in its earnings release and in its most recent annual report on Form 10-K filed with the SEC. Earlier today, Cohen & Company issued a press release announcing third quarter 2025 financial results. Today's discussion is complementary to that press release, which is available on the company's website at cohenandcompany.com. This conference call is being recorded, and a replay of it will be available for 3 days beginning shortly after the conclusion of this call. The company's remarks also include certain non-GAAP financial measures that management believes are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in the company's earnings release. After the prepared remarks, the call will be opened up for questions. I would now like to turn the call over to Mr. Daniel Cohen, Executive Chairman of Cohen & Company. Daniel Cohen: Thank you, Alicia. And everybody, welcome to our third quarter's earnings call. The results which Lester, our CEO and Joe, our CFO, will go over speak for themselves. We are super excited about are present, our future and what we really have been able to build. We're in the middle still of that build-out of Cohen & Company securities into the Premier Frontier Technology Investment Bank. But the results over the past few quarters show the potential. Year to September 30, we have IPO-ed with sponsors 18 new SPAC vehicles in a market that only has started to recover, we believe. Companies like Vertiv, MP Materials, DraftKings and SoFi are among the companies, I can remind you, that have gone public with SPACs. Alone, those comprise well above $100 billion of market cap. We have maintained our position as the leading adviser for de-SPAC transactions, and we have built strong franchises in rare earth and quantum computing now as well as continued our leadership in the digital asset transaction space. With tokenization of financial assets just beginning, we expect to extend our experience in taking blockchain assets to traditional stock market vehicles to what we see as the future of traditional assets moving to the blockchain, we are stoked to continue building the future, and we will share our expectations going forward. Let me turn it over to Lester to make remarks on our year-to-date, our company and our future Lester Brafman: Thank you, Daniel. We have a strong performance in the third quarter as we continue to execute our strategy and drive sustainable value for our stockholders. Our third quarter total revenue was $84.2 million, and our adjusted pretax income was $16.4 million, representing 19.4% of total revenue. Year-to-date through September 30, our total revenue was $172.8 million, and our adjusted pretax income was $23.2 million, representing 13.4% of total revenue. We are focused on capitalizing on innovative areas in the capital markets where we can add value to our clients through various business cycles. Our boutique investment bank, Cohen & Company Capital Markets, or CCM, focused on SPACs during the height of the SPAC market and continued working with our SPAC clients through difficult times in 2022 and 2023. The result of this consistent client focus has resulted in CCM at the top of the league table coming in #1 in SPAC IPO underwritings with the most left book run deals year-to-date and #1 in SPAC advisory by a wide margin with lead share in de-SPAC pipes. To further enhance our SPAC franchise, we have added an equity trading team to provide our investors with an additional source of liquidity. We have taken the same approach in the digital asset space, where we invested in client outreach during a low in the capital markets activity. As a result of this outreach, we have become a leader in the crypto capital markets with over $12 billion raised with crypto clients and 26 transactions closed across digital asset treasury strategies, M&A, IPOs and de-SPACs during the 2025 year-to-date, placing CCM in the top 3 firms on Wall Street in the space. Launched in 2021, CCM has become an increasingly important component of our company overall, generating $133 million in the first 9 months of 2025, up from $22.7 million in full year 2021. CCM as a percentage of revenue -- total revenue -- total company revenue has grown to 77% for the first 9 months of 2025 from 15% in the full year of 2021. Going forward, we will continue to focus on being the adviser choice to the growth in frontier technology section of the economy, including blockchain, fintech, rare earth metals as well as the related sell verticals of stable tokenization and AI. During the quarter, CCM generated $68.6 million in net revenue across 18 clients. Supported by a strong pipeline of transactions, CCM is well positioned to continue accelerating growth and deliver an exceptional performance through the end of the year. During the 9 months ended September 30, 2025, CCM has underwritten 18 SPAC IPOs, four of which have announced transactions with 14 searching for de-SPAC target companies. Clearly, there are significant potential de-SPAC fees to earn in the next 12 to 18 months as part of CCM's $300 million gross pipeline of possible transactions. To put this in perspective, at this point in 2024, CCM only had 145 million gross pipeline of possible transactions. Although the CCM business can be uneven from quarter-to-quarter, we remain confident that we can continue growing our CCM revenue base and are excited for 2026 as we are with our success in 2025. Furthermore, we are confident in our ability to attract incremental talent to our innovative, cutting-edge investment banking operation. In addition, the declining interest rate environment has boosted our trading revenue, which has which was up 26% in the third quarter from the previous quarter with increased revenue coming across all our trading desks. Also, our gross gestation repo book has grown to over $3.3 billion, and we expect these trends will continue providing additional opportunities to enhance net trading revenue. We are also hopeful that our sponsor SPAC Columbus Circle Capital Corp. I will close this business combination with ProCap BTC in the fourth quarter of 2025 or the first quarter of 2026. We are at an important inflection point in our long-term strategy. Based on what we have seen in trading revenue and our CCM pipeline thus far, we are confident that we will generate more than $50 million in revenue in the fourth quarter and more than $220 million in revenue for the full year 2025. We also anticipate our compensation and benefits expense item for the full year 2025 to be in the range of 68% to 72% of revenue, and our adjusted pretax income for the full year 2025 to be in the range of 10% to 15% of revenue. At this level of annualized revenue, our total adding revenue per employee will be around $1.8 million. In contrast, for 2024, our annual revenue per employee was $700,000. We are pleased with our results and are grateful for the efforts of all our employees. We remain confident in our future earnings potential and are committed to driving long-term sustainable value for our stockholders, including through quarterly dividends. Now I will return the call over to Joe to walk through this quarter's financial highlights in more detail. Joseph Pooler: Thank you, Lester. I'll begin with a discussion of our operating results for the quarter. Our net income attributable to Cohen & Company Inc. shareholders was $4.6 million for the quarter or $2.58 per fully diluted share. compared to net income of $1.4 million for the prior quarter or $0.81 per fully diluted share and net income of $2.2 million for the prior year quarter or $1.31 per fully diluted share. Our adjusted pretax income was $16.4 million for the third quarter compared to adjusted pretax income of $5.5 million for the prior quarter. And adjusted pretax income of $7.7 million for the prior year quarter. As a reminder, adjusted pretax income is a key earnings measurement for us, as it incorporates enterprise earnings attributable to our convertible noncontrolling interest, which is substantially held by our Founder and Chairman, Daniel Cohen. Daniel holds his interest in the enterprise through the primary operating subsidiary, Cohen & Company LLC, which is a consolidated subsidiary of Cohen & Company Inc. New issue on advisory revenue for the quarter was $228 million compared to $37.4 million from the prior quarter and $22.5 million from the year ago quarter. All of our new issue and advisory revenue came from our CCM business and was primarily driven by SPAC M&A activity and SPAC IPO transactions. CCM's new issue revenue was partially offset by $159 million of negative principal transactions revenue from investment assets received at CCM client consideration. As a reminder, we have received financial instruments as consideration for advisory services provided by CCM instead of cash at times, which are included in other investments at fair value on our balance sheet. Any realized or unrealized gains or losses on these instruments after the day of closing are recorded in our principal transactions revenue line item. One CCM deal in particular was material to our results during the quarter. In August of '25, Nakamoto emerged with Kindly MD to launch of Bitcoin treasury strategy with CCM acting as financial adviser and placement agent for the transaction's $540 million pipe and $200 million convertible note. CCM earned $179 million of new issuance advisory revenue from this transaction, which included $20 million of cash revenue and $159 million of noncash revenue in the form of NAKA, NAKA shares. And the $159 million is calculated using $11.6 million in NAKA shares at the post transaction closing share price of $13.60. The September 30 quarter end closing price on NAKA shares was only $1.07, resulting in $146 million principal transaction losses in our P&L. In total, the Nakamoto Kindly MD transaction accounted for the net $32.5 million of CCM revenue during the quarter. We were not able to sell the NAKA shares during the third quarter pending registration, the NAKA shares are now freely tradable. Net trading revenue came in at $13.6 million in the quarter up $2.8 million from the prior quarter and up $4.7 million from the second quarter of -- or the third quarter of '24. The increase from both the prior quarters was due primarily to higher trading revenue across all of our trading groups. Asset Management revenue totaled $1.9 million in the quarter, down from both prior quarters. The decrease was related primarily to the sale of all of the company's legacy Alesco CDO management contracts in '25, we will not record any additional asset management revenue from the Alesco CDO contracts going forward. Third quarter principal transactions and other revenue was negative $159 million, due to the investment assets related to consideration received by CCM, including the previously mentioned NAKA shares. Principal transactions revenue includes all the gains and losses and income earned on our $64 million investment portfolio. Compensation and benefits expense for the third quarter was $53.7 million, which was up from both prior quarters primarily due to fluctuations in revenue, income from equity method affiliates. And the related variable incentive compensation that goes along with those increases in the third quarter, compensation and benefits expense as a percentage of revenue was 64%. The number of company employees was 124 as of September 30 of '25 compared to 118 at the prior quarter end a 113 at the prior year quarter end. Net interest expense for the quarter was $1.5 million, including $1.2 million on our 2 trust preferred debt instruments, $214,000 on our senior promissory notes and $41,000 on our credit line. The gain on sale of management contracts for the 3 months was $1.9 million, which resulted from the closing of the sale of three of our legacy Alesco CDO management contracts. At this point, we've completed the sale of all of our legacy Alesco CDO management contracts. And as noted, there will be no future asset management from them. Loss from equity method affiliates totaled $12.7 million, primarily due to mark-to-market losses on one of our SPAC series fund investments, which was partially offset by a $6 million -- $6.9 million credit recorded in the net income attributable to the nonconvertible noncontrolling interest line item. In terms of our balance sheet, at the end of the quarter, Total equity was $101.1 million compared to $90.3 million at the end of the year. The nonconvertible noncontrolling interest component of total equity was $3.9 million at the end of the quarter and $11.5 million at the end of the year. Thus, the total enterprise equity, excluding the nonconvertible noncontrolling interest was $97.1 million at the end of the quarter. An $18.3 million increase from $78.8 million at the end of the year. At quarter end, consolidated indebtedness was carried at $32.7 million and as Lester mentioned, we declared a quarterly dividend of $0.25 per share, payable on December 3, 2025, to stockholders of record as of November 19. The Board of Directors will continue to evaluate the dividend policy each quarter and future decisions regarding dividends may be impacted by quarterly results and the company's capital needs. With that, I'll turn it back over to Lester for closing remarks. Lester Brafman: Thanks, Joe. We remain confident in our ability to navigate the current environment, execute on our strategic priorities and continue driving progress as we enhance long-term value for our stockholders. Please direct any off-line investor questions to Joe Pooler at (215) 701-8952 or via e-mail to investorrelations@cohenandcompany.com. The contact information can also be found at the bottom of our earnings release. Operator, you can now open the line for questions. And thank you all for joining us today. Operator: [Operator Instructions] There are no further questions at this time. I would like to turn the floor back over to management for any additional closing remarks. Lester Brafman: Thanks, Alicia, and thanks, everyone, for listening today. We look forward to reconvening at our call next quarter. Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may now disconnect your lines.
Operator: Greetings, and welcome to the Reservoir Media Q2 Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Ms. Jackie Marcus. Please go ahead. Jacqueline Marcus: Thank you operator. Good morning everyone and thank you for participating in todays earnings conference call. Reservoir Media issued a press release with results for its second quarter of fiscal year 2026 ended September 30, 2025, earlier this morning. If you did not receive a copy of our earnings press release, you may access it from the Investor Relations section of our website at investors.reservoir-media.com. With me on today's call are Golnar Khosrowshahi, Founder and Chief Executive Officer; and Jim Heindlmeyer, Chief Financial Officer. As a reminder, this call is being simultaneously webcast and will be recorded and archived on the Investor Relations section of our website. Before I turn the call over to Golnar and Jim, I'd like to note that today's discussion will contain forward-looking statements that reflect the current views of Reservoir Media about our business, financial performance and future events and as such, involve certain risks and uncertainties. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that our expectations, beliefs and projections will result or be achieved. Please refer to our earnings press release and our filings with the Securities and Exchange Commission for more information on the specific risks, uncertainties and other factors that could cause our actual results to differ materially from our expectations, beliefs and projections described in today's discussion. Any forward-looking statements that we make on this call or in our earnings press release are as of today, and we undertake no obligation to update these statements as a result of new information or future events except to the extent required by applicable law. In addition to financial results presented in accordance with generally accepted accounting principles, we plan to present during this call, certain financial measures that do not conform to U.S. GAAP. If we believe they are useful to investors or if we believe they will help investors to better understand our performance or business trends. Reconciliations of these non-GAAP financial measures to the nearest comparable GAAP measures are included in our earnings press release. I would now like to turn the call over to Golnar. Golnar Khosrowshahi: Thank you, Jackie. Good morning, everyone, and thank you for joining us today. Our performance in the second fiscal quarter reflects the effectiveness of our long-term growth strategy, leveraging a diverse high-quality catalog and scaling through a balanced mix of catalog development, strategic signings and global diversification. This disciplined approach continues to strengthen our market position and create new opportunities for value creation. We grew 12% on the top line with 7% from organic revenue and 5% from acquisitions. We continue to see great demand for our assets with notable and high-value sync placements, increased engagement in emerging markets and strong listenership of our catalog. Reservoir's established reputation as caretakers of legacies recently earned us the exciting opportunity to welcome the catalog of the iconic innovator and pop culture figure, Miles Davis. In September, we announced our acquisition of Davis' publishing catalog as well as rights to his recorded music and name and likeness. With the objective of growing digital listenership and cultivating new listeners. Together with the estate, we have hit the ground running to pursue and collaborate on celebrations commemorating the 100th anniversary of Davis' birth next year in 2026. A few of those activities include miles and Juliet, the upcoming feature film recounting Davis' Love affair with Juliette Gréco. Developed in partnership with River Road Entertainment and Mick Jagger's Jagged Films. A live symphonic show pairing gave us his iconic sound with original orchestrations and cherished footage bringing his legacy to life. An international tour of MEB formerly Miles Electric Band with 4 nights of special programming at San Francisco Jazz in March of next year. Reissues and re-releases of Davis' music including a box set of the complete live of the Plugged Nickel 1965 live album expected January 30 and others, plus co-branded collaborations across fashion, lifestyle, tech and entertainment products and offerings, a widespread press and digital marketing campaign and more. Capitalizing on the Centennial of a once-in-a-lifetime talent, we are excited to celebrate Miles and his music while also enhancing the long-term value of the catalog. Last month, we also announced the extension of our publishing deal for the catalog of seminal musician, Nick Drake as well as a new deal with the Drake estate to now also represent the catalog of Nick's mother, Molly Drake, a poet and songwriter. Since 2021, Reservoir has represented the Nick Drake catalog with our partners at Blue Raincoat Music Publishing. These renewed and expanded agreements not only reinforce the strength of our long-standing relationships, but also highlight our strong track record in client retention. Our ability to consistently maintain and grow these partnerships speaks to the trust our clients place in us, the value we deliver and the proactive collaborative approach we take in managing and developing iconic catalogs over time. Expanding our geographic footprint is another critical component of our long-term growth strategy. Just a few weeks ago, we announced 2 new deals in conjunction with PopArabia for the catalogs of Iraqi production house, HFM Production; and of Kuwaiti Singer-Songwriter, Essa Almarzoug. These deals mark Reservoir and PapArabia's first-ever Iraqi and Kuwaiti catalogs, an important milestone as we continue to grow our presence in the MENA region. Both HFM and Essa have demonstrated an ability to create high-quality music, which has cultivated a fan base that extends throughout their home countries and also across the region. We also welcomed Moroccan Rapper, Singer-Songwriter and producer, 88 Young to the family. And our boots on the ground approach to building relationships and earning the trust of some of the most influential and up-and-coming artists in these growing and evolving markets has proven to be both highly effective and replicable. We are excited to grow our portfolio with these diverse catalogs, while providing support to expand their reach to more of MENA and beyond. We further grew our catalog this quarter with the additions of talent, including Emily Reid, a platinum selling songwriter who just took home to SOCAN Country Music Awards. Dave Pittenger, a Grammy and Britt award-nominated songwriter and producer; and Bobby Vinton, the celebrated 1960s Teen idle, whose evergreen hit, Mr. Lonely continues to be a sync and sample mainstay to this day. Another component of our growth strategy is identifying and cultivating the next generation of hit makers who are driving the future of music across genres. Reservoir's roster contributed to some of the most highly anticipated albums and most streamed songs during the quarter. And just a few of these notable collaborations and achievements include Morgan Wallen's album, I'm the Problem, which featured 2 Lizzo collaborations, Missing and Smile held the #1 spot on the top 200 for 14 weeks straight through the end of August. Two #1s by 2 Chainz for his [indiscernible] Yukon by Justin Beber, topping the hot R&B songs chart and Salute of Cardi B's #1 top 200 album, Am I the Drama. Madison McFerron's feature and a Reservoir catalog cut sample on Tyler, The Creator's album, Don't Tap the Glass, which reached #1 on both the top 200 and top R&B hip-hop album charts. A strong indication of the value of the catalog can be found in the year-over-year growth in our sync revenue across both segments for the quarter. Brands continue to utilize our timeless classics from John Denver, Dr. Dre and Snoop, LL Cool J and De La Soul to current hits from Future Flex, Reneé Rapp and Saweetie to connect with consumers. Our Sync team continues to deliver placements in some of the season's most popular media from hit summer television shows such as the Summer I turn Pretty and 2 of Netflix's series, Too Much and Hit Makers to feature films, like this summer's hit blockbusters, Happy Gilmore 2, I Know What You Did Last Summer and Marvel's Fantastic 4. Moreover, we continue to unlock value across our evergreen catalog. As recently announced, we have granted an option to MIRAMAX for the classic Halloween hit, Monster Mash to be adapted into a new feature-length animated film currently in development. Our industry is built on relationships and we are proud of our reputation as a curator of catalogs and a platform for the next generation to bring their art to life, backed by a highly skilled team with a sharp eye for value-enhancing opportunities, we continue to identify and unlock growth across our portfolio. The quality of, and enduring demand for our assets drive reliable cash flows, positioning us to further scale our business strategically across all key growth areas. I will now turn the call over to Jim to discuss our second fiscal quarter financial results in greater detail. Jim? Jim Heindlmeyer: Thank you, Golnar, and good morning, everyone. Our second fiscal quarter results exceeded our expectations and exhibit not only the quality of our portfolio of assets, but also the ongoing execution of our proven strategy to integrate those assets into our platform and enhance their value. Revenue for the second fiscal quarter was $45.4 million, a 7% year-over-year improvement on an organic basis and a 12% increase when including acquisitions. This was led by the 21% growth in our recorded music segment and the 8% increase we had in Music Publishing. Turning to our operating expenses, the total cost of revenue increased 11% compared to the prior year quarter, while our administration expense and amortization and appreciation costs grew 15% and 18%, respectively, versus the prior year. Looking at operating performance for the second quarter, OIBDA was $18.2 million, an increase of 10% year-over-year and adjusted EBITDA was also up 10% to $19.4 million compared to our fiscal Q2 in the prior year. The increases in OIBDA and adjusted EBITDA were due to an increase in revenue and gross margin partially offset by an increase in administration expenses. Interest expense was $6.7 million for the quarter versus $5 million in the prior year driven primarily by a higher debt balance due to the use of funds and acquisitions of music catalogs and writer signings as well as an increase in effective interest rates. Net income for the second quarter was approximately $2.2 million compared to net income of $152,000 in the second quarter of fiscal 2025. The increase in net income was driven primarily by the decrease in loss on fair value of swaps and an increase in operating income, partially offset by increases in interest expense, loss on foreign exchange and income tax expense. This resulted in diluted earnings per share for the quarter of $0.03 compared to $0.00 per share in the prior year quarter. Our weighted average diluted outstanding share count during the quarter was approximately 66.3 million. Now let's dive into our segment review for the quarter. Music Publishing had an 8% increase in revenue versus the prior year quarter at $30.9 million due to an increase of 47% in performance revenue driven by the strength of hit songs, an increase in mechanical revenue from physical sales and the acquisition of new catalogs as well as an increase in digital revenue. These increases were partially offset by a decrease in publishing synchronization revenue driven by the timing of licenses. Moving to our recorded music segment. We had a 21% increase to $13 million in revenue compared to our Q2 last year. This increase was primarily due to an impressive 20% increase in digital revenue driven by the acquisition of catalogs and continued growth at music streaming services and an increase in Synchronization revenue driven by the timing of licenses. Turning to our balance sheet. As of September 30, 2025, cash provided by operating activities was $25.3 million, which was an increase of $3.4 million compared to the prior year period primarily due to an increase in cash provided by working capital and an increase in earnings. We had total available liquidity of $152.1 million consisting of $27.9 million of cash on hand and $124.2 million available under our revolver. We ended the quarter with total debt of $421.8 million, which was net of $4 million of deferred financing costs, and thus, we maintained $393.9 million of net debt. That compares to net debt of $366.7 million as of March 31, 2025. Relating to our guidance range, we are increasing and narrowing our revenue guidance range of $164 million to $169 million to now reflect $167 million to $170 million which at the midpoint implies growth of 6% versus fiscal 2025. Similarly, we are bringing up the bottom end and narrowing our adjusted EBITDA guidance range of $68 million to $72 million to now be $70 million to $72 million, which signals growth of 8% over the prior year at the midpoint of the range. We will continue to monitor our forecast for the second half of the fiscal year, and we'll provide any refinements to our guidance when it's prudent to do so. As we look forward to the balance of fiscal year 2026, we will continue to utilize our successful value enhancement efforts to drive above-market growth on our acquisitions. We believe that those efforts, along with our growing operating cash flow and sound capital deployment strategy will allow us to achieve our increased forecasted revenue and adjusted EBITDA guidance ranges for the full year. With that, I'll now pass the call back to Golnar. Golnar Khosrowshahi: Thank you, Jim. Having just reached the halfway point of our fiscal year, we are well positioned to achieve our full year financial goals. The addition of musical icon Miles Davis to our portfolio of assets provides us with access to unique value enhancement opportunities. It also serves as another proof point for estates and living legends that the most important artists of a genre or generation placed their trust with Reservoir. We have an active and robust deal pipeline of over $1 billion and look forward to sharing news of our next partnerships with you. With that, we will now open the line for questions. Operator: [Operator Instructions] And our first question comes from Griffin Boss with B. Riley Securities. Griffin Boss: So, strong organic growth, that's great to see 7% year-over-year. Is there any context or further context you can give it to what's driving that? Or maybe how you see that comparing to the broader industry? Is this a result of initiatives that Reservoir itself has implemented after acquiring certain catalogs or rights? Or is this just -- is it primarily maybe a function of favorable timing on existing catalogs? Jim Heindlmeyer: Griffin, so I think that with respect to 7% organic growth, that's really about where we would expect to be with some of the tailwinds in the industry and expected growth in the industry. We're always working to maximize and grow the new assets that we acquire. We're often able to add value and really see some significant organic growth on those assets when we first bring them into the fold. We're certainly looking forward to doing that on Miles Davis. But we also have specific factors that might go the other way, as we have hit songs in the prior year that come down in the current year. All that goes into organic growth. But I would say 7% is kind of the baseline of where we would expect to be, and we always strive to do better than the industry. So that's kind of how we look at it. Griffin Boss: And then I wanted to shift over, I just have a couple of quick ones regarding Miles Davis catalog, then I'll pass it off. But in terms of that acquisition, Golnar, you just mentioned that pipeline obviously still sits at over $1 billion, which is nice to see. Was Miles Davis a part of that pipeline that you saw? Or was this an off-market deal? Can you just discuss maybe the dynamics there? Golnar Khosrowshahi: Sure. It was -- Miles Davis was included in the pipeline. I wouldn't characterize it as off market as there was a process around that transaction with a conversation that began with the estate in November of 2023. And then from there, the relationship evolved and a formal process was kicked off. Griffin Boss: Okay. Got it. And just in terms of -- when you're talking about collaborating with the estate there on these value enhancement opportunities, you mentioned the number expected for the centennial in 2026. Is there going to be maybe a step-up in administration -- administrative expenses or rather OpEx associated with that versus maybe what you would expect to see had you not acquired that catalog? Golnar Khosrowshahi: No. From an administration standpoint, it doesn't have an impact on our ingestion and the resources around our ingestion we would be reallocating marketing resource to focus on these initiatives, but that's all being handled through our internal teams at this moment. Griffin Boss: Understood. It's great to see the ongoing process here, progress. Operator: And our next question comes from Richard Baldry with ROTH Capital Partners. Richard Baldry: You talked about sort of the scale or timing of some of the onetime things that appear to be ahead like the Monster Mash movie or Miles Davis' 100th birthday events. Are they similar to things like we've seen when you did De La Soul, would it be less pronounced or more? And when would those tend to be rolled into the P&L. Golnar Khosrowshahi: So, those are certainly onetime events, and I anticipate both of the examples that you cited would be coming through in calendar '20 -- beginning in calendar '26. Specific to Miles, that's exactly -- that's when the centennial begins, and we look at that as a 12- to 18-month window of activations that would be contributing. So -- and we view those as onetime events that would contribute to long-term value. So there would be some sustainable benefits that we would have afterwards. Richard Baldry: And the G&A side came down a little bit sequentially. How do we think about that going forward? Is sort of the first half run rate, what we should be thinking about? Was there something onetime in the first quarter that came down adn so second quarter is more where we should be thinking for modeling? Jim Heindlmeyer: Yes. I think that we -- the driver of changes in -- on the G&A side is largely driven by the management business. You see that in the other revenue that we report and the manager compensation sits in G&A, but it's really driven by that revenue. So as that goes up or down from quarter-to-quarter, it's going to have an impact our G&A. I would say that putting that piece aside, we're really at about the run rate that we expect to be in Q2 for the balance of the year. some minor pushes and pulls, but nothing significant on the other 2 segments. Richard Baldry: Last for me. If we look at the organic growth, is there a way to piece to the park, you hear more and more about pricing on the sort of digital subscription side. How much of that do you think is baked in already? Or it's just sort of you think will be a steady-state organic expander versus your own efforts to drive things like Sync and broader usage of the catalog? Jim Heindlmeyer: Yes. It's really a mix of all of that. When we think about industry growth, we certainly think about subscriber growth. We think about price increases that are anticipated and expected. And then we have the things that are more within our control, our own initiatives of increasing the value on assets that maybe we have recently acquired or taking advantage of specific opportunities for things that have been in our catalog for a long time. Monster Mash is a good example of that, where we look forward to increasing the revenue on asset as opportunities arise, and we'll have that coming into next year. So it's really a mix of all of those things. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Golnar Khosrowshahi for closing comments. Golnar Khosrowshahi: Thank you, operator. We remain on track to achieve our full year financial guidance through top line expansion and continued cost containment. We believe our portfolio is a best-in-class representation of the importance of diversity and music and its ability to bring fans from around the world together. We appreciate your support and interest in Reservoir, and we'll speak with you in the new year. Thank you. 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: Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Head of Investor Relations, Nate Rozof. Please go ahead. Nathan Rozof: Good morning. Welcome to Global Payments Third Quarter 2025 Conference Call. My name is Nate Rozof, and I'm Head of Investor Relations. Joining me on today's call is our CEO, Cameron Bready; our President and COO, Bob Cortopassi; and our CFO, Josh Whipple. Our earnings release and the slides that accompany this call can be found on the Investor Relations area of our website at www.globalpayments.com. I'd like to remind you that some of the comments made during today's conference call will contain forward-looking statements, including expected operating and financial results, among other matters. These statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements. For additional information on these factors, please refer to our press release and filings with the SEC. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. We will be referring to several non-GAAP financial measures, which we believe are more reflective of our ongoing performance. For a whole reconciliation of the non-GAAP financial measures discussed on this call to the most comparable GAAP measure in accordance with SEC regulations, please see our press release furnished as an exhibit to our Form 8-K filed this morning and other supplemental materials available on the Investor Relations section of our website. With that, I'll turn the call over to our CEO, Cameron Bready. Cameron? Cameron Bready: Thanks, Nate, and good morning, everyone. We are pleased to deliver third quarter adjusted results that accelerated sequentially across our key financial metrics. Our team continues to execute at a high level, driving growth and efficiency across the business as we advance our transformation program. Importantly, our year-to-date performance positions us well to deliver on our expectations for the full year, and we are building positive momentum as we prepare for the closing of the Worldpay acquisition. To that end, we recently received approval for our acquisition of Worldpay from the Competition and Markets Authority in the U.K., which is a critical regulatory milestone. Given the strong progress we have made with the regulatory approval process, we now expect to close our acquisition of Worldpay and divestiture of Issuer Solutions in the first quarter of 2026. Naturally, our teams are eager to complete the Worldpay transaction and begin unlocking the compelling opportunities it presents, including accelerating our strategy to transform Global Payments into a pure-play merchant solutions provider with sustainable growth, leading scale, focused investments and meaningful value creation. We are also pleased to have closed the divestiture of our payroll business in September, further simplifying our business and allowing us to return an incremental $500 million of capital to shareholders during the third quarter through an accelerated share repurchase program. Lastly, before turning to the quarter, I'm happy to announce that we partnered with Google to enable Agentic Commerce using the Agent Payments Protocol. It will enable us to provide secure, reliable and interoperable agent commerce for our customers and partners. We are helping our customers and partners to successfully enter this emerging commerce channel by building bridges between protocols to enable our merchants to accept all Agentic payment types. With this and other Agentic AI frameworks, we are also developing the authentication layer that is necessary to verify that AI agents are legitimate to maximize authorization rates and thus maximize revenue for our customers. For the quarter, we reported 6% constant currency adjusted net revenue growth, excluding dispositions, 110 basis points of margin expansion and 11% constant currency adjusted EPS growth compared to the same period last year. We also produced adjusted free cash flow of $784 million in the quarter, allowing us to end the quarter at 2.9x adjusted net leverage, below the 3x target we had committed to and earlier than the year-end date we had previously anticipated. Our merchant business exhibited ongoing momentum with adjusted net revenue growth accelerating to 6% constant currency, excluding dispositions as we continue to execute across the 3 pillars of our strategy. First, in POS and software, our strategic priority remains on the development and rollout of Genius. Consistent with our focus on front book opportunities, currently more than 90% of Genius sales are to new customers. In the markets where we have launched Genius, sales to new locations increased by more than 20% year-over-year during the third quarter, with new sales ramping nicely throughout the quarter. In fact, monthly recurring revenue from new sales increased 75% from June to September, and the average deal size more than doubled. This rapid uplift in new sales demonstrates how well Genius is resonating in the market. Genius is an incredibly robust business software platform that is architected to be highly modular, configurable, scalable and extensible. As we talk about Genius today and in the future, you will hear us highlight our support across multiple form factors for mobile phone applications to specialized handheld devices, all the way up to our unique countertop, kiosk, digital menu board and kitchen management devices. We will also discuss vertically targeted configurations supporting retail, restaurants, campuses, field services, professional services, age-restricted and more. We may also comment on go-to-market bundles of specific feature functionality to assist customers with diverse needs at multiple price points designed to allow us to specifically tailor our offerings to meet customers how and where they want to be met. With all the impact we are driving across the world with Genius, it is important to understand that this is still one Genius platform. We are unlocking capabilities, geographies, configurations and pricing bundles. We are not launching new discrete products. To that end, having successfully introduced Genius for the restaurant and retail verticals during the second quarter, which are primarily targeted at SMBs, I'm happy to share that we expanded Genius' feature set to support enterprise businesses in September and higher education institutions in October. Genius' enterprise offering provide a unified modern and modular commerce enablement solution designed to meet the complex needs of multi-location quick-serve and fast casual restaurants, sports and entertainment venues and food service management environments for our enterprise customers. On the heels of this launch, we were pleased to be selected by Harris Blitzer Sports and Entertainment to be the official payment technology provider for the Prudential Center and the New Jersey Devils. We will integrate Genius across all food and beverage locations for the Prudential Center, helping to optimize how fans place, pay for and receive their orders across the venue while optimizing back-end operations. While it's still very early for Genius in the enterprise space, we have also already been selected by franchisees of several leading QSR brands to deploy Genius across more than 400 locations. Our expansion of Genius functionality for higher education is ideally suited for a range of campus use cases, including on-campus merchants, dining halls, recreational facilities, departments and clubs, stadiums and more. Many universities do not have the necessary digital payments infrastructure to support their move away from cash and check. Genius enablement solutions, including campus-wide payment acceptance capabilities and reconciliation. It drives commerce and simplifies back-end processes by centralizing transaction visibility, while maximizing revenue streams, minimizing staff time and streamlining compliance. In terms of new form factors, we recently launched our new handheld device for Genius. It features an advanced 6.5-inch high-definition touchscreen, seamless connectivity across WiFi, Bluetooth and 5G and an upgraded processor that speeds performance. Demonstrating the power of Genius' highly modular and configurable platform, I'm pleased to share that the University of Illinois selected Genius and we use our new mobile form factor across revenue centers campus-wide. As for geographic expansion, in addition to offering Genius across North America and the U.S., Canada and Mexico, we recently launched in the U.K. and Austria. And our first enterprise win in the U.K. came within days of our launch with a restaurant change in Glasgow that has ambitious expansion plans. Before the end of the year, we still expect to introduce Genius in Germany. In early 2026, we will also bring it to Ireland and the Czech Republic, followed by Spain, Romania, Poland and Australia. Lastly, we are actively deploying Genius through all of our distribution channels to help drive penetration across the entirety of our front book. In addition to our large direct sales force, we recently launched Genius in our dealer, VAR, financial institution and ISO channels. The feedback from our partners in these channels has been resoundingly positive. Our digital menu boards and new handheld devices particularly resonated with our dealers, and our loyalty solution is highly regarded across our partner channels. It is encouraging to see the ramping of new sales in all of our distribution partners invigorated by Genius. In addition to our success with Genius, we have several notable wins across other software businesses, including Alterra Mountain Company, Oakwood University and Stillwater Public Schools. Turning to our Integrated and Embedded business. We had another outstanding quarter for partner signings with nearly 60 new partners added globally. To continue to drive partner wins, we are investing in our developer experience, including launching easy-to-use tools, modernized documentation and a unified API platform that makes it easier to integrate and deploy our services. In addition, we are excited to have expanded our long-standing partnership with PayPal, continuing to leverage our technology footprint across North America, Europe, the U.K. and Asia Pacific. This multiyear partnership also expands our relationship into the U.S. market and paves the way for global expansion into new verticals, creating significant opportunity for volume growth with PayPal. As part of our transformation program and sales effectiveness initiative, we're expanding our distribution for this channel, which has historically been solely served by an inside sales rep team by adding a dedicated outside sales force and enabling integrated referrals to all of our direct sales teams. With the addition of a field sales force targeted towards integrated opportunities, we expect to increase our win rate in complex verticals like automotive, health care, dental and veterinarian, where clients continue to prefer to have face-to-face interaction. We also expect this to be a point of differentiation as we compete for new partners going forward. As for our core payments business, we achieved several notable wins in high-growth geographies, including Maxi K convenience stores in Chile, Masovian Railways in Poland, Aegean Airlines in Greece and Le Méridien Kuala Lumpur in Malaysia. In North America, we renewed Verizon Wireless and the State of Illinois extended our relationship for a new 10-year term. United Petroleum was a notable win in Canada, and we are expanding into nearly 200 Pizza Hut locations across Mexico. I'm also excited to share that we launched our new merchant dashboard that facilitates cross-selling of value-added services. We built and deploy a modular and open dashboard that allows for a common interface supporting multiple client personas to customize the experience of delivering critical data and KPIs, a generative AI data discovery interface, access to our robust client experience, engagement and loyalty components and the ability to purchase and interact with a rich suite of personalized commerce enablement services and embedded finance tools. These modern and robust points of interaction deliver the capabilities and experiences that our clients and partners desire and expect. Turning to Issuer Solutions. We again saw accelerating sequential trends with revenue growth increasing to 5% on a constant currency basis this quarter. This was largely driven by continued growth in accounts on file and stable underlying transaction volume trends as well as strong project-related revenue. We recently leading European digital bank and OLB, a leading bank in the German market. We also signed new agreement with Allianz Bankia and Brandeskard and continue to have a solid pipeline of new business that extends into 2027. Further, we remain on track with our cloud modernization program and moved 2 more products into production this quarter. We are on schedule with our modernized efforts and expect to make all customer-facing applications commercially available by year-end. As I noted in my opening comments, we continue to make great strides on our transformation journey as we streamline Global Payments into a single unified operating company worldwide. At the core of this effort is investment in our technology strategy to unify our capabilities and expose them ubiquitously to customers around the globe. To facilitate this, we have architected a single-in, single-out customer and partner experience, leveraging modern API environments, complemented by AI assistance to integrate and consume our services. With the orchestration platform capabilities we have discussed in prior quarters, we're enabling the single-in, single-out experience across all of our platforms in all of our geographies on an omnichannel basis. This strategy and architecture allows us to deliver the modern customer experience that clients demand and insulate them from the complexity of our processing environments, while providing us with the ability to simplify our infrastructure by deprecating technologies at a more measured pace without material impact to our customers and partners. For example, this approach has already facilitated our EVO integration by supporting all net new volume and enabling us to migrate clients away from EVO's 7 legacy gateways with minimal client impact. Notably, Worldpay is on a similar journey of using orchestration to enable technology and systems consolidation. Our strategy is to align our orchestration capabilities, which gives us confidence in our ability to integrate and consolidate our technology stacks, unlocking more value and growth more quickly than we could have in the past. In addition to enabling cost savings and margin expansion through infrastructure consolidation, our modern orchestration layer also enables us to distribute products more easily across multiple geographies. This accelerates our pace of innovation, making us more nimble and improves our speed to market. With our API environment and the new dashboard I referenced earlier, this architecture works in harmony to deliver our holistic single-in, single-out vision. To further accelerate product development, we have also aligned our teams around a new product operating model, a foundational shift in how product and technology come together to solve customer challenges at Global Payments. We are already seeing tangible benefits, faster execution, tighter alignment to our priorities and meaningful reductions in churn and waste as well as accelerated delivery of new capabilities. Our Genius rollout is a prime example of this. Further, we're embracing artificial intelligence to improve the productivity of our engineering teams and the experiences of our customers. So far, our teams have used AI to generate nearly 1 million lines of code, saving tens of thousands of hours of manual coding time. AI-assisted coding is also reducing defects, which is accelerating testing and integration cycles. Overall, the integration of AI is enhancing our end-to-end product development life cycle by enabling faster innovation and improved velocity across our technology portfolio. The power of AI is often dictated by the availability of data to train it. Once we combine with Worldpay, we will process nearly $4 trillion in annual volume across 100 billion transactions and serve millions of merchants and thousands of platforms and software partners. That scale of payments data will help us unlock AI-powered insights for our customers as their trusted partner. For example, we will be able to provide our customers with access to fraud tools, predictive inventory analysis, dynamic pricing models, and churn risk analytics, all based on detailed transactional data and delivered in real time. In addition to the investment we're making in our product and technology environments, we're also investing meaningfully to transform our sales force, which is obviously our primary point of contact with many of our customers. As we previously discussed, during the first half of the year, we transitioned our sellers from our 94 compensation plan, which was 100% commission-based structure to a new compensation program that incorporates base pay plus commissions. This change yields multiple benefits for us. First, it enables us to incentivize solution-based selling, which is critical when we are introducing new solutions like Genius. In a 100% commission-based plan, sellers will often take a wait-and-see approach to new products, preferring to take the past of loose resistance to closing a new sale. Under our new plan, we have targeted our strategic commerce enablement solutions in addition to overall sales quotas. This model also makes it much easier for us to hire strong experienced sellers. As we continue to focus on selling more software and commerce enablement solutions, this structure is more consistent with the market for software sellers, allowing us to attract the right talent to sell our capabilities. With this new structure in place and the early proven results, we are expanding the size of our sales force to improve our engagement in the market. Today, we are actively recruiting for 500 additional field sellers in North America. We have also deployed a consistent sales methodology across our sales force, which improves the portability of new leads across channels and the customer experience. This lead portability is facilitated by the last key pillar of our sales transformation, unifying the technology that enables it. We have mentioned in the past that we are consolidating our CRM systems, which is a critical enabler to passing leads between sales channels and harmonizes how we go to market. Now sales professionals from different channels can see the lead in its entire history through the same CRM system. This also allows for greater ability to manage the overall inventory of leads we receive, recycle unsuccessful leads and ensure that no lead is left behind in our environment. We are also deploying sales intelligence tools to automate pipeline management as well as AI agents to summarize our sales call in real time and document any need to follow-up. While it is still early, our new sales methodology and compensation programs are increasing deal count and size. Overall, we are seeing double-digit increases in signed annual revenue per deal and mid-single-digit increases in deal count. We're also seeing speed to first deal increase with our earliest adopting channel improving by almost 40%. Lastly, we've seen attrition in new hires in the first 90 days improve meaningfully. For example, the first sales group to move to this new plan has seen more than a 50% reduction of new hire attrition, since adoption. Our transformation will be catalyzed by the acquisition of Worldpay and simultaneous divestiture of our Issuer Solutions business, positioning Global Payments as a pure-play merchant solutions provider. With the transactions expected to close during the first quarter of 2026, integration planning for Worldpay is well underway with all critical milestones established. Our disciplined approach will ensure alignment with our operating model and drive value creation. Our integration strategy focuses on accelerating growth, enhancing competitiveness, realizing synergies and investing in innovation, while unifying under a single brand and leveraging top talent from both organizations. Through our integration, we are striving to be a better version of the companies we have been until now, not just a larger one, one that maximizes scale and prioritizes growth to ensure lasting results for our customers, our shareholders and our team members. And we will do this by leveraging our unmatched global scale, processing nearly $4 trillion annually across 100 billion transactions and a complementary set of capabilities that strengthen our value proposition. Together, we will expand distribution, enhance our product suite and scale innovation. Our North Star for integration is growth, growth that emanates from an unrelenting focus on the needs of our customers. This incremental growth will be driven by a number of actionable opportunities that leverage the strength of the combined business. For example, we will immediately begin selling Genius and other software solutions into Worldpay's SMB base, while using their channels to broaden reach. Further, Worldpay's PayRig platform and PayFac capabilities will deepen our support for software partners and platforms. Their enterprise and e-commerce strength will also enhance our omnichannel offerings and diversify our client mix, while also providing capabilities we can cross-sell across the breadth of our combined merchant base. We will also extend Worldpay's digital capabilities to SMBs and pursue geographic expansion in the 40 markets, where we already operate. As previously noted, we also have a significant opportunity to drive synergies by leveraging a unified orchestration layer to consolidate platforms and reduce technical debt. Further, our ability to deploy approximately $1 billion in annual capital investment to support a cohesive merchant-centric product road map will serve as a powerful catalyst. This strategic alignment is expected to create a flywheel effect, accelerating innovation, enhancing efficiency and further strengthening our offerings. In support of our execution of all of these opportunities, in September, we were pleased [indiscernible] to directors to our Board of Directors, who filled seats vacated by retiring Board members this past April. Our new directors, there is Patty Watson and Archie Deskus bring a wealth of leadership skills, experience and financial technology expertise to our Boardroom. Their guidance will be helpful as we continue to execute on our strategic ambition to be the worldwide partner of choice for commerce solutions. The Board has also established a new ad hoc integration committee to oversee the integration of Worldpay following the close of the acquisition. This committee will represent a governance best practice for Global Payments going forward. While we currently provide the Board with detailed updates on acquisition integration, the formation of a dedicated committee will allow for deeper engagement and more focused oversight. Leveraging the Board's diverse expertise and experience in this area will be invaluable as we execute on this critical initiative. With that, let me turn the call over to Josh. Joshua Whipple: Thanks, Cameron, and good morning. We're pleased to have reported another solid quarter, highlighted by accelerating revenue growth, healthy margin expansion and strong adjusted free cash flow generation. Importantly, the performance delivered is exactly consistent with the expectations we outlined at the beginning of the year as we continue to execute against our strategy and transformation agenda. Specifically, we delivered adjusted net revenue of $2.43 billion for the third quarter, an increase of 6% from the prior year on a constant currency basis, excluding dispositions. Adjusted operating margins expanded 110 basis points to 45% or 80 basis points, excluding dispositions, resulting from strong execution and benefits from the transformation we began executing last year. The net result was adjusted earnings per share of $3.26, an increase of 12% on a reported basis and 11% on a constant currency basis. Year-to-date, we've generated $2.1 billion in adjusted free cash flow, representing a 96% conversion rate from adjusted net income. Taking a closer look at performance by business. Merchant Solutions produced adjusted net revenue of $1.88 billion for the quarter, reflecting growth of approximately 6% on a constant currency basis, excluding dispositions. This represents a 50 basis point improvement sequentially, consistent with our outlook that we set at the beginning of the year, and the expectations outlined at our investor conference last year. Further, the macroeconomic backdrop remains consistent as we continue to see stable volumes supporting our view that the consumer spending remains resilient. Our POS and software business achieved high single-digit growth, excluding dispositions for the third quarter. We're encouraged by the acceleration in new Genius locations sold having seen a 37% monthly increase since launching in June. We continue to build on this momentum in Q4, we hosted our Genius Dealer and VAR Conference in late September. The conference was well attended with over 200 dealers and key highlights including introducing new Genius handheld along with displaying our enterprise-grade capabilities like digital menu boards to SMBs. We're excited about the progress we've made in rolling out Genius as our singular point-of-sale technology platform across our business. We'll have much more to share in the coming quarters as we build on these accomplishments. Turning to integrated embedded payments. This business also delivered high single-digit growth for the third quarter. We added nearly 60 new partners globally during the quarter, and notably, about half of these new ISV partners were outside North America, underscoring the distinct value we bring as a provider with unmatched global reach. And the compounding power of those one-to-many ISV relationships continues to propel our top line as they ramp. For example, year-to-date, we have seen a 68% year-over-year revenue growth from the cohort of partners that we signed in 2023, while the ramp from new partners signed last year is nearly 15x their contribution in 2024. In core payments, we delivered mid-single-digit growth during the quarter. Our international markets demonstrated relative strength with high single-digit constant currency revenue growth across Central Europe and Asia Pacific as we continue to benefit from strong secular payment trends in these markets. This reinforces our commitment to expand our foothold to meet strong demand and provide our best-in-class suite of capabilities across geographies. We delivered an adjusted operating margin of 51.1% in Merchant Solutions, an increase of 110 basis points over the prior year or 70 basis points, excluding dispositions, again highlighting the impact of our transformation. Moving to Issuer Solutions business, we generated adjusted net revenue of $562 million for the third quarter, reflecting growth of over 5% on a constant currency basis. This represents over 150 basis points of acceleration sequentially and also marks an improvement from our performance in the first half of the year as expected. Revenue growth was primarily driven by new implementations and growth with existing customers as our strategy of aligning with market share winners continues to drive benefits. We also benefited from the recognition of project and fees for service revenue that we had previously expected in Q4. We added 16 million traditional accounts on file this quarter, bringing us to a record of 917 million traditional accounts in total. We completed 2 implementations in the quarter, and we continue to see sustained growth in transaction count. Insurer Solutions delivered an adjusted operating margin of 46.9%, which is a 150 basis point improvement from the prior year period. As I mentioned, reported adjusted operating margins expanded by more than 100 basis points in both merchant and issuer. This reflects not only continued cost discipline, but also incremental benefits we've realized from our transformation efforts. In addition to beginning to unlock top line growth, as Cameron described a moment ago, our transformation has yielded significant cost efficiencies as we streamline our businesses and functions. From a cash flow standpoint, we produced strong adjusted free cash flow for the quarter of approximately $784 million, representing a conversion rate of adjusted net income to adjusted free cash flow of approximately 100%. We invested approximately $170 million in capital expenditures during the quarter and expect capital expenditures to be roughly $700 million or approximately 8% of revenue for the full year, consistent with our previously stated target. We continued our commitment to returning capital to shareholders this quarter, repurchasing $500 million through an accelerated share repurchase in connection with the sale of our payroll business, bringing our total share repurchases to approximately $1.2 billion year-to-date. We continue to see buying back our shares as a compelling opportunity given our confidence in our strategy given our long-term growth profile. We're pleased to report that we've reduced our leverage faster than anticipated. Our net leverage position was 2.9x at the end of the third quarter, down from 3.15x at the end of the second quarter and below our long-term target of 3x. Our continued strong free cash flow generation gives us confidence in our ability to delever back to 3x within 18 to 24 months of closing the Worldpay acquisition. Our balance sheet remains extremely healthy, and we ended the period with approximately $4.1 billion of available liquidity. Outstanding indebtedness is almost entirely fixed rate with an attractive weighted average cost of debt of 3.4%. Moving to our outlook for the full year 2025. We continue to expect constant currency adjusted net revenue growth of 5% to 6% over 2024, excluding dispositions. We anticipate dispositions will impacted reported adjusted net revenue growth by approximately 400 basis points for the full year, which now reflects the sale of our payroll business in September. As we discussed the past 2 quarters, the foreign currency exchange rate environment has continued to evolve, since we established our initial 2025 guidance. We now expect a modest tailwind of approximately 50 basis points from foreign currency exchange rates in Q4. And for the full 2025, we expect foreign currency exchange rates to be broadly neutral to reported revenue and EPS growth. And we expect full-year adjusted operating margin to expand more than 50 basis points, excluding dispositions, which is consistent with the guidance that we provided last quarter. We expect Q4 performance to be generally in line with our year-to-date trends and similar to Q3. At the segment level, we still anticipate our merchant business to deliver adjusted net revenue growth of roughly 6% on a constant currency basis, excluding dispositions for the full year, and we continue to expect adjusted operating margin expansion for merchants to be greater than 50 basis points, excluding dispositions for the full year. For Issuer Solutions, we continue to expect adjusted net revenue growth of approximately 4% on a constant currency basis for the full year. This implies Q4 growth of roughly 4% due to the pull forward that I mentioned a moment ago. We expect adjusted operating margin expansion for the issuer business to be greater than 50 basis points for the full year. We continue to anticipate adjusted free cash flow conversion to be greater than 90% for the full year and we expect to end the year at or below our 3x net leverage target. Altogether, for the year, we remain confident in the trajectory of the business, and we continue to expect adjusted earnings per share growth to be at the high end of the 10% to 11% range on a constant currency basis. In sum, we delivered another quarter consistent with expectations and we remain on track to achieve our outlook for the full year for revenue, margins, EPS and free cash flow. And with that, let me turn the call back over to Cameron. Cameron Bready: Thanks, Josh. I could not be more proud of our team and the positive impact we are seeing in our business from our transformation. The anticipated closing of the Worldpay acquisition and the concurrent divestiture of Issuer Solutions business early next year represent a pivotal moment in our company's evolution. Far from a departure from our strategy, these actions are a natural extension of it, providing unique opportunities to accelerate our transformation. Together, they will crystallize Global Payments position as a pure-play merchant solution provider and a leading provider of commerce enablement solutions with unmatched global scale in an industry, where scale matters more than ever. We remain intensely focused on driving sustainable growth through a combination of expanded and more effective distribution, a more comprehensive suite of products and solutions and our ability to invest in innovation at scale. With approximately $1 billion in annual capital investment dedicated exclusively to merchant and commerce enablement solutions, we are uniquely positioned to accelerate our product road map and deliver differentiated value to our customers. These transactions also reinforce our transformational objectives to enhance operational efficiency and maximize cash flow. Leveraging our increased scale and realizing meaningful synergies, we expect to generate significantly more levered free cash flow than what would have been achievable absent these strategic actions. And our commitment to disciplined capital allocation remains unchanged. In addition to the $1.2 billion we have already returned from the disposition of assets, we remain on track to return $7.5 billion to shareholders between '25 and '27, while simultaneously delevering to 3x within 18 to 24 months of closing the Worldpay transaction. By 2028, we expect to generate approximately $5 billion in annual levered free cash flow, which is 50% more than it otherwise would have been. This level of cash flow generation will provide us with significant flexibility to continue returning capital to shareholders on a sustained basis, while simultaneously investing in innovation to drive sustainable long-term revenue growth and operating leverage. With that, I'll turn it back to the operator to open the line for questions. Operator: [Operator Instructions] And our first question will come from Dan Dolev with Mizuho. Dan Dolev: Cameron, Josh, Nate great results here. It looks like everything is on track and better than expected. I wanted to touch on your comments, Cameron, on free cash flow. I mean the generation is very impressive, and you're pushing probably $9 billion of return right now. So as we get closer to this 2028, how do you think about capital returns given the massive amount of free cash flow that GPN is throwing? Cameron Bready: Yes. Dan. Thanks for the kind comments. I would say our philosophy remains very consistent. As you highlighted over the course of the '25 to '27 time frame, we expect to return close to $9 billion. That's $1.2 billion from dispositions that we've made and obviously utilized the proceeds from those to return capital, and we're still targeting $7.5 billion from just cash flow that we're generating in the business is capital returns over that same time frame. As I just commented, we expect to have free cash flow in the neighborhood of $5 billion by the time we get to 2028. And I would say, given where we are today, our priority would remain returning that capital to shareholders. Obviously, we want to be able to continue to invest in the business to drive growth and make sure that we're innovating at the pace that we want to and maintaining our competitiveness in the market, but recognize that our free cash flow expectation is already built in a $1 billion plus of new investment in innovation annually. So we think we have ample free cash flow in 2028 to return a significant amount of capital to shareholders, while still positioning us to be able to invest in the business the way we need to, to drive sustainable long-term growth. Joshua Whipple: The only thing I would add, Dan, is look, you saw in the quarter, we continue to generate really, really strong free cash flow. Year-to-date, we generated over $2 billion of free cash flow, we converted at 96%. And you also saw that we delevered down to 2.9x. And just given the cash flow profile of this business, we feel very confident that we'll delever back to 3x within 18 to 24 months of closing the Worldpay acquisition. So we feel really good about that. Operator: Our next question comes from Jason Kupferberg with Wells Fargo. Jason Kupferberg: I wanted to ask on merchant, a 2-part question. The first part is on Genius. I wanted to get a sense of what the complexion of some of these initial wins look like? Are you mostly winning restaurants and retailers that are moving to Genius from a non-cloud solution? Are you getting competitive takeaways from the other cloud providers? And then the second part of the question is just on pricing and the environment there. Last week, one of your competitors talked about rolling back some fees in parts of its SMB merchant base. So I wanted to get your take there. Just on the overall pricing backdrop, are you seeing any more price aggression in the market since last quarter? Cameron Bready: Yes, Jason, it's Cameron. Thanks for the question. I'll start and maybe ask Bob to provide a little more color on specifically what we're seeing with Genius. But to maybe answer your question very quickly, I think it's a little bit of all of the above. We're delighted with the progress that we're seeing with Genius. We called out some stats, obviously, in our prepared remarks, but certainly, the momentum we're building around Genius is palpable. I think the reception of the market is highly constructive as it relates to the product, the capabilities, the form factors, in all the feature functionality that we're able to bring to bear through the platform. So as we commented, we're already live in a number of markets internationally. We have plans to bring it to more markets. 90% of our new sales are to new customers, which is really encouraging, and it aligns with our focus, as we've described before, on front book opportunities. We saw new locations increase kind of 20% quarter-over-quarter and a 37% increase, since we launched in June and new ARR, importantly, not only are we selling more locations, but the value of those locations is increasing as well as new ARR is up almost 75%, since we launched in June with an average deal size, it's greater than 50% what it was prior to launching Genius. So I think as it relates to the early sort of proof points around how Genius is resonating with the market, we feel very enthusiastic about the reception we've received and obviously, the momentum we're building. I'll let Bob talk a little bit more about specifically kind of what we're seeing on the wind front. Robert Cortopassi: Yes. Thanks, Cameron. Jason, the way that we think about -- the way that I think about the front book opportunities that we're winning is that the motive competition really varies by geography. And that's less about the intensity of competition or what the product market fit is, and it's more about the maturity of the market sort of inherently. So as you think about where we've got Genius rolled out so far over the last few months, it's primarily North America-based although I think we mentioned that we're live in the U.K. now as well. And across North America, the U.S. is a very different market than Mexico in terms of the penetration of POS technology systems as opposed to kind of legacy payment methods themselves. And that's the primary driver of the source of the wins. When we go head to head in a market like the U.S. that's fairly mature, deep competitive landscape, a lot of established software providers there. We feel very confident about how our software and capabilities stack up against them, and we're winning a lot of those head-to-head battles as well as competitive takeaways. We're also winning in markets where software adoption is less than it is in the United States. And some of those wins are coming from head-to-head and competitive takeaways. Some of those are coming from people, who are leaning into a full POS software stack to manage their business for the first time. But regardless of geography of distribution method, whether that's dealers or direct and regardless of kind of who the competition is, today, I wouldn't say that there's 1 spot we're winning in a spot that we're concerned, we feel really strongly about our opportunity to win when we get in deals. You didn't ask this, and I probably shouldn't volunteer it, but if you ask like, where are you struggling? Where do you have challenges today? It's not about product, and it's not about customer demographic, it's frankly about mind share. Some of what we're doing is new to our clients and new to our prospective clients and we're competing against people who've got some established mind share. So we're being very aggressive about how we think about the marketing opportunities to get the Genius name and the Global Payments brand in front of our prospective customer base. We're thinking a lot about how to leverage our existing distribution and maximizing the performance of that channel. An example of the thing that we've done this quarter has come alongside some of our FI or other indirect distribution partners, not only offering Genius to them, but offering sales assistance with Genius. So we've got a number of, for example, FI partners who are really excited about the opportunity to service their customers with more technology solutions, but they don't always feel like they've got the sales expertise inside of the bank to go and sell software as software. And so we're coming alongside them and offering to partner them up either with our direct sales team or in some cases, with regional dealers, where they can go to market jointly. Cameron Bready: And Jason, I want to circle back on the second part of your sneaky 2-part question there. So on the pricing environment, what I would say is it remains fairly constructive. And our philosophy, I think, from a pricing standpoint, really hasn't changed. We want to price our services and solutions given the level of value and capability we're bringing to our clients. We don't strive to be the low-cost provider in the market, and we want to be paid fairly and appropriately for the level of value and service that we think we can deliver. So we're not leading with price. But obviously, we must be price competitive and we are price competitive for our solutions. I think the reference that you made was really as it relates to more of a back book pricing sort of action as opposed to front book opportunities. And as I said, we're always price competitive as we think about sort of new front book opportunities in the business. The last thing I would just leave you with is with the Worldpay, obviously, acquisition and the significant scale that we will bring to the competitive landscape as we move forward, I don't worry about being price competitive really with anybody. We want to make sure we're differentiating our capabilities based on the future functionality and level of service that we bring. And we'll always be price competitive, but we think we bring something distinctive from a functionality and service standpoint, and we want to be paid fairly and appropriately for that. Operator: Our next question will come from Adam Frisch with Evercore ISI. Adam Frisch: Cameron, I'm going to have a very unsneaky 2-parter here for you. If you could just provide some color on the primary components of the organic growth number and specifically call out some pricing increases to the back book, which are channel checks have suggested some pretty significant ones in recent months. And then the second one on the sales force expansion, super interesting. What kind of companies are you sourcing from the most and where do you see the most opportunity? Cameron Bready: Yes, Adam, I'll take the first part and I may ask Bob to jump in on the second part just in terms of where we're sourcing kind of new sales professionals and the success we've seen on that front. I would say there's nothing sort of out of the ordinary in terms of organic growth for the business in this quarter. We're continuing to see much of that driven from new sales productivity. And actually, as we've called out, we're seeing better productivity from a new sales standpoint and better results from a new sales standpoint in the quarter, which obviously is a little bit of a tailwind to the overall growth in the business. And then secondly, obviously, we're seeing fairly stable same-store sales trends across the business as well, which are the 2 biggest drivers, obviously, our organic growth and the performance we're seeing in the business. As it relates to pricing, we're continuing to exercise the same philosophy that we've had over a long period of time, as I mentioned in my answer to the earlier question, we focus on pricing our services and solutions based on the value of the services and capabilities that we're bringing to our client base. What we have been doing through our transformation is looking to harmonize all of our pricing sort of structures across all the different portfolios that we've acquired over a long period of time. So as part of that, obviously, we are looking to harmonize kind of the pricing structures and capabilities that we're utilizing to make sure that we're getting paid fairly and appropriately for the level of value and service that we're delivering. But I would say on the pricing front, there was certainly nothing unusual in the quarter as it relates to how we think about pricing our solutions and actions that we may take from a back book perspective, as we're looking to harmonize those pricing structures kind of across our portfolios. Robert Cortopassi: Yes. And in terms of where we're sourcing kind of sales talent and the pipeline for that, I would say, again, it's very broad. Obviously, we're targeting software salespeople, who've got experience doing that motion. Whether they're coming from fintech or whether they're coming from other types of kind of core business management software. But I think the differentiating point here, as you think about kind of a legacy sales rep and a new sales rep, if you will, is that this is a much more consultative sale process than sort of commodity purchasing. Some people, particularly younger folks want to be able to interact digitally and acquire through that sort of methodology, but not everybody feels comfortable fully articulating their needs, understanding the complexities that may be associated with large-scale implementations and rollouts, and we find it very constructive to have consultative sales talent and sales engineers, certainly as the enterprise space to come alongside them and be able to deliver those capabilities at scale for both SMBs as well as enterprise clients. Operator: Our next question will come from Dave Koning with Baird. David Koning: Nice job across the board. And I guess, my question, Genius, you talked a lot about new sales to new clients, but the back book, about 10%, it sounds like sales are coming through. I'm wondering what's the, I guess, experience so far with attrition in yield when you do move the back book? And if that's good, are you going to more aggressively kind of push into that? Robert Cortopassi: Yes. Thanks, Dave. We talked about this a number of times, and I think our strategy is relatively consistent, and that is to be in front of our customers and leverage the relationships that we have, ensure that they're aware of the capabilities that Genius brings to bear and be prepared to help them migrate at a time that is comfortable and convenient for them to do so. As a reminder, Genius is not a new from the ground up brand new technology stack, much of Genius core capabilities comes from existing solutions that we already had in the market. So as we think about customer migrations, in many cases, this isn't really a migration per se. This is simply unlocking the incremental capabilities that we've built over the past 18 months or so as we've been working to bring Genius to market across the globe. The second thing related to sort of yield and average revenue per customer, as Cameron mentioned, the overall deal size is increasing. A little bit of that has to do with the sorts of customers that we're able to target with Genius as a solution, but part of it is also about the breadth of capabilities we have to monetize. We have to provide to deliver incremental value to those clients. So as we think about a migration experience, there is not any meaningful price compression associated with that. I would say it's neutral to slightly enhanced given the take rate on some of the incremental capabilities. As we think about the strategy against the back book, look, there's a time and a place for that. But as I mentioned earlier on one of the responses about mind share, we're very focused on getting Genius in front of as many prospective clients as possible, and establishing a footprint so that all of you on this call, when you walk into anywhere you do business in your normal life, you begin to see more and more of the Genius brands. So we're very aggressively focused on front book opportunities. We're prepared and we're here for our back book clients as they migrate. And in most cases, as I mentioned, that's not a full-scale data conversion, migration that's simply unlocking incremental capabilities on the new unified platform. Operator: Our next question comes from Bryan Keane with Citi. Bryan Keane: Solid results here. Cameron, I just want to ask you a little bit more directly about that peer that we talked about that reduced the guidance. In particular, they talked about short-term revenues that were unsustainable and driving higher revenues and margins. Is that something that's common practice in the industry? Can you maybe talk a little bit about the yields that you see versus volume? You guys have been pretty consistent on that. And then any kind of ability for you guys to competitively take away some business as a result of that? Cameron Bready: Yes, Bryan, thanks for the question. Look, it's hard for me to comment too much on another company or another competitor. I certainly don't have perfect visibility into everything that's happening with their business. I'm really intensely focused on the things we're doing and how we're executing as a business. I wouldn't say that the things that they called out were common in sort of practices. I mean, I think much of the commentary, particularly around merchant related to one specific international market and some idiosyncratic sort of issues there that were propping up kind of growth by virtue of FX rates and inflation, et cetera. So as I look at kind of the business more broadly, as I said before, I'm really focused on the things that we're doing, and I can't get too far down the path in terms of commenting on someone else. To that end, I would tell you, I'm really pleased with what we're seeing in our business and how effective our transformation is in terms of positioning us for a better sustainable growth and value-creation future as a business. And I'm really pleased with the momentum we're building in the business. We've been at our transformation journey now for about 15 months, and I'm really pleased again with the little success that we've seen and the direction of travel as it relates to all the key initiatives that we have really been investing against over that period of time. We reoriented our operating model to make sure that we are well positioned for the growth future that I described before. We've had terrific success with Genius, which we spend a lot of time talking about today. Our sales effectiveness initiatives are progressing really well, and we're seeing a lot of positive trends coming out of those. And the technology strategy that we outlined today, we think strikes the right balance between delivering client experiences that are modern and contemporary and aligned with what customers are looking for in the marketplace, while positioning us to be able to deprecate infrastructure and streamline and harmonized technology environments over a longer period of time that will drive additional cost savings and margin uplift in the business without creating a lot of customer distraction. And of course, as we thought about our business and the market more broadly in the competitive landscape, we obviously put that into context as we thought about the transactions to acquire Worldpay and the best our Issuer Solutions business. We think these transactions further catalyze everything that we're doing from a transformation perspective and obviously, will position us going forward as a pure-play merchant solution provider really with unmatched global scale in an industry, as I said before, where scale matters more than ever. So as I look at the things that we're doing, we're incredibly enthusiastic about the progress that we're making. We feel very good about how we're building a sustainable growth-oriented engine here that's based on healthy growth fundamentals and obviously, positioning the business competitively. And with the Worldpay combination, obviously, we think we'll bring a level of scale to the industry that positions us extraordinarily well, continue to grow, continue to innovate and continue to generate significant cash flow, obviously, that allows us to invest for the future, while rewarding shareholders with significant capital returns. Operator: Our next question will come from Andrew Schmidt with KeyBanc Capital Markets. Andrew Schmidt: Good to see the consistent results here. Maybe we could ask just about Merchant Services or Merchant Solutions organic growth. It looks like the exit rate pretty consistent with what you guys had outlined previously, slightly above 6%. Maybe talk about just the progression into 2026. And whether any thinking has changed there, particularly in terms of drivers? I know POS and software is obviously a big driver, Salesforce is a big driver and a number of things going on. But just -- maybe just if you think about just the progression into 2026 and some of the key drivers, that would be great. Cameron Bready: Yes, I'll start. I'll maybe ask Josh to add a little bit of commentary as well. I think, look, 2026 is right around the quarter. So the drivers as we think about the business organically heading into 2026 are really centered around the things that you just described. Obviously, Genius continues to be a very significant focal point for us in terms of driving growth in our business. We have incremental market expansion opportunities in 2026 that we're looking to deliver. Obviously, we continue to build momentum in the markets where we've already rolled it out, and we're seeing strong progress on that front. And then, of course, our initiatives around sales effectiveness, the incremental sales force professionals we're looking to hire and bring to bear on the market. Their ability to be productive more quickly and obviously drive a level of productivity that's superior than what we've been able to see historically under our old sort of plans, I think, gives us a lot of optimism around the direction of travel, relates to organic growth heading into 2026. So I don't think the underlying theme as it relates to how the business is positioned heading into next year have really changed. And I would just note also that they're very consistent with what we called out at our investor conference a little over a year ago. Obviously, as we highlighted on the call today, we're poised to close the Worldpay transaction early in 2026. And I think as we look at the combination of the 2 business heading into next year, we're obviously comfortable with the direction of travel of the Global Payments business, and we're very comfortable with the direction of travel of the Worldpay business in terms of their organic growth as we look to wrap-up '25 and head into '26. And the outlook for the combined business next year, I would just ask you to reflect on what we shared in Q1 of this year around the medium-term outlook for the combined business, that remains kind of our outlook as we sit here today for the combined business as we get into 2026. Joshua Whipple: Yes, Andrew, the only thing I'd add is, I think if you go back to the beginning of the year, we're doing exactly what we said we were going to do. You go back in the first 3 quarters, the shaping of merchant is right in line with what we see acceleration in the back half, and that's primarily related to the transformation initiatives as Cameron and Bob called out around Genius and sales effectiveness. And then to Cameron's point, we gave our medium-term outlook for '26 and '27 for the pro forma business on our Q1 call. So I would point you back to that where you can see kind of what we're expecting for the business in 2026. Operator: Our next question comes from Darrin Peller with Wolfe Research. Darrin Peller: Look, when we see some of these data points like the sales revamp showing us increases on deal counts and even the Genius stats are obviously strong, looking at some of these with 90% sales to new customers, increases, et cetera. I guess our question would just be when we would start to see that play out in volume growth? I know it's early now in some of these initiatives, but your 5% growth rate, I would like to see that show some traction and acceleration. Do you expect acceleration in volume growth, specifically the KPI you've been disclosing in the same manner as we go into next year as a result of these initiatives? And then sort of related, but a follow-up would be the Worldpay SMB segment, I know is an area that you should be able to really capitalize your Genius program with post close. And so just how are you thinking about integrating that, rationalizing the 2 SMB go-to-market organizations and the uplift potential that we can see in volume overall as a result of that as well. Cameron Bready: Yes, Darrin, good question. So on the first question, we did see, obviously, volume uplift from Q2 to Q3. And obviously, that's reflected in the metrics and the disclosures we provided today. But I think the longer answer to your question is, of course, over time, as we continue to make progress with Genius, we expect to be able to drive incremental uplift in volume all else being equal across what's happening in the macro environment. As you can imagine, a lot of different factors sort of shape the ultimate sort of volume growth we see in the business. But certainly, we are seeing new sales of Genius driving incremental volume to the business, which is obviously driving overall volume trajectory in the right direction. And obviously, as we continue to move forward and make progress against expanding our footprint with Genius to Bob's point, growing mind share around Genius and having more success with front book opportunities, we expect that to continue to drive margin opportunity -- excuse me, volume opportunity and growth in volume in the business over a period of time. I think as it relates to the Worldpay opportunity, certainly, we think the overlap and complementary nature of the distribution platforms in SMB is really attractive. Today, Worldpay really lacks a product suite that we have that's really geared towards serving the SMB segment of the market. And we think that our ability to leverage that product suite across our existing distribution channels is going to be really powerful. The other thing I would say is their distribution platforms, again, are largely complementary to what we do today. Their FI channel is, again, incremental largely to what we do from a distribution standpoint. Their wholesale relationships are largely complementary to the relationships that we have. They don't have a significant direct sales force in the U.S., they do in the U.K. But the FI channel and the wholesale channels in the U.S. are very much complementary to our distribution channel. So our ability to leverage those channels to get greater breadth and depth of product expansion into the marketplace across SMBs, I think, is a really powerful part of the proposition of putting Worldpay and Global Payments together, and we're excited to be able to bring those distribution channels to life as a combined business going forward. Operator: Thank you. This does conclude the Q&A portion of today's program. So I'd like to turn the call back over to the speakers for any closing or additional remarks. Cameron Bready: Well, on behalf of Global Payments, thank you very much for joining us today, and I wish everyone a very happy Tuesday. Thanks for your interest in our company. Operator: Thank you, ladies and gentlemen. This does conclude today's program, and we appreciate your participation. You may disconnect at any time.
Michael George McLintock: Okay. Good morning, everyone. Thank you all for coming today. For those of you who don't know me, I'm Michael McLintock, Chairman of ABF. Before we get into the detail of the results, I just wanted to make a few remarks in relation to our announcement today that we are undertaking a review of the group structure. As a Board, we do, as a matter of course, regularly assess the appropriateness of the group structure. However, the current review is more substantive and has been running for a while and has reached the point where there are 2 options, to stay as we are, or to split into the separate businesses of retail and food. Above of our consideration is whether our retail and food businesses have now reached a point in their development where they would each benefit from greater independence and a clearer line of sight into their respective activities. We believe both businesses have exciting opportunities ahead of them, but separation might lead to better understanding, which is something that should benefit our food businesses, especially. I emphasize that no decision has yet been made. Splitting the group into 2 freestanding businesses is a complex proposition, and we need more time to confirm feasibility. Nevertheless, the fact that we're saying something today reflects the fact that there is a fair chance of the separation occurring, and making the announcement gives us the opportunity to consult with all our stakeholders without fear of leading potentially sensitive information. I'm leading the review and has been carried out in consultation with our largest shareholder, Wittington, who have indicated that in the event of the split, they intend to maintain majority ownership of both parts of the group. So no decision has yet been taken. You will appreciate that there is a limit to what more I can say at the moment. But we look forward to discussing with all our stakeholders, and we will, of course, provide an update as soon as it is practicable. And with that, I'll hand over to George to take you through. George Weston: Thank you, Michael. Good morning, and thank you all for joining us. We are here, of course, this morning to review ABF's annual results for the 52 weeks ending the 13th of September 2025. Before I go into the results, I wanted to say and make clear that I fully support the Board's review, and I have been and will continue to be closely involved and working with the Board throughout. I'm delighted to be joined by Joana Edwards ABF's Interim Finance Director. Joana will give a detailed review of our financials shortly. And I've also invited Eoin Tonge to join us this morning in his role as Interim Chief Executive of Primark. A lot of good work has been happening in Primark over the last few months and lots more to come. And so I've asked Eoin to give you an update on that this morning. Our financial results for the group this year show sales down 1% and adjusted operating profit down 12%. This was due almost entirely to sugar's profits going from close to GBP 200 million in 2024, down to only breakeven in 2025. That's the result of the sharp drop-off in European sugar prices in the summer of 2024. Prices sadly have remained persistently low since then. The rest of our businesses delivered robust financial results against the challenging external backdrop sanctioned as of the tariffs and all. We've kept though our interim and final dividends in line with last year, and we've announced today a new buyback program of GBP 250 million, which will be completed in 2026. We're really quite confident about the future. 2025 was a year of intense activity in ABF. As you know, we're about building brands and businesses that will deliver growth, cash generation and strong return generations. And to that end, we invested GBP 1.2 billion of capital to hear across Primark and our food businesses. We're now well through about wave of investment in our food businesses. A number of large multiyear projects were either completed recently or will be completed in the next few months. These are exciting growth projects that will still be delivering value, I think, in 50 years' time. Another thing we've been doing is fixing businesses. I said in April that we had 3 loss main business that we would take action to address and we have. Firstly, and sadly, we closed our Vivergo bioethanol plant in the U.K. The regulations in any other country in the world would have meant this business was profitable, but it was the right thing, therefore, to do, to fight for its survival. However, the U.K. government decided not to make the intervention we needed, and we couldn't tolerate continued losses and so it's gone. Secondly, we substantially restructured our beet manufacturing footprints in Northern Spain, reducing the number of facilities from 3 down to 1. This follows recent action to exit our sugar businesses in Mozambique and in Northern China, and I'll talk more about sugar later. Thirdly, we reached an agreement to acquire Hovis Group. Combining their production and distribution with ours will deliver significant cost synergies and will enable innovation. This will create a U.K. bakeries business that's sustainably profitable. The transaction is subject to CMA approval, and we're working closely with them through their review. Alongside reinvestment in our business, we've delivered strong capital returns to shareholders in 2025. This included just under GBP 600 million through buybacks in the year. And over the last 3 years, we've returned GBP 3.2 billion to shareholders through dividends and share buybacks. Before Joana goes through the financial results in detail, I'll share some color. In Primark, we've reviewed our focus on a number of initiatives to drive like-for-like sales growth. And the business is in mid-flight on a lot of very good work. This includes improving price perception and improving our product offer. Progress in the U.K. has been really encouraging. The business is back on a stronger footing and there's more to come. We still got work to do in Europe, but we know what's required and there are plans in place. The consumer environment though, was weak, particularly in the U.K. but also in Europe. And Primark's like-for-likes declined in the year. Space growth was well executed and profit delivery was good. Grocery performance was as we had expected. Our international brands are growing, but that is being masked by declines in U.S. oil and U.K. bread. Ingredients performed well. In both grocery and ingredients, we're benefiting from sustained investment in those businesses. Sugar profit was breakeven this year, excluding the loss in our Vivergo bioethanol plant. We've made progress, but there's still more work to be done, which I'll cover later. Agricultural profit was lower this year due to one-offs and less contribution to our joint venture. With that, I'll hand over to Joana. Joana Edwards: Thank you, George, and good morning, everyone. So let me take you through the results in more detail. Group revenue was GBP 19.5 billion, which at constant currency was 1% below last year. Of note, this year, there was a negative impact of foreign exchange translation of approximately GBP 450 million. Group adjusted operating profit was GBP 1.7 billion, a decrease of 12% at constant currency due to the reduction in sugar profits. At actual rates, the decline was 13% again, an adverse translation impact of around GBP 50 million, mainly from sterling strengthening against the U.S. dollar but also from some of our African currencies. So let me take you through the performance by segment. Starting with retail, and I've got a couple of slides on Primark. Looking first at sales, which grew 1% to GBP 9.5 billion. Like-for-like sales declined 2.3% and the dynamics in this were very different between the 2 halves of the year and also different in the U.K. and Ireland compared to Continental Europe. In the U.K. and Ireland, like-for-like sales declined 6% in the first half. The clothing market declined in a weak consumer environment, particularly within elements of our Primark's shopper space. In the second half, Primark's U.K. trading showed a good sequential improvement. Like-for-like sales were broadly flat, and Primark gained market share. This was a result of a number of initiatives to strengthen our value proposition and product offer. In Europe, the shape was the opposite. A strong first half was followed by weaker trading in the second half. As George said, we have more to do in some of our European markets. Eoin will talk this morning about the actions we've been taking in the U.K. and our plans for similar initiatives in Europe. Our store rollout program contributed 4% to growth with good execution across our key markets in Europe and the U.S. Primark's adjusted operating profit grew 2% to GBP 1.1 billion, and adjusted operating profit margin was 11.9%. Excluding a nonrecurring benefit in the year of around GBP 20 million, the underlying margin was broadly in line with last year's margin. Gross margin improved in 2025 due to favorable foreign exchange, supplier efficiencies and effective markdown management. And our focus on cost optimization and efficiencies broadly offset wage inflation, and a significant step-up in investment across product, brand and digital initiatives. Part of those efficiency savings come from the investments we've made in technology and automation in recent years. Moving to grocery. Sales of GBP 4.1 billion were in line with 2024 and adjusted operating profit decreased 4% at constant currency. Our 2 largest international brands, Twinings and Ovaltine, delivered good sales growth, supported by investment in marketing, strong commercial execution and product innovation. These figures also benefit from consolidating our acquisition of the Artisanal Group in Australia. As expected, lower sales and profit in both U.S. oils and Allied Bakeries led to an overall decline of 4% in grocery adjusted operating profit. Ingredient sales of GBP 2 billion were in line with last year at constant currency. Our yeast and bakery ingredients businesses, AB Mauri, delivered good underlying growth. This was offset by the impact of hyperinflation accounting treatment in Argentina. In specialty ingredients, most of our portfolio performed well. Our enzymes and Health & Nutrition businesses had particularly strong growth, offset by lower sales in one of our pharmaceutical businesses. Prior year acquisition in specialty use and bakery ingredients contributed to growth. Adjusted operating profit for Ingredients grew 16% at constant currency. This was supported by a continued focus on productivity savings across our supply chain and good management of input costs. As expected, sugar sales declined 10% and the segment had an adjusted operating loss of GBP 2 million. The operating loss in our Vivergo bioethanol plant of GBP 36 million is included here and separately captured within disposed and closed operations. In the U.K. and Spain, low European sugar prices and high beet costs drove significant operating losses. As we said back at the interim results in April, our cost base in Spain is structurally too high. Since then, we have completed restructuring in our northern beet operations to reduce our footprint from 3 facilities to 1. We will continue to reduce costs and improve efficiency in our operations. In Africa, performance was mixed. We had good growth in Malawi and Eswatini, whereas droughts impacted production costs and profitability in Zambia and South Africa. In Tanzania, there was an impact from sugar imports that were higher than usual. Our new sugar mill began production last week and will significantly increase domestic supply. George will talk in more detail shortly about the building blocks to improve profitability going forward. Agriculture sales decreased 1%, and adjusted operating profit decreased from GBP 41 million in 2024 to GBP 25 million in 2025. This reflects two things: a reduced profit contribution from our joint venture, Frontier, as a result of exceptional weather conditions; and secondly, one-off costs in the year. Our specialty feed and additives business performed well, and we had good growth in our dairy business. Sales in our compound feed business remained soft. I showed this slide at the interims in April. In a year where there was a significant focus of the implications of U.S. tariffs, this is a reminder that ABF's exposure to the U.S. is modest at around 9% of group revenue, and at least around half is domestically sourced. Moving to adjusted earnings and adjusted earnings per share. Two things I want to highlight here. Firstly, on tax. The adjusted effective tax rate was 24.2% this year, similar to the tax rate at the half and up from 23.1% last year. This was mainly due to the introduction of Pillar 2 tax rules, which increased our tax rate in Ireland. We expect the group's effective tax rate in 2026 to remain broadly in line with 2025. Secondly, you can see that the adjusted earnings per share have benefited from the share buyback. We estimate the accretion to EPS on a cumulative basis since the start of the buyback to be about 7%. Note, basic earnings per share includes exceptional charges of GBP 188 million compared to GBP 35 million in 2024 as well as losses on closure of business of GBP 32 million. Free cash flow was GBP 648 million compared to GBP 1.4 billion last year. There are 2 reasons for the reduction. On one hand, the lower operating profit, and on the other hand, the year-on-year movement in working capital. In 2024, as I explained at the interims, there was a working capital inflow of GBP 305 million, which was mainly due to Primark's inventories reducing to more normal levels after all the supply chain disruptions the year before. In 2025, there was a working capital outflow of GBP 95 million, mainly due to slightly higher Primark inventories. You can see capital expenditure at GBP 1.2 billion, which was in line with last year, and I'll come on to the details of that spend shortly. One point to note on cash tax. In 2025, it was lower than last year due to a one-off EU state aid refund of GBP 25 million. Without this benefit, we expect tax cash in 2026 to be moderately higher. Our balance sheet remains strong and continues to support investment and shareholder returns. A few things to highlight on this slide. Firstly, you can see that working capital was broadly in line with last year. Secondly, the lower cash balance of GBP 0.4 billion reflects the shareholder returns we made in the year, both in dividends and share buyback. Finally, the pension surplus. This continues to grow and is very significant at GBP 1.6 billion, underlining the strength of our financial position. Turning now to cash and liquidity. Our year-end net debt position, including lease liabilities, was GBP 2.6 billion compared to GBP 2 billion last year. This is due to the cash reduction I just explained. Our leverage ratio was 1x and is an increase on last year, but well within our capital allocation policy. Total liquidity was GBP 2.2 billion, and this robust position underpins our ability to continue investing in growth, while maintaining resilience and flexibility. Our capital allocation policy prioritized disciplined investment to drive long-term growth. In 2025, we invested GBP 1.2 billion across the group, around 40% in Primark where we continue to roll out stores, invest in our depot network and add new technology. The remaining 60% was in our food businesses. A large amount of the spend was on multiyear projects that have either completed in 2025 or will complete in 2026. It is worth noting that across ABF, around GBP 100 million of this year's CapEx investment was in technology, including automation to drive efficiency in our supply chain and new ERP systems to strengthen efficiency and decision-making in the businesses. We expect CapEx to remain at a similar level in 2026. Part of our capital allocation approach is to return excess capital to shareholders, both through dividends and share buybacks. Starting with dividends. We are proposing a total dividend of 63p, which includes an interim dividend and a proposed final dividend in line with 2024. That's a reduced level of dividend cover, but reflects our confidence in the outlook for the group. In terms of share buybacks, during 2025, we completed GBP 594 million of buybacks. And looking at our total shareholder returns in the last 3 years, we have returned GBP 1.6 billion in paid and proposed dividends and GBP 1.6 billion in share buyback. And today, we have announced an additional share buyback program of GBP 250 million, which we expect to complete in the 2026 financial year. These shareholder returns, alongside our continued capital investment in the business, demonstrates our disciplined approach to capital allocation and our commitment to delivering long-term value for shareholders. I'll finish on the outlook for 2026. For the group overall this year, we expect to deliver growth in adjusted operating profit and adjusted EPS. I won't read out the segmental guidance in detail as you have it both on the slide and also in the RNS. In Primark, we continue to expect the consumer environment to remain subdued. We are focused on a number of initiatives to strengthen our value proposition with a view to driving like-for-like sales growth. And we expect new space to contribute around 4% to sales. Next year's margin will reflect investments in growth. We expect overall profit in grocery and ingredients will be broadly at this year's level. In sugar, we expect some improvement in profit. And with that, let me hand you back to George. George Weston: So the biggest change in Primark this year has been the leadership. You all want to know who the permanent CEO will be. I can tell you that we're well underway with the selection process, and I'll update you once the decision has been made. I would hope that we can do that early in the new year. But I'm extremely pleased with what Eoin has achieved in the interim role over the past 7 months. He successfully brought together and empowered the leadership team in Primark. He's driven forward a number of critical trading and operational initiatives across product, technology, route-to-market, supply chain and marketing, and these are progressing at pace and will better position Primark for future growth and expansion. A key priority for Eoin and the team has been how best to unlock the growth potential of Primark's proposition, both in like-for-like sales growth and space expansion. We recognize the competitive challenges in our marketplace and the customers today take a more complex route to purchase in our stores. However, two things are clear. One is the continued differentiation of Primark's value proposition, offering unbeatable prices for great quality clothing; and two, is the strength of our brand. Two weeks ago, I was in Kuwait with Eoin and others for the opening of our first store in the region. No shopping center in the Middle East has seen a store opening like it. The queue was 300 meters long at its opening and 4 hours later, it was still 200 meters long. The average basket size was 27 items. Our ambition on new space continues and was well executed this year. However, we're also rebalancing our focus on to driving sustainable like-for-like growth across our markets and putting a renewed emphasis on strengthening our proposition, including on price perception and our product offer. Clearly, the last 12 months of trading have been very challenging. Consumer sentiment in both the U.K. and Europe has been weak and particularly so for core customer base -- for Primark's core customer base. In that environment, though, we need to execute better. And with that, I'll hand over to Eoin to share his thoughts. Eoin Tonge: Thank you, George, and good morning, everyone. It's nice to be here with you all. So it's been a busy 7 months on the key areas of focus that George just mentioned, I think there was already a lot of work going on in Primark. I think what we've done is really just challenge ourselves to take a hard look at our operating environment, and then be very precise about what we're going after. The consumer backdrop is challenging. Our customers have more and, in some cases, newer choices in the value space. We also recognize our world has evolved, as George has said. The customer journey to our stores is more fragmented and more complex than it used to be. We fundamentally believe that our core proposition has never been more relevant to consumers, but we know we have some work to do to enable our customers to rediscover our value disruptor edge. Primark is the original value disruptor, and we remain that today. We need to make sure that it is always front of mind for our customers. So let me tell you what we're doing in approaching this. Our priority in all markets is like-for-like sales growth. This is about sharpening our value proposition, starting with price and specifically price perception while at the same time, strengthening our product, starting with womenswear, better integrating our customer engagement and, of course, continuing to develop our digital capabilities to enable all of this, all the while thinking hard as to how we attack the significant white space available to us. And driving cost optimization to enable further investment in the proposition. So let me give you color on all of those items, starting with value and price perception. Look, we still have the lowest prices in all the markets we operate in. As always, we've continued to reduce our prices whenever we've seen our competitor prices below ours to maintain our price leadership in every market. As a reminder, around 85% of our products are priced at GBP 10 or equivalent or less. But in today's environment, we need to keep reminding customers of this unbelievable value, especially as we broadened our product offering. There is actually more to do here, but we've made some progress in the year. We started off with a campaign in April called Never Basic. It was to remind customers of the extraordinary entry price prices that we have in our essentials. We also refreshed our in-store communication, so our prices are now much more visible to customers, top basic stuff, but retail is all basic stuff. In some markets where the need is greater, we will increase this further. But we want to do more to get more assertive on communicating our value credentials to customers. We recently launched Major Find, which simply put is wow product at wow prices. Limited edition fashion items at low price points to create a standout must-have deal. We started that in the U.K. and Ireland, and we'll be rolling that out into Europe in the coming month or so. Early days, but we've seen that this type of initiative is resonating with customers hungry for value and will drive both footfall and attachment sales. This is just the first example and going forward, you'll see us really doubling down on communicating our value proposition to customers and getting a lot more disruptive to remind them what Primark is all about. Low prices are, of course, only one part of our value equation. You need to have a differentiated quality product offering to go with them, which brings me on to what we're doing on product. Primark continues to offer a great quality essential clothing and fashion, and we've been developing our ranges nicely throughout the year. About half of our range is womenswear, which includes fashion, accessories, underwear, nightwear and footwear. It's the engine of our like-for-like growth, so no surprise that when we started to focus on our product evolving, we focused here in womenswear first. We've been building and promoting talent in our team, including some leadership changes, and we've developed a much more targeted womenswear strategy overall. I'll give you a flavor of elements of that. Primark has always been about making fashion trends more accessible to every consumer. The best example last year was our investment in performancewear and the very strong results at delivered. Our product is high-quality, stylish with strong innovation and fabric, all at affordable and accessible prices, really Primark at its best. Another big initiative is coordination. We've seen last year that as we've done a better job of curating ranges for customers, we get a strong like-for-like benefit. Our Paula Echevarría collection is the best example of this, which has continued to grow. And the sales in our last campaign were up 7% on the same launch last year. We'll be doing more of this coordination approach for ranges this year. Primark is famous for everyday essentials, and I'd call out our success in nightwear in particular, where we're leveraging our strength to respond to newer trends. If anyone has seen the recent viral moments and store sellouts in a number of our pajama prints, it really feels like the old Primark again. Overall, these actions we've taken in womenswear are delivering results. We've seen a strong sequential improvement in womenswear sales in the second half of 2025 compared to H1 particularly in the U.K. where the initiatives were combined with increased marketing support. Progress hasn't just been in Womenswear. Kidswear also progressed well last year. A key driver there has been newness, both in own label and through the successful expansion of our licensed offer. As an aside, I feel there is much more we can do to leverage the benefit of our strong relationships with key brands in culture, including Disney and Netflix. I'm not going to talk much about menswear today, but we're making many of the same developments that I've spoken about in womenswear. Growth in performancewear is a great example of that. Our lifestyle categories, however, such as Health & Beauty and Home, which account for about 10% of our sales, really had a tough year and contributed significantly to our like-for-like challenge last year. We've got more work to do in those categories, but I believe there is still a lot of opportunity as we sharpen our proposition. On to customer engagement. We're really at the foothills of integrated customer engagement around our compelling value proposition. That said, we made some progress this year, which I think is setting us up well. We've been using paid social marketing for a number of years now, which has driven good conversion with strong ROIs that discontinued last year, particularly in the U.K., and, again, with good uplifts delivered. For example, increased revenue from paid media was up 30%. Increased efficiency of paid media was up 5%. We've also continued with our brand affinity campaign in Germany and our brand awareness campaign in the U.S. The impact we've seen on our brand metrics has been positive, but more to do to optimize our marketing approach. Towards the end of the year, we had our first truly integrated performance marketing campaign in the U.K., which focused on denim, which has been a tough category for us for a few years now. The In Denim We Can campaign was a multichannel campaign, including out-of-home, paid social media, TV advertising and visual merchandising. The response has been good, not just because our denim sales have been up 12% in the U.K. following the campaign. It has also had a positive impact on our brand metrics, including consideration and brand reappraisal. There's so much to go after as we continue to integrate and optimize our brand and marketing approach. The initial focus, as George has mentioned, has been in the U.K., but we'll expand this to other markets in the coming year. What's underpinning our more integrated customer touch points is continued investment in our digital assets. We've continued to invest in the customer experience on our website, including better functionality. We've had 177 million visits to our primark.com website last year, an increase of 24%. Customers are spending more time on our website and are viewing more of our products. Critically, 20% of the website visits this year have -- customers have used the stock checker, which is the best measure of intent to convert. Plus, our CRM database continues to grow. It's reaching 4 million customers, and our survey data shows that e-mails have been a strong driver of store visits. And finally, we launched our Primark app in the year. It's only in Ireland and Italy so far, but the results have been good, and we're going to roll that out into other markets this year, including the U.K. Our Click & Collect service now has been available from all British stores since the end of May. It's contributing nicely to growth, and the metrics have remained very strong. The average basket size was around 25% higher than the U.K. average. And we've had at least a 40% attachment rate when people come into stores to pick up their Click & Collect, again, with higher average basket size. Our data shows that 1 in 4 Click & Collect customers have not shopped with Primark for at least 2 years prior to the first Click & Collect purchase. Importantly, there's plenty more to do to optimize the range and drive customer awareness. Over 1/3 of our U.K. customer base are still not aware we offer the service. Given our comfort level on the customer and the financial metrics of the service in the U.K., we're exploring the potential to offer Click & Collect service in other markets over the coming years as part of more integrated market growth plan. New space contributed 4% of sales growth in 2025. We opened 23 stores in Europe and the U.S. In the U.S., it included our first stores in Texas and Tennessee. There is, of course, a lot going on in the U.S. at the moment with tariffs and the consumer reaction to increased pricing across the market. But we have an exciting year ahead. The number of store openings will be our largest yet in this current year and includes a flagship in Manhattan, which is obviously significant from a brand awareness perspective. We also opened the first stores with our new design concept in Europe last year. This enables us to expand our footprint across different store sizes, while still maintaining strong sales entities. It will be a key enabler for smaller store openings outside of key cities. As George talked about, we had a great time opening our first franchise store in Kuwait a couple of weeks ago, which had an amazing initial reaction. And we're getting ready for 3 openings in Dubai early in the calendar year 2026. Franchising is an important new capability for Primark and has the potential to open up significant new market opportunities in the future. We're confident that our store rollout program, which now includes franchise, will continue to contribute 4% to 5% of sales growth for the foreseeable future. To continue investing in the customer value proposition, we have to drive continued cost optimization. As with any retailer, cost optimization is focused within stores, in our supply chain and in central operations. There's still a lot of opportunity to go after, and we made decent progress last year. We now have self-checkout in 195 stores. Self-checkouts have the potential to reduce labor hours in a typical store by about 10%. They also help the customer experience if executed well, and they have not driven increased stock loss. LED lighting is now in over 320 stores and, on average, has reduced our energy consumption by 35%. We are making some progress with a number of ongoing projects in our warehouses to either fully or partially introduce labor-saving automation. And we've also identified opportunities to drive savings in our central costs. For example, we announced this year that we're moving to a global business service arrangement for certain central functions. Of course, cost optimization will, of course, be a multiyear project. And finally, on sustainability, although it is lost focus in some circles, it hasn't at Primark. You can see from the metrics we are making good progress. Given our scale and volumes, I'd particularly like to call out what Primark is doing to drive circularity and fashion. This is all about keeping products and materials in use for longer, for making them more durable as well as aiming to reduce waste over time. This includes embedding circular design principles into how products are created. We've made really good progress here. 20% of all Jersey and 8% of all denim products are now circular by design as defined by our standard, which, again, considering our scale, really brings to life how we are really making a difference. 74% of our clothes are now made from recycled or more sustainable materials. We are reviewing our approach to sustainability. We believe there is an opportunity to make more progress if we focus on a smaller number of more impactful activities. We'll update more on this review through the year. So that's Primark. Hopefully, you'll see we have a clear plan of focus, and let me hand you back to George, and I'll come back to your questions. George Weston: Thank you, Eoin. Now let me take you through our food businesses and starting with grocery. We're building grocery brands and businesses to drive long-term profitable growth and strong cash generation. We're investing more in marketing to both drive volume growth and underpin strong brand equity, and we're growing our portfolios through product innovation as we respond to global consumer trends like premiumization, convenience and health and wellness. You can see our current footprint on this chart. We focus on geographies with attractive long-term demographics and market fundamentals. Typically, these are English-speaking and with growing populations, either naturally or from immigration. And we're investing in the capacity and the capability to be able to grow in new and existing market channels as well. Given the breadth of ABF's portfolio, I'll focus today on just 3 of our key brands. And I start with Twinings, which is one of our largest and our fastest-growing brand. Twinings has had consistently good volume-led growth in recent years, something like 3%, 4% compound. This has delivered meaningful growth in market share in three of its largest markets, the U.S., France and Australia. And in the U.K., Twinings has had very meaningful growth in market share in fruit and herbal infusions and in benefit plans. Twining's growth reflects disciplined and patient execution. It's included a focused program of product innovation supported by clear consumer insights and testing and we've increased the effectiveness and sufficiency of our advertising to deliver strong returns, that somewhat sits behind the volume growth. And as you know, our strategy is to maintain the strong position that Twinings hold in black tea and leverage that to grow in wellness teas. Consumers are looking for great tasting and naturally caffeine-free beverages that are good for you. In 2025, our growth rate for both green teas and herbal infusions was in the high single digits, and benefits blends grew double digits. Twinings has an exciting and very long runway for continued growth. This includes expansion in our smaller markets as we start to deploy our now proven blueprint for growth. Markets such as Italy, the Nordics and the Middle East, which I saw the other day, all grew well this year. Ovaltine is the other large-scale growth engine within our international brands. We've made some progress in recent years, but we've also had to navigate some headwinds. In 2025, we had to manage through a steep increase in cocoa raw material costs. Inevitably, the need for price increases led to some tough negotiations with retailers and that impacted volumes. It also led to consumers in less affluent countries walking away from the category. But we're now through that. Ovaltine is a brand with a unique taste. It has very strong brand awareness and equity in the markets where we sell. This means we can leverage our strong base and market share in powder products to grow through innovation, including expansion into both ready-to-drink and importantly, ready-to-eat products. Sales growth in our ready-to-eat portfolio was in the high single digits this year. This included strong volume level growth in our Crunchy Cream chocolate spread, think Nutella but better and the launch of successful innovations in Thailand, China and Switzerland, often based on that Crunchy Cream starting point. Moving then across the United States and to Mazola. We're delighted to have become the #1 branded cooking oil in the U.S. We took that position 3 years ago, and we've held it for the last 3 consecutive years. Our market share now excludes that of #2 and £3 branded players combined. We've remained well invested in advertising and store activation for Mazola, while others have pulled back long-term investment in our brand. Mazola share of voice in the cooking oils category increased from around 50% last year to around 80% in 2025. It's hardly a surprise that we should be piling on market share as we are. This year, we've launched our new 2-gallon format, which targets consumers looking for value, and we made good operational progress with reliability and efficiency following heavy investment in our packing plant in Argo in Chicago. There is a headwind, however. Mazola's core consumers are the Hispanic population in the U.S., particularly first-generation immigrants. And we've seen those consumers come under pressure and significantly pull back on expenditure. Expenditure amongst Hispanics is well down in the States. We believe and really hope that this effect will be transitory, but it will impact volumes in 2026. So I focused on just 3 of our brands this morning. However, this slide is a reminder that we have a large and diverse set of grocery businesses across a breadth of markets and there continues to be a lot of activity across the portfolio in 2025. This shows a small number of examples. We're activating our brands through marketing and in stores. We're growing through different channels, including Amazon, which I think we've really got a grip on now. And we're launching new products to meet consumer needs, including convenience and wellness. And we're adding new capacity to drive growth and efficiency. Also to note that our grocery portfolio includes our U.K. bread business, Allied Bakeries, and the operating loss this year was a significant drag on overall profitability in the grocery sector. Clearly, the acquisition of Hovis, subject, of course, to CMA approval and the associated cost synergies would be very accretive to the profit of our grocery sector. Moving then to Ingredients. Our yeast and bakery ingredients business, Mauri, delivered very good underlying growth this year. This reflects the breadth of our global reach with sales in more than 100 countries. We remain well positioned in the Americas and Europe, in particular, while growing our presence in fast-growing markets in Asia. Our new yeast plant in the north of China should be commissioning in this year. We're leveraging our well-established routes to market for yeast as we expand our portfolio of other products and technologies associated with baking. And we're growing our global network also, food scientists and technology centers to develop products to meet changing consumer trends. This includes demand for healthier, more flavorful bakery options. To share an example of that. In the U.K. this year, we've just about commissioned a new production line to make sourdough ingredients through fermentation to supply into the U.K. bakery market. That's Mauri. Turning now to our portfolio of specialty ingredients businesses, which overall performed well in 2025, particularly in enzymes and in Health & Nutrition. We know there's more that we need to tell you about all these businesses. They've been growing well. They're now quite sizable part of our total ingredients business. However, to do that, any justice would take a lot more time than we have available this morning. I look forward to doing it on another occasion. We're increasingly clear on our strategic priorities for specialty ingredients. We know the technologies we want to focus on, the capabilities we want to build on in the markets we want to service. We know we can't go everywhere, and we can't do everything. More to share with you going forward as we grow in these areas and as we continue to invest in some exciting opportunities. I expect growth will continue to be both organic and through acquisitions in our specialty ingredients portfolio. Sugar. Let me start with Africa, which accounts to close to half of ABF's sugar revenue. As you all know, in our African markets, the fundamentals are extremely attractive in terms of population and GDP growth. Sugar consumption traditionally grows faster than GDP. Our businesses are well positioned for the long-term market growth opportunities. We have really good cane estates and factories, and they're both getting better. And we have strong market positions and leading retail brands, well-established routes to market for those brands as well. The brand metrics we possess for all our major European sugar brands are ones that any leading FMCG company would absolutely die to have. Tanzania, Zambia and Malawi are our key growth markets. And I'll note here that Zambia, which this year has been our best of our sugar business, is listed on the Lusaka Stock Exchange. The most recent market capitalization for Zambia, Sugar was just over $900 million. We own 75% of that business. In Tanzania, we'll accelerate growth with our new sugar mill. It will double our capacity in that market, which is just as well because the population is forecast to double by 2050. Tanzania is already a deficit market and it's going to remain so. But we have a strong market position with industrial customers, and we have the leading market -- leading retail brand, Bwana Sukari. Our new factory, ABF Food's largest single investment over the last couple of years, that factory started up last week. And in the medium term, we'll expect the return on that investment to be something around 20%. This is a plant which will still be there in 50 years' time. In Malawi, our business entered into a partnership with part of the World Bank this year to enable investment in infrastructure for water irrigation. Our businesses in a number of parts of our African sugar businesses are the partner of choice for international and local organizations on development opportunities to drive positive change for local communities and economies where we operate and we benefit from those partnerships significantly. That's Africa. The other half of our sugar business is in Europe. And in 2025, these businesses were loss making. We need to see a recovery in European sugar prices to get them back into profitability, and I'll talk about those dynamics in a moment. But just first, as a reminder of our market positioning, our businesses are in the U.K. and Spain. They're both deficit markets and, therefore, they should in times of European sugar deficit trade at a premium to other markets. And the U.K. The U.K. has some additional protection from both the English channel and from Brexit. British Sugar has built its customer relationships on its product quality, its reliability and security of supply. And these factors support a price premium. Our market share is well over 50% of the U.K. sugar market. Beet prices, though, have been -- sorry, British Sugar is also a very low cost and highly efficient producer. It's at the bottom end of the cost curve among European sugar producers. Beet prices, though, have been too high in the U.K. We negotiated a significantly lower price in this year's campaign that sugar that's coming out of the ground now, and that has given us a cost saving of about GBP 50 million. And we've negotiated already a further reduction in next year's beet price. So that is for crop that will go into the ground in March, April of '26. In our Spanish business, Azucarera, the deterioration in market conditions demonstrated to us what we already know, which was new, which was that the cost base in our beet factories was too high. So we've significantly reduced our beet manufacturing footprint in Northern Spain. We couldn't address that cost inefficiency. We've removed about GBP 20 million of cost and will create other efficiencies as well, 3 beet facilities down to 1. It's pivoted, and this is the most important point. Our Spanish business to cane refining rather than beet processing. In fact, refining has increased from 20% of the business to about 80%. The business becomes a much more back-to-back trading business, which will help reduce the risk and the volatility in Azucarera. We'll look at other opportunities to further reduce costs in Spain. We believe they are available to us. We're still confident that in time, supply and demand will rebalance in Europe. Price tends to fix price. Beet acreage should continue to come down as beet prices come down and sugar prices will then improve. We also think that there will be some removal of manufacturing capacity beyond our reduction of capacity in Spain. The market recovery will be slow pace. It won't happen in '26. Our European operations are well placed for when it does. So to bring all this together on sugar, the actions we've taken in the last couple of years have fundamentally reshaped ABF sugar businesses. We've restructured our business in Spain. We've exited weak businesses in Mozambique and China. We took the decision to close our Vivergo bioethanol plant. We now have a clear strategic focus within our remaining businesses. In Africa, the growth potential is extremely exciting. In the U.K., British Sugar can compete toe to toe on cost with any European competitor. Because this wasn't the case in Spain, we've changed the game there and shifted our focus to refining. Recent and future capital investment in sugar is aimed at unlocking the growth opportunities in Africa and also aimed at reducing our energy costs in U.K. We expect these investments in both parts -- in both Africa and Europe to deliver strong returns. To reinforce the point, this slide shows the pro forma operating profit and return on average capital employed for our remaining sugar businesses over the 5-year period to 2024. This is what we've had through that period. These would have been the returns. It shows that the sugar businesses generate a sensible profit and a sensible return on investment through the period, and we're confident we'll get back to these sorts of levels when the European market recovers. Briefly then on agriculture, where I have sympathy for the teams within agri. Some of the very good work done in parts of the business were masked by one-off costs and our joint venture, Frontier, performed very poorly, really due to a combination of exceptional weather impacts. For our agricultural business, the focus in recent years has been to grow our portfolio of value-added specialty products and services. And these continue to grow well in 2025, in particular, Premier Nutrition, another extremely good year, and our enzymes business, AB Vista, performed well as well. We also saw good growth in dairy where we're making progress with the integration of our full service offer for U.K. dairy farmers. In summary then, I come back to what I said at the outset. ABF is focused on building brands and businesses that would deliver profitable growth and cash generation over the long term. For Primark, our focus is on driving sustainable like-for-like growth. Profit is holding up well and the white space opportunities are exciting. Three things I'd say on food. The first is our international grocery brands have good momentum and are returning to profit growth after a period of elevated reinvestment. Ingredients performance is good, and we believe there's much more to come, especially in specialty, where we have real clarity of focus. And in sugar, the fundamentals are strong in Africa, and we're well placed when sugar prices recover in Europe. Our balance sheet remains strong. On capital expenditure, we're well through the major capital investment cycle for food. We've been able to make the right investments in long-term growth while also though delivering strong returns to shareholders through dividends and buybacks. So I'm confident in the group outlook for 2026, although much depends on the consumer environment, which is particularly unpredictable or miserable at moment. But looking further ahead, I feel very positive about the group's medium- and long-term prospects for growth. So thank you for listening so patiently through what has been quite a long presentation. Before we go on to Q&A, I'd just like to make a couple of points about the review that Michael announced earlier. I'd like to make it clear that what we're currently looking at in this review is either the separation of Primark and food businesses by way of a demerger or the maintenance of the status quo. If we do proceed to demerge, I would hope to continue as CEO of the food businesses. And as you know, we're conducting a selection process for a permanent CEO for Primark. Whatever the outcome, the culture, the long-term values, the stewardship of ABF will remain fundamental to the success of our businesses. I want to finish with 2 important points. Firstly, that we have a fantastic food business with a highly attractive portfolio huge potential and deep global expertise across our people, all of which I look forward to talking about more in the future as it's less well understood than retail. Secondly, Primark is flourished with the ABS structure, and over 60 years, we've created an incredibly strong international brand with a powerful customer proposition. What we're reviewing now in more depth is whether there's a better structure available going forward, for these 2 brilliant businesses. You'll appreciate, as Michael mentioned, that we can't give you all that much more detail at this stage other than what we've said today. I hope you will, therefore, please focus your questions on the results. And we look forward to discussing this more in the future when we're in a position to do so. And with that hope in mind, may I have the first question. Warren Ackerman: It's Warren here at Barclays. I know you're going to want us to talk about the financials for inevitably by grabber. So can you say a little bit more, if possible, just in terms of the motivation and kind of timing, I guess, on this. Is it a governance issue? Is it a valuation concern? And is there anything at this stage you can say on tax liabilities, legal dissynergies? I know it's early stages, but any kind of like framing on this because I think it's so long as I covered the stock, I never really thought it's on the table, so kind of what's changed in your mind as the first one. Then I will get on to the actual financial. Look Eoin, are you able to say anything about the kind of investment you're expecting for Primark in 2026 above the line in terms of digital because it seems like your margin guidance is slightly lower? I think it was flat and now it is slightly below flat. Is that because the investment is a bit higher? And if so, where is that investment kind of targeted? And finally, just on sugar. We've been in a big downgrade cycle in sugar. Do you think we've now troughed on sugar? And beyond '26, is there any kind of reason to think there's any long-term erosion in the sugar profitability? George Weston: On the review briefly, it's about governance. It's about long-term governance. And within that governance line, I think there are 2 different issues. The first one is food where I think we couldn't quite frankly, been getting the scrutiny from the investment community that would serve us well because most of the scrutiny has been about retail, and perhaps we want to put that right. And then on Primark, it's really about oversight of what is now a very big and very complicated business. And just maybe there's a better oversight model available to us than the brilliant model that we've been running with for 60 years. So you go -- well, that was 60 years, that worked absolutely fabulously. And now looking into the future, maybe it's time to do something different. It's a big call. In terms of timing, I would imagine that we would have come to a conclusion about whether to stay together or pull ourselves apart by the interims and the process of actually getting there will take 18 months or so. I don't think we've got anything to say about tax because we haven't been able to investigate. This is the purpose of the review is to dig deeply into those sorts of things. So we have a prima facie case to separate, but we don't have all that detail. Shall I just do the sugar kind of has anything changed? Whenever you get into these downturns, there's always that kind of bare case that said that the world will never go back to where it was. You see the same thing when you get into boom times. And really, in the end, supply and demand seldom sells out. There are a couple of areas of, they're not so much watch-outs, but they are sort of changes going on. The first one, I think, I think we have to accept that GLP-1s are going to take a couple of percent off sugar -- off food production in Europe and sugar included in that mix. The second one, I used to think that the money that we -- the good returns we made through selling power -- we had 2 big combined heat and power stations attached to the sugar factories, and we've always done very well selling electricity. I thought that with the growth of renewables, that would erode, with the growth of demand for electricity with AI installations, maybe that demand won't go away. But I think GLP-1s, I think you've got to kind of model maybe we'll lose a couple of percent of volume across Europe. Eoin Tonge: Maybe I'll also let Joana square the circle as to what you've been saying in terms of guidance. But just in terms of how we're thinking about the investment, I mean some of the things I've already spoken about in the presentation. So we're probably -- I'd say we're nudging up our digital marketing spend, not a huge amount year-on-year, I would say. Most of the kind of, I would say, investment is coming from a combination of investing in price through initiatives like major find and also marketing support around those initiatives and other sort of trade initiatives like, for example, rolling out more performance and so on. So that's where the investment in margin is coming from. Some of that is funded by well -- actually, I'll let you square the circle on guidance. But that's how we're thinking about the step-up on investment. Joana Edwards: Just to really square that circle. So margin, 11.9% for FY '25, as we know, anyway, we had there a one-off of GBP 20 million. So what we said is we'll be slightly below. It's not the margin that is the leading point. It is the creation of demand. So it is all those efficiencies we talked about, foreign exchange being a tailwind, particularly in the first half. We've got some efficiencies certainly from the work that we've been doing on supply chain. Eoin mentioned what we're doing on the central costs. But yes, the point is those will be used to fuel the drive of top line growth, which is what we want to focus on, first and foremost. So guidance, slightly below the 11.7%, which would be the underlying margin for FY '25. Adam Cochrane: Adam Cochrane at Deutsche Bank. A couple of questions on Primark. And just one little one on the separation, if I may. I'll get that one out of the way. Can we just confirm that both the food business and Primark on a cash flow basis are cash flow profitable and can fund their own investments? That's the only one on the separation. In terms of Primark itself, the marketing spend something we've been waiting for, for a while to reinvigorate the brand. You've done it in a few different markets. Can you just talk a little bit more about what success you've had with the marketing spend? And most importantly, how are you managing the message between fashionability and price? Because some of your advertising campaigns, I thought they look very trendy fashion led rather than price-led. Is that something that you're going to rebalance going forward. And then the franchise opportunity in the Gulf. Can you just talk a little bit more about what that looks like? Is it a model that can be expanded beyond the Gulf? Or is it something quite specific to the Gulf? Eoin Tonge: So yes, look, I think I think it's a mixed bag, I would say, on success on marketing spend. I just have to be kind of honest with that. And I think you're probably right to say that there has been a little bit too much on the fashion side of representation of the brands, but maybe not enough on price. I was interested when I was in Germany that we're looking at our brand campaign. It was very hard to see the price, actually. And fundamentally, we're a value disruptor, and then we've got to remind people of that all the time. So I think there probably is a little bit more balance we have to get there. It's like that's the classic challenge of a value operator, say, how do you kind of project the quality of the products, but at the same time, remind people of the unbelievable price. So I think that's what we've just got to do more and more of. I think there were elements of we can which showed that a lot of the comfort you got was actually about the unbelievable prices we had. But I agree that the top line advertisement looked a little bit too fashioning. So yes, more to do. I think it's fair to say the brand metrics, as I said in the presentation, that we've seen in the States are encouraging in awareness. I mean it was only -- we only did it in the New York area. So it's only in the New York area where we've had those sort of kind benefits. So look, we've got a great brand. We've got a great set of products, we've got to sharpen our comps. I think that's the message. I think franchise is a significant opportunity beyond the Gulf actually. I think the Gulf is proving what the model can do. But look, the Gulf is probably the most tried and trusted franchise market in the world. So we just have to be -- I don't want to be naive to know that this is where a lot of people do relatively well. So our brand is definitely resonating, it's very exciting with loads of opportunities in all the Gulf states actually. So I wouldn't -- we started in Kuwait because our partner is based in Kuwait. But obviously, we've got plenty of other opportunity outside of Kuwait. That's going to be the focus for the next period of time, but it does open up the opportunity. For sure, it does open up the opportunity. It's about getting good partners. But if you can get good partners in different regions, I think there's some real opportunity in the future. Richard Chamberlain: Richard Chamberlain, RBC. Three for me, please. Just one on Primark. What are the plans now for the Click & Collect offer, now it's been fully rolled out to the U.K.? I know you're planning to take that to other markets in due course. Second, on the sugar profit guidance. I think you guys are looking now for a small profit in fiscal '26. How much of that improvement from the loss, I guess, in the last year will come from lower beet costs? I seem to remember you were saying I think GBP 50 million or something before. Is that guidance still valid? And then I guess on the proposed separation. Any early thoughts, short about sort of amount of financial leverage that the stand-alone food business could support? I mean, presumably, it could theoretically take on some significant on-balance sheet debt in future. Is that going to be the plan or too early to say? Eoin Tonge: I do collect relatively quickly. I mean I think, look, the U.K., we obviously did a lot of testing U.K., right? But in that time, we obviously developed a capability. And so that's good. And as I said in the presentation, the metrics, financial; metrics and the customer metrics, are very compelling. It's fair to say. So we will be rolling it out into other countries. But the timing might take -- it might take a bit of time. There is some supply chain fixes we need to have a more kind of sort of sustainable, repeatable click and collect and online model. So a bit more to do on that. But actually, in some ways, I don't think we are any way defensive at the time we've taken to get where we've got to on Click & Collect. We've had to work it through and get the model right and then we'll take our time in other markets as well. George Weston: On sugar, the total beet cost this year will be GBP 50 million less than the total cost last year, but the average selling price will be lower and we'll offset all of that just about. We have multiyear deals, a number across a chunk of our volume. And as the this year -- actually, year-on-year, the price has gone up slightly, but more of the high-priced contracts have rolled off. So that's what's going on in U.K. beet. Look, I'm tempted to say we can't tell you anything about kind of leverage ratios and stuff like this in a business that we haven't decided to create yet. So perhaps I'll stop there. I'd just remind you that the same majority shareholder is going to be in the same position in both. And you can look back and think about how any majority shareholder thinks about leverage. Unknown Analyst: The first one is also on the separation, but it should be quick. I think it's pretty clear, but is it the case that you are only looking at the 2 options, i.e., a demerger and maintaining the status quo? There's no other strategic review of specific segments or anything like that? The second question is on Primark margin. I just wanted to clarify, what are the moving parts? Is it mostly going into gross margin? Or is it going into OpEx? And within that, do you think there's room to move on price, whether that's price mix, the hero products that you mentioned with wow, products at wow prices, et cetera? Do you think there's movement around price? And then the final question is just on the cash return. Obviously, there's some volatility in the buyback over the last few years now. In hindsight, do you think it would have been better to stay at a GBP 450 million run rate and deliver consistent cash return? Or do you think you will follow basically earnings and the cash flow going forward? Joana Edwards: So the margin tailwinds, both the gross margin level and operational efficiencies as well, we've talked about the move on some of the central functions into our GS. But we also have got some efficiencies on the supply chain, on stores. Those stores are still driving some of those efficiencies. FX is going into the gross margin. So there are different components, both in terms of the gross margin and the operational margin. But as we said before, it is not about the margin. It is how we use those to drive the top line. Eoin Tonge: I would basically on room on price. I mean, I think, look, we're not going to invest in prices for the sake of investing in price, right? Like I think you have to be quite targeted to where you're going to invest in price. I think we will over the next 24 months invest in price, so give me 24 months, not to be a guidance point. But it needs to be targeted and needs to be focused. Joana Edwards: Sorry, just before the cash returns and the volatility in the share buyback, I think our capital allocation policy is quite clear. If we got enough cash, then we will look at distributing some of that. So having a GBP 450 million doesn't tie in with our capital allocation policy. We had less cash at the end of this year than we had at the prior year, GBP 250 million feels right, even though we were at 1x. Geoff Lowery: Geoff Lowery, Rothschild & Co Redburn. Can you just step back about Primark for a minute and help us understand what has sort of sat behind the slightly lackluster LFL? Is this items into basket? Is this footfall? Is this particular category? And you've drawn a distinction between price and price perception, which is a really interesting one. Which of those is the bigger issue in terms of what your data says about the business? And I guess that plays into the sort of ultimate question here, which is, your margin has mostly recovered the pre-COVID type levels. The sales densities nominal have been under some pressure. Is that the right shape do you think over time for a discounter and a price-led strategy with your evolving geographic mix? Eoin Tonge: That's lots in there question. I think it's a bit of at all actually in terms of what have been impacting like-for-like. Baskets have been tough, I think, pretty much across all markets. Where we've seen creeping ASP through price, it's being offset by units per transaction, which means that consumers have sort of capped at their spend level. So we've definitely seen that and some of that's been a bit more extreme in the countries where it's been tougher, right? I think footfall has also been a bit of a challenge in certain places. And again, it's been a bit -- I think there's lots of factors to that. Some of that is market, some of that is our positioning into the marketplace. And then I think we've had some headwinds on categories. Last year, particularly the lifestyle categories have been tricky. And I think womenswear up until kind of more recently has been tricky as well. So I think it's been a bit of everything. So that would kind of suggest that it's kind of market and us, right? And I'm trying to focus on what we can control and as I said before, I still believe we've got the right proposition, just how we execute and communicate against it is going to be key. I think that's a really good -- I mean, that's a tough question because the answer I think, is nuanced by market. And this is where I think we've also got to get a little bit better as sort of how we're deploying our approach by market. I mean, the U.K. is obviously our more mature, most mature markets. So you always have your frame of reference around that. But I think actually, we can be continuously more price-led, I think, in certain other markets. And we've still got quite a lot of operating leverage to go after. So I think it's -- I have to be a bit more kind of nuanced in terms of my answer and be a bit more kind of -- we have to understand exactly how the best win in each of the markets that we operate in. I still think we can. There are certain markets that are just going to be tough, like Germany. We've talked about Germany before and it's not going to be a big future for near-term future. It might be in the medium to long term, but it's not a big near future. That being said, we're opening up our first store in Germany for the first time in a couple of weeks' time. So I'm going there because we still believe in the future of the market, but it's a tough market. So anyway, it's a long answer to a very interesting question. Hopefully, that helps. Clive Black: Clive Black from Shore Capital. A couple if I may. Firstly, on food, notwithstanding the separation, is there any parts of the assortment or the portfolio that you still feel need some care and attention after the busy year you just had? And then around future CapEx. Firstly, you made a fantastic statement about plants returning in 50 years, we'd probably 6-feet under well before that. But in terms of returns on your food investments, what thresholds are you looking for in that respect? And maybe highlight some of the big projects for the current year? The reason I asked that is you said you've gone through quite a hump of food investment, but still the group is looking at GBP 1.2 billion of CapEx or thereabouts. And then lastly, just on Primark. How do you characterize the U.S.A. in terms of its maturity profile? Some years ago, this was the sex and violence of ABF. Where do you see the States today for the business? George Weston: I don't think I'm portraying too many secrets in saying that we sign off CapEx projects at a minimum of 15% year 3. That's certainly the start. We then start to ask whether we believe it. And look, I mean, we know in some of these very big projects to get to settled state output can take a while. But really what we've been looking at in all these projects is long-term competitive position, while I talk about 50 years. It's why -- we wouldn't have done Tanzania if it hadn't been for the brand metrics. We're supporting that. Similarly, Australian developments are on the back of the positions that we've already got. Where do we head our portfolio? Look, I don't want to just talk about the bad stuff. I want to talk about the good stuff, too. I really do, would love to have a longer session with a group of fellow-minded people about the potential for Primark or our enzyme business or the health and -- the position or what we think we can do with Ovaltine over the years. There's so much there that I think is underappreciated. Yes, look, there are always problems. We've lost a major account, as you all know, in our Animal Feed business, we'll get on and do something about that. But really, I think the better use of all our time is accelerating the growing bits, the attractive bits and making sure that you kind of prevent bad stuff from happening again. Yes, of course, we've had to take some action on things like Vivergo on Spanish sugar. But really the future of the food group is about growing the lovely bits, much more than it is about fixing the last few kind of headaches. It will come to fruition. We'll have the capacity expansion in yeast extracts, that's really good. We'll have the yeast plant in Northern India. The market is oversupplied at the moment, so we won't get an immediate return of that. We'll get the flour mill in Victoria complete, that will reduce our cost there and solidify our position in the Victorian market. We'll be a long way through the capacity expansion at World Foods Polish site. We'll have the sourdough plant up and running quite soon. We'll have the blending plant at enzymes done by January. What have I missed out? Was it the cross food? Ovaltine Nigeria. We have the most fantastic Ovaltine business, obviously, in Switzerland, to be Swiss is to eat Ovaltine in all its manifestations. The population of Switzerland, I think, is 11 million, which means that the Nigerian population grows by Switzerland every 15 months. And we have really good brand awareness in Nigeria. But we've never had a cost base to really access that market because we've been importing product tariff paid out of China. So that's an exciting one. Eoin Tonge: I think -- well, as I said, there's a lot going on in the U.S. I mean we are 33 stores. And I think for a maturity level in the U.S., that's pretty immature for a market the size of the U.S. Although we've been there 10 years with COVID slap bang in the middle of that. So I think this year is going to be an important year. We're going to open up more than 10 stores, including Manhattan. We're going to do a little bit more brand marketing as well, particularly in the New York area to support that. There's obviously a huge amount of noise in the marketplace going on at the moment. So we have to kind of see how that all settles that. I hope it does. But I mean, like we're still -- that's still really early days. You'd like to think in kind of a U.S. growth plan. But we're not going to do anything stupid either. We've been kind of thoughtful. We've made some mistakes. We've learned from the mistakes. We're making money but we've got -- so we've still got to be pretty kind of thoughtful as to how we expand. So it could take another 10 years to get to maturity. But I still think the proposition works well there, if we can kind of get the awareness in the right way. Monique Pollard: It's Monique Pollard from Citi. I have 3 questions, if I can, they're all on Primark. The first one, Eoin, given your focus on the price investments being very targeted and specific, I was just interested in sort of how you think about the overall price landscape and whether or not you benchmark to secondhand clothing platforms, like Vintage as well, when you're thinking about that price proposition now, given the rise of those platforms? The second question was just whether you had any views at all on the potential for the closing of the de minimis loophole in the U.K. budget and what benefit that could potentially bring to the competitive landscape in the U.K. overall? And then the final question was just on second half U.K. trading. So obviously, a massive improvement there. And you've mentioned a lot of the focus you've put into the customer value proposition driving that. Just wondered if you had any views on whether the competitive landscape, so M&S and the cyber issues that have been well understood, had, had any benefit there or weather benefits, et cetera? Just trying to understand sort of how much you think was external factors versus your own internal? Eoin Tonge: The overall pricing landscape, I mean, it is interesting, actually, we haven't changed our pricing that much this year to reduce pricing to make sure we're still at the lowest entry price point. So that's demonstrating that it's not a very competitive market from a pricing perspective. We don't benchmark to the secondhand market. Maybe we should, but I think it is quite a different market. I mean, we look at it quite a lot, but we don't benchmark to it. I mean a lot of product on vintage in the U.K. is Primark. So it's going to be hard for us to benchmark to that one. The pricing has been more competitive, I would say, in Europe. So I think that's where we see more kind of pricing pressure. In H2 in the U.K., I think I'm going to be a bit more bullish and say it's all to do with us rather than to do it -- it's always to do with the external market. But the impact of M&S and it was more a switch between M&S and Next than it was elsewhere. And I think we just executed better. George Weston: De minimis, gee, we had hoped to see some actions taken in the budget. The Europeans are well on the way to close the loophole, Americans have done it. And we've been working very hard to provide the treasury with information about the value add of High Street versus the value-add of this method of trading. Also we'd point out that given the closure of parts of the U.S. market, the rest of the world is getting a lot of pressure out of Chinese manufacturers. And we really should be taking steps to preserve our own position. So I hope so. But until we see the budget, it's likely to be one -- sorry, if it came through the one nice thing out of the budget amongst a bunch of things that perhaps weren't cyber to you. Alexander Richard Okines: Warwick Okines, BNP Paribas. Just a similar question to Monique's, but looking at Europe. Eoin in particular, I was wondering if you could just reflect on the sharp decline in like-for-likes in the second half in Europe? How much of that do you think was you versus the market? Was there a particular change in cannibalization effects or deliberate cannibalization effects in H2? And what does that mean for European like-for-like looking forward? Eoin Tonge: Look, I think most markets in Europe are feeling the pinch. I mean if you look at all the metrics about European clothing markets, they're all struggling at a market -- like high-level market level. And they're all competitive, right? It's not like there's a sort of a new competitive kind of theme in European markets, they are all competitive. I think we've had a bit of cannibalization. I think you probably would have quantified the kind of 1/4 of the impact is that like -- I thought you don't want me to say this, but there have been some weather impacts, like particularly Iberia quite struggled in the second half of the year. And I think places like France, I think have become more competitive actually. So back to my answer, I'm not more competitive. I think are very competitive, and a bit tougher, particularly in this kind of tougher environment. So it's a bit of everything, to be honest work, like I have to be -- it's a bit of everything. And it just goes back to the same thing again. We just got to execute well. The proposition is good, we've got to execute well. But I think European markets are going to just take a little bit longer to recover. Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Just to build on a couple of questions earlier, maybe on Primark again, sort of 3 questions, I guess. The U.K. is where you spent a lot of time. I think you've talked to a lot of initiatives to reinvigorate the Primark there. Does it give you confidence you can actually now see sustained positive like-for-likes in the U.K. over the coming year, 2 years sort of time period? Otherwise what should we be looking for in the U.K. as a proof of the efforts you're making continuing to deliver? That's the first one. The second one, I think you've talked about cost optimization, clearly also talking about investment for growth. I guess the question is, at Primark level sustained growth in like-for-like terms means what in terms of operating margin? Is a mid-11 sort of margin consistent with healthily growing like-for-likes in the business, how should we think about it? And again, third one also on Primark. Is the medium-term CapEx what we've just seen today, GBP 497 million, GBP 500 million, something that we've seen today, is that a good run rate to think about for Primark CapEx? Eoin Tonge: All good questions. I think U.K. like-for-like, well, I mean I think you should measure us on U.K. like-for-like. Look, I think there's a lot still to go after in the U.K. So I don't -- I'm still kind of optimistic about where we can go in the U.K. We've only just rolled out Click & Collect. All of the initiatives that I talked about here, there's more to come on all the initiatives that we talked about, performancewear, more coordination, et cetera. So I think we can -- like we shouldn't be trying to aspire to get to more sustainable like-for-likes in the U.K. We still got like -- I mean, our brand is phenomenal in the U.K., the brand awareness, the consideration, all that sort of thing. So there's still a lot to go after. I think margin, I think, we would say around these levels. I don't think it's around these levels feels, we can kind of make the model work for sustainable like-for-likes. We always have said before, which we still believe is that the margin is the outcome. But the strategy is to drive the like-for-likes. But around these levels feels right. And then CapEx, yes, I think at a similar level. I think similar levels, although there's sort of -- franchise, obviously, is quite a capital-efficient way of expanding. So there might be a bit of give from that. I think what the take might be more investment in digital. So I think that's similar levels is probably okay for now. George Weston: I think the depot spend will be similar, too, for a little while, yes. Eoin Tonge: And some of that's actually also to support digital as well. Joana Edwards: Where we'll see the decrease side is where we hit the bar. This year, still same level and then starting to go down a little. George Weston: Is there anyone online? No, there's no one online. Thank you all very much for coming. And we've got some pressies for you all by the way of thanks, little bribe. And if not before, we'll see you next year. And in the meantime, it's a bit early to say, happy Christmas, but we're getting there. Thanks a lot. Joana Edwards: Thank you.
Operator: Good day, and welcome to Broadridge's Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like now to turn the conference over to Mr. Edings Thibault, Head of Investor Relations. Please go ahead. W. Thibault: Thank you, Alan. Good morning, everybody, and welcome to Broadridge's first fiscal -- first quarter 2026 earnings call. Our earnings release and the slides that accompany this call may be found on the Investor Relations section of broadridge.com. Joining me on the call this morning are Tim Gokey, our CEO; and our CFO, Ashima Ghei. Before I turn the call over to Tim, a few standard reminders. One, we will be making forward-looking statements on today's call regarding Broadridge that involve risks. A summary of these risks can be found on the second page of the slides and a more complete description on our annual report on Form 10-K. Two, we'll also be referring to several non-GAAP measures, which we believe provide investors with a more complete understanding of Broadridge's underlying operating results. An explanation of these non-GAAP measures and reconciliations to the comparable GAAP measures can be found in the earnings release and presentation. Let me now turn the call over to Tim Gokey. Tim? Timothy Gokey: Thank you, Edings, and good morning. I'm pleased to be here to discuss our strong first quarter results. With a positive economic backdrop, equity markets remain strong and the fixed income market is steady. Capital markets are healthy and our financial services clients are benefiting. And last, we're operating against a pro-innovation regulatory backdrop. As a result, it should come as no surprise that Broadridge is off to a very good start to fiscal year 2026. We delivered strong first quarter results, and we're raising our recurring revenue outlook to the higher end of our 5% to 7% growth range. Our pipeline is growing as our clients look at how they can accelerate change across their businesses. And we're also investing in new governance solutions in expanding our tokenization capabilities and in making value-added acquisitions. With that backdrop, let's dig into the results, starting with the headlines. First, Broadridge delivered strong first quarter results, including 8% recurring revenue growth constant currency and 51% growth in adjusted EPS. Second, we continue to execute on our strategy to democratize and digitize investing, simplify and innovate trading and modernize wealth management. That execution is driving our results in the form of strong growth, continued product innovation and a growing pipeline. Third, we are using our investment-grade balance sheet and strong free cash flow to strengthen our business. Over the past year, we made a handful of small acquisitions to strengthen our ICS business. And of course, last year, we acquired SIS to accelerate our platform rollout in Canada. And in the last 2 quarters, we repurchased $250 million of our shares. Finally, we expect to deliver strong fiscal year 2026 results. With our positive start to the year, we now expect to be at the higher end of our 5% to 7% recurring revenue range, and we're reaffirming our guidance for 8% to 12% adjusted EPS growth and $290 million to $330 million of Closed sales. That outlook also keeps us on track to deliver again on our top and bottom line 3-year growth objectives. Let's move to the drivers of our strong start on Slide 4. I'll start with our governance business, where we continue to drive democratization and digitization and to deliver innovation. Governance revenues rose 5%, driven by revenue from sales and continued healthy position growth. Investor participation trends remain healthy across both equities and funds. At 2%, fund position growth was impacted by the timing and mix of communications in the quarter. Looking through that noise, we continue to see fund positions growing in the mid-single digits, consistent with fiscal '25. Total equity position growth was 12%, driven by continued growth in managed accounts. For the first half of the year, we expect mid-teens position growth overall with high single-digit growth in revenue equity positions. 5 years ago, we began to talk about direct indexing, and we're now seeing it is driving growth in managed account positions. Today, we're beginning to see interest in tokenized equities, which could create future sources of demand for new U.S. equity positions. While the speed of adoption is uncertain, the SEC has been clear that tokenized securities are still securities. That means they will need to incorporate all the complex features of corporate governance and corporate actions that regular equities do. And Broadridge is committed to making all that work. We will be there with disclosure and governance solutions for tokenized equities to ensure that there are no roadblocks to widespread adoption. It's too early to say how popular tokenized equities will become. But like direct indexing, we see them as another leg of democratization that will continue to drive position growth over time. Beyond position growth, we're also benefiting from a quiet but significant shift in how asset managers and public companies are approaching shareholder engagement and proxy voting. Last quarter, we talked about how the growth of passive investing is forcing the largest asset managers to rethink how they vote with a growing number of funds, nearly 400 at the end of fiscal '25, representing nearly $2 trillion in assets using Broadridge's voting choice solution to enable their shareholders to engage by expressing their voting preferences. Now we are working with large asset and wealth managers to create an objective, data-driven approach to voting. To be clear, we're a technology company, not a proxy adviser. Our solution, which will be live with a select group of clients this proxy season, will meet an important market need by enabling clients to define and implement independent policies to complement ISS and Glass Lewis. In addition, we're also working with public companies to better engage retail shareholders by increasing the convenience of voting. This past quarter, we launched a pilot program with ExxonMobil to enable retail shareholders to provide standing voting instructions for annual meetings. Shareholders who opt in will continue to receive all the materials they do today, and they can change their vote at any time. This approach makes it more convenient to vote and has the potential to increase retail voting. It's a new and exciting front in shareholder engagement, and we're seeing significant interest from other public companies. Taken together, these innovations across passive funds, active institutional funds and public companies are enabling a quiet revolution in shareholder engagement by leveraging Broadridge's technology to give Main Street investors a greater voice in the companies they own. That's great for our markets. We also completed 2 tuck-in acquisitions in the first quarter to strengthen our governance business. Signal is focused on digital client communications. It yields our customer communications business, a foothold in Europe and strengthens our global relationships with key financial services firms. iJoin as a retirement plan technology provider that will strengthen our Workplace & Retirement Solutions business. Both are great examples of how small strategic M&A can accelerate our product development and deepen our product set. Let's turn next to Capital Markets, where we are simplifying and innovating trading. Capital Markets revenues grew 6%, driven by a combination of new sales and higher trading volumes with a boost for tokenization, which I'll comment in a moment. The growth in new sales is being driven by a balanced mix across both front and back-office solutions. In the front office, we're seeing strong demand for our connectivity solutions. And in the back office, we're seeing increased demand for solutions that help our clients simplify their global trading operations. We're also engaging clients in some of the market structure changes coming in calendar '26, namely the move to 23x5 trading of equities in the second half of '26, and centralized clearing for treasuries at the end of '26. The good news is that the move to 23x5 trading will be seamless for Broadridge clients, highlighting the benefit of a mutualized platform. As we move toward treasury clearing, that is accelerating demand for our DLR, Distributed Ledger Repo solution. In September, we processed over $300 billion in tokenized equity -- excuse me, tokenized trades per day, up from $100 billion per day 6 months ago. And we're clearly the leading at-scale platform. Next, we're going to real-time repo, which will make repos a trading and financing instrument and further scale volumes. While we started with repo, the platform is fully multi-asset and we'll be going to other asset classes over the next 12 months. We'll also be incorporating stablecoin as the cash rails for real-time transactions. More broadly, we see tokenization as a megatrend over the next 10 years. It's ideal for less liquid, harder-to-settle asset classes, and there could be real benefits in other areas of fixed income, collateral, private credit, and alternative assets. One of the avenues for tokenized activity to grow is on the Canton Network, a public permissioned digital asset network designed specifically for financial services. As a result of our investment in Digital Asset Holdings and our work on DLR, we have been a Super Validator on the Canton Network since the beginning of fiscal '25, for which we have earned Canton Coins. In Q1, we recorded $4 million in recurring revenue from our Super Validator role. In addition, the coin holdings we earned previously have also gained materially in value, as Ashima will share in a moment. We see the potential for the Canton Network to serve as the operating system for tokenized institutional markets, including DLR. To support this vision, an investor group led by DRW announced yesterday the formation of a Canton-focused digital asset treasury or DAT, which intends to invest in Canton Coin and create applications for the network. We are contributing a portion of our Canton client holdings to take an 8% pro forma stake in that DAT, which will trade on the NASDAQ. This transaction is just one more indicator of the potential for our DLR and broader tokenization capability to create value as tokenized activity grows. Moving to wealth, where we're modernizing Wealth and Investment Management. Revenues grew 22% in the quarter, paced by solid organic growth and the acquisition of SIS. Fiscal '25 was a strong sales year for our wealth business with 3 significant platform sales. So I'm pleased to note that we're making good progress in onboarding these new clients and are on track to begin recognizing revenue at the end of fiscal '26. November 1 marked the 1-year anniversary of the SIS acquisition, and I'm pleased with how it's driving value for our business and our clients. Over the past year, we've extended our relationship with key Canadian clients and are making strong progress in integrating SIS onto our wealth platform. More broadly, we continue to see a strong pipeline across our wealth business. Finally, Closed sales. After a strong finish to the fiscal '25 year in June, we closed $33 million in Q1 sales. More importantly, our pipeline continues to strengthen, and we are on track to deliver on our full year guidance of $290 million to $330 million. All this means that Broadridge is better positioned than ever. Tokenization is just one of the many innovations we are driving that are transforming our industry and setting the stage for long-term growth. Let me close with some final thoughts. First, Broadridge delivered strong first quarter results. Second, our first quarter performance as Broadridge on track to deliver another strong year, including recurring revenue at the higher end of our 5% to 7% range and 8% to 12% adjusted EPS growth. We're also deploying capital to drive value. Third, our results are being driven by the execution of our long-term growth strategy. We're driving the democratization and digitization of governance by delivering new voting solutions that put Main Street investors front and center. We're simplifying and innovating in capital markets across both the front and back office and we're modernizing wealth management by delivering platform capabilities for clients in both the U.S. and Canada. Fourth, we're positioned to benefit from the growth of digital assets and the trend toward tokenization. The combination of a pro-innovation regulatory backdrop and accelerating technology change is putting digital assets and tokenization front and center as a new megatrend in financial services that creates significant opportunity for Broadridge. Across our businesses, Broadridge is well positioned. Tokenization is the next wave of democratization to drive equity position growth and our early start makes us the leader in supporting the technology behind tokenized assets and trading. And finally, Broadridge is well positioned to deliver on its 3-year financial objectives and beyond. This will be the fifth consecutive 3-year period in which we've met our goals and the opportunity going forward is even larger. Before I turn it over to Ashima, I want to thank our associates around the world. Their focus on serving clients and driving change is how we add value to our clients and our industry every day and is making a real difference in the financial lives of millions. Ashima? Ashima Ghei: Thanks, Tim. Good morning. It's great to be here today to share our Q1 results. Before I begin my review, I want to make 5 key callouts. First, Broadridge is off to a strong start to fiscal '26 with strong recurring revenue and adjusted EPS growth. Second, event-driven revenue. We reported $114 million of event-driven revenues in Q1, well above the long-term average, driven in part by a proxy election at a major mutual fund complex. Third, we are deploying capital to drive shareholder returns. During the first quarter, we completed 2 tuck-in M&A deals for a total of $56 million and repurchased $150 million of our shares. Fourth, we continue to expect to deliver strong fiscal '26 results. We are now raising our recurring revenue growth outlook to the higher end of our 5% to 7% guidance range. We are also reaffirming our guidance for 8% to 12% adjusted EPS growth and Closed sales of $290 million to $330 million. And one final call out, digital asset revenues and mark-to-market gains. As Tim referenced, Broadridge recognized $4 million of digital asset revenues related to our work as a Super Validator on the Canton Network. While we have been earning coins for this service over the last year, they had de minimis value. Now as these coins have increased in value, they are not only contributing to revenue, their value is also being recognized on our balance sheet. As a result, we recorded a $46 million unrealized gain on the value of the $1.7 billion coins we held at the end of the quarter. That gain was excluded from our calculation of adjusted EPS. With that, let's go to the numbers on Slide 6. Recurring revenues grew 8% on a constant currency basis, including 5% organic growth. Adjusted operating income margin expanded by 280 basis points to 15.8%. Adjusted EPS grew 51% to $1.51, driven by strong event revenue and Closed sales were $33 million. Let's move to Slide 7 to discuss our segment recurring revenue, starting with our ICS or governance segment. ICS recurring revenues rose 5% to $518 million, including a 1 point benefit from acquisitions and a 1 point headwind from lower interest rates. As a reminder, the earnings impact of lower interest rates is functionally hedged by lower interest expense on our variable rate debt. Regulatory revenues rose 4% in Q1, driven by 7% growth in equity revenue positions and 2% growth in fund positions. Regulatory revenues were partially impacted by a shift in fund communications from September to October, which lowered Q1 regulatory growth by 2 points. Data-driven fund solutions revenue grew 2% as a 3-point headwind from lower interest rates partially offset strong growth in our Retirement & Workplace Solutions revenue. We also completed the acquisition of iJoin in mid-September, which had only a modest impact on growth in the quarter. We expect to see data-driven fund revenue growth accelerate in the second half of the year. Issuer revenues grew 6%, driven by strong growth in both our disclosure solutions and our shareholder engagement solutions. Customer communications revenues rose 8%, driven by organic growth in digital and print revenues and the addition of Signal. For the year, we expect ICS recurring revenue at the high end of our 5% to 7% total recurring revenue guidance, including a modest benefit from the iJoin and Signal acquisitions and the continued drag from lower interest rates. Turning to GTO. Revenues grew 12% in Q1, including 6% organic. Capital Markets revenues grew 6%, driven by the growth in our Global Post Trade solutions, which benefited from high trading volumes and by the recognition of digital asset revenues, which together more than offset 1 point of losses related to the business exit that we discussed last quarter. Digital asset revenues contributed $4 million or 1 point to the growth of our Capital Markets business in the first quarter. With the recent increases in coin value, we expect these digital asset revenues to contribute approximately 1 point to capital markets growth in fiscal '26. Taken together with our growing revenues from Distributed Ledger Repo platform, it's exciting to see our tokenization efforts starting to drive a small but real revenue contribution to our Capital Markets business. Wealth and Investment Management revenues grew 22%, driven by 5% organic growth and the impact of the SIS acquisition. As a reminder, we closed the SIS deal on November 1, '24, and that revenue will be reported as organic for the last 2 months of our second quarter and in the second half of the year. For the year, we continue to expect GTO recurring revenue growth within our 5% to 7% guidance range with higher growth in Wealth. Now let's move to Slide 8 to review our key volume indicators. We continue to see healthy growth in investor participation across both equities and funds. Equity position growth was 12%, including 7% growth in revenue positions. Looking ahead, our testing shows mid-teens total position growth in Q2. Full year testing is showing low double-digit growth, which would imply revenue position growth in the mid- to high single-digit range. Q1 fund position growth of 2% was impacted by the timing of fund communications in the quarter. Our testing continues to indicate mid-single-digit position growth for both the first half and the full year. In GTO, trade volumes rose 17% for the quarter, driven by double-digit growth in both equity and fixed income volumes. I'll wrap up my discussion of recurring revenue growth on Slide 9. In Q1, recurring revenue growth constant currency was 8%, primarily driven by 5 points of organic growth. Revenue from Closed sales remains the biggest driver of our organic growth at 5 points as we onboarded revenues from our $430 million fiscal '25 year-end backlog. Our retention rate was 98% for the quarter. Internal growth contributed 2 points, primarily driven by higher trade volumes and digital asset revenues. Acquisitions, primarily SIS, contributed 3 points to growth. And finally, changes in FX contributed 1 point. Let's close our discussion of revenues on Slide 10. Total revenue increased 12% to $1.6 billion, driven by 5 points of growth from recurring revenue. Higher event-driven revenue drove 4 points of growth. Q1 '26 revenues of $114 million were our second highest quarter ever. The biggest driver of event-driven revenue in the quarter was Board elections at a major mutual fund complex. This fund company had its last proxy event in the first quarter of fiscal 2019. In the 7 years since that event, the number of positions grew approximately 30%, highlighting the long-term growth drivers propelling event-driven revenues. Looking ahead, we expect event-driven revenues to return to historic average levels of $50 million to $60 million per quarter for the balance of fiscal '26. Low to no margin distribution revenues grew 8%, primarily driven by higher postage rates and contributed 3 points to total revenue growth. Turning now to margins on Slide 11. Adjusted operating income margin was 15.8%, an increase of 280 basis points from Q1 '25. This growth was driven by higher event-driven revenue and operating leverage from our scale business, partially offset by our ongoing reinvestments. The net impact of lower interest rates and higher distribution revenues reduced AOI margins by 30 basis points. Let's move on to earnings on Slide 12. Q1 adjusted EPS grew 51% to $1.51, driven by higher event-driven revenue. Interest expense was $24 million in the quarter, a decrease of $8 million from Q1 '25, driven by a combination of lower balances and lower rates. As I noted in my call outs, Broadridge recorded a $46 million unrealized gain driven by the increase in the value of our Digital Asset Holdings in the quarter. That noncash gain was reported in other nonoperating income and was excluded from our calculation of adjusted EPS. Given the volatile nature of digital asset values, we expect to continue to record gains and/or losses as we mark these digital assets to market every quarter. Let's turn to sales now on Slide 13. Broadridge reported Closed sales of $33 million, driven by sales of our governance solutions. Looking ahead, our pipeline remains strong, and we are reaffirming our guidance for full year closed sales of $290 million to $330 million. Turning to our cash flows on Slide 14. Broadridge generated free cash flow of $13 million in the first quarter. Our strong cash performance was driven by higher earnings and working capital management, and we remain on track to deliver free cash flow conversion of over 100% in fiscal '26. Turning next to capital allocation on Slide 15. We continue to take a balanced approach to capital allocation. In Q1, we invested $30 million in capital spending and software spend with an additional $7 million to onboard clients onto our solutions. We deployed $56 million during the quarter on 2 tuck-in acquisitions to strengthen our governance franchise. In addition, we continue to expect our previously announced acquisition of Acolin to close at calendar year-end, pending approval by German regulatory authorities. During the quarter, we also repurchased $150 million in Broadridge shares and returned an additional $103 million to shareholders via our quarterly dividend. And yesterday, we entered into an agreement to use approximately $340 million of our Canton Coin holdings as part of a PIPE offering in Tharimmune, Inc., a NASDAQ-listed company with the ticker THAR that intends to execute a digital asset treasury strategy for Canton Coins. When the deal closes later this week, we anticipate holding warrants for 8% of the publicly traded vehicle. Let's start to wrap by reviewing our fiscal '26 guidance on Slide 16. As I said in my call outs, Broadridge is on track to deliver strong fiscal '26 results. Given our strong start to the year and the incremental revenue from our Signal and iJoin acquisitions, we now expect fiscal '26 recurring revenue growth constant currency to be at the higher end of our 5% to 7% guidance. We continue to expect adjusted operating income margin of between 20% to 21%, adjusted EPS growth of 8% to 12% and $290 million to $330 million in Closed sales. Additionally, I will highlight that we are expecting a more normalized level of event-driven revenue in the second quarter of '26 compared to last year's record $125 million. As a result, we expect 2Q adjusted EPS to be approximately 13% to 15% of our full year outlook. I'll wrap by summarizing my key points. Broadridge is off to a strong start to the year and the combination of strong performance and recent acquisitions has us incrementally more confident in growth in recurring revenues. We are deploying capital to boost growth and shareholder returns. And last, we remain very much on track to deliver another strong year of recurring revenue and adjusted EPS growth in fiscal '26, and deliver again on our top and bottom line 3-year objectives. With that, let's move to Q&A. Operator: [Operator Instructions] Our first question comes from James Faucette of Morgan Stanley. Michael Infante: It's Michael Infante on for James. I just wanted to ask on the recurring revenue outlook tracking towards the high end of the range versus the reiteration on the EPS front. I recognize that we're going to see a reversion of some of the event-driven revenue strength in the quarter. But can you just walk through some of the puts and takes as to why EPS wouldn't similarly track towards the high end of the range, just given the high incremental margin nature of that event-driven revenue you saw in the quarter? Ashima Ghei: Absolutely. Thanks, Michael. I'll take that. You're right. We're off to a strong start of the year. And as a result, we raised our guidance for recurring revenue to the higher end of the 5% to 7% range. The biggest driver of the revenue upside is the acquisitions that we are seeing from iJoin and Signal that we announced earlier this year, which are more than offsetting the additional rate cuts that we are seeing in the year. I will say beyond that, we are seeing strength in our underlying business. Revenue from sales from converting our $430 million backlog is continuing to deliver consistent results and fuel our growth. Position growth is another important factor for us, and we are growing increasingly confident about the mid-teens growth that we are expecting for equities in Q2 and mid- to high single-digit revenue growth for the full year. Fund position and revenue growth also continues at mid-single digit. And we've seen a bit more upside from the digital asset revenues, driven by increase in market value relative to the starting point of the year. And specifically in Q1, as you noted, we also saw the impact of higher event, which we were expecting given the large mutual fund proxy that was planned in Q1. All in all, all of this gets us to a super strong start to the year, which enables us to invest in our business while we continue to drive towards our 8% to 12% adjusted EPS growth. Timothy Gokey: I'm just going to add on to that a little bit because it's pretty early in the year for us to think about the translation of any incremental margin, if I can talk, into earnings. And I just note this is a time of great opportunity in the industry for us and for our clients. And we're really pleased that we're in a position to be both investing and delivering on our commitments. And I just want to focus you on 4 key areas that we're investing in now: tokenization, digital assets, shareholder engagement, digital communications, AI and platform. And each of these are areas where we have a strong right to win and can bring real value to our clients by helping them really drive innovation. And so it's just -- it's early in the year to think about the balance of investment and earnings delivery. And so really staying with our guidance is the right call right now. Michael Infante: That's helpful. And then maybe just a quick housekeeping one on Canton. I recognize you're using some of those funds or those holdings to participate in the pipe. But maybe after contemplating that transaction, do you intend to convert some of those holdings to cash, if at all, to sort of mitigate some of the GAAP volatility? And if so, like how should we think about maybe like a theoretical 10% change in Canton Coin and the impact on GAAP EPS? Timothy Gokey: Yes, I'll take that. Just at a very high level. I do think there's -- we're going to see some GAAP volatility. That's why we're certainly going to adjust this. We do think this is going to be a pretty volatile asset and it's probably something we'd prefer you to have off on the side. I think the core thing here is we're an operating company, not an investment company. And so I think you should expect to see us liquidate these holdings over time. There are reasons because a lot of the momentum in the network and the potential for the network to become really the rails for institutional financial transactions that Bitcoins could become a lot more valuable over time. So I think this will be something that you'll see us evolve over probably a few years. Ashima Ghei: Yes. The only thing I'll add is, remember, in terms of the revenue, at least, I called out that we expect this to be about 1 point of impact to our capital markets business. So in the larger scale, I wouldn't expect the value to have a significant impact to Broadridge revenues. Operator: Our next question comes from Kyle Peterson of Needham. Kyle Peterson: I wanted to talk a little bit on sales cycles and kind of what you guys are seeing, particularly if there's been any impact from the government shutdown. Obviously, at least some things in capital markets and things have been hit snags a little bit. But I guess, have you guys seen any impact to getting deals across the finish line or client conversations that might have kind of slowed down in the last month plus? Timothy Gokey: Yes, Kyle, thanks. It's Tim. And first of all, I think we are really pleased with the strong close we had to fiscal '25, and we're still on our guidance for this year. Specifically to your question, I think the selling environment that we're seeing is pretty stable. It is -- we haven't seen any slowdown in conversations because of the government shutdown. Now I think many of our conversations are -- they have a sales cycle that's really outside the window of whether a few weeks makes a difference unless we're coming right up on the end of the year like we talked about last spring. So I think it's really -- we're not seeing any change. It's pretty early in the year in terms of doing anything other than confirming our guidance. And all that said, I think the market remains strong. The conversations we're having with our clients are pretty exciting around strategic topics in digital communications and shareholder engagement, and platform, among others. And the conversations that I'm having with clients are really very much more on the transformational side, which I think is a testament to the investments that we've made. So we have a lot of confidence going forward. It's grounded in those conversations, it's grounded in our pipeline, which remains healthy and has actually grown since the beginning of the year. Kyle Peterson: Great. That's really helpful. And then maybe just a follow-up broadly, kind of your thoughts on how digital assets and tokenization fits within Broadridge, obviously, several moving pieces. You guys are starting to get some revenue from that. You made the investment. But I guess, how should we think about how digital assets should continue to evolve? And what role do you see that playing in your business, both in the near and long term here? Timothy Gokey: Yes. Thank you for that. I think we see digital assets and tokenization as a megatrend for the next 10 years and is a real opportunity for Broadridge and the industry. And our strategy is to drive tokenization across the asset classes where we have deep expertise. and where we think the asset class will benefit the most. And that certainly includes fixed income, repos, collateral. Longer term, tokenized equities, we think, can be part of the next wave of democratization that drives demand for U.S. equities and contributes to long-term position growth. And then sort of as a double-click within that, we think the Canton Network is -- has the potential, early days, but potential to become an operating system that makes a lot of that more possible. So I think as you look across our businesses, you're seeing the continued progress on Distributed Ledger Repo and Capital Markets. And there, we're certainly going to be expanding to additional use cases, including real-time, new asset classes, stablecoin. There's a Canton Network side of things, which is also sort of within capital markets. Tokenized equities, we see as a longer-term opportunity that would be really affecting more our -- somewhat on the capital markets side, but more our ICS business in terms of extending position growth and really being the next wave of the evolution of democratization to drive that mid-single, high single-digit position growth into the foreseeable future and beyond. So -- and then last, on the wealth management side, this demand for digital assets is putting pressure on wealth managers to integrate those assets into their traditional client service operations. And they've sort of stayed away from them in the past, and I think that is changing quickly now. But when you think about a wealth manager now offering digital assets to clients, there's all the other things that you need to do, tax, margin, statements, all those things. And so we think that's an area where we can really help. Our core engines will be enabled to represent digital assets by early next calendar year. And that is going to allow our clients to flow transactions through for everything from cost basis, tax, margin, [ SAG ] statements, asset servicing and all that complexity that comes with being a large-scale, either capital markets or wealth manager. Ashima Ghei: I'll just -- maybe I'll just add on because you were also asking about the near-term and the midterm implications from a revenue perspective, right? So I'll just tack on, as you know, we -- specifically for Canton Coins, we earn these Canton Coins for being a Super Validator on the Canton Network. In Q1, we recognized $4 million of revenue, like we said, associated with this service. The actual revenue that we earn over the course of the remainder of the year would vary based on the actual minting activity, the number of coins specifically and the price of these coins, right? They have -- we've got a whole minting schedule. But bottom line, it translates into about 1 point of impact to capital markets, higher in Q2 and lower in Q3 and Q4. So that's from a revenue perspective. And on the balance sheet perspective, the only thing I'll call out is we do have -- at the end of last quarter, we have 1.7 billion coins that were valued at $74 million, right? And like you said, we've contributed some of these to the DAT, but there could be volatility associated with the $74 million, which we'll continue to adjust out of our adjusted EPS. Operator: Our next question comes from Scott Wurtzel from Wolfe Research. Scott Wurtzel: Ashima, just on the 2Q EPS guide about 13% to 15% of full year EPS. I understand that we should see a normalization of event-driven revenue. But just wondering if there's anything else going on there that we should keep in mind for 2Q EPS? Ashima Ghei: No, that's really the major driver, Scott. It's just a tough compare when -- because of the event activity that we saw last year in Q2. Just wanted to make sure you guys saw the grow over impact coming in from that. Nothing else significant to call out. Scott Wurtzel: Got it. Got it. That makes sense. And then forgive me, I was hopping from another call, so I may have missed the commentary here. But just wondering if you can talk a little bit more about the position growth trends that you saw in the quarter and how that sort of trended relative to expectations? Timothy Gokey: Yes. Thanks, Scott. Look, position growth is remaining strong, and we're seeing really nice strength in the underlying drivers for equity positions, which grew 12%, really driven by healthy growth in managed accounts, but also pretty good growth in self-directed. As we talk to our clients, they continue to tell us that direct indexing is a significant driver of the managed account growth. And then the equity revenue positions, taking out the smaller accounts and the fractional shares was 7%, which is really in line with what we've seen over the long run. And then I noted that on the fund growth side, it was 2%, but that was really an anomaly driven by timing, and we're continuing to see underlying position growth in the mid-single digits. It is still early in the year, but our testing is now beginning to begin to give a little bit of visibility into the second half. And that's showing, again, continued strength across funds and equities, low double-digit equity position growth, continued mid-single-digit fund growth for the balance of the year. I know you asked about drivers right now, but I just -- since I have the floor, I think that the key takeaway here is that innovation remains the key driver for long-term position growth. 15 years ago, we were talking about the rising popularity of ETFs. And 10 years ago, we started to talk about managed accounts. 5 years ago, it was zero-commission trading. And we started talking 5 years ago about direct indexing, but now we're seeing how that's beginning to become an important component of growth now. And as I said in my remarks, now we're beginning to hear beginnings of interest in tokenized equities. And I think that just highlights the ongoing innovation that has driven position growth for the past 40 years that there's always the next thing. And that's exciting. And so I think really, we feel good about the long-term health here. Operator: Our next question comes from Puneet Jain of JPMorgan. Puneet Jain: So I want to make sure like I understand like -- so the Super Validator status that stems from the digital asset repo platform, it seems like. So is it common for you to be paid for that repo platform in form of coins? And then the second question on that is like the investments that you made in Canton Network, like how do you expect to make returns on that investment? Timothy Gokey: Yes. It's Tim, Puneet. So first of all, just to be clear, the role as Super Validator is separate from what we are doing on Distributed Ledger Repo. So we built a Distributed Ledger Repo platform, which is, at this point, actually on the -- it's on a private version of the Canton Network. It will go public later on. But that's an investment we've made. And I was just saying that because of our closeness to Digital Asset Holdings, they invited us to be a super validator. That was a separate investment we made for that activity. And it's just a separate activity. So related but separate. And in terms of getting paid and how people get paid for that role, yes, it is very common to be paid in coin. There's a whole governing document for the Canton Network, much like there are for Ethereum or Bitcoin that explains the different roles that people play and how the economics of that works. And so the payments we're getting, which, again, until this quarter, we really didn't have any value. We are picking this up, but now they do. So it's sort of interesting. Does that help? And then the investment in Canton, it's really -- the investment that we made was just the investment to become a Super Validator and to operate that, which was frankly rather low. Puneet Jain: Got it. Got it. And then the guidance increase for recurring revenue growth, can you talk about puts and takes like the acquisition contribution? I think, Ashima, you mentioned like the lower interest rates, that being a headwind there. So can you talk about various puts and takes that drove 1 point increase in the guidance? Ashima Ghei: Yes, sure. I'll just reiterate what I said before, Puneet. Yes, the biggest driver of our revenue upside, the guidance was the contribution that we saw from iJoin and Signal, both of which were announced within the quarter. It's really less than 50 basis points of contribution coming in from those. We are -- so that's one put. The other side I'll call out is we are seeing additional rate cuts. What we are baking in right now is our expectation based on the latest Fed dot plot, right, which calls for 2 more interest rate cuts in the balance of our fiscal year. That's baked into our guidance as well. But beyond that, the guidance really reflects our growing confidence in our underlying growth, right? Tim spoke a little bit about position growth that continues to be strong. Our revenue from sales is tracking well. And the digital asset revenue, while it's super small, is helping our growth overall. So all of that gives us confidence in our guide towards the higher end of 5% to 7% recurring revenue growth. Operator: The next question is by Patrick O'Shaughnessy of Raymond James. Patrick O'Shaughnessy: In a world where tokenized equities trades are recorded on the blockchain, do you see that impacting the need for intermediated communications between corporate issuers and their shareholders? Timothy Gokey: Patrick, thank you very much for the question. And look, we see this as an opportunity. And really, we see it as the next wave of democratization that's going to create new sources of demand and position growth. And as I said in my remarks, the SEC has been really clear that tokenized securities are still securities. At a week before last at a major industry event, Paul Atkins was asked specifically about tokenized equities on the main stage. And he was clear that they're going to be subject to all the same regulation, including Reg NMS and all the governance provisions that traditional equities are. We believe the vast majority of tokenized equities are going to be purchased through a broker-dealer or exchange and that those intermediaries are going to have the same financial -- same asset servicing obligations they have today, including proxy, but also corporate actions, class actions, protecting the personal information of their clients, all of which creates a real opportunity for Broadridge. So as I said in my remarks, we're going to be there to manage the complexity of disclosure, governance and all of that. And we're already talking to clients and industry participants about how we enable them to make this possible. So I think -- and then as I said earlier, this work on tokenized equity is just part of our broader strategy to drive tokenization across multiple asset classes where there's real value and where we have a deep expertise. Patrick O'Shaughnessy: All right. Got it. And then total trade volume growth continues to be a healthy tailwind for GTO segment revenue. Can you remind us the percentage of segment revenue that's tied to trading volumes? And how durable do you view this growth to be? Ashima Ghei: Yes. So overall, Patrick, if you think about the GTO revenues, I'd say about 1/3 of GTO revenues are tied to trade volumes. Not all of it is exactly paper trade, right, one-on-one, though. I would say about half of that is direct paper trade, half of that is bank kind of structures that we have. And we're definitely seeing the impact of higher volumes on that direct paper trade portion. It is -- you typically see higher trade in periods of higher volatility. It's proven to be double digits for the last many quarters. We're not counting on very elevated levels of trade volumes going forward, but we're expecting continued strong growth. Operator: This concludes the question-and-answer session. I would like to hand things over back to management for any closing remarks. Timothy Gokey: Well, thank you, operator, and I want to thank everyone for joining our call today. Again, just to reiterate, we're really pleased with the strong start to the year. We're excited about what we see coming forward. We're excited about the innovation in the industry. And we hope that you're as excited as we are about everything that's happening in our industry and about the year ahead as we continue to really work with our clients to transform the financial services industry. So thank you for your interest in Broadridge. We look forward to speaking to you on the next call. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Felipe Peres: Good morning, welcome to our virtual meeting to present the results of the third quarter of 2025. This event is being recorded [Operator Instructions] This event will be divided in two parts. In the first part, our CEO, Delano Valentim and our CFO, Rafael Sperendio will present the main belief of the quarter. The presentation, either in Portuguese or in English can be downloaded from our Investor Relations website at the address www.bbseguridaderi.com.br. In the second quarter of the event, there will be a Q&A session when analysts and investors will be allowed to ask questions. I will return after the presentation to give you instructions if you want to ask a question. Now I would like to give the floor to Delano who is going to introduce himself as the new CEO of BB Seguridade and will share with you the main highlights of the quarter. Delano, floor is yours. Delano de Andrade: Thank you so much, Felipe. It's a great satisfaction to have you here for another BB Seguridade results presentation. where we will share the progress of our third quarter and the paths we are taking toward the future. This is Delano Valentim, CEO of BB Seguridade, and it's a great pleasure to be here with you. Before we dive into the numbers, I would like to share with you some impressions that I have had over these 2 months I've been leading the company. I found an extremely solid profitable company with strong cash generation that consolidates itself a strategic pillar in the generation of value for Banco do Brasil conglomerate. This is the result of the work of highly qualified technical teams and exceptional sales force and above all, the trust that our customers place in us every day. The insurance business, not only at Banco do Brasil, but also at other large bank Brazilian banks has proven to be resilient and essential for the balance of consolidated results, especially at times of greater volatility in economic cycles. Based on my experience of more than 40 years in BB conglomerate, including some time in Argentina, in the United States, I see that it -- the insurance market in Brazil still has enormous growth potential to illustrate in agricultural insurance, for example, we have in Brazil a very small portion of the planted area protected by insurance compared to the American market. In accumulation life insurance is not yet widespread, and in the pension market, a large portion of the Brazilian population does not have a private pension plan or has one that is incompatible with income they want to have in the future. Given this, my intention is to continue what has already been working well, but with focus on improvements. So we're going to do that based on three fundamental pillars: number one, focus on the customer with a review of portfolios and journey seeking to improve the experience, increase the perception of value and strength and loyalty. Number two, innovation and digital transformation. Integrating business journeys, creating new lines and expanding our presence in strategic and profitable segments; and number three, operational efficiency, making the most of the synergies between our investees and between them and our brokerage operation, seeking sustainable gains. And I am, and I see that my team is also very motivated with a challenge that lie ahead. I reiterate here, my commitment to continue seeking alternatives to keep the company's capacity to generate economic value. Now moving to our quarterly numbers. I will focus on the managerial results, which does not include the effect of IFRS 17. We ended the third quarter with historical milestone, the highest recurring net income ever recorded by BB Seguridade totaling BRL 2.6 billion, an increase of 13.1% over the same period of the previous year. Year-to-date until September, we reached BRL 6.8 billion in recurring profit, a growth of almost 14%. This performance was mainly driven by the investment income, which after taxes grew about 55% year-on-year in the third quarter, the same rate observed in year-to-date numbers. Operating income net of taxes also follows a positive trajectory, 2.4% year-on-year growth and 5.7% in year-to-date numbers. In the quarter, we highlight the control of expenses in insurance and pension in addition to the growth in our brokerage business. Year-to-date, the main highlight is the loss ratio which remained at a very good level in all lines showing the quality of the risk contracted. I also highlight two relevant initiatives that we started this year. Number one, credit life insurance for new credit lines for small and middle-sized businesses available as of July. In about 3 months, this initiative has already generated BRL 294 million in prices. credit life for private payroll loans, workers credit launched at the end of March has already then generated more than BRL 160 million in accumulated in premiums. These -- our new portfolios, which help compensate our monetary gaps and still have great potential for penetration, generating important opportunities for expansion as the credit cycle reverses. In line with what I mentioned at the beginning about customer focus, we already have very positive indicators. Our NPS grew by 5.1 points, complaints fell 24%, even though they already represent a small portion of the operations. And we saw a 7% reduction in churn, reinforcing greater loyalty of our customers. These results reflect consistent work of our teams and the trust of our customers. We remain committed to generating sustainable value and building a future even more promising for BB Seguridade. Now I would like to give the floor to Rafael Sperendio, our CFO, to share the financial details of the quarter, and I will be back afterwards for our questions-and-answer session. Thank you very much. Rafael Sperendio: Thank you, Delano. Now starting the details of the numbers of the third quarter. So here, we have BRL 2.6 billion in Q3 2025 with a 13% growth year-on-year. The operation has grown 2.4% after taxes, but the main highlights in the Q3 is the net investment income with a 55% growth year-on-year, accounting for 28% of our bottom line. One of the main factors I would like to highlight the volume rate, especially because of the Selic rate and reduction of the liabilities in Brazil because of Brasilprev because of IGP-M inflation. On next slide, you can see the details of our recurring managerial net income. So we had BRL 288 million came from operating results change. If we break down the operating income the main driver here is the growth of BRL 145 million in retained earned premiums at Brasilseg in contrast with the carryover of premium -- unearned premium revenue from sales done in the past, especially in credit life. We have another highlight, quite significant that Brasilseg that has been repeating itself is a reduction in loss ratio here in all the main lines of business and showing year-on-year numbers. And lastly, part of that was partially offset by higher expenses of BRL 292 million. In terms of the net investment income, BRL 550 million, this is how much we added BRL 530 million. Additionally, as I said before, Q3 year-on-year, some of the justifications are repeated in year-to-date numbers. Here, you can see BRL 426 million came because of volume and rate, basically Selic and the time mismatch in terms of updates of the IGP-M in terms of the liabilities in Brasilprev [ tech ] BRL 21 million and BRL 125 million came from a mark-to-market BRL 8 million positive this year in contrast BRL 117 million negative in the first 9 months of 2024. Now going into details on Slide #6 about our operations, per operations versus insurance operations, premiums written dropped 15% year-on-year in Q3. And then the variation accelerated in terms of premiums in year-to-date numbers for 7, especially because of our performance in rural insurance. If you see the lines that are significant in building our revenues, you can see that credit life and life were better in the third quarter year-on-year than we were seeing in year-to-date numbers. However, the performance of rural insurance, especially agricultural subsegment was slightly worse than what we saw in the first half of the year. And this is evident when we see earned premiums or retained premiums. So retained premiums dropped well below the drop in terms of written premiums, 8% year-on-year and 3% drop in year-to-date numbers. Now if we look at the quality of that performance, here in Q3 year-on-year, there is an increase in the combined ratio, especially because of higher commission ratios and then a reduction in share of agricultural insurance in the premiums, agriculture has the lowest commissions and then average commission goes up year-on-year. We had higher margins in the loss ratio here. And this is an effect in terms considering the comparison basis and agricultural insurance had a significant reduction in the provision of insurance to settle. And here, especially considering the loss ratio, if we look at the third quarter, year-to-date numbers, all rates are behaving very well. and in commissions here, it has a positive effect on the brokerage business loss ratio, dropped in all business lines and G&A ratio, general administrative also dropped a little bit. Net -- recurring net income dropped. And here, the explanation for year-to-date, you can see net income growing 7% year-on-year and also a growth in the net investment income in the year-to-date numbers, 13% growth, same explanation combined with the loss ratio. Now going to pension business, year-on-year, dropping 19% in terms of contributions, very much affected by the IOF in allocations above BRL 300,000. So we had BRL 4 billion negative and BRL 9 billion in the year-to-date numbers redemptions increased year-on-year, 20 basis points and in year-to-date numbers it's low. So reserves growing 9% year-on-year in 12 months, a direct reflects of revenues with the management fees. And here, the balance, it's growing less than the balance because we are concentrating lower risk products, therefore, a smaller management fee. Looking at year-to-date numbers because of fewer business days. In net -- in terms of financial income, which has not been too favorable for Brasilprev especially because of reduction of IGP-M year-on-year. And this has been the main driver for the growth of our income, 19% year-on-year and 19% in year-to-date numbers too. On the next page, here we have premium bonds, Brasilcap, a very good performance. Collections grew 5% year-on-year, 9% in the first 9 months, reserves grew 6% year-on-year. And then we paid lottery prices which grew 42% year-on-year, high of 18% in the first 9 months. Net interest income very robust, 45% growth year-on-year in terms of volume and rates, especially because of Selic rate and increase in the net income of 130 basis points year-to-date, the same thing. And then the investment income is the main driver for growth. So Brasilcap -- so this is the net investment income percent, 31% year-on-year and 4% in year-to-date numbers. Now going to our brokerage business is 4% growth in brokerage revenues year-on-year, 5% in year-to-date numbers. And this is the result, here, you can see the breakdown of the brokerage revenues. So 77% coming from insurance was in '24, and there was a growth in the first 9 months, growing to 81.1%, also in higher -- an increase in premium bonds. Net margin has grown 3% year-on-year, 2 percentage points in the first 9 months of the year because of volume and Selic rate. And for this reason, net income grew at the pace that above that of revenue, 9% year-on-year and 9% in year-to-date numbers. This is the growth of the net income. And to end the presentation this is our guidance for 2025, noninterest operating result ex holding the range was between 1% and 4%. We delivered 5.9% in year-to-date numbers until September, and this growth will converge back to the range in Q4. Written premiums of Brasilseg, we expected a drop of 4% up to 1%. In the first 9 months, there's a drop of 7.9%, especially, as I said during the presentation, this performance of rural insurance affected this and is falling short from our expectations, but we are doing our best in all other lines where we can control better the situation to bring this year-on-year variation at least to the floor of our guidance. PGBL and VGBL pension plans reserves of Brasilprev, so we delivered 9% in the period of 9 months ended in September. These are the main highlights and now I will be together with Delano and Felipe for our Q&A session. Felipe Peres: [Operator Instructions] Our next question -- our first question actually comes from Tiago Binsfeld from Goldman Sachs. Tiago Binsfeld: My question is about Brasilprev. And so you assess the performance in terms of collections this quarter. So it's slightly above redemptions. It's not the different from the first half of the year, so before the tax, which to what seems to be a greater deviation was in portability. Are there any surprises in this breakdown? Or is this what you expected considering the impact of IOF? And also the action plan of the company to handle that. How do you see the main actions to mitigate this more slightly more challenging scenario? Delano de Andrade: Tiago, thank you for your question. Well, in fact, after the IOF changes, there has been impact in withdrawals, but almost 2/3 of the withdrawers seek private credit risk in competition, even though we have many funds in our portfolio self-managed portfolios, open multi-management funds we are not willing to take too much private risk. We are being very cautious in choosing also because considering we have high interest rates and also thinking of working in a very selective and careful way in order not to jeopardize the results of our customers. We are right now working not just in terms of changing the strategy to protect our basis SUSEP, info from August, we are market leaders. We have very strong origination, but we might focus slightly more on periodical allocations than major allocation. Focus more on permanent allocations than on -- rather than on periodical allocations which is what was -- had been going on until then. We have also been working to protect our basis in a slightly more seeking funds that are with the competition. We are also working to create new products. There's a new product that we have already launched an initial allocation of BRL 100, slightly more democratic to protect the base and to assure that we remain market leaders. Rafael Sperendio: Tiago mentioned something very important. So seasonally, the third quarter should be stronger. But in the end, it was not because of the IOF, and as Delano has just said. So there is some difficulty to adapt to this new environment especially the customers that are autonomous, and they have some cash flow concentration in some periods, there will be a limitation in investing their capitals in pension plans, and we need to focus recurrence, especially in PGBL and periodical monthly investments to try and work around this difficulty that we are having now in terms of raise new funds with the IOF being levied. Tiago Binsfeld: Thank you, Rafael and Delano. Just one question, when you look at the Q4 and also considering the guidance, which is around 9%. Rafael Sperendio: Well, Tiago, what we are seeing, that there was a peak between July and August, and we see the portabilities really growing and gaining speed. Today, we are having great difficulty to find issuances with a spread that is adjusted to risks that are interested -- interesting to allocate funds. So in fact, we are not seeing any high portability and with even a slowdown as compared to what we saw in the third quarter. Felipe Peres: The next question comes from Eduardo Nishio from Genial Investments. Eduardo Nishio: I have two questions. Number one, we are going to see a lower Selic scenario. But your top line is slightly suffering the pressures in terms of collection, both in insurance and pension, I think that the IOF really got in the way. In addition to IOF, which are the measures that you are trying to implement to make these numbers positive in your opinion, 2026, with everything that is going on, and we are expecting both in insurance and in pension if you could share with us the prospects for 2026 regarding these two topics. Also, there is a follow-up for the previous question. The portability rate has almost doubled to 3.5%. And has IOF really increased the aggressiveness by third parties in BB Seg considering that IOF is not charged on transferability and if we get at the same levels? Well, the question has been kind of answered, but is there a possibility of being slightly more aggressive in terms of portability of third parties? Rafael Sperendio: Thank you very much, Nishio, for your question. I'm going to answer your second question first. So it's difficult to tell how much of this comes, is because of IOF. Even though the transferability are related to players that, who are essentially focusing on transferability. So this didn't change with the IOF. Now whether there was more aggressiveness because of IOF, we don't know. It's difficult for us to tell and to quantify. But as I said in October, we see a slowdown, and this is a driver for transferability and this is nominal, and it is the return. And our base, as Delano said, and as I said before, and as I reinforced, our assets are essentially more concentrated in public bonds, which in terms of risk are safer than the private per nature. But as the market is more net, this has slightly more volatility in the return that we are reporting to our end customers. And then many times, they don't really like it, then they want to choose private credit because there is less liquidity, even though the risk is higher than it is with public credit. So this is the context we are experiencing, and this is what favored higher transferability in the third quarter. As the volatility goes down, and this is what we are seeing now in October rates closing, this is an additional component for the improvement of this competitive environment, we see transferability going down. So today, with information we have in October, and November, we are not seeing the same level of transferability that we saw in the third quarter. As to your first question, in this context, so IOF being charged, so they will be after BRL 600,000 per year. This was not expected, and we are still adapting to the new scenario. We are not going to go back to the inflow levels that we used to have until last year. This is going to be gradual work, as Delano said, of change and increase in the composition of the inflows with whatever frequency, whether it's monthly, quarterly, but this is long-term work. Now we need to expand our basis, having more recurrence and some customers do not mind paying the IOF and others depending on their properties, 5% of IOF really affects collection, and we will need to work with a higher frequency of investments, and this is along the year, this is gradual and takes a while for us to go back to the same level of gross inflows. In terms of insurance, so what do we expect in 2026? Even though it doesn't look like, it looks like our business is anticyclic because of the behavior of net income. But this is not the essence. It's relatively cyclic differently from other industries in the financial industry, but it depends on credit. So what we are seeing this year with a high interest rate was a reduction in origination in rural with the unique features and credit life that are having more difficulty, both in the origination of new credit and so that the credit life insurance is in there. For 2026, I'm going to use the assumptions based on interest rate cuts. We are expecting rates to go down as compared to 2025. And in itself, this will provide a better environment for credit origination, which somehow helps to go back to more appropriate levels for us to write premium first in credit life and then rural. So today, for 2026, we are working in a process of discussion in terms of our budget, a growth in almost all business lines and a growth is still at 1 -- high digit, especially thinking in terms of reduction of interest rates in 2026. Eduardo Nishio: Congratulations on your performance. Just a follow-up. As to the prospects for 2026, so this means that in theory, you're going to have growth in 2026, at least in top line. Interest rates. What is the level of interest rates you're working with for 2026 and the numbers that we see in consensus average Selic will be practically the same as 2025? What is your opinion about that? Do you agree with that? Or can we count on investment income more or less at the same level? Of course, you have volume to help, but an average Selic similar. Should we expect the same levels of investment income? Rafael Sperendio: Well, -- in order to avoid projections, I'm going to use what's implicit in the curve. So interest rate curves, 1 point reduction in average Selic. So our sensitivity to Selic in the bottom line is the same. So 1 Selic point up or down, it means BRL 100 million impact up or down. So today -- so if this is what happens in 2026, so a reduction in the curve, which is difficult for us to compensate in any other way. It's important to emphasize that another component that has favored our investment income along 2025, which is the gap between IGP-M and IPCA, the market projections indicate that there will be a slight deflation for the IGP-M and IPCA above 4. This has also contributed positive for our investment income, something that we cannot count on for 2026. So today, it's very difficult for us to work on prospects of stability or growth of the investment income of 2026. We are thinking in terms of a reduction. Felipe Peres: Our next question comes from Gustavo Schroden from Citi. Gustavo Schroden: I have two questions to ask. One is still in the dynamics of the premiums. So what do you expect? What can you share with us about the ratio between written premiums and earned premiums. So in terms of written premiums, we have a slightly more negative dynamic. And how should we think of the carryover in terms of earned premiums? So if you could share with us in terms of premiums written and premiums earned and then in 2025. And more specific question for Delano. Could you share with us something slightly more strategic since you take over the company, which are the main topics that you're going to address your challenges, the expected legacy for you to deliver now that you're leading the company? Delano de Andrade: Thank you so much, Gustavo, for your question. As I said just now, my main focus is going to be on seeking synergy between the invested companies so that we effectively have a customer-centered vision so that we can review our journeys, focusing on improving satisfaction, increasing our customer base and making that customer base more profitable. And we are going to focus on operational efficiency. We'll seek to reduce expenses, and we are going to bring that in a positive way also to offset any possible impact in our financial -- in our investment income with interest rates dropping next year. So the idea is for us to continue focusing on innovation, improving our portfolio, improving how we meet the needs of our customers and the services that we provide to them, going to new business lines, combining business journeys between the different companies and favoring the economic growth of our company. I believe that the legacy that I hope to leave is a company that will not just be stronger economically, but also acknowledged as the best insurance company in Brazil. Rafael Sperendio: Well, Schroden, based on your initial question about earned -- premiums written and premiums earned. So we're still expecting to increase earned premiums with a low growth year-on-year. As I said before in the previous answer in terms of what we expect in terms of resuming growth, especially for credit life, but as credit life has a long time, this is not going to be translated in premiums written, and this is going to be a result that is going to be carried over more to 2027 than to 2026. For 2026, we still have a residue, so to speak, of past terms to accrue in the result, and this creates growth, but it's a low year-on-year growth that we are expecting for next year. Felipe Peres: Next question comes from Marcelo Mizrahi of Bradesco BBI. Marcelo Mizrahi: Good luck with the challenge. My question goes to the life farmer. So it's been very successful. So it's a very good level, so with this credit life for farmers. So could this product have the impact of this slightly more difficult scenario in agro? Could it remain resilient, keeping the same levels in the future? How should we think about the credit life for farmers looking into the future? And also about loss ratio, the loss ratio also considering credit life for farmers, it got my attention what it has in terms of the usual life insurance. How should we think about the loss ratio for this product? It's been going down over the last 3, 4 years. Or what should we think in terms of loss ratio for credit life for farmers looking into the future? Rafael Sperendio: Mizrahi, thank you very much for your question. I'm going to start with loss ratio. So speaking about the loss ratio, in terms of the lower loss ratio, also because it is a shorter product than traditional life insurance and with a lower average age. So it has a lower loss ratio. So what it carried over year-on-year, it explains part and we kept the maximum age for maximum capital protected, where we saw that there was room for an increase in risk taking. And then we had a high level despite the slowdown in agricultural insurance. So what we see for that in the future? I do not believe that it's going to be so closely related because farmers have an awareness of protection that is higher than urban citizens because of their experience of risk that they have in a day-to-day in the farm and also considering their experience that they have, even though this is a smaller public that experience they had during the COVID with more than BRL 1 billion that paid in damages during the COVID-19, more than half of that was to farmers. And this helps reinforce the culture of protection that they have. Now in fact, when we look at this growth rate year-on-year, it slows down because this adjustment between amount insured and age. So we started having a comparison basis that's slightly stronger. And the fourth quarter is going to be no difference. The space to penetrate is not as big as it used to be as it is in agricultural insurance. Marcelo Mizrahi: Now I have a question about the loss ratio of rural insurance as a whole. So there was some reversal in August, which is different from last year with a slightly more -- bigger loss ratio. So the costing gets the attention. So should we expect the loss ratio to go up in future quarters? Rafael Sperendio: Well, statistically, that makes sense in the last 3 years, there are 3 cycles in this -- because that were very favorable when we look at countrywide exposure to risk. Now today, in the more up-to-date projections, we are seeing an intensification of La Niña phenomenon in the fourth quarter, and this is likely to have some impact in the loss ratio for the summer harvest that is going to be collected early next year. But when we look at the sequence from the second quarter onwards for 2026, then there's a predominance of it being flat, which is favorable. So it is natural for the loss ratio to go up, especially for the crop insurance. But for now, we don't think this is going to be so significant as in terms of having a material impact in the bottom line, but there will be a higher level if we compare year-on-year. Felipe Peres: Now our next question comes from Maria Luisa Guede from Safra. Maria Luisa Guede: Now still on rural insurance, there are two things that I would like to explore on. Number one, still what Sperendio just said about loss ratio, but now talking about retention. We see the retention rate going up by a few percentage points. I think that with slightly more favorable loss ratio environment. So how do you see the retention thinking in future crops when the loss ratio might get slightly worse? And number two, I would like to understand, considering the bank negotiation program that was launched a while ago, was there any window of opportunity to embark rural insurance? And is there any upside related to that in the second quarter? Or there were no opportunities and the next premiums issued in terms of being related to the last crop. Rafael Sperendio: Thank you for your question. First, the second question. As to the renegotiation, yes, there is an opportunity, but we prefer to work as if it weren't there. We prefer to be slightly more conservative also because of the uncertainties related to the environment as to see something completely new, we prefer to have a slightly more conservative environment, and we are not seeing any upside. And also in terms of the guidance and the best efforts to try and have a variation rate closer to the floor of the guidance, but it is concentrated on other lines that do not depend so much on the rural segment, especially credit life. As to the question involving life insurance, what was your question about retention, especially for rural insurance? I remember now. Sorry, as to retention. Well, we -- so we grant to reinsurance risk, especially for the crop insurance. About 3 years ago, more or less, we conducted a quite deep assessment of the underwriting model, the quality of our portfolio, and we put that against a historical perspective to understand that, yes, we could retain more risk in our portfolio. So we did not just said, but we also worked on a very significant process internally to maximize the operations that we were -- for which we were getting reinsurance. But all the work ended up leading us to the conclusion of increasing retention, but in a conservative way. This was gradual along the last 3 years and the intention in year 3, 2026, we want to increase our retention slightly more. So increasing the retention on that risk in 2026. Felipe Peres: Our next question comes from Guilherme Grespan from JPMorgan. Guilherme Grespan: So I have two questions about rural insurance. It's about the lien insurance. There was an increase in average ticket. Is it related to pricing? Could you give us more details on magnitude? And my second question is about products. I think that there was a gap that is easy to close at [indiscernible]. I would like to explore with you the rural. So we are seeing significant changes in the industry in terms of losing loans against other types of products. Just as a reminder, so does your insurance today include other products other than banking loans and how do you compare? Could you just remind us about the different ways of funding for farmers? Rafael Sperendio: So answering your second question first, Grespan. Thank you. Today, we are working essentially in terms of costing for bank loans. So we are working with CPR in partnership with our investments in the platform, a joint investment that we have with Banco do Brasil. And then we do expect that to expand the scope of operation after 2026. So we are advanced not just in terms of crop insurance for CPR, but it includes the entire rural portfolio materialized in CPR. So life insurance, credit life for farmers and lien and crop insurance. So it's about the Lien. So there was a higher average ticket. Yes. And this is a recurring process that we do. So especially updating machinery equipment prices that were updated, but this was the main driver for the performance of lien insurance. So there is something related here to livestock lien, something that we are exploring more intensively. It's kind of new. I think it's two years old, and it has also contributed more significantly for the growth in lien insurance. Felipe Peres: Now our next question comes from Pedro Leduc from Itaú BBA. Pedro Leduc: So the first question is about the private -- about the credit life for private payroll loan. And the second question is about other lines that are becoming more important in agro credit and there are players other than BB. So how are you going in terms of trying to find new channels for your products? And so it didn't use to be so relevant in the past. Any updates, anything that we can see for the future? Rafael Sperendio: Thank you for your question, Leduc. As to the credit life for private payroll law, so right at the launch, it went very well. There was a slowdown in premiums now, but it has provided a significant contribution, something like BRL 168 million in premiums, new premiums. This is equivalent to the monthly production in terms of credit life here in Banco do Brasil. We still have room today when we look at the penetration in credit life and in the credit life for private payroll loans. So we will be able to use that opportunity as interest rates go down as expected in future years. So for now, it's difficult to attribute that -- to attribute a great growth in the short term. It's going to be diluted as interest rate goes down. As to partnerships in the agro segment, so all the effort that we made in the last 3 or 4 years to expand channels when our focus now is more concentrated on the rural segment where we have a competitive advantage, even more than in other segments. We still place great emphasis. We have expanded significantly the number of partners, but the transition today is very diluted in terms of small partners. So in future years, our intention is to focus slightly more on this segment and seek partners that have a higher capacity for the origination of risk. And this is -- this would be #2. And as I said in the previous answer, also expanding our niche of operation, not just in costing credit, the regular, but also in credits originated from CPR. Felipe Peres: Our next question comes from Carlos Gomez from HSBC. Carlos Gomez-Lopez: I wonder if you can give us a bit more detail about how the rural insurance is evolving. You mentioned that you have just started with the restructuring program from the government. But how have the last few months been compared to your expectations? And how do you think that we have reached a bottom in terms of credit and insurance origination in the segment? Rafael Sperendio: So when we assess the rural segment as a whole, Q4 regardless of renegotiations is likely to be a weaker segment for insurance. We do not concentrate major issuances of crop insurance. We have a program of renegotiation, and we are placing a focus on that, but we are not working with estimates for the cross-sell of insurance. And so we have life and then lien. So today, in the rural segment as a whole and everything that we are doing, even though we believe and we expect growth over a very weak basis that is becoming actual in 2025, it's still a period of adjustment, still very far from when we had more premiums being written in 2022, '23, we are not seeing this happening again in the short term. So as we see it, especially what's going on in the rural segment now is what happened to other industries after the pandemic. There was an imbalance between supply and demand, which went through an adjustment. And this is what is going on with the rural segment right now. Moreover, there was also a reduction in subventions, which has created an additional difficulty for us to be able to continue growing with crop insurance. As these many factors are rebalanced for the industry as a whole, we are likely to see crop insurance growing again also because, as we said in the beginning of the presentation, the penetration of crop insurance in the planted area in Brazil is very low. And so it's 7%, and we saw this number exceeding 10%. But the thing is we will be able to explore this opportunity better once we go through the adjustment, which is likely to happen a long time. It's not something that is going to take place in the short term. Carlos Gomez-Lopez: I mean you are talking about very low growth in premiums. You're talking about a decline in the financial income. Is it realistic to expect flat earnings for next year? Or we should expect a small decline? Or it is too early for you to tell? Rafael Sperendio: Well, overall, Carlos, it's very difficult to keep income stable or to grow in 2026. Today, according to our best estimates, we are seeing very robust performance in 2025, very strong bottom line this year. And as most of the market are aware of the numbers in the third quarter, we'll update their projections for the year and then realize what I'm saying now -- and -- but considering the information that we currently have for 2026 and in terms of a smaller investment income, which has a direct or immediate impact in terms of the growth in revenue and accounting deferral, this is something that happens over time. Today, the impact of the invest income and slightly higher loss ratio, even though it's marginally higher, it's difficult for us to be able to offset with the growth in sales, especially because of the accounting deferral. So today, the basic scenario, we are not working with stability or higher profit in 2026. Felipe Peres: Now we have one last question in the line coming from Antonio Ruette from the Bank of America. Antonio Gregorin Ruette: I would like to steer away from rural insurance and look into other lines and more specifically, credit life. Could you give us more details considering the cross-selling, considering individuals and companies. So there is a negative impact of companies. So I would like you to tell us a little bit more about that. How is penetration evolving? And so there is a significant decoupling between credit life. So could you tell us how penetration is evolving and what you expect in the future? Rafael Sperendio: Antonio, thank you for your question. Well, we assess the behavior of the credit life portfolio just as we are considering the credit cycle. 10 years later, it's not too different from what we saw in 2015, considering the perspective of BB Seguridade. So the breakdown between individuals and companies. So for what we consider eligible today for individuals, this is a portfolio with a risk that is very much under control. It's very resilient. So what we have been feeling in terms of individuals, this is more an issue of interest rates and impact of the higher rate and maybe the insurance, whether it fits into what customers think is appropriate for their payment capacity. But this is not something that has any significant impact. And also the credit life for individuals, it's low. I can't really remember. It's about 2%. It's quite low. Now in terms of companies, especially where we have exposure in terms of micro, small and middle-sized companies, this is where we feel the raise in interest rates. And when we look at year-on-year numbers, so the net issuance for individuals is about BRL 80 million. So this is a level that is well below what we had been having. This number was not negative just because of the increase of new lines, as Delano said, so we are operating with [indiscernible] and all these lines have brought in a new public, a new audience that made it possible for us to bring corporate credit life to the positive side. So as we saw 10 years ago in terms of credit, so this is more concentrated in small and middle-sized businesses. This is where this is slightly more difficult. As interest rates drop, this is a segment that reacts quite fast, and it will contribute to a healthier level of premium originate. Antonio Gregorin Ruette: But in the case of small and midsized businesses, so is it like it is for individuals, it's the rate and higher interest rate and then the price of the installments cannot be included. Rafael Sperendio: Yes. But this is a more sensitive audience. So this is very much focused on civil servants and the INSS, the public and the social security of Brazil. So this is less affected than companies, but the origin is the same. It's just a matter of sensitivity. Antonio Gregorin Ruette: Well, nice, if I could follow up. I think Schroden asked you about what you can do in the company's strategic agenda. And you talked about an efficiency agenda. Is there something more specific that today you think you could do? Rafael Sperendio: Well, there's lots of opportunities in terms of productivity and operational efficiency. As a whole, we have lots of redundancies, and this is something that we will not be able to completely eliminate considering all the portfolio with different partners in different businesses. But yes, there is room for improvement, and we have the intention to place great emphasis on that in 2026, which is a variable that's slightly more under our control. Felipe Peres: We are going to go through some questions that came in writing from the Q&A. So there are many questions, many of them have already been answered live. We just have a few ones. I think that one that we must answer and for you to start on the right foot is the renewal of the contract with Banco do Brasil and all the discussion of contracts, which is something recurring. Delano de Andrade: Thank you, Felipe. Yes, it was funny that no one had asked the question. We have no exposure, nothing on the table about contract renegotiation. This is going to happen at the right time. It would be impossible for me to tell a time for that to happen. And there is -- we are not expecting this to happen in the very short term. So as soon as we have -- we find the most appropriate time with Banco do Brasil, we are going to announce that. But for now, there is nothing on that area. Felipe Peres: Thank you, Delano. Another question that is also recurring about dividends. So the schedule for the payout of dividends and more specifically, if -- is it possible for us to have the extraordinary payout of dividends based on profit reserve? Rafael Sperendio: So as to the payout of dividends, -- so we have a quite robust cash, not just at the level of holding at BB Seguridade, but also at the brokerage firm, which might allow us to have a payout over the profit of the second half higher than what we had for the profit of the first quarter. But in principle, the basic scenario, we are not expecting to pay extraordinary payout of dividends. There should be a good balance between our brokerage business and is the holding BB Seguros and BB Seguridade so that there is no tax loss in the companies. So today, essentially, our expectation is to have a higher payout in the second half of the year, but we wouldn't work with earlier or advanced payment of extraordinary dividends. Felipe Peres: Thank you, Rafael. So in this manner, we finalize our questions. We would like to thank everyone for your participation, and I'm going to give the floor to Delano and Rafael to -- for their closing remarks. Delano de Andrade: So I would just like to thank you once again for your participation, for being here with us. and all questions that may not have been answered. So thank you all so much. I would like to thank everyone for your participation. Thank you very much for being here with us. And I would like to thank BB Seguridade team, all the investees and also Banco do Brasil and everyone contributed for our excellent performance. Thank you all very much, and have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning. My name is Madison, and I will be your conference operator today. At this time, I would like to welcome everyone to Harmony Biosciences Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I will now turn the call over to Matthew Beck. Please go ahead. Matthew Beck: Thank you, operator. Good morning, everyone, and thank you for joining us today as we review Harmony Biosciences third quarter 2025 financial results and provide a business update. Before we start, I encourage everyone to go to the Investors section of our website to find the materials that accompany our discussion today, including the reconciliation of our GAAP to non-GAAP financial measures. At this stage of our life cycle, we believe non-GAAP financial results better represent the underlying business performance. Our speakers on today's call are Dr. Jeffrey Dayno, President and CEO; Adam Zaeske, Chief Commercial Officer; Dr. Kumar Budur, Chief Medical and Scientific Officer; and Sandip Kapadia, Chief Financial and Administrative Officer. As a reminder, we will be making forward-looking statements today, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties. Our actual results may differ materially, and we undertake no obligation to update these statements even if circumstances change. We encourage you to consult the risk factors referenced in our SEC filings for additional details. I would now like to turn the call over to our CEO, Dr. Jeffrey Dayno. Jeff? Jeffrey Dayno: Thank you, Matt. Good morning, everyone, and thank you for joining our call today. I want to start off by saying how proud I am of the Harmony team and their exceptional performance this quarter. It reaffirms Harmony's reputation for executional excellence. As we have shared, Q3 was a very strong quarter for Harmony. We reported $239.5 million in net revenue for the quarter, representing 29% growth year-on-year. And with this momentum, we recently raised our net revenue guidance for the year from $820 million to $860 million, taking it up to $845 million to $865 million. We had robust cash generation of $106 million, bringing our balance sheet to $778 million as of September 30. But what I am most proud of is that this performance was driven by the highest number of quarterly patient adds for WAKIX since our launch with an average of 500 patients added this quarter, resulting in an average of 8,100 patients on WAKIX at the end of Q3. Our Chief Commercial Officer, Adam Zaeske, will next be providing more color on some of the things his team is doing to drive this strong momentum in our WAKIX business. There are many different ways to measure impact. Delivering innovative treatments to patient populations living with unmet medical needs is a very meaningful one. With this sustained momentum, we believe WAKIX is rapidly approaching a $1 billion-plus blockbuster status in narcolepsy alone. Along with our very strong commercial business, Harmony also has a robust late-stage pipeline with multiple catalysts coming over the next several years. We continue to have firm conviction in our pipeline and full confidence in our R&D team to successfully execute on these programs. In fact, the IND for pitolisant HD, our pitolisant high-dose formulation has been submitted to FDA, and we are on track to initiate 2 Phase III trials, one in narcolepsy and in idiopathic hypersomnia or IH before the end of the year. Kumar will provide an update on our pipeline programs later in the call, including an update on the RECONNECT study in Fragile X syndrome. Turning to our balance sheet. With over $778 million in cash and cash equivalents, a disciplined approach to capital deployment and a team with extensive industry experience, Harmony is well positioned to strategically pursue value-enhancing assets to add to our pipeline and build a broader product portfolio. That is our intent and a key component of our vision to become the leading patient-focused CNS company, delivering innovative treatments that can help even more patients living with unmet medical needs. We believe that we have built something rare in our industry, a profitable, self-funding biotech company with an innovative catalyst-rich pipeline poised to deliver meaningful value for both patients and our shareholders. It is because of this unique profile that we continue to execute from a position of strength. And coming off of our exceptional Q3 performance, we believe that Harmony is one of the most compelling growth stories in biotech today. With that, I'll turn the call over to Adam Zaeske, our Chief Commercial Officer, for an update on our outstanding commercial performance. Adam? Adam Zaeske: Thank you, Jeff. Harmony's Q3 2025 results were the strongest we've seen since launch. WAKIX delivered $239.5 million in net sales for the quarter, representing nearly 30% year-over-year growth in its sixth year on the market. WAKIX achieved a record increase in approximately 500 average patients for the quarter. This represents the highest quarterly increase we've ever seen and comes after the Q2 increase of approximately 400 average patients, which has only been achieved twice previously. As a result, WAKIX achieved approximately 8,100 average patients for Q3, exceeding our previous guidance of achieving nearly 8,000 patients by a full quarter. The foundation of WAKIX performance has always been the unique position WAKIX owns as the only nonscheduled treatment option, resulting in its broad clinical utility. WAKIX enjoys extremely high brand awareness, is perceived as efficacious and well tolerated and is supported by broad payer coverage that has remained consistent for years. In addition to this, I'd like to highlight some recent areas of focus. We have adjusted our field sales deployment, call plan and messaging and continue to deliver sound sales execution. We've refined our promotion and messaging. We've secured important new payer coverage wins, which continue to expand our already broad payer coverage. And we have made improvements in how we support patients moving from a WAKIX prescription to dispense, reflected in higher rates of conversion and shorter times to dispense. Much of what we're focused on are the fundamentals from sales execution, marketing and promotion, payer coverage and patient support. The adjustments we are making are delivering results, and we will continue to look for additional opportunities in all areas moving forward. As we look to the fourth quarter of 2025, we expect continued growth in average number of patients and momentum. As a result, we recently raised our full year revenue guidance of $820 million to $860 million to the high end of the range between $845 million and $865 million, and we are rapidly approaching achieving $1 billion plus in annual revenue from narcolepsy alone. Looking to the future, the pitolisant GR and HD formulations each target significant unmet patient needs while extending our growth potential with utility patents filed through 2044. Early feedback from physicians and payers on the HD formulation has been particularly encouraging, and we will be able to leverage our commercial infrastructure to drive the next phase of growth through our pitolisant franchise formulations. In summary, the performance of our business has never looked better, fueled by a highly differentiated product, a focus on fundamentals and excellent execution across the organization. We are confident in our continued growth and performance moving forward. And now I'd like to turn the call over to our Chief Medical and Scientific Officer, Kumar Budur, to discuss the advancements in our clinical development programs. Kumar? Kumar Budur: Thank you, Adam. Good morning, everyone, and thank you for joining us today. We continue to make good progress in R&D with 3 Phase III registrational studies ongoing and anticipate up to 5 Phase III registrational studies in 5 distinct indications by the end of the year. And we have some important updates to share on the next-gen pitolisant programs. Starting with our Sleep/Wake franchise, we continue to make significant progress across our next-gen pitolisant programs. I'm pleased to report that we have submitted the IND for pitolisant HD to the FDA. The pitolisant HD program, an enhanced formulation with an optimized PK profile and higher dose, targeting enhanced efficacy for excessive daytime sleepiness and pursuing a differentiated label with an indication for fatigue in narcolepsy is on track for Phase III initiation in Q4 2025. Similarly, the Phase III study with pitolisant HD in patients with idiopathic hypersomnia is also pursuing a differentiated label with an indication for sleep inertia, and we are on track for initiation in Q4 2025. The target PDUFA dates for both programs are in 2028. The other next-gen pitolisant formulation, pitolisant GR, is designed to minimize the potential for treatment-related GI side effects, especially since almost 90% of patients with narcolepsy experience comorbid GI symptoms. In addition, pitolisant GR also provides an ability to start at the therapeutic dose range at 17.8 milligrams, eliminating the need for titration, an important differentiation. To demonstrate this, we conducted a dosing optimization study, which is now completed. We are excited to share that in this study, patients with narcolepsy started pitolisant GR at 17.8 milligram and 100% of the patients, that is all 46 of 46 patients were able to initiate pitolisant GR at the therapeutic dose of 17.8 milligram with no safety or tolerability issues. In addition, 98% of the patients who received pitolisant GR 35.6 milligram at week 2 tolerated the higher dose well. No new AEs or SAEs were observed from this study. Pitolisant GR is a fast-to-market strategy designed to demonstrate bioequivalence to WAKIX formulation. The top line data from the pivotal BE study is on track for Q4 2025 with a target PDUFA in Q1 2027. Utility patents have been filed for both pitolisant GR and pitolisant HD with potential exclusivity to 2044, securing long-term franchise value. Beyond pitolisant, our Sleep/Wake portfolio continues to advance with BP1.15205, a highly potent orexin-2 receptor agonist demonstrating best-in-class potential in preclinical studies. At the recent SLEEP meeting in Seattle and World Sleep Congress meeting in Singapore, we presented comprehensive preclinical safety and efficacy data that demonstrated efficacy at very low doses across all parameters of interest in a standard transgenic mouse model. We are on track to dose the first subject later this quarter, and we anticipate sharing clinical data in 2026. In the Neurobehavioral franchise, as we have already disclosed, the ZYN002 Phase III RECONNECT study in Fragile X syndrome did not meet the primary endpoint of improvement in social avoidance, mainly due to higher-than-expected placebo response. This is disappointing for Harmony and for the Fragile X syndrome community who continue to wait for approved therapies. The in-depth review of full data set is ongoing, and we plan to share additional information in the near future. The ZYN002 program in 22q deletion syndrome has been paused pending the full review of the RECONNECT data. In our Epilepsy franchise, we continue to actively enroll patients in 2 global Phase III registrational trials with EPX-100, the ARGUS study in Dravet syndrome and the LIGHTHOUSE Study in Lennox-Gastaut syndrome. EPX-100, our clemizole hydrochloride is a 5HT2 serotonergic agonist and works we are enhancing serotonergic tone, an established mechanism of action for developmental and epileptic encephalopathies. In addition, it has a unique safety and tolerability profile and the emerging safety profile is supportive of no requirements for additional laboratory or special safety monitoring compared to some of the drugs commonly used in these disorders. We will be presenting some of the efficacy data from the ARGUS open-label extension study and the safety tolerability data on EPX-100 at the upcoming American Epilepsy Society Meeting in December. Finally, on behalf of Harmony, I would like to thank all the patients and their families who are participating in our clinical trials as well as the clinical investigators and site personnel for their efforts and commitment in helping us to advance our development programs. I'll now turn the call over to our CFO, Sandip Kapadia, for an update on our financial performance. Sandip? Sandip Kapadia: Thank you, Kumar, and good morning, everyone. This morning, we issued our third quarter 2025 earnings release and filed our 10-Q, where you'll find the details of our financial and operating results. We delivered strong financial results in the third quarter with our highest quarter-to-date in revenues and cash generation. Our financial performance and profile positions us well to continue advancing our growth strategy for the remainder of 2025 and beyond. We reported net revenues of $239.5 million compared to $186 million in the prior year quarter, representing a growth of 29% year-over-year. The growth was driven by very strong demand for WAKIX as demonstrated by our record increase in average number of patients, along with an increase in trade inventories of a few days as we head into the fourth quarter. We reported total operating expenses for the third quarter of $114.3 million compared to $81.6 million for the same quarter in 2024. The expenses during the third quarter of 2025 included investments to advance our late-stage pipeline, a $15 million milestone for the completion of the enrollment of the ZYN002 trial as well as continued commercialization of WAKIX in narcolepsy. We also continue to show solid net income growth. Non-GAAP adjusted net income for the third quarter of 2025 was $63.5 million or $1.08 per diluted share compared to $57.3 million or $0.99 per diluted share in the prior year quarter. We believe non-GAAP adjusted net income better reflects the underlying business performance. Please see our press release for a reconciliation of GAAP to non-GAAP results. As previously mentioned, Harmony ended the third quarter with approximately $778 million in cash, cash equivalents and investments. The balance reflects strong cash generation, resulting in an increase of $106 million in the third quarter. We continue to actively pursue value-enhancing strategic opportunities to deploy our capital to expand our portfolio and drive value for shareholders. Looking ahead, in 2025, our strong performance through Q3 gives us increasing confidence in our full year outlook. We recently raised our revenue guidance from $820 million to $860 million to $845 million to $865 million. These results also gives us confidence that we are rapidly approaching blockbuster status for WAKIX in narcolepsy alone. With respect to expenses, we expect continued investment in R&D as we advance our late-stage pipeline with the start of 2 Phase III studies for our pitolisant HD programs. As a result, we expect to have 5 ongoing Phase III registrational programs by the end of the year. In addition, we also expect a milestone of $4 million in Q4 related to the initiation of our Phase I trial in our orexin-2 agonist program. In summary, we had very strong results for this quarter, along with positive momentum going into Q4. That, along with our strength of our balance sheet, puts us in a solid position to accelerate our growth strategy and drive value for shareholders. And with that, I'll turn the call back over to Jeff for his closing remarks. Jeff? Jeffrey Dayno: Thank you, Sandip, and my thanks to everyone for joining our call today and for your interest in Harmony Biosciences. In closing, I am very proud of our team's exceptional performance in the third quarter and energized by our progress. Let me highlight a few key points to leave you with. First, we delivered a very strong quarter with 29% year-on-year revenue growth, driven by a record number of an average of 500 new patient adds for the quarter. With this sustained momentum, we believe WAKIX is rapidly approaching a $1 billion-plus blockbuster status in narcolepsy alone. Looking ahead, our late-stage pipeline remains robust, and I continue to have strong conviction in our pipeline programs, which are making excellent progress. Lastly, we continue to strengthen our unique profile of being a profitable, self-funding biotech company with an innovative catalyst-rich pipeline poised to deliver meaningful value for patients, providers and shareholders alike. We believe that this is what makes Harmony one of the most compelling growth stories in biotech today. Thank you. And I will now turn the call back over to the operator for Q&A. Operator? Operator: [Operator Instructions] And we will take our first question from Ami Fadia with Needham. Ami Fadia: [ Congratulations ] on the strong third quarter. My first question is just around kind of your guidance. You've obviously raised your guidance. And even if we look at the year-to-date performance compared to the full year 2024, there's certainly acceleration in the new patient adds this year. So if you could sort of elaborate on how you see the trajectory of WAKIX evolving? It's certainly several years into the launch, but it appears that there is acceleration here. So if you could comment on how you see that evolving into 2026 and if that can be sustained? And then I have 1 or 2 other questions. Jeffrey Dayno: Ami, thank you for your question. I'm going to turn it over to Adam to speak about in terms of the trajectory of patient adds and the strong fundamentals there. And then Sandip can comment on kind of our thoughts and position on guidance. Adam? Adam Zaeske: Yes. Thanks, Jeff. Ami, thanks for the question. So yes, performance is going to be driven fundamentally by patient adds. And as you saw, we're extremely pleased with the quarterly increase in average patients of 500. We haven't seen that high of an increase ever since launch. And it comes on the back of a solid Q2 increase of 400 patients, which we had only seen twice previously. And the last time we saw an increase of 400 patients was, I think, early in 2022. So we're very pleased with the underlying performance of the brand and the fundamentals remain strong and that momentum we expect to carry forward into Q4. But Sandip, do you want to share your thoughts on that? Sandip Kapadia: Yes. No, absolutely. As mentioned on the call, I mean, we recently raised our guidance from $820 million to $860 million to $845 million to $865 million. As reflected in the guidance, we saw really good strong demand, as Adam just talked about. We did also see a slight increase in trade inventory during the quarter, which obviously had an impact. As you may recall, in Q2, it was the opposite. We saw a bit of a drawdown. Again, it's typical wholesaler ordering patterns. Thing is it's hard to predict these things as we go into Q4, but we feel very good about the top line demand growth because ultimately, that's what helps drive revenues at the end of the day. And so what we're seeing, we're very optimistic about top line growth in terms of patient adds as we go into the next quarter. And with regard to revenues, it's really just a question of where we end up with trade inventory sometimes at year-end, it's hard to predict. So again, it's going to be a very strong year, well ahead of our original guidance, again, ahead of our guidance in terms of net patient adds for the year. We had originally guided to about 8,000 patients, and we're well ahead of that as well by year-end. So really, we're going to see great momentum going into the end of the year on top line demand and certainly going into 2026. And of course, we're rapidly approaching blockbuster status for WAKIX. Jeffrey Dayno: Yes. Yes, Ami. And I would just add that I think, obviously, we're very pleased with the recent trends, and we're following them in terms of how that will sustain us going into the future. But underlying fundamentals remain very strong. Pleased with, obviously, some of the things Adam has done with the commercial team, and that positions us well going forward. Ami Fadia: Great. And my next question was just for Kumar. With regards to the GR formulation, can you give us some color on what were the GI AEs seen with the GR formulation and how did the grade or frequency of those AEs compared to the in-market WAKIX sort of titration in the initial dosing period? Kumar Budur: Yes. Ami, thanks for the question. What we are disclosing right now is no new safety or tolerability issues were observed with the pitolisant GR formulation, no serious AEs were observed. The safety and tolerability was, in general, consistent with the established safety tolerability profile of pitolisant GR. We will be disclosing the full data set in upcoming meetings. Haven't decided when exactly. But what's important from the pitolisant GR formulation, Ami, is we initiated 46 patients with narcolepsy with pitolisant GR at 17.8 milligrams. And all of those patients were successfully able to tolerate 17.8 milligrams and about 98% of the patients who went to get 35.6 milligram after 1 week of pitolisant GR, 98% of them were able to tolerate pitolisant GR 35.6 milligram. And this is an important differentiation because if you look at the medicines that are approved for patients with narcolepsy, every one of them, including pitolisant has some level of titration and getting rid of the titration will have the patients to start at the therapeutic dose range, potentially can experience efficacy earlier, potentially less number of dropouts and potentially better overall patient experience. Ami Fadia: If I could just squeeze in one more other quick question. If you could just elaborate on some of the details of what we should expect from the ARGUS open-label extension data at AES in December? Kumar Budur: Yes. Thank you, Ami. Yes, we do -- we will be presenting some efficacy data on EPX-100 from the ARGUS open-label extension study. And we'll also be presenting safety and tolerability data from EPX-100 from the same study, ARGUS double-blind randomized study and also the open-label extension study. You'll see the overall efficacy, the safety, tolerability offers an overall very unique benefit risk profile for patients with developmental and epileptic encephalopathies. In this particular instance, particularly the data that we'll be sharing is in patients with Dravet syndrome. Operator: And we will take our next question from David Amsellem with Piper Sandler. David Amsellem: Just a couple for me. First, I wanted to get your latest thoughts on biz dev and M&A, particularly in light of the failure of Zygel. Are you thinking more expansively regarding acquisitions? Are you open to more of a sizable transaction, perhaps a market-ready or commercial stage asset? Just trying to get a sense philosophically for where your heads are at. That's number one. And then number two, looking a bit longer term regarding WAKIX with the introduction of the first orexin agonist coming potentially before the end of '26, and I know it's just NT1, how are you thinking about the trajectory of WAKIX beyond '26, specifically in '27 with oveporexton potentially in the market? Jeffrey Dayno: David, thanks for your questions. So first, with regards to biz dev and our sort of thinking there. I mean, it really hasn't changed. We have always been focused on business development, being strategic, thoughtful in how we deploy our capital as we have built out our pipeline, obviously, the Zynerba acquisition and then Epygenix. I think at this point, despite the Fragile X data readout, it doesn't really change our strategy. We have a dedicated BD team focused on sort of search and evaluation. And at this point, it really is our intent with our strong balance sheet to pursue innovative assets to build out our pipeline to grow our product portfolio. We are actively evaluating several, and that is our plan, but the strategy remains the same. Our focus in orphan rare CNS disorders to be strategic within the current franchises, but also looking at adjacencies potentially in broader neuro indications where we could utilize the proven commercial engine. So the strategy remains the same. I think a bit more focused with regards to our intent to move forward with business development when we find the right opportunities for us. And I'll turn to Adam in terms of thoughts on WAKIX performance in the setting of emergent orexins. Adam? Adam Zaeske: Yes. Thanks, Jeff, and thanks for the question, David. Look, we're excited about orexins, obviously, because we have one of our own, but it's also an important potential new treatment option for patients. And we remain confident in our ability to grow and perform with WAKIX well into the future. And there's a couple of reasons for that. The first is just the approach to therapy in this market. The hallmark of treatment is polypharmacy. You have a high majority of patients that are on 2 or more therapies, and that will continue. We've recently verified that in market research that we've done speaking with physicians, and they expect that to continue as well. But also, if you just look at the history of WAKIX, WAKIX performance has been extremely steady regardless of new entrants, whether it's brands or generics. And we would expect that to continue as well. In fact, if you look at kind of the narcolepsy market in total, any time there's been a new brand entrant, it tends to expand brand utilization. And we would expect a similar phenomenon with an orexin launch when those come to market. But we're also highly confident just because WAKIX is a highly differentiated product. It's the only nonscheduled treatment option. Physicians will have had 7, 8-plus years of clinical experience by the time of orexins launch, and it holds a unique position in the minds of health care providers. They're highly familiar with it, provides strong efficacy and is -- and they believe it's very well tolerated. So it can be added to combinations of therapies across a very broad selection of narcolepsy patients, and that will continue as well. We continue to hold that position. So for those reasons, I think we're very confident in our continued growth and performance well into the future. Operator: And we will take our next question from Graig Suvannavejh with Mizuho. Graig Suvannavejh: Congrats on the progress. One question for me, just going back to the 2025 guidance. It was nice to see a raising of the guidance. But if you do the math, it does imply fourth quarter sales for WAKIX in the range of, I think, $221 million to $241 million. And on a quarter-over-quarter basis, that's essentially flat or down on a quarter-over-quarter basis. So can you just provide more color on how we should be thinking about whether it's net patient adds or gross to net or seasonality when trying to model fourth quarter? I know you -- Sandip had mentioned some inventory could be a factor, but any other color would be great on the fourth quarter, especially given the great momentum on net patient adds. Sandip Kapadia: Yes. Thanks, Graig, for the question. Again, I think we saw great demand in terms of top line growth that we expect to continue as we go from Q3 to Q4 as well. I think we did -- as I mentioned, we did see a few days of trade inventory increase in Q3, which impacted the sales positively. Just as I mentioned in Q2, it's quite the other way -- the other direction. Right now, I mean, we feel very good about the range that we've put out there. We recently raised it, as you mentioned. This gives us great confidence and I'm sure like every team, I mean, we'll do everything we can to certainly not only meet but potentially exceed the range as well. Again, it's hard to predict again Q4 because there are typical variabilities as you come to Q4, especially around brand and holiday and so forth. So we feel good about where it is. It's very robust growth year-over-year. It's going to be a robust growth over prior year. And we see, again, WAKIX very quickly approaching blockbuster status as we go into '26 and beyond. Graig Suvannavejh: Great. If I could ask a follow-up. Just your net cash position is building quite nicely. I'm sure there are various views on how to deploy that cash. Wondering if maybe in an answer that might be slightly different from David's question on BD, what are your kind of current thoughts on how best to deploy that nicely accruing cash balance? Jeffrey Dayno: [ Sandip ]? Sandip Kapadia: Yes, sure. I mean, look, we -- as Jeff mentioned, I mean, we continue to look for business development opportunities. I think that's been a strategy for us for many years now. And we see attractive opportunities out there that we could potentially transact. And we have, again, a continued growth in terms of cash. We had very strong cash generation last quarter of $106 million, $778 million at the end of the quarter. And I think that gives us increasing confidence that we -- but again, we're going to be, I would say, thoughtful in terms of how we deploy our capital. I think we certainly have multiple ways in which to drive value for shareholders. Certainly, more recently, we've been prioritizing business development. But in the past, we've also done share buyback as well as an opportunity. And again, at the right time, we'll look at various opportunities to drive value for shareholders. Graig Suvannavejh: Yes. Jeffrey Dayno: Graig, I'll just go ahead. No, no, I appreciate the question. I just want to reiterate, I think while one can never predict the timing in terms of business development transactions, as Sandip alluded to, we have optionality, but our focus and our intent is really to pursue innovative value-enhancing assets. We want to build our pipeline. We see that's where the value is going forward as well as build a broader product portfolio in terms of -- we have a strong commercial engine. We want to continue to utilize that with additional products. So that is our intent, and we have a strong balance sheet to execute on that. Operator: And we will take our next question from Jay Olson with Oppenheimer. Jay Olson: Congrats on the quarter. Can you talk about your life cycle management plan for pitolisant GR and HD with regards to new patients? And then which patients currently on WAKIX are the best candidates to benefit from GR and HD? And then for your orexin-2 program, what would you like to learn from your Phase I study? And any lessons learned from the Alkermes and Takeda data at World Sleep? Jeffrey Dayno: Yes. Jay, thanks for your questions. Adam, our life cycle management strategy with regards to patients that would benefit from the formulation. Adam Zaeske: Yes, we're really excited about the 2 life cycle management formulations, the GR and the HD. GR is kind of a fast-to-market strategy. And the strategy there would be any patient -- any new patients that would have been prescribed WAKIX would be prescribed the new pitolisant GR formulation as well as we have the ability because we obtain consent from patients when they start WAKIX therapy. We would also be able to recontact patients that may have been on WAKIX previously but have discontinued to see if pitolisant GR could be an option for them to consider as well. So for GR, it's really around new WAKIX patients and previous patients. And then where the HD comes in with a greatly differentiated profile, we would see the strategy there focusing on not only new WAKIX patients and previous patients, but also existing WAKIX patients. And that's where the transition potential comes in. And we've conducted market research around this. HCPs respond very favorably to the profile of HD. They view it as clinically significantly differentiated, actually superior. And in market research, they tell us they would consider transitioning the majority of their patients that maybe are better but not well. And so that's the strategy for HD. And then both formulations have utility patents filed through 2044. So it really allows us to expand and extend our Sleep/Wake franchise well into the future. Jeffrey Dayno: In terms of our [ orexin-2 ] agonist program and learnings from some of the other development programs. Kumar Budur: Sure. Thank you, Jeff. Jay, thank you for the question. Yes, we are on track to initiate the Phase I study with our orexin-2 receptor agonist this quarter. As we have disclosed in the past, we will be starting a healthy volunteer single ascending dose study. And in parallel, we'll be conducting a sleep-deprived healthy volunteer study as well to bracket the dose a bit. And we are closely watching the data that came out of World Sleep Congress from other orexin receptor agonists, especially as it relates to dosing and the safety and tolerability profile alongside the efficacy. We have one of the most potent orexin receptor agonists based on all the publicly available data, and it lends itself to target the central [indiscernible] on NT2 and idiopathic hypersomnia at very low dose, providing us the dosing flexibility to target these 3 indications. And we are also trying to see how we can accelerate our own program based on the data that is coming out from the other orexin receptor agonists. And you'll be hearing more from our own orexin receptor agonist when we initiate the first-in-human study. And we also anticipate to share some of the clinical data in 2026. Operator: And we will take our next question from Pete Stavropoulos with Cantor Fitzgerald. Pete Stavropoulos: Congratulations on the progress. Could you just touch on EPX-100 epilepsy program? Any clinical data that has been generated and disclosed that sort of gives you confidence in the Dravet and LGS program? Any details on efficacy, durability and safety? And can you also give us a sense of how enrollment is going in the Phase III studies? Any granularity on timing of data or when you expect to complete enrollment? Jeffrey Dayno: Pete, thanks for your questions. I'll turn to Kumar for some more color on the EPX program. Kumar Budur: Yes, Pete, thank you for the question. Yes, I mean, we are excited to share some of the efficacy data at the upcoming American Epilepsy Society meeting in December. As I mentioned earlier in the call, we will be sharing the data from the ARGUS open-label extension study, that's the study in Dravet syndrome. In terms of your question around recruitment and enrollment, yes, I mean, we continue to recruit patients in both ARGUS study and the LIGHTHOUSE Study, that's Dravet and LGS studies, and we anticipate to share top line data in 2026. We'll be providing more granularity in terms of time lines as to the progress with the enrollment. Pete Stavropoulos: And any thoughts on taking EPX-100 into other DEEs or other DEEs remain the focus of EPX-200? Kumar Budur: Yes, Pete, great question. Thank you. Look, there is this discussion around DS, LGS pursuing separately versus going with a broader DEE indication, right? So there are pros and cons with each of these approaches. But right now, we are focused -- laser-focused on Dravet syndrome and Lennox-Gastaut syndrome. We want to keep it that way, mainly to maintain the homogeneity of the patient population and try to get to the top line data as soon as possible and try and help these patients with a product profile, which is very favorable, not just from an efficacy perspective, but also from a safety and tolerability perspective. Jeffrey Dayno: Yes. And Pete, maybe one addition just to remind everyone. So EPX-100, clemizole hydrochloride. So a first-generation antihistamine that was in the market for about 20 years with a proven safety tolerability profile. And in the overall sort of risk benefit in these sort of therapeutic options with other indicated agents such as Epidiolex and the need to monitor LFTs or FINTEPLA with echocardiograms required in the REMS program because of cardiac valvular disease, the risk there. So there is sort of a proven safety tolerability profile. And in the overall kind of risk benefit, we see the opportunity there as we go forward and generate efficacy data in both Dravet and LGS. Operator: And we will take our next question from Danielle Brill with Truist Securities. Danielle Brill Bongero: Congrats on the quarter. Maybe just 2 quick ones from me. Do you have any sense of what proportion of your 8,100 patient base is NT1 versus NT2? And then what findings, if any, in the Fragile X data set would make you consider reactivating the q22 (sic) [ 22q ] trial? Jeffrey Dayno: Danielle, thanks for your questions. Adam, breakdown of patients on WAKIX. Adam Zaeske: Sure. Thanks for the question. It's been very consistent actually for the last several years. We see about 45% of patients from NT1, 55% from NT2, and that's been very stable. Jeffrey Dayno: Okay. Kumar? Kumar Budur: Yes. Danielle, thank you for the question. We are right now conducting an in-depth review of all the data from the RECONNECT study. As mentioned previously, the Fragile X syndrome study did not read out as expected, mainly because of the larger-than-anticipated placebo response. Right now, we are conducting a number of post-hoc analysis. It's very hard to say at this point in time what kind of data sets we need to see before we embark upon 22q deletion syndrome Phase III study. Once all these data sets are available, we will make a decision based on the data that we see. And we should be able to complete this work by the end of this year, and we should be able to provide some update on the Fragile X syndrome study itself and also the implications on 22q deletion syndrome early next year. Operator: And we will take our next question from Corinne Johnson with Goldman Sachs. Unknown Analyst: This is [ Anupam ] on behalf of Corinne. Maybe one question for Kumar. Can you talk about the effect size you are powering for the Phase III pitolisant HD study to show on ESS scale? And what do you think a clinically meaningful difference would be in comparison to the current WAKIX in order to support the HD use? I think the WAKIX shown around 12- to 13-point final ESS score. Any color on that? Kumar Budur: Thank you for the call -- thank you for the question. Look, I mean, pitolisant HD, it's an enhanced formulation -- it's an enhanced next-gen formulation. It's not just the high-dose, but it's also -- it also has an optimized PK profile. Based on the dose response that we have seen with pitolisant in the pivotal narcolepsy clinical trials and also the studies that we conducted in Prader-Willi syndrome and also in myotonic dystrophy and the dose -- and the exposure response data, some of the exposure response data that we have, we anticipate a meaningful increase in the efficacy from an excessive data and sleepiness perspective. But it's also important to note that we are not just targeting excessive data and sleepiness. We are also targeting fatigue in patients with narcolepsy for which there are no approved treatments. And we are also targeting sleep inertia in patients with idiopathic hypersomnia for which there are no approved treatments. And we plan to accomplish all of this without compromising on the safety or tolerability profile of pitolisant. In fact, we conducted a Phase Ib study where we studied pitolisant up to 180 milligrams, which is up to 5x the maximum label dose of WAKIX. And the safety and tolerability profile in general was similar to what we see with WAKIX. So what it means at the end of the day is a very unique benefit risk analysis with established safety profile, established tolerability profile, larger efficacy in excessive daytime sleepiness, targeting symptoms like fatigue in narcolepsy, targeting symptoms like sleep inertia in patients with idiopathic hypersomnia, all while maintaining the nonscheduled status and a very simple dosing regimen of taking pill in the morning. So that's what we plan to accomplish with pitolisant HD. Operator: And we will take our next question from Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: I was wondering if you could elaborate a bit more on the sustainability and as well the drivers of the record approximate 500 patient add in the third quarter. And if we should expect those drivers to continue in the fourth quarter, but as well in 2026? And then separately, on pitolisant HD, I think you mentioned strong early feedback from physicians and payers. I'm wondering if you could elaborate on what's resonating most and as well the implications for the Phase III development program. Jeffrey Dayno: Patrick, thank you for your questions. Adam? Adam Zaeske: Yes. Thank you for the question. So we're really pleased with the momentum we're seeing in increases in patient adds, as you mentioned. And the drivers, look, I think it starts with WAKIX is a highly differentiated product. It's the only nonscheduled treatment option. And that is combined with strong execution across the organization. So if you think about sales effectiveness and execution, marketing and promotional excellence, payer coverage, patient support, we've made adjustments in all of these areas. And we're seeing those adjustments delivering the performance that you're seeing and have confidence that, that momentum will definitely carry forward in Q4 and into 2026. Jeffrey Dayno: Okay. And Patrick, your second question? Adam Zaeske: Yes. So around the HD. And so what resonates, what resonates is the promise of improved efficacy, the no titration starting at a therapeutic dose and unique indications, especially around IH and fatigue. We know that 60% of narcolepsy patients present with fatigue. This would be the only product that has the indication for fatigue in narcolepsy. And they view that as highly differentiated. So I mentioned the feedback from HCPs, but we've also done research with payers. And the response is that we would expect broad payer coverage for the HD product with minimal step edits for WAKIX or no step edits actually prior to LOE. And even after LOE, only some mentions of perhaps some step edits, but only for patients that have never had any experience on WAKIX before, which at this point, I guess we'll be at, what, 8-plus years in the market by then. The vast majority of patients will have had some experience with WAKIX at some point in the past. And then, of course, any patient that presents with fatigue would also not be subject to any step edits through WAKIX even post LOE. So we would expect broad payer coverage pre and post LOE supporting the product and its uptake. Operator: And we will take our next question from Jason Gerberry with Bank of America. Unknown Analyst: This is [ Bhavan ] on for Jason. Just 2 questions from us. The first is on EPX-100. You have 2 Phase III readouts expected in 2026. So maybe if you can just speak to what you've learned from the Fragile X syndrome as well as the prior idiopathic hypersomnia study about managing placebo response in these types of neurodevelopmental studies? And then the second question is on WAKIX. Can you just speak to where new patient growth is coming from? Are you activating new prescribers? Or is the growth primarily from deeper penetration within existing writers? Jeffrey Dayno: Thanks, Bhavan, for your question. Kumar, on EPX-100? Kumar Budur: Yes. Thank you for the question. With the EPX-100, I mean, as you know, what we are studying here is the seizure frequency, which is slightly different from what we studied with ZYN002 in the Fragile X syndrome. Placebo response in general is part and parcel of all neuropsych trials, especially psych trials with behavioral endpoints like Fragile X syndrome. And we had multiple checks and balances within the study to manage the placebo response. With the EPX-100, it's slightly different in the sense seizure frequency is much more observable and much more definitive compared to some of the behavioral symptoms. So these are 2 distinct indications with the distinct endpoints. But to your point, in general, yes, I mean, placebo response can happen in any clinical trials, and that's something that we are watching. And we have checks and balances with our EPX-100 ARGUS and LIGHTHOUSE clinical trials as well. Jeffrey Dayno: Okay. Adam? Adam Zaeske: Yes. And then in terms of WAKIX new patients, so the short answer to your question is we see both new patients from increased penetration of existing writers as well as the addition of new writers. We see quarter-over-quarter a pretty steady increase in new writers every quarter, and that's continued for the past several years, and we would expect that to continue. A little bit more detail. Remember, we call on actually more than 9,000 physicians, and that's 4,000 that are enrolled in the oxybate REMS programs, but also more than 5,000 that are not enrolled in oxybate REMS programs. We have the ability to call on both of those sets of physicians. And in both instances, we see increased penetration as well as new writers. Jeffrey Dayno: Yes. And I would just add -- yes. No, thank you for your question. Just to add at a higher level, just to remind everyone that this is a large market. So in terms of the continued growth of WAKIX, a highly differentiated product profile with broad clinical utility, the only nonscheduled product, which is meaningful as a former neurologist treating patients, very meaningful in terms of therapeutic options. But in a sizable market, 80,000 patients diagnosed. So as this market evolves and grows and more understanding, similar with the learning about fatigue as a prominent symptom in patients with narcolepsy, about 60%. So designing that into the pitolisant HD program. So I think that is the backdrop why we are confident, why the underlying fundamentals and the growth of WAKIX in narcolepsy and our excitement and confidence in the pitolisant HD program and pitolisant GR, I think that has a lot to do with it as well. Adam Zaeske: Yes, I think it's a great point, Jeff. I mean the fact that we're at 8,100 average patients now in a market of over 80,000 diagnosed patients, obviously, we have a lot of room to continue to grow. Jeffrey Dayno: Yes. And also in a polypharmacy market, I think as you're all familiar with, where any chronic neurologic disorders, it's rare that a single mechanism of action will be able to treat difficult-to-treat chronic symptoms. And I think this is what we're seeing as WAKIX continues to grow. Operator: And we will take our next question from Ash Verma with UBS. Ashwani Verma: Yes. So maybe just I wanted to get your latest thoughts on how you're thinking about the overall pipeline and diversification. I mean we've seen 2 different setbacks recently, first on the IH side and then on Fragile X. What gives you the confidence that the subsequent pipeline programs have higher chances of success? And then on the WAKIX $1 billion guide, is that something that you can achieve in 2026 just at the pace at which you're going and where 4Q is annualizing at? With Takeda's orexin expected to launch in 2027, what's your level of urgency to hit the long-term guide before the competitor entry? Jeffrey Dayno: Yes. Thank you, Ash. Let me start with the first question about our pipeline. And I just want to reiterate that I continue to have strong conviction in our pipeline programs, Kumar's leadership in our R&D organization, which has a lot of experience and expertise. We don't have time, but if you look at each of -- if you look at the IH study, if you look at Fragile X, there are good reasons in terms of the outcomes that we've sort of talked about. In the ZYN002 program, in talking with KOLs, unfortunately, that pattern, programs where there were positive Phase II data and a lot of expectation because there are no approved treatments and a high placebo response rate kind of got into multiple Phase III programs, which is the reason why none have been successful. We have learnings from that, and we will take those learnings going forward. But I think I continue to have conviction in EPX-100, our other pipeline programs. And Kumar, any additional thoughts? Kumar Budur: Yes, I think you covered it. Jeffrey Dayno: Okay. Adam Zaeske: Yes. And then thanks, Ash, for the question around achieving $1 billion in revenue. Obviously, it's a little bit premature to provide guidance for 2026 specifically, but we're seeing very strong momentum as you saw in Q3 and in Q2. We'd expect that momentum to continue in Q4 and well into 2026. And we're confident we will achieve $1 billion in revenue well before LOE. So confidence remains high. Operator: And we will take our next question from David Hoang with Deutsche Bank. David Hoang: So I want to ask on eligible patients for WAKIX -- sorry, pitolisant HD and GR. I think for HD, you mentioned new, previous and switch patients, I think, are all on the table. Just wondering what, in your mind, defines a good switch patient for going from WAKIX to HD? And then is switching -- would switching be an option for GR patients? Adam Zaeske: Thanks for the question. So I guess the switch patients, obviously, that's going to be determined by the health care provider, but we know that 75% of patients with narcolepsy continue to struggle with residual symptoms. And so if we're able to offer the HD product with an improved efficacy profile, but the same safety and tolerability profile that they're very familiar with on WAKIX, we would expect HCPs to consider their patients that potentially could benefit from a boost in efficacy and feel confident that they won't be introducing any new safety or tolerability issues. And also any patients that present with fatigue. And as I mentioned before, we know that 60% of patients with narcolepsy do present with fatigue. Those would be prime candidates for the HD as well. And then for the GR, yes, I mean, a switch would be an option certainly for the health care provider. In terms of our strategy, we'll be focused on new patients and previous patients, as I mentioned before. Operator: And I'm showing no further questions. I would now like to turn the call back for any closing remarks. Jeffrey Dayno: Thanks, operator. On behalf of the Harmony team, I want to thank everyone for joining our call today and for your interest in Harmony Biosciences. Have a great rest of your day. Thank you. Operator: This does conclude today's Harmony Biosciences third quarter 2025 financial results conference call. You may now disconnect your line, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the Diamondback Energy Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Adam Lawlis, VP of Investor Relations. Please go ahead. Adam Lawlis: Thank you, Briana. Good morning, and welcome to Diamondback Energy's Third Quarter 2025 Conference Call. During our call today, we will reference an updated investor presentation and letter to stockholders, which can be found on Diamondback's website. Representing Diamondback today are Kaes Van’t Hof, CEO; Danny Wesson, COO; and Jere Thompson, CFO. During this conference call, the participants may make certain forward-looking statements relating to the company's financial condition, results of operations, plans, objectives, future performance and businesses. We caution you that actual results could differ materially from those that are indicated in these forward-looking statements due to a variety of factors. Information concerning these factors can be found in the company's filings with the SEC. In addition, we will make reference to certain non-GAAP measures. The reconciliations with the appropriate GAAP measures can be found in our earnings release issued yesterday afternoon. I'll now turn the call over to Kaes. Kaes Van't Hof: Thanks, Adam, and I hope everybody read the letter last night. As we've done in the past, we're just going to move straight into Q&A. So operator, let's open the line for questions, please. Operator: [Operator Instructions] Our first question comes from Neal Dingmann of William Blair. Neal Dingmann: Nice quarter. Nice to be back on. My first question is on activity. Specifically, while I know you guys continue to talk about the stop sign scenario depending on the macro condition, it seemed like some other Permian operators here recently continue to accelerate even at these prices. So I'm just wondering, does this -- does sort of others, I guess, lack of capital discipline cause you to think about changing your plans given you all are a lower operator and I guess I'd say cash flow is cash flow. Kaes Van't Hof: Yes, Neal, I mean, I think we obviously track what everybody else is doing in the Permian. We have a lot of visibility into what's going on. But we also have a lot of conviction in where we stand and what our plan is. I think we can get into a game of who has the lowest cost structure reinvestment ratio, which we do. And on a year-to-date basis, we have a 36% reinvestment rate at mid-60s oil. I think that's something that would have been unheard of 6 or 7 years ago as investors pushed us to generate more free cash over cash flow. And I think that's the key point, right? We are focused on generating free cash flow per share, growing free cash flow per share over growing cash flow into a tenuous macro environment. Now when the assumptions change and the macro changes, we have the flexibility to change that. We're just going to do it with a much lower share count, lower net debt and off of a lower cost structure. Neal Dingmann: No, I'm glad to see that. Glad you're not changing the stripes there. And then second question, I guess, more just generic, maybe, Kaes for you or Danny, around Slide 8, specifically, continue to look at, I guess, I'd call it your development styles versus others, and you continue to be lower. I'm just wondering specifically what differentiates your development style versus others? Is it the larger projects? I mean does that factor in? Or what is the driver when I'm looking at this slide? Kaes Van't Hof: Yes. I mean listen, I think Slide 8 is the most important slide in the deck. It explains a lot about what we've done to study development in the basin and improve our development over time. I think in our company history, Diamondback has been very well known to have the lowest cost structure and the best execution. What I think has been lost -- not lost, but hasn't been highlighted, which we're trying to highlight here is that not only are we doing -- drilling more wells per section, but the performance we have per well in that section, meaning the full section is developed in a more capital-efficient manner is resulting in a lot higher overall returns per section, right? We famously moved to co-development in 2019. Now we're codeveloping all zones in the Midland Basin. And instead of focusing on single well returns, we're really focused on what the return is per section and per DSU. And I'm really proud of what the two teams at Endeavor and Diamondback have merged together and created the best of both worlds, right? You have the combination of the best inventory and the best cost structure resulting in the lowest reinvestment rate and the outputs you see on Slide 8. So I think it's a very important slide that I'd like investors to pay a lot of attention to. Operator: Our next question is from David Deckelbaum of TD Cowen. David Deckelbaum: Kaes, maybe you can talk about -- you guys talked about fourth quarter guidance and that sort of $925 million CapEx for 4Q as you kind of get back into more of a maintenance mode. Generally, I guess, are those -- is that a decent kind of run rate for goalpost for '26 to sort of hold that 505,000 barrels a day of crude flat kind of pro forma for the Viper deal? Kaes Van't Hof: Yes, David, that's kind of the new -- the new baseline is 510 mbo/d oil. We're going to sell some -- we announced the sale of some production at Viper. So we'll go down to 505,000 barrels a day kind of run rate in Q1. I think we decided to hold that production level flat, somewhere in the range of our Q4 CapEx, is a good bogey to look at. And I'll kind of take you back to where we were in Q2. If you recall, our original budget this year for 2025 was $4 billion of CapEx that we cut by 10% immediately and then another $100 million after that. So CapEx was down $500 million from post-Liberation Day moves that we made. And we made those moves defensively thinking oil is going to get weaker a lot sooner. And as a result, production declined slightly. So this year's number is a very good number. Any time we slow down activity, CapEx is going to outperform the change in production. And now we're just kind of leveling off in this kind of, call it, $875 million to $975 million range to hold that new baseline of 510,000 barrels a day going down to 505,000 in Q1 of next year flat. So a lot of moving parts this year, but we felt like it was a year where we had to pivot midyear given the concerns on both oversupply and the potential demand weakness. But overall, demand looks strong and supply is the hot debate now. David Deckelbaum: I appreciate that color. Considering it's the best slide in the deck, Slide 8, or most important slide, I feel compelled to ask a question on it. But when you look at those three graphs, as you move into more of the Endeavor acquired Acreage in '26, should we anticipate any significant changes to those three graphs? Is it fair to assume that, that -- or can you talk to your confidence levels around well productivity as you kind of start harvesting and putting together these plans around some of the acquired pieces? Kaes Van't Hof: Yes, I'll let Al talk about the specifics, but I'll go back to the announcement when we merged with Endeavor, and we told our investors that basically, if you took our pro forma average PV-10 per well and looked at it at the time of the deal, our next 5 years at the time of the deal was going to improve by almost 20%. And I think what you're seeing in Slide 8 is that synergy coming through because not only did we get bigger, but we got better when we did that deal. And Al do you want to talk about '26? Albert Barkmann: Yes, David. I think if you look at the '25 well performance and compare that back to '23 and '24, it's very consistent. And as we look forward to '26, we expect that to be very consistent with the '24 and '25 program. Operator: Our next question is from Arun Jayaram of JPMorgan Securities LLC. Arun Jayaram: Kaes, I was wondering if you could start a little bit on the efficiency gains front and maybe elaborate a little bit on your further improvements on the drilling side and love to get a little bit more insights on this continuous pumping design that you're now implementing on your houses fleets? And what could that do for your dollar per foot, which I think has been in that $550 to $580 range in the Midland Basin? Kaes Van't Hof: Yes. Let me give you some high level and then pass it to Danny. But from a high-level perspective, this year, well costs have come down even in the face of steel tariffs hitting our business to the tune of about 20% on our steel costs. So it's a credit to the team that with the headwinds of something we can't control, steel tariffs hurting us, we've been able to find ways to increase efficiencies even without service costs kind of plummeting throughout the year. So Danny, I don't know if you want to give some detail on continuous pumping and the drilling side. Daniel Wesson: Yes. On the drilling side, it's really been a story of getting more consistent with those kind of top 10% performance wells. And this quarter, we did about -- 1 out of every 10 wells was under 5 days, and we were talking about 1 or 2 wells in previous quarters that were under 5 days. So it's just getting more consistent, delivering those really, really impressive drilling results and continue to drive down the average spud to TD days. And on the completions front, the continuous pumping, we're really excited about. While we're not modeling any material cost savings today, we do believe that getting 20% more lateral footage completed in a day on a pad level, we should see some savings flow through to that. It's just hard to model that today with the additional equipment and everything that we have to set up to get the crews all running on continuous pumping. Kaes Van't Hof: But I do think the one thing that continuous pumping and more lateral footage per day does for us is it improves the cycle times and gets any production that we've watered out when we go in and frac in a contiguous field, that production comes back online faster. And that's kind of one of the key benefits that will accrue to our shareholders over the long haul. Arun Jayaram: Super interesting. My follow-up is, Kaes, you brought back Slide 25, which is on power gen and some of the opportunities perhaps for Diamondback just given your surface acreage, your natural gas output in West Texas as well as the fact that you do consume power for your own internal operations. Wondering thoughts on bringing back that slide and maybe just an update on your corporate development activities around this important topic, at least for investors. Kaes Van't Hof: Yes, Jere is going to give you all the details, Arun. I would just say, generally, we did that for a reason, and we're starting to get a lot more confidence in what could be an interesting story for Diamondback's development and gas pricing over the coming years. Jere Thompson: Yes. Good observation, Arun. Last week, you may have seen that we committed up to 50 million a day of our nat gas to competitive power ventures for their new 1.3 gigawatt Basin Ranch power plant in Ward County. We expect this to be operational in 2029. This was done under a long-term supply agreement with pricing indexed to ERCOT. And we view it as a creative in-basin egress solution for our natural gas supply. And although in this particular scenario, it is low volumes, we feel it's a small piece and a much larger story for us, which is consciously moving away from Waha. And for reference there, by year-end 2026, we expect Waha exposure to be down to just over 40% of gas sales as compared to a little over 70% today. And additionally, we continue to work on other power projects that could potentially use cheap Diamondback gas and surface, deep blue water and near-term generation solutions to bring data centers to the Midland Basin. And as I mentioned last quarter, it's a long process, but we look forward to updating the market when we have a firm project to discuss. Operator: Our next question is from Neil Mehta of Goldman Sachs and Co. Neil Mehta: And Kaes, maybe I get you to share your perspective on where we are with the macro. I think you indicated in the letter, you think we are at the yellow light right now. So maybe spend some time thinking about how you're thinking about the moving pieces as we move into 2026. Kaes Van't Hof: Yes, Neil, I mean, we spent a lot of time, I think more time than ever this year on the macro. Unfortunately, we did have to put the yellow light in the release for the third time in a row. I would just say, generally, the outlook kind of remains murky. I think, fortunately, it's a debate on the supply side. And it seems that, that debate will be resolved sometime in the next couple of quarters. But a couple of things, right? I would say our attitude is we don't control the price of the product we produce. And as an organization, we have 1,700 people focused on producing more oil with less cost every day, and that's what they've done, right? We've been able to generate more free cash this year, 15% more per share despite oil prices being down 14%. So I kind of turn the tone from, "Hey, this isn't great to we're going to figure it out and find a way because I think the longer this kind of murky macro lasts, the better things will be on the other end." And Diamondback, in my mind, is going to be one of the long-term winners of whatever the macro presents to us. Neil Mehta: And the follow-up is just on M&A, and there's, I guess, two components to it. One, you guys have done a great job selling noncore assets. So just your perspective of -- are there other opportunities within the portfolio? And I think last quarter, you got -- there was a lot of tension on some of the comments about not being a seller, but I think you clarified your perspective on that. So just on those two points, comments would be great. Kaes Van't Hof: Yes. I think on the noncore sales, first off, credit to Jere and the team. We sold $1.5 billion of primarily 90% non-E&P producing assets at higher multiples than we trade. And that, in my mind, accrues straight to the balance sheet, puts our debt load in a good position for whatever the next couple of quarters may hold. So I think we've exhausted the majority of it. Viper, as you might know, also executed a noncore or non-Permian asset sale with a good number that we'll talk about in a couple of hours. But all-in-all, I feel really good about being able to execute on these in a challenging macro at good valuations. And then on the other side of the question, we get that question a lot on our position in the industry. And I think generally, Diamondback has the most coveted asset base in North America, and that's a very privileged position to be in. But we didn't just fall into it, right? We had to earn it acre by acre. And so we take a lot of pride in our execution and our execution machine and what that means for long-term shareholder value. Operator: Our next question is from Phillip Jungwirth of BMO. Phillip Jungwirth: Circling back on the macro, I mean everyone's gotten more capital efficient this downturn. Maybe it takes until '27, but curious how you see a green light scenario playing out for the Permian broadly. Can you just talk about how less capital efficient it is to grow first stay and maintenance as we saw in 2022? And do you think the industry has the capacity to really accelerate if called upon? Kaes Van't Hof: Yes. Phil, good question. I mean we're pontificating here, but I certainly believe the industry has the capability to do it. It's just a matter of how capital efficient it is. And my thesis is when it is time for the green light, which feels like going back to more of that $70 to $80 range on crude, the capital that you're spending is going to be -- have a much higher rate of return than it does at $60 oil. And it's going to be spent on a balance sheet that's shrunk as well as a share count that shrunk. So that's kind of our thesis there. I mean we're certainly generating good returns at $60. But I think today, we're conscious of the fact that adding crude to a market that is clearly oversupplied, the debate is how oversupplied is not a prudent decision today. Phillip Jungwirth: Okay. Great. And then coming back to Slide 8 here in the deck, I mean, we did note that your relative ranking on well productivity improved versus the peers. The question is more when you look at benchmarking on average wells per section, how much of FANG's leadership do you think can be attributed to you guys just have more core acreage, maybe less power, less Southern Midland exposure where you have peer zones? Or do you think peers are still leaving behind quite a bit of child wells targeting best zones, which you also have unique perspective in given the Viper? Kaes Van't Hof: Yes, actually listen, I think high level, geology matters a lot, right? And is a huge driver. As we develop our acreage, we have different patterns in different areas. And even across a couple of miles, things change very, very quickly. But I think the high-level takeaway, and I can let Al give some more details, though, the high-level takeaway is if you multiply wells per section times well productivity per well, you're getting more oil per section or per DSU at a lower cost structure. I think that means more PV per acre, and we got a lot of acres to do that on. Anything you want to add there, Al? Albert Barkmann: Yes, Phillip, I think, generally, definitely agree with you there, Kaes. You look at geology obviously matters and Diamondback's position within the basin is very favorable. But I think if you dig into the details there, you'll find differences in development styles between operators just within similar geology. And I think we feel like the Diamondback development style is differential and really optimizes the return for every DSU and every dollar that we're investing there. Operator: Our next question is from Bob Brackett of Bernstein Research. Bob Brackett: I'm going to return to the theme around traffic lights. If I contrast the weeks where you wrote the 1Q shareholder letter around the weeks after Liberation Day versus you writing the shareholder letter now, the difference is Liberation Day was new. It was very kind of unusual strange environment. And right now, we're just kind of in a normal typical oil down cycle, and therefore, you have more confidence in taking that CapEx right. Is that CapEx up. Is that a fair assessment? Kaes Van't Hof: Yes, Bob, I think that's fair. I think naturally, we're not -- we don't like change, right? We don't like sudden changes that are unexpected. And I think I wouldn't call Liberation Day a black swan event for our industry, but it was certainly a change versus expectations going into the year. And I think high level, we were also pretty concerned with the potential demand shock that the numbers on the page of Liberation Day implied. I don't think that ended up happening in terms of trade and global trade, but the jury is still out. But overall, I think, we ended up getting more comfortable with demand and not as much of a supply shock. And again, that's kind of why I kind of said the attitude said this is what it is, and we're going to find a way to make more money despite macro headwinds. And I think, one other thing, Bob, sorry to cut you off. But one other thing that I hope whenever we come out of this, whatever this is, is that our long-term shareholders and long-only shareholders say, what did Diamondback do through this down cycle, however bad it gets. And if they look back and say, they didn't fully -- they didn't compromise the balance sheet, they bought back shares, they paid a dividend and production held in there. I think that's a case study for this new business model of the low reinvestment rate, high free cash flow that our business will never be not volatile, but did we reduce some volatility by our actions through the cycle. Bob Brackett: Very clear. On the follow-up, you guys are hitting a shade over 4 zones per well, and that's -- the workhorses are the Middle Spraberry, Lower Spraberry and the Wolfcamp A and B. Year-to-date, you've got 6% of your wells hitting other zones. Is that a development strategy or an exploration strategy, if I can sort of crudely contrast. Like are you learning stuff? Or are you just folding in that sort of fifth zone in workhorse mode? ___. Kaes Van't Hof: Yes. I mean Al can give some details. At high level, most of that is moving into development. There are zones we've tested, but zones like the Upper Spraberry and the Wolfcamp D starting to get more capital while seeing less impact on overall productivity, I think, is a good thing for inventory duration. Albert Barkmann: Yes, Bob, it's really a combination of both of those strategies, like Kaes mentioned, the Upper Spraberry, Wolfcamp D, where those zones are prospective, we're really allocating capital to those and co-developing them with the more traditional sort of co-development zones within the Midland Basin. I think the other piece of that is a resource expansion story and looking at some of the deeper zones like the Barnett and the Woodford and delineating those around the basin. And, yes, I think we're really excited about the results of those two zones and have some really promising well performance that will be public coming pretty soon. Operator: Our next question is from Scott Hanold of RBC Capital Markets. Scott Hanold: Kaes, you obviously mentioned you hit your target asset sales. At this point, how do you view the equity ownership of those various interests you have? And maybe specifically on Deep Blue, where there are future capital calls, like strategically, does it make sense to own them? Is there a monetization opportunity there? Kaes Van't Hof: Yes. Listen, I think the strategy at Deep Blue is playing out very nicely. I think they've done an incredible job building the third-party business. That was not something that we were probably built to do if it was 100% owned by Diamondback. So I think high level, we're very happy with our 30% ownership. It seems that market attention has increased on water and water management throughout the basin. And I think that's good for valuations. And then I think -- lastly, I think there's some tangential opportunities for Deep Blue when it comes to water for power needs and some of the surface use management that we can do at Diamondback in conjunction with our partners. So I think high level, we're happy with the 30%. At some point, that business will monetize or look different than a large private investment. But right now, they're creating a lot of value in the shadows. Scott Hanold: Got it. And the capital range you generally get for maintenance, any kind of equity interest capital call would be sort of included in that? Or would that be outside of that? Kaes Van't Hof: That'll be outside of that, but we haven't seen one of those in a long time. Scott Hanold: Got it. Okay. And my follow-up question is just -- you talked a little bit about like targeting zones and what you're all doing. But like can you -- with 2026, is there any kind of a shift in activity allocation across both like acreage regionally within the Midland or even does the Delaware get attention and do zones such as like the Woodford and Barnett get a little bit more attention as well? Kaes Van't Hof: Yes, I think at the high level, the Delaware is going to get less attention even than this year. We're pretty well held over there. And most of the development sits further down in our development stack. But I do think you'll continue to see, like you can see on Slide 15, the average percentage by zone in the Midland Basin continue to evolve with new zones being added in. And the challenge for the team is continuing to improve well productivity despite adding what people perceive as lower quality zones. But I do think we also have some more Barnett and Woodford tests and we look forward to a full kind of asset update on that zone at some point next year. Al, do you want to add anything on testing those zones? Albert Barkmann: No, I think that's right. I mean I think you'll see us continue to delineate those zones around the Midland Basin. And for '26, I would expect that percentage to tick up kind of like you've seen over the past couple of years as we figure out where the best well performance is throughout the basin and allocate capital appropriately. Operator: Our next question comes from Kalei Akamine of Bank of America. Kaleinoheaokealaula Akamine: I want to follow up on the topic of maintenance capital at $925 million per quarter. Wondering if you can put some definition around that because headline production has moved around quite a bit in the last 18 months. So what is the associated maintenance oil production level maybe on an operated basis associated with that? And then is this spend level inclusive of all the ratable non-D&C spend? Kaes Van't Hof: Yes, Kalei, I mean, high level, right, it's some range of Q4. We recognize that if the company stays flat for the following year, which is maybe the base case today, we'll see what happens in the next couple of months. We recognize that the Street likes to take Q4 numbers and multiply them by four. And that's kind of why we put capital out there where it is. I still think there's a lot of things that could go our way, efficiencies, steel prices, et cetera, that we have no visibility into today. But high level, total DC&E plus non-DC&E CapEx is going to be somewhere in that range of outcomes we put out for Q4 multiplied by four. And I think if you normalize to where we were going into the year, right, last year, we were going to spend $4 billion for nearly 500,000 barrels of oil a day, and now we're going to spend somewhere in the range of less than that for about 510,000 barrels of oil a day. And I think I put that capital efficiency up with anyone as well as any year outside of this year in Diamondback's history. Kaleinoheaokealaula Akamine: We definitely do like modeling by multiplying by four. For my second question, I appreciate that there's a lot of uncertainty around the '26 oil macro. But you guys do have a very large DUC backlog that gives you a lot of flexibility to shape a range of production outcomes for next year. So can you give us an update on where you expect to be with that backlog at year-end? And then talk about activating that. Do you intend to reach into that bucket as you kind of reset the efficiency in your frac operations through what you guys are calling continuous drilling? Or do you actually need to add another frac to tap all those opportunities? Kaes Van't Hof: Well, I think on the continuous pumping thing, the exciting thing is that you use one less crew, most likely half to one less crew on an annual basis. But on the DUC backlog, I think what -- with oil prices being -- hanging in there all year and with the efficiencies where they are, we've actually drilled probably more wells than we originally expected in the year. And so we're still well positioned to pull that DUC lever if we need to. I think a lot goes on behind the scenes here to make sure we continue to execute flawlessly and hit numbers and make what looks easy on the outside is actually a lot harder on the inside. So I think maintaining that DUC backlog is a structural advantage for us, particularly with our size and scale, and we're putting pipe in the ground almost as cheap as the COVID era days that's -- I think that's good capital to spend. Operator: Our next question is from Kevin MacCurdy of Pickering Energy Partners. Kevin MacCurdy: Kaes, in your shareholder letter, you mentioned the benefits of the Sitio acquisition for Viper and the potential M&A market for minerals and royalties. I wonder if you could just kind of expand on the benefits you see to FANG beyond just the cash flow contributions for the minerals. Kaes Van't Hof: Yes, I think, I won't say for the first time, but I do think there's a huge asset at Viper that pays dividends at FANG that's not just royalty interest, and that's this private data, right? We have private well level data on half of the wells in the Permian. I mean probably every major development or every major change in development is something we can see on a private level. And I think for the engineers that allows us to study others faster than anybody else. It also allows us to change how we do things faster than everybody else. And I think as the basin evolves, companies are going to be testing different things, some riskier than others and some things are going to work and some things aren't, and we can replicate that very quickly at scale at Diamondback. Al, do you want to add anything to that? Albert Barkmann: No, I think, it's a huge advantage, like Kaes is saying, to have the private data and have -- be able to understand not only what other operators are doing from a development standpoint, but also the actual well level performance and returns. And that's really differential to any other data source out there. Kaleinoheaokealaula Akamine: I appreciate the details there. And then for my follow-up, you mentioned earlier that you had 70% of your current gas volumes going to Waha, and you expect by the year-end 2026 down to be -- that would be down to 40%. And I wonder if you could just walk through the pieces of what you've disclosed of where that gas will go, if not going to Waha. Kaes Van't Hof: Yes. Yes. We're going to be on two of the pipelines coming on next year. Right now, we have a good amount of space on Whistler and Blackcomb and then whatever -- what's the WhiteWater one coming on next year? Unknown Executive: Blackcomb. Albert Barkmann: Blackcomb. Sorry, one Whistler, Matterhorn today. Blackcomb comes on next year, that's another probably 200, 250 a day. And then post Energy Transfer buying WTG, which we were an investor in, we've decided to work with them and commit some gas to that Hugh Brinson pipeline going east. And I think we've also then saved some gas to potentially go west should one of those pipelines get built and we have an opportunity to put gas on it or contribute a good amount of gas to a power project. And I think our investors demand us to do better on our gas realization and we've listened to them, and I think it's coming. Operator: Our next question is from Doug Leggate of Wolfe Research. Douglas George Blyth Leggate: I wanted to go back to the question about the core inventory and the co-development. Obviously, when you talk about core, I think we've touched on this a couple of years ago, and I just wanted to get an update. When you talk about core, you're generally talking about your best inventory, but in the co-development, you're obviously bringing in lower than Tier 1 locations, I guess. So when we think about the 10 years of core inventory, what does that look like on a development cadence? In other words, is it 14, 15? Or how do you think about it? Kaes Van't Hof: Yes. I mean I'll let Al talk about what we put in a section to deem it core. But high level, we're completing about 500 wells a year and have about 5,000 -- 5,500 core locations, which, in my mind, is sub-40 type inventory. There's a lot of other inventory that opens up at higher oil prices, but that's the inventory we would model in an acquisition, and that's the inventory that we're developing today. Albert Barkmann: Yes, Doug, I think when we kind of are thinking about how we design a DSU for development, we're looking at the zones, they are the highest rate of return -- have highest rate of return zones first and then looking at the zones that would -- we can codevelop and would interfere with those other zones. And so really holistically looking at the DSU, thinking about optimizing the landing points in the zones that are being developed within that DSU so that we don't degrade the well performance of those, maybe not secondary, but lower tier horizons when we develop the core zones, right? So really trying to optimize so that we don't leave children wells, we don't leave stranded wells that we would then have to come back to, they would be severely degraded from an economic standpoint. Kaes Van't Hof: Yes. It's a use it or lose it situation like given the tank nature of the Midland Basin. And I think as Danny would say, we drill every fourth well for free relative to peers, and that allows us to add those zones and developments where others are not. Douglas George Blyth Leggate: So would that uplift the 10 years to a bigger number then? Or is that included in the 500 per year? Kaes Van't Hof: It's a dynamic number, right? I mean there's going to be more wells added to it next year. I think the Barnett and Woodford will probably, given recent results, be, in my mind, a Tier 1 development zone. There needs to be more well control and proof, but that's what we're working on every day. Douglas George Blyth Leggate: Kaes, my follow-up is on gas. I mean obviously, you touched on some of the pipes that are coming online. You guys do, I guess, about 500 wells a year. I'm trying to understand if you have your own solution outside of just waiting on someone else, adding infrastructure, whether it be a power deal or something else. But I mean, at the end of the day, $1 -- $500 million a year is pretty meaningful for you for every $1 change in gas price, and you're kind of giving it away right now. So I'm just curious what's going on in the background in terms of how you improve your gas realizations? Kaes Van't Hof: Yes. I mean we kind of laid out the new pipes that we're going to be on when they come on at the end of '26. I'll kind of take you back to the history of our company, unfortunately, whether we like it or not, we grew through acquisition. And as we grew through acquisition, most of the acreage that we bought was already dedicated sometimes to the sister midstream company of the upstream company. So we've been working through that. I think with Endeavor, we actually got a lot of -- we actually had a lot of molecules free to make decisions on to move further downstream, which has been helpful. And we now have the size and scale to be able to contribute to these various pipes to get to different markets. And I think it's going to move to making sure we have the right diversity of markets downstream versus here with the power kicker being something that's exciting as well. So I think it's -- over the long term, we're doing the right things. It's not great over the next 12 months. We protected that with hedges, knowing that we couldn't control the molecules further downstream, but that time is coming. Operator: Our next question is from Geoff Jay of Daniel Energy Partners. Geoff Jay: I just had a quick follow-up on the continuous pumping. Just wondering how many fleets it's deployed on today? And I think you're running five if memory serves and sort of how many will be rolled out in the next couple of quarters as you get to full deployment? Kaes Van't Hof: Geoff, yes, we're running two today and planning on converting the additional fleets as soon as possible, as soon as we can get all the equipment lined out. So hopefully, in the next quarter. And anticipate that we'll probably kind of run four full-time fleets with the fifth fleet bouncing in and out as needed in a maintenance type scenario. Geoff Jay: Excellent. And then one quick follow-up on sort of base production work that you guys talked about last quarter. Are there any updates there? Are you -- any changes to kind of what you're seeing, any improvements? Kaes Van't Hof: Yes. We continue to allocate capital into working over wells, older wells and optimizing the PDP tail and been really excited about some of the stuff we've seen, some of the results we've seen out of our acidization, oxidation, stimulation work. We're also trialing some other chemistries that we're doing some stimulation work downhole with and seeing some encouraging results early on. We don't have enough data yet to really talk about anything, but we continue to focus on optimizing the tail and deploying capital there. And we feel like it's some of the highest return capital we can spend, albeit not large numbers. But if we can do the work to delineate what's working, we can scale it and hopefully become a significant part of our capital deployment in forward years. Unknown Executive: Yes, I think that's also huge potential upside is as some of this work gets done and developed, can you lower your reinvestment rate? Can you move more dollars from the D&C side to post-completion work or production work and lower that capital need to replace your production every year. And I kind of said something in the letter, never underestimate the American engineer, and we got a lot of engineers here working on the tail end of our production as that becomes a much more important part of our plan here. Operator: Our next question is from Leo Mariani of ROTH. Leo Mariani: You guys laid out certainly the case for yellow light and certainly talked about a bit how you might get back to the green light. I was hoping you could provide maybe a little bit more commentary on what you would kind of view a red light scenario as you roll into 2026 at this point in terms of kind of costs and oil prices, any kind of high-level sort of indications to help would be great. Kaes Van't Hof: Yes, Leo, it's really just oil price, right? And I think if we start to print months consecutively in the 50s and print a month near $50 oil, I think it's -- I think everybody should be looking at their plan and say, should I defer capital here at these prices. I think fortunately, given where Diamondback is positioned today, we don't need to be the first person to look at that. I think we can look at it behind the scenes. But we're executing year-to-date at $63 oil with a 36%, 37% reinvestment ratio. That's a very, very solid place to be in. Our dividend is not in danger. In fact, it probably has room to grow. Balance sheet is strong. Maturities are getting handled and costs are at COVID lows. So I think we're doing all the things we need to do to be prepared for worse, but also shine when things get better. Leo Mariani: Okay. And then obviously, the yellow light scenario, you guys have detailed kind of a number of strategies. I wanted to kind of get a sense, just given the low reinvestment rate, obviously, kind of how other uses of capital may come into play here. The buybacks were very healthy this quarter, which is certainly nice to see. But also wanted to see if you think in the yellow light scenario, perhaps other type of acquisitions, bolt-ons or whatever may emerge that also could benefit the company. So maybe just talk a little bit about M&A use of kind of free cash flow there. And it certainly seems like the buyback is going to continue to stay pretty healthy. I just wanted to confirm that. Kaes Van't Hof: Yes. I think the primary use of free cash is still the base dividend. Second is buying back in our minds, at least 1% of our public float per quarter. and that still needs free cash to do other things. I think the primary use after that would be continuing to pay down debt. But yes, we're still doing a little bolt-on deals here and there. I think there's a lot of big trades that we've been working on that are not -- they're cashless, but they're very value accretive. So yes, we're not sitting still here. There's a lot of things for us left to do. We're fortunate to have a very high working interest in everything that we develop. Viper continues to grow its business. But in terms of big M&A, I think Diamondback is going to be more selective. You've seen a few deals happen without our name on it. And I think we're in a good position. Operator: Our final question is from Cheng Paul of Scotiabank. Paul Cheng: Kaes, just curious that if we're looking at your program today, what percentage of the well that you are in the 3 miles or longer? And if we're looking at over the next several years based on your existing land position, how that program may shift? Second is that one of your much larger person is talking about their proprietary technology using a lightweight proponent and that will help them to improve their recovery rate maybe by, say, up to 30%. I want to see if you guys have looked at that out there? Is there anything similar in the market you can deploy or test it or that this is truly proprietary that, that's really nothing out there that you guys will be able to deploy? Kaes Van't Hof: Yes, Al can take the longer laterals and talk about what we've been working on. I'll take the second one. Albert Barkmann: Paul, yes. So looking at the '25 plan, 3-mile laterals and longer. It makes up about 20%, 25% of the total program. And really, I think the exciting part is kind of pushing to those extended laterals, right? So about 6% of the total is actually 17,500 or 20,000. Kaes Van't Hof: Yes. I think we've done some things on the longer laterals with different casing designs and pumping plans to improve results on the longer laterals over time. And then on your second question, listen, I think it's great that there's a lot of technology being tested out in the basin. I wouldn't sleep on our ability to continue to test different technologies to not only improve recoveries on the front end, but also as wells deplete, increasing those recoveries longer that Danny talked about later in the tail and maybe some other things that we're working on as a group that we look forward to updating the market on. But I'd just say, Paul, in Slide 8, the results speak for themselves, and we're very proud of what we do at the cost structure we execute at. And those are the decisions we make to maximize returns and NPV per section. Paul Cheng: Great. And on my first question, when you're saying that it's 20%, 25% of 3-mile plus for 2025 over the next several years that how that progress is going to look like? Kaes Van't Hof: Yes, it, Paul, continues to grow, and we continue to push lateral length. And I think one thing we continue to watch is how some peers in the basin are getting creative with pushing lateral length in DSUs with U-turn wells and J-hook wells and how can we -- think about how we can leverage that in longer DSUs to push lateral length even further beyond 3 miles. And they're doing it today to take a 5,000-foot DSU and make it a 10,000-foot DSU, but we're really contemplating can we take that and take a 10,000-foot DSU and make it a 20,000-foot DSU. And I think as operators continue to push the limits on this stuff, we're going to watch it and deploy that technology rapidly if we can do it successfully and continue to lower breakevens. Paul Cheng: Do you think that you can get to, say, 50% over the next 5 years? Kaes Van't Hof: Never doubt us, but I think today, it's hard to... Paul Cheng: You have a lot of [ front engineers. ] Kaes Van't Hof: Yes. But today, I think -- I think next year, we expect lateral lengths to be up, and we're going to keep working on trades and other things to keep them as long as possible. Operator: I am showing no further questions at this time. I would now like to turn it back to Kaes Van’t Hof for closing remarks. Kaes Van't Hof: Thanks, everybody, for taking the time today. We're always available to answer any questions you might have, and we'll talk to you in a few quarters or in a quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.