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About 150 people in areas such as marketing, human resources and operations were affected as part of a reorganization
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the MetLife Third Quarter 202 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before we get started, I refer you to the cautionary note about forward-looking statements in yesterday's earnings release and to risk factors discussed in MetLife's SEC filings. With that, I will turn the call over to John Hall, Global Head of Investor Relations. Please go ahead. John Hall: Thank you, operator, and good morning, everyone. We appreciate you being with us today for MetLife's Third Quarter 2025 Earnings Call. Before we begin, I direct you to the information on non-GAAP measures on the Investor Relations portion of metlife.com in our earnings release and in our quarterly financial supplements, which you should review. On the call this morning are Michel Khalaf, President and Chief Executive Officer; and John McCallion, Chief Financial Officer and Head of MetLife Investment Management. Other members of senior management are also available to participate in today's discussion. Last night, we released a set of quarterly supplemental slides, and they're available on our website. John McCallion will speak to these slides in his prepared remarks. An appendix to the slides features additional disclosures, GAAP reconciliations and other information, which you should also review. After the prepared remarks, we will have a Q&A session, which will close at the top of the hour. As a reminder, please limit yourself to one question and one follow-up. With that, over to Michel. Michel Khalaf: Thank you, John, and welcome, everyone, to this morning's call. Last night, MetLife reported strong third quarter results, showcasing the earnings power of our diversified set of market-leading businesses and shining a spotlight on the positive impact of our New Frontier strategy. The expectations we outlined in the second quarter emerged in the third quarter as anticipated. Most notably, underwriting results bounced back in our flagship Group Benefits business on normal disability experience and seasonally better dental profitability. Variable investment income posted its highest recent contribution to adjusted earnings as capital markets activity accelerated, unlocking value in private equity. Our global retirement liability origination platform is in high gear with growth in the U.S. and the U.K. as well as in Japan, where our efficient capital structure is supporting stellar sales growth. And in Latin America, our innovative digital platform for embedded insurance, Accelerator continues to attract and win over new strategic partners. Turning to our quarterly results. We reported adjusted earnings of $1.6 billion or $2.37 per share, up 22% per share from the prior year period. Notable items totaled $18 million or $0.03 per share and included our annual actuarial assumption review and a tax adjustment in Mexico. Excluding notable items, adjusted earnings totaled $1.6 billion or $2.34 per share, a 21% increase from a year ago. The greatest driver of our outperformance in the quarter was strong investment margins led by variable investment income as well as volume growth across several business segments. We reported variable investment income of $483 million, above our implied quarterly outlook of $425 million on higher private equity returns, which reached 3% for the quarter. With the rebound in variable investment income, MetLife generated an adjusted return on equity, excluding notables, of 16.7%, a level more on par with the company's earnings power and near the top of our target of 15% to 17%. And we delivered a direct expense ratio of 11.6% in the third quarter. We are well ahead of schedule with this ratio relative to our New Frontier commitment with the force multiplier effect of AI and other emerging technologies accelerating our productivity and efficiency gains. Moving to MetLife's businesses. Group Benefits adjusted earnings, excluding notable items, totaled $457 million, up 6% from a year ago, reflecting solid underwriting results. Disability results returned to normal and dental profitability ramped up in the quarter, consistent with its seasonal profit pattern. As a result, we saw a 230 basis point sequential improvement in our nonmedical health loss ratio, providing further confidence in achieving a combined 400 basis points of improvement across the third and fourth quarters. In Retirement and Income Solutions, adjusted earnings, excluding notable items, totaled $423 million, up 15% from the prior year quarter, reflecting higher variable investment income. Chariot Re officially launched in the third quarter with an initial reinsurance transaction of roughly $10 billion. This strategic partnership helps expand MetLife's retirement liability origination capacity in a capital-efficient manner while also generating institutional assets for MetLife Investment Management. Total liability balances in RIS were up 3%. The solid result was driven by strong general account balance growth, including structured settlement production, a record quarter for us, in fact, and volume growth in U.K. longevity reinsurance. We did not report any new pension risk transfer deals in the third quarter. However, the fourth quarter is shaping up to be a record quarter as we've already written $12 billion of PRT transactions, demonstrating the trust the marketplaces in MetLife. Our long-term outlook for the PRT business is positive. A few weeks ago, we released the results of our annual poll of pension plan sponsors. The survey found that 94% of those sponsors planning to derisk their portfolios expect to fully divest in the next 5 years. This is the highest percentage we've recorded since we initiated the survey 10 years ago. Shifting to Asia. Adjusted earnings, excluding notable items, were $473 million, a 36% increase on a reported basis from the prior year quarter. Sales surged 34% on a constant currency basis, driven by an outstanding 31% increase in Japan. Our competitive Japanese product portfolio, which includes both foreign currency and yen-denominated retirement products has gained excellent traction across our multipronged distribution in the country. More than keeping pace, constant currency sales in other Asia markets jumped 39%, led by Korea, China and India. In Latin America, adjusted earnings, excluding notable items, were $222 million, up 2%. Adjusted PFOs for the region totaled $1.7 billion, up 11% on both a reported and constant currency basis, indicative of continued business momentum across the region, most notably in Mexico, Chile and Brazil. We recently added e-commerce leader, MercadoLibre as a partner on our Accelerator digital platform in Mexico and Brazil. We now have more than 20 partners across Latin America, and the Accelerator platform has generated more than $340 million of annualized premiums since its launch, another powerful example of New Frontier in action. Finally, EMEA posted another strong quarter with adjusted earnings, excluding notable items of $89 million, up 19% on a reported basis, primarily due to volume growth. As we do each third quarter, we published our 2024 value of new business or VNB results. It is hard to overstate VNB's importance as a tool for MetLife in maintaining capital and pricing discipline around the globe. Over time, the principal use of VNB has powered our transformation into a more capital-light business with consistent improvement demonstrated year after year. Again, the results for the past year are impressive. In 2024, we deployed $3.4 billion of capital to support new business origination. This is the highest order use of our precious capital. The capital deployed in 2024 was put to use at an average internal rate of return of 19% and a payback period of 5 years. Our success with VNB does not occur in isolation. Achieving high internal rates of return on new business with short payback periods feeds directly into our ability to produce a high return on equity and generate strong free cash flow. To that end, we continue to manage capital with discipline, protecting liquidity and balance sheet strength while returning excess capital to shareholders. Our track record is well established. We have returned almost $24 billion to shareholders through buybacks and common dividends in the past 5 years. And the third quarter was no exception. We returned about $875 million to shareholders through common stock dividends and share repurchases. We paid roughly $375 million of common stock dividends and repurchased around $500 million of our common stock. With approximately $150 million of repurchases in October, our total year-to-date share buyback is now roughly $2.6 billion. We ended the quarter with cash and liquid assets at our holding companies of roughly $4.9 billion, which includes about $700 million earmarked for near-term debt maturities and is above our target cash buffer of $3 billion to $4 billion. There is no doubt capital deployment and capital management have been integral to our past success and will continue to be as we push forward with the execution of our New Frontier strategy. We are working hard towards the successful closing of 2 strategic transactions: the acquisition of PineBridge and the sale of a legacy block of variable annuities to Talcott Resolution Life. In both cases, we are fully engaged and on track to close in the fourth quarter. As we execute across our New Frontier strategic priorities, we are extending our leadership in the places we have the right to win. Underpinning our strategic priorities is our investment portfolio and our time-tested approach to credit and our unwavering commitment to risk management. For 157 years, MetLife has navigated complex and evolving credit markets, delivering consistent investment results even through periods of significant volatility. Today, while the credit environment is reasonably stable and credit fundamentals resilient, we recognize spreads are historically tight and in some ways, priced for perfection. We maintain an up and quality bias across our portfolio, supported by active surveillance and disciplined underwriting. Our diversified high-quality portfolio and active risk management position us well to navigate a wide range of economic outcomes, ensuring we deliver regardless of the market environment. In closing, our third quarter results illustrate MetLife's ability to create exceptional value for shareholders and stakeholders alike and the power of the New Frontier as a growth engine. As we do each year, we just completed the annual pressure testing of our strategy with our Board of Directors and came away confident we have the right strategy for the right time. Our focus on consistent execution, steady capital management and expense discipline will continue to strengthen and differentiate our market leadership while fueling our superior value proposition comprised of strong growth and attractive returns with lower risk. Now I'll turn it over to John to cover the quarter in more detail. John McCallion: Thank you, Michel, and good morning, everyone. I'll walk through our third quarter results and refer to the 3Q '25 supplemental slides, which covers highlights of our financial performance, including details of our annual global actuarial assumption review. In addition, I'll provide updates on our value of new business metrics and our liquidity and capital position. Beginning on Page 3, we provide a comparison of net income and adjusted earnings for the third quarter. We have introduced a new line item, net activity attributable to ceded reinsurance arrangements, which captures the net income impact from the growing use of ceded reinsurance following the launch of Chariot Re in Q3 of '25. Much of the offsetting amounts are captured in accumulated other comprehensive income, or AOCI, and primarily represents the change in unrealized gains or losses on the reinsured portfolio ceded to the reinsurer. Therefore, we believe most of the accounting for this item to be asymmetric or noneconomic in nature. Additionally, the main factors contributing to the difference between net income and adjusted earnings this quarter were net derivative losses resulting from stronger equity markets, rising long-term interest rates and strengthening of the U.S. dollar. The net investment losses were generally in line with recent quarters. Overall, we continue to believe we are operating in a relatively stable credit environment. Moving to the bottom of the table, we recorded 2 notable items that mostly offset each other, resulting in a net increase to adjusted earnings of $18 million or $0.03 per share. The first item relates to the resolution of an industry-wide tax matter in Mexico regarding the value-added tax deduction of certain health insurance claims expenses. This resolution and related change in tax law resulted in an after-tax charge of $71 million in 3Q of '25 in Latin America. We anticipate an additional after-tax charge of $20 million to $25 million in 4Q. And for 2026, we estimate a reduction in Latin America adjusted earnings of roughly $50 million to $60 million as we recalibrate our underlying rate assumptions in Mexico with little to no impact in 2027 and beyond. The second item relates to our annual actuarial assumption review, which increased adjusted earnings by $89 million. Turning to Page 4. We provide additional details of these effects on adjusted earnings and net income by segment. The overall impact from the annual review was modest. In Retirement Income Solutions, or RIS, our payout annuity business benefited from higher mortality. Within Asia, we recognized more favorable experience in Japan due to lower morbidity in accident and health products and favorable lapse experience in life insurance. And in MetLife Holdings, we had favorable mortality in life insurance and favorable lapse rates in variable annuities. Next, let's look at adjusted earnings by segment on Page 5. This shows third quarter year-over-year comparison of adjusted earnings, excluding notable items by segment and Corporate and Other. All my comments related to this slide will be made on an ex notables basis. Adjusted earnings were $1.6 billion, representing a 15% increase year-over-year. This was primarily driven by higher variable investment income and strong volume growth. These were partially offset by less favorable underwriting and lower recurring interest margins when compared to the prior year. Adjusted earnings per share were $2.34, up 21%. Growth was supported by disciplined capital management. Moving to the businesses. Group Benefits results showed steady growth and improved margins. Adjusted earnings were $457 million, up 6%. The key drivers were favorable expense margins and volume growth. This was partially offset by less favorable life underwriting. The group life mortality ratio, excluding the assumption review, was 83.3% for the quarter, which is below the bottom end of our 2025 target range of 84% to 89%, but less favorable than the 82.4% on the same basis in the prior year. The nonmedical health interest adjusted benefit ratio was 72.5%, modestly above the midpoint of our annual target range of 69% to 74% and essentially flat to Q3 of '24 of 72.4%. This result represented an improvement of 230 basis points sequentially from the second quarter, primarily due to the anticipated dental seasonality and an expected recovery in disability. We continue to expect our nonmedical health ratio to improve further in 4Q due to typical lower seasonal utilization in dental. Turning to the top line, Group Benefits adjusted PFOs were up 3%, which was dampened by approximately 1 percentage point due to the impact on premiums from participating life contracts. In addition, sales were up 5% year-to-date due to growth across most products. RIS maintained its strong momentum, coupled with higher investment income. Adjusted earnings were $423 million, up 15% year-over-year. The primary driver was higher Variable Investment Income or VII. RIS investment spreads were 131 basis points, up 29 basis points sequentially due to higher variable investment income. RIS spreads, excluding VII, were up 1 basis point sequentially at 102 basis points. In addition, the transfer of approximately $10 billion of RIS liabilities to Chariot Re in 3Q of '25 resulted in a reduction in adjusted earnings, which was in line with our prior guidance of $15 million to $20 million per quarter. RIS continues to achieve strong business momentum. Adjusted PFOs, excluding PRTs were up 14%, primarily driven by higher structured settlements and U.K. longevity reinsurance sales. In addition, our spread earning general account liabilities grew 4% year-over-year, while total liability exposures grew 3%. And as Michel mentioned, we've already secured a record level of new PRT mandates so far in Q4. Turning to Asia. The segment displayed strong performance across all key metrics. Adjusted earnings were $473 million, up 36% and up 37% on a constant currency basis. The primary drivers were higher variable investment income and volume growth. Additionally, results were positively impacted by a $30 million after-tax benefit from a model refinement applied to accident and health products in Japan. General account assets under management at amortized costs were up 6% year-over-year on a constant currency basis, and sales were up 34% on a constant currency basis. Sales in Japan, our largest market in the region, were up 31% on a constant currency basis, driven by product launches and enhancements earlier in the year. And other Asia markets also contributed meaningfully with sales up 39% year-over-year on a constant currency basis, led by Korea and China. Latin America had solid top line growth and resilient earnings. Adjusted earnings were $222 million, up 2% on both a reported and constant currency basis, primarily due to volume growth across the region. In addition, a favorable Chilean encaje return of 6% contributed to LatAm's solid performance, although it was below the 8% earned in 3Q of '24. Latin America's top line continues to perform well. Adjusted PFOs are up 11% on both a reported and constant currency basis, and sales were up 15% on a constant currency basis, with strong growth across the region, most notably in Mexico, Chile and Brazil. EMEA had broad-based volume growth, driving a double-digit adjusted earnings increase. Adjusted earnings were $89 million, up 19% and 17% on a constant currency basis. EMEA adjusted PFOs were up 11% and up 9% on a constant currency basis, and sales were up 24% on a constant currency basis, reflecting strength across most markets led by Turkey, Gulf and the U.K. MetLife Holdings delivered adjusted earnings of $190 million, up 12%, primarily reflecting higher variable investment income. Corporate and Other reported an adjusted loss of $288 million for 3Q of '25 compared to a loss of $249 million in the same period last year. This increase was primarily driven by market-related employee costs as well as higher interest payments on outstanding debt. The company's effective tax rate on adjusted earnings in the quarter was approximately 24%, which is at the bottom end of our 2025 guidance range of 24% to 26%. On Page 6, this chart reflects our pretax variable investment income for the past 5 quarters, including the third quarter of 2025, which was $483 million, above our implied quarterly guidance of $425 million. Private equity returns of 3% in the quarter drove the outperformance, while our real estate and other funds yielded an average return of approximately 50 basis points. As a reminder, PE and real estate and other funds are reported on a 1-quarter lag and accounted for on a mark-to-market basis. Page 7 presents post-tax variable investment income by segment and Corporate and Other covering the last 5 quarters. Each business segment maintains a distinct investment portfolio, carefully matching its liability profile. The majority of VII assets are concentrated in Asia, RIS and MetLife Holdings, reflecting the long-term nature of these obligations. As of September 30, 2025, total VII assets stood at approximately $19 billion. Asia represented over 40% of these assets, while RIS and MetLife Holdings accounted for about 30% and 20%, respectively. This distribution underscores our strategic approach to asset allocation, ensuring that the investment portfolios are aligned with the duration and risk characteristics of each segment's liabilities. Turning to expenses. Page 8 illustrates our direct expense ratio trends over time. For the third quarter of 2025, our direct expense ratio was 11.6%, an improvement from 11.7% in Q3 of '24 and notably below our full year target of 12.1%. We continue to emphasize that the full year direct expense ratio offers the most meaningful measure of our expense management given the inherent variability in quarterly results. However, this quarter's outcome further demonstrates our continued commitment to disciplined expense control and operational efficiency while maintaining responsible growth across our businesses. Turning to Page 9. The chart highlights MetLife's value of new business, or VNB, metrics across our major segments, which we report annually and highlight the past 5 years. During 2024, we allocated $3.4 billion in capital to support new business initiatives, achieving an average unlevered internal rate of return of approximately 19% and a payback period of 5 years. This disciplined capital deployment generated about $2.6 billion in new business value. The 2024 VNB results underscore our ongoing commitment to investing in opportunities that deliver responsible growth and attractive returns. We view annual VNB as a key indicator of our ability to expand our ROE and accelerate free cash flow generation over time. Let me now review our cash and capital position as detailed on Page 10. MetLife remains strongly capitalized, maintaining robust liquidity well above our internal targets. As of September 30, cash and liquid assets at the holding companies totaled $4.9 billion, exceeding our target cash buffer of $3 billion to $4 billion. We continue to prioritize returning excess capital to our shareholders with total cash returns in the third quarter reaching approximately $875 million, comprised of roughly $500 million in share repurchases and approximately $375 million in common stock dividends. In addition to these returns, holding company cash reflects the net impact of subsidiary dividends, debt issuances, operating expenses and other cash flows. For our U.S. entities, preliminary statutory operating earnings for the first 9 months of 2025 were approximately $2.1 billion, with net income of $1.3 billion. Our estimated U.S. statutory adjusted capital on an NAIC basis stood at approximately $17.1 billion as of September 30, essentially unchanged from the prior quarter. We anticipate the Japan solvency margin ratio to be around 740% as of September 30, pending the final statutory filings in the coming weeks. Looking ahead, we are pleased with our progress toward the transition in Japan to ESR, a capital framework that closely aligns to the economic capital model we use to manage our business. Based on our initial work, we expect to report an economic solvency ratio within a range of 170% to 190% from March 2026. This ratio reflects the strong capitalization of MetLife Japan as evidenced by its stand-alone AA- rating from S&P as well as our capital management efficiency. We have yielded cash dividends from Japan totaling more than $4 billion over the past 5 years. Before I wrap up, I'd like to note that starting in the fourth quarter, we plan to report MetLife Investment Management or MIM, as its own business segment. In addition, we plan to eliminate MetLife Holdings as a stand-alone segment by consolidating it into Corporate and Other. This new reporting structure aligns with our New Frontier strategy. As part of this resegmentation, we will disclose recasted historical financial results in early January, which should allow enough time to update your models prior to our fourth quarter earnings call. In summary, MetLife delivered a strong quarter, underpinned by sustained momentum and solid fundamentals across our diverse set of market-leading businesses. We achieved robust top line growth, maintained disciplined underwriting and exercised prudent expense management, all while benefiting from higher private equity returns. And our value of new business metrics highlight our strategic and disciplined approach to allocating capital. Backed by a strong balance sheet and reliable free cash flow generation, we are well positioned to achieve responsible growth and deliver attractive returns with lower risk, creating sustainable value for both our customers and shareholders. And with that, I will turn the call back to the operator for your questions. Operator: [Operator Instructions] We'll take our first question from Ryan Krueger at KBW. Ryan Krueger: My first question was on Asia sales. Can you provide some additional color on the strength that you saw? What were the key drivers? And what do you think will -- to what extent can this momentum continue going forward? Lyndon Oliver: Ryan, it's Lyndon here. Look, we're really pleased with the strong quarter we've had in Asia. We've seen a 34% increase in the overall Asia market. So let me give you some more color here. Let's start with Japan. Sales were up 31% year-over-year. We've launched a couple of new products. We've got a new single premium FX Life product that we launched in April. And this product continues to do very well. In addition, we launched a new yen variable life product in August, and this too has been received very well by the market. We've also made some product enhancements. We've enhanced our single premium FX Annuity product earlier this year, and this continues to do well when we compare to the prior year. So if you take all the product launches we put in place as well as the product enhancements, combine it with our distribution strength, that's really what's driving the strong growth that we see in both our channels, bancassurance as well as the face-to-face channel in Japan. Now when we look to the rest of Asia, sales there were up 39% year-over-year. And we're really seeing strong performance in Korea and China here. China sales were higher in the bancassurance channel, and that's really been driven by the fact that we've launched some new key bank partners as well as been able to penetrate existing bank partners. In Korea, we continue to deliver consistently strong performance. And here, we are showing strength in our U.S. dollar product sales as well as our one variable life product and in the face-to-face channels. So good results overall. Now looking ahead, we expect this momentum to continue going into the fourth quarter, and we expect to exceed full year sales guidance for '25. I hope that helps. Ryan Krueger: Great. And then just a quick one on expense seasonality. Can you -- I think you typically do have some expense seasonality in the fourth quarter. Can you give us any rough magnitude of what to expect there? Michel Khalaf: Yes. Ryan, it's Michel. Yes. Look, we are really pleased with the -- our direct expense ratio coming in well below the 12.1% that the target that we had set during the outlook. There is some seasonality, fourth quarter being somewhat higher than the first 3 quarters. But I would say that our expectation is that we will come in below the 12.1%, I would say, even well below the 1.1 at year-end. And 2 factors contributing to this, I will say. One is early this year, we had asked our teams, given the uncertain environment to tighten our belts and to see how we can manage expenses to a greater extent without sacrificing any of the investments we're making in growth and strategic initiatives. And the reaction has been really great, really pleased with it. And we've also asked the team to make sure that we carry some of those savings into next year and beyond. And the other factor here is technology related. Over the last 5 years, we've invested over $3 billion to simplify and modernize our technology ecosystem. This really has laid the foundation for us to integrate emerging technologies, including AI into our core processes, products and services. We've also developed a proprietary AI platform, which we call MetIQ. This platform blends generative agentic and classical AI capabilities that support responsible solutioning across business domains. So think about app development and customer service, for example. We've also provided tools for our employees, our associates as well as increased training. So this is all leading to both productivity gains as well as driving further efficiencies. And this is also contributing to the lower direct expense ratio that you're seeing here. Operator: We'll move next to Tom Gallagher at Evercore. Thomas Gallagher: First question, just on the $12 billion of PRTs that you've won so far in Q4. Is that a few large deals, several smaller ones? And can you just comment on what's happening competitively in that market to allow you to have so many wins? Ramy Tadros: Thank you, Tom. It's Ramy here. We're really pleased with our 2025 performance in PRT. To date, we have written more than $14 billion. And as Michel mentioned, there's $12 billion of that coming in the fourth quarter, which is making it a record for us. It's a few large deals. So as you know, we focus on the jumbo end of the market versus the small end of the market. So think of those as jumbos, not small deals. And the other -- maybe 3 other points just to think about and put this kind of record quarter in context for us. One is that we have distinct competitive advantages in that jumbo end of the market. It's our balance sheet size, our investment capabilities. And look, Tom, at the jumbo end of the market, financial strength, disciplined risk management and established track record are all very important factors for plan sponsors and their advisers, and we're extremely pleased that we're winning the trust of the marketplace here and having a record quarter. The 2 other points I'd make here as well is to also reiterate our disciplined approach to these deals. We do take an M&A lens to our capital deployment here and evaluate the risk and return of each deal. So the focus on value is very much there, and you see us also disclosing our VNB metrics, which really also encapsulates that. And for PRT, we continue to achieve ROEs in this business, which are supportive of our enterprise ROE targets. And then maybe the last point also though, just to put this in context, this is also a quarter where this win is a great illustration of us deploying our retirement platform and our capital strategies that we talked about at our Investor Day. So we're bringing the strength of our liability origination, our RIS platform. We're using our own balance sheet, but we're also using third-party capital here to enhance financial flexibility. So think about those deals driving spread earnings for RIS as well as additional growth and fee revenue for MetLife Investment Management. So it really ticks a lot of the boxes that we talked about back in Investor Day with respect to our strategy here. Thomas Gallagher: That's good color. I appreciate it, Ramy. I guess my follow-up would be for you as well. Can you just comment on what's happening underneath nonmedical health on your improvement? I guess several peers have seen some volatility in group disability this quarter. Can you comment on the split between dental and disability, what you saw in Q3 and then why you're still confident that you can continue to improve into Q4? Ramy Tadros: Thanks, Tom. We're also very pleased with our underwriting results here in group. And you saw us print a nonmedical health ratio that's 230 basis points down sequentially, which is slightly above where we indicated last quarter. So just to split that up for you in terms of disability, in particular, and then Dental. I would say the 2 drivers behind the sequential improvement. One is the favorable seasonal utilization pattern in dental. We did talk about that in the last quarter, and that's materialized here in the third quarter. We also have the benefits of our pricing actions continuing to flow through our bottom line. And I would remind you that this seasonality also exists in the fourth quarter, which is why we expect to see a further improvement in this ratio come Q4. Disability is performing well for us. It's very much in line with our expectations. Incidents and claim severity are in line. We are seeing very strong recoveries. And I would say that's an outcome of investments we've made in various capabilities in disability over a number of years. So this is coming through as well in very strong recoveries. So all in all, consistent with what we talked about in the last quarter. And so think about that 400 basis points improvement that we talked about, this 230 gets us more than halfway through in that direction of the overall 400. I hope that helps. Operator: I'll go next to Suneet Kamath at Jefferies. Suneet Kamath: Just on PRT, is any of the $14 billion that you are planning to write this year going into Chariot Re? And how do we think about the difference in earnings impact if it goes in Chariot Re or if it stays on your balance sheet? John McCallion: Suneet, it's John. Let's just start with -- we launched Chariot Re on 7/1. We transferred just under $10 billion of liabilities to Chariot Re and did all that launching in less than -- a little less than or just over a year. So -- we're very pleased with the progress we've made. Look, I think this comes back to our strategic approach and something we laid out in Investor Day and that Michel kind of articulated around just how we think about complementing our own capital with third-party capital. We see more growth in the retirement business. So it's hard to kind of pinpoint is this Chariot or is -- Chariot is kind of ongoing. We're always working with them. That's kind of the process. And that will be part of the -- how we accelerate growth on our retirement platforms. It's -- but it's not necessarily always so perfectly aligned and things don't always line up. So I'd say yes, but to your answer, I think you could argue that we'll look more holistically at just our total asset growth and then use third-party capital to augment that. And then I think the comments we gave back a quarter ago in terms of like the impact, the temporary impact on earnings is somewhere between $15 billion to $20 billion on the $10 billion deal. That's kind of a rough justice of an earnings impact in any one quarter. So just so you have like a sensitivity, but we would expect that to be temporary in nature while we then refund that with other growth. Suneet Kamath: Okay. That's helpful. And then I guess, Michel, in your prepared remarks, you referenced this efficient capital structure in Japan. I was hoping you could unpack that a little bit. Is that unique to Met? And then relatedly, on the ESR, the $170 million to $190 million, are there any adjustments that you're making to, I guess, the rules that come from the FSA? John McCallion: Yes. It's John again. Maybe I'll just touch on that given your -- the collective components of that question. So when we talk about the efficient structure, obviously, we're referencing we have a pretty big presence in Bermuda. So we've leveraged Bermuda for certain products. And that has helped us get to a more economic regime. We've continued to build our presence in size in Bermuda, both our affiliate and as well as obviously the launch of Chariot Re. So we've leveraging that framework. And then your question was on ESR. Was it just how that relates to ESR, that was your question? I just want to make sure I got it correct. Suneet Kamath: Yes. No, it's the 170 to 190. Some companies have talked about company-specific adjustments that are made when they report those ratios. That's what I was looking. John McCallion: Okay. Yes, this has no adjustments. This is just prescribed. We're following the prescribed rules here. So that's the $170 million to $190 million. And look, as we've been -- we have operated under an economic framework. We've always used both to kind of think about our products and how we run that business. I referenced in my remarks about we've been consistently dividending, including this year out of Japan. We've had $4 billion of distributions up to the holdco over the last 5 years. So this is just the general range that we would expect to run this company. Operator: We'll move next to Alex Scott at Barclays. Taylor Scott: First one on -- going back to Group Benefits. Can you talk a bit about just what you're seeing in the competitive environment, pricing environment and what you think that could lead to in terms of growth? Do you feel like at this point, you can get back to a more long-term growth outlook for 2026? Ramy Tadros: Thanks, Alex. I would say we continue to see a market that's competitive, but a market that's rationally priced, which means we kind of always find opportunities to grow and we grow that business while maintaining discipline in terms of underwriting and achieving our target returns. And you hear us talk about that, but I think just keep in mind, 2 specific attributes here that have sustained this competitive yet rational environment. The first is the fact that these are short-term products. So underwriting results emerge fairly quickly. And this acts as a natural check, if you will, on the competitive dynamics. The other is, look, customers here are looking for real solutions to help them deliver their overall talent strategies and drive business outcomes. So yes, price matters, but they're also looking for solutions that give their employees good experiences, enhances their productivity. In many instances, they're looking to transfer administrative burden in terms of leave and absence. They want to do that with a carrier that's tightly integrated with them and is easy to do business with. They want to do more with fewer. So they're looking for bundled solutions across the entire range of products. And look, we are a leader in this industry. And so we bring all of the above and more to the table. which allows us to drive good growth, and that comes through good retention, good renewal pricing and also we can do that while maintaining discipline. So I would say all of these things are really good attributes that we -- that the market has. And we have a 4% growth rate in this quarter once you kind of net out the impact of the [indiscernible] contracts, 4% on top of $25 billion in absolute terms is a pretty significant number, and we're really pleased with the momentum that we have in this business. Taylor Scott: Second one I have for you is just if you could give us your views on some of the comments that have been made around private credit investing in insurance recently. And I think some of the comments were focusing on private letter ratings and this idea that maybe there's ratings inflation out there. So if there's any kind of stats you can give us about your private credit book and the way that you go about applying ratings and so forth, that would be helpful too. John McCallion: Alex, it's John. I'll start here and maybe I'll ask my partner here to even add some color. So let me just give you some broad themes. So -- and Michel referenced before, first, let's just -- we are constructive on the credit environment right now. There's strong fundamentals, corporate profits are strong. But as you heard from Michel, spreads are tight. So you need to be very mindful and disciplined around value and risk right now. And for us, that generally means up in quality. Even in higher-yielding strategies, we're up in quality. I did see the same referenced article that you had. And look, they were pretty generic comments. So hard to kind of unpack that and wouldn't try to even do that here. But I think for us, if I look at just us, we're a top-tier private asset, private credit manager. We've been doing this for decades. Importantly, having done this through credit cycles, right? Not everyone has done that. And these assets give us many, many benefits. And I'll ask Chuck. Chuck is our Chief Investment Officer, and he can give a little color on some of the specifics and how we think about underwriting. Chuck Davis: I mean I think John's first point is spot on in that we've been a major investor in this sector for a long period of time. And I think it's important when you -- when we hear all the comments out there to understand that MIM does our own underwriting. Our primary source of credit underwriting is the own work we do. It's not rating agencies. It's not a rating letter. It's our specific underwriting. And the vast majority of our corporate bonds are investment grade, 95%. And the exposure that we have to below investment grade is mostly up in quality. So I think all those factors, good underwriting, good experience, focus up in quality puts the portfolio in pretty good position. Operator: We will move next to Wes Carmichael at Autonomous Research. Wesley Carmichael: First question I had for you was on RIS and just kind of your outlook for the base spread from here. I think, John, you mentioned it improved a basis point. But as we look forward, how are you thinking about the base spread? John McCallion: As you said, we had 131 basis points in spreads, about 29 basis points of that was VII. And so we came in at 102%, and that was actually up 1 basis point from Q2 and better than our guidance we had given. And we had expected some seasonality in some real estate that wasn't as severe as we thought, and there was also a few other smaller favorable items that helped us maintain consistency. As we think about Q4, all else equal, we'd expect kind of a steady spread level from Q3. The one headwind we'll have to be just think about or be mindful of is with the large amount of PRT mandates that we've won during this quarter, that can cause a quarter -- temporary quarter headwind as you reposition assets, and that could be a couple of basis points, if any. But I think putting it all together, we see relatively flat, I think, would be kind of our viewpoint at this point. Wesley Carmichael: That's helpful. And second, I guess there's a press release out this morning from Brighthouse, the company is expected to be acquired by Aquarian. And I believe MIM manages a portion of assets for Brighthouse. But I just wanted to see if there's any other potential impacts to MetLife. I don't think it should be AUM you managed, but are there any other impacts that we should be thinking about from here? John McCallion: Yes. No, we saw the report as well, and I think congratulations to the team. And obviously, all this was rumors until it's not. And -- but to the extent that it's not a rumor, you know then that there was a lot of hard work that went into something like this. So we're certainly happy and congratulate the team for all the hard work they went through. Look, for us, it's been a -- we have a great relationship with Brighthouse. We obviously have a long history with them. And so we have kind of a fun place in our heart for that relationship. At the same time, we have some very unique asset management capabilities that we think help them achieve their strategic objectives. So the key relationship right now, to your question, is our asset management relationship, and we look forward to leveraging the partnership and working with them to help them with their strategic outcomes. Operator: Next, we'll go to Joel Hurwitz at Dowling. Joel Hurwitz: On MIM, any color on the performance of the business this year and how third-party flows have been? John McCallion: Joel, it's been a good year. To be honest, if we had to kind of unpack the first and second half of the year, the first half, just given the market volatility was a little muted. Also, the announcement of PineBridge probably put a little bit of a slowness on things in the beginning of the year, but the team has worked tremendously hard to kind of educate the external environment. And we saw -- we had a strong second half. I think we're just above on total assets under management of just over $630 billion of AUM, above $200 billion on third-party assets. So -- and the flows in the second half of the year have been very strong. So we're very excited about what's ahead for MIM. And obviously, kind of it's one of our strategic initiatives to accelerate the growth of -- and the team has been working very hard and excited to become our own segment come next year. Joel Hurwitz: Got it. And then a couple on LTC. First, any material changes to the assumption set there? We've seen a couple of players have some adverse incidence trends. Not sure how that's trending for you guys. And then just any update on what you're seeing in the risk transfer market for that business? John McCallion: Yes, sure. I'll start, and then I'll hand it over to Ramy to give some thoughts on the market. So broadly, you saw our actuarial assumption review pretty modest, slight positive overall, some slight positive in RIS with some higher mortality benefiting there and -- then in Asia, some favorable experience on morbidity and lapse rates. And then in Holdings, we actually had some favorable life experience as well as some favorable lapse experience on VA, a very, very modest LTC number of 2 million post-tax change. And so I think the block continues to perform well. The ADE is in line with what we would typically expect. And I'll turn it over to Ramy to give some color on just what he's seeing in the market. Ramy Tadros: Thanks, John. As we've said before, we have and continue to look at risk transfer opportunities here. And clearly, very much seeing the recent risk transfer activity that's taken place -- so we're engaged and continue to look at that. And having said that, though, we will be very disciplined here as we explore these opportunities. We have a very well-managed book of business. It's well capitalized and well reserved. We continue to have a successful rate action program that's allowing us to obtain the necessary premium increases that the book needs. So as we look at any potential transaction, price is going to really matter here. And ultimately, any transaction needs to be accretive from us -- for us from a shareholder value perspective. Operator: We'll take our next question from Wilma Burdis at Raymond James. Wilma Jackson Burdis: Could you just discuss the forward timing of the impact of the Mexico tax law change? Eric Sacha Clurfain: Yes, this is Eric. So as John mentioned, this quarter, we took a notable charge related to the change law in the tax law in Mexico. So first, let me start by giving you a little bit background on this item. So in the past few years, the Mexican tax authorities have been challenging the VAT deduction of certain insurance claims-related expenses. And although the discussions were ongoing for several years, there was really no -- little to no progress until the past few weeks when the government and the industry reached an agreement, making the change effective for 2025 and beyond. And this revision to the tax law just passed the legislator last week. So for MetLife, this industry-wide insurance change only affects our health product offering. The change to the VAT deductions results in notable impacts in 2025 with lesser impact in 2026. And as we transition to the new rule, and then there will be little to no impact in earnings by 2027. So we are already working to adjust our underlying rate assumptions for this annually renewable product, along with other management actions which will help mitigate the impact of this transition. So from our experience also, this market has been very resilient and rational, which gives us confidence that we will work through this quickly. Our business in Mexico is strong. We have a large and very well-diversified franchise, and we're confident in our ability to continue to deliver on that strong performance. So in summary, this impact to the VAT change is isolated in nature, and it's temporary. And we expect we'll be back to our run rate and growth trajectory for the region by 2027. I hope this helps. Wilma Jackson Burdis: Okay. And then you had some positive assumption updates in Asia. Is any of that potentially ongoing? John McCallion: Wilma, it's John. No, that's -- those are all generally onetime in nature. Operator: And that concludes our Q&A session. I will now turn the conference back over to John Hall for closing remarks. John Hall: Great. Thank you, everybody, for joining us this morning, and we look forward to engaging as the quarter goes on. Operator: And this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to Evergy's 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 Peter Flynn, Senior Director of Investor Relations and Insurance. Please go ahead. Peter Flynn: Thank you, Haley, and good morning, everyone. Welcome to Evergy's Third Quarter 2025 Earnings Conference Call. Our webcast slides and supplemental financial information are available on our Investor Relations website at investors.evergy.com. Today's discussion will include forward-looking information. Slide 2 and the disclosures in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. They also include additional information on our non-GAAP financial measures. Joining us on today's call are David Campbell, Chairman and Chief Executive Officer; and Bryan Buckler, Executive Vice President and Chief Financial Officer. We will cover third quarter highlights and provide updates on economic development activities and our regulatory agenda. Bryan will cover our third quarter results, retail sales trends and our financial outlook. Other members of management are with us and will be available during the Q&A portion of the call. I'll now turn the call over to David. David Campbell: Thanks, Pete, and good morning, everyone. I will begin on Slide 5. This morning, we reported third quarter adjusted earnings of $2.03 per share compared to $2.02 per share a year ago. The increase over last year was driven by a recovery of regulated investments and growth in weather-normalized demand, partially offset by higher interest and depreciation expense and dilution from convertible debt. Our year-to-date adjusted earnings are $3.41 per share compared to $3.46 per share a year ago. With these results year-to-date, we are narrowing our 2025 adjusted EPS guidance range to $3.92 to $4.02 per share from our original 2025 adjusted EPS guidance range of $3.92 to $4.12 per share. The lower midpoint is primarily due to weather headwinds from below normal cooling degree days in the second and third quarters, which negatively impacted our results by $0.13 per share. I would like to compliment the team for implementing mitigating actions across the business, offsetting more than half of the weather headwinds. However, we have not been able to offset the full magnitude in what has otherwise been a strong year of regulatory and operational execution while advancing our strategic objectives. Our fundamental long-term outlook remains very strong, bolstered by tailwinds from a generational economic development opportunity and the investment needed to enable it. Bryan will discuss the quarterly drivers and our earnings outlook in more detail in his remarks. We've achieved strong operational and reliability performance through September. Year-to-date, our generation availability as measured by the forced outage rate as well as our overall grid reliability as measured by SAIDI are both favorable to target. These results demonstrate the benefits of our continued infrastructure investments and the hard work of our operations teams. I'd also like to recognize Wolf Creek as it nears completion of our 27th refueling outage with strong safety and overall performance. Wolf Creek generates around 1,200 megawatts of non-carbon-emitting energy enough to power more than 800,000 homes. I'd like to thank everyone on our nuclear team for their hard work and focus on sustaining the excellent operational performance of the plant. I'm happy to announce a 4% increase in our quarterly dividend or $2.78 per share on an annualized basis. This increase is consistent with our updated growth outlook and working toward the midpoint of our 60% to 70% target payout ratio. Looking ahead, we will provide a comprehensive financial outlook update on our year-end call in February. We will include refreshed views on our load forecast based on large customer impacts, our 5-year capital investment plan, the related financing plan and our long-term adjusted EPS growth outlook. The 5-year capital plan will incorporate expected generation investments to serve load and meet SVP's increasing reserve margin requirements as well as transmission and distribution projects to support reliability. As Bryan will discuss with respect to the long-term update, we believe there are noteworthy tailwinds to our earnings power as we advance our plans to support growth and economic development that will benefit our Kansas and Missouri customers and communities. Slide 6 outlines our economic development pipeline and opportunities over 15 gigawatts, which relative to our size, represents one of the most robust backlogs in the country. Reflecting the geographic advantages of our region, the overall pipeline is strong in both Kansas and Missouri, and we are well positioned to continue to attract new businesses. Large customer interest in the Evergy service territory remains very strong. Focusing on the top 3 categories of the pipeline, we outlined a 4 to 6 gigawatt opportunity of large new customer load that represents the most active part of our queue. This Tier 1 demand represents a transformative 10-year growth opportunity for Evergy. When executed, we expect these projects will deliver significant regional benefits across our states, supporting a leading -edge digital economy, creating jobs and expanding the tax base while enabling us to spread system costs over more megawatt hours, helping to maintain affordability for all customers. We continue to work closely with Tier 1 large load to develop and implement transmission and distribution solutions to serve their expected ramp rates over the coming year. We are confident that we will be successful in winning and serving a large portion of this queue, which would in turn transform the size and growth of our company and enhance the economic prosperity of our region. The remaining pipeline totaling well over 10 additional gigawatts highlights the robust activity and sustained interest in Kansas and Missouri. Many customers have already secured land or land rights, finalized site plans and are actively participating in capacity studies. While not all of this load will ultimately be addressable, the ongoing dialogue underscores the depth of engagement and the readiness of customers to step in should others exit the queue. Slide 7 expands upon the 4 to 6 gigawatt Tier 1 large customer load opportunity. Beginning with the actively building category, I'm happy to report that last week, Lambda announced its plan to transform an unoccupied data center located in Kansas City, Missouri into a state-of-the-art AI factory and data center. Their facility is expected to launch in early 2026 with 24 megawatts of capacity and has a potential to scale up to more than 100 gigawatts -- 100 megawatts, excuse me, in the future. This project is a great example of a data center leveraging existing infrastructure with an ability to ramp load relatively quickly with minimal grid investment required and exemplifies why Missouri is an attractive destination for projects of all sizes. For the balance of our actively building customers, Panasonic and Meta are up and running, and our third large customer is making good progress through its heavy construction phase. Inclusive of Lambda, we now anticipate peak demand of 1.2 gigawatts from these customers with over 500 megawatts online by 2029, supporting our demand growth forecast of 2% to 3%. Moving to the finalizing agreements category, we remain in the final stages of negotiation with large customers for 2 data center projects. Subject to final agreements and project announcements, we expect to see an impact on our demand growth from these customers in 2027 and '28 and into the next decade, which would raise the overall company demand forecast to 4% to 5% load growth through 2029. Approval of the LLPS tariffs in both states is a key next step for finalizing these negotiations. Additionally, we recently added a third data center to this category, reflecting significant progress and initial executed agreements. This project was previously in our advanced discussions category and demonstrates the high interest from large customers in advancing their projects. We also remain in advanced discussions with multiple customers whose load would represent approximately 2 to 3 additional gigawatts of peak demand. These customers have secured land and land rights, shared site plans and in some cases, reached letters of agreement and provided financial commitments to move the evaluation forward. Load from these customers is not contemplated in our upside view of 4% to 5% annual load growth and therefore, would be incremental. Overall, we continue to see an incredible level of interest in our service territories, and we're making progress with potential new large customers across all stages of discussion. Each category reflects potential new entrants that will empower growth, investment and drive prosperity for our region. Now moving to Slide 8, I'll touch on our latest regulatory developments. 2025, as you know, has been a busy year for our regulatory team, and we've demonstrated considerable progress in advancing our strategic objectives. The team's results this year reflect the constructive policy framework and economic development opportunities in both states as well as our ability to find alignment with broad groups of stakeholders and achieve constructive settlement agreements. Beginning with Kansas, we filed for and received approval of predetermination to own partial shares of 2 new combined cycle natural gas units and a solar farm, both -- are all at Kansas Central. These projects were identified in our IRP preferred plan and reflect our all-of-the-above approach to meeting growing customer demand and higher capacity margin requirements in the SPP. The Kansas Corporation Commission issued an order approving a unanimous settlement agreement for Kansas Central rate case on September 25. The settlement achieved a balanced outcome for all parties, including adequate recovery for the investments needed to provide reliable and affordable electric service. A key open agenda item in Kansas is the unanimous settlement agreement we filed on our large load power service tariff docket on August 18. The proposed tariff applies to customers with demand exceeding 75 megawatts and establishes a rate structure with a focus on large customers paying their fair share and being subject to additional protections that I'll describe later in my remarks. We believe the LLPS establishes a competitive rate and positions Evergy to attract and serve large new loads, enabling growth and prosperity for our communities. We anticipate an order from the KCC on the settlement agreement as part of the commission's business meeting later today. Pivoting to Missouri, we've successfully advanced plans to construct new generating resources. The MPSC approved settlement agreements in our CCN applications for 2 solar farms, partial ownership in 2 combined cycle natural gas units and full ownership of a simple cycle natural gas plant. We believe these projects form a cost-effective package of reliable energy solutions for our customers, and this outcome demonstrates alignment with the Public Service Commission's interest in securing additional generation resources for our Missouri utilities. Similar to Kansas, the large load power service tariff proceeding continues to advance in Missouri. Parties filed a nonunanimous settlement agreement earlier this fall with terms similar to those filed in Kansas, including contractual protections, provisions to ensure that large customers pay their fair share of system costs and a competitive rate that supports economic development. We anticipate an order from the MPSC by the end of the year. Last, the planning process for our upcoming Missouri Metro rate case is underway, and we expect to file the case in February 2026. Slide 9 highlights legislation and regulatory mechanisms that support growth in our region and help to position Kansas and Missouri as premier destinations for infrastructure investment to ensure reliability and new advanced manufacturing facilities, data centers and other large customers. These mechanisms are the product of broad-based alignment between Evergy, the governor's office, state legislators, our regulatory commissions and key stakeholders as well as our shared commitment to seize on the growth opportunities ahead of us for our customers and communities. Constructive regulatory frameworks that enable timely infrastructure investment to meet the needs of both existing and new customers are critical to our success and the bills passed over the past 2 years in both states advance these priorities. This supportive landscape reinforces our region's position as a top destination for growth. Evergy is committed to delivering safe, affordable and reliable service to our 1.7 million customers. As large new customers join our system, all stakeholders benefit from broader cost sharing and unprecedented economic development. I'll conclude my remarks on Slide 10, which highlights the core tenets of our strategy. I'll focus specifically on affordability. Since the merger that created Evergy, we have achieved tremendous progress on affordability and regional rate competitiveness, driven by significant reductions to our cost structure and investing at a slower pace than peer utilities. Over that time, our rate trajectory has remained well below regional peers and far below inflation. This required hard decisions and the full focus and dedication of everyone in our company. I'm very proud of the results that these activities enable us to deliver for all of our customers. It is critical that we sustain this momentum as we enter a new era of growth and demand and economic development. This new era will require the same level of dedication and focus from our company, and that's exactly what we intend to deliver. As part of that focus, we will continue to invest in infrastructure and operate our business in a way that maintains reliability and benefits all of our communities. Higher levels of investment to serve new large customers must be fairly borne by those customers, and we designed our large load power service tariffs to do exactly that. Under the proposed LLPS tariff, new large customers will pay a higher rate than that paid by our existing large customers. As a result, the revenues from new customers will directly mitigate future rate increases for our existing customers as we are able to spread the fixed cost of our system over a broader base. In short, new large customers will pay a reasonable premium to the cost to serve them while also maintaining a competitive rate. And all customers will benefit from a modernized grid and new highly efficient generation resources. The tariffs are also designed with key safeguards in place. These include, among others, customer commitments of 12- to 17-year terms, an 80% minimum monthly bill requirement, exit fees upon early termination and collateral posting. It's important to note this tariff structure is consistent with the intent of our large new customers to be good stewards as part of our Kansas and Missouri communities. In the LLPS dockets, they were active participants throughout the process and along with many other stakeholders, contributed to and signed on to the settlement agreement. As I noted earlier, these agreements are currently pending approval by the Kansas Corporation Commission and Missouri Public Service Commission with the KCC's decision expected later today. Collaboration with large customers does not stop at paying their fair share. Their projects will create construction jobs, permanent jobs and expanded property tax base and community development benefits. As an example, one of our customers announced it will bring its Skilled Trades and Readiness or STAR program to the Kansas City area. The company is collaborating with Missouri Works Initiative and the Urban League to help increase the entry-level pipeline in the skilled trades with a focus on underrepresented communities. All STAR preemployment programs are paid training programs and offer networking opportunities to help participants move directly into employment on local construction projects. We hope and expect that this example will be just one of many. The vitality of our region has made it an attractive destination for advanced manufacturing and data center customers and their investments in turn have tremendous potential to drive a virtuous cycle of growth and prosperity in Kansas and Missouri for years to come. I will now turn the call over to Bryan. W. Buckler: Thank you, David. Thank you, Pete, and good morning, everyone. Let's begin on Slide 12 with a review of our results for the quarter. For the third quarter of 2025, Evergy delivered adjusted earnings of $475 million or $2.03 per share compared to $465 million or $2.02 per share in the third quarter of 2024. As shown on the slide from left to right, the year-over-year drivers are as follows: first, a 2% increase in weather-normalized demand growth drove the majority of the increase of $0.06 per share in the margin shown on the slide and recovery of and return on regulated investments contributed an additional $0.11 of EPS. Offsetting these favorable drivers are higher depreciation and interest expense related to our infrastructure investments, leading to a $0.07 decrease in EPS and dilution from our convertible notes led to a $0.03 decrease for the quarter. Turning to Slide 13, I'll provide more detail on our sales trends. On the left-hand side of the page, you'll see weather-normalized demand increased by 2% in the third quarter as compared to last year, following the 1.4% year-over-year increase we experienced in the second quarter. This continued strong momentum was driven by increases in both residential and commercial usage, including load from the Meta data center in Missouri that is reflected in our commercial customer class. At a macro level, the continued robust customer demand in our service areas is supported by a strong labor market as the Missouri, Kansas and Kansas City Metro area unemployment rates remain below the national average of 4.3%. Moving to Slide 14, I'll provide some further detail on our expectations for full year 2025 results. As David mentioned, we are narrowing our guidance range to $3.92 to $4.02 as compared to the original guidance range of $3.92 to $4.12. Our mitigation efforts of approximately $0.10 of EPS benefit are expected to offset a substantial portion of the $0.13 of headwinds experienced by below normal cooling degree days in the second and third quarters. In addition, we now anticipate an incremental $0.02 of dilution related to our convertible notes given our recent strong stock performance. We have forecasted incremental dilution from the convertible notes in our 2026 EPS modeling and continue to expect to achieve the top half of 4% to 6% growth in EPS in 2026 off of the midpoint of our 2025 original guidance range. As I'll discuss shortly, Evergy's fundamental long-term outlook remains stronger than it has been in decades, bolstered by tailwinds from a generational economic development opportunity and the investment needed to enable it, which will benefit all future years in our financial plan. Slide 15 outlines a recap of our long-term financial expectations and considerations for our comprehensive growth update we will share with you during our fourth quarter call in February. First, we highlight our Tier 1 customer opportunity of 4 to 6 gigawatts of peak load. As a reminder, our current 5-year plan incorporates load growth of 2% to 3% annually through 2029, reflecting solid growth in our current customer base and buoyed by the Panasonic, Meta and Google projects. This load growth expectation is further bolstered by rapid development data centers such as the Lambda facility discussed by David earlier, which is able to scale more quickly than the mega data centers via their use of existing buildings and existing electric infrastructure. Also, we are nearing final agreements with 2 data center customers that could drive an incremental 600 megawatts by 2029, which would raise our load growth forecast substantially to 4% to 5% on a CAGR basis through 2029. We've also made great progress with customers in the advanced discussions category, which represents a 2 to 3 gigawatt opportunity, driving even more load growth toward the back half of our 5-year plan. We certainly believe we have one of the most compelling customer growth opportunities in the entire industry that we expect will drive robust growth, not just in our 5-year forecast, but into the next decade for Evergy and for the communities we serve. Next, I'll discuss our capital expenditure and rate base growth forecast. The foundational earnings power of the company will be fortified by our capital investment program. Higher levels of infrastructure investment are needed for grid modernization and incremental generation capacity to support the expansion of our existing customer base and new large load customers. These are tailwinds to our current $17.5 billion capital plan and corresponding to 8.5% rate base growth through 2029. On the regulatory front, to maintain the credit profile of our utilities and to incorporate the affordability benefits of large loads, which allow us to spread system costs over a broader base, we plan to be on a somewhat regular cadence of rate case proceedings. With a large infrastructure plan comes regulatory lag. And over the past couple of years, the states in which we operate have taken proactive steps to help utilities better manage elevated depreciation and interest expense through the use of plant and service accounting mechanisms. We also utilize natural gas CWIP provisions in both Kansas and Missouri. These constructive mechanisms help to reinforce our solid credit profile. During this phase of significant infrastructure build-out, we will utilize equity and equity content financing options to fund a portion of our capital requirements and to support our strong investment-grade credit rating and FFO to debt threshold of 14%. It is important for you all to know that we will continually evaluate the overall level of equity funding needs, recognizing that large load customers in our pipeline could significantly improve our cash flows from operations, beginning in 2026 and accelerating throughout the next several years. Thus, there is a real opportunity to moderate our equity needs for the current $17.5 billion capital investment plan. Now our company can only be successful when our communities thrive and we maintain affordability for our customers. We are committed to staying laser-focused throughout the years ahead on affordability for our current customers, and we believe our long-term plan will be successful in doing so. As we look to rolling out our updated 5-year plan in February, I'll mention again the many tailwinds to our current adjusted EPS growth outlook and the transformational opportunity for us here at Evergy. We're excited for what's to come and look forward to sharing details with you on our year-end call. And with that, we will open up the call for your questions. Operator: [Operator Instructions] Our first question comes from the line of Paul Zimbardo from Jefferies. Paul Zimbardo: The first one I wanted to touch on just as we think about 2026 in Missouri legislative session, obviously, there's been a lot of progress in recent years for all the different flavors of utilities. Do you have any priorities or anticipate efforts for 2026? And could this influence the rate case cadence? David Campbell: Paul, we were pleased to work closely with many stakeholders last year in Missouri. It had a list, obviously, the Commission Chair Hahn, the governor's office. legislative leadership of the utilities and key stakeholders. So there's a lot of progress made in SB4. A lot of next year will be around implementing and following through on the elements of SB4 related rulemakings. So I don't anticipate there's -- I always talk with the team, we always talk with the team about ways that we continue to advance constructive mechanisms. But after such a busy year and such consequential legislation last year, I think it might be a little lighter calendar in 2026. But important steps to undertake to advance forward on the constructive mechanisms on SB4. Paul Zimbardo: Okay. Understood. And then obviously, you've got the big refresh coming ahead. Just maybe a little bit of a sneak peek, not so much on the numbers, but even just the cadence in the current plan, it's slower upfront and then accelerates. With whatever -- to the extent you do change the growth rate, should we think about that as kind of a linear profile or also accelerating as you move towards the end of the decade? David Campbell: Gosh, Paul, it's hard to answer that question without getting into what will be in our year-end update. So I think that Bryan did a nice job of describing the multiple tailwinds that are -- make us so excited about the prospects for growth in our region and all that's going to bring for our customers and communities, and that's both the load growth element, the investments needed to make sure that we can serve that load and meet SPP's higher reserve market requirements and beneficial impacts it can have in the financing plan. So the -- our prior capital plan, we laid that out by year. We'll lay it out by year in our upcoming capital plan. There's obviously a significant amount of investment. You can see what that is by year, but there's also loan growth that helps to mitigate any regulatory lag. So we're really excited about the tailwinds around it, and I won't get ahead around the profile. I think Bryan did describe for 2026 itself. We got -- we're reaffirming our confidence being in the top half of the range of '26, and then we'll be talking about the -- how those tailwinds manifest themselves in upgdeddated set of -- an updated financial plan that we'll outline in the year-end call. Paul Zimbardo: Okay. I understand. I had to try. David Campbell: We're excited, Paul, as you know, because we're excited because of the benefits it's going to bring to our region, our customers and communities, and it's a comprehensive set of factors that are driving that excitement. Operator: Our next question comes from the line of Travis Miller from Morningstar. Travis Miller: It seems like Kansas and Missouri have been working pretty well together here over the last few years. I was wondering within your service territory, how much competition is there at the local level in terms of attracting some of these large loads? I got to think just the way all states work that there might be some competition here, either legislatively, politically, local to try to get some of this economic development. Is that happening? David Campbell: That's a great question. And as a person, I'm now nearly 5 years in this region. And I've been very impressed. And of course, our service territory extends over to Central Kansas and Wichita. So we're -- it's much broader than just the Kansas City area, and there are parts of the states that are more distant from the state line. But to ask the question narrowly about our region, I'm Vice Chair of a group called the Kansas City Area Development Council. It represents counties on both sides of the state line extending all the way from Topeka to Kansas City and Eastward to North and South. So it's -- and it's a collaborative approach. There's actually been legislative truths in the past to mitigate potential poaching of that might go on across state lines. So they really do a nice job of collaborating the -- in the great state of Texas, I live 250 miles from many state lines, and I was reasonably close to them. Here, I'm quarter mile from the state line, and it's the collaboration that happens when you've got that kind of seamless integration, I've been very impressed to see. I've got an older brother. There are times when within a family, you might have dynamics, and that can happen. But in general, the teamwork is strong and the collaboration is high. Travis Miller: Okay. We'll hear more family stories later on. David Campbell: Indeed, -- they often involve. Travis Miller: Yes. And then other question. In terms of that $17.5 billion CapEx, assuming that you get the large load tariff there, you've got -- you'll have that, you'll have the PISA, the CWIP. How much of that $17.5 billion would actually be subject to a typical rate case filing, right? Essentially, how much of that can you recover without going through a regular rate case, as you call it, the cadence of base rate cases? David Campbell: Yes. So there's -- ultimately, all of our investments are subject to reviews to make sure they're prudent and reasonable. There's a set of different mechanisms that help to mitigate the cash regulatory lag. With PISA in both states that mitigates the earnings lag, but we've got riders in place in both states. all from property taxes to pension to other elements. And the CWIP will help with our new natural gas plants. We lay out the different parts of our capital plan in the appendix. So the new generation component is shown, I think it's on Slide 21. So that could give you a good measure for what -- which pieces of the capital plan. are in the more traditional category versus what's in the new generation category. The CWIP mechanism is slightly different between Kansas and Missouri. But in both states, we were pleased to get that -- those provisions introduced. It was in Kansas '24 and Missouri in '25, reflecting the support in both states. We're building new natural gas generation and recognizing that, hey, with the investment programs of that size is important to have some mitigants to lag. So that's -- out of our total capital plan, you'll see that new generation is about 1/3 and 2/3 is in the traditional categories, grid modernization, ensuring reliability, keeping the lights on and providing great service to our customers. Travis Miller: Okay. That makes sense. So then the other one, transmission would be obviously FERC so to pull that out. So it would be the 3 buckets of potential base rate would be legacy generation distribution in general. David Campbell: Yes. And most of our transmission investments in the Kansas side, you've got that right. Operator: Our next question comes from the line of Nicholas Campanella from Barclays. Nathan Richardson: It's actually Nathan Richardson on for Nick. I just have a quick one for you. So I was wondering if you could talk a little bit about the third data center you mentioned. And given the 4% to 5% sales growth guidance, I was wondering how impactful that third data center specifically could be in moving the needle for the sales growth. David Campbell: Nathan, that's a great question, and I'm glad you asked it. So the -- as you know, we've included in our financial plan that we provided last year, a 2% to 3% annual load growth, but we have quantified that the 2 customers in the actively building category have potential to raise that annual load growth to 4% to 5%. The addition of the third -- I'm sorry, the addition of the third customer, and this is in the finalizing agreements category, even I'm mixing up the categories. So the 2% to 3% load growth is from the actively building category. The potential to go to 4% to 5% is from the first 2 customers in the finalizing agreements category. You're absolutely right, that third data center customer we've now added to the finalizing agreements category would be additive to the 4% to 5% as with the customers in the advanced discussions category. So thank you for that clarification. Nathan Richardson: Is there any quantification there or just that is incremental? David Campbell: No. The bulk of that, we expect would be post 2029, but we've not quantified it, but that will be part of our -- obviously updated the year-end call what the overall view is on load growth tailwinds. We added it to the category of finalizing given just the sheer amount of progress we've made with that customer in terms of advancing discussions and advancing agreements and agreements related to those. So it made sense to include in that category. We've not quantified the incremental amount, but we've just noted that it's -- those additional customers beyond the 2 that are in the finalizing agreements category would actually be additive to the 4% to 5% annual load growth potential. Operator: Our next question comes from the line of Steve D’Ambrisi from RBC Capital Markets. Stephen D’Ambrisi: Yes, I just had a quick one on the LLPS tariff discussions. Given you guys have a settlement, I know it's not unanimous, but can you just talk about like effectively at a high level, what's left there, what the main sticking points are? And what you think kind of the time line for resolution around some of this stuff is? I'm pretty sure there's a settlement conferences coming up and then expected time line is the end of February, but just want to hear about that and then how that works into kind of moving some of these finalizing agreement buckets into the actively building bucket or signing ESAs associated with it. David Campbell: You bet. I'm glad you asked the question because I'll clarify because I think you may be thinking about the time line that's occurring on a different side of the state. in Missouri. So for us, we have 2 LLPS proceedings. One is in Kansas. We have a unanimous settlement agreement that we signed in Kansas, and there's already been briefing on that. And it's actually -- we expect a decision on that by the Kansas Corporation Commission later today. It's on the docket for today. So given that they've already had a hearing on that unanimous settlement agreement, we actually anticipate a decision in Kansas later today. And that was a unanimous settlement agreement covering all issues, including all parties. In our Missouri LLPS proceeding, we did have a partial settlement. We have gone through a hearing. Not all parties were alignment on it. The structure of the settlement that included many parties, but not all, has terms that are very similar to the ones in Kansas. So it has protections. It has a rate that is higher for the LLPS customers. And it's a structure that ultimately like as we saw in Kansas was a result of robust dialogue and included the large customers. So I think it's a competitive rate as well. We think it aligns with the governor's policy in the state and support for growth and development and with the commission's overall focus on that. But we'll have a decision on that we expect by the end of the year in our case. There are other proceedings in Missouri for other utilities that are a little behind ours. We filed that first. So hopefully, that makes sense with respect to the different context in Kansas. Stephen D’Ambrisi: That's helpful. And so basically, the comment on the slide that talks about announcements expected after LLPS tariffs are finalized to the extent the facilities are in Kansas, that could be freed up as early as tomorrow, and then we'll see when Missouri gets done hopefully by the end of the year. Is that -- those are the kind of the gating items from a time line perspective? David Campbell: I like your thinking. I've got some team members in the room now, and I'll tell them they need to be -- no, I'll kidding aside. Yes, I think the LLPS being signed is a very important enabling step. So that's -- and we do hope -- Kansas has always been a little bit ahead schedule-wise, but Missouri is not far behind. So we think that the time line sets us up well for what we know is going to be an important update in the year-end call. And it's important for these customers as well. The queue is a very active one. Folks are eager to come online. A big chunk of why we have a such a big queue is because we've got customers lined up for any reason, and we don't see those reasons happening. There's tremendous interest in the customers who are interactively building and finalized agreements with the category, a lot of momentum, but we've got folks lined up behind them. So we believe that the LLPS decisions being on the time line they are should enable us to move on the time line we're hoping to achieve. Operator: Our next question comes from the line of Paul Patterson from Glenrock Associates. Paul Patterson: Just on the financing plan and the $2.8 billion, and I see the forward -- we obviously have the forward and what have you. But I'm just wondering how we should think about this? I mean, you're also mentioning, obviously, the potential for what you guys mentioned earlier about the cash coming from these potential new agreements being finalized. How should we -- if you could just sort of quantify like how that -- how much that you think that would impact the $2.8 billion and the sort of timing or if you could just elaborate a little bit more on how we should think about the finalizing of those agreements and what have you. W. Buckler: Paul, it's Bryan. Thanks for the question. As a reminder for everyone, our current capital investment plan 5 years is $17.5 billion. In total, we believe that will be funded in part by up to $2.8 billion of equity and equity content capital market instruments such as JSN's Junior Subordinated Notes. I do think it's important for you to know that we'll continually evaluate the overall level of equity funding needed, recognizing that, as you say, that energy usage from customers in our pipeline could significantly improve our cash flows from operations beginning in earnest in 2026 and then accelerating throughout the next several years. Thus, there's a real opportunity to bring that level of equity down by what I've said before, hundreds of millions of dollars. I should also mention that we continue to see upside bias in our capital investment needs to serve our existing and expected new customers in the year ahead, which will also necessitate a somewhat balanced approach to debt and equity financing. Does that help? Paul Patterson: Yes, that does. I mean -- but just to sort of clarify, so that would be something that would obviously have -- require more capital needs and therefore, might be an offset to some of this cash flow that you'd be seeing as well. Is that how we should think about it? W. Buckler: Yes, that's the way to think of it for modeling for sure. Paul Patterson: Okay. And I guess we'll get more clarity, obviously, as time goes on. But -- and then I guess I wanted to -- on the $0.10 of mitigation measures that you guys had, with respect to the earnings. How should we think about those mitigation measures going forward? Do those -- are those a timing issue and they'll show up next year? Or are those things that you found that you think are more ongoing or some mixture of the 2? David Campbell: Paul, I'll describe those. Those are in-year mitigation measures. So obviously, we are -- the size of the weather headwinds and a little bit of incremental headwind from the convert was -- we would hope that we could offset all of it, but we were able to offset $0.10 of it, but that's really in-year mitigation measures. It doesn't impact our fundamental long-term outlook. I've now been -- this is my fifth year at the company. There are 2 years where we had really warm weather and adjust the range upwards didn't change our long-term fundamentals. This is a year where we have weather headwinds, so it's going to impact our performance of this year, but it's -- both the weather impacts and the mitigation measures are really within the context of this calendar year. The drivers for our fundamental plan, as Bryan mentioned, our view on 2026 and then the drivers for our long-term plan remains intact and sort of unaffected by the vagaries of weather. Paul Patterson: Okay. And then with respect to the Lambda deal, which would seem sort of interesting here. I'm just wondering, would that -- I guess, first of all, when would it go -- at what time frame would it go from 25 to the 100? I guess 25, it sounds like it would -- the 25 megawatts would be beginning of next year, but then it goes to 100. I'm just wondering how long does that ramp-up take? I'm just curious. Or is it known? David Campbell: Yes. We -- as I described, it's the in the 25-megawatt range starting next year, and it's probably in the next 4 to 5 years that it gets to that potential overall size. Really excited about that project, new company deploying advanced technology in their data center and AI factory as they describe it. So it's -- we are pleased to see that announcement. It was tied well with some economic development meetings here in town and reflects how attractive our region is and really impressed by how they leverage an existing building, an existing T&D infrastructure largely, and that's how they were able to ramp up to that level. Historically, a 25-megawatt customer would be considered very large. Now in the new era, it is a new era. But it's still obviously a creative approach, and we're pleased to have an advanced facility like that taking advantage of a building like that. Paul Patterson: Right. That sounds kind of unique. I guess what I also wondered was like in terms of the context of these large load tariffs that you were describing, since it's under 75 megawatts and then going to 100 megawatts, would a scenario like that be subject to -- obviously, it's hypothetical as and all they approved. But I'm just wondering how in the context of these settlements that you've had with these large load tariffs, how would a customer like that be treated? Would that be a large load since it came in initially below the 75 megawatts, but would go to the 700 megawatts, do you follow what I'm saying? Or would it be because the final number is 100, it would be a large load. Does that make sense? David Campbell: Yes. Typically, these customers are focused on what their ultimate load level is going to be because they want to make sure that they've got the infrastructure and capacity to get there. And this is an example. So the tariff addresses as you ramp up getting up to those higher levels. And again, these customers, the ones that go into the large loads definitely want to make sure they've got the capacity and ability to do this, and they know and are contemplating getting up to the LLPS. If ultimately stay in the 25-megawatt range, you need a different tariff level. But the ones that -- these customers are very interested in those higher levels of loads, and they know that as they get there, they get to that tariff rate. Paul Patterson: Right. So it's what they ultimately get to, would it be 1 of these like -- okay I got it, I understand. Operator: Our next question comes from the line of Anthony Crowdell from Mizuho. Anthony Crowdell: If I could follow up, I think, on Steve's question earlier. On Slide 7, is the actively building category, is that what's currently in the 4% to 6% EPS growth rate and the finalizing advanced discussion is what's not included in the current growth rate? David Campbell: Yes, the actively building -- that was probably my fault for how I answered it earlier. So if you look at Slide 7, a good place to go. The actively building, which is Panasonic and Meta and the third customer is in the heavy nearing completion of construction, that's in the 2% to 3% load growth rate. And that's... Anthony Crowdell: And in the 4% to 6%, right? David Campbell: No, the 4% to 6%, you get to if you include the 2 data center customers that are in the finalizing agreements category. This is the annual load growth rate. You're talking about -- if you're talking about the earnings growth rate of 4% to 6% -- sorry. The earnings growth rate of 4% to 6% that we said we're targeting the top half and then we're going to update on the year-end call. That is reflected in the 2 that are in the actively building category. Anthony Crowdell: Great. Just the 2, not the third? David Campbell: Correct. Anthony Crowdell: Great. And then I think when I look at your spread between your rate base growth and your earnings CAGR, it's roughly about 250 basis points. Is that a good spread going forward or the adoption of the large load tariff or the additional load, if you expect that to change, where is a good place to think where that settles out? David Campbell: Yes. So we haven't given guidance on that specific range. But I think if you look at our -- the $17.5 billion capital plan going back in time, there were higher levels of capital in the out years in that plan. We know that we will be presenting as part of the year-end call an integrated financial plan that reflects the relationship between rate base growth, incremental load growth is obviously help in reducing regulatory lag and the relationship that you see between that rate base growth and earnings growth. And there's a range that you see across different companies, and there's no reason why we would be outside that range, though obviously, links as well to what the phasing is of both the load growth and the capital in the plan. So we would -- we know that that's a question that we'll be addressing as part of our year-end update and the load growth and as we move into higher years in our capital plan, that will be reflected in the update that we provide. Anthony Crowdell: Great. And then just lastly, you talked earlier, I think, in your 5 years there, you've seen some big weather swings. I think for 3 of the 5 years this year, very mild weather, you ended up lowering 25. As you work on rolling out a new capital plan with a new load, does the very big swings in weather, will that cause you either to give a wider range or bake in more conservatism in your plan, given you've seen how much of a swing weather could be in your yearly performance? David Campbell: I think it's a very insightful question. I think it's something I really like having Bryan and Pete join the team. Bryan worked with a couple of different utilities. I know in my background, I'd like being able to describe to investors here are the factors that we can control, here are the factors that are clearly outside of our control and are readily quantifiable, but recognize that a number of our peer utilities and there's -- like the investors can like to see, hey, you can offset even if it's something easily track and identifiable like weather, you find mechanisms in your plan or build in an approach in the plan that can offset that. So we'll continue to have that discussion internally because we recognize that feedback. We'll always be very transparent -- plan to be very transparent with [indiscernible] because they -- as I mentioned, they didn't impact the fundamentals when they were positive. They're not going to impact the fundamentals when it's in year when it's a little more mild. It's a very mild August in particular here. But it's something that we'll consider, and Bryan will be a real helpful thought partner as we consider what the best approach is there. But again, we're very excited about the long-term fundamentals. We're certainly not overreacting to the -- was demonstrably a very mild Q2 and Q3, recognizing that we needed to implement the offsets that we did. And we're certainly always going to strive to be within hitting our targets and hitting our ranges. So it's a good question. We'll continue to think about it. Operator: Our final question comes from Paul Fremont from Ladenburg. Paul Fremont: I guess my first question, I just want to get a sense of the type of data center developments that are in your service territory. When the largest of those sort of build out, how many megawatts is that in terms of demand for the largest of your customers right now? David Campbell: We haven't given the size by customer, though I suppose you can -- if you go back to our last -- well, we've said it's 3 customers in the finalizing agreements category are 1.5 to 2 gigawatts. So that gives you a pretty good sense for the average size. That's a good indicator for us. We haven't given more specificity in terms of size by customer. But that math will give you a pretty good road map for what the peak size typically is. There's some variability by customer, of course, but clearly large -- 3 large customers making up that 1.5 to 2 gig. Paul Fremont: Okay. Because -- I mean, it does seem like the size is smaller than in some of the neighboring states. And I was just wondering, is there some factor that is causing sort of the size of your facilities to be more modest? David Campbell: Most of our customers want to expand past their regional peak once up. Some of these projects are similar customers involved. So I don't think there's a fundamental dynamic there. And for most of the -- we obviously track what the other customer announcements are. And there are a couple of unique large ones out there. But we're -- it's an average size that is in the 600 to 700 megawatt range is still a very, very large customer and very large data center. And as I noted, the most want to expand past original peak if we're able to accommodate it, but we like some diversification in customers and sites, which is reflected in a robust queue that helps keep everyone motivated as well. Paul Fremont: And then at what point would you need to build new generation in terms of, I guess, the 3 categories that you've outlined actively building, finalizing and advanced discussions? David Campbell: So we -- that's a great question. And as we noted, that's going to be one of the factors that's a driver for our plan update that we plan to give. Our integrated resource plan that we filed in '25, and we outlined in the appendix, which projects in the integrated resource plan were in last year's capital plan, which were not. As we develop that integrated resource plan, we included -- because track this information, we had included the 2 customers that were in the finalizing agreements category. You will see in that IRP from last year, a significant amount of incremental generation required to serve that load that was not yet included in the plan. So we have taken steps in terms of long lead time equipment, actions we need to take to be able to serve the customers that we've lined up. So we have some flexibility to do that. But I'd also note that we're going to be -- the next update to our capital plan and our integrated resource plan is going to factor in not only load growth expectations and the plants we need to serve those, SPP's reserve margin requirements, but also changes in federal and local policies impacting renewables. If renewables are less economic or harder to build, for example, we'll look at market capacity options. We'll look at potential retirement delays. We're going to look at the whole package to make sure that we are driving reliability and affordability for our customers. But at the end of the day, there's some incremental investments that we expect are going to need to be made. But we're going to look at that package of things in terms of what's that right mix of generation and how do we make sure we ensure reliability, take advantage of the growth opportunity, but also always keep an eye on affordability. Paul Fremont: And last question for me. Taking into consideration all of the legislative and regulatory changes, what estimate would you have for regulatory lag on a go-forward basis in your jurisdictions? W. Buckler: Yes. Paul, this is Bryan. We haven't given an exact number for regulatory lag we expect compared to allowed our authorized ROEs in our states. Things we point to is that historically, you've seen us earn -- have some pretty low ROEs, but the PISA and CWIP legislation certainly help in that regard. We also have loan growth that we haven't seen in many years, and we think it's going to be at a level that we haven't seen in many decades, which will help us kind of bridge that gap and get, we hope, very close to our authorized level of ROE. So that's directionally what I would give you, and we'll share more details in February. Operator: This concludes the question-and-answer session. I would now like to turn it back over to David Campbell for closing remarks. David Campbell: Thanks, Halen, and thanks, everyone, for joining the call today. We look forward to seeing all of you at EEI this weekend and next week. And that concludes today's call. Thank you. . Operator: Thank you for your presentation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Enerflex 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 speaker today, Jeff Fetterly, Vice President, Corporate Development and Capital Markets. Please go ahead. Jeffrey Fetterly: Thank you, Gigi, and good morning, everyone. With me today are Paul Mahoney, Enerflex's President and CEO; Preet Dhindsa, our CFO; and Ben Park, Enerflex's Controller. During today's call, our prepared remarks will focus on 4 key areas: one, the continued strong performance of Enerflex' business, two, our outlook going into 2026; three, capital allocation, including an increase in Enerflex's dividend; and four, some initial commentary from Paul and strategic priorities. Before I turn it over to Paul, I'll remind everyone that today's discussion will include non-IFRS and other financial measures as well as forward-looking statements regarding Enerflex' expectations for future performance and business prospects. Forward-looking information involves risks and uncertainties, and the stated expectations could differ materially from actual results or performance. For more information, refer to the advisory statements within our news release, MD&A and other regulatory filings, all available on our website and under our SEDAR+ and EDGAR profiles. As our prepared remarks -- as part of our prepared remarks, we will be referring to slides in our investor presentation, which is available through a link on this webcast and our website under the Investor Relations section. I'll now turn it over to Paul. Paul Mahoney: Thanks, Jeff, and thank you all for joining us on this morning's call. I'm pleased to join Enerflex at a very exciting time for the company. The Enerflex team has made significant operational, financial and strategic strides in recent quarters. And I want to start off and thank the team across our global operations for their energy, their commitment and all of their efforts. We are pleased to report another strong quarter of financial and operating results. The energy infrastructure and aftermarket services business lines continue to be the foundation of our results, contributing 58% of gross margin before depreciation and amortization during the third quarter. The Engineered Systems business line benefited from a favorable project sequencing and strong execution to generate the highest quarterly operating revenue in its history. First, I'll start with a few strategic and operational highlights. Enerflex's U.S. contract compression business continues to perform well led by increasing natural gas production in the Permian. Utilization remains stable at 94% during Q3 across a fleet size of approximately 470,000 horsepower. Enerflex remains on track to grow its North American contract compression fleet to approximately 485,000 horsepower at the end of 2025. We expect to continue expanding this business in 2026 and we'll provide more specifics early in the new year. In the U.S., Enerflex was awarded a contract to construct a 200 million cubic standard feet per day cryogenic gas processing facility and associated natural gas compression. The project will be executed by the Engineered Systems business line and scheduled for delivery during 2026 with a strategic client partner in the Permian Basin. The company continues to broaden and strengthen relationships within the midstream client partner base in the U.S. which includes strategic alliances and further developing relationships established through the acquisition of Exterran. During Q3, this resulted in Enerflex securing multiple orders for large compression equipment. In Oman, Enerflex successfully completed the construction and start-up of the Block 60 Bisat-C Expansion Facility for its client partner, OQ Exploration and Production. The project was delivered ahead of schedule and achieved first crude oil in less than 18 months. Enerflex's investment is supported by a long-term contract and reported as a finance lease. In Argentina, Enerflex delivered a state-of-the-art all electric gas compression station for a long-standing client partner in the Vaca Muerta shale play. Lastly, Enerflex received the prestigious Export-Import Bank of the U.S. Deal of the Year Award for its collaboration on a gas-to-energy project in Guyana. First of its kind in Guyana, Enerflex provided the natural gas conditioning and cryogenic infrastructure for this project. We will generate 300 megawatts of power, reduce the country's dependence on imported fuels and expand access to power in underserved communities. And now a few comments on each of our business lines. Engineered Systems backlog as at September 30 of $1.1 billion provides strong visibility into future revenue generation and business activity levels. Bookings of $339 million during Q3 compared to a trailing 8-quarter average of approximately $320 million. The book-to-bill ratio calculated as bookings divided by revenue and normalized for accounting treatment associated with the Bisat-C Expansion project was 0.9x during Q3 and 1x on a trailing 8-quarter average, highlighting that the company is consistently replenishing its backlog in line with project execution. The outlook for Engineered Systems is supported by healthy bidding activity and backlog visibility that extends into the second half of 2026. Notwithstanding, Enerflex continues to closely monitor near-term risks, including tariffs and commodity price volatility and will proactively manage this business line. Activity levels for the ES product line during Q4 of '25 are expected to reflect a pull forward of certain projects into the third quarter. Enerflex continues to expect gross margin for the ES business line in coming quarters to align more closely with historical averages reflective of a shift in project mix. We believe the medium-term outlook for ES products and services is attractive, supported by anticipated growth in natural gas and produced water volumes across Enerflex's global footprint. Results for the aftermarket services business line benefited from increased activity levels and customer maintenance activities during the quarter. We expect these trends to continue into 2026. The Energy Infrastructure business continues to perform well, supported by approximately $1.4 billion of revenue under contract. Our U.S. contract compression fleet is an important part of our energy infrastructure asset base and the fundamentals for this business remain strong. Operational KPIs for this business are highlighted on Slides 15 and 16 of our investor presentation. Slides 17 and 18 highlight our international Energy Infrastructure business, which includes approximately 1.1 million horsepower of operated compression and 24 build, own, operate and maintain or BOOM projects in Bahrain, Oman and Latin America. The international Energy Infrastructure business has a strong contract position, with a weighted average term of approximately 5 years and is expected to provide a steady foundation to Enerflex's financial performance in the coming years. I would like to comment briefly on strategic priorities. Since joining Enerflex at the end of September, I've had the wonderful opportunity to visit the key parts of Enerflex's North American operation and interact across all levels of the company. The strength of Enerflex's people, culture and position and as a global leader, have been evident. We expect to provide further insight into strategic priorities including capital allocation in coming months following continued strategic clarity and discussion with our Board of Directors. I would like to emphasize that our go-forward approach will, one, focus on Enerflex's strengths and areas of excellence; two, stay true to the values that have guided the company for decades and three, continue to emphasize discipline, providing meaningful direct shareholder returns and making investments that support long-term shareholder value creation. In the near-term, Enerflex' priorities are unchanged and include: one, enhancing the profitability of core operations two, leveraging the company's leading position in core operating countries to capitalize on expected increases in natural gas and produced water volumes; and three, maximizing free cash flow to strengthen Enerflex's financial position, provide direct shareholder returns and invest in selective customer supported growth opportunities. Before I turn it over to Preet, I would like to briefly touch on emerging opportunities we are seeing in the electrical power generation part of our business, including opportunities associated with data centers. The delivery of modularized power generation solutions is a core competency of Enerflex. The Engineered Systems business line has been delivering these types of solutions for over 30 years, and our international energy infrastructure asset base includes upwards of 100,000 horsepower of modularized power generation assets. The microgrid power generation market in North America is very much in formation stage. But recent announcements from OEM suppliers and industry participants provide an indication of the potential opportunities. Although power generation represents a modest portion of Enerflex's current Engineered Systems backlog and overall business, we are developing solutions that we believe can address a range of applications and are excited about opportunities in 2026 and beyond. For context, we are currently executing FEED studies for existing and potential client partners and evaluating over 500 megawatts of opportunities across our Engineered Systems and Energy Infrastructure business lines. We look forward to providing updates as Enerflex continues to develop this market opportunity. With that, I'll turn it over to Preet to speak to the financial aside. Preet Dhindsa: Thanks, Paul, and good morning, everyone. I'll start with highlights from the third quarter. We generated revenue of $777 million in the third quarter compared to $601 million in Q3 '24 and $615 million in Q2 '25. Higher revenue is primarily attributable to the Bisat-C Expansion project that Paul highlighted, which contributed $116 million in revenue to the Engineered Systems product line, and strong execution of ES projects alongside a high level of operational activity, which led to certain project milestones being achieved earlier than expected. This results in revenue being realized in Q3 that was originally anticipated in later periods. Gross margin before depreciation and amortization was $206 million or 27% of revenue, including $14 million related to Bisat-C Expansion project compared to $176 million or 29% of revenue in Q3 '24 and $175 million or 29% of revenue during Q2 '25. As Paul referenced, the EI and AMS product lines generated 58% of consolidated gross margin before depreciation and amortization during Q3 '25, lower compared to 65% during Q3 '24 and our guidance for the full year 2025 as a result of contribution from the Bisat-C Expansion project and strong ES activity. Energy Infrastructure performance continued to be strong with gross margin before G&A of $95 million compared to $91 million in Q2 '24 and $86 million in Q2 '25. Aftermarket Services gross margin before G&A was 21% in the quarter, benefiting from strong customer maintenance programs. SG&A was $71 million in the quarter, down $11 million from the prior year period, driven by cost-saving initiatives, improved operational efficiencies and the absence of onetime integration costs incurred in Q3 '24, partially offset by higher share-based compensation. Adjusted EBITDA of $145 million is a new quarterly record for Enerflex that compares to $120 million in Q3 '24 and $130 million during Q2 '25. Adjusted EBITDA benefited from higher gross margin before depreciation and amortization, cost-saving initiatives and operational efficiencies. Cash provided by operating activities before changes in working capital or FFO, increased to $115 million compared to $63 million in Q3 '24 and $89 million in Q2 '25, a function of higher adjusted EBITDA. Free cash flow decreased to $43 million in Q3 '25 compared to $78 million during Q3 '24 due to working capital investments relating to the execution of projects in the ES business line and higher growth capital spend, offset by -- offset partially by proceeds from the sale of EI assets in Latin America. We saw a build of $41 million in net working capital during the third quarter, principally related to strong revenue recognition during the latter part of the quarter, which temporarily increased accounts receivable, strategic inventory investments to support future projects, including purchase of select major components with increasing lead times and continued investment in the Bisat-C Expansion project with $12 million spent during the third quarter. Return on capital employed increased to 16.9% in Q3 '25, a new record for the company compared to 4.5% in Q3 '24 and 16.4% in Q2 '25. Higher ROCE is a function of the increase in trailing 12-month EBIT and lower average capital employed, predominantly due to a decline in net debt. Net earnings of $37 million or $0.30 per share in Q3 '25 compared to $30 million or $0.24 per share in Q3 '24 and $60 million or $0.49 per share in Q2 '25. Compared to Q3 '24, profitability benefited from higher gross margin, lower SG&A expense and lower finance costs, partially offset by $16 million unrealized loss on redemption options related to senior secured notes. Now we'll touch on our strong financial position. Enerflex exited Q3 '25 with a net debt of $584 million, which included $64 million of cash and cash equivalents, a reduction of $108 million compared to Q3 '24 and $24 million compared to the second quarter of 2025. Enerflex's bank adjusted net debt-to-EBITDA ratio was approximately 1.2x at the end of Q3 '25 down from 1.9x at the end of Q3 '24 and 1.3x at the end of Q2 '25. In early Q3, Enerflex entered into an amended and restated credit agreement with respect to a syndicated secured revolving credit facility. The maturity of the facility has been extended by 3 years to July 2028, and availability is unchanged at $800 million. Let me shift to capital allocation. First, on our CapEx plans. We invested $47 million in the business consisting of $33 million in capital expenditures, $15 million for growth and $14 million primarily related to the Bisat-C Expansion in the EH region. Enerflex continues to target a disciplined capital program in 2025 with total capital expenditures of approximately $120 million. This includes approximately $60 million for maintenance and property plant and equipment and $60 million allocated to growth opportunities. Disciplined capital spending will focus on customer support opportunities, primarily in the U.S. market. And now direct shareholder returns. Enerflex returned $11 million to shareholders in Q3 and $35 million during the first 3 quarters of 2025 in the form of dividends and share repurchases. The company repurchased 777,000 common shares at an average price of CAD 12.98 per share during Q2 '25 and a total of approximately 2.7 million common shares and average price of CAD 10.93 since its normal course issuer bid commenced on April 1, 2025, to September 30. Under the NCIB, which expires March 31, 2026, the company is authorized to acquire up to a maximum of approximately 6.2 million common shares or approximately 5% of its public float as at the application date for cancellation. Enerflex' Board of Directors increased the company's quarterly dividend by 13% to CAD 0.0425 per common share, effective with the dividend payable in December 2025. The Board's decision to increase our dividend for a second consecutive year reflects confidence in our business and Enerflex a strong financial position and aligns with our priority to provide meaningful direct shareholder returns. Going forward, capital allocation decisions will be based on delivering value to Enerflex shareholders and measure to get to Enerflex's ability to maintain balance sheet strength. In addition to disciplined growth capital spending, share purchase and dividends Enerflex will also consider further debt reduction to strengthen its balance sheet and lower net finance costs. Unlocking greater financial flexibility positions the company to respond to evolving market conditions and capitalize on opportunities to optimize its debt stack. I want to thank Enerflex employees for their efforts to continuing to deliver strong operational and financial results. With that, I'll turn the call back over to Paul for closing remarks. Paul Mahoney: Thanks, Preet. Let me reiterate that I'm pleased to join Enerflex at an exciting time for the company and appreciate all the efforts of the Enerflex team and making significant operational, financial and strategic strides. We believe the long-term fundamentals driving our growth, including global energy security, and the continued increase in demand for natural gas remain firmly in place that Enerflex is well positioned for those fundamentals. We will now hand the call back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Aaron MacNeil from TD Cowen. Aaron MacNeil: Paul, congratulations on the new role. I can appreciate you're going to give us an update in the coming months. But I guess I'm just curious to know what the team is telling you throughout the early days of your tenure in terms of what they think Enerflex does really well and what they think needs to be improved? And how does your prior experience sort of inform your perspective? Paul Mahoney: Yes. Well, thank you, Aaron, for the question and the comments. First, let me start that the openness and the transparency through my visitations for the first 30 days have been wonderful. I've probably met well over 1,300, 1,400 people in 30 days. And so what I would say has been confirmation of really focusing and seeing the benefits still in front of us around ruthless focus on some execution levers. Being able to drive cost, price opportunities and gross margin, along with driving working capital efficiency and the efficient use of capital remain priorities as Enerflex has demonstrated. I do see opportunities to enhance our core operation with digitization initiatives and efforts all while staying focused on our investment discipline, that being around investing in core competent areas, core countries and having a very strong specific line of sight for customer activity. Aaron MacNeil: Okay. Great. You mentioned mobile power in your prepared remarks. I was hoping you could dive a bit deeper into that. How do you think about the BlueSky potential for Enerflex, what would 500 megawatts of opportunities translate to in terms of potential revenue opportunity? And given the sort of immediacy of the demand of this sort of product, does the return or margin profile differ versus other products in the portfolio? Paul Mahoney: Great question. This is a very, very embryonic state, I would say, in power, and it's changing quite rapidly. It's clear that speed is a key differentiator and a key need. 500 megawatts could easily grow to well over 1 gigawatt is what I'm trying to say, using behind the meter need an application is seeing strong, strong dialogue activity, quoting activity, balancing OEM delivery dates and really being able to make committed opportunities coming forward. It's very dynamic. It's very much in an area that Enerflex has experienced. As I've said in my opening remarks, with 30 years of power experience. So we're very excited about the opportunity, very cautious, very disciplined, but it's a pretty dynamic situation at the moment. Operator: Our next question comes from the line of Keith MacKey from RBC Capital Markets. Keith MacKey: Welcome to the call, Paul. Maybe just to continue on the power angle. I know you noted it was across Engineered Systems and Energy Infrastructure. Can you maybe just detail a little bit more how you think you might be able to participate in both of those areas. And then as a follow-up would just be what your readiness would be to capitalize on some of these opportunities. And certainly, as you mentioned, speed is of the essence. And the market appears to be moving at a very fast rate with a lot of announcements out from various types of companies these days. So any incremental color you can give on that would be appreciated. Paul Mahoney: Yes, sure. So as I mentioned, I think speed being directly correlated to some of the OEM delivery pieces is what we're working through at the moment. There's opportunity around the recip engine space, natural gas being cost efficient, speed being a differentiator and Enerflex having a history and ability to execute are all coming together. It's very, very dynamic. I see opportunities in Engineered Systems. But what we haven't mentioned is there's a strong opportunity for a follow-on aftermarket services play for operations and maintenance. So it's very exciting, and we're working very hard to build those partnerships. Partnerships here are going to be vital not only with the supply base, but also the power-related folks that are out there trying to solve this challenge or behind the meter activity and microgrid activity. And those partnership meetings and events have been occurring at a high pace. Keith MacKey: Okay. Very good. And just more broadly on the OEM engine availability. Can you just comment on your inventory levels to support or execute existing projects as well as your ability to continue to book new work? How do you feel about the supply chain both in Engineered Systems and aftermarket services from that standpoint? Paul Mahoney: Yes. Maybe I'll open up with some comments and maybe turn it to Preet here. But I've had the opportunity to meet with our major OEM suppliers in the first 30 days and get a really good understanding of what we could expect over the next 12 months. We have started to invest in some strategic inventory. That being tied specifically to customer activity, customer commitment. And so we've started to be able to manage what our '26 commitments will be and what the lead times in our inventory position is. So... Preet Dhindsa: The only thing I'd add is you see the investment in working capital, largely that's focused on the ES business, whereby long lead time equipment requires advanced bookings for that. So we've been doing that quarter-over-quarter. We feel good about customer-supported activities that will clearly procure these items as and when they arrive. But the longer lead times are area of focus for us. And once again, starting to invest in inventory in order to meet the customer support demand down the road. Operator: [Operator Instructions] Our next question comes from the line of Tim Monachello from ATB Capital Markets. Tim Monachello: Congrats, Paul. First question, I just wanted to follow up on the power gen portfolio. You mentioned in your prepared remarks that you might be developing some additional product lines that you think maybe are better suited. My understanding is you have a pretty wide breadth of, I guess, megawatt packages that you can package for the market, but perhaps more suited to the smaller end of that. Can you talk a little bit about what the demand looks like in terms of package sizes and where your product lines fit in and what you might be developing? Jeffrey Fetterly: Tim, it's Jeff. As Paul referenced in the prepared remarks, modularized is a core competency and focus for Enerflex. And there is a very wide range of potential applications, both size that you referenced as well as configurations. I don't think it's appropriate for us to get into the details of that in any specific nature on the call. But as we talked about, we see a wide range of applications and significant opportunities that could align with those as well. Tim Monachello: Okay. I understand there's probably some competitive dynamics there. Can you talk a little bit about, I guess, where you are in that process, if you're going to have the product suite you think is optimized for demand right now? And when do you think that might be available? Jeffrey Fetterly: And as Paul referenced in the prepared remarks, this is business on the Engineered Systems side that we participated in for over 30 years. We continue to be active in delivering power generation solutions, both domestically and internationally. And we continue to be responsive to the customers and engage with the OEMs and the customers to continue to customize those as well. So from our perspective, we believe it's real time, but as Paul also referenced this is an emerging developing market that's moving quite quickly, too. Tim Monachello: Yes. Okay. That's helpful. In terms of, I guess, the natural gas compression market, can you talk about leading edge demand a little bit and where we stand for lead times on key components like Cat engines and compressors. Paul Mahoney: Yes. Good question, Tim. Clearly, in the production -- oil and gas production space, let's focus maybe on the Permian a bit. You do see a constrained capital disciplined environment that's impacting, right, drilling and completions and things like that. But what you're also seeing is operators really trying to get the most out of their dollar spend. And so production optimization, production efficiencies are very, very high on the agenda. What that looks like from a compression standpoint, you still see the centralization of compression happening and occurring you're seeing growth rates in perhaps different production technologies that would utilize the gas, the available gas in gas lift production technologies. So the demand doesn't necessarily correlate with what you may think on drilling and completions and things it's correlating to more centralization and leveraging gas for production optimization efforts. Tim Monachello: Okay. And lead times for the engines and compressors, where we think we're at there. Jeffrey Fetterly: Tim, it's Jeff. It's obviously been fairly widely publicized the increases in lead times associated with certain engines and configurations and we certainly are seeing that. And as Paul and Preet highlighted in their earlier remarks, we've been responding to that with inventory investments and engagement on the OEM side. But we're certainly seeing certain engine configurations where deliveries are now extending into 2027, and in some extreme cases, 2028 and it's really reflective of the convergence that you've seen in recent quarters between what have been traditionally more compression-oriented applications with power gen on the reciprocating engine side. Tim Monachello: Okay. That's helpful, too. And then just on the outlook, in particular, for the Engineered Systems business. When you back out the Oman project, margins were really strong in the quarter. And you guys have been guiding to margins coming down for a few quarters now. We haven't -- I think that it's probably outperformed your expectations and ours. I guess, why do you think you can't keep that outperformance going because I would have imagined that your backlog and the mix in that backlog had been shifting towards negative or towards lower margins over the last number of quarters here? Preet Dhindsa: Tim, you're right, we've been guiding towards historical Enerflex averages for a couple of quarters now. The Oman project, obviously, that contributed $14 million to gross margin, $116 million came out of backlog for that into revenue. And we still feel, given mix, product mix in our backlog and bookings company in we still feel it's prudent to guide slightly to the mid-teen level historical averages. We feel that's still the right spot to be in. And we're pleased with our results to date. As Paul mentioned, look at operational efficiencies where we can. So over time, if we feel we're trending in an even more constructive direction, we'll advise. But right now, we feel good about the historical average gross margin, which is still something you should probably peg to. Tim Monachello: And then last one for me. Can you help quantify how much was pulled forward from Q4 into Q3? Jeffrey Fetterly: Tim, I think the easiest rule of thumb is when you look at the average revenue of the ES business over the last couple of years, it's been between $300 million and $325 million per quarter. If you look at what we reported close to just over $400 million or close to $400 million, you back out the Bisat-C Expansion that we referenced I think that would give you an indication of the strength of Q3 and the execution we saw in Q3 relative to normal cadence. Tim Monachello: Okay. And then you think that much of that comes out of Q4? Like the amount that you're above that cadence in Q3, you should be below it in Q4... Jeffrey Fetterly: I don't know if we can give you a direct correlation. But as was referenced in the remarks, there was definitely some pull forward and accelerated execution that happened in the third quarter. Operator: Thank you. At this time, I would now like to turn the conference back over to Paul Mahoney for closing remarks. Paul Mahoney: Before we close today's call, I'd like to take a moment to acknowledge the upcoming Remembrance Day in Canada and Veterans Day in the United States. We honor the courage and sacrifice of those who served and continue to serve in our armed forces, including many employees now part of the Enerflex family. Their dedication has safeguarded the freedoms and piece we enjoy today. Thank you for joining today's call, and we look forward to sharing our fourth quarter and year-end financial results in February. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen and welcome to the Kimball Electronics First Quarter Fiscal 2026 Earnings Conference Call. My name is John and I'll be your facilitator for today's call. [Operator Instructions] Today's call, November 6, 2025, is being recorded. A replay of the call will be available on the Investor Relations page of the Kimball Electronics website. At this time, I would like to turn the call over to Andy Regrut, Treasurer and Investor Relations Officer. Mr. Regrut, please begin. Andrew Regrut: Thank you and good morning, everyone. Welcome to our first quarter conference call. With me here today is Ric Phillips, our Chief Executive Officer; and Jana Croom, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the first quarter of fiscal 2026 ended September 30, 2025. To accompany today's call, a presentation has been posted to the Investor Relations page on our company website. Before we get started, I'd like to remind you that we will be making forward-looking statements that involve risk and uncertainty and are subject to our safe harbor provisions as stated in our press release and SEC filings and that actual results can differ materially from the forward-looking statements. Our commentary today will be focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Ric will start the call with a few opening comments. Jana will review the financial results for the quarter and guidance for fiscal 2026 and Ric will complete our prepared remarks before taking your questions. I'll now turn the call over to Ric. Richard Phillips: Thank you, Andy and good morning, everyone. I'm pleased with the results for the first quarter and start to the new fiscal year. Sales were in line with expectations, driven by strength in the medical vertical. Margins improved year-over-year. Cash from operations was positive for the seventh consecutive quarter and debt at the end of Q1 was the lowest level in over 3 years. We have ample liquidity to navigate the current operating environment and plenty of dry powder to opportunistically invest in growth. I continue to be impressed with our team's progress in positioning the company for the future. Our solid footing as an EMS provider and our capabilities as a medical CMO are unique in the industry and we look to expand upon them through organic and possibly inorganic channels. We remain confident this powerful combination will result in a return to profitable top line growth next year and we are reiterating our guidance for fiscal 2026. Turning now to the first quarter. Net sales for the company were $366 million, a 2% decline compared to Q1 fiscal '25. From an end market perspective, strong results in Medical were offset by declines in Automotive and Industrial. Starting with Medical. Sales in the first quarter were $102 million, up 13% compared to the same period last year and 28% of total company revenue. Nearly half our medical sales were in North America, the other half roughly split between Asia and Europe. The increase in Q1 was driven by robust sales growth of approximately the same amount in both Asia and Europe, while North America was up mid-single digits. We expect the growth to continue as we lean further into the medical space with production capabilities beyond electronics and printed circuit boards, expanding into higher-level assemblies and finished medical devices. Our new medical facility in Indianapolis will add capacity for manufacturing medical products, single-use surgical instruments and drug delivery devices such as autoinjectors. This is also where we are focusing our efforts on inorganic growth, potentially adding new end markets, customers or even new geographies. We continue to view the medical market as a compelling opportunity to diversify revenue and leverage our core strengths as a trusted partner in a complex and highly regulated industry, particularly as the population ages, access and affordability to health care increases, medical devices get smaller in size and require higher levels of precision and accuracy and the adoption by patients and end users increases. Next is Automotive, with sales of $164 million, down 10% compared to the first quarter of last year and 45% of the total company. The decline in Q1 was driven by lower sales in North America, a result of the electronic braking program transferred out of Reynosa in mid-fiscal '25 and a decline in Asia. This combined impact was partially offset by strong sales growth in Europe as the new braking program in Romania continues to ramp up. Longer term, we expect to return to growth in this vertical, particularly as new systems and technologies such as steer-by-wire and brake-by-wire or electronic mechanical braking continue to increase the electronic content being added to vehicles. Finally, sales in Industrial totaled $100 million, a 1% decrease compared to Q1 last year and 27% of total company sales. Our industrial business is heavily concentrated in North America and the decline this quarter was in the low single-digit range, where we are seeing softening demand for HVAC driven by the slowing housing market. Europe, which is a much smaller business for us, was down more significantly, while Asia reported strong sales growth in Q1. Before I turn the call over to Jana, I would like to provide a brief update on tariffs. As you know, beginning in February 2025, the U.S. implemented tariffs on a variety of countries and commodities. The global tariff landscape is evolving at a rapid pace with changes impacting businesses and markets around the world. While these increased tariffs have and may continue to impact end consumer demand, we expect that we will recover the tariff costs by passing them on to our customers. If we're unable to fully recover these costs, our operating results and cash flows could be adversely impacted. We are working closely with manufacturing constituents and lawmakers to address the challenges real time. As we monitor the progression of tariffs, reciprocal tariffs and the geopolitical economic environment broadly, we are committed to profitability and expect to incur additional restructuring costs over the course of the fiscal year as necessary. I'll now turn the call over to Jana for more detail on Q1 and our guidance for fiscal 2026. Jana? Jana Croom: Thank you and good morning, everyone. As Ric highlighted, net sales in the first quarter were $365.6 million, a 2% decrease year-over-year. Foreign exchange had a 1% favorable impact on consolidated sales in Q1. One housekeeping item on our split of sales by vertical. Beginning this quarter, certain customers previously included in automotive were reclassified to industrial. This was done because our work for these customers is more aligned with commercial vehicle applications versus passenger vehicles. All prior periods have been recast for comparability. The gross margin rate in the first quarter was 7.9%, a 160 basis point increase compared to 6.3% in the same period of fiscal 2025, with the improvement driven by favorable product mix, the closure of our Tampa facility and global restructuring efforts. Adjusted selling and administrative expenses in the first quarter were $11.3 million, nearly flat year-over-year. When measured as a percentage of sales, the rate was 3.1% this year compared to 2.9% last year. In the first quarter of fiscal year 2026, following a customer termination of a program, an agreement was reached for the customer to compensate us for incurred costs, resulting in recognition of a $2 million recovery recorded in selling and administrative expenses. As I indicated in the last earnings call, we anticipate adjusted S&A will increase as a percentage of sales over the course of the year as we make strategic investments to support our long-term needs as we return to growth. Adjusted income for the first quarter was $17.5 million or 4.8% of net sales, which compares to last year's adjusted results of $12.6 million or 3.4% of net sales. We expect Q1 to be our strongest quarter from an adjusted operating income perspective as demand and costs related to tariffs and softening in the U.S. housing market pressure margins in North America. Other income and expense was expense of $3.5 million compared to $6.2 million of expense last year. Once again, this quarter, interest expense drove the decrease, down 50% year-over-year. The effective tax rate in Q1 was 8.3% compared to a tax benefit of 9.4% last year. The lower rate in Q1 of this fiscal year is driven by tax opportunity related to OBBA. As you may recall, last year's negative rate was a result of a favorable ruling on a prior period tax audit. For the full year of fiscal '26, we continue to expect an effective tax rate in the low 30s. Adjusted net income in the first quarter was $12.3 million or $0.49 per diluted share, up 2x from last year's adjusted results of $5.5 million or $0.22 per diluted share. We are pleased that despite top line declines, we have made efforts across the business to rightsize expenses, reduce debt and take advantage of tax opportunities, all of which meaningfully contribute to net income and EPS. Turning now to the balance sheet. Cash and cash equivalents at September 30, 2025, were $75.7 million. Cash generated by operating activities in the quarter was $8.1 million, our seventh consecutive quarter of positive cash flow. Cash conversion days were 83 days, a 2-day improvement compared to Q4 of fiscal '25 and a 25-day improvement year-over-year. This represents our lowest CCD in over 3 years with receivables and payables posting the largest improvement within the quarter. Inventory ended the quarter at $272.7 million, roughly flat versus Q4 but down $62.6 million or 19% from a year ago. Capital expenditures in the first quarter were $10.6 million, with much of the spend on leasehold improvements in the new facility in Indianapolis. Borrowings at September 30, 2025 were $138 million, a $9.5 million reduction from the fourth quarter and down $108 million or 44% from a year ago. Short-term liquidity available, represented as cash and cash equivalents plus the unused portion of our credit facility totaled $370 million at the end of the first quarter. We invested $1.5 million in Q1 to repurchase 49,000 shares. Since October 2015, under our Board-authorized share repurchase program, a total of $105.2 million has been returned to our shareowners by purchasing 6.7 million shares of common stock. We have $14.8 million remaining on the repurchase program. As Ric mentioned, we are reiterating our guidance for fiscal '26 with net sales expected to be in the range of $1.35 billion to $1.45 billion and adjusted operating income of 4% to 4.25% of net sales. We continue to estimate capital expenditures of $50 million to $60 million in the fiscal year. I'll now turn the call back over to Ric. Richard Phillips: Thanks, Jana. Before we open the lines for questions, I'd like to share a few thoughts. It is customary at the beginning of the fiscal year that I complete a profit sharing bonus tour. It's an opportunity to travel to each location in our global footprint, connect with the teams and experience real time the strides we're making to return to profitable growth. I'm very pleased with our progress. Whether it's in the new business we're winning in all verticals, improvements in our operations, quality, on-time delivery or cost initiatives. The engagement and accomplishments are evident. I'm also very encouraged by the early impacts on the top line in the medical business. This is expected to continue. As we evaluate the medical CMO space, we see an opportunity for accelerated growth and higher margins over time. Our strategy to pursue growth with blue-chip customers with long product life cycles and a high degree of visibility. We're building a scalable platform that supports the work we already do well, creates opportunities for vertical integration and positions us to take on more of the complex programs that align with our strengths. A great example is the new facility in Indianapolis, adding production capabilities and capacity but it's not the only. Our medical businesses in Thailand and Poland focused on HLAs and finished devices are also having a meaningful impact. As I noted earlier, we are looking to augment this growth with a tuck-in acquisition strategy that will add new end markets, manufacturing capabilities and new customer relationships. I'm confident in this strategy and have never been more excited about the future of the company. In closing, I am proud of how our entire organization addressed the challenges of the past 2 years while remaining keenly focused on our strategic future. We look forward to a return to growth in FY '27 centered on the medical space, aligning with our goal to even out our verticals and improve margins over time. We will continue to provide updates as the year progresses. Operator, we'd now like to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Mike Crawford from B. Riley. Michael Crawford: And I really appreciate the working capital management. But as Kimball starts -- resumes top line growth, is that around the same time we should also expect to see an increase in the working capital? Or is there still more work -- progress you can make there? Jana Croom: Mike, that's a great question. So yes, I would not expect a significant amount of increased working capital management and debt reduction. To your point, as we prepare for growth in FY '27, we're going to have to buy all the inventory. We're going -- and so I would actually take that as a good sign. So to your point, we've done a lot to wring out the excess inventory in the balance sheet and improve working capital. But as we return to growth, you're going to see us have to spend some dollars and you're going to see those numbers start to move. Michael Crawford: And Jana, the cash conversion days, would that -- I mean, is this a good level to think about it remaining stable at? Jana Croom: Ideally, I would like it to have a 7 in front of it. But realistically, if we just stay where we are in the very low 80s, particularly as we start to grow the business again, I think stabilizing it here is pretty good. Michael Crawford: Okay. And then we like the 7.2% EBITDA margin in the quarter. We do have the message and as modeled, have that stepping down for the rest of this year. But we also have that declining further next year. And I would -- is that the wrong way to be thinking about your business given where you are? Or is it too early to tell? Jana Croom: Well, so it is early days to think about FY '27. But I will say this, I would not expect a deterioration, right? As we return to growth, as we get better absorption in our facilities and we're going to work to do some additional restructuring over FY '26, we would actually expect EBITDA in FY '27 to be better, right? We need to get to a consistent adjusted operating income margin of 5% and then corresponding EBITDA margin on top of that. So I would not be projecting declines next fiscal year. Operator: Your next question comes from the line of Max Michaelis from Lake Street. Maxwell Michaelis: Nice quarter. I want to jump to the Medical segment here. And I know you talked about some inorganic opportunities. So what's sort of the focus around potential acquisitions and maybe expanding already current platform offerings or kind of heading into new markets? And then can you also touch on some of those new markets that are kind of at the top of the charts? Richard Phillips: Max, thanks for your question. Yes, definitely an area from an M&A standpoint that we are continuing to explore. It would be focused in the medical CMO space specifically. We like our differentiated capabilities there with our ability to handle drug and have significant experience with the FDA and so on. But there's always additional extensions of that, that we could think about. And as I mentioned, that could include new technologies that extend us and allow us to play a bigger role with our customers there. It could include new customers. It could include new geographies. So we look quite broadly at those potential opportunities but again, very focused only on the medical CMO space at this point. Maxwell Michaelis: All right. Perfect. And then looking at my notes from last quarter, I think outside of medical growth, I think you guys maybe had expected some modest industrial growth. And I know sort of the HVAC softness kind of hindered that this quarter. But do you see any sort of maybe breakeven or maybe low single-digit growth in the industrial? Or should we kind of think of kind of the declining 1% as a solid cadence throughout the rest of the year? Jana Croom: You could take Q1 results in terms of percentage of sales increase as sort of a proxy for full year FY '26. So industrial is going to be softer than we had previously anticipated. Medical is going to be much stronger. And automotive is going to come in roughly as expected. Maxwell Michaelis: Okay. Perfect. And then just sort of your largest customer on the medical side in the respiratory care, the assembly and in higher-level assemblies, how did that perform in the quarter up to your expectations or compared to your expectations? Richard Phillips: It's been very good. It's been very good. Our relationship with that customer has probably never been better. We expect continued growth and the partnership in that program that we talked about has been very strong. So we feel good about that. Operator: Your next question comes from the line of Derek Soderberg from Cantor. \ Derek Soderberg: So I want to start with the Medical segment, ramping up really nicely here on an organic basis. To me, it feels like you guys have been signing on new programs for over a year now, meaning these programs are starting to reach production and revenue. Can you talk about that pipeline of medical projects sort of turning into revenue over the next 6 months? Maybe how that compares to where we were sort of at a year ago and how it sort of sets up the company for accelerated growth? How does that pipeline of those projects turning on look over the next 6 months? Richard Phillips: Thanks, Derek. Yes, we're really pleased with our funnel. I mean we're very focused across our leadership team on driving growth in medical. And so we have very regular reviews of what new is coming in the funnel, what did we win? What can we add? And so the outcome of those things in the funnel are uncertain, of course. But I would say the volume of that, particularly in medical, as you asked, is as high as it's been. So we're really pleased about that and we're hoping to close those as we move throughout the year. And again, we track it really closely but good funnel. Jana Croom: And I think it's important to note the growth in medical was not centered in one customer or one program. It wasn't even centered in one geography, right? And so the growth that you saw in medical was split between Europe, Asia, with a smaller piece in North America. So to your point and Ric's point, multiple programs and customers. \ Derek Soderberg: Yes, that's great to hear. And then just a quick one on the Automotive segment. Can you maybe talk about the core automotive business? What's maybe the run rate of high visibility revenue, revenue with long-standing customers on your core products? Can you talk about that? Are we sort of bottoming here in automotive? It sounds like we're going to be kind of flattish from here. Richard Phillips: It's hard to say, Derek. I mean I actually just met with our top 4 automotive customers in a week. And I'd say that they anticipate challenges over the next couple of years in the overall automotive market. So again, we really like where we're positioned and electronic content being added to vehicles is huge for us. Our relationships are strong. We're continuing to be strategically focused in those areas of automotive that work for us and that are not commoditized. But we anticipate continued pressure, whether it's from tariffs or the impacts on the economies around the world that put pressure on people buying cars. Derek Soderberg: Got it. Got it. That's helpful. And then, Jana, a couple for you. Just with the balance sheet where it's at, you guys are buying shares back, paying down debt, much leaner company than you had been in the past. How are you feeling about -- there was a question on inorganic growth. How do you feel about making a move like that? And how do you balance just continuing to improve operations organically, using your new capacity in medical, continuing to generate cash flow, et cetera. How are you guys thinking about that? Jana Croom: Yes, that's a really great question. And capital allocation has been top of mind for probably the last 9 months as we were looking at the strengthening balance sheet and how we were going to deploy capital to grow the business most efficiently. What I can tell you right now is, given the 18-month growth pattern we had in terms of organic expansion with Thailand, Poland and Mexico from just a pure organic growth, we've got a really great footprint. You're seeing us now put capital to work in [ India ] for the CMO. And so we need to grow into that body of manufacturing facilities. And so we have plenty of dry powder for an inorganic opportunity. If there was something that came to this leadership team that was going to augment the CMO in a meaningful way, allow us to improve our EBITDA margins for the business, we would definitely take advantage of that. But nobody has got a burning hole in their pocket to spend cash. So we're not going to do something foolish. This company is very, very disciplined. And I think you guys know I'm a balance sheet CFO. And so it would have to be really thoughtful. We wouldn't want to issue equity to do it unless it was something absolutely compelling. And quite honestly, I don't see that being feasible. And so it's how much debt can you spend and still keep your balance sheet strong enough to support the working capital needs of the organization while it returns to growth. Derek Soderberg: Yes. Yes. Got it. And one final one, Jana. Can you talk about the accelerated depreciation within the latest, the Big Beautiful Bill? Is that impactful for you guys at all? That's my last question. Jana Croom: It is. And so the bigger impact for us, for OBBA is, I mean, certainly accelerated depreciation but some things that we were able to take advantage of related to specifically interest expense deductions on domestic income. That for us was actually a slightly bigger benefit. We're looking specifically at R&D credits and some other things that we can take advantage of for sure as well. And also to be honest, we're still working through it. Yes. Operator: [Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti. Anja Soderstrom: I'm just curious with the gross margin expansion despite the lower revenue, what's the puts and takes for that? Jana Croom: Sorry, you just caught me having a big drink of water. So a few things related to gross margin. The first was we had favorable product mix. And that was driven across geographies with the ramping of certain programs coming online and just better absorption and utilization. As you know, we spent much of FY '25 and FY '24 doing restructuring. We're seeing some of the benefits of that come through. But the biggest benefit is closing our Tampa facility and all of the fixed costs associated with that facility that are no longer part of our cost structure. And one of the things that we're doing is continuing to evaluate cost structure, restructuring efforts, S&A needs as we grow to figure out timing of some of those things so that we can hold not just gross margin but S&A at a level that we're delivering solid operating income margin and EBITDA to our shareholders. And that's really important. Anja Soderstrom: Okay. And then did you say you expect the SG&A to increase as a percentage of sales for the rest of the year? Jana Croom: We do. It was artificially low in FY '25 purposefully and that was a result of us being really mindful about the challenges that we were having and the need to tighten the belt. But similar to working capital needs, there's S&A that we are going to have to spend in order to prepare for the growth. Anja Soderstrom: Okay. And then that should come down then into 2027 as you expand your revenue and [indiscernible]. Jana Croom: Yes. And the focus areas for S&A are really going to be around things like technology, business development, areas where we just need to grow so that we can support the business. Anja Soderstrom: Okay. And then how do you -- you touched on it a little bit already in terms of debt reduction but how should we think about further debt reduction? Jana Croom: So I actually think next quarter, debt is going to climb just a little bit and it's going to be due to some of the needs that we have to fulfill. So think about FY '27 return to growth NPI launch. We had to order all of that inventory. It's got to come in now so that we can be prepared for it. And so you're going to see us spending a little bit in support of the growth that's coming. But I actually take that as a really good sign. Anja Soderstrom: And then in terms of M&A opportunities, it seems like you are quite actively looking for opportunities there. How would you say the market has changed over the recent quarter? Jana Croom: So M&A has been really interesting, especially as a strategic buyer, right? And so what you saw probably for the last 3, 4 years was the PE companies being prepared to pay what I would consider to be somewhat absorbent multiples to buy up some of these companies. What you're seeing now is a much more rational market, people being able to have the confidence to walk away if something just seems overly expensive. And so because of that rationality, we actually feel better about being able to buy the right opportunity at the right price point and then integrate it and grow it as part of our CMO strategy. But we are very disciplined as a strategic. We don't want to get in over our skis. We've got a solid organic growth strategy. Nobody's got a burning hole in their pocket where we're going to do something that is not going to drive shareholder value, first and foremost. Operator: [Operator Instructions] There are no further questions at this time. This concludes today's conference call. A telephone replay of the call can be accessed by dialing (877) 660-6853 or (201) 612-7415 with the access code 13756429.
Operator: Hello, ladies and gentlemen. Welcome to McEwen's Third Quarter 2025 Operating and Financial Results Conference Call. Present from the company today are Rob McEwen, Chairman and Chief Owner; William Shaver, Chief Operating Officer; Perry Ing, Chief Financial Officer; Jeff Chan, Vice President, Finance; Stefan Spears, Vice President, Corporate Development; Michael Meding, Vice President and General Manager of McEwen Copper; Carmen Diges, General Counsel and Secretary; Michael Swistun, President and CEO of Canadian Gold Corp [Operator Instructions] I will now turn the call over to Mr. Rob McEwen, Chief Owner. Please go ahead, sir. Robert McEwen: Thank you, operator. Good morning, fellow shareholders, interested investors. We have been preparing McEwen Mining to benefit from the stronger metal prices we are seeing today. Over the past year, gold at just below $4,000 an ounce is up 45%, silver up 47% and copper is close to $5, up 13%. And I believe the intermediate and long-term prices will be considerably higher. This is an excellent environment for our portfolio mix of assets. I go to -- as far to say that perhaps you could think of us as a mini Freeport with growing gold production pipeline and large exposure to a robust world-class long-life copper story. The improved gold and silver prices have buffeted us from the inconvenient unexpected events that can temporarily throw us off course and off guidance. Fortunately, these moments are temporary and can be resolved in a relatively short period of time and have not seriously delayed our ambitious growth plans of delivering by 2030, 250,000 to 300,000 gold equivalent ounces of annual production, plus watching Los Azules become a copper mine. And in the first 5 years, we're looking at producing at an annual rate of over 450 million pounds of copper a year, which today, copper prices would be about $2.2 billion, and it has a -- at least based on the feasibility study we just put out and the current copper price would have a gross margin of 64%. So we've done a number of things in the quarter, and we've made some investments, and I'll start with those. And then I'll move to asking Michael Meding to talk about the excitement at Los Azules, and then we'll get into our finances and our operations on our gold operations. So I'll start with Ian Ball to talk about our investment in Canadian Gold Corp and also [Technical Difficulty]. Operator: Ladies and gentlemen, we're experiencing technical difficulties, please stay on the line. We'll resume momentarily. Ian Ball: Thank you very much, operator. So on the Canadian Gold front, we're set to close that acquisition in January. Upon closing, we expect to issue an updated resource estimate for the end of February that will come out with our year-end financials, and that's going to be part of a preliminary economic assessment. Our shareholders will note, we have not included Tartan in any of our guidance going forward over the next 5 years, but we fully anticipate including that as we set to embark on our studies of that project. Exploration is ongoing and Canadian Gold is scheduled putting out an exploration update over the next 3 weeks. The key there is we've been drilling on the main zone, continuing to build out that resource. We've been doing a lot of work on the recently acquired ground to the west, which is option from Hudbay, where historically, there was a lot of historical high-grade drill intercepts and surface. We think there's a lot of synergies between Tartan and that ground. It really fits well with the McEwen mining portfolio in terms of the underground style, the processing plant, and we feel there's a lot of ways that we can optimize this and we can accelerate the permitting on this project to get it back into production upon some of the completion of the test work that we're currently undertaking. So we're quite optimistic both on the time frame for permitting, the exploration as well as the production profile that it can deliver for McEwen going forward. Robert McEwen: Mike, would you hop on the call? Michael Meding: Okay. Thank you, Rob. Thank you, operator. Q3 was an excellent and transformative quarter for McEwen Copper. We successfully advanced Los Azules from a world-class deposit into a derisked politically endorsed and bankable Taiwan asset. At McEwen Copper, we are committed to excellence in 3 key areas: operations, ESG and exploration. The most significant strategic event of the quarter was the acceptance of Los Azules into Argentina's [indiscernible] or the large-scale investment incentive program in Argentina on September 26. This is a fundamental game changer for the project. Through VG, Los Azules now benefits from 30 years of legal, fiscal and custom stability, access to foreign exchange and a significantly lower and internationally competitive tax rate. This provides a predictable framework and strong protection against future regulatory changes. The approval of the VG is a powerful public endorsement, which was personally announced by Argentine's Minister of Economy, Luis Caputo, and reinforced by President Javier Milei on their official X accounts. We also finalized a collaboration agreement with the IFC, a member of the World Bank Group. This partnership will align the project with the IFC's rigorous ESG performance standards and establishes a framework for collaboration on future financing. Our most recent milestone was the publication of the NI 43-101 feasibility study results on October 7. The study confirms robust project economics driven by a production process designed for low environmental impact. The leach and SX-EW process will produce 99.99% LME Grade A copper cathodes and as Rob already mentioned in the first 5 years, 204,000 tonnes of pure copper per year. The highlights include $2.9 billion after-tax NPV at 8%, 19.8% after-tax IRR, a payback of 3.9 years, $3.2 billion initial CapEx, C1 cash cost of $1.71 per pound of copper produced, all-in sustaining cost of $2.11 per pound of copper. The financial model used a copper price assumption of $4.35 per pound. The full National Instrument 43-101 technical report is scheduled for publication later this month. Looking forward, detailed engineering for Los Azules is set to commence, and we are targeting construction for late 2026, beginning of 2027, subject to project financing. Finally, let's talk about the upside. Our total mining rights cover approximately 32,000 hectares. To date, we have explored less than 10% of our holdings, about 3,000 hectares. We have already identified 8 significant targets, 4 of which we will focus on in the upcoming season. We have strong reason to believe we can significantly increase the resource size of Los Azules and ultimately convert this project into major mining districts. Thank you so much. I hand back over to you, Robert. Robert McEwen: Thank you, Mike. Perry? Perry Ing: Thank you, Rob. Good morning, everyone. I'll just provide some brief highlights from our third quarter report. So in terms of headline numbers, we reported a net loss of $0.5 million or $0.01 a share compared to a loss of $2.1 million or $0.04 a share in the corresponding period. I will note that this net loss included $4.3 million in terms of the loss from McEwen Copper. As we've noted previously, now that the feasibility study for Los Azules has been published, going forward from the effective date of the feasibility study at the beginning of September, we will be able to report those associated costs on a capitalized basis. So any loss attributable to Los Azules from prior periods will no longer -- will now be capitalized on a go-forward basis. In terms of adjusted EBITDA, we reported $11.8 million of positive EBITDA during the quarter or $0.22 a share compared to $10.5 million or $0.20 a share in the corresponding period. In terms of our treasury, we ended the quarter with $51 million in cash as well as $24 million in marketable securities. Our cash balance was relatively unchanged from the prior quarter at June 30. So just looking ahead, in terms of our release, we've outlined a number of significant projects ahead of us. So just looking into 2026 and our capital needs, obviously, we expect to finish the stock ramp by the end of next year. complete a heap leach pad expansion at Gold Bar. And as noted, we will undertake El Gallo Phase 1 with a capital cost of approximately $25 million. Overall, we expect to accomplish these using our existing treasury and cash flows from operations. And specifically for the El Gallo project in Mexico, we also expect to utilize some form of gold prepay for approximately half of the anticipated CapEx. So with that, we'll turn it over to Bill for some comments on operations. Robert McEwen: And what we're going forward. William Shaver: Good morning, shareholders. So from the operation perspective, as we all know, we started off the year poorly. However, we have a very good start to Q4. Q3 wasn't exactly as we anticipated due to some issues with the final few months of the Froome mine. And this is, I guess, to some extent, I guess, one of the outcomes of the end of a mine life. However, the Froome West deposit has kicked in nicely in -- towards the end of Q3, and we see it producing gold at the rate in our guidance through Q4 and well into 2026. We now see Froome mining until Q3 of 2026, by which time the stock deposit should be coming into production, which we're now indicating as occurring later in the first half of next year. In terms of the development work that we are doing at Stock, the ramp development is going along on schedule. And I would have to say both the mining contractor and our own mining crews continue to have their safety record in very good shape with no lost time accidents by either our contractors or our own forces. In terms of Gold Bar, Q3 has been quite challenging because of the fact that there was one part of our ore that we intended to mine in Q3, which basically did turned out not to be ore when we got to the mining. But we pivoted there quite nicely to move into Q4. Q4 is already looking very good, and we're back into the normal routine of our mining and our stripping and are moving north of 1.5 million tonnes per month. So that's a very good outcome for operations. From the perspective of exploration, we've had very, very good success in both operations at Gold Bar and at Stock. And at our Board meeting yesterday, we approved going ahead with the re-leaching of the -- of the assets in Mexico. So that will start early in the new year with construction and then move on into leaching of the El Gallo leach pad and then putting those tailings back into the pit. So we see a challenging fourth quarter, but we're in very good shape, I would say, in the month of October. And so looking forward to the next 2 months, and we're really looking forward to getting back to producing gold in Mexico. Thank you. Robert McEwen: During the year, we've enjoyed exploration success at we discovered the Froome West deposit that allowed us to bridge our production. During a time when we found permitting delays, we're backing up our production pipeline and our development plans. Both at Gold Bar over at the acquired timberline properties, we're getting excellent grades and continuity. There's one area that I don't know if everyone in the company shares my same optimism, but it's a property called even Seven Troughs. And historically, it excites me because of its historic record is one of the highest grade mines in Nevada at averaging more than 1.2 ounces per tonne. And there was a recent grab sample in an area that historically had shown a lot of plus 1 gram material, and that was better than 270 grams over a very short intercept, but still exciting given the history of that location. Gold at in Timmins, our Grey Fox area is growing. We'll have a preliminary economic assessment out in the first quarter of next year. We've got plans to expand in Mexico, as you heard from Perry and Bill. And we're bringing in some other properties and have some investments in areas and in companies that I think have a lot of growth potential. So with that, I do have to say that our miss year-to-date on our production is inexcusable, but we're taking steps to remedy that and get us back on track. So with that, I'll open it up for questions. Operator: [Operator Instructions] Your first question today comes from the line of Heiko Ihle from H.C. Wainwright. Heiko Ihle: Rob, can you hear me okay? Robert McEwen: Loud and clear. Can you hear us? Heiko Ihle: Perfect. Just making sure. First of all, congratulations to Ian Ball on his appointment there. Rob, you actually early on this call preempted a bit of what I was going to ask you. But I mean, your deal for Britannia or Paragon Geochemical Labs, an interesting move there. A few follow-ups to that. Do you think that you will engage in more vertical integration like this? And building on that last part, do you think we'll see a bit of an arms race for lack of a better word, or other guys want to get involved with suppliers, distributors in order to guarantee supply and fast processing? I mean like one example would be an assay lab. Obviously, you can't do it for independent assays, but would that be like a potential target? Just maybe elaborate a bit on what you were describing earlier on the call and what... Robert McEwen: Heiko, Paragon holds a technology called photo assay, and it's an X-ray process that is faster, cheaper, more comprehensive in terms of the data being provided. I first saw this technology 5 years ago, comes out of Australia. Paragon stepped in and got in line to secure 12 units, and that's about the annual production. Some of the majors have bought units for their sole use. I think as more money comes into the mining space, and that's surely going to happen with everybody, all the sovereign nations and corporations around the world looking for new sources of mineral -- being able to compress time and get more information for your dollar out of your assays is going to grow increasingly more important. And the old suppliers of assays, I mean, you could see backups go 3, 4 weeks or more. And here, you can get it in 2 weeks or less and sometimes almost daily. So I think that's important. I mean the whole industry is under a lot of strain right now. There are labor problems, so there's going to be competition there. There's equipment supplies. When someone comes along, we're going to have all these projects coming on. Who's going to -- will they be able to deliver the trucks, the shovels, the drills and that. You're already -- in Argentina, we looked at that problem with drills. We ended up buying 8 drills because there weren't drills down there readily available. And so mean you look at the world and say mining investments in a mix of global portfolios is very small today. It might be 1% or 2%. 10 years ago, it was up around 12%. We get back to that. As you said, there's going to be a real battle for a lot of the inputs that are required to define an ore body. And at the same time, we have to compress time in this industry. It's taking far too long to reach certain decision points. And so you're going to see a lot more technology. I view what Paragon's technology, the crisis rather, is a disruptive technology that will advance the industry. And we -- we'll be looking for other opportunities to accelerate and improve the knowledge of the industry, first for us, but then for the industry. William Shaver: Yes. Heiko Ihle: Yes, good answer. Obviously, interesting move. I've seen this machine in operation. I was trying to dig up where it was, but I've seen it on a site visit before somewhere. It was one of your assets, it was somewhere else. It might have been -- I go to so many sites. At Gold Bar, you did obviously 8,200 ounces, quite a bit lower, frankly, a bit lower than what we had in our model as well. You were talking about the reinterpretations of geological data and changes to your mine plans. What should we be looking at for next year? I mean this sure sounds like a temporary issue, but is it? William Shaver: I would say absolutely that the particular zone of the mining operation that we were in, in the last quarter, we ended up with a part of the -- where we were mining that we anticipated would be ore. It turned out to be -- to, in fact, be unmineralized material. And as a result, that part of the pit basically turned into stripping material. So -- and for some reason, the historical drilling that was done many years ago didn't identify that horse of unmineralized material. So we've mined through that with our stripping part, and we're now back into what we would call our normal ore. And what we're seeing in the rest of the mining that we're doing is that the reconciliation to the block model is standing up. And it was just, I guess, something that we missed in our confirmation drilling or something that we missed in the mine planning at the time. And again, this is a part of the ore body that we decided more than a year ago to start stripping because of the increase in the gold price, and that's what brought that whole zone into ore. At the gold price that we had 1.5 years ago, that stripping wouldn't -- and that mining would not have been done. So in answer to your question with regard to next year, we see the mine plan being pretty consistent through the year, and we'll be announcing the production guidance for next year shortly. Operator: [Operator Instructions] Your next question comes from the line of Joseph Reagor from ROTH Capital Partners. Joseph Reagor: I think Heiko asked the 2 big ones there. But just kind of following up on Gold Bar. In the comments, you guys said that you're going to be doing some more work to review this. What degree of risk do you see to an overall resource change, if any? Or is this just a matter of sequencing? Robert McEwen: It appears to be a matter of sequencing and not a large risk. Joseph Reagor: Okay. That's good to hear. And then you mentioned with Phoenix mid next year, how comfortable are you guys with that time line to have all your permits? And where do you see like the kind of the potential for to get started earlier on that front? And then do you expect to publish an updated financial study once you have permits in hand? Robert McEwen: Yes, the last question, and the permitting is somewhat unknown. We have a permit to do some of the work and it needs to be amended. And we're hoping that the timing will coincide with what we gave you. William Shaver: And we've had a number of meetings with the government authorities on permitting, and we're fairly optimistic that we'll have those permits in time and the construction of the plant will start in Q1. Joseph Reagor: Okay. And then part of your comments on the Canadian gold thing, I think got cut in the beginning. What is the time line to complete that merger? And then how -- what's kind of the time line after that by quarter as far as expectations for analysts? Robert McEwen: The process, there's a shareholder vote in December, and then it has to be ratified by the courts, and that's set for the 6th of January, I believe. Mid-January? 6 -- early January. And in terms -- then we'll go in there and do a resource estimate and a preliminary economic assessment on that. Joseph Reagor: Okay. Okay. And when do you think the -- what's the rough estimate, assuming a Q1 close, what's the rough estimate on PEA being released, like how many months or quarters? Robert McEwen: You'd probably be looking into the fourth quarter next year. Operator: Your next question comes from the line of [ Gord Weber ] from RBC Capital Markets. Unknown Analyst: With respect to resource estimates, how would McEwen Mining now calibrate or estimate their proven resources? Robert McEwen: The same way everyone else does. Unknown Analyst: And how many ounces or equivalent ounces would McEwen claim to have today? Robert McEwen: It's all set out in our statements. We're looking at about 3 million ounces at Fox. And it's about 4.2 million, I think, between all of the operations. And then we have development going on at drilling at Grey Fox right now. We're drilling down in Nevada at Gold Bar over at Eureka, starting at Seven troughs. Unknown Analyst: The reason I ask is it seems to me a little inequitable that we're being asked Canadian as Gold Corp stockholders to tender 50 shares for one of those shares when, in fact, we have a proven resource. Robert McEwen: Who are you representing? Sorry, who are you a shareholder of? Unknown Analyst: Yes, I'm a stockholder. I've been a long-term stockholder of Canadian Gold Corp. We know we have proven resources, and we also know that we have a lot of drilling that hasn't been analyzed to date. So I assume we have greater resources than has been booked. And it just seems to me 50:1 isn't -- well, it just seems to me very opportunistic. Robert McEwen: We put a bid on the table. It was accepted by management, and it's going to shareholders in December. We thought it was fair at the time, and I believe management thought it was fair. Unknown Analyst: Yes. And will there be a resource estimate for we, the stockholders before it goes to vote? Robert McEwen: We don't have any control over that. Unknown Analyst: Okay. So I think that's an... Robert McEwen: I don't have an answer to that question, but we're not driving a resource estimate. Unknown Analyst: But as the majority shareholder, don't you want to know what that number is before you conclude the transaction? Or do you already have some inside information that leads you to believe it should be concluded? Robert McEwen: No, the drilling is going. It's exciting. It's in an area that had past production, although the Tartan Lake mine wasn't run very well, and that's why it went into bankruptcy. But it's -- it's in a favorite area of the country in terms of energy costs and that and mineral deposit. Unknown Analyst: Yes. No, you don't have to sell me on the merits of the Tartan mine. My concern is that the majority shareholders may have insight or information that the minority shareholders haven't been provided with. Robert McEwen: That isn't the case. Unknown Analyst: Well, that's refreshing to hear that. Robert McEwen: Any other comments, questions? Unknown Analyst: Perhaps we can follow that up later. Operator: Your next question comes from [ Terry A. DeVries ], a private investor. Unknown Analyst: You know what, I'm good. I'm actually really good. I've had a great couple of months watching your stock double. Congratulations for Los Azules. Really exciting what's happening there. And the gold market goes up, the gold market goes down, and we just got a fantastic buying opportunity. And so I stepped up to the plate again. The one question I have I didn't really hear it from Michael Meding. The IPO for Los Azules, do you have any further information that you can give us when you think that might be happening? How much money you'd be willing to -- or looking to raise in the first issue? Robert McEwen: Well, we were hoping to do it earlier, but the feasibility, we got that out in October and didn't feel the market would have enough time to do an IPO in the fourth quarter of this year. Now we're looking at going to sometime next year, doing -- taking the company public. Unknown Analyst: First quarter... Robert McEwen: In terms of raising money, our last financing was at $30 a share. And I would expect that we're been accepted in the RGI. We've got the feasibility study. The project looks very attractive relative to a number of other development projects in copper that we'd see a higher price than that when we go public. Unknown Analyst: Any other market-moving news that you can expect in the next quarter or 2? Robert McEwen: I don't know. I'm going to go meet with the President of Argentina tomorrow in New York. I don't think that will move the market. Unknown Analyst: Well, your drill bits success has been rather encouraging. So I wish you all the luck in pursuing that and look forward for some good news. Operator: And there are no further questions at this time. Mr. Rob McEwen, I turn the call back over to you. Robert McEwen: Thank you very much, operator. Thank you, everyone. We've set our course where we're going. We think by planning by 2030 to have substantially more production coming out of our gold mines. There are a couple of other projects we'd like to see brought into production, and we hope to have the copper mine up and running by -- in 2030. So all good news in the long term. Thank you. Operator: And this concludes today's call. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Dan Meziere, Vice President of Investor Relations and Treasurer. Dan, please go ahead. Daniel Meziere: Thank you, Tiffany. Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review our financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 37 and are more fully described in our SEC filings. I will now turn the call over to Kevin. John Akers: Thank you, Dan. As Tuesday is Veterans Day, I would like to take this opportunity to thank those who have served in our armed forces and those currently serving. Approximately 300 of our Atmos Energy teammates are a part of the 18 million Americans who bravely served our country. Thank you for your service. Yesterday, we reported diluted earnings per share of $7.46. This marks the 23rd consecutive year of earnings per share growth. Fiscal '25 also represents the 41st consecutive year of dividend growth. Our fiscal year results reflect the focus and dedication of the entire Atmos Energy team and their continued successful execution of our proven strategy of operating safely and reliably while we modernize our natural gas distribution, transmission and storage systems. Their exceptional work has us well positioned for fiscal '26 and beyond. During fiscal '25, we continue to experience solid customer growth, adding approximately 57,000 residential customers with over 44,000 of those new customers located in Texas. We also added nearly 3,200 commercial customers and 29 industrial customers during fiscal '25. When these industrial customers are fully operational, they are anticipated to consume approximately 4 Bcf of gas annually. This usage is equivalent to adding over 74,000 residential customers on a volumetric basis. Over the last 5 years, we have added nearly 300,000 residential and commercial customers. And over the last 5 years, we've added 225 industrial customers with an estimated annual load of 63 Bcf when fully operational. On a volumetric basis, this is equivalent to adding nearly 1.2 million residential customers. This growing natural gas demand from all of our customer classes continues to demonstrate the vital role natural gas has in economic development across our entire service territory. According to the Texas Workforce Commission for the 12 months ending August, the seasonally adjusted number of employee Texans reached 14.35 million. Texas again added jobs at a faster rate than the nation over the last 12 months, growing at a rate of 1.14%. And Texas was recently ranked the Best State for Business for the 21st year in a row by Chief Executive magazine. According to the North Central Texas Council of Government, the current population estimate for the Metroplex is approximately 8.6 million people as of April 2025. And many analysts project the Metroplex to be the third largest metropolitan area in the U.S. by 2030. The U.S. Census Bureau has the population for Texas at 31.3 million and it is projected that Texas will reach a population of 32.4 million by 2030. Now turning to Atmos Pipeline-Texas. Our Bethel to Groesbeck project is nearing completion of approximately 55 miles of 36-inch pipeline from our Bethel storage facility to our Groesbeck compressor station. This project will provide additional pipeline capacity to transport gas from our Bethel storage facility into the growing DFW Metroplex and the Interstate 35 corridor between Waco, Temple and Austin. This project is anticipated to be in service late this calendar year. APT's Line WA Loop Phase 2 project is also nearing completion of approximately 44 miles of 36-inch pipeline. This phase of the multiyear project will provide additional pipeline capacity from our Line X to the northern areas of the growing DFW Metroplex. This phase is anticipated to be in service late calendar year 2025. APT completed our integrity inspection and verification per Texas code for our Bethel Salt Dome caverns 2 and 3, and we have begun the integrity inspection and verification work on our Bethel cavern #1. This work is expected to continue into late calendar year 2026. Turning to our updated 5-year plan through fiscal 2030. Focus continues to be on safety and reliability through system modernization, being mindful of customer affordability, timely recovery of our costs through our various regulatory mechanisms and maintaining a strong balance sheet. Following our robust 5-year planning process, we plan to invest $26 billion with approximately 85% of that planned investment allocated to safety and reliability. This investment will support the continued modernization of our natural gas distribution, transmission and storage systems and support the growing natural gas demand across our jurisdictions. Approximately $21 billion or 80% of our total planned capital spending is expected to be incurred in Texas. The 5-year plan reflects the impact of Texas House Bill 4384 on our earnings. As a reminder, House Bill 4384 reduces lag in Texas by permitting gas utilities to defer post in-service carrying costs, depreciation and ad valorem taxes associated with non-eligible Rule 8209 capital investments, such as customer growth and system expansion. With the passage of House Bill 4384, we will now begin to recover over 95% of our capital spending within 6 months and 99% within 12 months. We believe the successful execution of our strategy will support earnings per share growth at 6% to 8% from the midpoint of our rebased fiscal '26 EPS guidance. Additionally, we intend to grow the dividend in line with earnings per share growth. Now I'll turn the call over to Chris, who will provide some additional color on fiscal '25 and the fiscal '26 5-year plan, and I'll return later with some closing comments. Chris? Christopher Forsythe: Thank you, Kevin, and good morning, everyone. We appreciate you joining us this morning. Before getting into the details of our fiscal '26 5-year plan, I want to share a few highlights from fiscal '25. As Kevin mentioned, fiscal '25 earnings per share was $7.46. Included in this amount is $0.12 resulting from the adoption of Texas House Bill 4384. Approximately $0.09 was recognized in our distribution business and the remaining $0.03 is recognized at APT. Consolidated capital spending increased to $3.6 billion, 87% dedicated to improving the safety and reliability of our system. In fiscal '25, we replaced over 880 miles of distribution and transmission pipe and nearly 54,000 service lines and rate base increased by 14% to an estimated $21 billion as of September 30. Consolidated O&M, excluding bad debt expense of $874 million came in slightly above the midpoint of our updated guidance for fiscal '25. O&M spending continued to focus on system monitoring and damage prevention activities. We also experienced higher employee-related costs, primarily due to increased headcount to support growth and higher employee training and administrative costs. We had another busy regulatory calendar in fiscal '25. We implemented $334 million in annualized operating income increases excluding the amortization of excess deferred tax liabilities. We also completed general rate cases in Kentucky, portions of our Mid-Tex division and in our West Texas division. Finally, we finished the fiscal year with an equity capitalization of 60% and approximately $4.9 billion of available liquidity, which leaves us well positioned to support our future operations. Of this amount, $1.6 billion relates to forward equity proceeds that we get priced through our ATM program. This amount fully satisfies our fiscal '26 equity needs and a portion of our anticipated fiscal '27 equity needs. Looking forward, we have initiated our fiscal '26 earnings per share guidance in the range of $8.15 to $8.35. Because of the impact from Texas House Bill 4384, we are rebasing our earnings per share guidance beginning this fiscal year. From the midpoint of this rebased guidance range, we anticipate earnings per share growth of 6% to 8% annually, with anticipated earnings per share in fiscal 2030 to be in the range of $10.80 to $11.20. Additionally, this week, Atmos Energy's Board of Directors approved a 168th consecutive quarterly cash dividend with an indicated fiscal '26 annual dividend of $4, a 15% increase over fiscal '25. This increase reflects a rebasing of the dividend to align with the rebased earnings per share guidance. Our updated 5-year plan assumes that we will increase the dividend annually in line with earnings per share growth. Over the next 5 years, we are planning approximately $26 billion in capital spending, with over 85% of our capital allocated to safety and reliability spending. This level of spending is expected to support 13% to 15% annual rate base growth. By the end of fiscal 2030, we anticipate rate base to approximate $42 billion. And in fiscal '26, we anticipate capital spending will approximate $4.2 billion. Approximately $21 billion or 80% of our 5-year spending plan is currently allocated to Texas. Of this amount, approximately $15 billion is planned in our Texas distribution division and approximately $6 billion is planned at APT as it continues to focus on gas supply reliability and supply diversification while fortifying its system to support the growth of its LDC customers. As a reminder, our Texas distribution operations have deferral mechanisms to support the recovery of safety-related spending. Texas House Bill 4384 applies similar deferral treatment to our remaining capital spending in our Texas distribution business and to all of APT's capital spending. As a result, we will now begin to recover 95% of our capital spending within 6 months. We anticipate that approximately 60% of the impact of Texas House Bill 4384 will be recognized in our distribution segment over the 5-year plan. From a revenue perspective, we have assumed normal weather, market conditions and modest customer growth in both of our segments. In fiscal '26, most of our regulatory outcomes are anticipated to come through the execution of our annual regulatory filing process. For these filings, we are assuming existing ROEs, capital structures and regulatory features, meaning we are not assuming the approval of new mechanisms or other new regulatory features. Since the beginning of fiscal '26, we have implemented $146 million in annualized operating income increases in our distribution segment. Of this amount, $139 million relates to the implementation of our annual rate review mechanism in Mid-Tex. Regarding O&M, we continue to assume 4% annual increases driven by system safety, system monitoring and damage prevention activities and employee costs, and we will continue to evaluate options to accelerate compliance-related work as system conditions dictate or other opportunities arise. For fiscal '26, we currently anticipate O&M, excluding bad debt expense to range from $865 million to $885 million. Finally, this 5-year-plan includes approximately $16 billion in incremental long-term financing to support our operations and cash needs, including the expected payment of the corporate alternative minimum tax beginning in fiscal '27. We will continue to use a combination of long-term debt and equity to preserve the strength of our balance sheet, minimize the cost of financing for our customers and reduce financing risk. And we continue to anticipate meeting all of our equity needs through our ATM program. As a reminder, this incremental financing is included our earnings per share guidance for both fiscal '26 and through the 5-year plan ending in fiscal 2030. Thank you very much for your time this morning. Now I'll turn it back over to Kevin for some closing remarks. John Akers: Thank you, Chris. Our operational and financial execution in fiscal '25 has laid the foundation for continued success into fiscal '26 and beyond. Our 5-year plan supports our ability to meet the safety, reliability and economic development expectations of our customers, our communities and our key stakeholders across the service territory. As you've heard me say before, the things that differentiate Atmos Energy are that we operate in a diversified and growing communities that are supportive of natural gas and our investment in natural gas infrastructure to supply their growing economy and energy needs. That 96% of our rate base is situated in 6 of our 8 states that have passed customer choice for all fuels legislation. We operate in regulatory jurisdictions that support reliability, versatility, abundance and affordability of natural gas and the modernization of our natural gas distribution, transmission and storage systems to provide safe and reliable delivery. The strength of our balance sheet and available liquidity. We have a weighted average cost of debt of 4.2% with an average maturity of 17.5 years, and currently have $4.9 billion in liquidity. That our residential customers' average monthly natural gas bill is again expected to remain the lowest utility bill in the home. Consistent performance, 23 years of consecutive earnings per share growth and 41 consecutive years of dividend growth. That all 5,500 of us here at Atmos Energy proudly serve our customers and our communities as we continue to be guided by the simple values of our Founding Chairman, Charles K. Vaughan of honesty, integrity and good moral character. Those differentiators will continue to support the vital role we play in every community to safely deliver reliable, efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. We appreciate your time this morning, and we'll now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Jeremy Tonet with JPMorgan Securities, LLC. Unknown Analyst: This is [ Eli ] on for Jeremy. Just wanted to start on maybe some of the larger load customers you guys are seeing across your service territory. I recognize that the refreshed capital plan contemplates a lot of that demand. But can you just talk about and help quantify what's in the plan? And then what could kind of be incremental to that and just bifurcating those two? John Akers: Yes. Again, as Chris said on the front end, there -- we've got 85% of our spend is dedicated towards safety and reliability. We do have some modest growth included in the plan as well. But again, most of that is going to be focused on safety, reliability. We do have some additional fortifications that are in that to support that growth. That our long-range planning models have indicated we need because of the folks moving into Texas and the demand anticipated with them coming in and the load from their use of natural gas. And then any other thing that will be outside of that will be probably driven by safety, reliability and anticipated fortifications to handle that additional growth. Unknown Analyst: Great. And then maybe just talking a little bit about capital recovery. I know that you guys were able to kind of ratchet up the speed there? And can you just kind of talk about a little bit more about how you're able to -- how that flows into the plan and optimizes growth going forward, just recognizing that's kind of some of the best capital recovery out there. John Akers: Yes. Again, we're very blessed with the jurisdictions we serve in, and they recognize and support natural gas and our need to fuel these communities and meet the needs of all stakeholders, our communities, the state legislative bodies and the overall demand for natural gas. But I'd also say that we haven't sped anything up. This has all been part of our planning process since 2011, 2012, and identifying the needs of the system, both safety, reliability and growth. So this has been on the same cadence year after year. And through our robust planning process, we go out and identify and look at our systems each year for the need, not only for population and demand growth, but also from the safety, reliability need, fortification needs. So this is all well laid out, well-orchestrated through the demand models, the integrity models, the forecasting of population growth. Year after year, we repeat that same sort of process. And that's what drives the investment at the end of the day. Unknown Analyst: Awesome. Yes. And then just if I could squeeze in one more, apologies. But just I think the 2030 implied range is about 7.5% off the '26 midpoint. So is it kind of fair to say you guys are targeting the upper half of the CAGR? Christopher Forsythe: Jeremy, this is Chris. We talked about a 6% to 8% growth rate off of the rebased guidance range from the midpoint. So that falls in line with that 6% to 8% expectation, and that's what we're intending to pursue at this point in time. Operator: Your next question comes from the line of Nicholas Campanella with Barclays. Fei She: This is Fei for Nick today. Maybe I just want to double-click on the EPS rebase, if I could. Now seeing over 95% of CapEx is recovered within 12 months comparing to the previous 90%. Would you be able to just parse out how much incremental reg like improvement are you seeing in this refresh plan? Is it mostly coming from the Texas legislation? Or is there something else baked into the assumption? John Akers: Yes, I'll start, and Chris can add if he wants to. Yes, as we mentioned in our opening remarks, it's all coming from the House Bill 4384. Again, our plan has been the same year after year on how we approach the capital budget. It's by identified projects and needs of the system and supporting the growth. And this 4384 will now allow us to include APT's investment into its system as well. Christopher Forsythe: Yes. And Nick, this is Chris. I'll just remind you, again, on our regulatory cadence, annual funding mechanisms are contemplated throughout the 5-year plan. We have a couple of small general rate cases that we plan to execute this year. But the overall theme there is the recoverability, and we assume in this 5-year plan that there's no new regulatory features, no new deferral mechanisms, regulatory asset treatment. It's basically we plan it based on what we know and have today. Fei She: Understood. That's very helpful. And if I could, just on O&M budgeting for '26. Could you just help clarify on how are we getting to a lower assumption for '26 and how those ramping to a 4% annual increase would evolve going deeper into the longer term? Christopher Forsythe: Yes. I think that the guidance that we put out there is pretty much -- the midpoint of the guidance is pretty consistent with where we were this year. We had some opportunities in fiscal '25 to spend some additional O&M dollars and compliance-related activities. As we saw market conditions at APT materialize, particularly in the late in third and fourth quarter. So we kind of reset the O&M plan based on what we need to do from a compliance perspective, what we want to do from a system monitoring, system -- damage prevention activities. And then, as I said, we'll continue to evaluate that O&M throughout the year. And if system conditions dictate or other opportunities arise, we'll evaluate options and alternatives to pursue further compliance and safety-related spending. Operator: Your next question comes from the line of Gabriel Moreen with Mizuho. Gabriel Moreen: So Waha gas prices have been on a bit of a wild ride the last couple of weeks. I'm just wondering to what extent you've incorporated some of the deeply negative prices here that we've seen over the last couple of weeks into your guidance for '26, and maybe what you're assuming for the rest of the year as far as your Waha outlook? John Akers: Yes. As we've done with all of our 5-year plan roll forwards, we do not incorporate that in. We assume normal activity. We continue to monitor and look at that. We're still very early into the season right now, just basically just out of October, if you will. So it's something we'll continue to keep our eye on as we move forward, but we do not try and use a crystal ball to forecast what's going to happen with that market at all. And we'll continue to keep you updated on our quarterly calls. Christopher Forsythe: Gabe, you know, too, that all that activity to the extent that it materializes, 75% of that impact flows back to the benefit of our customers. So well, like Kevin said, we'll keep an eye on it. And we'll provide updates as we move through the fiscal year. Gabriel Moreen: And then maybe if I could follow up, it looks like you raised your long-term gas price assumption in the 5-year outlook. Can you just talk about drivers behind that, if there's anything beyond the forward curve? And also was that an impact at all and maybe slightly moderating your kind of CapEx CAGR within the context of kind of how you're viewing customer builds over the medium to long term? John Akers: Yes. That's just the forward curve that's out there that we have available to us now. And again, I think if you go back and look at what we projected in that long history on that slide, whether it's Page 23 or 24 there, we generally have come in under that. So right now, that's just a forward-looking curve. We're projecting outward on our customer bills. And again, probably point you to the Pages 23 through 25 there as we talked about customer bills and going forward. And I'd like to remind everybody that when we look at the household bills overall, our natural gas residential bill is again expected to be the lowest bill in the household going forward into '26 at this point. We continue to remain anywhere between 2 to almost 5x more affordable than our electric counterparts in each of our states and jurisdictions that are out there. And again, there's a slide out there on percent share of wallet for our customers as well, and we remain right at or below the natural gas industry average for a percent of wallet share and about 2 to 3x below the percentage of wallet share on the electric side. So I believe we're extremely well positioned right now and always keep affordability at top of mind. That's part of our both short term, mid-term and long-term planning process as we look at investments, we always run through what the potential impact may be on our customer base as well. But again, I feel like that we are well positioned and mindful of affordability. Operator: Your next question comes from the line of Aditya Gandhi with Wolfe Research. Aditya Gandhi: Great. Maybe just starting on Texas HB 4384. I appreciate that you've rebased the '26 range higher. Can you maybe just clarify what the annual impact from the legislation is just roughly? Is it fair to assume that if we annualize the $0.10 impact from Q4 that you mentioned on last quarter's call, $0.40, is that a reasonable run rate? Christopher Forsythe: This is Chris. So in the rebasing, we assumed the impact of House Bill 4384, and from fiscal '25 to '26 because we will have a full year impact of the House Bill 4384, that's why you're seeing that rebasing going forward. And then after that, it will begin to -- become a little bit more consistent year-over-year. So again, we factored all that in, into our 6% to 8% of the midpoint via a guidance range right now, is right around $8.25, and we will intend to grow at 6% to 8% off of that. Aditya Gandhi: Okay. And then maybe just touching on the equity. You mentioned balanced equity and debt funding. Can you just clarify whether that sort of means 50% of that $16 billion -- roughly 50% of that $16 billion over the course of your 5-year plan? And then just could you give us a rough sense of how much equity you're assuming in 2026, and how we should think about the cadence of equity beyond 2026? Christopher Forsythe: Right. So looking at the incremental plan over 5 years, we've got roughly $16 billion that's out there. We are very comfortable with our equity capitalization of approximately 60%. And as of September 30, we intend to keep our equity capitalization at that level. I think the strength of the balance sheet is important for financial strength to be able to withstand unexpected events supporting our customers if we need to in terms of moving our PGAs around as we pass through gas costs. So when you think about capitalization being where it is, it's roughly 50-50 split between debt and equity. And then by year, you can see generally about 50% of our annual cash needs are coming from our FFO number, which I think you have. And then you can apply by year in your modeling, 50% roughly for equity, 50% for debt. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Spark Li: This is Spark on for Julien. Congrats on the strong quarter. I have -- if I can quickly come back to the HB 4384 benefits. I appreciate the color on the prepared remarks. I believe you mentioned 60 -- roughly 60% for distribution, 40% for APT. I'm just thinking, would that 60-40 split change meaningfully year-over-year just given potentially different CapEx cadence at each segment each year? John Akers: No, we do not expect that. Again, our 5-year planning process has been the same year in and year out. Our team does a robust deep dive into the needs of that and has it well laid out year after year. So we're very confident in what we have put out there for the 5-year plan. Spark Li: Got it. Another question on the dividend. I mean, nicely done on the dividend guide up here. Just given the durability of the HB 4384 uplift, is it fair to view this dividend guide up as a long-term guide up here? Christopher Forsythe: I think in our prepared remarks, we mentioned that we moved the dividend 15% from '25 to '26 on an indicated basis to basically rebase that dividend in line with the rebased earnings per share guidance, and we intend to grow the dividend 6% to 8% over the next 5 years. Operator: That concludes our question-and-answer session. I will now turn the call back over to Dan Meziere for closing remarks. Daniel Meziere: We appreciate your interest in Atmos Energy, and thank you once again for joining us. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
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