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Operator: Greetings, and welcome to Inspirato's Third Quarter 2025 Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Inspirato's Chief Marketing Officer, Bita Milanian. Please go ahead. Bita Milanian: Thank you, operator, and good morning. Joining us for today's presentation are Inspirato's Chairman and CEO, Payam Zamani; and CFO, Michael Arthur. Before we begin, please note that today's call is being webcast live and will also be archived on the Investor Relations section of our website at inspirato.com. You can also find our press release and the supplemental materials currently available there for your reference. As a reminder, some of today's comments are forward-looking statements. These statements are based on assumptions, and actual results could differ materially. For a discussion of these risks and uncertainties, please refer to our filings with the SEC, including our most recent annual report on Form 10-K and our subsequent third quarter report on Form 10-Q. In addition, during the call, management will discuss non-GAAP measures which are useful in evaluating the company's operating performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. Reconciliations of these measures to the most directly comparable GAAP measures are included in our press release. With that, I'd like to turn the call over to Inspirato's Chairman and CEO, Payam Zamani. Payam? Payam Zamani: Thank you, and good morning, everyone. Yesterday afternoon, we issued a press release announcing our financial and operational results for the third quarter. I encourage all listeners to review the press release, which has been posted to our Investor Relations website as it contains information relevant to today's call. I'm proud of the accomplishments we've made this quarter and a testament that we're heading in the right direction. This quarter, we delivered a 97% year-over-year improvement in adjusted EBITDA, reflecting meaningful progress in reducing fixed commitments while maintaining the exceptional experience our members expect. Year-to-date, adjusted EBITDA is up $13.2 million, and operating cash flow has improved by $15 million, showing the lasting impact of our disciplined approach. We've reviewed and renegotiated hundreds of vendor contracts, driving $4 million in additional annual savings, another important step in strengthening our foundation. During the quarter, we also began presale of our new Pass membership launching in January. It's redesigned to create a more flexible, innovative way to travel while delivering greater value for our members and advancing our mission to reinvent luxury travel. Since preselling began, we have added more new Pass members in less than 3 months than in the prior 12 months combined. The progress we've made over the past year has positioned Inspirato for efficient growth in 2026 and beyond. Although we are not yet providing formal guidance for 2026, we fully expect continued improvement in our EBITDA margin as our transformation efforts take hold. At the same time, we are transforming the business and investing in a more robust digital marketing and technology platform, one that's designed to build a scalable, durable and efficient growth model for the future. As part of this broader transformation, we announced the proposed business combination with Buyerlink in June 2025. The goal of that transaction was to accelerate our digital strategy and platform evolution, helping us unlock this growth faster. However, we mutually agreed with Buyerlink to terminate the agreement in September. While the Buyerlink transaction is no longer moving forward, our strategy and business transformation initiatives have not changed. The rationale behind the proposed combination was not to alter our direction, but to speed up our progress towards becoming a leading platform for luxury travel. We remain deeply committed to this vision, continuing to modernize and strengthen our technology and digital foundation to elevate the member experience, enabled by the talent and dedication of our existing team. I remain incredibly confident in the path ahead and believe Inspirato's best days are yet to come. We expect to share additional updates on this strategic initiative beginning next year. Now on to updates for the quarter. As you know by now, our strategy has been focused on 4 pillars that are the foundation for our business. As a reminder, these pillars are: one, operational efficiency; two, brand elevation; three, member experience; four, digital platform. First, we are focused on driving operational efficiency. Since I joined the business, we have been making changes to position the business for profitable growth. Through discipline, cost management and organizational rightsizing, we've achieved adjusted EBITDA profitability on a trailing 12-month basis in Q2 and again in Q3. This quarter, we completed a comprehensive review of our vendor agreements, evaluating hundreds of partnerships to ensure alignment with our current strategy and future objectives. As a result, we were able to identify $4 million in annualized savings. To be clear, these changes were made without any impact to quality of service that our members expect. These are the types of improvements we have made over the last year that led to our 97% year-over-year adjusted EBITDA improvement in the quarter. We expect that the changes we made this quarter, along with a combined focus on operational efficiency, will help us manage cost effectively in the quarters ahead. We also know that the changes position us to scale efficiently and to build out our luxury travel technology platform. Turning to brand elevation. We're continuing to push Inspirato forward and elevate our brand status. This quarter, we relaunched Inspirato Magazine, featuring our best properties and content tailored to our key customer demographics. The magazine captured strong media attention, amplifying brand recognition and reinforcing our image as the premier travel brand. We also expanded our social media presence to ensure we are both present and consistent across all platforms. This cohesive storytelling builds our audience and elevates our brand. Our goal is to create a clear, unified experience the first time people encounter our brand across any channel. Inspirato is synonymous with quality, luxury and service. Third, we're continuing to build on and enhance the member experience. This quarter, we launched our redesigned Pass program. While the program was historically a successful draw for new members, as previously constructed, it had several limiting restrictions for our guests and ultimately wasn't a long-term profitable program for us. We've now redesigned the product to deliver exceptional value. Members can maintain 2 active reservations at any time, each up to 7 nights, from our exclusive curated portfolio of properties. Every estate features consistent quality of white glove service, no matter the destination. For a single fee of $40,000, members can enjoy travel with no monthly taxes, rates or additional fees throughout the year. The program is ideal for discerning travelers who value flexibility and want to maximize both luxury and value from their vacation experiences. We're excited to see members take full advantage of the opportunities our Pass program offers. Presales began in August. And since, we've sold more memberships in that time than we did in the prior 12 months combined. The newly revamped program has been extremely well received. We see this as another way to build a best-in-class member experience. Additionally, we continue to develop experiences and partnerships that retain existing members and attract new audiences. For example, we recently expanded our Inspirato Sports Collection to include a Centre Court experience at the 2026 Wimbledon finals, dubbed as 4 of the best courses around Spain, and a family adventure exploring 3 of Utah's iconic national parks. These curated experiences has continue to resonate strongly with members who value shared moments of celebration and discovery. As we've scaled our business, we now offer more than 25 member-only journeys annually. We also recently added a partnership with Aero to provide our guests with additional flying options to our marquee destinations. These semiprivate flight options will help us provide a more cohesive travel experience for our guests. I've always believed that the vacation begins the moment you leave home, and this partnership helps bring that idea to life. Finally, we also made several strategic property enhancements to strengthen member satisfaction, drive higher occupancy and reinforce our brand as the leader in curated luxury travel. We have additional improvements to more of our locations planned in the year ahead, which we will share as we go along. Lastly, we're building a robust technology and digital marketing platform that will unlock massive potential for Inspirato. With the cost improvements and other enhancements we've made, we now have the right business operations in place to invest in growth. We believe that foundational technology investments we are making will help transform Inspirato into the leader in luxury travel. We will create a world-class platform that allows us to reach, target and convert high-value travelers at a scale previously impossible for us. This will expand our total addressable market and fuel our growth for years to come. In closing, we continue to successfully execute our long-term business strategy in the third quarter, which has us well positioned to meet our financial and operational targets for the year. Over the past 15 months, we've made tremendous strides to elevate the business while laying the operational groundwork to scale efficiently as we lean into our technology platform strategy. I want to thank our team for their relentless focus and our members for their trust and loyalty. I believe we are at the start of something extraordinary, and our results prove it. And I can't wait to share more progress with you in the quarters ahead. I'd like to also share that yesterday, we announced the upcoming departure of our CFO, Michael Arthur, who had decided to pursue another opportunity. Michael will remain with Inspirato through the end of 2025 to ensure a smooth transition while we conduct a search for his successor. Michael has been an exceptional partner and leader, helping to strengthen our financial foundation and advance our long-term strategic goals. On behalf of the entire company and our Board of Directors, I want to thank him for his many contributions and wish him continued success in his next chapter. With that, I'll turn it over to Michael to discuss our financial performance and outlook for the remainder of the year. Michael? Michael Arthur: Thank you, Payam, and good morning, everyone. I'd first like to begin by expressing my gratitude to the team at Inspirato for the opportunity to lead this organization as CFO. Together, we've strengthened the company's financial foundation and advanced key strategic priorities that position Inspirato for long-term growth and profitability. I'm confident in the company's future and committed to ensuring a smooth transition. Now turning to our financial performance. As Payam outlined, we continue to make operational improvements to create a more efficient business, and we're excited about the progress we're making. In the third quarter, total revenue was approximately $56 million, down 20% year-over-year. Despite the decline, we delivered a 97% improvement in adjusted EBITDA to negative $0.1 million, a clear reflection of the operational progress we made across the business to become more efficient and drive sustained profitability. Cost of revenue decreased 23% or roughly $11.5 million, driven by our ongoing portfolio optimization efforts and continued focus on operating efficiencies. Cash operating expenses were also down approximately $7 million year-over-year, benefiting from reduced overhead and disciplined cost management as we streamline operations throughout the organization. Breaking down revenue a little further. Subscription revenue was $19.4 million, down 16% year-over-year, primarily due to the expected and planned decline in Pass subscription. At the end of the third quarter, we had nearly 11,000 members, which were comprised of approximately 9,500 active Club members and 1,100 active Pass members. Importantly, on a sequential basis, subscription revenue was flat quarter-over-quarter, a significant improvement versus an average quarter-over-quarter decline of 7% over the prior 10 quarters, the peak of our subscription revenue. This marks an encouraging stabilization in our subscription revenue base. Furthermore, year-to-date, Club and Invited subscription combined is up compared to the prior year. These results demonstrate that our strategy is working. Our focus on high-value, long-term Club is driving healthier and more sustainable subscription base, setting the company up for growth in the future. And looking ahead, we're excited about the relaunch of our Pass program on January 1. The renewed product has been redesigned to complement our Club offering and strengthen the balance of our overall subscription mix. As Payam mentioned, early interest and engagement with the enhanced Pass product have been strong. Combined with Club's subscription revenue stabilizing, we believe we are entering an inflection point in our subscription revenue trajectory, something we noted earlier this year. In the second half of the year, we're starting to see the positive impacts of these strategic shifts, setting the stage for further stabilization of subscription revenue and improved profitability in 2026 and beyond. Next to travel revenue. We delivered $33.9 million in the quarter, down 20% year-over-year. This was driven primarily by fewer members and lower occupancy of 56%, mitigated by higher ADR of 25%. The higher ADR supports the gross margin and profitability goals we set for the year. This reflects our strategy to optimize the portfolio mix, improve revenue quality and drive strong overall profitability within our lease controlled accommodations, evidenced by the year-to-date increase in revenue per available night, or RevPAR. Turning to free cash flow. In Q3, free cash flow was negative $3 million, mainly due to net cash used in operating activities in the quarter, inclusive of transaction-related costs paid during the quarter. Looking at year-to-date performance. EBITDA for the first 9 months of 2025 was $4.8 million, a $13.2 million improvement versus the same period in 2024. This includes approximately $2 million of foreign exchange translation losses in 2025 related to euro-denominated leases. And free cash flow year-to-date is negative $10 million. And as a reminder, year-to-date includes almost $4 million of nonrecurring payments related to the lease termination payments and transaction-related costs in the year. On an adjusted basis for those onetime items, year-to-date free cash flow is roughly negative $6 million. And on a reported and an adjusted basis, free cash flow has improved $17 million compared to the same time last year. I'd also note that the fourth quarter is historically a strong cash flow period for our business, and year-end cash is typically a high point of the year given the timing of member bookings and receipts in December. While we continue to take steps to improve our operating free cash flow, we believe that the actions we have taken over the last 12 months will result in sustained free cash flow for the business. Additionally, after quarter end, we did unlock approximately $1.3 million of restricted cash, improving the company's overall cash and liquidity position. Now moving to our outlook. Given the termination of the proposed merger with Buyerlink, we are reinstating our annual financial guidance for 2025 and tightening the previous ranges. We now expect EBITDA of between $2 million and $4 million, marking a significant improvement from 2024, along with full year revenue of between $235 million and $240 million. We also expect operating expenses of between $80 million and $85 million, reflecting a 15% year-over-year reduction as we continue to streamline the business and focus on efficiencies. Over the past year, the choices we made are beginning to show up in our financial performance. By sharpening our focus and instilling strong discipline throughout the company and constantly refining how we deliver value to our members, we've become more agile and effective. We are now focused on strengthening Inspirato to provide our customers with even more exceptional experience and driving sustained profitable growth for our shareholders. And with that, I will turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Mike Grondahl with Northland. Mike Grondahl: The new pass, could you maybe talk about, I don't know, two of the features that are improved or different? And maybe what kind of goals do you have for Pass in 2026? How should we think about this? Payam Zamani: So Michael, this is Payam, I'll take this. As we went into redesigning Pass, we were highly cognizant of the fact that while the old version of it was popular, it was not profitable. So we wanted to create a product that the more we sold, the more members who bought it took advantage of it, the happier we would become. So it will be a mutually joyous occasion, in a sense. And one of the big aspects of the new Pass is that while it provides significantly more travel opportunities, it does not provide access to hotels. So it provides access to properties that we control. As a result, it really plays a role in better monetizing available nights rather than providing access to opportunities that we will have an out-of-pocket expense associated with it. So that definitely benefits the company in a way that the more we sell, the more profitable we become. And our members will also get to travel more readily, more easily within our portfolio as defined. And they're able to have 2 tracks of reservations in place at any given time. So imagine that you may want to book a trip for the holidays on 1 track, so a hard to get reservation for the mountains and so on. And the other track, you can use on an ongoing basis for last-minute travel opportunities. So it really gives a lot of flexibility to a member who joins. We have limited the number of members that we're willing to sign up for this product at 2,500. And that number is basically based on the math that we've done, that what percentage of our total membership, given the current size of the portfolio, can be Pass members. And we have decided that 2,500 is the number. And as Michael mentioned, we have about 1,100 Pass members going into this. So we have about 1,400 opportunities available, maybe a little bit fewer now as we go into 2026. And once we get to 2,500, we'll stop selling it. People can join our waitlist, but we'll stop selling it until and unless our portfolio grows, then we'll continue to basically release so many more membership opportunities. I hope that answers your question. Mike Grondahl: Yes. No, that's helpful. And then maybe on the marketing engine. Any initial plans you can share there? Anything you're doing today to kind of jump-start that? Payam Zamani: Yes. We've been testing that. We have had -- we've had basically test landing pages that we've been working with. And if you go back to the beginning of Q2, we are basically spending no money on search engine marketing. That has grown to probably, a couple of hundred thousand dollars per quarter now. So still very small numbers. But we've been testing, and the early results are very promising. Mike Grondahl: Got it. And then lastly, Michael, sorry to see you moving on. You were a lot of help. Have you guys begun a search for a new CFO? Is that just starting now? Or has it been in the works a little bit? Michael Arthur: Yes. Thanks for the kind words, Mike. And obviously, here through the end of the year, so let's stay connected. The company has just kind of started -- initiated the search. So we're early in the process. Operator: [Operator Instructions] And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zamani. Payam Zamani: Thank you. And thank you, everyone, for joining us today. I'd also like to thank our employees, members, partners and shareholders for their continued support. Looking forward to speaking to you in Q1. Operator: Thank you for joining us today for Inspirato's Third Quarter 2025 Earnings Conference Call. You may now disconnect, and have a wonderful day.
Adrianne Griffin: Thank you, operator. Welcome to our third quarter 2025 earnings call. Joining me today are Vijay Manthripragada, our President and Chief Executive Officer; and Allan Dicks, our Chief Financial Officer. During our prepared remarks today, we will refer to our earnings presentation, which is available on the Investors section of our website. Our earnings release is also available on the website. Moving to Slide 2. I would like to remind everyone that today's call includes forward-looking statements subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially due to known and unknown risks and uncertainties that should be considered when evaluating our operating performance and financial outlook. We refer you to our recent SEC filings included in our annual report on Form 10-K for the fiscal year ended December 31, 2024, as supplemented by our quarterly reports on Form 10-Q, which identify the principal risks and uncertainties that could affect any forward-looking statements and our future performance. We assume no obligation to update any forward-looking statements. On today's call, we will discuss or provide certain non-GAAP financial measures such as consolidated adjusted EBITDA, adjusted net income, adjusted net income per share and free cash flow. We provide these non-GAAP results for informational purposes, and they should not be considered in isolation from the most directly comparable GAAP measures. Please see the appendix to the earnings presentation or our earnings release for a discussion of why we believe these non-GAAP measures are useful to investors, certain limitations of using these measures and a reconciliation to their most directly comparable GAAP measure. With that, I would now like to turn the call over to Vijay, beginning on Slide 4. Vijay Manthripragada: Thank you, Adrianne, and welcome to everyone joining us today. I will provide an update on the strength of our third quarter and year-to-date results, discuss our increased 2025 guidance and the reasons for our more optimistic 2026 outlook and speak generally about the third quarter presentation shared on our website. Allan will provide the financial highlights and following our prepared remarks, we will host a question-and-answer session. As we have noted each quarter, our business is best assessed on an annual basis given the demand for environmental science-based solutions doesn't follow consistent quarterly patterns. This is how we manage our business and how we recommend viewing our performance. I want to take a moment to express my sincere appreciation for our approximately 3,500 colleagues around the world. Their exceptional contributions, commitment to exemplary client service and passion for environmental stewardship and innovation are the cornerstones of Montrose's success. Together, we pursue our mission of for planet and for progress. For planet and for progress. This means Montrose aims to simultaneously address our universally shared desire for clean water, clean air and clean soil while creating jobs and increasing shareholder value. We are partnering primarily with our industrial clients across end markets to help them operate more efficiently and reduce their impact on their environment. This is why our revenue and earnings are hitting record levels despite all the political rhetoric. Whether it is working with our energy-producing clients to reduce air emissions and costs, whether it is working with our waste industry clients to address water contamination concerns and risks or whether it is working with technology and semiconductor companies on permitting or water access concerns. Our financial results speak to how environmental stewardship can work in concert with development and value creation. This is why our record 2025 continues. From a financial perspective, we achieved our third consecutive quarter of record performance, including free cash flow generation that exceeded expectations. Broad-based client demand for our services is reflected in the 26% revenue growth and 19% consolidated adjusted EBITDA growth in Q3 year-over-year. As we look at the more meaningful and longer-term financial result trends of year-to-date 2025 results, revenue has increased 26% with very strong double-digit organic revenue growth and adjusted EBITDA has increased even faster than revenue at 30%, reflecting continued margin accretion of an additional 1% of revenue year-over-year. This margin accretion is due to both strong organic growth and operating leverage in our consulting, testing and water treatment businesses in particular. Operating and free cash flow have increased meaningfully by $65 million and $77 million year-over-year, which has allowed us to delever the balance sheet faster than expected and has increased our flexibility to further invest in our people and our business. In addition, given our strategic acquisition pause at the start of 2025, which we initiated to clearly demonstrate the underlying power of our business and business model, and we believe that power and strength is apparent from these results. For the second consecutive quarter and year-to-date periods, we reported positive net income and positive GAAP EPS, which Allan will expand upon in his prepared remarks. I'm very proud of my team for delivering these exceptional results while maintaining their focus on our mission and our clients. As we look forward to the rest of 2025 and to 2026, our optimism remains, and we are thrilled that our financial results continue to clearly show why we are and remain upbeat about our business' prospects. Regarding updates to our guidance, due to our strong year-to-date performance and based on consistent client feedback about the importance of our services to their operations, we are raising 2025 guidance for the third consecutive quarter. We now expect 2025 revenue to be in the range of $810 million to $830 million and 2025 consolidated adjusted EBITDA to be in the range of $112 million to $118 million. which represents an approximately 18% revenue increase and 20% full year adjusted EBITDA increase at the midpoint over 2024. Given recent questions about the topic, we want to remind you that our exposure to the U.S. federal government remains very modest, well less than approximately 5% of revenue and that we have not been significantly impacted by the recent U.S. government shutdown. Notably, we observed that state and local governments have and continue to step in to address gaps and uncertainties left by the U.S. federal government, creating additional opportunities for growth that we did not anticipate at the start of this year. We continuously monitor these developments to strategically position ourselves to capitalize on these new opportunities. We do acknowledge that external factors such as economic volatility, policy fluctuations and evolving regulatory frameworks are influencing our industry. However, Montrose's unique business model and our competitive positioning has allowed us to capture tailwinds from these external factors. And our positioning has also allowed us to stay largely insulated from the broader volatility. I will now highlight a few of the tailwinds benefiting us this year. As a reminder, we have repeatedly heard from our clients that, one, their long-term outlook has not changed; that two, they see increasing domestic industrial activity as a net positive; and that three, they remain committed to complying with state and international regulations that impact their ability to drive their financial results. All acknowledge challenges from the current volatility in U.S. federal regulations, but by and large, we've only seen a few of our approximately 6,000 clients make any changes to their operating policies or decisions. This is why our business remains resilient. For example, and regarding greenhouse gases, which are among the most politicized air contaminants, changes to U.S. federal policy seem to have been more than offset by the impact of state regulations, including states in which we have many employees and clients and which are across the political spectrum, for example, in Texas, in Colorado and in California. In addition, market forces such as the recent EU methane regulations expand the global market for emissions monitoring and compliance as these requirements affect global exporters, including U.S. LNG and oil producers who are among our key clients. Montrose's historical investments in advanced monitoring technologies enable us to work with our energy clients to provide better, faster and more cost-effective results. Coupled with our clients continuing to take practical long-term views, demand for our services continues at pace. And because these regulations are multiyear in scope, with phased deadlines and increasing stringency through 2030, demand is often longer term and more predictable. These state regulations and market forces are a large part of why our Measurement and Analysis segment's organic revenue growth and margins are at record levels in 2025. As another example, the clarification of the U.S. EPA's perspectives on PFAS regulations in Q2 2025 and the agency's continued focus on water quality has resulted in a steady increase in the number of opportunities for our water treatment business. Not only does our pipeline of water treatment opportunities continue to expand meaningfully, but our year-on-year organic growth for this service is expected to remain elevated and accretive to our 2025, 2026 and long-term organic growth outlook. As a third example, increased mining activity in our Canadian and Australian markets has resulted in attractive and new growth opportunities for Montrose in both of those geographies. The recent rare earth partnership across governments adds more momentum to an already attractive industrial end market for Montrose. The environmental consulting, permitting, testing and water treatment needs for our mining sector clients are likely to create nice tailwinds for our business over the foreseeable future. As a fourth example, increased industrial activity, aging infrastructure and more severe weather-related events continue to drive outsized demand for our environmental emergency response business in the United States. What is critical to convey is that though the response-related earnings are meaningful and unpredictable, they are an increasingly smaller part of the whole, and this is critical, they are very additive to our long-term organic growth and cross-selling algorithm. As a simple analogy that hopefully sheds light into the strategic and financial value of having a response business as part of our service portfolio, because of our focus on being an environmental science pure play, our response business is like the emergency room in our environmental hospital, so to speak. Once a patient comes into the ER of a traditional hospital, they are likely to need testing services and inpatient services. This is similar to our dynamic at Montrose, where our environmental testing and our environmental consulting and treatment services often follow our environmental emergency response. What we are increasingly finding as the team works more closely together is that post response, there are substantial downstream and often recurring long-term opportunities for Montrose. Said otherwise, our environmental emergency response is not just episodic, it has also provided structurally recurring opportunities for us and supported long-term organic growth opportunities. As a specific example, earlier this year, we responded to an accidental environmental release for one of our energy clients, and our involvement in this response helped us secure long-term remediation and testing related to the event, which not only benefited third quarter results, but will also likely result in multiyear opportunities for Montrose. We expect our environmental advisory and air monitoring services will continue with this client for many years to come. We hope these examples help provide more context around why the demand for our services continues to increase and remains visible and predictable for our teams. Before I hand the call over to Allan, I want to reaffirm the framework that underpins our ability to create long-term shareholder value. First, we will continue allocating capital to the highest return opportunities, including investing in organic growth, research and development and technology. We regularly review our service lines and operations to ensure achievement of our internal return hurdles and resource optimization. Through this internal evaluation and given changes to U.S. policy and the resultant impact on the U.S. market for renewable energy, we determined that it is prudent to exit our renewable service line within our Remediation and Reuse segment. We expect to have this materially wound down by the end of this year, and the impact of this decision has already been embedded in our results and outlook for 2025. Second, we will emphasize scalable profitability by expanding our market position through continued investments in sales and marketing. These investments are already embedded in our current outlook. Given most of our organic growth has come from increasing our share of wallet with our existing customers, given we remain a small fraction of our clients' overall spend on environmental solutions and given we have very strong customer retention, in 2025, we continued investing in building a best-in-class commercial team. This team is selling technical services to clients, is also enhancing our brand visibility and has started increasing our focus on sectors that enable us to address broader trends faced by our clients and their peers as a group. We have had the fortune of adding some incredible talent to our technical and commercial teams in 2025, which is why we have so much conviction in our ability to continue driving market-leading organic growth and the resultant margin accretion into the foreseeable future. Third, we will continue to evaluate strategic and accretive acquisitions and retain the flexibility to opportunistically repurchase shares to maximize returns. Our acquisition strategy isn't just about scale. It's about capability and geographic reach. We evaluate each opportunity for strategic fit and for the potential to drive outsized financial returns. Optimizing our capital structure and managing leverage, along with our continued focus on increasing operating and free cash flow generation remain core to our acquisition and to our operating decision models. Due to the highly fragmented nature of our industry and client feedback on the value of scale and capability and reach and given our strong performance with cash generation in 2025, we expect to restart acquisitions sometime in 2026. Long term, we will continue delivering compelling organic growth of 7% to 9% annually with EBITDA growth expected to outpace revenue growth. Coupled with acquisitions, which will be additive to these growth rates, we remain confident in our ability to create outsized returns for our shareholders. These frameworks and industry dynamics contributed to our outstanding year-to-date 2025 results, our increased 2025 guidance and the 2026 outlook we are sharing today. In 2026, we expect to achieve at least $125 million in EBITDA. We also anticipate further improvement in EBITDA margin in 2026 compared to 2025. Our resilient business model, execution in 2025 and exceptional team give us the confidence to provide an early outlook for another excellent year in 2026. We will continue to navigate the complexities of this evolving market landscape. But regardless of the complexities, we are committed to surpassing our goals as we have been doing and to generating significant value for all of our shareholders. With that, I will hand it over to Allan. Thank you. Allan Dicks: Thanks, Vijay. In 2025, we have sharpened our focus on driving best practices and on delivering for our clients, shareholders and employees with our record third quarter and year-to-date financial performance, highlighting the results of some of these efforts. Our third quarter revenue grew by 25.9% compared to the same quarter last year, reaching $224.9 million. Year-to-date revenues increased by 25.6% versus the previous year, totaling $637.3 million. The primary drivers of revenue growth in both periods were organic growth across all 3 segments and modest contributions from acquisitions completed in the previous year, with additional environmental emergency response revenues also adding to year-to-date revenue growth. Robust revenue growth and enhanced operating performance fueled the third quarter consolidated adjusted EBITDA increase of nearly 19% to $33.7 million or 15% of revenue. Similarly, year-to-date consolidated adjusted EBITDA increased 35% to $92.3 million or 14.5% of revenue, a 100 basis point improvement over the same period last year. This year, we are investing in marketing to boost our brand equity, rewarding employees for their contributions, refining our go-to-market strategy and assessing future organizational needs. These efforts are shaping our future success, and we look forward to discussing more with you as we progress. In the third quarter of 2025, we reported positive GAAP net income of $8.4 million or $0.21 of GAAP earnings per diluted share attributable to common stockholders compared to a net loss of $10.6 million or a $0.39 net loss per diluted share attributable to common stockholders in the prior year period. This notable $18.9 million increase in net income and $0.60 increase in GAAP earnings per share was attributable to strong revenue growth, margin expansion and a $10.6 million fair value gain related to the Series A redemption, partially offset by higher interest and tax expenses and an increase in weighted average diluted common shares outstanding. This marks our second consecutive quarter and the first year-to-date period of reporting positive GAAP operating income, net income and GAAP EPS. Continued growth and margin expansion driven by brand and go-to-market investments as well as continued cross-selling success will help make these key performance metrics more sustainable. Year-to-date, net income was $7.4 million or $0.08 in GAAP earnings per share compared to a net loss of $34.1 million or $1.30 net loss per diluted share in the same period last year. The year-over-year $1.38 improvement in earnings per share primarily resulted from higher net income and dividend relief following the Series A2 redemption, partially offset by an increase in weighted average diluted common shares outstanding. I'll remind our audience that on July 1, 2025, we redeemed the final $62.6 million of the Series A preferred stock in cash, funded with cash on hand and borrowings under our credit facility, achieving our balance sheet simplification goal 6 months ahead of schedule. Year-to-date, adjusted EPS were $45 million and $1.03, respectively, reflecting an improvement over the prior year period of $38.6 million and $0.80. Please note that our adjusted net income per diluted share attributable to common stockholders is calculated using adjusted net income attributable to stockholders divided by fully diluted shares. We believe this net income methodology is currently the most helpful net income per share metric for Montrose and common equity investors. I will now discuss our performance by segment, focusing my comments on the third quarter. In our Assessment, Permitting and Response segment, third quarter revenue grew 75% to $91.1 million from $52 million in the same period last year, driven by increases in nonresponse consulting and advisory services, which included the benefit of remediation consulting services cross-sold following the large environmental incident response in the second quarter of this year. The Assessment Permitting and Response segment's adjusted EBITDA was $20.4 million or 22.4% of revenue, a 90 basis point improvement over the previous year due to favorable revenue mix. Turning to our Measurement and Analysis segment. Revenue for the quarter increased 7.5% to $63 million, driven by organic growth across lab and field services and modest contributions from an acquisition in 2024. Segment adjusted EBITDA rose to $17.3 million or 27.5% of revenue, representing a 460 basis point margin improvement over the prior year period. In 2025, Measurement and Analysis segment margins have significantly outperformed the prior year as utilization drove efficiency gains and our team's enhanced operating performance. We expect segment margins to remain elevated in the next few years, likely greater than 20%. In our Remediation and Reuse segment, third quarter revenue increased to $70.8 million from $68.1 million in the same quarter last year. This segment's adjusted EBITDA declined to $9.4 million, and adjusted EBITDA margin fell by 380 basis points to 13.3%, primarily driven by losses incurred in the wind down of our renewables business. Our water treatment business continues to gain momentum, and we are pleased with the organic growth and margin progress in that service line. Moving to our cash flow and capital structure. We achieved $55.5 million of operating cash flow in the first 9 months of 2025, a $65.3 million improvement compared to the prior year period. Year-to-date operating cash flow, which was driven by higher cash earnings and improvements in working capital represented a 60.2% conversion of consolidated adjusted EBITDA, significantly exceeding a greater than 50% target. Free cash flow, defined as cash flow from operations less cash paid for purchases of property and equipment and capitalized software development expenditures and excluding the Series A-2 preferred dividends was $38.8 million, an increase of $77.4 million over the prior year. Of note, $38.8 million of free cash flow generation equates to 42% conversion of consolidated adjusted EBITDA. We are also pleased with the strength of our balance sheet at quarter end, reporting a leverage ratio of 2.7x and substantial available liquidity of $198.5 million. At the beginning of this year, we established expectations to simplify our balance sheet, report year-end leverage below 3x, focus on organic growth and increase operating cash flow generation. With 3 quarters behind us and our increased full year 2025 guidance, we are confidently on track to surpass these goals. Thank you all for joining us today and for your continued interest in Montrose. We look forward to the opportunities ahead, and we'll update you on our progress next quarter. Operator, we are ready to open the lines to questions.[ id="-1" name="Operator" /> [Operator Instructions] And your first question comes from the line of Tim Mulrooney from William Blair. Timothy Mulrooney: So I wanted to ask to start off on that AP&R business. It showed really strong growth this quarter, much higher than we were expecting. Allan, you touched on it in the prepared remarks, but can you go into a little more detail about what drove that growth? How much of that is structural versus perhaps some larger onetime sales maybe related to that disaster business? Is there any pull forward from the fourth quarter as well? Because in order to hit the midpoint of your guide for the full year, it looks like we need to assume that maybe that business decelerates on a sequential basis. So I just want to have a broader conversation about AP&R specifically. Vijay Manthripragada: Tim, why don't I start and Allan can certainly jump in. So a lot of the outperformance is tied to the excellent cross-selling following the emergency response that we alluded to earlier this year. So as you think about the strategic thesis around the benefits of having an incredible arguably best-in-class response business, the cross-selling benefits of that are kind of manifesting in our numbers across our segments as we think about our consulting practice, which is what you're asking about, but even testing and remediation, all of them are benefiting from that -- from those efforts. And so to answer your question specifically, it is both structural and some of it is onetime. And we certainly expect that from those cross-selling benefits, as we alluded to in Allan's comments in mine, there will be some really attractive downstream testing and remediation business that will continue for a while. And then as it relates to the second part of your question around the timing, yes, there is a little bit of a pull forward from what we originally anticipated in Q4 into Q3 and Q2. And so that's where some of that shift is coming from, and you're exactly right. Timothy Mulrooney: Okay. That's really helpful. Thanks for connecting the dots there, Vijay, for -- between what's happening and the guidance. That all makes sense to me now. I want to switch gears really quickly and just ask about your comments on your water treatment business. It sounds -- I mean, the tone sounds pretty positive, maybe even a little more positive this quarter than what I've heard in the past. Maybe I'm making that up in my head or maybe that was by design. But it sounds like you're incrementally positive on that business, at least to me. I wonder what's driving that? I recent -- we saw that the EPA reaffirmed the Biden era designation for PFOA and PFAS as hazardous substances under the Circus Super Fund. We weren't really sure which way that was going to go. I have to think that's good for your business long term. So curious how you're thinking about that and if that is related to the positivity that you're seeing in that water treatment business or if it was other factors? Vijay Manthripragada: Thanks, Tim. So the short answer is yes. But let me just step back and talk a little bit about our water treatment business. It is seeing really healthy organic growth and margin accretion this year compared to '24. So it is a good part and a solid part of the outperformance we've had this year. And so some of the optimism we're expressing is because we're really proud of the success that team has had in 2025. And we certainly expect over the next couple of years for that success to continue. The way -- the reason we talk about water treatment now is that this is kind of a team that has intellectual property and technology that is applicable across multiple contaminants, not just PFAS. And so yes, the PFAS -- clarity around the PFAS regulations are contributing to our growing pipeline. They are contributing to year. They're expected to continue contributing over the next couple of years. But because of our advanced water treatment capabilities, we're seeing kind of opportunities more broadly where PFAS is a contaminant of concern, but not the only one. And I think that's an important distinction there, Tim. We're seeing opportunities across new industries, for example, like pharma and semiconductors that are popping up or the landfill leachate in the waste industry, where our technology is applicable across a broader swath of contaminants, including PFAS. And so it's really a water technology business. And as that technology becomes more visible in the marketplace, we're starting to see some really nice momentum pick up. So yes, our optimism is higher. Yes, our optimism related to the future is much stronger, but those are the reasons why this is not just a PFAS play, but that is certainly a driver of the business. [ id="-1" name="Operator" /> Your next question comes from the line of Jim Ricchiuti from Needham & Company. James Ricchiuti: I wanted to touch on the announcement that you talked about on the renewables, renewable service side of the business. Can you give us -- and this may have been in some of the information you provided. I apologize if it was, but the revenues associated with renewable services. And maybe, Allan, if you can, can you help us with the impact on margins from the wind down of this part of the business? Vijay Manthripragada: Maybe Jim, why don't I explain why we're doing it and then Allan can give you kind of color on the financials. As we look at the current administration's policies around biogas in particular, and some of the uncertainties related to it, we've seen a pullback from some of those clients on kind of the demand cycle and the opportunity for us given our specific capabilities to scale that business. So in this current environment, it does not make sense for us to allocate capital at time to that business and generate the type of IRRs that we would want internally, given some of the other opportunities we're seeing that we talked about. So that's the reason for the wind down. If I exclude the wind-down impact, which is in all the numbers, it's included in all of our guidance, the segment margins would be up year-to-date nicely. And so it is -- despite that, right, the business is obviously performing incredibly well, but it makes sense for us to step away from that business now given what the environment looks like from our perspective into the foreseeable future given the current administration's policies. Allan Dicks: Yes. And on the revenue side, Jim, we've got a couple of projects we're winding down, and so we're not generating any new projects. So it's de minimis revenue this year, a very significant percentage decrease year-over-year. And be just right, if you have to exclude that, margins in that segment would be up. We do expect to fully be out of that business by the end of the year. James Ricchiuti: Okay. On the decision to look at restarting M&A at some point in 2026. Vijay, maybe you could touch a little bit on whether your acquisition priorities might be different than what you pursued in the past. And just given the current dynamics of the market, maybe you could give us a little color. I know it's still perhaps a ways out, but just talk to us about how your M&A strategy might be evolving. Vijay Manthripragada: Sure, Jim. Just from a -- in terms of our capacity, right, the strategic thesis around our desire to continue consolidating this market is unchanged. As we think about the incredible success Allan and team have had with cash flow generation, we expect to have an incredible year, both obviously, as you saw in Q3, but also through the rest of this year, which further delevers the balance sheet and the power of that balance sheet gives us a lot more flexibility to continue investing in the business, both organically and inorganically. And so the short answer is I do expect to certainly restart acquisitions very soon, certainly in 2026. And the nature of those transactions, we're kind of evaluating size and our ability to digest larger assets. We've had a lot of success, as you know, with the recent acquisitions of size like CTEH or Matrix. And so those types of assets continue to be very attractive for us. We've seen some really nice opportunities internationally as we continue to scale in geographies like Canada and Australia, again, staying true to our core business and business capabilities, but just expanding kind of our reach at the request of our clients. And we believe that there's going to be continued margin accretion opportunities tied to our ability to extract efficiencies as we've demonstrated with some of the larger transactions. And so our shift there is a little different, Jim. As we think about the large assets trading in the private sector, those assets are trading in the 17 to 20x multiple, EBITDA multiple. And then the smaller assets continue to trade in kind of that mid- to high single digits. And so that balance obviously weighs pretty heavily as we think about future opportunities for us to expand. It is still a massive addressable market. Even with our current trajectory and rapid growth, we're still a small piece of it. And so it is a core part of the thesis, and I certainly am excited to get that going again in the near future. Does that answer your question, Jim? James Ricchiuti: Yes, it does. It's helpful, Vijay. And congrats, by the way, on the quarter. [ id="-1" name="Operator" /> Your next question comes from the line of Tim Moore from Clear Street. Tim Moore: Nice execution on organic sales growth and free cash flow conversion. It's quite the improved company compared to before 2024. So really great operational execution and strategy. But just switching gears to -- I want to start maybe with remediation reuse. How should we think about the potential for margin expansion cadence there on the step-up to maybe a higher teens adjusted EBITDA margin. That business might be a little subscale now. But I was just kind of curious, I mean, is there a trigger point like $80 million revenue quarterly? Or do you think that would be more of a priority to kind of do bolt-on acquisitions to get the utilization and scale up there for more margin expansion? Vijay Manthripragada: Yes. Let me take that. It's less about M&A adding to that segment to get margins up it's fundamentally the water treatment business that is going to drive most of that margin expansion. That treatment technology business, which included the renewables business has run kind of low teens on a combined basis. When you pull the 2 businesses apart, that water treatment business has been running kind of high teens and biogas or renewables in the single digits. So what we're seeing is as we wind down renewables, you're going to get that margin deteriorative business out of the way. And we're seeing nice accretion on the water treatment side that will be in the 20% margin range on its own. And so as that business continues to expand as a percentage of the segment's revenues, you're going to see a natural lift in the overall margins. There is margin accretion in the rest of that segment, but obviously not to the extent of the water treatment plant. Tim Moore: That's great color. No, thanks for breaking that out. I think that really helps investors and explains the catalyst that will just be self-help. So Vijay's prepared remarks mentioned mining in Canada and Australia. We've seen a lot of the rare earths in EU emission rules come out for LNG exports. Are there any other areas you can talk to about besides the non-PFAS water treatment and semiconductors? I mean you had that really good announcement late August for Western Canada for the restoration and -- water restoration and decommissioning facilities. Are you seeing more of that kind of pop up? And anything else you can talk about maybe that you haven't mentioned that's kind of heating up? Vijay Manthripragada: Yes, Tim, I mean, it's -- we're seeing -- as you think about kind of our strategic focus on industrial clients, as we think about the shifts geopolitically with increased domestic production, take the United States for a second, right? And obviously, all of those industries are now tailwinds for us. But even in Canada, with Prime Minister Karney's Canada first approach and the material investments in infrastructure and industrial production, energy production, as you think about Australia and the administration's focus there on mining and energy production. And as we think, obviously, about the United States, all of those are structural tailwinds for our business. And the reason is those are -- that's our client base. that is picking up activity. And so as we think about the pharmaceutical industry, for example, and the GLP-1 business that is obviously booming for all reasons you guys know, the water implications of that are substantive. So we're seeing some real increase in activity there that we did not anticipate. As we think about increased semiconductor production or energy production tied to all of the macro trends we've seen nationally, we're seeing really nice pickups there. As we think about the mining industry, independent of the recent rare earths announcement, we saw some really nice pickup in activity, some of which we announced earlier. Obviously, our leadership there and the needs of that industry as deals between the U.S. and Australia, for example, pick up, creates incremental tailwinds there. And so as I kind of look across the board, we're seeing just a structural pickup due to that increased industrial activity for our business, which we expect will sustain us into the foreseeable future. There is no one specific spot that is disproportionately driving it. We are seeing some elevated activity in the waste industry, both from an air emissions monitoring, from a testing perspective and also from a water treatment perspective that we did not anticipate. And obviously, the energy industry, given the increased production demand across our geographies is a big contributor to us this year, and we expect it will be one of our biggest, if not the biggest client base in 2025. So I'm pretty excited as I kind of look forward and look at where we strategically placed our bets. Some of that is kind of coming our way and it's creating tailwinds, and I expect that to continue. Tim Moore: That's terrific, Vijay. I just want to sneak in one last small question here. On cross-selling for more share of wallet and to create better awareness of you being the rare fully integrated one-stop shop solutions provider. I know there was a survey not long ago, independent survey, just a lot of customers didn't even know that you could handle multiple services. Have you been investing in a dedicated team to kind of get the word out there about your national reach with local expertise to really fulfill all their needs of services for new customers? Vijay Manthripragada: We have, Tim, we have. And let me just make this abundantly clear. Those investments are in all the numbers we're giving you. So there's nothing incremental. It's in the guidance, and it's already embedded. But yes, we have been investing in our marketing, which we think is a powerful way, and we're excited about some of the brand efforts that are underway to get the word out so that our clients continue to understand all the things we can do. And we have also been investing in bringing in some incredible talent on the commercial side to really help us think about sectors and some of our key logos as we think about making sure that they understand that this is -- the portfolio of solutions we provide are meaningful and broad and not specific necessarily to the 1, 2, 3 services they use us for in specific geographies. That's been a major focus in '25. It will continue to be a major focus in '26. That talent is already in-house, which is partially why we have conviction as to what next year is going to look like. [ id="-1" name="Operator" /> [Operator Instructions] And your next question comes from the line of Andrew Obin from Bank of America. Devin Leonard: This is Devin Leonard on for Andrew Obin. So with the great showing in AP&R and the outperformance somewhat tied to the cross-selling from earlier emergency responses, what level of cross-selling or recurring revenue is typically associated with these emergency response projects? Anything you could call out from historic? Vijay Manthripragada: It really varies, Devin. And look, I would just point out that, yes, that segment had exceptional performance. But as we look kind of year-to-date, our testing segment has also had an incredible year. So the momentum of the business is beyond AP&R really is broad-based. And Allan already alluded to the outperformance on the water treatment side as well. But specific to AP&R and specific to the typical cross-selling rhythm, it really depends on the nature of the incident. And so as a simple example, with the train derailment in Ohio and the results and challenges associated with that, a lot of the work that our team did, the future cross-selling was really tied to air monitoring and toxicology services, for example. As we think about the energy-related release in the mountain states this time, a lot of that is tied to remediation and testing, for example. So there is no simple mechanism or algorithm by which we can say this amount of response translates to this amount of cross-selling. What we are incredibly encouraged by is that, that performance that you see is a function of that. But there's certainly some ongoing testing and remediation work that's going to come out of that, but the teams have done an incredible job capturing and that will benefit us for years to come. So it's not a -- there's no mathematical answer I can give you, Devin. It's just our thesis is playing out in the market in real time. Devin Leonard: Absolutely. And then switching gears a little bit. Just could you -- you talked about the EU methane regulations earlier in the prepared remarks. Can you go into some more details about the potential market opportunity related to that? Vijay Manthripragada: Yes. As we think about the large U.S. manufacturers, producers of energy, the European markets are a big part of what they focus on, right? And as a result, they are subject not only to U.S. state regulations, but also to market factors like what their clients, specifically EU governments want them to report on. And so what we are seeing is that for the large players and the large exporters, as activity picks up for them, demand for our services continues to increase. So the reason I brought that up, Devin, was because we received a lot of questions saying, with the current administration's deemphasis and desire to pull back on regulations related to greenhouse gases, are we seeing headwinds and what we're seeing is, in fact, we're not. We're seeing activity continue at pace, and we're seeing new pockets of activity pop up tied to market forces and state regulations instead of the federal regulation. So we're -- as we look forward, right, that's a very accretive business for us, and we have not seen a pullback there as many anticipated at the start of this year. Does that make sense? [ id="-1" name="Operator" /> There are no further questions at this time. So I'd like to hand back to management for closing comments. Vijay Manthripragada: Thank you all, and thank you to the Montrose team. We look forward to catching up with you as the rest of this year wraps up, and we're excited to continue sharing our narrative and our story as we progress through '25 and into early 2026. Thank you very much for your interest, and have a great day. [ id="-1" name="Operator" /> That does conclude our conference for today. Thank you for participating. You may now all disconnect.
Operator: At this time, I would like to welcome everyone to the IFF Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to introduce Michael Bender, Head of Investor Relations. You may begin. Michael Bender: Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's Third Quarter 2025 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. During the call, we'll be making forward-looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in the press release. Also, please note that all the sales and adjusted operating EBITDA growth numbers that we will be speaking to on the call are all on a comparable currency-neutral basis unless otherwise noted. With me on the call today is our CEO, Erik Fyrwald; and our CFO, Michael DeVeau. We will begin with prepared remarks and then take questions at the end. With that, I would now like to turn the call over to Erik. Jon Erik Fyrwald: Thank you, Mike, and hello, everyone. Thanks for joining us today. IFF's third quarter results demonstrate continued execution. Our performance this quarter shows that we continue to make progress towards our goals, operate with efficiency and discipline and further strengthen our financial position. In a more challenging environment, we are doing what we said we would do as we expect to deliver financial results in line with our full year guidance that we outlined in February. We will do this as we continue reinvesting in our business and advancing our growth strategy while driving productivity. I'll start today's call by briefly summarizing the third quarter, and then I'll talk about some of the key strategic progress we have made so far this year, and then I'll turn it over to Mike DeVeau, who will provide for a detailed look at our results and segment performance in the third quarter in addition to our outlook for the remainder of 2025. We will then open the call to answer your questions. Turning to Slide 6. We are seeing encouraging results as we build a stronger IFF. Through the actions we've taken to strengthen our customer focus and enhance productivity, IFF is improving its position to compete effectively and deliver value for all our stakeholders. We're operating in a dynamic environment with ongoing macro headwinds, geopolitical challenges and market uncertainty influencing our customers and end consumers, plus we had a strong 9% comparable from last year. We anticipated this and have been clear that the second half would likely be more challenging than the first. And even so, sales remained steady, holding flat for the quarter. Our Scent and Taste businesses both continued to deliver solid growth in the third quarter, which helped offset softness in food ingredients and short-term pressures in Health & Biosciences. As I spoke about last quarter, most of the H&B pressure was related to expected slowdowns in the health business isolated to North America. To address this, we are investing to increase innovation and expand our commercial capabilities to ensure IFF is set up to address the needs of customers now and in the future. We continue to remain focused on what we can control in the current environment. IFF delivered strong adjusted operating EBITDA growth of 7% this quarter with a margin that improved by 130 basis points. Our focus on profitability continues to bear fruit as our results demonstrated strong profitability even in this lower growth environment. I am particularly encouraged as we are also doing this while our teams are reinvesting into our core businesses to position the company for long-term success. On Slide 7, I'd like to share some of the exciting strategic progress we've made in the first 9 months of 2025. Earlier this year, we opened a Scent creative center in Dubai, a Citrus Innovation Center in Florida and expanded our LMR Natural site in Grasse, France. All are significant initiatives that will further advance our innovation offerings and strengthen our go-to-market capabilities. Our customers are at the heart of everything we do, and these strategic investments are increasing our commercial pipeline that will start to bear fruit in mid- to late 2026 and into 2027. We also deepened our commitment to innovation through external collaborations. We recently announced an exciting strategic collaboration with BASF to drive next-generation enzyme and polymer innovation, including our Designed Enzymatic Biomaterial or DEB technology. This partnership enables us to develop more market-driven solutions that create sustainable value for both industry and the environment. Also, earlier this year, we announced a joint venture with Kemira to provide high-performance, sustainable alternatives to fossil fuel-based ingredients, also utilizing our DEB technology. Applying this technology not only provides superior purity and consistency compared to traditional biopolymers, but also enhances performance across various applications. We are already seeing commercial applications of this technology as we also announced that a major multinational CPG company has launched a new laundry detergent formulation enhanced by DEB technology, which delivers improved fabric softness and cleaning performance while replacing nonbiodegradable ingredients with a readily biodegradable alternative. In addition, during the year, we reduced our leverage significantly, reaching approximately 2.5x net debt to EBITDA. After strengthening our balance sheet, we announced on our second quarter call a $500 million share repurchase authorization, making an initial move toward a more balanced and disciplined approach to capital allocation. Over the past few years, we have made significant progress streamlining our portfolio, which has allowed us to reinvest in our core business, achieve our deleveraging targets and strengthen our financial flexibility. During 2025, we made significant progress on this as we completed the divestitures of Pharma Solutions and Nitrocellulose and announced the divestiture of our Soy Crush, Concentrates & Lecithin business to Bunge, which is aligned with our margin enhancement strategy. We continue to evaluate potential strategic alternatives for our Food Ingredients business as we look to drive our portfolio optimization strategy. While we do not have any additional information to share today, we are making very good progress, generating significant interest, and we'll keep you updated as we make further progress. On a year-to-date basis, we've delivered sales growth of 2% and achieved adjusted operating EBITDA growth of 7%. This is primarily due to the immense efforts of IFF-er's all around all globe, continuously striving to innovate, deliver results for their customers and communities and elevate everyday products used by millions of consumers worldwide. With that, I'll pass the call over to Mike to offer a closer look at this quarter's consolidated results. Mike? Michael Deveau: Thank you, Erik, and thanks, everyone, for joining us today. In the third quarter, IFF delivered revenue of nearly $2.7 billion, led by mid-single-digit growth in Scent and low single-digit growth in Taste. Our sales were flat against a strong 9% comparable and were up approximately 4.5% on a 2-year average basis. We continue to focus on driving EBITDA growth through disciplined execution and margin improvement initiatives. In the third quarter, we delivered adjusted operating EBITDA of $519 million a strong 7% increase. Our adjusted EBITDA margin also increased 130 basis points to 19.3%. Also worth noting is that our operational improvement plan continues to yield results in our Food Ingredients business. In the third quarter, Food Ingredients delivered a strong adjusted operating EBITDA margin improvement of 230 basis points compared to last year. The team has done an excellent job on improving the margin profile over the past 2 years, where they increased adjusted operating EBITDA margin by over 400 basis points and are on track to achieve their mid-teen EBITDA margin profile. On Slide 9, I will share additional details about this quarter's performance in each of our business segments. In Taste, sales increased 2% to $635 million with strong growth in Latin America and Europe, Africa and the Middle East. On a 2-year average basis, growth remained strong at approximately 8.5%. The segment also delivered profitability gains of roughly 2%, driven by favorable net pricing and cost discipline. Our Food Ingredients segment achieved sales of $830 million, down 3% versus the year ago period, with strong growth in inclusions that were more than offset by softness primarily in Protein Solutions. As I mentioned, Food Ingredients had an excellent quarter in terms of profitability, where the team delivered adjusted operating EBITDA of $106 million, a 24% increase year-over-year. Our Health & Biosciences segment achieved $577 million in sales, which was flat versus the prior year. On a 2-year average basis, growth remained solid at approximately 6%. Growth in Food, Biosciences, Home & Personal Care and Animal Nutrition was offset primarily by expected softness in Health, specifically in North America. In this market, we've improved our leadership team, placing a strong emphasis on commercial and marketing capabilities. Their objective is to leverage our strong R&D pipeline and win with a broader set of customers to capture strong growth potential in that market. And while the fourth quarter will remain a challenge, we expect trends to improve in 2026. In the third quarter, H&B adjusted operating EBITDA grew 3%, driven primarily by productivity. Scent delivered a strong quarter of sales growth with net sales of $652 million, up 5% year-over-year. On a 2-year average basis, growth remained strong at approximately 7%. Third quarter performance was driven by 20% increase in Fine Fragrance and a low single-digit performance in Consumer Fragrance. As expected, Fragrance Ingredients was under pressure and declined low single digits as growth in specialties were more than offset by declines in commodities. As a reminder, we are strategically shifting our Fragrance Ingredients portfolio towards higher growth and higher value-added specialties. We will do this by leveraging R&D and biotech for new molecule development. Our goal is to accelerate the pace of our captive releases to ensure we can differentiate ourselves and grow disproportionately in this margin-accretive business. Within Scent, volume growth drove the segment's $135 million in adjusted operating EBITDA, a 6% increase year-over-year. Turning to Slide 10. Our cash flow from operations totaled $532 million year-to-date, and CapEx was $406 million or roughly 5% of sales. Our free cash flow position in the third quarter totaled $126 million. This year, we have paid $306 million in dividends through the end of the third quarter, and our cash and cash equivalents was $621 million. As of quarter end, our gross debt was approximately $6 billion, a roughly $200 million decrease from last year and more than $3 billion decrease year-over-year. Our trailing 12-month credit adjusted EBITDA totaled roughly $2.15 billion, in line with last quarter, while our net debt to credit adjusted EBITDA remained constant at 2.5x. We will continue to be disciplined in our capital allocation priorities. Reaching our deleveraging goals was a strong achievement, and we are now focused on preserving this foundation through operational performance, specifically driving improvements in profitability and net working capital. Lastly, on Slide 11, I will walk you through our outlook for the balance of the year. We have talked today and in prior quarters about the environment in which we are currently operating. Our touch points across our global business and with our customers have allowed us to forecast this year well as our teams are delivering results in line with the guidance ranges we communicated in February. Based on our year-to-date actuals and expected fourth quarter performance, we are reiterating our full year 2025 guidance. As a reminder, we are expecting sales to be in the range of $10.6 billion to $10.9 billion and adjusted operating EBITDA to be between $2 billion and $2.15 billion. On a comparable currency-neutral basis, we expect to finish the year at the low end of our 1% to 4% sales growth guidance range as shared last quarter and near the midpoint of our 5% to 10% EBITDA growth range. We believe that this is the right call to maintain our full year guidance even with a wider range implied for the fourth quarter. It is consistent with the message we have shared all year, which is staying focused on what we said we would deliver even in a challenging environment. For the fourth quarter, we expect our typical seasonality, resulting in a step down in absolute sales and margin. And as a reminder, we again face another strong comparable versus the prior year with 12% growth in Taste, 7% growth in Scent and 6% growth in H&B. With that, I would now like to turn the call back to Erik for closing remarks. Jon Erik Fyrwald: Thanks, Mike. Taking a look at the year so far, our global team has delivered in a difficult environment with revenue and profitability increasing year-over-year. I'm proud of what our team has accomplished, yet we continue to strive for more. We are continuing to serve our customers with excellence while investing in an exciting innovation pipeline and positioning IFF to deliver stronger profitable growth on a sustained basis. We are focusing on what we can control. Our strategy is clear. Our team is executing, and we have confidence in our ability to deliver increasing value for our shareholders and all stakeholders. I know we are building a stronger IFF that will be well positioned for 2026 and beyond. Thank you, and I'll now open the call for your questions. Operator: [Operator Instructions] The first question is from the line of Fulvio Cazzol with Berenberg. Fulvio Cazzol: It's in relation to the Health & Biosciences business. I was wondering if you can provide a bit more color on what's exactly going on in the North America region for the Health business unit. I know that the decline in Q3 was well anticipated, and you highlighted this at the Q2 results presentation. But I was also wondering if you still expect to see an improvement starting in 2026 or if there is more uncertainty today on the outlook for this business compared to, say, 3 months ago? Jon Erik Fyrwald: Thanks for the question, Fulvio. This is Erik. In Health & Biosciences, the Health business in North America has been slow for us. And what we've been doing to turn that around is we've put in place new leadership with strong commercial and marketing capability. And you'll recall last year, we step changed our investment in innovation pipeline in Health, that's going well. We're connecting with our existing customers to help them grow faster, and we're finding new customers to serve in North America. So bottom line is I absolutely expect to see improvements, particularly in the second half of '26 going into '27 and then a full recovery fully back on track in 2027. Operator: The next question is from the line of Nicola Tang with BNP Paribas. Ming Tang: I wanted to ask about the top line guidance. The bottom end, so the 1% currency-neutral growth implies a negative low single digit for Q4 versus the flat year-on-year that you did in Q3 despite slightly easier comps. What are the main headwinds to top line in Q4? And how much of your cautious outlook relates to the weak end market macro geopolitical trends that you referred to versus IFF-specific exposures? And to what extent do we need to see end market recovery to see a top line acceleration in 2026? Michael Deveau: Great. Nicola, thanks for the question. Yes, you are correct. While comparable is 6% in the fourth quarter, which is down from 9% in the third quarter, we are being a little bit more prudent on our top line projection this quarter. The largest part of this -- the driver of this is really the macro environment. And so when you look at the end market demand, specifically on volumes, you'll see in the Food Ingredients category in HPC, it has been soft. And so what we did is we kind of continue this trend through the balance of the year just to make sure that we're fully forecasting it correctly. In our core portfolio, Erik touched on it, and I think I touched on it in our prepared remarks as well. We continue to work on Fragrance Ingredients and Health, North America. And so the team is making good progress there. We still got a little bit more work that we have to do to really get back to recover, as Erik suggested. I do want to note, though, as a point of reference, in these areas when we put the two businesses together, it's about 5% of our total company sales. So it's small in nature, but a lot of emphasis and attention on that going forward. So as we move into 2026, we are cautiously optimistic that we will get to a point where we'll see growth acceleration as the market does normalize and some of the self-help work that we're doing over the last 18 months start to yield results. Operator: The next question is from the line of David Begleiter with Deutsche Bank. Emily Fusco: This is Emily Fusco on for David Begleiter. On Food Ingredients, are we still on track for an update on this business with the Q4 earnings call in February? And also just a follow-up, have you begun to engage with private equity and strategics on this business? Jon Erik Fyrwald: Thanks, Emily. Absolutely, you'll get an update, and I'll give you a quick update now. We are seeing strong interest by both private equity and strategics. And fortunately, the business transformation that Andy Mueller is leading with his team is on a strong track, which obviously is very helpful to this process. This is a very good business that keeps getting better and has a bright future, and we'll update where we are in February. Operator: The next question is from the line of Lisa De Neve with Morgan Stanley. Lisa Hortense De Neve: I have one question. Can you please reiterate your free cash flow outlook for this year and the components of how we should expect the different free cash flow components to move into the fourth quarter and if you expect to see an improvement? That's my first question. And I have a small follow-up on Fulvio's question. You talked about investments in H&B. Could you please remind us of where specifically you're making the investments, most notably if you're opening any new plants in certain regions? Michael Deveau: Sure. So maybe I'll start on the cash flow question. Thanks, Lisa. In terms of the free cash flow expectation for 2025, we do expect to be modestly below our target that we gave earlier in the year, which is about $500 million. There are some puts and takes in there that are worth noting. On the positive side, we are expecting CapEx to be a bit lower as we've implemented a little bit more stricter policy just given our cash flow generation. So that's a good gut, a positive aspect. There's two offsetting factors to that. One being inventories are higher in some areas of our business. Part of this is around building some strategic stock in some key areas to take advantage of current costs and availability of materials. And the second piece of it is really around some of the Reg G or onetime costs are elevated really because of the portfolio work that we're doing overall. And so when we put those two together, I think it gets you to kind of be a little bit modestly below that $500 million. But I do want to note that in terms of overall net working capital, you will see an improvement in the fourth quarter, and it is a big focus for us as we go into 2026. And so there is an opportunity for us to improve our free cash flow generation, which is in our control, and the team is committed to making strong improvements as we go forward. So maybe I'll -- that's the flow. Erik, I'll pass over for you. Jon Erik Fyrwald: Sure. On Health & Biosciences investment, as we said last year, we've significantly increased our spend in R&D and commercial capabilities, both for our Health business, next-generation probiotics and other products as well as our enzyme business and our DEB technology. We've announced and we're making great progress that we're building a DEB plant together with Kemira with our joint venture and called AlphaBio. And it's on track, and we expect to start that up in 2027 and look forward to that. But significant investment into Health & Biosciences, and we see that starting to pay off, as we said, significantly in the second half of 2026 and very strong into '27. Operator: The next question is from the line of Kristen Owen with Oppenheimer. Kristen Owen: So I wanted to ask about the new wins that you cited in both Taste and Scent. We continue to hear about how challenging the volume backdrop has been. So I'm hoping you can elaborate on maybe what contributed to those wins in this backdrop? Jon Erik Fyrwald: Thanks for the question, Kristen. Obviously, there's economic challenges across the businesses, especially in North America, we see right now. But in all our four BUs, including Taste and Scent, we've got a heavy focus on strengthening our commercial pipeline, really strong focus on customers, and increasing our win rate as well as our innovation pipeline. And we're seeing really good progress across segments, across businesses and across geographies. And just to give you a couple of examples of wins in Scent and Taste. The first one is our new environment -- excuse me, our new ENVIROCAP, Scent encapsulation technology was recently commercialized in laundry with a major CPG company. The performance is great. They're very excited about it and the sustainability benefits are tremendous. So we'll see that technology add to our growth going forward. And then the second example I really, really like is we've been successful winning a Miu Miu by L'Oreal Fine Fragrance with -- from our master perfumer, Dominique Ropion, and that's going to be a nice business for us going forward, a great product, and I think we'll do well in any economic scenario that we see. So good progress on our commercial pipeline, our innovation pipeline and things that we can control by bringing great technology innovation to customers. And that's how we're going to grow these -- continue to grow these businesses. Operator: The next question is from the line of Salvator Tiano with Bank of America. Salvator Tiano: You spoke a little bit about 2026, hopefully, growth accelerating a bit. But can you also mention any other major or discrete items that you see affecting your income statement or your cash flow next year versus 2025? Michael Deveau: Yes. Thanks, Sal. Great question. We are, to be fair, in the middle of the planning process for 2026. So we can't go into much details. We'll provide the full guidance update as part of our year-end or Q4 call in February for 2026. That said, there -- in terms of moving parts, there's probably just one that I just want to remind everybody. I think it's pretty self-explanatory. But if you remember, we closed the Pharma transaction on May 1. And so when you think about 2026, I think through the first 5 months of the year, 4 months of the year, it was about $369 million in sales and $76 million of EBITDA. So that will go away as we cycle that in the first half of the year. So I just -- I flagged that. In terms of the rest of it, it is pretty normal course in terms of operations. So there's not really any big discretionary items that we flag at this point in time. Operator: The next question is from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Erik, can you just give us an update on the internal initiatives you have going on and as it relates to both cost optimization and growth? You called out capacity being tight in certain areas in the past. And I know you asked the question on Health & Biosciences, but what about across the rest of the portfolio? And just on the cost savings side, as it relates to productivity, et cetera, can you give us a sense as to the savings that is likely to flow into 2026 in context of just the operating environment not being very helpful? Jon Erik Fyrwald: Yes. Thanks for the question. I'll have Mike go through the details here. Michael Deveau: Yes. Appreciate it, Ghansham. Over the last 18 months, we've done a lot of work to improve our competitiveness as an organization. And so specifically, Erik has highlighted specifically around the H&B, Health business that we put a lot of money in terms of R&D and commercial capabilities starting really in the second half of '24 and over the course of 2025. And that's really to build and bolster some of the innovation pipeline and really strengthen again the commercial capabilities. In addition, we've also increased and will continue to increase our CapEx in the areas to improve capacity, specifically in H&B, where we think we have a good growth potential and really good incremental margins associated with that. And so that's something we've done and we'll continue to do as we go forward from here in that business to really generate the value there. As we go into 2026, we believe we're positioned well, and we are cautiously optimistic that we will lead to improved growth trajectories going forward. At the same time, we're also working on just generating better incremental productivity that comes with improving margins going forward as a focus. And so I don't want to go into too much of the details here. Again, we'll come back in February when we give our overall guidance. But I think the team has made a tremendous amount of progress both in reinvesting, really trying to get the growth aspect of it and targeting incremental productivity opportunities to continue to expand margin and reinvest in the business as needed through a self-funding mechanism. So feel good about the progress being made. Operator: The next question is from the line of Patrick Cunningham with Citigroup. Unknown Analyst: This is Alex on for Patrick. I guess we're hearing more about the economy taking a key shape where lower income households are spending less. I guess I'm wondering if you're seeing -- if this is something you're seeing across your business segments and maybe what that implies for volumes in 2026? Jon Erik Fyrwald: Thanks, Patrick. Yes, we are seeing some of this, and we've talked to the weakness overall in volumes in North America. But the good news is we've got a diverse customer base, both in size of customers, geography base and categories. And we're adapting our focus around the world. And just to give you some examples, on the lower end and private label area, we're seeing growth, and we've put more emphasis on that. On the high end, the Fine Fragrance business continues to do well. So we've put a lot of emphasis on making sure that we're a partner of choice in Fine Fragrances, and we talked about the Miu Miu win with L'Oreal, very important for us. We're seeing geographies even in Fine Fragrance, like the Middle East growing very rapidly. We're putting more emphasis there. We opened a creative center there. And we continue to obviously stay focused on ensuring that we do well with global key accounts but also increasing our emphasis on regional and smaller customers in geographies that are fast growing. So yes, there's a K-shaped economy more today than there was before, but we're adapting our model to make sure that we grow at or ahead of the market going forward. Operator: The next question is from the line of Joshua Spector with UBS. Joshua Spector: I wanted to try again a little bit on '26 and just thinking about really the range of scenarios and your ability to respond and specifically that if we stay in this kind of, call it, 1% growth environment, maybe from a consumer perspective, do you have actions and levers that you think would deliver earnings growth higher than that, be it self-help or other things in flight that we should be considering? Michael Deveau: Yes. Great question, Joshua. I'll take this one, if that's okay. Growth is an important part of the algorithm. And so the more growth we get, the incremental margins associated with that growth in terms of fixed cost leverage, it's nice. So the more you can grow, the better you are. So that's ultimately what we're striving to, which is why some of those reinvestments were so important to make sure we accelerate the growth. At the same time, you do need to prepare that if the event that the market is still in that 1% to 2% range, how do you work on your cost structure to ensure you generate profitability improvement. We are fully focused on that. The team has done a very good job over the last couple of years to drive productivity, but it's something that is paramount now as we go forward to continue to do that. And so areas like streamlining corporate functions, leveraging automation, redesigning processes that will allow us to be more effective and more efficient. And so I do believe we still have some opportunities there. There is contingency planning associated with that. So as we think about the context going forward, we will include that as areas to accelerate to make sure we maximize profitability as we go forward even in a lower growth environment. Operator: The next question is from the line of John Roberts with Mizuho. John Ezekiel Roberts: Have we been seeing any acceleration in the reformulation of food products? And is that maybe part of the reason for the continued strength in the Flavors business? Jon Erik Fyrwald: We haven't seen a big shift yet. What I would call it is a continued move towards cleaner labels and reformulation for that, which we like. And if that accelerates, that's good for us. But what we've been doing is following what our customers and consumers want, which are cleaner labels, and we've got a very strong capability, both in Scent and in Taste and Naturals. And that's played well for us, and that's why you're seeing growth because of our focus on the innovation, but also on our commercial capabilities to help customers delight consumers. Michael Deveau: Yes. Maybe just to add on that. When you look at it, John, the pipeline has actually improved and continue to improve. And so what that's a good barometer is that the customers are looking for more innovation, which is very good for our business overall. So I think that's the buoyancy that you've seen over the last couple of quarters within Scent and Taste overall, which has provided a bit of tailwind there. Jon Erik Fyrwald: Yes. As the customers see lower volume growth in the market, they're pushing for more innovation to be able to profitably grow themselves, and we're there to help. Operator: The next question is from the line of Kevin McCarthy with Vertical Research Partners. Matthew Hettwer: This is Matt Hetwer on for Kevin McCarthy. Would you comment on two items: a, the potential pace of execution against the $500 million share repurchase authorization that you announced last quarter; and then b, the expected cash proceeds from the pending divestiture of the deal with Bunge. Michael Deveau: Sure. Thanks, Matt, for the question. In terms of the share buyback program, we actually started or commenced it on October 1. And so that was per our trading plan. And so that's now have been implemented. As a reminder, the program is geared towards dilution plus model, which means at a minimum of -- our plan is to target offsetting dilution, which for us on a yearly basis is about $80 million. Then we have some flexibility based on intrinsic value, free cash flow generation that we can increase or decrease the purchases within the trading grid. So we do have some of that flexibility. But as you think about modeling for the fourth quarter, just given that we started on October 1, I would assume at this point, we're offsetting dilution, which is the $80 million divided by 4 essentially, which is call it about $20 million. We will give more update as we get to the guidance call in February, but that's kind of part number one. I think part number two, of your question was the expected proceeds of the pending deal with Bunge. In terms of gross proceeds, I think it's about $110 million in gross proceeds, and I would estimate around $90 million in terms of net cash proceeds after tax and some of the deal fees associated with it. Operator: The next question is from the line of Lauren Lieberman with Barclays. Lauren Lieberman: I just had two questions actually. First was on Taste. In the slides, you mentioned you had favorable net pricing. I was just curious if that's comparable to what peers are doing. I just -- I was surprised to see that there was positive pricing in this environment. So that was the first question. And the second one is if you could just offer any observations on growth of multinationals versus local and regionals. And also the pipeline -- sorry, and also like just the pipeline activity from those two subsets. Michael Deveau: So maybe, Erik, I'll start on the Taste piece of it. The team has really done a good job. And so when I think about the net pricing comment, Lauren, when there's areas of inflation and one area, there is some tariff inflation that we get, the team has done a really good job of offsetting that as part of their pricing areas. At the same time, it's a net pricing number. So in terms of the inflationary environment that we've seen throughout 2025, which was about low single-digit inflation, the team did a really good job of productivity to drive some of those costs down. And so when you combine productivity with the raw material cost exposure and the pricing strategy, that's how you got to your net pricing benefits there. And so I think I can't speak to the competition, but I can speak that the team has done a very good job at executing on that piece of it. In terms of the global versus local regional, Erik? Jon Erik Fyrwald: Yes, we're seeing the regional and locals growing faster, and we put more emphasis on growing with them and accelerating our pipelines with them. But the global key accounts are still critically important to us, and they're increasing their focus on innovation. So our pipelines with them are very strong and robust. So we're not decreasing our emphasis on global key accounts, but we're increasing our focus on the regional and locals. Operator: The next question is from the line of Laurence Alexander with Jefferies. Laurence Alexander: Can you give us some color on what your customers are telling you about inventory levels and their patience on reformulations? And what I mean is, are they seeing the evidence that reformulations are driving significant organic growth acceleration? And if not, how long will they keep reformulating before they switch to other ways to protect earnings and cash flow in a slow growth environment? Michael Deveau: So maybe I'll start, and feel free to add on. The inventory question is a good question, Laurence. I think when you get into a slower growth environment, specifically with some of the global accounts, you always have to make sure the inventory management aspect doesn't have the impact on the business. I think based on the feedback that we've heard from the team, there are some markets very candidly, like North America is a little bit higher inventory levels. So I think embedded in our forecast is a little bit of a deceleration in that market specifically because of inventory levels. Broadly speaking, if you take a step back, inventories feel like they are in a good spot globally. But like I said, there are some markets like in North America that there could be some inventory management that could potentially happen there. So I think that's part number one. Part number two, in terms of the patients, I think your question around patience of reformulation, it's an opportunity. And so when you look at the customer set, over the last several years, pricing has a big part of their algorithm. And so really -- and I think Erik just alluded to it, to really differentiate yourself in a market where pricing becomes more challenging in the overall market, innovation becomes a key part of the driver going forward. And so I don't think you're going to see them throw up their hands and say innovation is not important. And I think they're going to continue to make sure that is a central part of their algorithm going forward. And for us at IFF, that's a good thing because we like the portfolio, we like the R&D that we have, and we're focused on that. And so I think those are the two -- I would give, Erik, I'll pass to you if there's anything. Jon Erik Fyrwald: And the only thing I would add then is on the inventory side, there's a lot of uncertainty with our customers, and they're trying to operate with lower inventory levels. So we absolutely can and will do a better job of managing our inventory levels, but we're also trying to make sure that we're not missing order opportunities. So we're really trying to stay close to our customers and understand what their needs are so that we're able to operate with lower inventories, but not miss any delivery reliability goals. Operator: The next question is from the line of Silke Kueck, with JPMorgan. Silke Kueck: When you look at 2026, what do you think are the bigger product launches? So the collaboration with BASF sounds that there are like product opportunities on the detergent side. And is that something that will affect consumer fragrances and in Scent? Or is that something that will be -- that we'll see in the enzyme category under H&B? That's my first question. Secondly, the beverage can companies have spoken about growth in like protein-enriched beverages like protein being added to essentially like everything. Is that an opportunity for IFF? And again, is that something when it's beverages, do you see that as like a taste opportunity or because it's protein will then up in H&B. And my third question is you, talked about regionals and locals growing faster than multinationals. Does that mean private label is also growing faster? And how do you approach going after the private label business? Jon Erik Fyrwald: Well, thanks for those questions, Silke. I'll try to take them one at a time, and Mike, please pitch in any time. So let's talk, first of all, about the BASF collaboration. I think it's really important. BASF has a very strong position in chemistry with many home and personal care companies. And we've got a very strong capability in enzymes and have very good positions with a number of customers, but haven't reached the broader market as well as we would like to. And so the combination of us plus BASF's really strong commercial capability, our enzymes and their chemistry is, we believe, a very strong opportunity to serve customers better for both of us. So we'll see that play out, and it should start to see enzyme growth toward the end of '26, but more in '27, I would say. And with that, we'll improve our relationships and connections with customers for Scent. On the protein movement, I would say it's very strong, and it obviously helps our protein business. We're the leaders in plant-based proteins, which are very much in vogue and desired, less so in the alternate meats that is rebased and growing, but off of a smaller base. But certainly in beverages, bars and other areas, we see growth opportunities for our protein business, but also for our broader food ingredients business to make sure that the protein drinks and other products have the great mouth feel, the right taste, don't settle out -- the protein doesn't settle out and very importantly, the taste, the flavors, which gives us an opportunity to go in with our protein and our other Food Ingredients capabilities and bring more total solutions to customers that -- or at least open the door for not only our Food Ingredients people, but for our taste capabilities. So this protein dynamic, I think, is -- was strong and is further accelerating with the GLP-1s, and we see that continuing, and we see us well positioned. And we're already seeing good growth from them. The last one was on the regional and locals. Yes, private label is increasingly important. That's back to the K-economy. And we're putting more emphasis on working with the private label retailers, but also the co-manufacturers who make the products and making sure that our capabilities are helping them achieve what they want to help. Operator: The next question is from the line of [ Apkio Evers ] with Wells Fargo. Unknown Analyst: I know this was touched on already, but I wanted to push a little bit further on Fine Fragrance. You obviously reported 20% growth this year -- this quarter and double-digit growth last quarter. It's been growing very strongly. And I know you mentioned wins, but I'm wondering if there's something else and underlying trends driving this growth? And then looking forward, is this a level of growth that we should expect going forward? I know you mentioned upside from your Scent center in Dubai and Florida bearing fruit in mid- to late 2026. But how should we think about this next quarter or this coming quarter and then the first half of 2026? Jon Erik Fyrwald: The Fine Fragrance business has shown tremendous growth rates. I don't expect to have that strong growth going forward, but I do expect continued solid growth from Fine Fragrances. And I think that's because of our capabilities. We've got great perfumers. We've got great molecules. We've got significantly enhanced investment in innovation that's going to be coming more in 2026 and '27. And we've invested in places like Dubai, the creative center and creative centers in other parts of the world, Shanghai and others. And so we are absolutely committed to this market, and we are absolutely want to serve our customers with -- to help them have great products. But I think another dynamic here is the whole social media dynamic where you're seeing influencers really trying -- starting to -- have been and I think will continue to expand the marketplace, expand to new generations to not only females, but more to males, younger generation and more diverse groups. And I think that's fueling the growth, and we see that continuing. Operator: The last question is from the line of Christopher Parkinson with Wolfe Research. Harris Fein: This is Harris Fein on for Chris. I mean there's been some solid year-on-year margin comps in Food Ingredients. Just wondering if you could maybe talk about the line of sight to bridge that margin to the mid-teens next year. And we're also all looking forward to the strategic update early next year. But in the interim, maybe if you could talk about any opportunities you have to prune maybe more along the lines of what you did with the Soy Crush business in the interim, that would also be helpful. Michael Deveau: Harris, thanks for the question. Look, I think the Food Ingredients team has done a fantastic job really emphasizing margin improvement. And so just kind of bringing it back, if you remember, at the lows, it was about 9% EBITDA -- so the trajectory now, it was 9%, 12%, moving towards 14% if you adjust for portfolio gets towards that 15%. And so the line of sight is actually pretty strong in terms of overall recovery, and the team has done an excellent job. As they go forward, what's really important because not only do we divest business, we were also very strategic in, I'd say, ongoing pruning of our overall portfolio. So we're very selective. So some of the lower-margin businesses, we kind of walked away, which is embedded in some of our top line performance this year in 2025. I think -- so as you go -- but as you go into 2026, the more growth you can get into that business and return to growth, that's where you get nice leverage with the P&L. So that's kind of priority #1 is how to get the business back towards that growth number. So one. Two, we started basically 2 years ago on a big productivity push. And so looking at plant optimization, raw material optimization, the team has done a good job, and that's a big driver of what you're seeing in the performance in 2025, but that will also continue into 2026. And so between those two levers, I think you still have a line of sight to continue to improve that business, both from a top line perspective, but also from a margin perspective. I think then you'll get back to that mid-teen, and the team is focused and fully focused on that as they drive going forward. Jon Erik Fyrwald: And I'd just add one other thing, is we are investing where we see high profit margin growth opportunities. For example, the TAURA fruit inclusions business segment is we're expanding the capacity significantly there. The current capacity is sold out, high margins, high growth. So Andy and his team are really driving also growth in the higher-margin areas. Operator: There are currently no questions registered at this time. So I'd like to pass the call back over to Erik for any further remarks. Jon Erik Fyrwald: Well, thank you all for joining today's call. Let me close by saying that I'm very proud of the progress the IFF team has made over the last 18 months. We are a much stronger company with a bright future. We have a solid balance sheet, a clear strategy, a strong and strengthening innovation pipeline, a strong focus on serving customers and consumers, and we're executing better and better and doing what we say we are going to do. So I look forward to the road ahead, and thank you very much. Operator: Thank you all. At this time, this will now conclude today's conference call. We appreciate your participation. We hope you all have an amazing rest of your day, and you may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Carlyle Secured Lending, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nishil Mehta, Head of Shareholder Relations. Please go ahead. Nishil Mehta: Good morning, and welcome to Carlyle Secured Lending's conference call to discuss the earnings results for the third quarter of 2025. I'm joined by Justin Plouffe, our Chief Executive Officer; and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10-Q and issued a press release with a presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question-and-answer session for the analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance, and any undue reliance should not be placed on them. Today's conference call may include forward-looking statements reflecting our views with respect to, among other things, the expected synergies associated with the merger, the ability to realize the anticipated benefits of the merger and our future operating results and financial performance. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our 10-K and 10-Qs. These risks and uncertainties could cause the actual results to differ materially from those indicated. CGBD assumes no obligation to update any forward-looking statements at any time. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as adjusted net investment income or adjusted NII. The company's management believes adjusted net investment income, adjusted net investment income per share, adjusted net income and adjusted net income per share are useful to investors as an additional tool to evaluate ongoing results and trends and to review our performance without giving effect to the amortization or accretion resulting from the new cost basis of the investments acquired and accounted for under the acquisition method of accounting in accordance with ASC 805 and the onetime purchase or nonrecurring investment income and expense events, including the effects on incentive fees and are used by management to evaluate the economic earnings of the company. A reconciliation of GAAP net investment income, the most directly comparable GAAP financial measure to adjusted NII per share can be found in the accompanying slide presentation for this call. In addition, a reconciliation of these measures may also be found in our earnings release filed last night with the SEC on Form 8-K. With that, I'll turn the call over to Justin, CGBD's Chief Executive Officer. Justin Plouffe: Thanks, Nishil. Good morning, everyone, and thank you all for joining. I'm Justin Plouffe, the CEO of the Carlyle BDCs and Deputy CIO for Carlyle Global Credit. On today's call, I'll give an overview of our third quarter 2025 results, including the quarter's investment activity and portfolio positioning. I will then hand the call over to our CFO, Tom Hennigan. During the third quarter, CGBD benefited from strong originations across the platform, but was also impacted by historically tight market spreads. We generated $0.37 per share of net investment income for the quarter on a GAAP basis and $0.38 after adjusting for asset acquisition accounting. Our Board of Directors declared a fourth quarter dividend of $0.40 per share. Our net asset value as of September 30 was $16.36 per share compared to $16.43 per share as of June 30. CGBD had another strong quarter of deployment, funding $260 million of investments into new and existing borrowers, resulting in net investment activity of $117 million after accounting for repayments and $48 million of investments sold to our joint venture, MNCF. Total investments at CGBD increased from $2.3 billion to $2.4 billion during the quarter. Looking ahead, net new supply has picked up recently, and the Q4 pipeline continues to build. Year-over-year, deal flow at the top of the funnel increased nearly 30% over the last 2 months. We expect activity will continue to increase, supported by declining base rates driving lower funding costs, normalization of tariff and regulatory policy and resilient expectations for economic growth. Although there have been recent bankruptcies in the news, CGBD has no direct or indirect exposure to First Brands or Tricolor, and we continue to have confidence in the credit quality of our portfolio. As a reminder, CGBD consistently exhibits below average nonaccruals and a strong track record of NAV preservation. Based on June 30 reporting, CGBD's nonaccruals were 120 basis points below the public BDC average at cost, and nonaccruals at CGBD decreased by 140 basis points at cost between June 30 and September 30. Overall, we remain selective in our underwriting approach, seeking to provide first lien loans to quality companies. We remain focused on portfolio diversification while managing target leverage. As of September 30, our portfolio was comprised of 221 investments in 158 companies across more than 25 industries. The average exposure to any single portfolio company was less than 1% of total investments and 95% of our investments were in senior secured loans. Immediate EBITDA across our portfolio was $98 million. As always, discipline and consistency drove performance in the third quarter, and we expect these tenants to drive performance in future quarters. With that, I'll now hand the call over to our CFO, Tom Hennigan. Thomas Hennigan: Thank you, Justin. Today, I'll begin with an overview of our third quarter financial results, then I'll discuss portfolio performance before concluding with detail on our balance sheet positioning. Total investment income for the third quarter was $67 million, in line with prior quarter, driven by a stable average portfolio size, a modest change in total portfolio yields and lower accretion of discounts from repayment activity. Total expenses of $40 million increased slightly versus prior quarter, primarily as a result of higher interest expense due in part to the 2030 senior notes transitioning from fixed to the floating rate swap. The result was net investment income for the third quarter of $27 million or $0.37 per share on a GAAP basis and $0.38 per share after adjusting for asset acquisition accounting, which excludes the amortization of the purchase price premium from the CSL II merger and the purchase price discount associated with the consolidation of Credit Fund II. Our Board of Directors declared the dividend for the fourth quarter of 2025 at a level of $0.40 per share, which is payable to stockholders of record as of the close of business on December 31. This dividend level represents an attractive yield of over 12% based on the recent share price. In addition, we currently estimate we have $0.86 per share of spillover income generated over the last 5 years to support the quarterly dividend, which represents more than 2/4 of the existing $0.40 quarterly dividend. On valuations, our total aggregate realized and unrealized net loss for the quarter was about $3 million or $0.04 per share, partially attributable to unrealized markdowns on select underperforming investments. Turning to credit performance. We continue to see overall stability in credit quality across the portfolio. At the beginning of July, we closed the successful restructuring of Maverick, which was the main contributor to nonaccruals decreasing to 1.6% of total investments at cost and 1% at fair value. And while our nonaccrual rates may fluctuate from period to period, we're confident in our ability to leverage the broader Carlyle network to achieve maximum recoveries for underperforming borrowers. Moving to our JV. We continue to focus on maximizing both asset growth and returns at the MMCF JV. We closed an upsize to the credit facility in October. The upsize enables us to increase our investments in the JV, which is achieving a run rate mid-teens ROA for CGBD. Separately, we continue to work on optimizing our 30% nonqualifying asset capacity and are currently in advanced discussions with a potential institutional partner on a new joint venture. And based on our current outlook for earnings, we're comfortable with the current dividend policy of $0.40 per share. I'll finish by touching on our financing facilities and leverage. In October, we raised a new 5-year $300 million institutional unsecured bond at an attractive swap adjusted rate of SOFR+ 231. We used the proceeds in part to repay in full the higher-priced legacy CSL III credit facility. In addition, we announced that we will redeem the $85 million baby bond effective December 1. In the aggregate, these capital structure optimizations will lower our weighted average cost of borrowing by 10 basis points, extend the maturity profile of our capital structure with limited maturities until 2030 and reduce reliance on mark-to-market leverage. Our debt stack is now 100% floating rate, matching up primarily floating rate assets, meaning CGBD is well positioned in advance of future interest rate cuts. At quarter end, statutory leverage was 1.1x towards the midpoint of our target range. And given our current strong liquidity profile and targeted incremental asset sales to our MMCF JV, we're well positioned to benefit from the expected pickup in deal volume in future quarters. With that, I'll turn the call back over to Justin. Justin Plouffe: Thanks, Tom. As we approach the middle of the fourth quarter, our portfolio remains resilient. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels. Our pipeline of new originations is active and with a stable high-quality portfolio, CGBD stockholders are benefiting from the continued execution of our strategy. As always, we remain committed to delivering a resilient, stable cash flow stream to our investors through consistent income and solid credit performance. At the platform level, we continue to build out the Carlyle Direct Lending team. As a reminder, Alex Chi will be joining Carlyle as Partner, Deputy Chief Investment Officer for Global Credit and Head of Direct Lending in early 2026. We also hired a new head of origination during the quarter and continue to build out the broader origination function with an additional hire in Q3 and one more slated to join the team in Q4. All 3 will expand our existing capabilities, combined with the expected increase in overall capital markets activity, we are constructive on our expectations for activity and deployment going forward. I'd like to now hand the call over to the operator to take your questions. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Finian O'Shea from Wells Fargo Securities. Finian O'Shea: Tom, can you give us some color, maybe a bridge on the top line this quarter? SOFR was pretty stable, I think. There was -- the nonaccrual was small. Just seeing what the mix was, whether it be like average portfolio or onetime fees or anything else in there that's notable? Thomas Hennigan: Yes. Sure, Fin. Thanks for the question. When you look at the top line, it's $67 million last quarter and this quarter, but last quarter, it rounded down. This quarter, it rounded up. When you look at the delta, that's very modest decline, it's primarily OID accretion on repaid investments. That's really the biggest bridge point in terms of the difference between the 2. When you look at fee income, it was up modestly. And in the aggregate, the average daily principal balance of loans outstanding was pretty flat across the quarter. That's what we will see that we should get a benefit in the coming quarter just based on that average daily outstanding investment balance. So that was neutral from second quarter to third quarter. But it was really the OID accretion was the biggest point on the top line. Finian O'Shea: Okay. And the 10 bps you gave on borrowing spreads, was that just from the baby bond? Or was that also -- there's a couple of post-quarter changes as well. Is that a holistic sort of guidance or just that one bond that -- I'm sorry, I didn't catch that. Thomas Hennigan: No, and it was primarily post quarter end items. It was the -- we repaid our legacy CSL III facility that was priced at SOFR+ 2.5%. The baby bond swap adjusted is SOFR 3.14%. So those -- the CSO facility we repaid at the beginning of October. The baby bond will be repaid effective December 1. And then the biggest replacement is the new institutional deal we did, which is swap adjusted 2.31%, so over SOFR. So net-net, that's about 10 basis points across the capital structure. Finian O'Shea: Okay. And one final one for me. I'll get back in the queue. And I'm sure we bugged you about this last quarter. But the $0.40 declared in the fourth you said something like comfortable for now. Can you expand on for now, does that include like how far out into the SOFR curve does that include? And then sort of what are -- I know you mentioned the 30% bucket, a bit of rotating spreads, like how much of -- how much sort of fundamental or octane sort of drivers offset how much Fed decline in your outlook for coverage? Thomas Hennigan: Sure. And interestingly, our outlook and the support and our comfort with that $0.40 is actually in the near term, the next few quarters is where we see the most pain, and that's just based on really primarily the SOFR curve. So we anticipate earnings will trough in the next couple of quarters. When you look at the longer term with our 2 JVs, I should say -- 1 JV in place and then potential second JV, that's where we see -- that will just take time to ramp those vehicles. So for example, our existing JV, I mentioned we increased the credit facility from $600 million to $800 million to just give us more dry powder to continue to invest. We reached agreement with our partner to increase our equity commitments from $175 million to $250 million each. And we've also been working on some creative low-cost financing solutions to continue to operate at a very low debt cost of capital for that JV. So that gives us the runway, and it's going to take some time to grow that vehicle from $800 million of assets to double the size to $1.6 billion. And right now, if we're at a 15% return on assets for CGBD, we see the ability to increase that by 300 to 500 basis points. So we see a lot of positive drivers with that JV, but it's going to take some time to invest over the course of the next number of quarters. And then the second JV, we're -- we've made some really good progress with a potential partner. It's leveraging Carlyle's global credit expertise in investing loans. It's something we hope to have more color for the market and hopefully target closing that deal sometime this quarter. But yes, that will be longer term to ramp that vehicle. Operator: Our next question comes from the line of Erik Zwick from Lucid Capital Markets. Erik Zwick: Just looking at Slide 5 of your deck this morning, over the past year or so, the concentration of first lien debt has increased to about 86% of the total portfolio now with the second lien investment funds coming down. We've been hearing from others that second lien debt potentially is not as attractive today given tighter spreads. So just curious, are we likely to see this trend continue in your view of first lien debt continuing to become a larger concentration in the portfolio? Justin Plouffe: Yes. It's Justin. Thanks for the question. Look, we are operating in a tight spread environment across credit markets. And at this point in time, we don't see a ton of value in second liens. I think the -- I think across all private credit markets, the amount you're getting paid to take significant risk has really -- has come down in the last 24 months. So our strategy has always been defensive, diversified first lien and then opportunistic on things like second liens. And I would tell you, right now, we don't see the opportunity to be that compelling. So I think you will see our portfolio continue to trend first lien. And I don't see any reason for that to change in the near term. Of course, we could have a credit cycle and then there might be opportunities that come up at that point. But for now, we're very, very focused on a defensive first lien portfolio. Erik Zwick: I appreciate the commentary there. And then just given your comments about the pipeline continuing to grow, I guess I'm curious what the kind of average yield looks like in the pipeline today versus the current weighted average yield in the portfolio. Is there potentially pressure there as the portfolio turns? Or what are your thoughts there? Thomas Hennigan: Erik, it's Tom. There definitely continues to be pressure on spreads relative to where the portfolio is. For the first -- for the third quarter, our weighted average spread was a shade over 500 basis points. Prior quarters, it was a bit higher. And part of that is our mix of non-U.S. transactions. In the second quarter, it was closer to 15%. We typically see anywhere from a 75 to 100 basis point premium for those non-U.S. transactions. So we've got a little extra spread premium in the second quarter. In the third quarter, our originations were strong. It was only about 5%, only one deal from our European originations. So we're right about 500. But I think that there continues to be overall pressure when you look at where the overall portfolio yield is relative to, let's say, those new originations, which are more squarely 500 weighted average. And for a brand-new LBO not in the portfolio, probably a 4 handle is what we're seeing in today's market. But for CGBD, those are transactions, and we'll be investing in that particular transaction across our broader direct lending business for CGBD as those assets drift and spread below 500, that's where they're very good candidates for our JV. Erik Zwick: And last question for me, just looking at the chart on Slide 12, the risk rating distribution, a nice quarter-over-quarter improvement in those 2-rated assets. I'm just curious the drivers there. Was it kind of industry related or more company specific, if you're able to provide any commentary? Thomas Hennigan: Increase in the 2 rated, Erik, from above $100 million. Erik Zwick: Yes. Thomas Hennigan: Yes. Primarily a couple of deals transitions from the 3 category to 2 category. The biggest component is just net originations for the quarter. And those continue to be in our main categories of health care, software, technology and financial services. Those continue to be 2 of our larger categories, and that's where most of our originations in the third quarter. Operator: Our next question comes from the line of Sean-Paul Adams from B. Riley Securities. Sean-Paul Adams: Congrats on the great quarter. But when looking over the nonaccruals, it looked like quarter-over-quarter nonaccruals decreased significantly, but the rating within the portfolio increased from 4 -- investment-grade rating 4 to 5. So is -- are the nonaccruals that are remaining on the books, they just shifted to materially changing the expectations on recoveries? Or is this just more of a covenant change or just lapsing in the amount of time since payment? Thomas Hennigan: It's Tom again. I'll answer that in a slightly different way, I think, just to describe the changes in the categories. The biggest decline in the 4 category was the restructuring of Arch Maverick, now it's called Align Precision. So that was the largest component of that 4 category. And we successfully restructured, wrote off some debt, but now that transaction, the multiple tranches lives in the 2 and 3 categories. The migration from 4 to 5 is primarily one credit that remains on nonaccrual that we are in the midst of restructuring right now. And I think that it's -- the shift from 4 to 5 is acknowledgment on our part that, hey, yes, we're restructuring it. Yes, we're going to be writing off debt. And my credit view, unlike Maverick, we see a path with the lead agent, we see a path to -- it's going to take a few years, but to a very strong recovery, perhaps a full recovery on that investment. The loans -- there were 2 loans, one was the majority piece, but 4 to 5 were investments that were restructuring, they're in payment default and/or on nonaccrual. And we think that even longer term, we're likely not going to have a full return of capital. Operator: Our next question comes from the line of Robert Dodd from Raymond James. Robert Dodd: On the potential -- and I realize nothing has been signed yet, but the potential second JV, do you envision that -- your partner envision that as kind of same kind of style as the existing one? I mean in your prepared remarks, you mentioned obviously leveraging the global platform more maybe. Or -- yes, is the potential second one going to be structurally similar, but target assets different than the first one and i.e., diversify overall exposure or just participate in the same kind of deals and just diversify where it's held? Thomas Hennigan: Right. Rob, this contemplated JV, the structure will be very similar to the existing JV in terms of 50-50 governance, will be 50-50 economic ownership. It is in loans, but it will be a different investment strategy, really 0 overlap to the current JV. Robert Dodd: Got it. And then just you sound obviously more optimistic about the outlook and 30% increase in deal flow for a couple of months is pretty good, how is the quality of those deals and kind of like the terms? I mean, are you seeing the initial look at those, to your point, 4 handles on new LBOs. I mean, is that what we're looking at? Are the terms consistent with that in terms of the pipeline build? And is the quality of the assets you're seeing, it's one thing for 475 if leverage is lower. But if leverage is getting fuller and fuller, and I don't know that to be the case, those terms might not be so attractive. I mean any color you can give on like the constituents of the pipeline in terms of how it looks? Thomas Hennigan: Rob, I think that the pipeline consists, I think, high-quality borrowers very much in the same makeup industry-wise as our current portfolio in terms of focus on whether it be software, technology, health care, business and consumer services, financial services. I would say it's very much industry deal specific in terms of leverage. The one key attribute, though, and it was the case back in '23 when leverage was lower. It's been the case now that there's somewhat of reopening in the markets is the LTV investing in the first lien loans, our LTV consistently is 38% to 42% on average, perhaps even lower for some of the technology deals. If we're looking at industrial deals, it may be a bit higher because of the lower growth and lower enterprise value multiples. But overall, that's really the one common attribute is that loan to value. So we've got significant coverage where loan to value is typically 40%. Operator: Our next question comes from the line of Melissa Wedel from JPMorgan. Melissa Wedel: Just want to make sure I'm understanding your comments on the -- and your views on the JV appropriately. It seems like with the upsize in the existing one and the potential second JV, those will take time to scale up. And so as you look at the earnings power of the portfolio, we shouldn't be thinking of those as having a particularly near-term impact on earnings power. Is that fair to say? Thomas Hennigan: Yes. Melissa, that's a very good synopsis of it. When we look at the current quarter, the next quarter, next 2 quarters, we know the rate cut math is easy for us, every 100 basis points is $0.03 per share per quarter. Those JVs are going to take more time, multiple quarters. So we see an earnings trough in the next couple of quarters and then it starts to build back up second half of '26 into '27. Justin Plouffe: And of course, that will all depend on activity in the market as well. If we see elevated activity, perhaps we can ramp faster. But we're thinking about these JVs as long-term drivers of increased income, not necessarily as a quarter-to-quarter fix. Thomas Hennigan: [indiscernible] got a $0.86 of spillover over 2 quarters that for this interim basis, we feel comfortable if we're necessary paying out the spillover, but really have a long-term goal in mind. Melissa Wedel: Okay. Okay. And then following on one of your comments, I think it was during the prepared remarks. You mentioned at one point the potential for spreads to widen, especially to compensate a little bit for lower base rates. I guess I'm wondering if that's built into your -- is that your base case expectation? And how does that -- how do you reconcile that with just the supply and demand imbalance of capital that we're seeing in the market now even with base rates being lower and spreads still being so tight? Justin Plouffe: Yes. No, it's not our -- necessarily our base case scenario. I think if you look historically, when rates have been going down, spreads have actually more than compensated for the reduction in rates. But we're in an unusual environment now where we do have base rates going down while spreads either tighten or remain tight. So in the current environment, that's not the case. But as we know, credit goes through cycles. And I think eventually, we will have a change in the supply-demand imbalance. I think historically, if you look across private credit, spreads are at the tighter levels that they've been. So I think it's reasonable in the intermediate term to think that there probably will be some movement on spread, and we want to be positioned to take advantage of that, right? So that's really all that we're saying, not some prediction of near-term spread widening because I don't really see the impetus for that in the markets today. Operator: Thank you. At this time, I would now like to turn the conference back over to Justin Plouffe for closing remarks. Justin Plouffe: Thanks, everybody, for joining the call. We really appreciate it, and we will speak with you next quarter. Take care. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to this Ørsted's Q3 2025 Earnings Call. [Operator Instructions] Today's speakers are Group President and CEO, Rasmus Errboe, and CFO, Trond Westlie. Speakers, please begin. Rasmus Errboe: Hello, everyone. During the third quarter of the year, we have continued our focus on the execution of the 4 strategic priorities that we presented in February. These will continue to be the core focus as we execute on our strategy. Let me start by going through our progress across the 4 priorities. Our first priority is to strengthen our capital structure. And with the completion of the rights issue in early October, we have taken a significant step on this priority. The rights issue strengthens our financial foundation, allows us to focus on delivering our 6 offshore wind farms under construction, provides the financial robustness to manage the ongoing challenges and uncertainty as well as the financial strength to pursue upcoming attractive opportunities within offshore wind. I am very pleased and grateful for the strong support that we received from our shareholders in the rights issue, including from our majority shareholder, the Danish state. Also, we announced on November 3 that we have entered into an agreement with Apollo to divest a 50% ownership share in both the project and associated transmission asset for our 2.9 gigawatt Hornsea 3 project in the U.K. The total value of the transaction is approximately DKK 39 billion, and the transaction supports a further strengthening of our capital structure and marks a significant milestone in our partnership and divestment program. Another important element in supporting our capital structure is the continued performance of our operational portfolio. Even though wind speeds have been below the norm thus far in the year, we have delivered DKK 17 billion of EBITDA for the first 9 months of the year, which is mainly driven by the increase in the availability across our offshore portfolio due to strong performance every single day by our generation team. We remain on track to deliver earnings in the range of DKK 24 billion to DKK 27 billion for the full year. Our second priority is to deliver on our 8.1 gigawatt offshore wind construction portfolio. And we continue to make good progress across the projects, which upon completion will contribute with an annual EBITDA run rate of DKK 11 billion to DKK 12 billion. I will shortly go through the construction progress details. But first, I want to mention the stop-work order, which Revolution Wind received in the U.S. during the third quarter, instructing the project to hold offshore activities, pending completion of the Interior Department's review required by the executive order issued on January 20. Revolution Wind continues to seek a complete resolution, both by engaging with the U.S. administration and other stakeholders as well as through legal proceedings. As part of the legal part, the project filed a lawsuit and sought a preliminary injunction, which was granted on February 22 by the court while the lawsuit is ongoing. The offshore activities have resumed and since then progressed well. Our third priority is to ensure a focused and disciplined capital allocation, always prioritizing value over volume, where our focus going forward primarily will be on offshore wind in Europe and select markets in APAC. As part of these efforts, we will move towards a more flexible partnership and financing model in order to improve value creation and ensure risk diversification. On this basis, we recently entered into a memorandum of understanding with KOEN and POSCO for our 1.4 gigawatt Incheon offshore wind project in Korea. The aim is to explore cooperation on joint development, construction and operations, including potential equity participation. Finally, on our fourth priority, we have also taken steps in improving our competitiveness with the announcements of adjustments to our organization. Due to the sharpened strategic focus of our business going forward and the fact that we will be finalizing our large construction portfolio in the coming years, we will adjust our organization accordingly to become more efficient and flexible. Once all efficiency measures have been implemented, the annual cost savings are expected to amount to approximately DKK 2 billion from 2028. The cost savings related to these efficiency measures have been incorporated into our business plan. Let's turn to Slide 5, where I will talk through some of the operational highlights for the first 9 months. First, I am pleased with the operational performance with our EBITDA, excluding new partnerships and cancellation fees amounting to DKK 17 billion for the first 9 months. Despite the fact that wind speeds have been below the norm so far this year, our strong generation performance ensures we remain on track towards delivering our full year guidance of DKK 24 billion to DKK 27 billion of EBITDA. This is mainly driven by high availability within our offshore business, which stood at 93% for the first 9 months. Compared to same period last year, this is an increase of 7 percentage points and thus ensured a material earnings contribution. Market-leading performance of our 10 gigawatt offshore wind fleet is a key priority for us, and we are progressing several measures within our generation organization to improve our output and lower cost base through portfolio and operational efficiencies, technological innovation, standardization and generation excellence. During the quarter, we also made progress on the renewable share of our generation. For several years, we have had a target that renewables should consist of 99% of our generation by 2025. And this has been the case during the first 9 months of the year. The increased share of renewables was driven by the closing of our last coal-fueled CHP plant in the second half of 2024, which marked another important milestone on our decarbonization journey. Lastly, our continued and relentless focus on safety have continued, and the total recordable injury rate for the first 9 months of 2025 is at 2.5, which is in line with our target. This remains highest priority for us, and we are continuing an internal program across the full organization, which is intended to further increase training, safety awareness and management focus, all aimed at lowering the incident rate and bringing our people home safe every day. Let's turn to Slide 6 and an overview of our construction projects. I will cover the more advanced projects individually and, in more details, as usual on the next slides, while putting a few remarks on the remainder of the construction portfolio here. For Borkum Riffgrund 3 in Germany, we have installed all foundations and turbines. Commissioning of the grid connection for Borkum 3 has started according to plan. We expect first power before the end of the year, and the project is expected to be commissioned towards the end of Q1 2026. For Hornsea 3 in the U.K., construction is progressing well. The onshore works at the landfall cable route and converter stations have progressed in line with the schedule since last quarter. For the offshore scope, the project will be using 2 HVDC offshore converter stations. The first platform is undergoing final equipment installation in Norway, which is progressing well. And the second platform completed its scope in Thailand and is currently in transit to Norway to complete the same final works. We have continued with the offshore activities where we completed the removal of unexploded ordinances across the whole site during the third quarter. We continue to closely monitor a number of items related to the delivery of the project. This includes the installation schedule of the project's grid connection where we are working closely with National Grid on our onshore grid connection works to support planning of our commissioning next year. Further, we continue to focus on manufacturing of turbine monopile foundations to ensure it is delivered according to plan, enabling us to commence installation in 2026. The manufacturing has started as planned, and there are multiple suppliers contracted for the scope. And if relevant, we can utilize the flexibility gained from this to mitigate risks if they occur. Next steps in the project will be commencement of the main offshore installation activities in early 2026, which start with the installation of the offshore export cable as well as monopile foundation installation. In Poland, our Baltica 2 project is moving ahead according to schedule, and we are progressing the first phases of the construction work. In the third quarter, we have continued construction work at the onshore substation site, which includes the installation of the first part of the export cable. The manufacturing of turbine foundations is progressing well with 22 completed so far. The manufacturing of the 4 offshore substations is progressing and manufacturing of the offshore export cable started mid-October. With this progress, the degree of completion for the project has increased to approximately 15%, up from 10% in Q2. There are a number of items for the installation schedule that we are closely monitoring. This includes progress on the manufacturing of the 4 offshore substations and fabrication progress of the key components for onshore and offshore substations. We remain on track for earliest possible sail away mid-2026 from Vietnam for the 4 offshore substations. Progress on the turbine installation harbor in Poland is still on track. We are closely engaged with contractors and regulators to ensure that we progress according to the current schedule. Next steps are preparing of -- preparation of the seabed, sorry, ahead of turbine foundation installation, which is planned to commence during mid-2026. Now turning to Slide 7 and a more detailed update on our Greater Changhua 2b and 4 project in Taiwan. Overall, the installation of the remaining scopes of the project has made good progress during the quarter. Greater Changhua 4 has commenced generation, and this will continue to ramp up as more turbines get energized during Q4 of this year. For Greater Changhua 2b, the damage to the export cable means that we will only be producing power again from mid-2026, once the damaged export cable has been replaced. Looking at installation during the quarter, we have made progress across several scopes. This includes the installation of turbines where 58 turbines of the total 66 positions are now installed, and the rest are expected to be completed by end of 2025. We have installed array cables for 50 of the 66 positions, and we have mobilized additional vessels during the quarter to strengthen the installation progress or process of the remaining cables as weather conditions are expected to be more challenging during the winter season. With the progress achieved during the quarter, the project has now reached a degree of completion of approximately 65%, up from 55% in Q2. The focus of the project remains on installation of remaining turbines and array cables as well as replacing the export cable for the Greater Changhua 2b section. Turning to Slide 8 and an update on our Northeast program, starting with Revolution Wind. During the quarter, the project has made good progress as we have completed both the installation of the replacement monopile for the second offshore substation as well as the installation of the offshore substation itself such that both of the projects, 2 offshore substations are now installed. On turbine installation, we continue to make progress as we have now installed 52 of the 65 turbines for the project, and array cable installation has commenced and is progressing well. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 85%, up from 80% in Q2. The project continues to progress on a number of scopes that are critical to the delivery of the current schedule. For the onshore substation, we are continuing to progress construction activity according to the current schedule. We remain on site to manage the continued installation of the project and expect energization of the onshore substation early next year. For turbine installation, we will continue to monitor the installation rate closely as we enter into the winter season where weather conditions impact speed of the installation rate. First power is expected during first half of 2026, and the project remains on track for commissioning in the second half of 2026. Now turning to Slide 9 and our Sunrise Wind project, where we have also continued to see good progress across the different scopes. We have completed the installation of the project's single offshore converter station in September and continued the installation of turbine foundations with 50 -- sorry, 44 of the 84 positions installed now. This work will soon be paused as planned due to time of year restrictions of when turbine foundations can be installed and will be resumed when next installation season starts in the spring. The turbine installation will commence following completion of turbine installation Revolution Wind. For the onshore substation, the commissioning works are progressing according to plan with installation of nearshore section of the export cable expected in the coming months. With progress achieved during the quarter, the project has now reached a degree of completion of approximately 40%, up from 35% in Q2. The focus remains on the items that are critical to delivery on the current schedule. The fabrication of remaining turbine foundations is progressing according to plan, and we expect to have all remaining turbine foundations completed by the end of the year. On the export cable, we have completed the final factory acceptance tests for majority of the sections, with the final ones expected to be completed by end of the year. And we will start the installation of the nearshore section at the end of this year as well. We continue to manage the risks related to the installation of the project, and we remain on track for commissioning in the second half of 2027. With this, let me hand over the word to you, Trond. Trond Westlie: Thank you, Rasmus. And good afternoon, everyone. As always, unless I state otherwise, the numbers I refer to will be in Danish kroner. So before covering the third quarter development, let's go to Slide 11. And I want to start with our announcement from Monday. As we have entered into an agreement with Apollo to divest 50% stake in our 2.9 gigawatt Hornsea 3 offshore wind farm in the U.K. The transaction balances the key objectives for partnerships and divestments with an emphasis on capital management and represents a major milestone in our funding plan. The transaction supports further strengthening of our capital structure and ensures significant progress on our partnership and divestment program. The total value of the transaction is approximately DKK 39 billion and around DKK 20 billion of the total transaction value will be paid upon closing of the transaction. The remaining amount is expected to be paid under the construction agreement upon achievement of certain construction milestones. In terms of our targeted proceeds of more than DKK 35 billion across '25 and '26, it is the DKK 10 billion received under the SPA agreement, which counts towards this target. The total transaction value covers the acquisition of 50% equity stake -- equity share -- ownership share, sorry. And the commitment from the partner to fund 50% of the payment under the EPC contract for the wind farm and the offshore transmission costs, assets. The upfront noncash EBITDA effect of the transaction is in line with the expectation outlined in the prospectus of the recently completed rights issue and including the other aspects of the transaction such as the expected earnings under the construction agreement and service contract between Ørsted and the project. The expected EBITDA impact of the transaction is broadly neutral over the lifetime of the project. With that, let's turn to Slide 12 and the EBITDA for the quarter. In third quarter, we realized an EBITDA of DKK 3.1 billion. Let me walk you through the main developments for the quarter. For our offshore business, the overall earning came in at DKK 2.2 billion. The earnings from sites decreased, driven by lower wind speeds and step-down in subsidy levels from all the wind farms as well as lower power trading earnings. This was partly offset by full contribution at Gode Wind 3 compensation for Borkum Riffgrund 3 and higher availability rates across the portfolio. Earnings on existing partnership decreased as a result of updated costs for array cable installation for Greater Changhua 4. Over the summer, there were challenges -- challenging weather conditions, including a typhoon, which slowed down our planned installation speed. As a result, we have, during third quarter, strengthened our setup for the installation of the remaining array cables by mobilizing additional vessels. This has led us to revise the earnings that we expect under the construction agreement. As communicated earlier, we did not anticipate any material earnings under the construction agreement. So taking into account the strengthening of the installation setup and costs relating to extending the installation period leads to an impact in our accounts. Following this revision, the business case continued to have a comfortable headroom. Other costs, which includes unallocated overhead and fixed costs as well as expensed project development cost increased compared to last year, in line with our expectation. Part of the increase is driven by a change in our cost allocation methodology and does not impact the total EBITDA. This cost reallocation is reflected in our full year guidance for '25. For onshore, the EBITDA decreased by approximately DKK 200 million, primarily driven by lower wind speeds, which were partly offset by ramp-up generation from new assets. Within bioenergy and other, earnings from our combined heat and power plants were higher than last year, driven by higher power prices. Earnings in our gas business increased slightly driven from -- driven by higher offtake volumes. We did not enter into any new partnerships in the third quarter of '25. Let's turn to Slide 13. In the third quarter, total impairments amounted to DKK 1.8 billion. The impairments primarily relate to our U.S. offshore projects and are driven by higher tariffs and increased cost as a result of the stop-work order for Revolution Wind, partly offset by decrease in long-dated U.S. interest rates. The impairment related to higher tariffs amounted to DKK 2.5 billion, in line with the range that was included in the prospectus released in connection with the rights issue. This amount reflects recent changes to the U.S. trade policies, including the increased tariffs on steel and aluminum. The impairment related to the stop-work order amount to DKK 500 million and is also in line with estimates that was included in the prospectus in connection with the rights issue. This reflects the higher cost for both Revolution Wind and Sunrise Wind due to extension contracts needed to complete the installation of the projects. These effects are partly offset by a reversal of DKK 1.3 billion due to the decrease in long-dated U.S. interest rates, leading to lower WACC level across our U.S. offshore and onshore projects. Our net profit for the quarter totaled a negative DKK 1.7 billion and was impacted by both the decreased earnings as well as the impairments. In Q3 '24, net profit amounted to DKK 5.2 billion, of which DKK 5.1 billion were related to a reversal of a provision related to Ocean Wind. Adjusted for impairments and cancellation fees, our return on capital employed came in at 10.2%, which was a decrease compared to last year, driven by the higher capital employed. The reported ROCE came in at 2% and was impacted by the impairment recognized over the last 12 months. Let's turn to Slide 14 and our net interest-bearing debt and credit metrics. At the end of Q3 '25, our net debt amounted to DKK 83 billion, an increase of approximately DKK 16 billion during the quarter. The increase was predominantly driven by gross investments of DKK 15 billion into the construction of our renewable project portfolio. The contribution from -- of our operating earnings in our cash flow from operating activities was more than offset by costs relating to the construction of transmission assets in the U.K. as well as seasonally in other working capital items. This was also the case for the same quarter last year. As the rights issue was completed on 9th of October '25, the proceeds of approximately DKK 60 billion will accordingly be reflected in our accounts by full year. Also, subject to the closing of the transaction before the end of the year, the proceeds from the Hornsea 3 transaction will likewise be included in the net debt numbers. Finally, the project financing package for Greater Changhua 2 were closed in July, yet had no impact on net debt as the proceeds received were matched by a corresponding increased debt. Upon closing of the planned equity divestment of the project, the asset and associated project financing package is planned to be deconsolidated, which will then have an impact on the net debt position. Our credit metric, FFO to adjusted net debt stood approximately at 14% at the end of the third quarter, which is a slight decrease compared to the previous quarter. The higher funds from operation in the 12-month rolling period was offset by the increase in adjusted net debt. The metric will expectedly increase to well above target of 30% in the next quarter as the incoming proceeds from the rights issue and closing on the Hornsea 3 transaction will be reflected in our accounts. And finally, let's turn to Slide 15 and look at our outlook for '25. With our solid operational performance for the first 9 months and heading into a quarter with seasonal higher wind speeds, we reiterate our full year EBITDA guidance, excluding new partnership and cancellation fees of DKK 24 billion to DKK 27 billion. We also maintain our gross investment guidance for '25 of DKK 50 million to DKK 54 billion. The gross investment guidance is sensitive to milestone payments being moved between years and the level of tariffs. We continue to follow the development regarding potential tariffs and other regulatory changes, particularly affecting the U.S. and are continually assessing any possible financial and wider impacts. So with that, we will now open for questions. Operator, please? Operator: This concludes the presentation, and we will now open for questions. This call will have to end no later than 15:30. [Operator Instructions] The first question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: Yes. So my question is about the expected lifetime of your offshore wind assets. So with the Hornsea 3 transaction, the other day, I understand you are looking at up to 35-year lifetime of this asset. So previously, you've been talking more to a 25-year lifetime of your offshore wind assets, which at least what I've been using in my model. So my question is essentially what would be the appropriate lifetime we should apply to our valuation of your offshore assets? Trond Westlie: Well, on the lifetime of the capitalized investments that we have from the starting point, we do use just short of a 25% year depreciation. So the economic value of that is, of course, we use the short of 25-yard -- years depreciation. When it comes to the business case as such and the lease period, that is sort of a different aspect. And that's what is included in the agreement that we have been clear, very transparent about with Apollo. And that, of course, the lease is a long period. And as a result of that, the business case is, of course, longer than the economic value that we capitalize as a start, basically, due to maintenance programs, repowering possibilities and so forth relative to the long lease of the area. So that you have to probably distinguish between how we capitalize, how we depreciate and also how we actually see the business case. Operator: The next question comes from the line of Harry Wyburd from BNP Paribas. Harry Wyburd: Can I focus on the Hornsea 3 sell-down? So thank you for the call yesterday where you educated us a bit about the cash flow profiling. My question is, given that Apollo have the rights to the majority of the cash flow in the CfD period and given that you have the majority -- there was the rights to the cash flow after that, have we opened up a new thread of book value risk or volatility here? Because presumably, you might review the NPV of those cash flows in terms of time depending on discount rates. And also your future reversion power price assumptions for the project. So is this something where we should expect some book value updates on a quarterly basis going forward? And if so, can you give us any kind of sense as to how material those changes might be relative to the other sort of impairment pluses and minuses that you typically put through over the quarter? And then an allied question, when we're modeling cash flow, we're all looking to 2028 when you got all these projects up and running. And perhaps now that the rights issue process is over, maybe you could throw in a bit of a guide for 2028 EBITDA guidance might be, given that's really the key year when everything is up and running. But should we apply a haircut to that for cash flow given that, as I understand it, the majority of the cash flows in that year would be going to Apollo? Trond Westlie: Then -- well, let's take the first one first. When it comes to the sort of the uncertainty of the fluctuations on the starting point of the provision that we actually do going forward on the sort of asymmetry, yes, it is correct that we have to evaluate that every quarter. Those evaluation will come as today's rules in IFRS. Those adjustments will come under the financial income line. Second part of this is, of course, that since we have both payable and receivable in this, there is an incorporated hedge as a result of that in addition. So I would not -- so in essence, yes, there will be elements to this being sort of adjusted every quarter. We do not expect that to be significant. And we are presenting that under IFRS rules today. It will come under the financial line. On the outlook of '28, we will not do an update on the '28 expectations so soon after the rights issue and the prospectus that we issued. We will, of course, comment more back to that and be more granular when we come to the yearly update in February. Harry Wyburd: Okay. And the comment on the cash flow haircut. I think actually in the first years of the projects, I think it was -- for 3 years, it was 50-50, and then thereafter, it reverts to 70-30 in Apollo's favor. But should we be making a cash flow adjustment? Is that how we should be thinking about it? We need to reduce a little the EBITDA you report on a proportional basis to reflect the fact that you're getting less of the cash flows in the short term. Is that the right way to think about it? Trond Westlie: Well, that's going to be the difference between the P&L -- the EBITDA P&L and the cash flow statement. So of course, in the P&L statement, that will, of course, and the adjustment that we're making right -- the loss adjustment we're making right now, will, of course, be reversed under the EBITDA. But of course, in our operational cash flow statement, we'll, of course, address that and be very specific of the noncash elements within it. Operator: We now have a question from the line of Dominic Nash from Barclays. Dominic Nash: A couple of questions, please. Second one should be quite quick. The first one is on utilization levels of your offshore wind. You always quote output, but I believe you don't give us an update on the actual potential output pre-curtailment. And I was wondering what sort of level of curtailment are you sort of seeing in your offshore fleet? And what would that do if we were to adjust for sort of likely proper underlying output capability? And the second question is a simple one here, dividend policy. You've got -- you're not giving any sort of firm numbers yet. I think in 2026, you're going to start paying a dividend. Consensus, I think, in Bloomberg is DKK 4 per share. Are you happy with that consensus number? Rasmus Errboe: Thank you, Dominic. On the sort of the utilization levels that you talk about, we don't guide on specific curtailment of our offshore wind farms -- of onshore/offshore containment of any nature. We -- what you can see is that we have delivered a very solid availability performance during the year. 93% park -- or sorry, production-based availability for the first 9 months and 94% for Q3. So therefore, I'm very, very pleased with the underlying performance, but we don't guide on the curtailment levels. And also just reminding you that there are different frameworks in different countries for curtailment. And as an example, in Germany, we are compensated for the vast majority of curtailments from the onshore grid. As for the dividend policy, we have confirmed for a while now that we expect to pay out dividend again by 2027 for accounting year '26. We will stick to that. But we will not comment on the level of the dividend. Operator: The next question comes from the line of Mark Freshney from UBS. Mark Freshney: Rasmus, if I could pick you up on some comments you made about a month ago at a conference. You mentioned that there were 2 tracks to managing the stop order on Revolution. There was the legal track and there was the negotiated settlement, the dialogue track. Clearly, there was -- your big shareholder announced some deals with the U.S. Department of Defense. Clearly, a negotiated settlement that would protect Sunrise and Revolution would always be preferable to winning in court. So can you make any comments on how that -- those negotiations may be proceeding? Rasmus Errboe: Mark, thank you very much. You are right. We are pursuing 2 tracks. One is the legal track where we received the injunction on the 22nd of September that allowed us to go back to work. And then the other track is a dialogue track with the relevant people in the administration. I -- it is not sort of my approach, Mark. So this is the same as it has been all along and that is that I don't go into details about the conversations that we may or may not have in terms of making a deal. Our focus is to get to a, you can say, complete solution for Revolution Wind, where we still have the stop-work order claim outstanding. Our focus is on the projects, and I am pleased with the progress that we have seen in terms of construction on -- across both Revolution Wind and Sunrise where we have seen that we have completion increasing from 80% to 85% on Revolution Wind and from 35% to 40% on Sunrise Wind, including the installation of all the substations. So that is really where we have our focus. Mark Freshney: I respect that. And if I may have a follow-up just on the credit rating. I mean, I think S&P were waiting for the transaction that we saw yesterday. Can we expect some news on the rating? And does your modeling suggest that the Hornsea 3 farm down gets you where you need to be on that S&P tripwire, so to speak? Trond Westlie: Well, Mark, we are aware of the comments or the statements that S&P made in their update on their rating in August. And of course, we expect them to be more comfortable as a result of having managed to actually sign this agreement and basically following our time line as both signing and closing before year-end. So hopefully, it will have some effects. We are a bit uncertain about the interpretation evaluations of S&P because they are sort of the odd man out in the 3 ratings that we do have. So we just have to refer that sort of evaluation to them, Mark. I'm sorry. Operator: We now have a question from the line of Alberto Gandolfi from Goldman Sachs. Alberto Gandolfi: I guess the first part is perhaps more for Trond and perhaps the second for Rasmus, it's on capital structure and capital allocation. So the first part of the question is following the DKK 20 billion you're going to receive from the transaction and you announced this week and the rights issue technically in the 9 months, you're basically debt free. And of course, the company remains cash flow negative. But I guess my question -- the first part of the question is, is your balance sheet now fully derisked? And is there any scenario where you see the risk of having to implement incremental measures to avoid the downgrade to junk? I'm just thinking, for instance, if the U.S. project never start, can we say that even in that scenario, your balance sheet is now okay? And the second part of the question is that if you can elaborate on the first, I guess, then the question would be if the U.S. projects start to contribute, then you could say that in '28, your FFO to net debt is incredibly strong. So can you tell us how you are beginning to work for the repositioning of Ørsted at that point in time? What's your priority? Is organic growth at that point because you need to start winning awards in the next 12, 18, 24 months, I guess? Or is it more wait and see to see what happens in the United States? Trond Westlie: Well, I'll take the first one on the capital structure. I think your numbers is fairly correct relative to where we are and where we're going to be at year-end. So in starting to say that, of course, a lot of the discussion during the rights issue has been, of course, the downside risk relative to what's going to happen in the U.S. And we have been sort of elaborating a lot about that because of the stop-work order and the sort of the risk of getting more stop-work orders. I do think that along with the rights issue, we have explained the reason why we thought the DKK 60 billion was the right number. We have communicated that we expect this Hornsea 3 transaction to be signed and closed during the year. So that has been a part of our base case all the time. The downside risk is, of course, that things may happen of uncertainties in the U.S. that we cannot sort of put a probability or an estimate on. But as we have said all along, we have committed so much money into the projects of Sunrise and Revolution that closing it down is not really a good case for us because our commitment cost is almost as high as the total cost of the project. That is why we have looked at these structures and also the capital raise in this context. It is hard now to see situation that we will come into a -- that we will be downgraded into a noninvestment grade. So the scenarios you need to develop to actually get us there is now, of course, much more difficult when we have the Hornsea 3 in place. So over to you, Rasmus. Rasmus Errboe: Thank you very much. Thank you, Alberto. Yes. So I think probably 2 parts to the answer on repositioning of Ørsted on the other side of '28. First part is, Alberto, that it is for us to deliver on our plan. That is really our main focus. We have a plan with -- centered around 4 priorities to have a robust capital structure, to construct our 8.1 gigawatt of offshore wind projects in the best possible way, to stay focused and disciplined on capital allocation, always prioritizing value over volume and then also improve our competitiveness. And if you sort of look at our progress across the board on -- across these 4 priorities in Q3, you can see that, that is really where we focus. So the best way, in my view, to position us for '28 and onwards is by delivering on our plan. We will be in a very, very different position, and we will be able to meet the market from a position of strength at that point in time when we deliver on our plan. Second part is sort of how do we then think about 2028 and onwards. You talked about different kinds of sort of growth measures and what is out there. We are -- remain very bullish about the prospects for offshore wind in Europe in particular. We see the rebasing happening in the market. And the growth pockets for offshore wind in Europe, in my view, span across 3, if you will. One is, of course, the centralized tenders. There are -- '26 is probably going to be a little bit on the low side in terms of numbers of tenders that are being put out there, but then from '27 and onwards, it would take a bit of a step change. So that is one pocket that we could pursue. The other one is, of course, to mature our proprietary pipeline. And then the third pocket is more -- I would not call it inorganic, but a more, you can say, project-by-project collaborationships or M&A. Those are and basically have always been the pockets that we are looking for when we think about offshore wind growth, but we will be patient, and we would prioritize value over volume. Alberto Gandolfi: Rasmus, you've been so interesting that can I ask a follow-up? I appreciate if you say no. Rasmus Errboe: Go ahead. Alberto Gandolfi: I'm very -- this is all very clear. I'm just very intrigued by the comments you made about refocusing on Europe and potentially openness, project-by-project M&A. Would this also include potentially bigger platforms? I think it's no secret that probably lots of people on this call are thinking about the offshore portfolio of Equinor that would take out a competitor. And at that point, your balance sheet is very strong. Would this be an option worth pursuing, you think? Rasmus Errboe: That is not in our plans. Operator: The next question comes from the line of Lars Heindorff from Nordea. Lars Heindorff: The first one is regarding the correlation between EBITDA and operating cash flow. You had a few questions about this already, so maybe it's sort of a follow-up. But you've been guiding for '25 to '27 operating cash flow of DKK 50 billion. If we take the midpoint of the EBITDA guidance this year and then the minimum guidance that you've been providing for '26 and '27 that will add up to DKK 86 billion of EBITDA in the same period and a conversion ratio, which is less than 60%. So how should we think about the correlation of -- between EBITDA and operating cash flow going forward? First and foremost, in -- up and until '27, and I think given the development in Hornsea 3 and the first 3 years with a 50-50 split, that should be fine. But beyond that, that's maybe too far out. But just to get a sort of sense for what you expect in terms of operating cash flow for the coming years? That's the first part. And then the second part, just a housekeeping, which is, Trond, you mentioned the Changhua transaction. How much exactly would that impact the net interest-bearing debt for this year? Trond Westlie: Very well, on the operational cash flow relative to the EBITDA, there are 3 sort of buckets of elements that comes into the difference. It's the taxes paid. It's the reversal of noncash tax equity in EBITDA, and it's basically a working capital after changes. That is the major bucket. That's the 3 buckets. And then there is, of course, ups and downs relative to working capital changes that goes in there. But those 3 elements, taxes paid, reversal of noncash tax equity in EBITDA and working capital after changes is the 3 elements that really drives the bridge between the DKK 50 million and the EBITDA element. So that's those elements. When it comes to the Changhua 2b and 4 and the transaction, we still have the ambition to sign the transaction during the year. But since we're not able to close the transaction during the year, that there will be no transaction as such. So there will be not debt reduction as a result of that. So the statements that we have made earlier when it comes to the DKK 35 billion of the proceeds guideline that we have for '25 and '26, we have the DKK 7 billion that we did before half year. We now have the DKK 10 billion from Hornsea 3. And then the 2 outstanding elements is the around the -- short of DKK 20 billion left. And that's basically evenly divided between the Changhua and the EU onshore transaction. So -- and as I said, Changhua will not be closed during the year, so no effect. Lars Heindorff: Okay. And just a follow-up on the first part, which is the conversion between EBITDA to operating cash flow. Is that fair to assume that when you get to '28, which will be the first year, at least as we look right now without any offshore CapEx, that you will have still the same relationship, which is around slightly below 60% cash conversion from EBITDA to operating capital flow? Trond Westlie: I need to get back to that -- on that because the DKK 11 billion to DKK 12 billion coming out of the 6 projects is not going to be evenly divided as a result of how much of tax equity that comes into that gross up. So not quite sure I can guide you on that right now. Operator: We now have a question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I wanted to quiz you a bit on what the Equinor CEO has been saying about offshore wind and Ørsted, where he's been talking about new business models, the need for consolidation and industrial cooperation with Ørsted. What are your thoughts on any cooperation with Equinor and what form and over what time line? So that's the question. If you can't answer that, then I have another question, which I'd like to ask. Rasmus Errboe: I will give it a go, Deepa. Thank you very much. So I think first of all, we are, of course, very pleased with the support that we continue to receive from Equinor as the second largest shareholder. We have no doubt about it. And of course, I have also noted the comments that you are alluding to. Our focus right now -- my focus right now is to deliver on our plan, is to deliver on our strategy quarter-by-quarter centered around the 4 priorities that I mentioned before. I -- of course, as any responsible management team, if you look further out in time, of course, you will look at all options that would improve value for your shareholders, no doubt about it. I am confident that we still have a very well-suited business model for offshore wind. Operator: The next question comes from the line of Jenny Ping from Citi. Jenny Ping: So 2 questions I have are somewhat linked. Firstly, just on the negative construction EBITDA that you printed in 3Q that you say is linked with the Greater Changhua 4 project. And given some of the cost overruns that you highlighted, are we expecting this to be this magnitude effectively until the close of the project at COD in 2026, so DKK 300 million, DKK 400 million negative each quarter? And then just linked to that, I guess, going back to the Apollo deal, Rasmus. Clearly, this is a fully EPC wrapped project, which you will take on any overspend and any delays risk. So what sort of comfort can you give to the investors that this project has been operationally derisked as we go into the full construction phase to minimize any of the delays and overruns, which ultimately will be borne by Ørsted? Trond Westlie: Just taking the negative of the construction agreement provision that we made in the third quarter. That is, of course, the full amount of loss that we expect to have on the construction agreement on Changhua 4. So it's not a repetitive element. It's an estimate of the full loss on the construction agreement. Rasmus Errboe: Jenny, and as for Hornsea 3, you are right that the way we have done the CA is, you can say, our normal model where we wrap sort of parts of the construction risk the same way as it is also our normal model on the OMA part where we do O&M for our partner. We are progressing very much according to plan on Hornsea 3. It's, of course, a very big project, 197 positions. But it is in our core market, and it is in a zone that we are comfortable working with. Some of the things we have been focused on in the beginning from a construction risk perspective, if you will, are going quite well. The onshore converter stations and the cable landfall is progressing. That is a key focus point for us, also making sure that we get -- that we can deliver and also National Grid can deliver on time. We have no reason to believe not to. When we get to that point in '27, monopiles has been a key focus for us. We have now sufficient robustness on the supply chain for that project on the monopile side. We have sort of roughly a handful of monopile suppliers on the project, SeAH, EEW, Haizea, Steelwind to name a few. And we have a great deal of flexibility in terms of making sure that if one is not exactly on time, then someone else can deliver. And we are starting to see monopiles being produced with a couple of them. So that is very much on track. Half of the export cables have been produced, the offshore monopile installation will start in Q2. And also, as I said before, the 2 offshore converter stations are progressing according to plan, 1 already in Norway from Thailand, the other 1 on its way. One thing that we and I have been focusing on, and that's my last point, Jenny, from the very beginning has also very much been on installation vessels. We have 3 installation vessels that will do the work on Hornsea 3. And 1 of them is now done here in September. So during Q3, that is very good. The other 1 is working on other projects. So 1 of the 2 turbine installation vessels, the Wind Peak is now working for Sofia and on the East Anglia THREE. So that is all fine. And then the last 1 is being produced, and we expect for it to be done by the end of the year. So I would say across the board, construction and thereby construction risk is progressing according to plan. Operator: We now have a question from the line of Jacob Pedersen from Sydbank. Jacob Pedersen: Just a question for me regarding Baltica 3. You still have it as a part of your pipeline in offshore in your presentation. What is the status on this project? And will it play any role in bridging the standstill in new installations after 2027? Or will it be more attractive for you to go into other [ auctions? ] Rasmus Errboe: Thank you, Jacob. Baltica 3 is a project that we jointly own. As you know, together with our partner, PGE. We continue to be very, very pleased with that partnership, and we are also moving forward with PGE on Baltica 2. As you know, we put Baltica 3 under reconfiguration a few years ago now. And the reason being that we didn't see sufficient value as the project stands in our portfolio to move it forward. That is still the case. The project is under reconfiguration. And we will only move it forward if we see a significant improvement in the value. So it is one of the options that we have in our portfolio. But as I said before, it would also have to stack up against the other opportunities. We are very strict on value over volume and also on capital discipline and allocation. So that is what I can say about Baltica 3 right now. Jacob Pedersen: Okay. If I may, a second one, just housekeeping. The rights issue cost, will we see that in financing costs during Q4? Or is it already in the Q3 numbers? Trond Westlie: It will come in the Q4 numbers. But having said that, there was a good estimate in the prospectus. So I think you can -- if you want to have an estimate, you can use that. Operator: The next question comes from the line of Olly Jeffery from Deutsche Bank. Olly Jeffery: My first question is that my understanding is that Judge Lamberth [ and Revolution Wind -- so ] Judge Lamberth, who put in place the preliminary injunction is likely to be writing a detailed opinion, which we haven't received yet. I mean if the Trump administration were to appeal the injunction that will most likely happen after that detailed opinion is being written. Would you agree with that broad assessment? And then the second question is just on the Section 232 investigation into wind components. Has there been any development on that? And are you able at all to say if were to lead to further tariffs, would that be of any material consequence in terms of impairments? Or is that not such a risk key? Rasmus Errboe: Thank you, Olly. I can take the appeal, and then I will leave the tariff question to Trond. And I will be quite brief, Olly. I don't want to speculate in potential legal outcomes and whether or not something will be appealed. And if so, when. We rely on the injunction that we received on the 22nd of September by Judge Lamberth. And we were immediately back to work, and that is very much our focus. But as I said before, we are pursuing 2 avenues still, the legal track and also the conversation track. And our aim is to get a complete solution for Revolution Wind. Trond Westlie: Just to be clear, firm -- or have a clear view of where the tariff goes in the U.S., it's quite difficult. So -- but what we have taken into consideration is, of course, the June 4 announcement, the 19th announcement and the 21st announcement. That means that we have looked at the inquiry of the specific imports for wind turbines and associated parts. We have included more than 400 items that they have included on the list. As such, we have also considered the 50% level. And that is really the elements that we can do as best estimate as of now. And that is what we have included in our best estimate that gets us to the DKK 2.5 billion of impairment effect in the third quarter. Operator: We now have a question from the line of Roald Hartvigsen from Clarksons Securities. Roald Hartvigsen: On gross investments, you keep your DKK 50 billion to DKK 54 billion guidance unchanged, and given that you've already spent about DKK 40 billion so far this year, the low end of your guidance would suggest only an additional DKK 10 billion for the last quarter, which is like quite a material step down compared to the DKK 15 billion this quarter, especially given the fact that reported CapEx figures historically have been quite high in the end of the year quarter and that the full Hornsea 3 project will still be on your books, I guess, at least part of the quarter or so. So can you help us reconcile the expected drop in the investment level from the third quarter and give some color on what assumptions are embedded in especially the lower end of the gross investment guidance range here? Trond Westlie: I do think that you had to take the full guidance into perspective, basically DKK 50 billion to DKK 54 billion. And that if you take the upper number, it's actually going to be around the same number in gross investments in fourth quarter as in third quarter, if you take that as a sort of a possibility. Having said that, I think the important element to this is not necessarily the timing whether the payment is done the 20th of December or the 10th of January. The important thing is that our investment level for all the 3 years is around DKK 145 billion, as we have said earlier. We expect that to be DKK 50 billion to DKK 54 billion this year. And that means that it's going to be sort of in the DKK 50 billion range for the 2 consecutive years of '26 and '27. So I think it's important not to sort of be razor sharp on 31st of December. But our best guess as of now and the sensitivity we have relative to timing of payments at the year-end is between DKK 50 billion and DKK 54 billion. Operator: The next question comes from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Lots of questions already answered. So if I may just ask something a bit nitty-gritty. On Slide 23, I noticed some of these numbers have changed since 2Q. So when we look at the 10% ITC bonus, sensitivity impact, Sunrise and Revolution now add up to DKK 6 billion. And previously, I think that was DKK 4.6 billion. And the sensitivity to a 50 basis point move in WACC is now DKK 2.1 billion and previously, it was less. I'm just wondering what was going on there? And if I can just ask a clarification from earlier because the audio was a bit crackly. Did you confirm you hope to announce the deal on Changhua 2 in 2025? I know you answered that you expect to close it in 2026. But is the disposal still going to happen this year? Trond Westlie: When it comes to the Slide 23, the reason for changes is, of course, changes in some of the CapEx levels. So the elements, I don't have the sort of the gross numbers in the top of my head. So you have to contact IR to actually get the more detailed level in that. When it comes to the Changhua transaction, yes, we still have the ambition to sign the deal during this year and then close it when we have COD in the third quarter next year. Operator: We now have a question from the line of David Paz from Wolfe. David Paz: Just wanted to follow up on Revolution Wind. Just 2 quick questions; a, is the DKK 5 billion, has that been updated since August in terms of the remaining investment? I think that was your share. And then b, what of those 3 items you've listed, onshore substation, the remaining turbines and the array cables, which are the -- would you say they're like first and last? In other words, like what is the critical path, I guess, if you can just give us some color, particularly given the comments on the onshore substation being substantially complete, just what gets you to second half 2026 COD? Trond Westlie: When it comes to the CapEx on Revolution, yes, our total CapEx -- our 50% share of the CapEx is DKK 20 billion. And as last quarter, we had spent about DKK 15 billion of that. So the remaining DKK 5 billion for us, DKK 10 billion in total for Revolution has sort of been paid during the time. And basically -- but I think it's more important that we have come so far on the Revolution that the commitment we have on the whole value is there. So whether we have paid it or not, doesn't really matter relative to the timing of the -- it's more the timing of things. Rasmus Errboe: And with respect to the critical path for Revolution Wind, it is still the onshore substation that is on the critical path. It is moving forward well, as I said, on both the turbine installations with 52 and on array cables with 41 out of the 65. So -- and we -- as I said, we expect energization of the onshore substation early next year. But the reason that is still on the critical path is that following the energization of the onshore substation, you then basically go area by area in the wind park, starting with the export cables, then on to the offshore substations and then the turbines in terms of the electrification and the hot commissioning of the turbines. And that takes -- that brings us into our expectations for COD. so still on the critical path, the onshore substation. Operator: We have a follow-up question from the line of Mark Freshney from UBS. Mark Freshney: Just regarding security of some of the subsea cables, we know that there's a lot of work being done at the industry and government and NATO level on protection of those cables. But from your perspective, have any of your subsea cables being knowingly sabotaged? And when you think about that at board level as a risk to the business, how are you tackling that from your own internal perspective? Rasmus Errboe: Thank you, Mark. Mark, as I'm sure you can appreciate, I will not be super granular on this question. So I'm not going to comment on sort of impacts on individual cables and what have you. What I can say is that you can say, security and working with the governments and also you mentioned NATO before, is something that has been part of the way we do development in Europe for a very long time. Governments are asking for conversations and solutions for defense coexistence, and we see very good cooperation between the relevant authorities in the markets that we are in and also the sector, including us to develop successful mitigations from a coexistence perspective. That is as far as I can take it in terms of defense. Operator: We have a follow-up question from the line of Dominic Nash from Barclays. Dominic Nash: It's actually on Hornsea 3 and the numbers announced sort of yesterday, I just need some clarification on them, if you can help me out, please. So could you work out whether my math is right, you basically said that you've spent DKK 20 billion to date. Apollo are paying you DKK 10 billion for what you spent today, so fine. You also say you're doing DKK 70 billion to DKK 75 billion of CapEx still to go for the project, so DKK 90 billion to DKK 95 billion in total. And you say about 1/3 of that is transmission, I think. But you then -- if you then take Apollo's DKK 39 billion contribution and DKK 10 billion has been used for buying into the project for historics, at least DKK 29 billion remaining, how does that DKK 29 billion fit into the DKK 70 billion to DKK 75 billion still to go at 50% ownership? And on that, I think the transmission might be the one that's a bit odd, is that in or out of the amount of cash that they're paying into? And is that the sort of debt associated with it? Or have you got some other way of getting that one financed? Trond Westlie: Dominic, just a starting point for -- it's a bit difficult to follow sort of your math over the phone. But I think one material element in your math is that DKK 70 billion to DKK 75 billion is the total project and not what is remaining. But I do think that if you take the rest of your math together with the IR, I think they will be better of guiding you through it. Operator: We have a follow-up question from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: So the question I have is on the legal process in the U.S. for Revolution Wind. So the stop-work orders allowed you to start construction, seems to be going well. What happens if you finish constructing the project, but you've not resolved the underlying challenge of the stop-work order? Can you start already selling the power and so on and energize? Or will it kind of come to a standstill? And in some scenario, I don't know if you lose the appeal at a later stage after 1 or 2 years, will you then be forced to decommission? I'm just thinking about what happens given that now you are constructing and so far, the legal process might take much longer to settle -- might take longer than your construction time line. So if you could just elaborate on those scenarios. Rasmus Errboe: Thank you, Deepa. I would be brief. The impact of the injunction relief allows us to continue the project, to continue constructing and also to produce power. Operator: We have a follow-up question from the line of Lars Heindorff from Nordea. Lars Heindorff: Very fortunate to be after Deepa's question because it's also regarding Revolution Wind. Now you got the stop-work order on the 22nd of August. You got the injunction filing on the 17th of September. That is now 47 -- sorry, 49 days ago. And if I'm correct, you have installed roughly 7 turbines in that period. You have 13 turbines left to install for Revolution Wind. How long do you expect that will take? Rasmus Errboe: Thank you, Lars. So the guidance we gave on progress is that we basically guide on COD. But of course, it is also -- as it always is, it is also relevant when you install all the turbines and also when you can have first power and that we expect during H1. Lars Heindorff: But is it fair to assume normally, I think installation of vessels taken 2 -- 1.5, 2 days and then maybe winter period, it will be longer, 4 days, something like that. Is that a fair assumption? Rasmus Errboe: Lars, I look forward to telling you about the construction progress on -- when we are done with the year. And there I will be very specific about how far we have come on the turbine installation as well. It is moving forward quite well right now. But of course, we are also entering a period with more uncertainty on the weather. But right now, turbine installation on Revolution Wind is going really, really well. Operator: We have a follow-up question from the line of Rob Pulleyn from Morgan Stanley. Robert Pulleyn: Yes, sure. May I ask on the onshore U.S. business. I know this is a bit different to the vein we've had so far. During the rights issue process, you talked about effectively separating this out legally and financially into its own stand-alone entity. Is that still the case? And any further strategic plans for this given, of course, there is a somewhat shortage of power in the U.S. and quite a lot of optimism around that market? Rasmus Errboe: Thank you, Rob. You are right that we have progressed our separation of our U.S. onshore business. And as of 1st of October, our onshore business has become a separate business unit reporting into our global development chief. And the Americas onshore business will then continue to focus on development and operations of the projects within the U.S. We have a pipeline of 6, 7 gigawatts of projects with capacity that meets the definition of sort of IRA qualification through 2029. And there are envelope opportunities in the market. And also the 2 projects that we have under construction. So Old 300 BESS in Texas and also Badger Wind in North Dakota are moving forward really well. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to CEO, Rasmus Errboe, for any closing remarks. Rasmus Errboe: Thank you all very much for joining. We appreciate the interaction and the interest as always. And if you have any further questions, please do not hesitate to reach out to our IR team, who will be here to answer all of them. Thank you very much. Stay safe, and have a great day.
Operator: Good morning, everyone, and welcome to the Trulieve Cannabis Corporation Third Quarter 2025 Financial Results Conference Call. My name is Danielle, and I will be your conference operator today. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Christine Hersey, Vice President of Investor Relations for Trulieve. You may begin. Christine Hersey: Thank you. Good morning and thank you for joining us. During today's call, Kim Rivers, Chief Executive Officer; and Jan Reese, Chief Financial Officer will deliver prepared remarks on the financial performance and outlook for Trulieve. Following the prepared remarks, we will open the call to questions. This morning, we reported third quarter 2025 results. A copy of our earnings press release and PowerPoint presentation may be found on the Investor Relations section of our website, www.trulieve.com. An archived version of today's conference call will be available on our website later today. As a reminder, statements made during this call that are not historical facts constitute forward-looking statements, and these statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from our historical results or from our forecast, including the risks and uncertainties described in the company's filings with the Securities and Exchange Commission, including Item 1A, Risk Factors of the company's most recent annual report on Form 10-K as well as our periodic quarterly filings. Although the company may voluntarily do so from time to time, it undertakes no commitment to update or revise these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. During the call, management will also discuss certain financial measures that are not calculated in accordance with the United States Generally Accepted Accounting Principles or GAAP. We generally refer to these as non-GAAP financial measures. These measures should not be considered in isolation or as a substitute for Trulieve's financial results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures to the most directly comparable GAAP measures is available in our earnings press release that is an exhibit to our current report on Form 8-K that we furnished to the SEC today and can be found in the Investor Relations section of our website. Lastly, at times during our prepared remarks or responses to your questions, we may offer metrics to provide greater insight into the dynamics of our business or our financial results. Please be advised that we may or may not continue to provide these additional details in the future. I'll now turn the call over to our CEO, Kim Rivers. Kimberly Rivers: Thank you, Christine. Good morning, everyone, and thank you for joining us today. First, I'd like to extend a warm welcome to Jan Reese, our new Chief Financial Officer. Jan brings a wealth of leadership experience and has already made impactful contributions since joining the team. We're thrilled to have him on board. Turning to the third quarter, we are pleased to report results that highlight the continued strength of our core business. Despite seasonal pressure in the quarter, the team delivered robust margins and strong cash generation, while also expanding our customer base. As we prepare for the busy holiday season, we remain encouraged by the momentum behind meaningful cannabis reform. Trulieve continues to lead the industry forward, pushing for impactful change, while reducing the stigma surrounding cannabis. Moving to our results. Third quarter revenue of $288 million was in line with guidance and typical seasonal trends. Industry-leading gross margin at 59% reflects pricing compression, partly offset by operational efficiencies. Adjusted SG&A expense declined by $9 million compared to last year, demonstrating the team's commitment to reducing expenses in our core business. Adjusted EBITDA of $103 million improved by 7% versus last year to 36% margin, underscoring tight expense control. Operating cash flow of $77 million contributed to cash of $458 million at quarter end. Yesterday, we announced the planned redemption in December of our notes due in October 2026. Depending on terms, we may issue new notes were up $250 million. During the third quarter, retail traffic and units sold increased by 6% and 7% year-over-year, highlighting strong demand for cannabis. Consumers continue to lean in towards value and mid-tier products, reflective of general economic conditions. Wholesale revenue grew 16% compared to last year, highlighting continued execution. Outperformance in wholesale was driven by strength in Maryland, Ohio and Pennsylvania. We are expanding our wholesale business as conditions permit with careful monitoring of the credit quality of customers and industry development. In our core markets, October traffic has improved compared to September, in line with historical seasonal patterns. We are continuing to monitor consumer behavior closely for any changes in preferences and spending. As we approach year-end, our team remains focused on 4 key areas: reform, customers, distribution and branded products. I'd like to start by discussing federal and state cannabis reform given the importance for our industry. We remain optimistic that the Trump administration will address cannabis reform by rescheduling marijuana to Schedule III. This important milestone would acknowledge the medical value of cannabis and open the door for additional research. Millions of Americans rely on medical cannabis for relief, a fact that contradicts the current Schedule I classification. Rescheduling would not legalize cannabis, but it would remove the punitive tax burden on state legal operators, enabling greater conversion from the illicit market. We believe Rescheduling represents the first major domino in federal reform. Additional steps are needed to address challenges with banking and the growing divide between federal and state laws. SAFER Banking enjoys widespread bipartisan support as elected officials from both parties recognize the need to remove excess cash from dispensaries to ensure safety for workers and discourage criminal activities such as money laundering. In our home state of Florida, Trulieve continues to support the Smart and Safe Florida campaign for adult-use legalization. The 2026 ballot language includes revisions to address concerns raised during the 2024 campaign, which narrowly missed the 60% threshold required for passage. The new ballot language prohibits products and packaging that could be attractive to children, prohibits smoking in public, direct issuance of new nonvertical licenses and expressly clears the way for the state legislative body to allow homegrown marijuana. Signature gathering efforts are ongoing, and the campaign expects to reach the required number of validated signatures prior to the February 1 deadline. As of November 1, more than 1.1 million raw signatures have been submitted with over 675,000 signatures validated. We expect Florida Supreme Court review of the ballot language and summary will be concluded as required by April 1 of next year. To date, Trulieve has been the primary financial contributor to this effort, leading this charge for change in Florida. While we firmly believe in the potential for Florida to serve as a model for successful state cannabis programs, we are preserving optionality in deciding whether to contribute meaningful financing to the 2026 campaign. Trulieve's ongoing support of the campaign will be determined based upon data and the political landscape heading into the 2026 election. In Pennsylvania, we remain optimistic that a compromise can eventually be reached to enact adult-use legalization. We believe state legislators recognize the potential for adult-use to satisfy constituent demand for cannabis, while generating revenue for the state. Several bills have been filed this year, and many constructive sessions and hearings have been conducted. If adult-use is launched in Pennsylvania, Trulieve is well positioned given our established retail footprint, strong brand in retail and wholesale and scale production capabilities. With the adult-use programs already launched in 5 of 6 neighboring states, we expect Pennsylvania will enact adult-use in the near-term. In addition to reform efforts, we are driving operational improvements in 3 key areas: customers, distribution and Branded Products. Since inception, Trulieve has grown with customers at the forefront of everything we do. By providing a normalized retail environment alongside superior service, we strive to deliver exceptional customer experiences throughout the customer journey. Personalized customer messaging and engagement continues to evolve as we add new capability to our customer data platform and analytical tools. During the third quarter, we implemented new product recommendation schemas, including prompt for suggestions and repurchases. Similarly, we added enhanced customer segmentation features to allow predictive modeling for shopping patterns, frequency and anticipated order dates. These tools allow identification of customers and personalized timing of recommendations to drive reengagement. Our generous Rewards program continues to grow, reaching 820,000 members at the end of September. We continue to see greater retention and monthly spend among members, who spend on average 2.5x more than nonmembers. Rewards members completed 77% of third quarter transactions. We recently introduced new monthly rewards statements, that highlight key milestones achieved to enhance program engagement and visibility. Building upon the success of our Rewards program, today, we launched a new mobile app available for download in the Apple App Store. The Trulieve mobile app is uniquely designed to deliver a best-in-class experience that centralizes shopping, deals, gamification and rewards. The app gives customers an effortless and engaging way to browse and reserve products, push notifications to learn about special promotions or when orders are ready for pick up provides a more seamless experience compared to e-mail and text messaging. We are excited to bring these new features to our Apple customers in Florida, and we look forward to launching the app in additional markets and on Android devices in 2026. Personalized messaging, loyalty rewards, and seamless digital experiences all contribute to customer retention. Third quarter retention improved by 1% sequentially to 68% company-wide with 76% retention in medical-only markets. While customer retention metrics are strong, we are amplifying the Trulieve brand through local engagement to attract new customers. Across our markets, we are recalibrating community events to focus on 4 key areas: helping patients, serving veterans, assisting seniors, and promoting restorative justice. Through community activities, partnerships and charitable work, we are directly addressing the needs of these stakeholder groups. In October, we raised awareness and funding to fight breast cancer through register roundups, specialty products and charitable locks. This month, we are supporting veteran organizations to serve those who have sacrificed so much for our country. This weekend, Trulieve is sponsoring a weekend retreat for operation resilience led by the Independence Fund, which is an event designed to help veterans who are at high risk for suicide. We are proud to give back to these worthy causes and partner with groups that support our mission to expand access to cannabis. Alongside engagement efforts, we are investing in retail and wholesale distribution to reach new customers and drive sustainable growth. We met our 2025 retail target by opening 10 new stores in Arizona, Florida and Ohio, expanding our network to 232 stores. In September, we relocated 1 Arizona store from Scottsdale to Bisbee, broadening our reach by entering an underserved area. We are on track to refresh or remodel up to 45 stores this year. In wholesale, Maryland and Pennsylvania continue to outperform. In Ohio, our production partner continues to ramp sales of branded products, including Modern Flower and Roll One. With over 4 million square feet of production capacity, our scaled platform provides a meaningful competitive advantage, including strong gross margins and the flexibility to adapt to evolving market conditions. Our production team continues to identify operational efficiencies, driving costs lower, while delivering great products. Consistent product quality differentiates our brands in an increasingly competitive landscape. During the third quarter, we sold over 12.5 million branded product units. In-house brands, Modern Flower and Roll One continue to resonate with customers, representing almost half of the branded products sold. In Florida, we recently launched a new Roll One Clutch All In One vape. This new compact disposable vape card sold out in less than 2 weeks. We plan to launch additional Modern Flower and Roll One SKUs, including new All In One vapes in several markets. Turning now to the beverage category. Last February, we launched a new line of Farm Bill-complaint THC and CBD cocktail alternative beverages called Onward. Throughout the year, we have added new flavors and expanded distribution. In July, we added a line extension of CBD and THC energy drinks called Upward. In September, we launched new 10-milligram flavors for Onward and Upward. Onward Berry Smash, Cosmopolitan, Lemon Drop Martini and Paloma, and Upward Half & Half iced tea and Lemonade flavors are performing well, enjoying positive customer feedback. These Farm Bill-compliant THC beverages provide an opportunity to reach new customers with approachable products in familiar outlets. Onward and Upward beverages are available online and in more than 440 stores, including ABC Fine Wine & Spirits and Total Wine in Florida and specialty grocers and convenience stores in Florida and Illinois. We recently launched distribution through Anheuser-Busch in Florida and Romano Beverages in Illinois, and we are actively working to expand distribution with new and existing partners. Visit drinkonward.com to find a retail location near you or order online. Overall, we are making real progress across our focus areas, reform, customers, distribution and branded products. With continued momentum and significant flexibility in our core business, we are set to expand our leadership position while pushing for cannabis reform. With that, I'd like to turn the call over to our CFO, Jan Reese. Please go ahead. Jan Reese: Good morning, and thank you, Kim. I'm thrilled to join Trulieve, and I'm focused on driving profitable growth at a leading company and industry pioneer. Third quarter revenue was $288 million, up 1% year-over-year, driven by new store openings, adult-use in Ohio, and wholesale growth, partially offset by pricing compression and wallet pressure. Gross profit was $170 million or 59% margin. Margin performance driven by increased pricing compression, loyalty point redemption and product mix, partially offset by lower production cost. We continue to expect quarterly fluctuation based on product mix, market mix, inventory sell-through, promotional activity and idle capacity costs. SG&A expenses were $99 million or 34% of revenue, a significant improvement driven by reduced operating expenses and lower campaign support. Adjusted SG&A declined to 30% of revenue, 34% last year due to ongoing operational efficiencies. Net loss in Q3 was $27 million or $0.14 per share versus $0.33 last year. Excluding non-recurring items, net loss per share would have been $0.07. Adjusted EBITDA was $103 million, up 7% year-over-year or 36% margin, reflecting expense leverage in our core business. Turning now to our tax strategy. As a reminder, we have filed amended returns starting 2019 and continue through today. Challenging the applicability of 280E to our business. To date, we have received refunds totaling over $114 million, while we are confident in our position and strategy, final resolution may take years. We continue to accrue an uncertain tax position, while realizing lower tax payments. Important to note, rescheduling to Schedule III would have removed 280E burden, the -- and Q3 and year-to-date results would show positive net income under those conditions. Moving now to the balance sheet and cash flow. We ended Q3 with $458 million in cash and $478 million in debt. Cash flow from operations totaled $77 million with capital expenditure of $12 million with -- and free cash flow of $64 million. Turning now to our outlook, we expect low single-digit sequential revenue growth in Q4. We expect full year gross margin will be comparable to 2024. We anticipate at least $250 million in cash from operations for the full year. CapEx of $45 million, up to prior target of $40 million, reflects investments to relocate stores and minor cultivation upgrades in Ohio and Pennsylvania. We remain focused on finishing the year strong, delivering results aligned to our strategic priorities. With that, I will turn the call back over to Kim. Kimberly Rivers: Thanks, Jan. Cannabis has gained widespread support across the U.S. with public opinion shifting significantly over time as more Americans recognize its therapeutic benefits. Today, nearly 90% of Americans favor some form of legalization for medical or recreational cannabis. Currently, 40 states have established programs for medical cannabis, providing millions of patients access to relief from chronic pain, anxiety, sleep disorders, epilepsy and symptoms associated with serious illnesses, including cancer, multiple sclerosis, and PTSD. While federal and in some cases state policy lags public opinion, momentum for reform is gaining traction. The Trump administration can deliver on campaign promises to address cannabis reform by rescheduling cannabis to Schedule III. In Florida, we remain supportive of signature gathering efforts for the Smart and Safe Florida ballot initiative to legalize adult-use. With over 23 million residents and 143 million tourist visits per year, we believe Florida could be the strongest market in the U.S. striking an appropriate balance between individual freedom and responsible consumption. In Pennsylvania, we are hopeful that bipartisan adult-use legislation can pass in the coming years. We believe both Florida and Pennsylvania will eventually enact adult-use programs. As an industry leader, we remain firmly committed to pushing for meaningful reform and expanded access to cannabis. Given the strength of our core business and flexibility across our platform, Trulieve is poised and ready to define the future of cannabis. Thank you for joining us today, and as I always say, Onward. Christine Hersey: At this time, Kim Rivers and Jan Reese will be available to answer any questions. Operator, please open up the call for questions. Operator: [Operator Instructions] The first question comes from Luke Hannan from Canaccord Genuity. Luke Hannan: Kim, you touched on in your prepared remarks there, you continue to generate an industry-leading EBITDA margin. There's a couple of things underscoring that. Obviously, you have a very efficient cultivation footprint. But then also, as you pointed out, you were a little bit more efficient when it came to adjusted SG&A as well. So if we just think about those 2 components, I'm not necessarily asking for guidance here. But when it just comes to opportunities, I suppose to potentially improve on that margin, what do you see as sort of the lower-hanging fruits going forward? Kimberly Rivers: Yes. So I'm very, very proud of the team for continuing to be laser-focused on bringing as much of that top-line down all the way through the P&L. And of course, I think that we stand out among our peer set for our consistency, as it relates to being able to do that efficiently and effectively kind of regardless of what's happening at the macro level. I would tell you that really in terms of what we're seeing coming into Q4, it's going to be somewhat dependent on what happens with the customer, right? And certainly, obviously, the holiday season is something that we've got our eye on, which is typical this time of year. But given, I would say, we have a little bit of opaqueness candidly, as it relates to the consumer, at the end of Q3 coming into Q4, we saw some trading down and some price compression. I want to tell you to answer your question, the fact that we have the ability in our platform to meet the consumer where they're at, and be strategic in how we do so. I am confident in our ability to continue to deliver a strong margin. But that has to be, again, coupled with the reality, again, of the consumer profile, it will be impacted by product mix and promotion. But again, also keeping in mind that we have an amazing and flexible and modular production footprint that we're able to flex again to meet the consumer where they're at. And so I would say that, again, in line with what we've said all year, we expect that full year to be consistent with again last year as it relates to margin. And I think given the sort of differences in this year's consumer profile, I think that's pretty -- I'm very, very happy with that. Luke Hannan: That's great. And then for my follow-up here, you touched on the launch of the mobile app and then also some of the benefits associated with that. It sounds like more customer engagement is chief among them. But you also place Trulieve places emphasis on data and analytics and being able to use that effectively when it comes to the entire sort of go-to-market strategy. So I guess I'm curious, does the app make you any more efficient when it comes to being able to gather insights from that data? Or does it give you a richer set of data points to be able to sift through as well? Kimberly Rivers: Yes. Well -- so certainly, we are excited about the ability to connect in a more personal way to our customers. And I would tell you that the ability to, again, have more of an interactive platform with our customers will be important as we continue to develop our strategies around consumer personalization. So I mentioned that even on our existing web platform, we're now able to more suggestive sell based on someone's past buying patterns, as well as to be more predictive in terms of when he or she may be coming back into the store based again on past behavior. And so, which is very exciting and being able to bring those features into an app landscape, but again is a bit more real time and then to be able to also seamlessly integrate our loyalty platform into an app shopping platform is, I would say, the best of both worlds. And really, we think that it's critical as we think about getting away from the confines, and -- because we are in cannabis, we're restricted in terms of what we can do via text messaging. And given the fact that we're all mobile these days, the ability to have push notifications to remind folks when they have points available, to remind folks when there are certain things happening within our stores that, that particular shopper may be interested in, I just think it's going to be very dynamic as we move forward into this next stage of our connectivity journey here. Operator: The next question comes from Russell Stanley from Beacon Securities. Russell Stanley: First, just around retail. You've refreshed and remodeled a significant number of sites this year. Can you -- I don't know if you have this handy, but can you provide any data points regarding the impact of those efforts on traffic or basket size, what you've seen relative to expectations? And any lessons that you've learned through the process that will inform your Refresh, Remodel plans next year? Kimberly Rivers: Sure. So I, for one thing, it's very important for companies to keep an eye on the aesthetics and -- of their stores. I think there's lots of lessons that we can go over on companies that did not do that, and where they ended up with their customer base. So that's going to be, I would say, something that you should expect from us on a pretty regular basis. We'll be analyzing and it's a constant review of stores across the platform, especially with our business since many stores, as everyone will recall, were initiated in a different regulatory landscape where there were different restrictions. In Florida, for example, at the very beginning, we had to have, there were very strict rules about where we could be located, and the types of lobbies we had to have, the security features between showroom and lobby et cetera. And so opening up those floor plans as those regulations have changed to make a more welcoming environment for customers and improving customer flow, vault size, how product moves from back of house to front of the house, et cetera, is certainly important from an efficiency standpoint, and then, of course, from a customer experience standpoint as well. And so we're going to always be looking for those types of opportunities across the platform. And then again, I think it's just good hygiene to make sure that you've got welcoming fresh, bright environments for our customers that are adapting to what the expectations of a premier retail experience would be. Russell Stanley: And maybe just on the balance sheet, given the redemption -- plan of redemption, and you talked about another debt issue for up to $150 million, I think. I guess, can you talk -- it's a relatively modest amount given what you're redeeming, but can you talk about what you're seeing in terms of appetite out there, especially given the recent seemingly short-lived blip in credit spreads? Just wondering what kind of the environment you're seeing from? Would it be lenders and the appetite that you're seeing relative to 3 months, 6 months ago? Kimberly Rivers: Sure. So we haven't gone to market yet, Russ. So, I think that color on that should be probably reserved for future commentary. And I can tell you that, again, we have flexibility in our ability to whether to complete or not complete depending on terms and depending on appetite. Again, I think that our balance sheet is strong, our cash generation is strong, our core business is very solid. I think our consistency in our core business is very solid in terms of our ability to generate cash and bring that -- again, like we talked about before, bring that revenue down to bottom line profitability. So I would say stay tuned, but I feel pretty confident that we'll have optionality there, and then we'll be in a decision along, of course, with the Board to make a determination as to how much or if we decide to move forward with the race. But again, we're generating cash every quarter and feel good about where we sit. Operator: The next question comes from Bill Kirk from MKM Partners (sic) [ Roth Capital Partners]. William Kirk: In 2024, the Florida initiative didn't seem to get the kind of deserved monetary support from other MSOs. Do you expect those other MSOs to better contribute either monetarily or in other ways this time around? Kimberly Rivers: Yes. So I would say that certainly, I would love for -- you guys to asked that question on the earnings call. I have been in talks with the other CEOs. And I think that we're going to have some pretty robust conversations after Supreme Court review, once we have -- just like we said in our prepared remarks, once we have additional data and visibility into the political landscape, pulling right all the things, I do think that folks are certainly at the table in a different way than they were the last cycle. But I also think, right, that some of it is going to be dependent on where everyone sits as it relates to available cash. And of course, 280E is a big contributor there. So we shall see. But I would say that I think that the MSOs at least are working together as it relates to reform. And I think that that is a positive. And definitely, we could see that also come over to the Board effort. William Kirk: Awesome. And then are you seeing any increased momentum for regulating intoxicating hemp differently or possible closing of any -- what people call the Farm Bill loophole? And I guess if we step back, how would you like to see intoxicating hemp treated by the federal government and states? Kimberly Rivers: Yes. I mean, certainly, it's -- as you know, it's a checkerboard out there, as it relates to the states, and how they're treating intoxicating hemp. We have a little bit of a front race seat to it, not only, of course, from the regulated cannabis side of the business, but also from the beverage side of the business. In Florida, there were new rules that were issued midyear this year, and a big crackdown across the state. Products in Total Wine -- beverage products in Total Wine and ABCs were taken off shelves, because of labeling challenges among some other regulatory concerns, our branded beverage products Onward and Upward were actually able to stay on shelf. We are -- and we're compliant, which I think is actually becoming a little bit of a differentiator for us, because we're very used to, right, having to have all of our testing back up and making sure that consumers can scan back to a finished product test and that the labeling is accurate and all of those things. So certainly, we have seen a step-up in enforcement, I would say, across markets. And I think that's in line with sort of an increase in attention that it's getting, again, at both state and at the federal level. I think I hear what you hear as it relates to the federal differences in terms of potential pathways for regulating intoxicating hemp. And I think we'll see where that lands. But it does seem to me that similar to the states, the intensity of the conversation is increasing both at the state level and at the federal level. Operator: The next question comes from Brenna Cunnington from ATB Capital Markets. Brenna Cunnington: It's Brenna on for Frederico. And congrats on the results this quarter. Just continuing on the theme of the Florida ballot measure. We all know that Florida legalization would be a game changer. But the 60% approval threshold does seem to be a bit of an issue, since we saw that the majority of Floridians do actually want to legalize. So just trying to understand here, theoretically speaking, what about this time could be different? Do you think it's more of a factor of raising more voter awareness? Or was there a specific verbiage that needed to be changed last time to address potential voter issues or perhaps something else? Kimberly Rivers: Sure. So I think there's a couple of main differences. Well maybe actually 3. One, I think that there will be a big component of this that centers around just, again, the political landscape. We're in a gubernatorial race this time as opposed to a presidential race. And so the dynamics in Florida in particular, shift sometimes dramatically in terms of profile of voters that turn out between those 2 different types of races. So I think that's an important thing that we'll certainly be analyzing and watching. Two, the ballot initiative itself had some changes, as mentioned in the prepared remarks that were very -- that were specifically responsive to pulling and feedback from the last campaign, particularly voters indicated that they wanted more certainty around what the legalization program would look like in the state of Florida, specifically around confirmation that these products would not be attractive to children, that there is, of course, age gated for adults over the age of 21, that there would be no smoking allowable in public, and that there would be additional licenses that would be issued for additional competition in the marketplace as well as a pathway for home-grow. And so really by addressing those specific concerns, it does -- and early polling indicates that that does change the chances on a just plain ballot read perspective. And then I would say the third thing is really about the -- just the landscape. There's been obviously quite the news cycle around what happened in the last campaign as it relates to some public dollars being spent and taxpayer money, et cetera. The legislature passed a package of laws last legislative session that clarifies, and candidly locks down that activity, such that we believe that there will not be that same level of opposition at least from those particular paths in this next election, which we think is very important. And at the end of the day, right, I think that just a fair and straightforward election process could definitely be a game changer as well. So I do think that at least early indicators are that it's going to be a more positive backdrop. But again, we want to make sure that, that's confirmed by, again, the data and the political backdrop before we decide to move forward. Brenna Cunnington: Understood. And then our second question is just regarding the hemp and beverages, which we do know is a small category. But we would just love any additional color you could add on how sales are ramping in Florida and Illinois? And also specifically how online sales are doing? Kimberly Rivers: Yes. So it's ramping candidly ahead of what our initial expectations were. We -- I think as we have developed our partnerships with both Total Wine and ABC, they have grown pretty dramatically since inception. In addition, right, our ability to successfully land additional distribution partnerships has also been a positive, and there'll be more announcements from us on that in the near-term. We are being thoughtful in terms of how we ramp, and simply because we want to make sure -- I mean, we believe very strongly at Trulieve, and this goes back, it's in our DNA since inception, that it's important to launch and penetrate. And make sure that you're understanding and getting as much data as possible about the consumer and making pivots early to get it right, so that we're able to, again, really have lasting brand equity with those customers. And so we -- I could tell you that we -- candidly, we could be ramping faster, but we want to make sure, again, that we've got the opportunity to really have a presence in those stores and in those markets by doing things such as tasting events, trainings with the employees in those stores to make sure that they're actually educated on THC and how our beverages are different than all the other brands that may be on shelf, why they should feel comfortable recommending our beverages to consumers, what is [Technical Difficulty] as it relates to our beverages, et cetera. And so we are making sure that we do this the right way, which I think will pay dividends for the long-term. Operator: [Operator Instructions] The next question comes from Aaron Grey from Alliance Global Partners. Aaron Grey: Congrats on the quarter. First question for me, just on some of the consumer engagement initiatives, loyalty program, now mobile app. Obviously, it would seem like you're most able to leverage that in states where you might have more of an existing moat like Florida as well as Arizona. But also curious to know how you might be looking to leverage that? And build a larger presence in markets where smaller today, and maybe you rely more on wholesale. So maybe just some more color in terms of how you're able to leverage some of these products and learnings to build out a market share where you're smaller today? Kimberly Rivers: Sure. So again, our loyalty program has had incredible success across all the markets in which it's launched. And so I wouldn't say, of course, in our bigger markets like Florida, you're going to have more of an adoption rate. But I will also tell you that some of our other markets like Arizona, for example, it's been a huge tool for us, because -- and really the big learning there is, to your point, Aaron, as markets go adult-use, right, we don't necessarily have as much required data on a particular patient. So when you think about it in a market like Florida or Pennsylvania, we have a lot of information, because they have to have a patient identification card, and we have to allocate and make sure that we've got the tracking of the product that's dispensed across their recommendation from their physician. So there's a lot more already known component of those purchases and of those customers. But you contrast that with an adult-use market where someone is just -- we have to age gate, of course, and take their license information, confirm that they are an adult age 21 and up. But aside from that, you can really be more anonymous in those markets. And the loyalty program has been phenomenal in terms of having those customers actually voluntarily, right, engage with us in a more regular way, so that we can again begin to get to know them, and have that truly reciprocal relationship where we're understanding their buying patterns. We're able to offer them additional product suggestions or deals that they may be -- they may have not known about, right, because there's no reason for -- previously, there would have been no necessary reason for them to connect with us in that way. We think the app is going to take that to a completely different level. So right, you'd have the ability to preorder online, track your order, push you a notification just like Starbucks or other places where we all use apps across our normal retail experience to say, hey, your order is ready for pick up. In addition, we can talk about as it relates to our wholesale business, hey, we just launched this new all-in-one, just find it near you, right, we saw that you purchased an All In One vape previously. It's available a mile from your house at this particular location, right. So there's all kinds of capabilities that are going to be available through the app. Initially, we are definitely using it to reinforce our in-store branded products through branded retail being our core, right, our core business driver. But Aaron, to your point, in a state like Maryland, for example, where we only have 3 stores, but we have a bigger wholesale business, being able to leverage things like an app to offer gamification, et cetera, of products that are available -- and our in-house brand products that are available throughout the state and certainly is something that we'll be looking forward to as we further develop that. Aaron Grey: Really helpful color there, Kim. I appreciate that. Second question for me, just on Florida and store saturations and opportunities. Any color you could provide in terms of how you're feeling about the Florida market today additional opportunities for you to open up stores, both for the -- at the level of Trulieve and more broadly where you're seeing that? And then how that might differ for the different store model types that I know Trulieve has? And whether or not that would be dependent on adult-use becoming legalized in the state? Kimberly Rivers: Sure. So I would tell you that in Florida, we certainly -- it's interesting, because it's a little bit of a mixed bag right now. And as I mentioned, we're certainly seeing across the entire system, not just in Florida, but we're certainly seeing some price compression and some wallet pressure, and some trade-down activity. Florida is a big state. And I would tell you that one of the things we've been focused on is really ensuring that we can manage down to that specific store level, and that we understand, because not every store is positioned the same, right? And we have some stores that have very little competition around them. We have other stores that are in highly competitive environments, we have some stores that cater more towards maybe a more higher-end kind of store crowd, other stores that are more value-oriented crowds. So being able to strategically differentiate and ensure that we have the right product mix, we have the right promotional cadence, we have the right messaging techniques on a store-by-store basis is something that we have been -- we're really excited about, and that we have been really focusing on. And thankfully, we have the -- maybe the correct investments through our customer data platform and other tools that we are able to segment more specifically and effectively down to that store level. And so we look at it in Florida as really a store-by-store landscape. And you'll be seeing us launch different strategic initiatives to further lean into that. I would say that as it relates to new stores, I'll answer that as it depends, right. And I think what we are seeing in Florida is we're seeing some of our competitors actually close stores and shutter stores, which we believe is a tremendous opportunity for us to absorb those customers and let them rediscover Trulieve, and hopefully bring them into our fold. But also, right, gives us an opportunity to reevaluate the landscape and see if there are areas where we feel like we need to reposition or even potentially open additional location. So I would just say stay tuned on that, that analysis is ongoing. And absolutely, it will depend on the specifics of the location, to your point, as it relates to whether or not we would consider opening a full service, a flagship or a express type model. And as well as, of course, if adult-use is on the table, and obviously, that does change the narrative a bit as it relates to where store attractiveness -- the attractiveness of certain stores may change depending on that. Operator: The next question comes from Andrew Semple from Echelon Capital Markets (sic) [Ventum Financial Corp]. Andrew Semple: Start off with a pair of questions on capital expenditures. Just want to hone in on the capital budget of $45 million for the year. I believe you're already at $40 million in the first 9 months. So just want to check in on that, anticipate if you're seeing -- expecting to see a slowdown in the fourth quarter here on capital spending? And then just secondly on the -- on capital budgeting, I'm wondering if you have a capital budget for next year, just kind of directionally, how much you would think to spend, maybe whether it's higher or lower or roughly the same as what we're about to see in 2025? Jan Reese: Thank you. Let me take this question, Kim. First off, yes, we do have a very robust capital expenditure process and [ review ] process. We do take opportunities though, when we do have the opportunity to relocate stores to a more customer service, customer-facing program. So if you look at the $45 million that we have currently in the forecast, you can divide this in 2 main buckets. One is relocation store in Arizona, and the other one is the cultivation in Pennsylvania and Ohio, both investments long- and short-term will yield a much better return. So we went forward and make this investment. As we always do with our review process, the good things we will execute and we will do yield higher returns as we promise ourselves. Andrew Semple: Okay. And then maybe just pivoting to inventory balances. The inventory levels continue to inch higher. Do you have any color or thoughts about your inventory balances? Are you happy where that sits today? Just any thoughts around that would be appreciated. Kimberly Rivers: Yes. So as we've said consistently, our inventory is going to fluctuate a little bit from quarter-to-quarter. I think that it was $2 million increased in a -- $1.8 million in Q3. So to us, that wasn't really anything to cause any sort of alarm. And again, we believe that it's going to fluctuate quarter-to-quarter. Yes, we are happy with it now. I mean I think a couple of things just to note that we will, of course, ramp inventory prior to some store openings, which we've had in Ohio. And then additionally, as we mentioned in the prepared remarks, we've got in some markets, some new products launching as well as in Ohio, some of our brand portfolio coming through for the first time. So like we said, there's going to be a slight swings, but I don't think that there's really anything out of the ordinary there for us as it relates to inventory. Operator: This concludes our question-and-answer session. I would like to turn the call back to Christine Hersey for closing remarks. Christine Hersey: Thank you for your time today. We look forward to sharing additional updates during our next earnings call. Thanks, everyone. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the American Financial Group 2025 Third Quarter Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Diane Weidner, Vice President, Investor Relations. Please go ahead. Diane P. Weidner: Good morning, and welcome to American Financial Group's Third Quarter 2025 Earnings Results Conference Call. We released our results yesterday afternoon. Our press release, investor supplement and webcast presentation are posted on AFG's website under the Investor Relations section. These materials will be referenced during portions of today's call. I'm joined this morning by Carl Lindner III and Craig Lindner, Co-CEOs of American Financial Group; and Brian Hertzman, AFG's CFO. Before I turn the discussion over to Carl, I would like to draw your attention to the notes on Slide 2 of our webcast. Some of the matters to be discussed today are forward-looking. These forward-looking statements involve certain risks and uncertainties that could cause our actual results and/or financial condition to differ materially from these statements. A detailed description of these risks and uncertainties can be found in AFG's filings with the Securities and Exchange Commission, which are also available on our website. We may include references to core net operating earnings, a non-GAAP financial measure, in our remarks or in responses to questions. A reconciliation of net earnings to core net operating earnings is included in our earnings release. And finally, if you're reading a transcript of this call, please note that it may not be authorized to review for accuracy. And as a result, it may contain factual or transcription errors that could materially alter the intent or meaning of our statements. Now I'm pleased to turn the call over to Carl Lindner III to discuss our results. Carl Lindner: Good morning. I'll begin by sharing a few highlights of AFG's 2025 third quarter results, after which Craig and I will walk through more details. We'll then open it up for Q&A, where Craig, Brian and I will be happy to respond to your questions. We're pleased to report an annualized core operating return on equity of 19% for the third quarter. Our underwriting margins in our Specialty Property and Casualty insurance businesses were strong. Net investment income increased by 5% year-over-year despite muted returns from our alternative investment portfolio when compared to the long-term historical performance of those investments. Our compelling mix of Specialty Insurance businesses, entrepreneurial culture, disciplined operating philosophy and an astute team of in-house investment professionals continue to position us well for the future and enable us to continue to create value for our shareholders. Craig and I thank God, our talented management team and our great employees for helping us to achieve these results. I'll now turn the discussion over to Craig to walk us through some of the details. Craig Lindner: Thank you, Carl. Please turn to Slides 3 and 4 for third quarter highlights. AFG reported core net operating earnings of $2.69 per share compared to $2.31 per share in the prior year period, a 16% increase. I'll begin with an overview of AFG's investment portfolio, investment performance and share a few comments about AFG's financial position, capital and liquidity. The details surrounding our $16.8 billion portfolio are presented on Slides 5 and 6. Net investment income in our property and casualty insurance operations for the 3 months ended September 30, 2025, increased 5% year-over-year as a result of higher interest rates and higher balances of invested assets. As shown on Slide 6, nearly 2/3 of our portfolio is invested in fixed maturities. In the current interest rate environment, we're able to invest in fixed maturity securities at yields of approximately 5.25%. The duration of our P&C fixed maturity portfolio, including cash and cash equivalents, was 2.7 years at September 30, 2025. The annualized return on alternative investments in our P&C portfolio was approximately 6.2% for the 2025 third quarter compared to 5.4% for the prior year quarter. Although the overall return on our multifamily investments continue to be tempered by challenges within the broader economic environment, we're seeing evidence of recovery. Strong occupancy, a return to historical levels of lease renewals and more stability in the overall rental rate environment contribute to improving conditions despite a prolonged softer market caused by excess supply of new properties in several of our targeted regions. Importantly, a large portion of our portfolio of multifamily properties is located in desirable geographies with strong job and wage growth. Although the supply of properties in these locations is elevated as compared to historical levels, new starts have declined significantly and at a faster pace than in other regions. We believe that tightening supply and a significantly reduced development pipeline will drive higher rental and occupancy rates and improve results by the end of 2026. Longer term, we remain -- we continue to be optimistic regarding the prospects of attractive returns from our overall alternative investment portfolio with an expectation of annual returns averaging 10% or better. Please turn to Slide 7, where you'll find a summary of AFG's financial position at September 30, 2025. During the third quarter, we returned $66 million to our shareholders through the payment of our regular quarterly dividend. In October, AFG's regular quarterly dividend was increased 10% over the previously declared rate to $0.88 per share and paid on October 24, 2025. In conjunction with our earnings release, we declared a special dividend of $2 per share payable on November 26, 2025, to shareholders of record on November 17, 2025. The aggregate amount of special dividends will be approximately $167 million. With this special dividend, the company has declared $54 per share or $4.6 billion in special dividends since the beginning of 2021. Carl and I consider these special dividends to be an important component of total shareholder return. We expect our operations to continue to generate significant excess capital throughout the remainder of 2025 and into 2026, which provides ample opportunity for acquisitions, special dividends or share repurchases over the next year. We evaluate the best alternatives for capital deployment on a regular basis. We continue to view total value creation as measured by growth in book value plus dividends as an important measure of performance over the longer term. For the 9 months ended September 30, 2025, AFG's growth in book value per share, excluding AOCI plus dividends, was nearly 11%. I'll now turn the call over to Carl to discuss the results of our P&C operations. Carl Lindner: Thank you, Craig. Please turn to Slides 8 and 9 of the webcast, which include an overview of our third quarter results. Our commitment to underwriting discipline and prudent growth was evident in the solid performance of our Property and Casualty businesses in the third quarter. We're finding attractive opportunities to grow our Specialty Property and Casualty businesses despite walking away from challenging market conditions in a few markets or poorly performing accounts. I'm pleased with the overall underwriting profitability in our Specialty Property and Casualty businesses in the third quarter of this year and remain confident about the strength of our reserves. A continued favorable pricing environment, increased exposures and new business opportunities enabled us to selectively grow our Specialty Property and Casualty businesses. Although the timing of reporting of crop acreage by our insureds shifted some crop premium from the third quarter to the second quarter, as we discussed on last quarter's call. This tempered premium growth in the third quarter. We continue to expect premium growth for the full year in 2025 in the low single digits. In addition to organic growth opportunities and evaluating acquisitions, always try to maintain a pipeline of start-ups that have the potential to become new business units in our portfolio of Specialty businesses. Taking an early look at next year, we currently project 2026 premium growth to rebound as we're optimistic about the growth from these start-ups and the near completion of numerous underwriting actions taken in our Specialty and Casualty businesses. Turning to Slide 8, you'll see that underwriting profit in our Specialty Property and Casualty insurance businesses grew 19% and generated a 93% combined ratio in the third quarter of 2025, an improvement of 1.3 points from the prior year period. Results for the 2025 third quarter include 1.2 points related to catastrophe losses compared to 4.4 points in last year's third quarter. Third quarter 2025 results benefited from 1.2 points of favorable prior year reserve development compared to 0.8 points in the third quarter of 2024. Third quarter gross and net written premiums were down 2% and 4%, respectively, when compared to the third quarter of last year. Excluding our crop business, gross written premiums grew 3% and net written premiums were flat year-over-year. Average renewal pricing across our Property and Casualty Group was up approximately 5% in the third quarter, both including and excluding workers' comp. We reported overall renewal rate increases for 37 consecutive quarters, and we believe we are achieving overall renewal rate increases in excess of prospective loss ratio trends to meet or exceed our targeted returns. Now I'd like to turn to Slide 9 to review a few highlights from each of our Specialty Property and Casualty business groups. Details are included in our earnings release, so I'll focus on summary results here. The businesses in the Property and Transportation Group achieved a solid 94.1% calendar year combined ratio in the third quarter of 2025, an improvement of 2.7 points from the comparable 2024 period. This group's third quarter 2025 combined ratio included 0.4 point attributed to catastrophe losses compared to 3.7 points in the 2024 third quarter, which was the primary driver of the improved year-over-year profitability. Third quarter 2025 gross and net written premiums in this group were 6% and 9% lower, respectively, than the comparable prior year period. As mentioned before, the earlier reporting of crop acreage by insureds impacted the timing of the recording of crop premiums and contributed to the year-over-year decrease, particularly when compared to later reporting of acreage the previous year. Excluding the crop business, gross written premiums in this group grew by 2% and net written premiums were flat. We continue to see new business opportunities, a favorable rate environment and increased exposures in our transportation businesses. Overall renewal rates in this group increased 6% on average in the third quarter of 2025. We continue to remain focused on rate adequacy, particularly in our commercial auto liability line of business, where rates were up approximately 11% in the third quarter. In our crop business, harvest pricing for corn and soybeans settled 10% and 2% lower, respectively, than spring discovery pricing, which is well within acceptable ranges and yield expectations are steady. Based on these factors, we continue to anticipate an average crop year. Our third quarter results reflect an element of seasonality as most of our crop insurance premiums are earned in AFG's third quarter but booked at a more conservative combined ratio until the fourth quarter. Over the coming weeks, we'll have better visibility into actual yields and claim activity in our MPCI businesses, and we'll also have a clear indication of the performance of our private products business. With this more complete picture, we'll record the majority of our calendar year crop profitability in the fourth quarter as is our standard practice. The businesses in our Specialty and Casualty Group achieved a 95.8% calendar year combined ratio overall in the third quarter, 3.7 points higher than the 92.1% reported in the comparable period in 2024. Third quarter gross written premiums increased 3%. Net written premiums were flat compared to the same prior year period. Primary drivers of growth included new business opportunities and favorable renewal pricing in several of our targeted market businesses and an increase in M&A activity that contributed to growth in our mergers and acquisitions business. This growth was tempered by lower premiums in our excess and surplus, executive liability and social services businesses. Overall renewal pricing in this group was up approximately 7% during the third quarter, an increase of about 1 point from the previous quarter. Average renewal pricing, excluding workers' comp, was up approximately 8%, in line with pricing in the second quarter. And I'm pleased that we again achieved renewal rate increases in the mid-teens in our most social inflation exposed businesses, including our social services and excess liability businesses. In addition, our workers' compensation businesses collectively achieved a modest pricing increase during the quarter, a favorable trend. Several businesses in this group, particularly our excess liability businesses have been navigating the challenges of social inflation for several years and have demonstrated their nimbleness and resilience through the cycle. Over the last 5 years, one of our largest excess liability businesses has decreased aggregate limits by 25% while more than doubling premium, primarily as a result of rate increases. We're continuing to exercise discipline through the use of predictive analytics, risk selection and careful coordination between our underwriting, actuarial and claims professionals to ensure that our businesses are earning targeted returns. The Specialty Financial Group continued to achieve excellent underwriting margins and reported a combined ratio of 81.1% for the third quarter of 2025, 11.2 points better than the comparable period in 2024. These results reflect 4.1 points related to catastrophe losses compared to 14.4 points in the prior year period, contributing to higher year-over-year underwriting profitability in our financial institutions business. Third quarter gross and net written premiums in this group were up 3% and 1%, respectively, when compared to the prior year period. The growth is primarily attributed to our growth in our financial institutions business and our Great American Europe business, which designs and delivers a broad portfolio of innovative and customized insurance programs across the U.K. and Europe. Net written premiums were tempered by our decision to cede more of the coastal exposed property business in our lender services business. Renewal pricing in this group was down approximately 2% in the third quarter, reflecting the strong margins earned overall in these businesses. Craig and I are proud of our history of long-term value creation. We have years of experience navigating economic and insurance cycles. Our insurance professionals continue to exercise their Specialty Property and Casualty knowledge and experience to successfully compete in a dynamic marketplace. And our in-house investment team has been both strategic and opportunistic in the management of our $17 billion investment portfolio. One of our greatest strengths is finding opportunities in the times of uncertainty. We're well positioned to continue to build long-term value for our shareholders for the remainder of 2025 and beyond. Now we'll open the lines for the Q&A portion of today's call. And Craig and Brian and I will be happy to respond to your questions. Operator: [Operator Instructions] Our first question comes from the line of Michael Zaremski of BMO Capital Markets. Michael Zaremski: First question on capital management. We clearly saw the special dividend announcement. But curious why there were no buybacks or not material buybacks in the quarter. Last quarter, you had done buybacks and valuation wasn't too dissimilar from the average this quarter is my understanding. So just curious, any color there? And do you expect repurchases to resume depending on your, I guess, your answer. Craig Lindner: Yes. Mike, this is Craig. What I would say is if you look at our purchases, we become very active when the stock is trading at a very significant discount to what we believe is the appropriate value. There have been periods when we have repurchased very large amounts of shares period back in -- I think it was 2008 through 2010, we repurchased around 30% of our shares at a very attractive level. So I wouldn't read too much into one quarter's repurchases or lack of repurchases. What I would say is we've retained a lot of dry powder to be able to take advantage of the opportunity to repurchase shares if it presents itself. Michael Zaremski: Okay. That's helpful, Craig. Pivoting to the operating environment on the P&C side. I thought it was -- it's a good comment to hear, but I thought it was a bit surprising, at least we got some reaction last night from investors when you said that pricing was about 5% with and without comp, and you believe you're achieving rate in excess of prospective loss trends because most -- many companies, and I think if you look at Triangles too would kind of estimate loss trend is north of 5%. Any commentary you'd like to elaborate there on in terms of my assumption there? Carl Lindner: I can't speak for other companies. I can speak for us. And an overall 5% price increase is still exceeding our prospective loss ratio trends. We have a decent chunk of our business in workers' comp where loss ratio trends are really pretty benign. And a lot of other businesses, we have a very diverse portfolio. So not all of our businesses are -- reflect a casualty loss ratio trend in that. So I can only speak for our own mix of business and what our own actuaries tell us. Michael Zaremski: Got it. And so just -- that's helpful, Carl. And so sticking to kind of loss trend and pricing. If we can kind of try to laser in on some of the lines of business that have been causing more friction over the past year for you all in the industry. Obviously, appreciate your ROE -- AFG's ROE is industry-leading. But if we think about the social inflationary lines of business, are we seeing pricing, which had been accelerating kind of stopping its acceleration trend? And do you believe loss cost trend is kind of remaining stable? Or are we continuing to see some upwards bias? It's looking at the underlying loss ratio and Specialty and Casualty, for example, the trend line there moving a bit north? Carl Lindner: Again, with 30 businesses, there's -- we adjust loss ratio trends every quarter. We do actuarial valuations and evaluation of the business. And some loss ratio trends improve, other loss ratio trends, particularly in social inflation-exposed businesses. We're very careful about trying to be conservative enough to consider pricing in that. So I think not a lot of changes, I don't think over the past couple of quarters in overall loss ratio trends in that. But some businesses would have improved, some businesses would have increased a little bit. In our case, the part of our business where we had a slight decline was in our specialty financial business and particularly in our lender-placed property business, which at the big margins that, that business have earned for us. And after multiyears of pretty significant rate increase, it's not surprising that there was some plateauing of price on that business in that. So compared to what a lot of the E&S market and some of the large property guys are seeing with price change, I'll take a couple of percent decline on our lender-placed property business over the chunk of business that's seeing double-digit declines, if you understand what I'm saying. So I think that was one of the main drivers of our pricing being a little bit lower in that. I think what I am happy about is the pricing in our Specialty Casualty, excluding comp, is still up 8% in the quarter. And to boot, I'm very pleased that we saw some price increase in our overall workers' comp book, particularly being led by California and that clearly. And I think the California will probably only get better. Brian, you were telling me that they're going to be taking 11% increase and was it September? Brian Hertzman: Effective September 1. Carl Lindner: Yes, effective -- yes. So I think that's the price increase there in California should just get better in that. I hope that gives you a little color. Operator: Our next question comes from the line of Andrew Andersen of Jefferies. Andrew Andersen: Maybe just back on the workers' comp. It was good to see that price tick up, and it sounds like California could see some further momentum. But perhaps we could touch on some other geographies. Are you seeing some pricing tick up a little bit elsewhere? Carl Lindner: In our strategic comp business, which is a fairly sizable business, there was some positive price change there also in that. I think in the Southeast and the Summit business continues to be some kind of a mid-single-digit price decline in that. Andrew Andersen: Okay. And maybe a bigger picture macro question just on crop. Pricing on corn and soybeans has been coming in for a couple of years, and I suppose that could partially be due to some change in trade policies. But I'd be interested in hearing your thoughts just kind of on the outlook maybe intermediate term for crop premium and crop pricing as kind of trading with global partners changes. Carl Lindner: Well, I think you probably need a pretty good crystal ball trying to figure that out. You would think that probably the trade aspect of soybeans is probably being reflected in the futures prices at this point, which would lead you to believe that premium should be stable or maybe even increasing corn when you look at futures prices into '26, it looks to be pretty stable against spring discovery prices this year in that. That said, we don't know until the actual 30-day average in the first quarter next year establishes spring discovery prices in that. But what I've seen so far, it seems like prices should be stable or if there's an improvement in the China relationship with the U.S., maybe soybean pricing continues to improve more. Operator: [Operator Instructions] Our next question comes from the line of Meyer Shields of Keefe, Bruyette, & Woods. Meyer Shields: I also had 2 questions on crop. The first, I completely understand the comments about written premium having moved to the second quarter. I'm wondering whether there was a higher percentage of earned premiums in Property and Transportation this year rather than last year as a contributor to the higher attritional loss ratio. Brian Hertzman: This is Brian. So if you remember, last year at this time, we were feeling pretty optimistic about the potential for an above-average crop year. And then in the fourth quarter, there was some variation in harvest by county that caused us to end up at a more of an average crop year. So we booked a little bit more crop income last year in the third quarter than we did this year in the third quarter. So this year, in the third quarter, we have about half of our crop premium earned for the year in the quarter, booked at close to 100 combined ratio. If you pull out all the noise from crop, our accident year loss ratio for Property and Transportation actually improved due to lower frequency in our transportation and marine businesses. So if you kind of put the noise of crop the side, we did see an improvement there in the loss ratio. Meyer Shields: Okay. That's very helpful. And I'm just wondering, bigger picture in crop. So there's a new participating insurance company over the last couple of years. Is that having any impact on the amount of premium you're getting from agents or maybe some agents moving along? I don't know how mobile we should think of that premium as being. Carl Lindner: I think it probably impacts us marginally on that. What our guys would say is they're probably getting some of the business that we'd be least excited about. Operator: [Operator Instructions] Okay. I'm showing no further questions at this time. I'll go ahead and turn the call back over to Diane Weidner for closing remarks. Diane P. Weidner: Thank you all for participating today. We appreciate your questions and look forward to talking to you again next quarter when we share our fourth quarter results. Hope you have a great day. Operator: Thank you for your participation 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 Brilliant Earth Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Please go ahead. Colin Bourland: Thank you, and good morning, everyone. Welcome to the Brilliant Earth Third Quarter 2025 Earnings Conference Call. My name is Colin Bourland, Vice President of Strategy, Business Development and Investor Relations. Joining me today are Beth Gerstein, our Chief Executive Officer; and Jeff Kuo, our Chief Financial Officer. During today's call, management will make certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings for a description of the risks that could cause our actual performance and results to differ materially from those expressed or implied in these forward-looking statements. These forward-looking statements reflect our opinion only as of the date of this call, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements in light of new information or future events unless required by law. Also, during this call, management will refer to certain non-GAAP financial measures. A reconciliation of Brilliant Earth's non-GAAP measures to the comparable GAAP measures is available in today's earnings release, which can be found on the Brilliant Earth Investor Relations website. I'll now turn the call over to Beth. Beth Gerstein: Good morning, everyone, and thank you for joining us today. As always, we're pleased to share our third quarter results with you, and this quarter is more special than usual as it marks the 20-year anniversary of Brilliant Earth's founding. Two decades ago, Eric Grossberg and I set out to create a company that reimagined our industry with impact at its core. Over the years, we've created industry-leading practices that set new standards for how jewelry is sourced and manufactured. And we have revolutionized how consumers shop for and experience jewelry with a highly personalized and seamless omnichannel shopping experience. I am incredibly proud of our achievements over the past 20 years, and today's results reflect both the consistency and the resilience with which we've built our company. We've built something truly extraordinary that has redefined what luxury means, creating a globally loved brand with beautifully designed collections, and we've shown that purpose and profit can be a powerful force for good. We've been able to do this with an innovative asset-light data-driven business model while achieving consistent profitability quarter after quarter. As we look to the next 20 years, our optimism and ambition are as strong as ever. As one of the largest stand-alone jewelers, we are uniquely positioned to continue challenging the status quo, capturing market share and leading the transformation of the highly fragmented $350 billion jewelry industry. And now turning to our third quarter performance. I'm pleased to report that we delivered exceptional results across the board. Our net sales grew 10% year-over-year, surpassing our guidance and exceeding expectations. This strong performance included a return to growth in engagement ring bookings, our largest quarter ever in wedding and anniversary band bookings and an impressive 45% year-over-year growth in fine jewelry. We believe that we are continuing to outpace industry growth and build brand awareness. And we were able to do this all while delivering another quarter of profitability with Q3 adjusted EBITDA landing at $3.6 million, near the midpoint of our guidance range. I'm particularly proud of how we delivered this profitability with 2 key operational advantages that demonstrate the strength and differentiation of our business model. First, we showed our ability to maintain strong gross margins despite facing some of the most challenging input cost pressures our industry has ever seen. During the quarter, on average, gold and platinum prices were up approximately 40% year-over-year at or near all-time highs, while we also navigated new industry-wide tariff impacts. Despite these significant industry-wide headwinds, we maintained our gross margin within our medium-term target range of the high 50s. This speaks directly to the strength of our geographically diversified supply chain, our strong vendor relationships, our price optimization engine and our ability to adapt quickly in dynamic environments, advantages that truly set us apart from competitors. Second, we achieved remarkable marketing efficiency, driving 300 basis points of year-over-year marketing leverage while still increasing traffic and delivering double-digit revenue growth. Our ability to continually optimize our model and to leverage technology, including AI and machine learning has enabled us to keep refining how we allocate our marketing spend while also driving increased awareness and quality traffic. Now let me take you through some other highlights from the quarter. For Q3, total orders grew 17% year-over-year, while repeat orders grew 16% year-over-year, demonstrating strong brand resonance in attracting new customers as well as driving long-term customer loyalty. As you know, engagement rates are an important first purchase for our customer as well as a meaningful portion of our sales. Over the past several years, you've heard me speak about the multiyear market normalization following the peaks in engagements during 2021 and 2022. I'm thrilled to share that this quarter marks an inflection point in our engagement business with a return to year-over-year bookings growth. We've also seen continued stabilization in engagement ring average selling prices with sequential ASP growth in the last 2 quarters this year. This reflects the strength of our brand positioning and product assortment, especially our exclusive Signature collections. The Signature collections, exclusive collections that we are known for, grew nearly 3x faster than our total engagement ring assortment. This tells us that customers are increasingly seeking Brilliant Earth as a design leader for one of the most meaningful purchases in their lives. Together, our engagement ring acceleration demonstrates that the investments we've been making over the last few years are delivering strong returns as the bridal market recovers. And this momentum extends beyond our bridal portfolio. Our wedding and anniversary band assortment delivered double-digit year-over-year bookings growth, including growth in both men's and women's collections, resulting in our largest quarter of wedding and anniversary band bookings ever. Fine jewelry, which was 14% of our bookings in Q3, continues to be a standout growth driver. Bookings grew an impressive 45% year-over-year, driven by both unit and ASP growth, reinforcing the increasing resonance that we have as a fine jewelry destination of choice. As in engagement rings, our iconic fine jewelry collection significantly outpaced our total fine jewelry growth. This quarter, we added breathtaking new pieces to our design-leading [indiscernible] and Jane Goodall collections, collections that are increasingly establishing Brilliant Earth as the go-to brand for unique and distinctive fine jewelry. The Jane Goodall collection remains our best-performing new collection launch to date and is a testament to how customers connect with jewelry that combines exceptional design with meaningful purpose. Sadly, Jane passed away just a week after we launched our second collection with her. Our hearts go out to her family and The Jane Goodall Institute. Over the past 2 years, I had the honor of getting to know Jane personally. She was an innovator, disruptor and champion for good. We couldn't have asked for a better partner for Brilliant Earth. We're so proud to continue honoring her legacy through our ongoing partnership with the institute. Our business results reflect our continued strategic brand investments, which are delivering awareness and resonance. This quarter alone, we achieved incredible celebrity placements with stars like Justin Bieber, Sabrina Carpenter, Sydney Sweeney, Halsey, and Brittany Snow choosing Brilliant Earth for everything from music videos to the red carpet. These celebrity moments resulted in over 200 placements and generated over 13 billion impressions in Q3. Additionally, our partnership with Tennis Champion Madison Keys as our first athlete ambassador continues to resonate [indiscernible]. These authentic brand moments, combined with our strategic marketing investments are driving outsized success across earned marketing channels, ultimately translating to accelerated order growth and strong brand recognition. As we enter the holidays, I am confident we're more prepared than ever to deliver another successful season. We've approached this quarter with exceptional focus across the business to ensure we maximize this critical opportunity and build on our track record of strong holiday performance. We're exceptionally well positioned for the season from our showroom experiences and marketing strategy to a strong pipeline of new products, including our recent Love Decoded collection and the expansion of our incredibly popular 20th anniversary, Pacific Green Diamond into a new fine jewelry collection. We've curated an incredible range of giftable products under $1,000 that we believe will resonate strongly this holiday season. And as the holidays are also a peak engagement season, we are leading bridal design trends with new styles, including wider widths, bezel settings and fancy shapes alongside our timeless bestsellers and ready-to-ship preset engagement rings. This holiday, you will see us execute elevated visual merchandising, targeted showroom events like trunk shows and increased inventory to continue elevating our overall showroom experience. These investments reflect the application of our continuous test-and-learn approach and the growing sophistication of our omnichannel model. Our captivating delight in the details holiday campaign celebrates the artistry and craftsmanship behind our jewelry through whimsical illustration by renowned French illustrator, Geoffroy de Crécy, capturing both the precision of our collections and the joy of the season. We're still early in the season, but I'm pleased with the performance we're seeing across the business through October, including year-over-year bookings growth in engagement in wedding and anniversary band, strong outperformance in fine jewelry and year-over-year growth in both new and repeat orders. While metal prices and tariffs continue to present industry-wide headwinds, our agile data-driven business model and globally diversified supply chain position us to navigate these challenges and deliver successful business performance this holiday season, just as we've done throughout the year. Before I hand the call over to Jeff, I want to thank our incredible team whose dedication and execution continue to drive these outstanding results. This is just the beginning of what we can achieve as we leverage our 20 years of expertise of designing beautiful collections, driving brand strength and executing with industry-leading operational excellence to capture the enormous opportunity ahead in the global jewelry market. Chuenhong Kuo: Thanks, Beth, and good morning, everyone. As Beth mentioned, we're pleased to report Q3 results where we continue to successfully drive our strategic initiatives, deliver strong top line growth and continued profitability and cash generation. Let me take you through the details for Q3. Q3 net sales were $110.3 million, up 10.4% year-over-year, exceeding the top end of our guidance range by approximately 40 basis points. Total orders grew 17% year-over-year and repeat orders grew 16% year-over-year in the third quarter, demonstrating the effectiveness of our customer acquisition and retention efforts and the resonance of our brand and products with consumers. Average order value, or AOV, was $2,209 in Q3. This represents a decline of 5.5% year-over-year in Q3 and up 6.5% quarter-over-quarter. Our AOV reflects the great success we have had broadening our overall assortment, including strong performance in our fine jewelry collection, which carries a comparatively lower price point, growth in engagement rings and the increases that we've seen in engagement ring ASPs this year. Q3 gross margin was 57.6%, within our medium-term gross margin target in the high 50s and a 320 basis point decline over Q3 last year. We were able to drive this robust gross margin even in the face of record gold and platinum prices and dramatic changes in the tariff environment that were not included in our Q3 guidance. This highlights the agility and resilience of our business model, including our data-driven approach to decision-making and our globally diversified supply chain. We delivered Q3 adjusted EBITDA of $3.6 million or a 3.2% adjusted EBITDA margin within the midpoint of our guidance range, driven by our compelling gross margins, significant year-over-year marketing leverage and overall OpEx discipline. This marks our 17th consecutive quarter of positive adjusted EBITDA and highlights the strength and sustainability of our business model. Q3 operating expense was 58.1% of net sales compared to 61.9% of net sales in Q3 2024. Our disciplined management of expenses while also driving growth and investing in the business is strongly demonstrated in the 380 basis points of leverage year-over-year. Q3 adjusted operating expense was 54.4% of net sales compared to 57.3% in Q3 2024. Adjusted operating expense does not include items such as equity-based compensation, depreciation and amortization, showroom preopening expenses and other nonrecurring expenses. Q3 marketing expense was 23.7% of net sales compared to 26.7% of net sales in Q3 2024. This represents approximately 300 basis points of year-over-year leverage, demonstrating our capabilities to drive significant marketing efficiencies while delivering strong top line growth ahead of expectations. Employee costs as a percentage of net sales were higher in the third quarter by approximately 30 basis points as adjusted year-over-year. This includes growth in showroom employees, including from newly opened showrooms as we continue to strategically focus on our showroom expansion. Other G&A as a percentage of net sales decreased year-over-year by approximately 20 basis points as adjusted for the quarter as we continue to prudently invest in our business while driving strong top line growth. Our year-over-year inventory grew approximately 28%, principally as a result of strategic procurement opportunities in Q3 to purchase inventory at advantageous prices in light of the current tariff environment as we did in Q2. Even with this year-over-year increase, our inventory turns continue to be significantly higher than the industry average, and we maintain conviction that the agility of our data-driven, capital-efficient and inventory-light operating model continues to be a compelling competitive advantage. We ended the third quarter with approximately $73 million in cash. On a trailing 12-month basis, we've generated approximately $12 million of free cash flow, demonstrating our ability to generate cash. And on a pro forma basis, adjusting for the onetime dividend and distribution of approximately $25 million completed in Q3, net cash would have ended the period approximately $4 million higher year-over-year. As you know, our Q3 results also include paying down our term loan, leaving us with no debt on the balance sheet. In Q3, we spent approximately $96,000 repurchasing our common stock. This takes our total spend on stock repurchases to date to approximately $1.1 million as of the end of Q3. Turning to our outlook for fiscal year 2025. We are raising our full year net sales guidance to 3% to 4.5% growth year-over-year. Drivers include improvements in engagement ring bookings year-over-year performance, strong fine jewelry performance, coupled with the fact that Q4 is the seasonally biggest fine jewelry quarter and the growth and annualization of our showrooms. In terms of year-over-year comps, our guidance also considers the fact that 2024 Q4 year-over-year net sales were comparatively stronger than 2024 Q3. For full year adjusted EBITDA margin, we expect that to be approximately 2% to 3% as we continue to manage for strong gross margins, drive marketing leverage for the year and balance making investments with driving near-term profitability. For Q4 gross margin, we do expect some impact from gold and platinum spot prices, which are both near all-time highs with gold and platinum spot prices up 19% and 20%, respectively, just in the time from our last earnings call to the end of October. We are also now incorporating the additional 25% tariff on India announced in August 2025. We continue to believe that we are better positioned than most to nimbly navigate this environment with our agile, data-driven approach and globally diversified supply chain. As mentioned before, we expect to drive year-over-year leverage in marketing spend for the year, including through the use of AI and machine learning to capture efficiencies. And we expect to continue to make near- and longer-term investments through the end of the year, including in employee costs and other G&A while managing the business for profitability. We expect that some metal and tariff headwinds will continue into Q1. We'll provide further perspectives on 2026 in our next earnings call. Our data-driven approach, including agile price optimization, disciplined expense management and our asset-light business model position us well to outperform the industry while delivering profitable growth. This quarter's strong execution reinforces our capability to identify and capture opportunities to drive sustainable, profitable growth and create value for our shareholders. With that, I'll turn the call over to the operator for questions. Operator: [Operator Instructions] our first question comes from the line of Oliver Chen of TD Securities. Oliver Chen: Great quarter. As we think about engagement ring bookings, it was exciting that they returned to growth this quarter. How sustainable do you think the inflection here? And what are your expectations for bridal recovery versus fine jewelry mix over the next year? Second follow-up is the cost of goods sold and inflation that you're seeing now. You maintained some really high gross margins. What do you think will happen in terms of what you're trying to do with hedging going forward? It's a pretty dynamic environment. And how are customers feeling and executing around pricing from what you see in the market? It's a bifurcated consumer with money to spend, but the consumer is being choiceful in our view. Beth Gerstein: Thank you, Oliver. Well, maybe we can start with that in terms of the consumer. We have been pleased with the consumer demand that we have been seeing. And I think you're right that we typically do have a higher income customer and that bifurcation, we haven't necessarily seen some of the volatility in the lower end of the market but have been really encouraged by the response that we've seen in terms of the products, the brand, the overall experience. So generally speaking, we're pleased with what we're seeing on the consumer side. As it relates to kind of the mix that we're seeing around the assortment, I think what we were really excited about during the quarter is just strength across the assortment. So from engagement rings to wedding bands and anniversary rings to fine jewelry, we really saw strength kind of across all of what we were intending to do. And that was, I think, something that we were excited by as well. I think engagement rings, we were really happy to see that bookings increase, and I think you remember last quarter, we saw a big unit increase as well. So we're not going to "call it." We do recognize there are puts and takes in any given quarter as it relates to bridal recovery, but we are pleased with what we are seeing, and we expect to continue taking share, outperforming the industry with the broader market as it continues to recover. So we're very well positioned. And then I would just say we continue to think we have very strong fine jewelry opportunity. It's a massive market. The growth that we're seeing is extraordinary with plus 45% in Q3, and we continue to think that there's an outsized opportunity there across all of our channels. So I would expect to see that mix continue to increase. Jeff, I don't know if -- I think maybe why don't we stop it there. Operator: Our next question comes from the line of Anna Glaessgen of B. Riley Securities. Anna Glaessgen: I'd like to start with the shift in adjusted EBITDA margin guidance. Could you put a finer point on what -- how you're contemplating the various headwinds between the metals pricing and the incremental tariffs? And to what extent you've taken price already to help compensate for some of these? Or could that be layering on to the model in the future? Beth Gerstein: Maybe I can start a little bit on the price. As you know, we've been -- we continually optimize on our pricing. It's basically part of the test and learn culture that we have as a company. I will say that we've taken selective pricing increases. And I think especially as we're leaning more into Signature styles that are proprietary to Brilliant Earth, we've seen strong demand even as we've been increasing some of those prices. So generally speaking, I think there's -- we're on the journey. Q4, we find to be a more promotional season. So I think as we're thinking about price increases, we're much more selective as it relates to the Q4 environment. But generally speaking, I think we've done a really good job in terms of being able to absorb some of the costs, especially in Q3, if you look at how costs increased throughout the quarter, and yet we were still able to maintain that -- the margin that we expected and gave guidance to. I think that's a testament to the strong operational excellence that we have in order to do so. So Jeff, maybe you can talk a little bit about adjusted EBITDA guidance. Chuenhong Kuo: Sure. I'd be glad to. And I think I'd just like to build on what Beth was saying in that we're able to adapt and adjust very quickly to dramatic changes in input costs, and you can really see that in the success of our Q3 results. We are factoring in ongoing metal and tariff changes into our Q4 guidance. As you know, both metal and tariff costs continue to change significantly since our last earnings call. As I mentioned, gold and platinum were up at 19%, 20% even in time just since our earnings call to the end of October, and we're also now factoring in the 25% additional India tariff, which went into effect in August. And so I think those factors are significant. We're able to adapt and mitigate significantly. For outlook for gross margin for the quarter, we do expect a similar year-over change in gross margin as we saw in Q3 as we continue to work to mitigate these changes that we're seeing. And we do believe that over time, we have additional tools at our disposal to continue to adjust and be nimble and really deliver strong top line and gross margin performance. And we think that we're better positioned than most and results that we've demonstrated over the last couple of quarters, I think, are real great illustration of our agility. Anna Glaessgen: Turning back to the Bridal category. Could you remind us what the typical lag is between engagement and wedding bands, if there is one? Just trying to think through if there's a possible tailwind into 4Q and beyond from the inflection in the engagement in 3Q? Beth Gerstein: Sure. I would say that typically, people get married about a year after they get engaged, and there's a very wide range there, including people who will buy a matching set upfront. But that's typically what the profile looks like. And I think the only thing I would add also is just that we're seeing nice repeat behavior. And so it's very important for us to be able to convert that engage our end customer to wedding band and then nurture them to other light stage moments. And so we're happy to see the repeat business that we've been seeing. And I think it's a testament to a lot of the activities that we're doing to drive brand loyalty. Operator: Our next question comes from the line of Ashley Owens of KeyBanc Capital Markets. Ashley Owens: Maybe just to start, Jeff, could you talk a little bit about the top line guidance for the full year? I know comp -- and then just backing into 4Q as well. I know comp isn't as favorable as 3Q, but I believe we're looking at a range of about 2% to 7% top line growth in the quarter, if my math is correct. Just anything to call out in terms of headwinds you're embedding, then any insight as to how we should bridge between those 2 goalposts? It sounds like October is off to a good start, if I'm not mistaken. So is there some caution embedded in that top line number? Chuenhong Kuo: I would say that in terms of the top line guidance that we've provided, we're factoring in things that Beth was saying about what we've seen through October, including growth in engagement and wedding and anniversary bands and the strong outperformance in fine jewelry. And so we were glad to be able to raise our outlook for the year. We've seen good performance in the business overall. And it's a big quarter for us. The bulk of the holiday still lies ahead. So there's naturally some range in terms of possible outcomes. But I think we've seen strong performance. We're glad to see the inflection in engagement rings, and we think that we're very well positioned to deliver a strong holiday. Beth Gerstein: And I would just add that, yes, the comps on Q3 were a little bit weaker than Q4 as well. So that's something that we factored in. Ashley Owens: Okay. Got you. And then just as a follow-up, I noticed AOV declined less sharply this quarter. I think it was mid-single-digit declines versus the double digits we've been seeing for a few quarters now. How much of that improvement is driven by engagement recovery versus a broader normalization within that KPI? And then just as we look ahead, should we think of mid-single-digit declines as a more sustainable run rate moving forward? Beth Gerstein: Jeff, do you want to take that one? Chuenhong Kuo: Yes. I would say that factored into that is, of course, underlying, we've had outperformance in fine jewelry, which is a comparatively lower price point. We've seen that nice inflection in terms of engagement rings. And so that's contributing as well to the overall AOV mix. And I think one other thing that's noteworthy is just the sequential increases in engagement ring ASPs that we've seen in each of the last couple of quarters. And I think that really speaks to how people are resonating with our brand and our products. And so we don't have a specific number out there in terms of forward-looking AOV percents, but we do think that those factors like growth and success in fine jewelry will continue to contribute to the -- what happens to overall AOV, and we're glad to see the strength that we're having in engagement, both bookings and ASP. Operator: Our next question comes from the line of Dylan Carden of William Blair. Anna Linscott: This is Anna on for Dylan Carden. Could you just elaborate further on what efficiencies you're seeing in marketing to allow better sales and leverage in that line item? Beth Gerstein: Yes. Thanks, Anna, for the question. We were really pleased to see the marketing efficiencies. As you picked up, we had about 300 basis points of marketing leverage. And I would say that we've driven this efficiency in a variety of different ways. We've been getting smarter about the allocation of spend across channels. We have a lot of sophistication across our team with machine learning models to help drive increased site conversion. We're seeing strength in the showrooms, which are always a nice lever there as it relates to driving marketing efficiencies as well. So overall, we've been -- we were really happy to see that we had such strong sales growth even as we were able to be much more efficient about deploying our marketing spend and continuing to drive that brand awareness that's so important strategically for us. Operator: [Operator Instructions] For our next question, we welcome back Oliver Chen with TD Securities. Oliver Chen: The cash position is also attractive and brilliant. What are your capital priorities as you think ahead -- as you think about marketing versus collections and international expansion in terms of cash and CapEx? And then on this quarter that we just had, what factors drove the upside in terms of find versus engagement or existing versus new customers, if there were factors that you'd call out? Beth Gerstein: Sure. Well, maybe I can start with that. Overall, I feel like we've been doing a really fantastic job in terms of driving an optimized curated assortment. So the products that we're offering are really resonating with our customers, both in terms of the key diamond collections, those essentials that everybody wants in their jewelry box as well as the designs that we're increasingly known for with our iconic new collections. For example, our [indiscernible] expansion, the Jane Goodall collaboration. All of those, I think, were really received very well by our consumers. And I think the marketing campaigns that we do behind them have been also a standout and helped really break through and are resonant in today's environment, especially for that key consumer that we have. So really in terms of driving upside, it was fine. In fine jewelry, it was repeat, it was new, it was really across the collection. So I would say that there were bright spots all around. As it relates to how we think about our investments, maybe I can start and Jeff, you can please add on. I think you're right that we have a really strong balance sheet with a nice cash position. So that gives us a lot of flexibility. And we continue to invest in opportunities that we see a strong return on investment. So that continues to be expanding our showroom footprint, looking at how we drive brand awareness, but we do it all with a very keen eye towards that ROI. So we have high benchmarks. We continue to see opportunity to invest and have seen good returns on those investments. But I would say that's really the -- how we think about overall that allocation going forward. Chuenhong Kuo: Okay. And on the lab diamond trends that you're seeing now, lab has been an important gifting factor and more. What are the latest lab diamond demand and pricing trends that you'd highlight in your forecast for how that market is growing? Beth Gerstein: Sure. Well, what I would say about the lab diamond product is that there's very wide consumer awareness at this point. I think consumers love the product. On the fine jewelry side, we see a lot of opportunity there and have seen really nice sales growth as it relates to the lab diamond assortment. I think it provides accessible price points for consumers. And that's why you see so many tennis bracelets and more and more, I think, embracing some of the fine jewelry trends with layering multiple earrings, et cetera. So overall, I think that it's been great at expanding that accessible market. And because we've been leaders introducing lab diamonds over a decade ago, I think we've been at the forefront of that. I think one more thing I would just add is that I mentioned we are really excited about the holiday season. Part of that is we've curated an exceptional collection under $1,000. And I think the lab diamond component of that is really exciting. Oliver Chen: That was the last question, Beth, on this holiday, you called it out. Why was this different this year? Or what are your thoughts in the environment that make it conducive to the strategy you're speaking to? Beth Gerstein: I'm not sure it's necessarily different. I just think that we continue to see opportunity, and we're very prepared in terms of the holiday season. We've been doing really well across some of the key moments. So Valentine's Day, Mother's Day, I think we just do a really fantastic job with the team of executing well in key holiday moments. Operator: I'm showing no further questions at this time. I would now like to turn it back to Beth for closing remarks. Beth Gerstein: Thank you, everyone, for joining us for our Q3 quarterly call. Hope you all have a fantastic holiday, and we look forward to talking to you in Q1. Operator: All right. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Beth Gerstein: Thank you.
Randall Giveans: Thank you for standing by ladies and gentlemen, and welcome to the Navigator Holdings conference call for the third quarter 2025 financial results. On today's call, we have Mads Peter Zacho, Chief Executive Officer; Gary Chapman, Chief Financial Officer; Oyevind Lindeman, Chief Commercial Officer; and myself, Randy Giveans, Executive Vice President of Investor Relations and Business Development in North America. Now I must advise you that this conference call is being recorded today. As we conduct today's presentation, we'll be making various forward-looking statements. These statements include, but are not limited to, the future expectations, plans and prospects from both a financial and operational perspective and are based on management assumptions, forecasts and expectations as of today's date, November 5, 2025, and are as such, subject to material risks and uncertainties. Actual results may differ significantly from our forward-looking information and financial forecast. Additional information about these factors and assumptions are included in our annual and quarterly reports filed with the Securities and Exchange Commission. With that, I now pass the floor to our CEO, Mads Peter Zacho. Please go ahead, Mads. Mads Zacho: Thank you. Good morning and good afternoon, and thank you all for joining this Navigator Gas earnings call for Q3 2025. As a start, I'll just review the key data from our Q3 '25 performance, and then I'll go over the outlook for the coming quarter. After that, as usual, Gary and Oeyvind and Randy will discuss the results in more detail. The quarter was, in many ways, a return to more calm waters after the unusual and difficult Q2. In Q3, we saw geopolitical tensions recede somewhat. Port fees from the U.S. and later China now seem to be gone and tariffs appear to have found their level. However, for Navigator, we still saw an impact from the trade turmoil in our Q3 trading, particularly from the significantly lower ethylene exports from U.S. to China. Oyevind is going to bring a little bit more color to this topic shortly. Please turn to Slide #4. With that background and moving to our results. In Q3, we generated revenues of $153 million, up 18% compared to the previous quarter and 8% compared to same period last year. The main driver of revenue was both higher time charter equivalent rates, but also robust utilization. We're pleased to disclose that we achieved the highest EBITDA on record at $86 million and an adjusted EBITDA of $77 million, the latter number, which excludes the $13 million of book gain from selling Navigator Gemini. You may recall that we sold Navigator Venus last quarter at a book gain of $12 million. And I think if we combine the 2, I believe it gives pretty strong credence to our estimated net asset value. The balance sheet is very strong with a cash position of $216 million at quarter end plus drawing rights, which leaves us with $308 million of liquidity. You will note on 4th November, we increased our capital return to 30% of net income from previously 25%. Similarly, we have increased the fixed dividend from $0.05 per share to $0.07 per share. This reflects our strong balance sheet and equally important, our commitment to increasing the return of capital to shareholders. Commercially, we achieved average TCE rates of $30,966 per day during Q3, which is a 10-year high and well above the just over $28,000 that we achieved in Q2. We reached a utilization of 89.3%, well above the 84.2% we saw in Q2. Average utilization was supported by a steep recovery for our ethylene spot fleet, while our semi-ref fleet stayed robust. Throughout the throughput at our joint venture ethylene export terminal increased to 271,000 tons for the quarter, roughly similar to Q2, but still below full capacity. We paid further installments on our [ Panda ] newbuilds, and we paid the first installments of the new 2 ammonia-fueled vessels that we have chartered out to Yara. Due to our balance sheet strength, the contract cover and robust financing markets, we expect to finance all of our newbuilds at attractive margins and loan to value. So they'll tie up limited equity capital and be earnings accretive from delivery in 2027 and 2028. While I already covered the sale of Navigator Gemini, I should mention that you should expect to see more sale of older vessels that will enhance earnings over the coming months. Headwinds experienced in the first half of '25 have eased but not disappeared. We hope to see more stable market conditions going forward when geopolitical uncertainties ease. As a result, we expect both utilization and average TCE rates to remain near Q3 '25 levels. And we're noting both September '25 and October '25 utilization were above 90%. Now we can't really predict the outcome of trade discussions between the U.S. and trading partners such as China and much can still change. But with the diversified customer base we have, the trading capability and the strong balance sheet we have, we remain resilient even if the geopolitical situation takes an unexpected turn. And with that, I'll just hand it over to Gary, who will talk a little bit more about our financial results. Go ahead, please, Gary. Gary Chapman: Thank you very much, Mads, and hello, everybody. During this quarter, as Mads mentioned, we've continued to experience headwinds from geopolitics that have affected our markets. So it's very pleasing to us to be able to report strong results despite this backdrop and compared to the results we delivered in the previous second quarter of this year. These results are a function of many things, including our cargo diversification, our geographical flexibility, our market position, our strong financial foundations and very importantly, as a result of the people side of our business being our colleagues here internally and also the strength and depth of our customer relationships and market knowledge. And arising from this, our third quarter 2025 results are the best so far this year, and some data points are even record-breaking for Navigator, where we've been able to push charter rates and maintain utilization, supported by our operational flexibility and efficiency and our cost controls. On Slide 6, we report the highest quarterly TCE in the last 10 years of $30,966 per day, leading to quarterly net operating revenue of $133 million and our highest quarterly EBITDA on record of $85.7 million. The high TCE this quarter was primarily due to the performance of our ethylene vessels and our semi-refrigerated handysize fleet, supported by a solid performance from our fully refrigerated and midsized vessels. Utilization was 89.3% in the third quarter, practically at our preferred benchmark of 90%, which is down 2% compared to the second quarter of 2024, but up 5% compared to the second quarter of 2025. In this third quarter, we sold another of our vessels, the Navigator Gemini, as Mads has mentioned, for net proceeds of $30.4 million, resulting in a book gain of $12.6 million, which demonstrates our ability to refresh our fleet on both buy and sell sides as opportunities arise. Excluding this gain from EBITDA as the main difference, we get to an adjusted EBITDA result of $76.5 million, considerably above the still respectable $60 million we posted in the second quarter of this year. Vessel operating expenses were up compared to the third quarter of 2024 at $49.3 million, with the increase primarily driven by the net increase in our fleet size following the purchase of 3 secondhand vessels in the first quarter of this year, which you can see is reflected in the table shown bottom right, as well as simply the timing of maintenance costs incurred. We expect to close the year on or close to budget for our OpEx costs, adjusting for the extra vessels, and we'll see our guidance on Slide 9 shortly. Depreciation is slightly down compared to previous quarters despite our now increased fleet, mainly due to 2 older vessels that have reached the end of their accounting life during the quarter, and hence, no longer will be depreciated. Unrealized movements on non-designated derivative instruments resulted in a loss in the third quarter of $2.6 million. This being related to movements in the fair value of our long-term interest rate swaps, which affects net income, but which has no impact on our cash or liquidity. Our income tax line reflects movements in current tax and mainly deferred tax in relation to our equity investment in the ethylene export terminal and in relation to the Navigator Aries, which was sold on October 1, 2025, to another group company. And under U.S. GAAP accounting rules state that intra-group sale required us to recognize an associated deferred tax liability at September 30, 2025. The ethylene terminal throughput volumes in the third quarter of 2025 were solid at 270,594 tons, up from 268,000 tons in the previous quarter, resulting in us recording a profit this quarter of $3.3 million. But overall for the third quarter of 2025, net income attributable to stockholders was $33.2 million, which is our highest quarterly net income on record, with basic earnings per share of $0.50, which is our highest quarterly EPS in the last 10 years. Our balance sheet, shown on Slide 7, continues to build and be strong with a cash, cash equivalents and restricted cash balance of $216.6 million at September 30, 2025, which if you include our available but undrawn revolving credit facilities, gives us total available liquidity of $308 million at the same date. This is despite paying out $31 million for scheduled loan repayments, $5.4 million under our return of capital policy in respect to the second quarter of 2025, $37 million as payments for our vessels under construction and a further $20.4 million of share buybacks as part of the $50 million share repurchase plan that we've just executed. Our liquidity in the quarter was also boosted by the $30 million net proceeds from the sale of the Navigator Gemini, which completed in September. It's worth noting that our investment in the Morgan's Point terminal on our balance sheet sits at an equity value of $252 million. It is almost fully unencumbered now with only $4 million of debt remaining, which will be repaid in December this year. Alongside this, we paid from our own cash a total of $99 million at September 30, 2025, towards the vessels we have under construction. The small difference to the balance sheet figure represents capitalized interest under U.S. GAAP. I think the unencumbered terminal and the construction payments made from our cash on hand, together with still a growing liquidity profile are further reflections of the financial stability and strength that Navigator is able to demonstrate. And to bring you up to date, including our available but undrawn revolving facilities, we continue to have over $300 million of liquidity at the close on November 3, 2025. On Slide 8, we show a summary of the main capital events across the quarter where with a very supportive banking group and a strong underlying business, we were able to return capital to shareholders, boost our liquidity and continue to work towards managing our debt financing needs and interest rate risk. Following 2 particularly active quarters this year, during which the company successfully entered into new secured term loan, refinanced 2 existing loan facilities and issued a $40 million tap of our existing senior unsecured bonds. This quarter, we completed a full $50 million share repurchase plan that commenced in the second quarter of 2025 with a total of 3.4 million shares repurchased at an average price of $14.68 against the company's estimated net asset value of around $28 per share. We also returned 25% of net income to shareholders in respect to the second quarter of 2025, $2.1 million of share buybacks and $3.3 million as a cash dividend of $0.05 per share. And as announced, we will now return 30% of net income in respect of this third quarter of 2025, which Randy will cover in more detail shortly. But we think the uplift in the return of capital policy strikes the right balance at this point, rewarding our shareholders with higher returns while ensuring that our steps here are considered and sustainable. In addition to our scheduled repayments, we now only have 2 small debt balloons due in the next 24 months with payments due in 2026 of $54 million in total. And on the right side of this slide is a summary of our main debt movements across the last quarter. Our next priority is to close financing in relation to our now 6 newbuild vessels, and this work has already started with the transactions being pursued. We're currently targeting to complete the finance for all 6 vessels in the early part of 2026. And I'd like to thank all of the finance partners who have worked with us so far on this, and we look forward to being able to report on a successful outcome when this work is all done. In this third quarter, we further strengthened the company's interest rate hedging position, whereby we entered into 2 interest rate swap agreements to boost our fixed rate position and reduce our exposure to variability in interest rates and interest expenses associated with our variable rate borrowings. And as of September 30, 2025, 59% of the company's debt was either hedged or on a fixed interest rate basis with 41% open to interest rate variability. And whilst we keep the subject under close review, we believe this split of fixed to floating is about the right balance for the company at this time, such that if U.S. dollar rates fall, we can to a degree, benefit, but we are majority protected, should rates rise. We continue to make substantial loan repayments with $31.3 million in this third quarter, and we have an average of $122 million of annual scheduled pro forma debt amortization per year across 2025 through 2027, with our net debt adjusted EBITDA last 12 months sitting at a comfortable 2.6x as of September 30, 2025. In addition, our net debt to our on-water fleet value resulted in a loan-to-value LTV of 33%, which falls below 30% if you include a reasonable value against our Morgan's Point terminal. On Slide 9, showing again our estimated all-in cash breakeven for 2025, which at $20,510 per day per vessel is significantly below our average TCE revenue for this third quarter of 2025 of $30,966 per day. The difference or headroom this quarter being over $10,000. The graph bottom left shows how this headroom has developed over the last few years, and you'll see in there the consistency of our business, particularly over the last 4 years, but even going further back. The all-in breakeven rate includes forecast scheduled debt repayments and our scheduled dry dock commitments. And the latest figure here is materially unchanged from the estimate we provided in our last earnings call back in August 2025. On the right is our updated OpEx guidance for 2025 across our different vessel size segments, ranging from $8,050 per day for our smaller vessels to $11,100 per day for our larger, more complex ethylene vessels. This guidance also remains materially unchanged from our last quarterly call in August 2025. And following below that is further next quarter and full year guidance across vessel OpEx, general and admin costs, depreciation and net interest expense in dollar terms. The full year guidance for vessel OpEx towards the bottom is now slightly lower than in total than previous guidance given in August as we have 1 less vessel across the remainder of 2025. And net interest expense is also a little lower than previous guidance given at that same time. However, both are materially unchanged. Slide 10 outlines our historic quarterly adjusted EBITDA, adding this third quarter's strong results. On the right side, as we have done before, we show our historic adjusted EBITDA for 2024 and our last 12 months adjusted EBITDA. In addition, the EBITDA bars then to the right provide some sensitivity and continue to illustrate as we have done in the past, but an increase in adjusted EBITDA of approximately $19 million, all other things being equal for each $1,000 incremental increase in average time charter equivalent rates per day. And then finally, an update on our vessels dry dock schedule, projected costs and time taken can be found in the appendix, Slide 30. And I'll leave you to look at that if you would like. But for now, I'm going to hand you over to Oyevind to provide an update on the commercial picture. Thank you very much, Oyevind? Oeyvind Lindeman: Thank you, Gary, and good morning, everyone. Let's turn to Page 12 for the rate environment. I'd like to start off with echoing Mads and Gary, who mentioned earlier that the 10-year record average TCE and utilization is climbing back above 90% tells me one thing; the second quarter was a one-off, and we're back more or less on track. Now while uncertainties around U.S. and China trade and tariffs are still hanging over us, trade has picked up elsewhere to compensate. We've seen tremendous growth in demand for semi-refrigerated LPG vessels out of the Middle East in recent months. Iraq has ramped up both production and export capacity and is now taking in additional handysize vessels to cover the demand. At the same time, a steady stream of handysize ships has been moving butadiene from the U.S. from Brazil and from Europe to Asia, either via Cape of Good Hope or the Panama Canal. Together, these flows have tightened the supply-demand balance in the segment, pushing rates and utilization higher. That trend is shown in the dark and light blue lines in the graph. Of course, we have more vessels in the semi and fully refrigerated segments totaling 29 compared to 15 in ethylene, the positive momentum that I just mentioned carries more weight on our overall TCE and utilization numbers. On the ethylene side, lingering trade and tariff uncertainty has softened rates by about $2,500 per day. Traders remain cautious, hesitant to commit to long-haul ethylene cargoes. Remember that it can take more than 2 months from contracting a ship until it discharges in Asia, which is a long time if one is worried about potential tariffs coming. Instead, we're seeing a more active shorter-haul voyages to Europe, which carry less tariff risk and are perceived as safer from a trade perspective. I'll touch a bit more on these nuances in the next few slides. If we look at Page 13, you can see the recent increase in our LPG earnings days. LPG accounted for 42% of our demand during the quarter, the highest share since first quarter of 2023, while petrochemicals remained the largest segment at 44%. The benefits of our flexibility to switch between cargoes and trades are further highlighted on Page 14. In the bottom left graph, utilization for our semi-refrigerated vessels climbed to 98%, meaning that effectively all our semi-refrigerated vessels were employed during the quarter with almost 0 idle time. This is driven mainly by the stronger LPG demand and also the fully refrigerated fleet shown on the bottom right, saw incremental demand both from LPG and importantly, also long-haul butadiene cargoes. It's been 5 years since our fully refrigerated vessels were employed in what we call easy petrochemical trades. As mentioned, the segment still feeling the effects of trade and tariff uncertainty is our ethylene-capable vessels. You can see in the top right graph that utilization for these vessels are averaging around the 85% level. Overall, though, for the fleet, utilization for third quarter was about 5 percentage points higher compared to the second quarter. On Page 15, we take a closer look at quarter-on-quarter U.S. exports and ethylene to Europe and Asia on handysize vessels. Since April, U.S. exports of ethane and ethylene have been impacted by trade uncertainties. It is interesting to note that shipments to Asia Pacific have halved from averaging 195,000 tons per quarter to averaging 97,000 tons per quarter. Conversely, European imports are up 30% when doing the same comparison. This suggests Europe has structural short and is plugging it with U.S. volumes, whereas Asia remains more opportunistic and is more sensitive to external factors. Turning to Page 16. Here, we track the U.S. ethylene arbitrage. Right now, it is open to Europe at around $200 per ton, which works. So exports continue to flow across the Atlantic, but the Asia arbitrage at roughly $250 per ton is harder to make work. As a result, and for the time being, most of Morgan's Point ethylene exports are heading to Europe. On the supply side on the next page, there are only minor changes since our last presentation and none that materially affects the handysize segment. The order book remains low. So to summarize, trade and tariff uncertainties between U.S. and China are still influencing parts of our trades. But despite that, we delivered a very solid quarter. The flexibility of our fleet allows us to capture opportunities across multiple trades. The fourth quarter has started in line with how September ended, which suggests a degree of normalization, especially when it compared to the second quarter. Happy to take more questions on this after, but first, the one and only Randy Giveans, the floor is yours. Randall Giveans: Thank you, Mr. Oyevind. Following up on several announcements we made in recent months, we want to provide some additional details here and updates on our recent developments. So starting on Slide 19, we're pleased to announce our new and improved return of capital policy that is effective immediately, which includes a fixed quarterly cash dividend of $0.07, up 40% from $0.05 per share, but that's not all. We want you to have your cake and eat it too. So we're also increasing the payout percentage to 30%, up from 25% of net income. Now before we go further into that, I want to highlight that during the third quarter and specifically as part of our return of capital policy, we repurchased almost 130,000 common shares of NVGS in the open market, totaling $2.1 million for an average price of around $16 per share. Now looking ahead, in line with our new return of capital policy and the illustrative table below, we are returning 30% of net income or a total of almost $10 million to shareholders during this fourth quarter. The Board has declared a cash dividend of $0.07 per share payable on December 16 to all shareholders of record as of November 25, equating to a quarterly cash dividend payment of $4.6 million. So in order to get your $0.07 dividend, do not wait until Black Friday or Cyber Monday to buy some NVGS shares as the record date is prior to Thanksgiving. Additionally, with NVGS shares trading well below our estimated NAV of $28 a share, we will use the variable portion of this return of capital policy for share buybacks. As such, we expect to repurchase $5.4 million of our shares between now and quarter end, such that the dividend and share repurchases again equal $10 million this quarter. Now continuing on the topic of share buyback, let's turn to Slide 20. During the first quarter, as you all know, we announced a new $50 million share buyback program back in May. As you can see, the announcement was not just a positive headline. We immediately put it to good use and completed the program in July after repurchasing 3.4 million shares at an average price of $14.68 per share. Now as you can see in the bottom left chart, we've historically had around 56 million shares outstanding for many years, and that was up until the merger with Ultragas back in 2021, in which we issued 21 million shares in exchange for the 18 vessels. Now since peaking around 77 million shares 3 years ago in December of 2022 and including those aforementioned share buybacks coming in the next few weeks, we'll have repurchased more than 12 million shares totaling $174 million for an average price of around $14.20 per share. Now additionally, by year-end, we'll have paid out $36 million of cash dividends for a total of $210 million of capital returned to shareholders over the past 3 years. So this equates to $3 a share, which is greater than a 20% return during that time. So as seen over the last few years and demonstrated again today with our increased return on capital policy, I want to look you squarely in the eyes and reiterate that returning capital to shareholders will remain a priority for us going forward. Now turning to our ethylene export terminal on Slide 21. Ethylene throughput volumes have remained strong, reaching 270,000 tons during the third quarter. To note, following first quarter very low throughput, volumes increased substantially and the Flex Train was utilized in both the second and third quarters. Now looking at the bottom right chart, U.S. ethylene prices fell during the third quarter, resulting in multiple ethylene spot cargoes being completed to both Europe and Asia. And although the internal spreads have tightened temporarily entering the fourth quarter here, the longer term outlook is for U.S. ethylene prices to stay at an attractive level around $440 per ton in the coming quarters and years. As for the contracting of the expansion values, we're still in active dialogue with multiple new customers for potential offtake contracts. As such, we continue to expect that additional offtake capacity will be contracted in the coming months, but the global uncertainty we've seen, and as Oyevind mentioned earlier, has slightly delayed some of our customers from making those longer-term commitments right now, but stay tuned. Now turning to our fleet on Slide 22. Our fleet renewal program continues to be implemented as we sell our older vessels and replace them with more modern tonnage. Now starting with the divestiture. As you've heard in September, we completed the sale of the Navigator Gemini, a 2009-built 20,750 cubic meter gas carrier to a third party for over $30 million, resulting in a $12.6 million profit. That was our sixth vessel sale since January '22, and we continue to engage buyers who are showing interest in acquiring other older assets, as Mads mentioned earlier. Now on the purchase side of the equation, in October, a few weeks ago, we acquired an additional 15.1% ownership in each of the 5 vessels owned via the Navigator Greater Bay joint venture for a total of $16.8 million, and that was paid from cash on hand. Based on an average of the last few years, this additional ownership should increase our net income by around $3 million per year. So a very attractive return on investment. Now as a result of our recent sale and purchase activity, our current fleet is now 12.4 years of age with an average size of 20,818 cubic meters. To note, we continue to upgrade our vessels with various energy savings technologies. And starting in 2026, we'll be rolling out new artificial intelligence, or AI, programs to make our fleet even more efficient. Now looking at Slide 23. Our average fleet is set to decrease further while our average vessel size is also set to increase. In July, we announced a new joint venture in which we'll own 80% and Amon, our partner in Azane Fuel Solutions will own 20% of 2 new 51,000 cubic meter ammonia-fueled liquefied ammonia carriers. The newbuildings are scheduled to be delivered in June and October of 2028 at a price of $87 million each. Now importantly, each vessel will receive a NOK 90 million or USD 9 million grant from the Norwegian government agency, Enova, resulting in a net price of $78 million. And assuming 70% LTV debt financing, we expect the total equity needed to be only $17 million per vessel, and that will be split between us and Oman. To note, these ice-class newbuilding vessels will be the largest in our fleet. They'll have dual fuel engines for clean ammonia and be able to transit through both the old and new Panama Canal locks. Additionally, each of the vessels will be employed on a 5-year time charter upon delivery to Yara Clean Ammonia. Lastly, in terms of vessel financing and future capital requirements, we've included an illustrative CapEx table on this slide. We paid the first 10% shipyard deposits in August, and we're currently targeting to complete financing arrangements in the early part of 2026. Now finishing on Slide 24. I want to personally invite you to our 2025 Analyst Investor Day happening next week here in Houston, Texas. On Tuesday afternoon, we'll be hosting our Morgan's Point tours at the ethylene export terminal in one of our vessels. Tuesday evening, the management team and Board of Directors will host a dinner for our analysts and investors. The following day, on Wednesday, we'll host company and industry presentations covering current market trends, a financial update as well as our medium-term strategy. We'll then have lunch followed by an appreciation event for our analysts, shareholders, customers and partners. So let me pull up the weather here. And yes, the forecast seems to match our outlook, warm and sunny. So we hope you can join us next week. With that, I'll turn it back over to Mads. Mads Zacho: Thanks a lot, Randy. Q4, as you can see or that we've indicated with our utilization numbers has come off to a robust start, and we are currently seeing a gradual normalization of our operating environment. If we don't see any further geopolitical surprises, we think we are back on our previous trajectory. This will be driven by the continued growth in U.S. natural gas liquids production and the significant build-out in U.S. export infrastructure over the next 4 years. We expect that this will support exports of natural gas liquids and thereby also transport demand for the products that we carry. The vessel supply picture remains attractive with small handysize order book, which is low and also an aging global fleet. We'd like to leave you with the impression that return of capital is very high on our list of priorities, and this is why we've decided to increase our earnings payout and our fixed dividend. We have a little bit of work ahead of us in terms of financing our 6 newbuildings. Financing markets are competitive and Navigator is a good credit. So we expect competitive terms. We'll continue to renew our older vessels so that you should expect to see more earnings-enhancing vessel sales, but potentially also further consolidation initiatives whenever accretive vessel acquisition opportunities are rising. So thanks a lot for listening. Back to you, Randy, and for some Q&A. Randall Giveans: Thank you, Mads. [Operator Instructions] Christopher Robertson: This is Chris Robertson at Deutsche Bank. Happy to be on my first inaugural call here since launch. I had a couple of questions for you guys here. So one, in the dry bulk space and in the tanker space, we've seen a few companies target either net debt 0 or net debt below kind of the scrap value of the fleet. I was wondering, just in general, how you guys think about the net debt position over time as it relates to lowering breakevens and kind of what the general strategy would be over the long run? Mads Zacho: Yes. Maybe I can kick us off and then Gary, you can take over. But in general, I think we have a comfortable balance sheet right now. I don't think there's any reason for us to go to a net debt zero position. We are in a capital-intensive business. We do see financing markets, which are very competitive, and we can source debt at attractive cost. I think it is to the benefit of our shareholders, the equity holders to have some debt on the balance sheet in order to enhance returns. We have 2.6x net debt to EBITDA right now. I think we could even carry a little bit more, but overall, I think we're in a good position. Christopher Robertson: My next question is more just general market related. I think there's some prevailing fear in the market with low oil prices that will impact U.S. oil and gas production, and therefore, translate into lower NGL and LPG exports. So if you could comment on what you're seeing on the upstream side, just in terms of the dynamics domestically to continue to support NGL production, which specific kind of gas fields people are looking at? I think Enterprise has been out there with some commentary as well around their positive outlook here. So just some commentary to maybe assuage some fears in the market that around low oil gas prices. Oeyvind Lindeman: Yes. We'll give more details on that in the Investor Day next week, but in short, generally, in our conversations with Enterprise and other midstream companies here in the U.S., then they are all very confident for NGL production, the midstream part specifically, which is also export terminals and hence, for us, export volumes. So over the next 5 years up to 2030, the graphs that we have seen are pointing upwards in terms of NGL production, which is then ethane and propane and butane, which is important to us. And we believe that most of those infrastructure projects to support that growth are already been FID-ed. They're under construction. Most of them are under take-or-pay. So that brings some comfort to us in talking about the next few years in terms of volume growth from the U.S. Omar Nokta: This is Omar Nokta from Jefferies. Thanks for the update. Always a lot of good detail and information. Just had a couple of questions. Maybe just perhaps on the capital allocation. You've been very clear, especially with this call that that's a key part of the dividends and buybacks are a focal point of the strategy going forward. But just wanted to get a sense from you in terms of what drove you to do this bump here from, say, a 25% to 30% payout and the $0.05 going to $0.07. I know it's not perhaps maybe a big change in the grand scheme but just what drove that? And can we expect perhaps that this base payout will grow over time? Mads Zacho: Yes. Maybe I can kick us off and then I'll ask my colleagues to chime in. It is -- we think over time, we should be growing our payout. What we paid out so far, it's a good decent dividend, but it's not a high dividend. We have the financial strength, and we have the operating cash flow that can support the payout that we are increasing it to now. And I think also bar, difficult market situation, geopolitical tension and trade wars, et cetera, we should be in a position where we could support higher payouts in the future also. Now that said, this is, of course, always a Board decision, but you can see the trend in the cash flows that we have delivered, and you've seen the trend in our debt that we paid down over time. So we will -- if we do nothing see and markets stay as benign as they are right now, you'll see a gradual buildup in our capacity to pay out dividends. So I think any good company should strive towards having a stable but growing payout over time. Gary Chapman: Yes. I think in addition, Omar, I mean, from my perspective, I mentioned in my commentary there that what we want to do is be sustainable and be fairly predictable as a business. And we do want to do all of those things that Mads has just said around growing our distribution. I think also getting the balance. We've done a lot of buybacks. Our share price has been where it is, and we believe that's very cheap. So we've been doing a lot of buybacks in the background. And I think Randy illustrated really well the strength of returns to shareholders that we've actually done over the last 3 years, albeit not all of it in cash direct back to shareholders. So I think we're trying to strike the right balance in that as well. But certainly, as Mads said, we'd certainly be looking to do more in the future, all things being equal and if the business keeps going in the way that we think it's going to. Randall Giveans: Yes. And quickly on the scale, we went back and forth between 6%, 7% in terms of the dividend, but went up to 7%. Obviously, we're going for more there. But we also don't want to cannibalize the buybacks on a quarterly basis. So obviously increasing that payout percentage to 30% as well. Omar Nokta: Got it. And then maybe just one follow-up I had is, Randy, you mentioned in the Greater Bay $16.8 million in the fourth quarter to pay for that step-up in ownership, which will maybe yield, say, $3 million in net income annually. Not a bad return, fairly, I would say, decent. Just I guess, in terms of going forward with that joint venture, is there a mechanism to get that to the full 100% ownership for Navigator? Is that something that you aim to do, if possible? Mads Zacho: The ownership, we don't have a mechanism you could say that mechanically will increase it. We would probably be looking to continue that discussion with our partner. We are very happy with our partner, Greater Bay. We think they give us a good inroad into the Chinese market and to opportunities that arise both with Chinese shipyards, but also business in the region. So I think we have a great interest in sustaining the partnership that we have with them. But of course, we control the vessels, we operate them. So we do consider them, you could say, an integrated part of our fleet. Omar Nokta: Okay. All right. Great. And then final one, and Gary, I think I may have asked you this perhaps last quarter, the one before, but just on the terminal, as you were highlighting in your opening remarks, it's held, I think, you said $252 million. You've got a final $4 million debt to pay off here in the fourth quarter, and then it's owned debt free. Just as you mentioned, looking to lock up financing for the new buildings, but what do you think about this -- about the terminal itself, given the long-term sort of contract nature of that business, it sort of lends itself perhaps to a nice financing package. What are you thinking? Is this something that you expect to finance in '26 or do you still want to own it fairly debt-free? Gary Chapman: Yes. I think what we've said before probably still stands and to a degree, goes back to a little bit maybe what Chris was talking about with our net debt being 0. I think the terminal itself, if we do put finance on it, it's not, at this stage, going to be cheaper financed than our vessels, and we've got vessels that we can use as collateral and raise money on those. So I think at the minute, we're not in a rush to do that. I think part of me raising it in this call as well is just to remind folks that it is there. It's substantial. And we don't, at the moment, leverage that asset on a financial basis, but it is a substantial asset for us as a business, and it's returning pretty good money over the long term. To answer your question, we probably will put finance on it at some point. I mean one of our strategic aims is to expand our port-to-port, if you like, business in terms of it supporting our shipping. So if another Morgan's Point opportunity came along somewhere else, then we may look at that, and that may be a really good opportunity to take the money out of that project and maybe put it into a new project. But at this moment, it's not top of our priority list, but it's certainly available to us, and we've had no shortage of people wanting to come and talk to us about it, put it that way. Unknown Analyst: Most has already been covered, but I want to ask you a modeling question. In the press release, total outstanding CapEx for newbuild additions is quoted at $480 million. And I was wondering, does it include 80% or 100% of the total CapEx associated to the ammonia and newbuild carriers? And secondly, is the $480 million figure net of the Enova grant? Gary Chapman: If you're referring to CapEx, then that will be the gross cost of the vessel, we would show financing separately to that. I'd have to go back and just check that number and make sure what's in and what's out. But essentially, we have put in the CapEx payable to the yard, not the sources of funds. So I can come back to you after this call and clarify with you, but I would expect that, that number is the gross cost of the vessels. Unknown Analyst: Yes. But I mean, is that only your proportionate amount that you need to put in or does that include also your partners? Gary Chapman: That would be our commitment. Unknown Analyst: And final question from me. Could you remind us what's your proportionate depreciation run rate on the ethylene export terminal? Randall Giveans: Yes. On an annual basis, the initial terminal is coming down by about for us, a little over $3 million per year. And then on the expansion, it's another $2 million or so. So we use about $5 million a year. Gary, target for financing the newbuildings in terms of size. Is there a goal to finance all remaining newbuilding costs or payments due on delivery? Gary Chapman: Yes. We're looking to answer that question right now. We've got some proposals out with various potential lenders. We're looking at a range of things to try and look to have an average LTV across all of the 6 vessels. We're not in a position where we need to over leverage those vessels but obviously, in the competitive banking market that we're at, at the moment and with Navigator's credit, we can push that a little bit higher than perhaps normal. So I think we're not going to be in very high leverage territory on average across all the 6 vessels, but maybe we'll have a difference between some of the vessels under different deals and transactions. Sorry, Randy, I don't have the question in front of me, so I'm not sure if I answered that. Randall Giveans: No, I think that covered it. And Paul, feel free to reach out to me, and we'll chat after this call but thanks again. Mads, last words? Mads Zacho: No. Thank you so much for listening in. I hope you got the impression that our laser focus is on ensuring that capital is returned to our shareholders. And with the Q3, the strength of the results here and the robust outlook for the next quarter or so that, that capacity should be sustained. So look forward to seeing you all in Houston. And I guess, Randy, you have another comment here. Randall Giveans: One more question. Charles, I think your line should be open now -- Chad, sorry. Unknown Analyst: Can you hear me now? Randall Giveans: Got you, Chad. Unknown Analyst: Great. So just on charter rates, moved to record levels in your business. I know it's early, but any insights on how 2026 is shaping up from a charter rate perspective? And any reason why this momentum that you've seen can't continue into next year? Oeyvind Lindeman: I think I'm going to lean on Mads comments. Barring external changes in tariffs or geopolitics, et cetera, et cetera, then the supply-demand balance looks positive, meaning that there are not that many ships coming, there's more growth in demand. So we remain optimistic on that. But the caveat is like we've seen this year, many things can happen that influences the business. But all things being equal, I think we're ending the year on a good note, as we mentioned, and then preparing for next year. Unknown Analyst: Okay. Got it. And then just on Morgan's Point contracting, what are the remaining items that potential customers kind of need to clear to start signing contracts? And is this a situation where we could see several come in quick order once kind of the first one gets signed? Randall Giveans: Yes. Thanks for the question. The first is securing supply domestically. I don't think that's a huge issue, right? We are oversupplied in ethylene here in the U.S. So on the other side, it's securing buyers. Now we're hearing about and seeing firsthand that European rationalization taking place where older, less efficient ethylene crackers are being shut in. So that has to be replaced. And a lot of that will be replaced by direct imports of U.S. ethylene. So that won't happen tomorrow, right, but it certainly has been happening in recent months and will continue in the coming quarters. To answer your second question, we believe so, right? We have term sheets out to several, I won't give you the exact number, but several potential offtakers. And I think once 1 or 2 sign, the others will quickly come as well because there is some scarcity here, right? There's a limited amount of offtake that is available. Sorry I cut you off there, Mads. Now we're done. Mads Zacho: No, no. Yes. Good. Thanks a lot, and I look forward to updating you all on our next quarterly call. And in the meantime, I hope many of you will join us in Houston in next week too, so we can show our terminal, our vessels and our plans for the year to come.
Operator: Welcome to Southwest Gas Holdings Third Quarter 2025 Earnings Conference Call. Today's call is being recorded, and our webcast is live. A replay will be available later today and for the next 12 months on the Southwest Gas Holdings website. [Operator Instructions] I will now turn the call over to Justin Forsberg, Vice President of Investor Relations and Treasurer of Southwest Gas Holdings. Please go ahead. Justin Forsberg: Thank you, Joanna, and hello, everyone. We appreciate you joining the call today. This morning, we issued and posted the Southwest Gas Holdings website our third quarter 2022 (sic) [ 2025 ] earnings release and filed the associated Form 10-Q. The slides accompanying today's call are also available on Southwest Gas Holdings website. We'll refer to those slides by number throughout the call today. Please note that on today's call, we will address certain factors that may impact 2025 earnings and discuss longer-term guidance. Information that will be discussed today contains forward-looking statements. These statements are based on management's assumptions on what the future holds but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions, regulatory approvals and a capital project at Great Basin Gas Transmission Company that is potentially incremental to current estimates. This cautionary note as well as a note regarding non-GAAP measures is included on Slides 2 and 3 of this presentation, in today's press release and in our filings with the Securities and Exchange Commission, all of which we encourage you to review. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement. As shown on Slide 4, on today's call, we have Karen Haller, President and CEO of Southwest Gas Holdings; Rob Stefani, Chief Financial Officer of Southwest Gas Holdings; and Justin Brown, President of Southwest Gas Corporation, as well as other members of the management team available to answer your questions during the Q&A portion of the call today. I'll now turn the call over to Karen. Karen Haller: Thanks, Justin. Thank you for joining us today to discuss our results and outlook. Starting with Slide 5. During the quarter, we successfully completed our disposition of Centuri through 2 final sales transactions. This allowed us to fully pay down the remaining debt at the holding company, provided significant capital to reinvest in the core business and left us with a strong balance sheet. With our focus now fully on our natural gas regulated business, we are better positioned to address the increasing energy needs of our growing service territories. As we enter this next chapter, operational and financial performance remain a top priority. At quarter end, Southwest Gas' trailing 12-month return on equity or ROE further improved to 8.3%, demonstrating our commitment to consistent ROE improvement over the last several years. We are optimistic for the future regulatory environments in all our jurisdictions. Later in this call, Justin Brown will discuss our anticipated rate case road map heading into the next few years as we expect new rates in effect in California in 2026 and seek approval for new rates with requests for alternative forms of ratemaking in Arizona and Nevada. We believe the future is bright for improved rate-making opportunities as we work to further improve delivered returns for our shareholders. Significant regional energy demand is driving potential incremental growth at our Northern Nevada interstate pipeline asset, Great Basin, which could drive our already strong capital growth profile higher. We are reaffirming each of our previously communicated guidance ranges with full year net income now expected towards the top end of the $265 million to $275 million range. We continue to expect robust capital spending driven by safety, reliability and economic activity in our service territories. All our forward-looking guidance ranges exclude the potential impacts of the 2028 Great Basin expansion opportunity and the impacts of alternative forms of ratemaking opportunities in Arizona and Nevada. I'll provide more detail on guidance later in this presentation. Moving to Slide 6. We're thrilled to have achieved the full deconsolidation and separation of Centuri. During 2025, we completed 4 follow-on offerings and 3 concurrent private placements to generate nearly $1.4 billion of net sale proceeds. A large portion of the total net sales proceeds were used to repay all debt previously outstanding at the holding company. Past August, the remaining $225 million on the term loan was paid in full, along with the remaining balance that had been outstanding on the revolving credit facility. All residual proceeds from that transaction as well as the final trade in September are expected to support Southwest Gas' capital expenditures, including the potential Great Basin expansion project, the dividend payments to shareholders and other general corporate purposes. We are excited for the future as the strategic transformation enhances transparency and aligns us squarely with long-term value creation as a fully regulated natural gas business. As you can see on Slide 7, we are heading into the final months of 2025 on track to achieve our 2025 strategic priorities. Our utility and regulatory strategy have primarily been completed as we await final approval in our California rate case. Additionally, we continue to see the impacts of our company-wide optimization initiatives as we have observed year-to-date operations and maintenance growth that continues to be below the rate of inflation. We have begun executing Precedent Agreements from the potential shippers on the 2028 Great Basin expansion project and are working to have the rest of them finalized soon. Other activities such as work on the environmental assessment and FERC prefiling efforts are on track. Finally, with the full repayment of HoldCo debt during the third quarter, we have now completed all expected financing activities for the remainder of 2025 without having to issue new equity financing for the second consecutive year. On Slide 8, I'd like to highlight that S&P upgraded Southwest Gas Holdings issuer and Southwest Gas Corporation's senior unsecured long-term debt credit ratings each to BBB+ with stable outlooks. Our enhanced corporate risk profile further demonstrates the positive impact of the complete separation of Centuri. As of the third quarter of 2025, our cash balance increased to nearly $780 million, and we had more than $1.5 billion of liquidity across the business, which enables us to make strategic investments that are expected to generate stable long-term returns. I'd also like to highlight the utilities net income growth, which was primarily driven by positive regulatory outcomes and strong economic activity in our service area, enhanced by cost optimization efforts. We are enthusiastic about the company's future and are confident in the promising opportunities ahead. Before we discuss our results in more detail, as you may have seen in our press release earlier this morning, Rob will be leaving Southwest Gas Holdings December 1. The Board of Directors has initiated an internal and external search process to identify Rob's successor. On behalf of the entire management team, I want to thank Rob for the contributions he's made to the company over the past 3 years. He's been an important part of our team as we transition to become a fully regulated natural gas utility business. We wish him well in his next chapter. You can find further information on this announcement in the press release and an 8-K that will be filed later today. Now I'll turn the call over to Justin for a regulatory and economic update. Justin Brown: Thanks, Karen. On Slide 10, we highlight our proposed Great Basin expansion project as we continue to make progress on finalizing Precedent Agreements with counterparties. Within the next week, we anticipate receiving final decisions from all shippers who were set Precedent Agreements. Since we continue to receive inbound interest about expansion opportunities on Great Basin, we may consider holding a brief supplemental open season before determining the final scale of the proposed 2028 expansion. This will help clarify the magnitude and timing of this inbound interest so we can determine the appropriate course of action, including whether any interest for capacity can fit within the 2028 expansion time frame or whether there is sufficient interest to justify an expansion in subsequent years. As is generally the case with all development projects involving multiple parties, especially projects of this size and scope, we are ultimately subject to the time lines and needs of each of the potential shippers. We are diligently working with them and remain steadfast in our commitment to help ensure their energy needs are met. While this process has taken a little longer than we initially expected, in order for us to meet the proposed in-service date of November 2028, we have started working on a parallel path to ensure that date remains viable. For example, we recently engaged in engineering procurement and construction management firm to partner with us as we work toward a prefiling application with the FERC. This firm will assist us in finalizing engineering and design work, completing the environmental assessment as well as other items necessary to file for this FERC's Certificate of Public Convenience and Necessity in the fourth quarter of 2026. We will plan to provide periodic updates as we achieve key milestones. Moving to Slide 11. I wanted to highlight a significant filing we made in Nevada during the quarter. In September, we successfully filed our first triennial resource plan as required by a statute that was put in place during the 2023 Nevada legislative session, referred to as Senate Bill 281. Similar to integrated resource plan requirements for electric utilities, the newly required process in Nevada requires gas utilities in the state to file a plan every 3 years outlining, among other things, anticipated demand for natural gas, the sources of planned acquisitions of natural gas, the identification of the mix of supply and demand-side management programs. The bill aimed to modernize the state's gas utility regulations, bringing them under a similar statutory framework as electric utilities to better prepare for a changing energy system and to optimize investment for the benefit of customers. This process of filing and receiving approval of a resource plan is expected to enhance certainty for investors in the state. Our current plan includes nearly $225 million of expected investments for the benefit of our customers for expansions, system integrity, including distribution and transmission integrity management programs, customer-owned yard line replacement programs and a long-term gas supply arrangement. We believe this new process allows for increased transparency and predictability for customers, investors and other stakeholders. We expect a final decision in the second quarter of 2026. Turning to Slide 12. Here, we lay out for you a potential time line for how opportunities for alternative ratemaking in both Nevada and Arizona could play out in the near term and over the next several years. In Nevada, SB 417 is the law that was passed this past legislative session that allows for alternative ratemaking opportunities such as multiyear plans and formula rates. We currently expect to file a rate case as early as March 2026, which is 6 months following our gas planning filing. We expect new rates to be effective as early as October of 2026. The Public Utilities Commission of Nevada has begun rule-making workshops to implement SB 417, and we're excited about the potential for this approach to streamline regulatory processes, reduce cost for customers and improve the timeliness of cost recovery. We're in the early stages of the rulemaking process, which we anticipate finishing up early next year. At the conclusion of the rule-making process, we should have greater clarity on the mechanics and time lines that will be allowed for implementing an alternative ratemaking plan. However, given the general structure set forth in SB 417 and the fact we will look to this next rate case is the basis for alternative ratemaking plan, we reasonably believe potential alternative rate-making adjustments could begin as early as 2028. Similarly, in Arizona, following the Commission's December 2024 policy statement that supports utilities proposing formula rate plans, we expect to file a formula rate plan in Arizona as part of our next general rate case. We are currently targeting a filing for our next Arizona rate case in the first quarter of 2026. If we assume a fully litigated rate case time line, we expect new rates to be in effect during the first half of 2027 with the potential for the first annual formula rate true-up process to begin in 2028. While the Commission has expressed support for formula rate adjustments through its published policy statement, the approval of utility plans is still forthcoming. We are encouraged by the fact that several peer utilities in Arizona have active rate cases requesting the application of formula rates. We are proactively monitoring the progress and anticipated outcomes of each of these cases as they will provide valuable insights to refine our current expectations regarding formula rate mechanics and implementation time lines. We remain optimistic about the prospects of formula rates in Arizona as this new approach could streamline the regulatory process, reduce costs for customers and improve the timeliness of cost recovery. We're excited about both of these opportunities, and we believe that alternative ratemaking enhances our ability to attract investment into both Arizona and Nevada as we continue to play our role in supporting the state's economic growth. Turning to Slide 13. In California, we successfully reached an agreement in principle to resolve all issues in our pending rate case with the exception of cost of capital and capital structure. The agreement results in a recovery of over 90% of our adjusted ask of $43 million before any adjustments for cost of capital and capital structure. The settlement also provides for continuation of our annual attrition adjustment of 2.75% as well as continuation of several existing and new regulatory mechanisms that we propose to ensure the safety and reliability of our distribution system and to mitigate regulatory lag. Of note, the California Commission recently granted our motion seeking authority to establish a general rate case memorandum account. This essentially protects us from any potential delays in the issuance of a final decision by allowing us to recover differences between our authorized and actual revenues between January 1, 2026, and the actual effective date of the Commission's final decision. And with that, I'll turn the call over to Rob, who will review our financial performance for the third quarter. Robert Stefani: Thanks, Justin, and thank you, Karen, for your words earlier. It has been rewarding to work alongside the talented team at Southwest Gas as we navigated such an important time at the company. I am confident the company is well positioned for continued growth and success under Karen's leadership. With that, I'll turn to our financial results for the third quarter. On Slide 15, we provide a walk from last year's third quarter earnings from continuing operations to the current quarter. Beginning with the utility, Southwest Gas reported higher margins supported by rate relief to better align with Southwest Gas' cost of service and capital investment as well as continued customer growth. These benefits were partially offset by higher operating and maintenance expense related in part to incentive compensation accruals, depreciation and amortization tied to ongoing capital investment and higher net interest related to the PGA liability balances. Southwest Gas Holdings corporate and administrative results reflected lower overall operating expenses and reduced interest expense due to the full repayment of the holdings term loan and revolver bank debt using proceeds from the Centuri offerings. Overall, earnings per share related to continuing operations improved by $13.4 million or $0.19 per diluted share when compared with last year's third quarter. Consolidated EPS for the quarter was $3.74 per diluted share. The company's sale of its remaining stake in Centuri in September represented a full disposition of Centuri and qualifies for reporting as discontinued operations. Earnings related to discontinued operations, which includes the net gain on the sale of Centuri contributed $3.68 per diluted share to consolidated earnings. Slide 34 in the appendix breaks down consolidated earnings for the 3 and 9 months ended September 2025. Moving on to Slide 16. We provide a bridge of quarter-over-quarter performance drivers for Southwest Gas. In the third quarter, utility operating margin increased by $26.8 million. This improvement was primarily driven by $22.3 million of combined rate relief across all jurisdictions, while an additional $1.6 million came from customer growth. O&M expense increased by $4.1 million compared to the prior year quarter. This increase was mainly attributable to variable labor and benefit costs, including a $4 million increase in incentive compensation. This increase was partially offset by reductions in bad debt expense and leak survey and line locating expenses. Of note, year-to-date O&M expense is up approximately 2.5% overall, less than inflation and reflective of our continued focus on cost discipline at the utility. Depreciation and amortization increased $4.9 million, reflecting a 6% increase in average gas plant in service as compared to the third quarter of 2024. This growth demonstrates ongoing investment to enhance safety, reliability and a response to customer expansion. Other income declined by $3.4 million, driven primarily by a $3 million decrease in interest income, which is largely tied to lower carrying charges on the PGA balances. Notably, deferred purchased gas cost balances moved from a $213 million liability as of September 30, 2024, to a $356 million liability as of September 30, 2025. As a reminder, last quarter, Nevada approved our application to return these overcollected purchased gas costs to customers more quickly. We have already seen Nevada's elevated balance begin to decline compared to this year's second quarter. PGA balances are shown in the appendix on Slide 28 as well as in our Form 10-Q. Lower comparative gains on the values associated with company-owned life insurance drove a $0.5 million decrease quarter-over-quarter. Interest expense rose $3.8 million, primarily due to interest incurred on the overcollected PGA balance compared to interest income recorded in the same quarter of last year. So the net impact of about $7 million between other income, as previously discussed, and net interest expense can be attributed to the change in the average PGA balance over the comparative periods. Finally, income taxes increased by $4.6 million, reflecting the impact of higher pretax net income during the quarter. As shown on Slide 17, as Karen mentioned, we successfully executed 4 follow-on offerings of the company's Centuri stock between May and September of this year. In September, we completed the full separation of Centuri. These transactions, inclusive of 3 private placements collectively generated $1.35 billion of net sales proceeds and estimated after-tax cash proceeds is about $1.3 billion. The $50 million estimated cash tax on the transaction represents a low effective tax rate of approximately 3.7% due to the utilization of net operating losses and capital loss carryovers while estimated cash taxes is shown in isolation and after the utilization of net operating losses and capital loss carryovers and ultimately could adjust up or down as we consider any consolidated or combined federal or state income tax return impacts that will ultimately determine the actual NOL and capital loss carryover utilization. The sale of Centuri by means of a series of taxable sell-downs is expected to be tax efficient for shareholders. Moving to Slide 18. We show our 2025 financing plan for both Southwest Gas Holdings and Southwest Gas Corporation. We do not currently expect any significant financing activities in the remaining months of 2025 at Southwest Gas Holdings or Southwest Gas Corporation. The 2026 financing plan is expected to be released with our fourth quarter 2025 results. Using the net proceeds from the Centuri sell-down transactions, we fully repaid all of the term loan and bank debt previously outstanding at the holding company. Remaining proceeds are expected to be deployed in the near term to partially fund the dividend as well as support future capital investments at Southwest Gas, including the potential 2028 Great Basin expansion projects. Southwest Gas Holdings remains committed to paying a competitive dividend to our stockholders. Our planned dividend payouts in 2025 are expected to result in a payout ratio competitive to natural gas peer companies. We plan to continue to balance factors such as projected capital requirements, impacts to credit ratings, the competitiveness of the dividend yield, economic conditions and other factors and expected dividend policy sizing of earnings from continuing operations going forward. The Board generally updates dividend policy in February each year, and we expect to evaluate our recommendation of that policy between now and the reporting of our year-end results. I will conclude by discussing our balance sheet on Slide 19. Throughout the year, we've outlined the strength of our balance sheet and commitment to maintaining an investment-grade profile at Southwest Gas and at the holding company. We were pleased to learn that on September 22, S&P upgraded Southwest Gas Holdings issuer and Southwest Gas Corporation senior unsecured long-term debt credit ratings each to BBB+ with stable outlooks, driven mostly by the exit from our position in Centuri, debt reduction at the holding company level and improving the general risk profile of the business. We expect this upgrade should lower borrowing costs, enhance access to capital and signal an improving company profile to the investment community. On the slide, we show debt by entity. On a consolidated basis, our net debt sits at just over $3 billion across the enterprise. We are in nearly a $600 million cash position at the holdings level, reflected in the slide as the corporate and administrative line and we have about $3.7 billion of net debt at the utility. The balance sheet and liquidity position is strong with nearly $800 million of consolidated cash and another $700 million of liquidity available under our holdings level and utility level revolvers. Back to you, Karen. Karen Haller: Thanks, Rob. We are pleased with our results over the first 9 months of this year and aim to carry this momentum through the last few months of this year and beyond. On Slide 21, we reaffirm our 2025 utility net income guidance range of $265 million to $275 million but are now guiding toward the top end of the range given progress we've made throughout the year so far. For 2025 and beyond, we reaffirm each guidance metric and continue to expect the impact of the regulatory cycle to result in nonlinear net income growth over the forecast period. As a reminder, each of our forward-looking compound annual growth rates are calculated off a 2025 base year and they do not currently include any impacts related to the potential 2028 expansion opportunity at Great Basin or any outcomes related to the potential for alternative ratemaking in Arizona and Nevada in our next rate case proceedings. We expect to refresh our guidance ranges for 2026 in our year-end call this winter and will make decisions on the assumptions included in the plan at that time. Before we move into the Q&A portion of the call, I'd like to draw your attention to Slide 22. This highlights our commitment to delivering exceptional customer service while advancing our strategic priorities and achieving strong financial performance. At Southwest Gas Holdings, we remain confident in our trajectory as a leading pure-play natural gas business. Our focus is on sustaining robust organic rate base growth driven by strong regional demand while enhancing earnings through disciplined financial management, operational excellence and constructive regulatory engagement. With that, let's open the call for questions. Operator: [Operator Instructions] We'll take our first question from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: I appreciate it, as always. And Rob, all the best. Look, I wanted to just follow back up on Great Basin. Obviously, a good amount of time spent in the remarks here, but I do want to press a little bit to the extent possible. You talked about trying to finalize the Precedent Agreements in the near term. Can you walk through a little bit more of the specific time lines, any issues? And then more importantly, perhaps, speak to a little bit of the time line of when it would actually be included in the outlook, maybe tightening up the CapEx range as you zero on exactly the scope of what's contemplated here, if you will. And then maybe I'll throw on also if you can speak to assumptions one should be using as best you can for heuristics on ultimate capital cost and capital structure. Justin Brown: Julien, it's Justin. Yes, I'll try to unpack that and just follow up if there's anything I missed. So as we've talked about previously, we had conducted the open season. We had significant demand interest of capacity up to the 1.76 BCF, and we circulated Precedent Agreements and kind of draft Precedent Agreements to potential shippers. We received those back, incorporated the comments that we could and then we sent out final versions of those Precedent Agreements, which incorporated kind of the assigned capacity as well as kind of the surety requirements that we would expect of the shippers for us to proceed with the project. And we're just in the process of getting that feedback from them now on kind of a final decision of who's willing to commit and who's not. And so we'll complete that process hopefully within the next week. And then once we have that, we'll be able to assess kind of the ultimate scale of the project. And then as I mentioned, we continue to receive inbound inquiries. So we may look at even hosting a supplemental open season that's relatively brief to just kind of firm up what is the capacity and kind of the final estimates around the 2028 expansion. I think when we think about kind of guidance and different things, we would probably look to kind of our regularly scheduled fourth quarter call in February to kind of update as we should know at that time what is in and what is out and what that project looks like and kind of more of the assumptions on the financing and different things that you alluded to. Hopefully, that addresses what you're getting at. Julien Dumoulin-Smith: Yes. Justin, I appreciate it. Actually, if I can ask you to elaborate a little bit. I mean, there's a $1.2 billion to $1.6 billion range here. You talked about up to 1.76 BCF a day. Is there a scenario here where that's upsized to address what you just alluded to with that additional open season? Or is that kind of contemplated in that range as far as you're concerned for CapEx? Justin Brown: Yes. Based on that range we provided, that's reflective of kind of the feedback we were getting and kind of what our estimated cost was in order to upsize the system to meet that potential capacity. Julien Dumoulin-Smith: Okay. Excellent. I appreciate that. And ultimately, let me -- if I can press it this way. If it is, as you suggest that you'll be able to put this together into some form of guidance by 4Q, should we expect an integrated CAGR in tandem with that, that would correspond with the '28 in service? Justin Brown: Yes. We'll assess it at that time as we get information on the project, and we're able to kind of factor that in with our overall capital expenditure plan and kind of the guidance we -- we've been giving. I think as last year, we gave a 5-year guidance on CapEx, so it would be incorporated in that. Julien Dumoulin-Smith: Excellent. All right. I'll leave it there. All the best. Speak to you soon. Operator: The next question comes from Chris Ellinghaus at Siebert Williams Shank. Christopher Ellinghaus: Rob, on Slide 16, the margin increase for the quarter, there's a delta for a third item beyond rate relief and customer growth. What's included in that last little sliver? Robert Stefani: Yes. I mean, there's the rate relief, there's customer growth and then there's just recovery mechanics on like interest recovery mechanisms and whatnot. Christopher Ellinghaus: Okay. That helps. As far as Great Basin goes, so you get the agreements here next week and you might do an open season. Does that suggest that the FERC filing is sort of late in the quarter and what's your anticipation of the FERC review schedule? Justin Brown: Chris, it's Justin. Yes, we're still targeting based on the initial inquiries that November 2028 in-service date, which is why we've started on a parallel path as we're firming up kind of commitments on the shippers to ultimately determine who's in and who's out. We've started that process. And based on our schedule and timing, we feel like we're still on schedule to make a filing in the fourth quarter of '26 with FERC for that certificate of public convenience and necessity. Christopher Ellinghaus: So you said that you thought this next potential open season could be fairly quick. Does that leave you adequate time to get something done in December? Justin Brown: Yes, we believe so. I think our approach would be to have a pretty quick turnaround to kind of finalize up anything in terms of a 2028 expansion. That would be the intent behind it is to be able to stay on track. Christopher Ellinghaus: Can we presume that you would prefer to have the full magnitude of the expansion in the first phase as opposed to having a future expansion? Justin Brown: Yes, Chris, I think that's a fair assessment. I think just when you think of economies of scale and ultimately the rates that the shipper would pay, obviously, we want to try to maximize that initial expansion. It's just we continue to see -- receive inbound inquiries around kind of maybe additional needs down the road. And so we want to try to factor that in so we can be as efficient as possible with the expansion. Christopher Ellinghaus: Okay. And lastly, the Nevada process for the alternative ratemaking, does that leave you with sort of a 3-month window of uncertainty as to filing? And how do you perceive that process so far? Does it seem like it's on your expected time line? Justin Brown: Yes. So the -- as I mentioned, the commissions going through the workshop process now. We're working diligently with stakeholders. I think to the extent we can get kind of consensus regulations that will help expedite the process. And if not, I think we've talked about in the past where part of the language of SB 417 allows us to use that rate case even if we made a filing after we filed the rate case, we could make a request for formula rates or alternative form of rate making after we filed our rate case as long as we do that within, I believe it's 6 months of a final decision of that rate case. So we feel really good about using this next case is really the basis for an alternative formula or an alternative ratemaking plan in Nevada. And to your point, it's really going to -- we'll know more over the next couple of months on whether that's included upfront in the filing that we make that we're targeting in March or if it's something that happens at a subsequent date but is incorporated as part of that rate case process and they use the information included in the rate case to form the basis of that alternative ratemaking plan. Operator: The next question comes from Paul Fremont at Ladenburg. Paul Fremont: And to Rob, best wishes to you. It's been great working with you. And I guess my first question is how long does the company think it will take to find a CFO and who's going to be performing that function after December 1? Karen Haller: So as we announced in the press release, Paul, that we would be -- the Board has undertaken an internal and external review. We don't really have a specific time line that we have put forth. Our focus is on getting the right person in the job and having the right skill set for the company moving forward. Paul Fremont: And I mean is somebody going to be performing the CFO function starting on December 1? Karen Haller: Absolutely. We have -- whether we would name someone in an interim position, if we don't haven't named somebody at that point, we will -- the Board would be making that decision. Otherwise, we have a very strong bench within my finance and controllers group, and they will be able to function without any problem in handling those duties. Paul Fremont: Great. And then I guess I wanted to get a sense of the cash position and when you're actually going to start using that cash for construction. When would construction start, if you were to move forward on Great Basin? Karen Haller: Justin, do you want to address the time line on the Great Basin? Justin Brown: In what regard, Paul, sorry? Paul Fremont: I just want to get a sense. I mean, are you going to put -- are you going to leave like the cash in treasuries between now and when you actually need it for construction? Are you going to have... Robert Stefani: Paul, this is Rob. Yes, we obviously have put that cash to work in short-term funds and whatnot. So the cash is obviously earning the short-term rate in the interim. Justin Brown and his team are assessing the Great Basin project and the scoping of that. Obviously, there could be some long lead time deposits on various equipment that would be required. So as that project continues to get more refined, then we can comment more on the usage of the cash. But obviously, sitting on a very nice position and can move forward on that project given those balances. The -- I think beyond that, I don't know that there's much else to comment on. Paul Fremont: So for modeling purposes, we should assume that it will remain in short-term investments until the actual construction starts to ramp up? Robert Stefani: That's right. Paul Fremont: And then last question. With Centuri gone, are you expecting to give EPS guidance on the fourth quarter call? Or are you going to stay with sort of net income guidance? Robert Stefani: I think we've talked about that, and we kind of commented along the way that we do expect to give kind of more longer-term EPS guidance that I think to maybe Julien's earlier question too, would incorporate some of these potential opportunities along the line. Operator: The next question comes from Tim Winter at Gabelli. Timothy Winter: And congrats on the strong update. And Rob, best wishes in your future endeavors. We'll miss you. My first question, I think, is for Justin. If you could help me understand how the formula rate would work in Arizona or at least what your expectation is. So you'll file a historical test year in the first quarter at '26, maybe 15 months for a decision and then come what January 1 of '28. They'll look at the earned ROE and if there is an adjustment, is that made on a prospective basis or a historical basis? Or how is that going to work? Justin Brown: Yes. Those are all good questions, Tim. And what we're really kind of utilizing is the framework is really the policy statement itself. I think some of these nuanced details are going to get worked out as they start approving them as part of rate cases, which is why we're really focused on some of the pending rate cases right now to kind of help inform that as we go forward. When you look at the policy statement itself, I think, generally speaking, the idea and as you look at the testimony that's been filed in some of these other cases, the idea would be, as you laid out, you have a rate case. At the end of that rate case, you would then have a period of time, but then you would -- I think they referred to it in the policy statement an annual true-up. I think some of that may come down to, are you including post test year plan in your rate case, are they not doing that anymore and they're just going to the formula, that may determine ultimately some of the timing there. But I think when you look at it, it would be, to your point, you would file a case in '26, a decision in '27. We would look at probably making a filing sometime the end of '20 -- I'm sorry, at the beginning of '28. And again, there's a review period in different things on when before the rate actually goes into effect. And so our thought would be probably sometime in that '28 window is when we'd expect to see a true-up rate that goes in effect that would be the difference between what you've been authorized in your last case versus what you're actually experiencing and truing up rates to reflect that difference, and then you would do that annually for a period of time. Timothy Winter: Okay. Okay. And then if I could move over to -- back to a Great Basin. Number one, are there any potential major obstacles that you're aware of? And then number two, assuming the high end of the range that you forecast in November '28 [ COD ], what would be the earning -- sort of the earnings profile going forward? I mean, would there be any AFUDC recorded during construction? Or how would the -- thereafter, would it be there a step-up or a ramp up? Or how do I think about that? Justin Brown: Yes, Tim, I'll start with the first part. In terms of major obstacles, we don't really see any as we've looked at the project. I think the biggest obstacle is just working with the different counterparties on kind of their timing, their capacity needs and getting that firmed up is really probably the biggest obstacle. But when we think about the project itself, once we actually have signed Precedent Agreements from counterparties, the project itself is really an upsizing of our existing system and the existing right of way with compressors. So we don't see any major concerns from a project execution standpoint. Again, similar to what we mentioned earlier, I think when we think about the financial aspects of it, I guess, to answer your question, yes, we would anticipate accruing AFUDC during the project. But when we think about kind of the profile of that and timing, I think that's something that we would have better insight on at the February call just based on where we are in terms of getting -- kind of finalizing the scale of this project and working with the counterparties to get people signed up. Operator: [Operator Instructions] The next question comes from Christopher Jeffrey at Mizuho. Christopher Jeffrey: Maybe just 1 last 1 on Great Basin. It seems like the price per dekatherm was updated to $18 per month. Just kind of curious how firm that number is now that it's in the Precedent Agreements and maybe what does it change, if anything, on economics versus when the range was $14 to $17 prior? Justin Brown: Yes. This is Justin again. Yes, we don't really anticipate that being a material change to the economics of the project. We had originally scoped it out as a $14 to $17 based on kind of initial feedback from the open season process. And then as we firmed up those inquiries and capacity requests as well as our internal designs, that's how we landed on the $18, and that's what was included in the Precedent Agreement. So that's kind of the most up-to-date number based on the capacity of 1.76 BCF that people had expressed interest in. Operator: This concludes the Q&A portion of today's conference. I would now like to turn the call back over to Justin Forsberg closing remarks. Justin Forsberg: Thanks again, Joanna, and thank you all for joining us today and for your questions. This concludes our conference call. We appreciate your interest in Southwest Gas Holdings and look forward to speaking with many of you soon as we emerge from the quiet period. Operator: This concludes today's Southwest Gas Holdings third quarter 2025 earnings call and webcast. You may disconnect your lines at this time. Have a wonderful day.
Operator: Good morning, ladies and gentlemen, and welcome to Anika's third quarter earnings conference call. [Operator Instructions] I will now turn the call over to Matt Hall, Director, Corporate Development and Investor Relations. Please proceed. Matt Hall: Good morning, and thank you for joining us for Anika's Third Quarter 2025 Conference Call and Webcast. I'm Matt Hall, Anika's Director of Corporate Development and Investor Relations. Our earnings press release was issued earlier this morning and is available on our Investor Relations website at www.anika.com, as are the supplementary Powerpoint slides that will be used for the discussion today. With me on the call today are Dr. Cheryl Blanchard, President and Chief Executive Officer; and Steve Griffin, Executive Vice President, Chief Financial Officer and Chief Operating Officer, who will present our third quarter 2025 financial results and business highlights. Please take a moment and open the slide presentation and refer to Slide #2. Before we begin, please understand that certain statements made during the call today constitute forward-looking statements as defined in the Securities Exchange Act of 1934. These statements are based on our current beliefs and expectations and are subject to certain risks and uncertainties. The company's actual results could differ materially from any anticipated future results, performance or achievements. We make no obligation to update these statements should future financial data or events occur, that differ from the forward-looking statements presented today. Please also see our most recent SEC filings for more information about risk factors that could affect our performance. In addition, during the call, we may refer to several adjusted or non-GAAP financial measures, which may include adjusted EBITDA, adjusted net income from continuing operations and adjusted earnings per share from continuing operations, which are used in addition to results presented in accordance with GAAP financial measures. We believe that non-GAAP measures provide an additional way of viewing aspects of our operations and performance. But when considered with GAAP financial measures and the reconciliation of GAAP measures, they provide an even more complete understanding of our business. A reconciliation of these adjusted non-GAAP financial results to the most comparable GAAP measurements are available at the end of the presentation slide deck and our third quarter 2025 press release. And now, I'd like to turn the call over to our President and CEO, Dr. Cheryl Blanchard. Cheryl? Cheryl Blanchard: Thanks, Matt. Good morning, everyone, and thanks for joining us today to discuss Anika's third quarter 2025 results. Please turn to Slide 3. This quarter reflects strong execution across our strategic priorities, including robust Commercial Channel revenue growth, completing the filing of the third and final PMA module for Hyalofast and continued progress toward completing the final requirements needed to file the Cingal NDA. I'll start out by walking you through the financial results for the quarter, which are in line with expectations, while also generating strong operating cash flow and positive adjusted EBITDA. Revenue for the quarter was down 6% compared to the same period last year, as expected, as Johnson & Johnson continues efforts to stabilize pricing in our important and profitable U.S. OA Pain Management business, which accounts for the majority of our OEM channel revenue. As a note, J&J announced their intent to separate their orthopedic business to enhance strategic and operational focus. We do not anticipate any negative impact to our OA Pain Management business related to that separation. And in fact, after the quarter, J&J MedTech exercised its option to extend the current license and supply agreement for Monovisc for another 5-year term through December 2031. The expected results from our OEM channel were offset by strong continued momentum in our Commercial Channel, where we delivered double-digit growth in the quarter, advancing our strategic priorities, while moving Hyalofast and Cingal closer to FDA approval and launch. Commercial Channel revenue grew 22%, fueled by strong Integrity growth, continued growth of Hyalofast outside the U.S. and international growth in OA Pain Management. Additionally, the steps we've taken to improve our cost structure is flowing through, with SG&A expenses down 12% year-over-year and overall operating expenses down 3%, driving improved profitability and free cash flow. Turning to our Commercial Channel portfolio. Integrity procedures in the U.S. grew for the sixth consecutive quarter, driving Regenerative Solutions growth of 25% year-over-year. Integrity growth is outpacing the overall U.S. soft tissue augmentation market, keeping us on track to more than double Integrity procedures and revenue in 2025 compared to last year. As shown on Slide 4, about 500 Integrity procedures were performed during the quarter, bringing our number of surgeon users to nearly 300. Our U.S. commercial team remains focused on expanding adoption and repeat use, supporting existing users as they integrate Integrity more fully into their practice, while also training new surgeons on its safe and effective use. Notably, over 60% of users have completed multiple cases, a strong indicator of growing and sustained clinical confidence. We are also excited that we started limited launches of Integrity outside the U.S. and cases have been performed in 10 countries. This growing base of experienced users demonstrates sustained clinical confidence and adoption of this game-changing technology that offers both enhanced regenerative capacity and greater strength when compared to competitive products. During the quarter, we also initiated the limited release of the first SKU of the larger shapes and sizes of Integrity, designed for a variety of tendon applications, including in the hip, knee and foot and ankle. A number of surgeries have been performed and the initial feedback from surgeons has been positive. Additional SKUs of shapes and sizes that are designed for more specific tendon augmentation applications, will be released in the coming quarters. We expect these additions to further accelerate adoption and support continued commercial momentum into 2026. Also contributing to our commercial channel growth was the continued success of our international team, driving Hyalofast expansion and delivering double-digit gains in international OA Pain Management revenue. The team partnered closely with distributors to strengthen business in existing markets and expand into new geographies. International OA Pain Management revenue grew 21% year-over-year, primarily driven by the timing of distributor orders. Year-to-date, that business is up 6% compared to 2024. This successful quarter for our international business was underscored by a major milestone. We have now surpassed sales of 1 million Cingal injections since the 2016 launch. The strong uptake of Cingal outside the U.S. is a testament to its effectiveness to relieve both short and long-term pain and get patients back to active living. Turning to Hyalofast. On October 31st, we submitted the third and final module of our PMA to the FDA, marking a major milestone in our U.S. regulatory pathway for our breakthrough cartilage repair device. We look forward to engaging with the agency to progress toward U.S. approval and commercialization. Concurrent with earnings, we have also released the data from our U.S. Phase III FastTRACK study. As previously reported, while Hyalofast consistently demonstrated improvements in pain and function, the study did not meet its 2 co-primary endpoints under the original statistical framework. This was in part due to a disproportionate amount of missing data in the microfracture active control arm. While Hyalofast showed clinically meaningful improvements in both KOOS pain and IKDC function from baseline at 24 months, it was not statistically significant when compared to the active microfracture control arm. Statistically significant improvements were achieved in relevant key secondary endpoints, including KOOS sports and recreation function, quality of life and total KOOS, all of which have been used as the basis for FDA approvals of other cartilage repair products. In addition, because the data was not normal and not missing at random, as assumed in the predefined statistical analysis plan, supplemental statistical analyses were prepared for FDA consideration. These analyses include a review of observed data, which is the data without statistical imputations. In the observed data analysis, we achieved significance for KOOS pain. The post-hoc analysis also included responder analyses for several outcome measures. Our responder analysis provides the number of patients in the study who achieved a clinically meaningful level of improvement. In the FastTRACK study, more Hyalofast patients achieved higher levels of improvement in pain at 24 months than microfracture patients did, and with statistical significance. We believe these additional analyses confirm the consistent and meaningful clinical benefit that Hyalofast with BMAC brings to patients with cartilage defects. We're encouraged by the strength and consistency of the data we have submitted to the FDA, both from the FastTRACK study and the over 15 years of independent clinical experience outside the U.S. The international experience continues to demonstrate Hyalofast's safety and efficacy across a broad range of patients with over 35,000 treated to date as we continue to see strong penetration of Hyalofast in the over 35 markets where it is sold today. Now turning to Cingal, our next-generation OA pain management product. During the quarter, we made meaningful progress toward our U.S. NDA submission. We successfully completed the first of 2 toxicity studies and initiated patient screening for the bioequivalent study, which remains on track to begin before the end of the year. As a reminder, these studies represent the final steps required for our NDA filing. We're encouraged by our continued progress with this important program and remain focused on advancing Cingal towards regulatory submission and ultimately, commercial availability in the U.S. market. Lastly, beginning in 2023, the company undertook a comprehensive strategic review, evaluating a broad range of alternatives. We have formally concluded that process and remain focused on executing our product growth strategy and enhancing operational performance to create shareholder value and return capital. As part of that commitment, we are commencing a second $15 million share repurchase under our previously announced program. We continue to prioritize key growth and regulatory milestones, including growing integrity, engaging with the FDA on the Hyalofast PMA submission, completing the Cingal bioequivalent study and subsequent NDA submission and delivering ongoing operational improvements aimed at strengthening profitability and cash flow. And with that, I'll now turn the call over to Steve for a detailed review of our financial results. Stephen Griffin: Thank you, Cheryl, and thank you, all, for joining us. Our third quarter results reflect steady progress across key areas in both profit and cash flow, with performance in line with expectations and signs of continued momentum. We're executing on our key objectives and the resulting improved financial performance is showing. Please refer to Slide 5 of the presentation as I provide financial updates on the quarter. In the third quarter, Anika generated $27.8 million in total revenue, a 6% decline compared to the same period in 2024. Our commercial channel, which includes globally distributed, highly differentiated products, delivered $12 million, up 22% year-over-year. This growth was driven by continued momentum in our regenerative solutions portfolio, which was up 25% in the quarter as the Integrity Implant system continues to gain market share. Integrity has now delivered sequential growth for 6 consecutive quarters in the United States and remains on track to more than double in 2025. With the launch of larger shapes and sizes in the third quarter, we're encouraged by the continued expansion and trajectory of the platform. Also, within our commercial channel, international OA pain sales grew 21% in the quarter as our international sales team continues to gain share with our existing product portfolio. Year-to-date growth stands at 6%, slightly below expectations, due to shipment timing impacted by the second quarter production-related disruptions. We expect any remaining impact to be resolved before year-end. While this channel can be somewhat variable quarter-to-quarter, it continues to show strong underlying momentum, building on several years of consistent double-digit growth. Revenue in the OEM channel, which includes our domestic OA pain and non-orthopedic products sold by third parties under long-term agreements, declined 20% in the third quarter to $15.8 million, in line with our full year guidance, primarily due to pricing pressure on end-user sales. Orthovisc sales were lower, reflecting both reduced pricing and a continued shift towards single-injection treatments. Monovisc saw strong unit growth, up low double-digits in the quarter, though this was offset by a double-digit decline in pricing. Year-to-date, Monovisc unit volume is up 11%, while average price is down 17%. Despite ongoing pricing pressure, we continue to expect more stable revenue trends as we head into 2026, supported by anticipated unit volume growth that we believe will mostly offset price dynamics, resulting in flat to modestly lower revenue, in line with our previously provided financial framework. Recall, J&J is responsible for marketing and selling OA pain products in the U.S. We continue to work with them in an effort to drive for greater price stability and market expansion. On a combined basis, Monovisc and Orthovisc continue to lead the U.S. market and remain profitable contributors to our business. The remainder of our OEM business, our non-orthopedic sales, declined in the quarter due to the timing of customer orders. Third quarter gross margin was 56%, a decrease of 10 percentage points year-over-year, but an improvement of 5 percentage points sequentially from the second quarter. The year-over-year decline was primarily driven by a $3.2 million reduction in Monovisc and Orthovisc sales to J&J, largely due to lower pricing. This impacted both transfer units and royalty revenues and directly reduces gross profit. Sequential margin improvement reflects our recovery from early summer production disruptions, which had previously led to elevated inventory reserves and negatively impacted gross profit. Turning to operating expenses. Total third quarter OpEx was $18.8 million, a decrease of $700,000 or 3% compared to the same period last year. Selling, general and administrative expenses declined $1.7 million or 12%, primarily driven by headcount-related cost savings and lower stock-based compensation. Following the 2 divestitures completed earlier in 2025, we streamlined and optimized our organizational structure to better align with our strategic priorities and reduce operating costs. Notably, general and administrative expenses were down 17% year-over-year. We remain focused on identifying cost savings initiatives, while continuing to invest in areas that support sustainable long-term growth, partially offsetting the G&A savings. Research and development expenses increased $1 million or 17%, driven by the costs associated with the Cingal toxicity study. Year-to-date, R&D expenses are up 1%, driven by a $1.8 million increase in external expenses, largely due to a $2 million increase in Cingal pre-filing requirements. In contrast, total internal R&D expenses are down 12% year-to-date versus 2024, underscoring our commitment to operational efficiency, while maintaining momentum in key development areas. Adjusted EBITDA from continuing operations was positive in the quarter, totaling $900,000, a decline of $3.7 million compared to the same period in 2024. This result exceeded the anticipated breakeven level and represented a $1 million improvement over the second quarter. The year-over-year decline was primarily driven by reduced high-margin revenue from J&J, partially offset by meaningful reductions in operating expenses. The improved expense profile contributed to profitability that was better than previously guided. Now turning to cash and liquidity. Anika delivered strong operating cash flow of $6.9 million in the third quarter, up from $5 million in the same period last year. This improvement was driven by favorable timing, stronger working capital management and disciplined cost controls. Year-to-date operating cash flow totaled $6.6 million, a $2.8 million increase over 2024. This performance reflects the company's disciplined approach to working capital and expense management. We invested $1.9 million in capital expenditures during the quarter, an increase of $700,000 year-over-year, primarily due to timing. These investments are focused on expanding capacity at our Massachusetts manufacturing facility to support anticipated volume growth across Monovisc, Cingal, Integrity and Hyalofast. This positions us to efficiently scale operations and meet future demand. We ended the third quarter with $58 million in cash and no debt. As Cheryl mentioned, we are commencing a second $15 million share repurchase, consistent with the plan announced in May 2024. This repurchase will be executed under a 10b5-1 program, which we expect to complete by June of 2026. It reflects our ongoing commitment to returning capital to shareholders while preserving the flexibility to pursue strategic growth initiatives. Now on Slide 6, I'll review our full year financial outlook for 2025. We are maintaining our full year 2025 guidance. We continue to expect our commercial channel to generate between $47 million and $49.5 million in revenue, representing a year-over-year growth of 12% to 18%. Our OEM channel remains on track to deliver between $62 million and $65 million in revenue for 2025, representing a year-over-year decline of 16% to 20%. At the midpoint of an 18% decline, this range reflects higher volumes offset by lower pricing from J&J. Now turning to profitability. We are maintaining our 2025 adjusted EBITDA guidance range of positive 3% to negative 3%. Our liquidity remains strong with no need to raise capital, and we remain confident in our ability to execute on our strategy. We continue to be focused on improving our expense profile to deliver positive operating cash flow. This financial discipline enables us to reinvest in the business, capitalize on the value propositions of our product pipeline, and ultimately deliver sustainable returns for our shareholders. With that, I will now turn the call back over to Cheryl. Cheryl Blanchard: Thanks, Steve. In closing, we're pleased with Anika's solid third quarter performance, which reflects continued momentum in our commercial channel, disciplined expense management and meaningful progress across our pipeline. Additionally, with strong operating cash flow, a healthy balance sheet and a clear path toward key regulatory milestones, in total, we believe this will deliver long-term value for shareholders. We want to thank our shareholders for their continued support, and we'd also like to extend our deepest gratitude to the entire Anika team whose dedication to developing, manufacturing and delivering world-class HA-based products enables us to restore active living for patients around the world. And with that, we'll open up the line for questions. Operator, please proceed. Operator: [Operator Instructions] Your first question is from Michael Petusky from Barrington Research. Michael Petusky: Thanks for some of the additional detail in the presentation today. That's great. So I guess I want to ask a question around Integrity, Cheryl. In terms of what you would view as the bigger priority or maybe the lower-hanging fruit, I mean, is it driving increased utilization with your existing surgeon base? Is it doing more trainings and expanding the footprint? I mean, can you just sort of talk about how you guys are approaching maybe turning 300 surgeons into 600 and 500 cases a quarter into 1,000 cases? Like how do you get there? Cheryl Blanchard: Great question. Thanks for that, Mike. So I'd say, first of all, that we're feeling very bullish in the U.S. market with our team coming from a position of strength because what we're seeing from the surgeon reaction and adoption, new surgeon use and further penetration with existing surgeons is that this product really does provide significant clinical advantages. It's stronger, has higher suture retention even when wet and it has additional regenerative capacity. It just -- it does things that the existing products out there don't do. So, I would tell you, though, that we are probably equal parts focused on going out and getting new surgeons, getting new surgeons excited about the technology and also continuing to do training and education on the safe and effective use of the product for new and existing surgeons, especially as we continue to launch these additional SKUs that are really designed for use in the other tendon applications in the hip, in the knee, and the foot and ankle. So, I would say it's really across the board, and our team is very busy doing both. Obviously, we've talked about this year that we are on track to double this year. And so, we continue to invest in this product. We think it's a great product. We believe in what it's doing, and we're excited for that team to continue to drive both penetration and acquiring new customers. Michael Petusky: Okay. All right. Great. And I guess, if you could just remind me and maybe others, the timing for sort of wrapping up everything related to Cingal bioequivalence and the second toxicity, is that sort of mid-'26? Is that when you hope to sort of wrap all of that up? Or am I [ misremembering ]? Cheryl Blanchard: No, I don't think you're -- we have not given a specific updated timeline, which we will be in a position to do at the next earnings call because we need to get the bioequivalence study started. We've talked about -- we are on track to start that by the end of the year. We started screening patients for that study. And as soon as that study gets started, we'll be able to provide a more fulsome update on the timeline. We have one last toxicity study that will be done in the first quarter. And then the timing of the bioequivalent study is really what's going to dictate our fulsome timeline to get to an NDA filing. But everything is on track as we sit here today. Michael Petusky: Okay. And then just one more. This is probably for Steve. Steve, in terms of capital deployment priorities, obviously, you guys called out the share repurchase. Can you just talk about either ranking or how you guys think about sort of share repurchase relative to internal investment relative to M&A? Obviously, you have a balance sheet that could support some -- multiple things. Can you just talk about how you think about capital deployment? Stephen Griffin: Absolutely. I appreciate the question, Mike. When we look at the hierarchy of our capital needs, I'd say, first and foremost, we have internal investment that we're making into our business today. We've shared that we're investing approximately $14 million of profit into our regenerative solutions portfolio, which is the launch of Integrity and then the preparations associated with Hyalofast. We look at that as a strategic investment that we're making as part of the growth of our product pipeline. That's first and foremost that we talk about. Second is the need for CapEx in the business to support those product launches. Most of all of our CapEx is associated with our Bedford-based manufacturing facility to support the growth of our cross products in Cingal and Monovisc as well as all of our [ high-end ] products, Integrity and Hyalofast. And then third on that list would be the share repurchase that we've communicated today. Are there other actions that we could do and things we could look at? Certainly, we have a long list of things that we consider outside of the ones that I just referenced, M&A being one of them. But at this point, that's not something that the company is ready to undertake. And I'd say those -- first 3 of those areas that we pay the most attention to in terms of ranking our priorities. Michael Petusky: Okay. And then actually, let me sneak one more in, and then I promise I'll get off and let other people ask questions. Steve, in terms of the production issues, I was under the impression that, that had largely been resolved earlier. In Q3 it seems like some of that persisted. Is that a different issue? Or is that essentially hangover from the same issue? Stephen Griffin: It's the latter. It's the hangover from the same issue. So from a resolution, we're back to where we are from a yield perspective where we historically were. It's just about getting back on all of our POs for customers that we were not on track to. So this is just a matter of available capacity and running our teams over weekend shifts and the like to get back to PO, which is why I'm focused around getting it back to healthy by year-end. It is obvious we take every customer PO very seriously, but it has a small impact on some of our [ OUS ] customers and a very minimal impact on our U.S.-based customers. Michael Petusky: Okay. I think you had said that you had expected a overall gross margin to sort of return to like the high 50s, like 58%, 59% in the second half. Is that maybe tracking a quarter behind? Like essentially, should we expect gross margin in Q4 to look more like Q3 or more like high 50s? Stephen Griffin: It's probably between where we are today and a little bit higher towards the fourth quarter. A lot of it comes down to the recovery from a product shipping perspective. So I would say that's probably more associated with some of the current gross margin dynamics. Michael Petusky: Okay. But 58%, 59% longer term is doable, I assume. Stephen Griffin: Yes. A lot of that comes down to pricing with J&J, right? So as you know, that's a very profitable piece of our business. So I don't really give long-term gross margin projections just because that pricing has been so volatile. What you're seeing us return to is north of 55%, between 55% and 60%. That's kind of a more normalized level for the business today, barring changes that could occur from a pricing perspective. Operator: There are no further questions at this time. And that concludes our question-and-answer session for today. Ladies and gentlemen, the conference call has now ended. Thank you all for joining. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. I'd like to welcome you to Banco Santander-Chile's Third Quarter 2025 Earnings Conference Call on the 5th of November 2025. [Operator Instructions] So with this, I would now like to pass the line to Patricia Perez, the Chief Financial Officer. Please go ahead. Patricia Pallacan: Good morning, everyone. Welcome to Banco Santander-Chile's Third Quarter 2025 Results Webcast and Conference Call. This is Patricia Perez, CFO, and I'm joined today by Cristian Vicuña, Head of Strategy and IR; and Lorena Palomeque, our Economist. Thank you, everyone, for joining us today for the review of our performance and results in the third quarter. Today, Lorena will start with an overview of the economic environment, and then Cristian will go through the key strategy points and the results of the bank in the third quarter of the year. After that, we will have a Q&A session where we will be happy to answer your questions. So let me hand over to Lorena. Lorena Palomeque: Thanks, Patricia. During the third quarter of 2025, we observed positive economic indicators in the Chilean economy. Preliminary market figures suggest GDP grew around 2% year-on-year in Q2 or almost 3% when excluding mining. While we await the full national accounts report on November 18, which will also include Q1 and Q2 revisions, we estimate GDP growth of 2.4% by the end of this year and close to 2% for next year. We are now just a few days away from the presidential and congressional elections in Chile. Also, the outcome is still uncertain, polls suggest that a change in the government administration with an opposition candidate is the most likely scenario, which could generate stronger tailwinds for the economy next year. In terms of inflation, also moderation is already evident, it remains above the 3 target -- the 3% target with core inflation now below 4%. Limited second round effects, anchor expectations and a narrow output gap will allow inflation to converge to below 4% by the end of this year. We expect this inflation process to continue given the softer demand environment, both globally and domestically. In this context, we maintain our forecast for the U.S. of 3.6% for the end of this year, converging to 3% next year. Regarding the monetary policy rate, during the third quarter, the Central Bank of Chile maintaining the policy rate at 4.75%, responding to an inflation environment that continues to ease. Nevertheless, the bank will emphasize that it will closely monitor the evolution of core inflation, which remains higher than expected as well as domestic demand before considering a new rate cut. We expect another reduction in the last quarter of the year, bringing the rate to 4.5% by year-end and followed by an additional cut during the course of next year. On Slide 5, we present recent developments in the regulatory framework. Regarding the mortgage subsidy law, which was approved in May of this year, its implementation has continued within the framework of the allocation of the funds awarded in the first auction held in June. Under the law, 50,000 subsidies will be provided with almost 18,000 already authorized by banks. This has provided some momentum to the housing sector, whose growth is expected to become increasingly evident in the coming months. With respect to the interchange fee, the second rate cap reduction remains on hold and under review by the commission, and we are awaiting further updates on this matter. Open Finance system of FinTech law established an implementation schedule that begins with a collateral submission of information that banks and payment card issuers must share in July 2026. However, the system's technical definition remains under consultation, while costs and other operation details are still pending. This has prompted calls to review the implementation time lines, a request the [ FMC ] is currently analyzing. During September, the framework law on sectoral authorization for permits related to productive, energy and mining initiatives was approved. This will enable the development of tools for the simultaneous processing of permits streamlining the approval of low-risk projects, which should in turn accelerate investment in these sectors. As we mentioned before, there are only a few days left until the presidential and congressional elections in Chile, which will be held on November 16 with a potential runoff on December 14. According to the latest current polls, left wing candidate, Jeannette Jara leads the presidential race with 27% support, followed by right candidate, Jose Antonio Kast with 20%. While the presidential race has gained visibility, we must not overlook the parliamentary elections where the entire Lower House and nearly half of the senate, 23 out of 50 seats will be renewed. Polls show that Chileans remain highly concerned with crime, security and the economic growth. Simulation suggests that right wing candidates may gain ground in Congress, driven by local campaigns emphasizing security. This implies that even if the left wing candidate wins the presidency, Congress could lean right, potentially moderating more vital policy initiatives. As such, while some [ electoral ] related volatility is likely in the near term, we believe the longer-term market impact will be limited. And with that, I will now pass over to Cristian. Cristian Vicuna: Thanks, Lorena. On Slide 7, we show our value creation strategy for our stakeholders through our vision to become a digital bank with Work/Café. Our focus is on attracting and activating new clients, understanding their needs and deepening engagement. We aim to surpass 5 million clients by 2026 while continuing to grow our base of active customers. Next, we are building a global platform that leverages artificial intelligence and process automation to scale efficiently. It's about reducing the cost per active client and driving operational excellence. Our target is to maintain an efficiency ratio in the mid-30s or better, a reflection of a bank that is both digital and disciplined. We are focusing on broadening transactional and noncredit fee-generating services. Through this, we aim to grow our fee generation in double digits and ensuring best-in-class in recurrence, our income fees divided by our structural operating expenses. Our growing client base means more activity, and we are seeing increasing transactional volumes, especially in payments. Our digital ecosystem encourages clients to transact more frequently and seamlessly, driving engagement and loyalty. Finally, this is underpinned by strong CET1 levels, ensuring that our expansions remain sound, responsible and aligned with regulatory expectations. All of this leads to a strategy where we are capable of attracting value creation with ROEs above 20% and a dividend payout of 60% to 70%. On Slide 8, we can already see how our strategy over the last few years has succeeded in changing our income mix and creating a more efficient and profitable bank. Our key measure of value creation has been the strong growth in ROE achieved while maintaining solid capital ratios during the implementation of Basel III. Our ROE has increased more than 6 percentage points, more than double the increase in the rest of the industry. This has been supported by a 5 percentage point improvement in our efficiency versus a 2% improvement in the industry, demonstrating our consistent cost control and the success in the implementation of our digital transformation. We are particularly proud of successfully migrating our legacy mainframe systems to the cloud earlier this year under Project Gravity. On the other hand, we have been transforming the composition of our income revenue streams with fee generation increasing from 15% of our revenues to 20%, reflecting the success of the expansion of our client base and noncredit-related services through our digital accounts and card payments as well as other services such as asset management, brokerage and our acquiring business. Meanwhile, the composition of the industry revenues has remained stable. This mix is driving our revenues ratio to the best-in-class in the industry. This ratio, which shows how much of our costs are paid by our fee generation now stands at above 60%, far above for the rest of the industry. We are very proud of the success of our strategy has had so far. And as you will see later on, we are enthusiastic about the evolution of our results in the coming year. Now in Slide 10, we will take a closer look at the results this year. As of September, the bank generated a net income of CLP 798 billion, a 37% year-over-year increase resulting in a return on average equity of 24% and an efficiency of 35.9%. Growth was supported by an 8% rise in fee income and a 19% increase in financial transactions. Mutual funds grew 15%, and our recurrence ratio reached 62% year-to-date. Our net interest income, which includes our readjustment income increased 17% year-over-year, and our net interest margin remained at 4%. Furthermore, currently, we are provisioning a dividend payout of 60% of this year's income to be paid in April next year. This year, we have also been highly recognized on several fronts. We are proud to have been recognized by several institutions. Euromoney named us Best Bank in Chile, Latin Finance recognized us as Best Bank and Global Finance awarded as the Best Bank for SMEs. This year, we have improved our sustainability rankings with our MSCI ESG rating improving from A to AA and our Sustainalytics grade improving to 15.4 points. On Slide 11, we can see the evolution of our quarterly return over equity, where we can see that we have maintained our ROEs above 21% even in quarters with lower inflation such as this recent quarter, where the UF Variation was 0.56%, and we reached an ROE of 21.8%. On a yearly basis, our NII has improved 16.6% with a strong increase from net interest income as a result of a lower cost of funding, which improved some 100 basis points year-over-year. With this, our year-to-date NIM reached 4%. And given our current macro expectations, we expect our NIMs to stay around the 4% area for what is left of 2025. On Slide 12, we can see how our rapidly expanding client base is leading to a higher fee generation. We currently have 4.6 million clients, of which around 59% actively engaged with us and some 2.3 million are digital accessing the online platforms on a monthly basis. The number of current accounts is increasing 10% year-on-year, driving the 5% and 4% growth of our active clients and digital clients, respectively. The growing client base has led to a 12% annual increase in credit card transactions and a 15% rise in mutual fund volumes that we brokered. Overall, our clients maintain high satisfaction levels with the bank and our product offering. Furthermore, we continue to expand our footprint among companies, where we have increased the number of business current accounts by 23% in the last 12 months. This is explained by the simple business accounts we offer to smaller companies and the integrated payments offered through Getnet. As we can see in the table on the right, the increase in our client base and product usage is translating into high fees and results from financial transactions, growing 11.5% year-over-year. Our main products such as cards, Getnet, account fees and mutual fund fees continue to show strong trends, with cards and account fees registering a higher expense in the quarter related to certain campaigns in our loyalty programs during the quarter. On Slide 13, we can see how our recovery of income generation and tight cost control has improved our key performance metrics. Our efficiency ratio reached 35.9%, the best in the Chilean industry in 2025 so far, and our recurrence ratio reached 62%, meaning that over 60% of our expenses were financed by our fee generation. In early 2025, operating expenses rose temporarily due to the cloud migration costs, mainly reflected in higher administrative expenses during the first quarter. However, overall, our operating costs grew below inflation in the year so far. In the quarter, our total core expenses decreased 3.4%, mainly due to lower personnel expenses related to the seasonality caused by the winter holidays and national holidays in September. Overall, we have maintained our best-in-class levels of efficiency and recurrence compared to our peers. Furthermore, we continue to innovate in our branch network to align with our Work/Café format, improving both efficiency and customer experience. It is thanks to these adjustments to our contact points with clients along with the evolution of our digital platforms that we have been able to achieve these impressive levels of operating performance. On Slide 14, we show an overview of our cost of risk and asset quality. As in prior quarters, cost of credit has remained above historical average, reflecting elevated nonperforming loans earlier in the year. From the graphs, you can see that our NPL and impaired portfolio have shown some improvement in recent quarters with a slight pickup in September due to some seasonality related to collections in the month caused by the national holidays. However, our initial data for October is showing better performance. And over the last few months, we have seen tangible improvements in our asset quality that we expect these trends to continue in the coming quarters. On Slide 15, we can see that the CET1 ratio reached 10.8% in September '25, far above our minimum requirement of 9.08% for December 2025 and demonstrating some 45 basis points of capital creation since December 2024. This was driven by our income generation in 2025 and considers a 60% dividend provision for our 2025 profits accumulated so far and a 4% increase in risk-weighted assets. As noted in our previous call, we have a 25 basis point Pillar 2 capital charge, of which 50% was made by June 2025, in line with regulatory requirements. So on Slide 16, we show our guidance for what's left of 2025 and our initial guidance for 2026. Regarding our 2025 forecast, we are well on track to meeting our guidance with NIMs around 4% and efficiency in the mid-30s. Overall, we expect ROE to finish the year slightly above 23%. For next year, we're expecting GDP growth of 2% with a UF variation just below 2.9% and an average monetary policy rate of around 4.4%. With the upcoming elections in just 2 weeks, we expect a more favorable business environment next year, supporting mid-single-digit loan growth. Despite the slightly lower inflation, the loan growth and slightly lower rates should help to sustain our NIMs around 4%, while our fees on financial transactions should grow mid- to high single digits. This does not include any impact for a further interchange fee reduction, which is yet to be defined by the interchange fee commission. Our efficiencies should remain around the mid-30s, while our cost of credit should continue to improve gradually to reach around 1.3% for the year. With all of this, our initial expectations for 2026 are for an ROE within the range of 22% to 24%, underscoring the high ROE potential of Santander-Chile. With this, I finish my presentation, and we can start the Q&A session. Operator: [Operator Instructions] Our first question is from Lindsey Shema from Goldman Sachs. Lindsey Marie Shema: Congrats on the results. Looking ahead to 2026, it seems like ROE might be a little better, a little worse, but somewhat the same. Just wondering here on our end, what are the main upside and downside risks for your ROE estimate? And then on that note, does it factor in an unfavorable election result? Or could there be further downside there? Cristian Vicuna: Well, so thank you for the question, Lindsey. I'm going to hand over the first part because we assess that some of the most beneficial potential scenarios of next year are related to the change in political cycle. And we are not actually considering most of those effects into our guidance -- our current guidance. Patricia Pallacan: [indiscernible] Cristian Vicuna: Well, to provide some perspective, we are not considering in the potential scenario of growth for next year, the benefits of a political change that could trigger further growth in the commercial part of the loan portfolio. So we are thinking of mid-single digits, but a more benign scenario will probably make the commercial portfolio of the middle market companies grow stronger than this, maybe even going to figures of 7% to 8%, probably very skewed to the second part of next year and more into 2027 because of the delay of some projects to get approved and passed through to the practical part of the investment. So that's one of the things that's not actually considered on our guidance. The main risks that we have seen so far this year and next year are coming from the external part of the macro scenario. You have seen the volatility in terms of assets and commodity prices and all the effects that have come from all the discussions from international trade effects of the U.S. policies and the consequences of this. So that's a source of uncertainty that's also not considered in the central part of our scenario. But all in all, I think that we are favorable of the upcoming quarters in 2026 and that in general terms the more adverse scenarios are considered within our guidance. Patricia Pallacan: Yes. And maybe to complement the answer, our base case scenario considers a lower inflation, but partially offset by a lower monetary policy rate on average for next year. And also offset by better growth dynamics in terms of loans. So that could be better -- even better depending on the political landscape for next year. And we think for both scenarios, we are well prepared in our targets and guidance. Operator: Our next question is from Daniel Mora Ardila from CrediCorp. Daniel Mora: I have 2 questions. The first one is regarding loan growth. Can you provide further color of what do you expect about loan growth in 2026 by segment? If we can have the guidance by segment would be great. And I would like also to know if you can comment about the competitive pressures in loan growth, especially considering that there is one key competitor that is showing very high figures of loan growth in Chile. I would like to know if you feel the pressures, especially in the commercial segment. That will be my first question. And the second one is regarding NPLs and cost of risk. I would like to know, considering the slight deterioration of NPL in the consumer segment and mortgage segment, what will be the path or the evolution of asset quality indicators in 2026, given that you are guiding for a reduction of the cost of risk next year? Patricia Pallacan: Thanks, Daniel, for your questions. I will take the first one and Cristian will take the second one. So regarding the composition of loan growth for next year, we are seeing like a quite homogenic growth composition [ in segments ]. So regarding consumer loans, we continue to see growing at a healthy pace in that product. Regarding the mortgage portfolio, we also -- during this last quarter, we are seeing better dynamics leveraged by the government support or stimulus coming from the subsidies. So we are seeing good dynamics for next year as well. And regarding the commercial loans, that will be like the question mark, but we are also seeing better dynamics for next year, especially leveraged by the political landscape, right? And if we have the right changes in the regulation that we have already seen as part of the transition we will have growth in our guidance for next year. Cristian Vicuna: So within the commercial portfolio, to give you a little more flavor, we are expecting for the retail part, SMEs to grow mid-single digits as within our general guidance. But as I mentioned earlier, the question mark is what will happen with the large corporates and the investment decisions that they might trigger because of the political landscape. This is what we are not seeing yet in terms of market dynamics. And it's probably related to the part of your question about the competitive pressure, right? So I think that in terms of the commercial part of the portfolio, we are seeing some players growing, but we don't assess it on the local part of the portfolio. And we believe that this is set to improve by the second half of next year. And turning to your credit cost of risk and risk in general performance. So, so far this year, we are showing closer to 1.4% cost of risk year-to-date. We have some seasonal effects on September in terms of the absolute movements of the portfolio, especially in the NPL part, we are seeing it's pretty stable. Most of the increase in cost of risk is coming from the improvement that we have been displaying in the commercial NPLs. So these commercial NPLs are coming down from levels of 4.1% 12 months ago to levels of 3.4%. So we've been doing some write-offs of some nonperforming loans there, and that's explaining most of the pickup that we are seeing in terms of cost of risk. We know that's not going to continue for the upcoming quarters. So that's what makes us believe that the total cost of risk is set to improve in the next periods. Operator: Our next question is from Neha Agarwala from HSBC. Neha Agarwala: My first question is on the interchange fee. Could you remind us what are the current levels for the interchange fee? And what is the risk that the second caps actually go through next year? What is your expectation in that regard? Cristian Vicuna: So just a reminder, like we had a committee that was in charge of assessing the rate fees for the card business in general. So they implemented the first part of their reduction from levels of around 1.4% in credit to levels of 1.14%, which is the current rate and from levels of 0.6% in debit to levels of 0.5%, which is the current rate. So the second rate cut, which was suspended, it was set to decrease credit fees to levels of around 0.8% and debit to levels of around 0.35% and prepaid also to levels of around -- similar to credit of 0.8%. So that's the part of the decision that's being reviewed. The committee is expected to come to a decision by the final months of this year or early next year. Our initial assessment was that the total reform will mean an impact in our credit card fees of around $50 million, half and half in both impacts. So the second part is expected to come next year. We don't know. But the impact will be in the neighborhood of the $20 million in fees in the card impact if the committee comes to the decision to implement the second cut. Neha Agarwala: Very clear. So if the second cut actually happens, which is not in your guidance, the impact would be between $20 million to $25 million for 2026. Cristian Vicuna: Yes. Neha Agarwala: Super. And my second question is, again, going back to the cost of risk. I know you talked about it. But this year was -- we saw the NPLs coming down. You had to do some write-offs, there were one-off cases. But 2026, the asset quality should perform better than what we had this year. So why isn't cost of risk coming down, even more in the initial targets? Cristian Vicuna: I think 10 basis points, it's a good range to start because we are still not seeing the full effects of the projects that we've been implementing to improve the collection cycle. So we are still -- and I agree with you, which might sound a little conservative, but we are comfortable guiding some conservative improvements and leaving some room there. Operator: [Operator Instructions] Okay. It looks like we have no further questions. I will now hand it back to the Santander-Chile team for the closing remarks. Cristian Vicuna: Thank you all very much for taking the time to participate in today's call, and we look forward to speaking with you again very soon. Operator: That concludes the call for today. Thank you, and have a nice day.
Operator: Greetings, and welcome to the Kodiak Gas Services Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I will now turn the conference over to your host, Graham Sones. Please go ahead. Graham Sones: Good morning, and thank you for joining us for the Kodiak Gas Services conference call and webcast to review third quarter 2025 results. Participating from the company today are Mickey McKee, President and Chief Executive Officer; and John Griggs, Executive Vice President and Chief Financial Officer. Following my remarks, Mickey and John will discuss our financial and operating results and 2025 guidance, then we'll open the call for Q&A. There will be a replay of today's call available via webcast and also by phone until November 19, 2025. Information on how to access the replay can be found on the Investors tab of our website at kodiakgas.com. Please note that information reported on this call speaks only as of today, November 5, 2025, and therefore, you are advised that such information may no longer be accurate as of the time of any replay listening or transcript reading. The comments made by management during this call may contain forward-looking statements within the meaning of the United States federal securities laws. These forward-looking statements reflect the current views, beliefs and assumptions of Kodiak's management based on information currently available. Although we believe the expectations referenced in these forward-looking statements are reasonable, various risks, uncertainties and contingencies could cause the company's actual results, performance or achievements to differ materially from those expressed in the statements made by management, and management can give no assurance that such statements or expectations will prove to be correct. The comments today will also include certain non-GAAP financial measures. Details and reconciliations to the most comparable GAAP measures are included in yesterday's earnings release, which can be found on our website. And now I'd like to turn the call over to Kodiak's President and CEO, Mr. Mickey McKee. Mickey? Robert McKee: Thanks, Graham, and thank you all for joining us today. I'd like to begin today's call, as we do with all meetings at Kodiak with a safety topic. As we head into the holiday season and prepare to travel and spend time with friends and family, I want to remind everybody that safety doesn't stop at the workplace, whether you're commuting, visiting family or running errands, please avoid distractions while driving. No text or call is worth risking your safety. Please join me in committing to staying focused behind the wheel so we can enjoy the holidays with those who matter most. We had a busy third quarter, delivering solid financial results and executing on several strategic actions to improve the operational and financial outlook of the company while remaining focused on returning capital to shareholders. Let me begin by discussing some of the strategic actions we have taken over the past few months. First, we went live with our new ERP system in August that was delivered on time and under budget. We consolidated several legacy systems into an integrated platform that will increase our visibility with real-time financial and operational information and enable us to deploy multiple facets of AI technology into our everyday business. The implementation of the new ERP system involved a lot of hard work by the team, and I want to thank everyone involved for their dedication to getting this important project over the line. The new ERP system is a foundational step in our agentic AI initiatives. The team is currently working on multiple AI agents across a broad range of processes, including parts sales, customer order handling and supplier and inventory management. We're specifically excited about our tech parts agent, which will assist our field service technicians in locating the right parts for the job in an expedited manner. These agentic AI initiatives complement our operational AI initiatives, which include condition-based preventative maintenance scheduling and predictive failure detection, just to name a few. The next, as a result of the CSI acquisition 18 months ago, we inherited operations in 5 foreign countries. As part of our strategic goal to high-grade our fleet and concentrate capital and efforts on markets with the best combination of growth and returns, we made a decision to exit all of our international operations. I'm pleased to report that during the third quarter, we successfully exited the last of our international operations by divesting our operations and assets in Mexico, which included the sale of approximately 19,000 operating horsepower. We had great people in those countries, and I wish the buyers well, but we firmly believe that the U.S. is the right place to be for Kodiak in the contract compression business. Relative to the international markets where we previously operated, including Argentina, Canada, Chile, Romania and Mexico, we believe the U.S. offers higher returns, lower operating risk and a superior growth outlook for many years to come. And we successfully divested all of these operating areas in under 18 months from the close of the highly successful acquisition of CSI. The next major initiative in Q3 that I'd like to highlight is the strategic moves we made with our balance sheet. During the quarter, we termed out $1.4 billion of debt through 2 bond offerings at a weighted average cost of debt of 6.6%, including the first ever 10-year term bond issuance in the compression sector. These offerings were another strategic step in derisking our business and setting us up for continued growth and success by allowing us to stagger and extend our debt maturities and significantly increase our liquidity. We ended the quarter with $1.5 billion of availability in our ABL Facility, giving us ample flexibility to pursue exciting future growth opportunities. Finally, we returned an industry-leading amount of over $90 million to our shareholders in the quarter through a $50 million share repurchase and our dividend. Furthermore, as a result of the underlying strength of our business fundamentals, our strong financial results and our outlook for future discretionary cash flow, we increased our quarterly dividend by another 9% to $0.49 per share, equal to approximately 35% of our discretionary cash flow, our stated goal for return of capital to our shareholders. Since September 2024, the $110 million in share repurchases we've completed, have allowed us to reduce our share count by nearly 3.5 million shares. We have approximately $65 million available under this program, and we expect to use it. Share repurchases are a fundamental and exciting part of our overall shareholder return strategy. We ended the quarter with $4.35 million in revenue-generating horsepower. Average horsepower per revenue-generating unit was $965, a figure that continues to lead the industry and that has increased each quarter since we closed the CSI acquisition. In the third quarter, we deployed approximately 60,000 new horsepower that averaged more than 1,900 horsepower per unit and roughly 40% of those new units were electric motor driven. We also added about 30,000 operating horsepower through a small purchase leaseback with an existing customer and through the exercise of an early buyout option on some previously leased units. Including the exit from Mexico, we divested approximately 26,000 operating horsepower of nonstrategic units during the quarter. Our investments to grow the fleet, along with strategic divestitures of noncore units drove our fleet utilization to roughly 98% another industry-leading metric. Our large horsepower units remain fully utilized at over 99%, reflecting the continuing strong demand for large horsepower compression, and we expect that to continue. With new or expanded pipelines representing over 4.5 Bcf a day of incremental Permian gas takeaway capacity coming online by the end of 2026, our Permian customers have been very active this fall in ordering new compression to be delivered next year. In addition to the new pipelines, there's another 4 Bcf a day of sanctioned pipeline projects that are expected to be online by the end of the decade with numerous other Permian egress projects in the works. Given the recent surge in new compression orders, new pipeline takeaway capacity and forecasted natural gas volume growth, lead times for new compression equipment has significantly stretched out to upwards of 60 weeks. We'll give you more details on our 2026 capital spending plans next quarter, but as a result of the high level of demand across the industry and our customers' needs, our capital plan for 2026 is effectively fully under contract. Before we discuss our third quarter financial results, a few thoughts about the macro environment. Since oil broke below $70 in the first quarter, we have seen the U.S. E&P industry adjust to the lower pricing environment in different ways. Permian operators have high-graded their drilling locations and realized increases in drilling and completion efficiencies, such as reducing days to drill to help offset the decline in oil prices and rig count. The result is that we continue to see oil production growth from the Permian Basin and the U.S., and our customers continue to see accelerating growth in natural gas. So we expect 2026 to be a big year in gas growth from the Permian Basin. Given this backdrop, combined with the strength of our business model, the demand outlook for large horsepower compression remains very strong. Kodiak has continued to deliver top line revenue growth, margin increases and Contract Services segment growth throughout the year. Also, as I'll discuss shortly, we have taken several steps to reduce cost and boost our operating efficiencies. We see no reason why this dynamic won't continue into 2026, driving further revenue growth and margin improvement. Now turning to third quarter 2025 results. We once again delivered sequential growth in contract services adjusted gross margin and set another record in quarterly discretionary cash flow. As John will discuss in more detail, adjusted EBITDA for the quarter of $175 million was negatively impacted by over $5 million of nonrecurring SG&A expenses associated with the divested Mexico business. Given strong customer demand, historically high industry-wide utilization and disciplined decision-making by the contract compression industry, pricing conversations with customers continues to be constructive. We completed the majority of our planned 2025 contract renewals in the first half. But in Q3, we recontracted just over 200,000 horsepower at above our current fleet average. Contract Services adjusted gross margin percentage matched the high watermark we set last quarter at 68.3%, a 230 basis point increase compared to the third quarter of 2024. In addition to fleet growth, optimization efforts and pricing, we're seeing margin improvements from setting new large horsepower units and our investments in technology to drive fleet uptime and reliability. Specifically, we've reduced lube oil consumption on a per horsepower basis through our AI and machine learning deployment. And our fleet reliability center that monitors our fleet remotely 24 hours a day is helping us identify problems before they become more expensive repairs with longer downtime. This drives lower engine and compressor repair costs and leads to better uptime for our customers. In our Other Services segment, third quarter results were consistent with our expectations. We're seeing positive momentum in our station construction business as evidenced by the recent award of a 30,000 horsepower compressor station that will feed supply fuel gas to a power plant located in Texas. This project is expected to kick off soon and will take roughly a year to complete. As Texas and other areas in the country look for additional natural gas-fired power plants to satisfy surging electricity demand, we're optimistic that more opportunities like this will arise. I'd now like to pivot to a few things that I believe are an underappreciated part of Kodiak's investment case, our short cash conversion cycle and our industry-leading discretionary cash flow yield. Unlike other midstream and infrastructure companies with lengthy construction projects that require substantial percentages of total capital expenditures long before revenues are generated, Kodiak has a short time frame between capital outlay and first revenue. The ability to quickly generate cash plus the strong returns on our growth investments allows Kodiak to generate a discretionary cash flow yield that we believe to be among the best in the midstream investment universe. We generated nearly $117 million in discretionary cash flow in the third quarter and over $450 million over the last 4 quarters. That equates to approximately 15% discretionary cash flow yield at our current stock price. We define discretionary cash flow as adjusted EBITDA less cash taxes, cash interest and maintenance CapEx. This represents a starting point for our capital allocation framework. We continue to use this cash flow to return capital to shareholders, buying back approximately $50 million in stock in Q3 2025 and paying out a well-covered quarterly dividend. Now I'd like to turn to the outlook for the remainder of 2025. Even following the sale of Mexico and the incurrence of extraordinary and nonrecurring SG&A expenses during Q3, we remain on track to hit our annual revenue, margin and adjusted EBITDA guidance, and we're right where we expected to be with capital spending. At the end of the quarter, we have deployed about 90% of the new units for the year with the remainder expected to be installed in the fourth quarter. Given our reduced outlook for cash taxes, we're on pace to exceed our discretionary cash flow guidance. Therefore, we increased our outlook on this metric for the year. In summary, we're very pleased with our third quarter results. We're on track to achieve our full year guidance and the steps we've taken this year position us for continued margin growth in the future. Our focused large horsepower business model is helping us generate industry-leading discretionary cash flow yields, position us to further strengthen our balance sheet and return cash to shareholders. And now I'll pass the call to John Griggs to further discuss our financial results and our updated guidance for the year. John? John Griggs: Thank you. As Mickey made clear, we accomplished some really important strategic objectives during the quarter, actions that serve to set us up well for the next leg of returns-oriented growth in the years to come. Let's turn to the quarter's highlights, and I'll start with our Contract Services segment. We generated solid revenue growth in this segment in Q3 as evidenced by a year-over-year increase of 4.5% and quarter-over-quarter increase of 1.2%. Revenue per ending horsepower was $22.75 this quarter, a nice uplift versus the same quarter last year and effectively flat sequentially. We anticipated this outcome, and we called it out on our last quarterly call because we knew we were adding a lot of revenue-generating horsepower during this quarter, but only a portion of that horsepower's revenues. With less new horsepower being set in Q4 and in conjunction with the recontracting rate increases and solid pricing for new units, Mickey already spoke to, we expect to see a nice uptick in the revenue per horsepower metric for Q4. Relative to Q3 of '24, Contract Services adjusted gross margin percentage increased by 230 basis points to 68.3%. The margin improvement is a reflection of the success we've realized in achieving higher pricing per horsepower alongside lower operating expenses per horsepower. We've driven these results through a relentless focus on high-grading the fleet through large horsepower, gas and electric additions, combined with the sale of noncore, low-margin units. And we're habitually rolling out new technology and process initiatives that either reduce costs, defer spend or improve labor productivity or some combination of the 3. In our Other Services segment, we generated revenues and adjusted gross margin in line with our expectations. We've seen a resurgence of contract activity and that, plus our backlog gives us confidence that we remain on track to achieve our annual revenue and margin guidance. Reported SG&A for the quarter was $37.8 million. And after adjusting for nonrecurring or noncash items, it was $31.5 million. As Mickey mentioned, the $31.5 million still includes approximately $5 million in professional expenses associated with the cleanup and sale of our former Mexico operations. With our Mexico operations and assets now sold, we expect SG&A to revert back to a more normalized level during Q4. During the quarter, we booked a noncash charge of $28 million in other expenses that was related to our multiyear negotiation with the state of Texas over the taxability of our compression assets. We've recently made significant progress in gaining clarity on the issue and ultimate potential settlement. The charge takes our reserve to an amount we believe will satisfy this obligation in full. Based on our current discussions, we'd expect to pay the state and close out this accrual in early '26. By doing so, we'll eliminate a significant contingent liability that has been with us for many years. And importantly, we believe that our view and the state's view on taxability of these assets is relatively aligned, and we don't foresee any changes to our future margins or return on investment associated with the tax structure going forward. Net loss attributable to common shareholders for the third quarter was $14 million or $0.17 per diluted share. Excluding the loss on the sale of our Mexico business, the Texas sales and use tax charge and other onetime items, adjusted net income was $31.5 million or $0.36 per diluted share. Maintenance CapEx for the quarter was approximately $20 million and trending toward the low end of our guidance range for the full year. Our investments in technology and the insights we're gaining from that are allowing us to extend preventative maintenance intervals and commensurately associated spending on a major portion of the fleet. We're increasingly seeing the benefit in our maintenance CapEx and believe we'll see more of that going forward as well. As expected, growth CapEx more than doubled quarter-over-quarter to approximately $80 million based on the addition of the roughly 60,000 in new horsepower. Year-to-date, we've added roughly 140,000 horsepower, and we're on pace to slightly exceed our forecast of 150,000 for the year. Other CapEx was $12 million for the quarter. As we previously highlighted, other CapEx was front half weighted in 2025 due to capitalized spend on our new ERP system as well as some residual spend on our CSI-related fleet upgrades, which are now complete. The discretionary cash flow came in at $117 million, an increase of approximately $14 million versus the comparable quarter from last year. Free cash flow for the quarter was $33 million. With regard to the balance sheet, we made great strides in the execution of our finance strategy. We achieved our goal of terming out the majority of our ABL into bonds with staggered maturities, including the first 10-year bond in the compression space. These actions derisk our balance sheet and add a further element of cash flow stability to our business, which in turn helps us execute on our capital allocation and shareholder return strategies with enhanced confidence. During Q3, we issued $1.4 billion of bonds, exiting the quarter with $521 million drawn on the ABL and leaving us with approximately $1.5 billion in availability. Total debt at quarter end was approximately $2.7 billion. We exited the quarter with a credit agreement leverage ratio of around 3.8x, up from the prior quarter, mainly as a result of debt financing fees as well as our $50 million share repurchase from EQT. We expect to exit the year at about 3.6x. Last, our Board recently declared an increased dividend of $0.49 per share. Even with 2 increases totaling nearly 20% this year, our dividend is well covered at 2.9x. Briefly on guidance. As we close out the year, we remain on track to hit our segment level guidance for revenues and margins as well as adjusted EBITDA, even after all the extra spend on Mexico during Q3. On CapEx, our prior guidance remains unchanged as the vast majority of 2025's capital spending is now behind us. We expect the fourth quarter CapEx and new unit growth will decline from Q3 levels. Thanks to our reduced outlook on cash taxes and reduced spend we're seeing in maintenance CapEx, we're on pace to exceed our prior guidance for discretionary cash flow. We now expect to generate between $450 million and $470 million in discretionary cash flow for the year. And with that, I'll hand it back to Mickey. Robert McKee: Thanks, John. Our business model, which generates stable and recurring cash flows is performing well in the current market. The demand outlook for contract compression remains robust, demonstrated by our ability to maintain strong pricing and continued growth in our industry-leading horsepower utilization. Additionally, our new unit horsepower order book is essentially fully contracted for 2026 as we capitalize on the robust outlook for growth in natural gas. Besides the top line growth, we are successfully making steps to increase margins by divesting noncore units and investing in technology to reduce costs and increase uptime. These targeted actions have enabled us to reach new financial milestones across several important metrics. As a result, we delivered year-over-year increases in Contract Services revenue, adjusted gross margin and set a new quarterly record in discretionary cash flow, strengthening our ability to return capital and drive ongoing value for Kodiak shareholders. Thank you for your participation today. And now we're happy to open up the line for questions. Operator? Operator: [Operator Instructions]. Our first question comes from Doug Irwin with Citi. Douglas Irwin: I just wanted to start with '26 here. And I realize you haven't given any explicit guidance, but it sounds like you have a pretty good idea of what bookings are looking like into next year at this point. So just wondering if you could maybe provide a bit more detail about how the backlog is shaping up and maybe just high level, how you're thinking about fleet additions and pricing power relative to the last few years. Robert McKee: Doug, this is Mickey. Thanks for being with us today. Yes, we're not quite ready to give guidance into '26 quite yet. But like we said in our prepared remarks, we're effectively fully contracted out for what we plan on spending for next year. We've been pretty clear about the fact that our plan is to spend kind of roughly 60% of our discretionary cash flow on our growth capital for any given year. And we think that next year ought to be pretty comparable to that. And we have contracts out into the latter parts of next year that ought to be somewhere in that ballpark. So next quarter, when we give official guidance for '26, we'll give that more detail, but we feel pretty good about where we're at right now and set to have continued growth into next year. Douglas Irwin: Understood. And then my second question, just around M&A. I think so far this year, you've been focused on more kind of smaller acquisitions and divestitures, but it sounds like a lot of the obvious high grading is maybe concluded at this point. So just curious if larger scale M&A is something that's on your radar? And if so, what kind of deals might make sense? And would you maybe even consider stepping outside of traditional compression if the right opportunity presents itself? Robert McKee: Yes, Doug, I mean, we definitely would consider that. We don't comment too much on potential M&A deals. But I will tell you that the strategic actions that we took this year set us up to be in a position to consider some of that stuff for next year. So we went live with our ERP system, which was a huge step for us to dial in technology and utilize AI going forward as well as the bond issuance that we did that's freed up $1.5 billion worth of availability on our ABL. So as of this quarter, we have a balance sheet that's in a position to pursue some M&A activity if the right opportunity presents itself. Operator: And our next question comes from John Mackay with Goldman Sachs. John Mackay: Last quarter, you -- we spent a fair amount of time on some of the initiatives you were working on with your customers, kind of sale leasebacks or other kind of similar types of deals. Can you maybe just catch us up on where those sit and how conversations gone so far? Robert McKee: John, good to talk to you this morning. So in Q3, we had a small purchase leaseback transaction that we executed on that was really good for us and helped us grow the revenue-generating horsepower by above that 30,000 horsepower mark. So we've got good conversations with that kind of stuff going on. Nothing -- no big things super imminent right now, but those conversations are happening with customers. And just kind of back to Doug's question that I just answered, right, like the strategic initiatives that we executed on in this quarter with the ERP implementation that allows us to get that real-time financial and operational data at our fingertips as well as the bond issuance freeing up a lot of liquidity for us is those were 2 really important steps as a prerequisite to executing on some larger type of not only M&A, but also kind of like strategic transactions with our customers. So we had to get those steps out of the way first before we could take the next one. So we're excited about the progress we made in the third quarter. John Mackay: Understood. And then going back to your comment earlier around, I guess, you're doing some station construction for some power out in the basin. Can you talk a little bit more about what the opportunity set looks like there for you guys and whether Kodiak could get more kind of directly into the power gen side? Robert McKee: Yes, absolutely. I mean that specific opportunity is one of our station construction deals. We've got a ton of backlog that it looks like for opportunities in our pipeline for that station construction business, a lot of interest in the power sector. And so we are doing a lot of work there. We're gaining a lot of valuable expertise and industry insight there. And if the right entry point presents itself, then we will probably take advantage of it. But nothing to report just yet, but we're doing a lot of work, and we're very interested in the segment. Operator: And we'll go next to Connor Jensen with Raymond James. Connor Jensen: I noticed that lead times are back above 60 weeks for equipment, which lines up with what we've heard from others. Wondering if this will potentially lead to higher prices down the road on incremental orders that you could maybe capture through higher prices and just kind of how you're thinking about that dynamic? Robert McKee: Yes. I mean I think lead times are a function of the demand in the industry, right? And so I think you're seeing this -- the industry see an extraordinary amount of demand from not only takeaway capacity increases in the Permian Basin, but significant volume increases that are being projected for natural gas, not only in the Permian, but in other basins as well. So I think you're starting to see this LNG capacity come online and you're starting to see a significant amount of volume increase projections from our customers and others that are saying, man, we need a lot of compression, and we need a lot more of it. So I think that is all going to be positive for pricing going forward, and we expect that we will continue to have positive pricing discussions with our customers. Connor Jensen: Got it. That makes sense. And then a nice job exiting all the international operations focus on the core U.S. market. Is there any cost savings to be had being an entirely domestic business? And how should we think about divestments following this presumably at a lower pace now that you have all the international businesses sold? Robert McKee: Yes. I think going forward, the divestitures will come at a lower pace, now that we've successfully exited Mexico and Argentina. Those businesses were definitely at a lower margin contribution than the standard large horsepower compression that we have that's very, very concentrated in the U.S., especially in the Permian Basin. So we're certainly divesting of lower-margin business there. So I would consider -- I would definitely think that it would be helpful to our overall margin. So -- but it's a pretty small contribution. So it's not going to be a big impact. John Griggs: And I will add to that, this is John, to -- and we called it out in the prepared remarks. It was in our press release. So we explicitly spent about $5 million on professional expenses in the third quarter in SG&A for a business that's now sold. So that's kind of all wrapping up. And so there is a bona fide savings you won't see repeat in the fourth quarter and beyond. Operator: Moving next to John Annis with Texas Capital. John Annis: For my first one, with the new horsepower added this quarter, can you talk about how much of that is electric? I think you may have mentioned around 40% in your prepared remarks, if I heard you correctly. And then just more broadly, has there been any recent changes in your customers' desire to add electric motor drive compression? John Griggs: Yes. Thanks. This is John. I'll tackle the first piece and then hand it back to Mickey for the customer kind of feedback. So in the third quarter, we added around 60,000 new horsepower and about 40% of it happened to be electric. We also, over the course of the year, have kind of told everybody that about 40% of the total order book for '25 was electric. So that was just a coincidence in terms of the third quarter versus the year. In terms of what Mickey is saying in the future, I'll turn it back to you. Robert McKee: Yes. I mean I think that you're definitely seeing a little bit of a pullback away from electric-driven compression orders and inquiries coming in. It's just a power problem, especially in the Permian Basin. They're just the lead times for getting power and connecting the grid access is just a problem for people that have aspirations to go to electric. I think those aspirations are still there. They just are looking at shorter-term solutions and that kind of thing that are kind of then the longer-term electric desires that they have. So the power problem is real, and it's kind of shifting some of those customers' desire to go electric. John Annis: Terrific. For my follow-up, you highlighted robust natural gas demand drivers, including power for data centers and LNG. Can you quantify what portion of your new unit deployments or backlog are directly tied to serving these emerging areas versus traditional wellhead production? And then are there any differences in contract terms, duration or equipment requirements for these applications? Robert McKee: John, it's really hard for us to quantify what of our -- how much of our compression is going to serve LNG versus data center demand and that kind of thing. Once that gas gets into a pipeline, you never know if that certain molecule is going to support fuel for power for a data center or it's into the Gulf Coast to be liquefied and said to Europe for LNG. So we really can't tell the difference from our standpoint. We do know that there's a lot of demand for natural gas and it all requires multiple stages of compression. It's good for our business. So we see it coming down the pipeline, and we don't see any differences really from those standpoints of contract terms or duration there. So from where we sit in that value chain, it's too early to kind of determine. Operator: Moving next to Zack Van Everen with TPH & Company. Zackery Van Everen: Maybe just going back to the 60 weeks on new equipment. Does that kind of indicate you're already starting conversations with customers for 2027? And would you guys be willing to order some on spec just to make sure you have the equipment when it's needed? Robert McKee: I would think that the discussions for 2027 will start happening really quickly. We've been pretty busy here so in the last month or so. So I haven't heard about many discussions into '27, although I do know that they're starting to happen. We haven't traditionally ordered equipment on spec, Zach, but -- and to the extent that we can avoid doing so, we will for compression. But there's some things we can do in working with packagers and working with the Cat dealers on making sure that there's engines kind of in the pipeline coming down and that we can have access to. So there are some things we can do to kind of manage our supply chain there without having to really step out on a limb and order full equipment packages on speculation out with that longer lead times. Zackery Van Everen: Got you. That makes sense. And maybe related to the same question, have you seen contract duration get extended as we see continued rates increasing for customers is when they renegotiate. Has that gone out from the typical 3 to 5 years? Or are you still within that range for most new contracts? Robert McKee: Most new contracts are still within that 3- to 5-year range. So we are starting to see some interest from some customers that want to term equipment out for longer than that, but haven't gotten too much traction there as we're really more prone to key in on price rather than term for those contracts. Operator: [Operator Instructions]. And we'll go next to Selman Akyol with Stifel. Selman Akyol: I just want to go back to the station construction opportunity that you're seeing. And you talked about backlog, and I just want to make sure I understand that. Is backlog opportunities that you've identified? Or is that stuff you've identified and you actually expect to become order and we should expect to see it at some point flow through? Robert McKee: A little bit of both, Selman. I think that we probably have more opportunities in our pipeline today than we've probably had in the last couple of years. Now conversion rate on those, I think we expect to be pretty high, but haven't signed, sealed the deal on all of those yet, but we feel pretty good about that business model going forward and the contribution that it's going to have in 2026. Selman Akyol: And then as we think about margins, you've talked about divesting lower contributions. You've got your ERP system. You've talked about AI. What should we be expecting margins as we kind of go through '26? Is there still upward pressure to those numbers that you're putting up? Robert McKee: I think so. I mean we're not quite ready to guide on '26 what margins are going to look like yet, but we would expect those to be higher than they are today. Selman Akyol: Got it. And one last question, if I could squeeze it in. Can you just talk about what the outlook is for other basins besides the Permian? I know the Permian gets all the attention, but seeing any uplift in any others? Robert McKee: Yes. Selman, good question. And quite frankly, the bulk of the capital spend by our customers has gone to the Permian Basin, like you said. So we key on the Permian probably more than most people. But I will tell you, there is some uplift in opportunities that we're seeing in some other basins. We've got some really interesting opportunities that we're taking advantage of up in the Northeast as well as in the Eagle Ford as well as in the Rocky Mountains. So we're seeing some of those other basins start to have a lot more interest and activity. So it's a good thing. And we think that certainly from a natural gas standpoint of supporting LNG build-out and data center build-out and that kind of thing, some interest from these other basins is a quality thing for us. Operator: And we'll hear next from Eli Jossen with JPMorgan. Elias Jossen: Maybe just on some of the strong liquidity you guys have and the optionality it creates. I recognize that '26 is pretty filled out, but can you just talk about what makes the most sense to do with that dry powder? I mean, could we think about something bigger in the Power Solutions realm? I know you guys talked about you're looking at those, but maybe just stacking that kind of opportunity set versus some of the M&A that's out there. John Griggs: Yes, sure. So this is John. I'll tack it, and I'm sure Mickey will chime in, too. So look, you asked a broader question. I am going to say that our capital allocation framework that we've been consistently applying since we went public is still the one that we're going to stick to, and that's an algorithm that kind of looks at that 3% to 4% growth in horsepower on a year-over-year basis for several years, generates upper single digits EBITDA growth for several years in a row, and that should translate into a similar, if not slightly higher discretionary cash flow growth rate going forward as well, too. We want to honor the 3.5x long-term leverage target that we've kind of set forth. And so we will always want to protect that balance sheet. But then we've got this great pile of discretionary cash flow that we have the optionality and what we're going to do stuff with. We're still seeing wonderful returns. We always talk about kind of the new horsepower sets that we see and generating really, I guess, high-quality returns well above our hurdle rates on new horsepower. So we'll continue to do that. And then as we think about M&A, Mickey answered a lot of those questions at the beginning. So we've gotten so many of these things that have kept us pretty focused post going public, post-CSI integration, exiting the international operations, exiting the small horsepower business, implementing the new ERP system that were really real geared up to just take advantage of this kind of, I'll call it, new management capacity that we have for the next chapter of Kodiak's growth. So we're going to look at all opportunities within compression that fit our kind of pistol, which is going to be the large horsepower, high-quality assets in the right basins. And then as we think about power, how can you not think about power in a world that we live in? Our customers ask us to do it. We're in the electric power business. We have relationships with all of the people that are buying their own distributed power that are concerned about what's going to happen to the grid and stability. So it's conversations that we'll continue to have going forward. And then the last is that opportunity to work creatively with our customers to potentially do the purchase leaseback type transactions. Those would be wonderful ways to grow our business without growing industry capacity to a degree and can make great financial sense for investors. So it's really -- it's -- we're sitting really well for 2026 to try to think about, once again, the next chapter of Kodiak's growth that is in addition to this awesome long-term business model that we have in large horsepower U.S. compression. Elias Jossen: Yes. Awesome. Really appreciate the color there. And then maybe just kind of back to some of the 60-week lead times and the contracting that you're seeing. Can you just talk a little bit about pricing trends, particularly in the Permian? I know those continue to move up and to the right, but just what you guys are seeing on the pricing front and how you expect that to evolve in the future? Robert McKee: Yes, Eli, we don't expect things to change that much. I think we've still got the ability to command leading-edge pricing that we have for the last couple of years. We've repriced a good bit of our fleet, but there is still a significant piece of our fleet that we haven't repriced. And so we expect kind of the existing price book of the existing fleet to continue to move up over time as we adjust some of the legacy contracts that we had that are 3 or 4 years old. And then we expect to continue to command kind of leading-edge pricing on new unit deployments that we have coming out the door, too, because, quite frankly, with the inflation and increased cost of operations on that stuff, we have to command a higher price to command the same kind of margins that we've had. So we'll be focused -- laser-focused on those, but we think that the pricing situation remains pretty status quo, and we think we can still drive pricing on new units and the existing fleet. Operator: Anything further, Mr. Jossen? Elias Jossen: I leave it there. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Mickey McKee for closing comments. Robert McKee: All right. Thank you, operator, and thank you to everyone participating in today's call. We look forward to speaking with you again after we report our results for the fourth quarter. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good day, and welcome to Sempra's Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Louise Bick. Please go ahead. Louise Bick: Good morning, and welcome to Sempra's Third Quarter 2025 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under the Events and Presentations section. We have several members of our management team with us today, including Jeff Martin, Chairman and Chief Executive Officer; Karen Sedgwick, Executive Vice President and Chief Financial Officer; Justin Bird, Executive Vice President of Sempra and Chief Executive Officer of Sempra Infrastructure; Caroline Winn, Executive Vice President of Sempra; Allen Nye, Chief Executive Officer of Oncor; and other members of our senior management team. Before starting, I'd like to remind everyone that we'll be discussing forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in any forward-looking statements we make today. The factors that could cause our actual results to differ materially are discussed in the company's most recent 10-K and 10-Q filed with the SEC. Earnings per common share amounts in our presentation are shown on a diluted basis, and we'll be discussing certain non-GAAP financial measures. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We'll also encourage you to review our 10-Q for the quarter ended September 30, 2025. I'd also like to mention that forward-looking statements contained in this presentation speak only as of today, November 5, 2025, and it's important to note that the company does not assume any obligation to update or revise any of these forward-looking statements in the future. With that, please turn to Slide 4, and let me hand the call over to Jeff. Jeffery Martin: Thank you all for joining us today. Before discussing today's financial results, I want to spend a moment reviewing how we've positioned our portfolio to deliver significant value to our owners through the end of the decade. Today, our company is situated at the intersection of several important secular trends, including the ongoing electrification of America's energy systems, AI deployment and the growing need to deliver energy safely and reliably. In order to capitalize on these trends, we've worked closely with our Board of Directors to update our corporate strategy to focus on lower risk and higher value transmission and distribution investments, growing our position as a leader in large economic markets, shifting our capital allocation to fund the growing needs of our U.S. utilities and doing so with a sharp focus on Texas, which is a market that we believe offers the best long-term value proposition for our owners. Next, let me turn to our financial results. Earlier this morning, we reported third quarter 2025 adjusted EPS of $1.11, which compares favorably with the prior period's results of $0.89. Also, with the strength of our year-to-date results, we're affirming full year 2025 adjusted EPS guidance range of $4.30 to $4.70 while also affirming our 2026 EPS guidance range of $4.80 to $5.30. And finally, we're affirming our projected long-term EPS growth rate as shown on this slide. Please turn to the next slide, where I'll provide an update on our 2025 value creation initiatives. You'll recall that earlier this year, we announced a company-wide campaign focused on 5 initiatives to create value for owners. First, we set a goal of investing approximately $13 billion this year with the vast majority being allocated to our U.S. utilities. Through the first 3 quarters, I'm pleased to report that we've successfully deployed nearly $9 billion of capital and remain on track to meet or exceed our year-end goal of $13 billion. Moreover, at Sempra Texas, we're benefiting from improving returns, primarily attributable to increased capital efficiency at Oncor, which is associated with the newly implemented unified tracker mechanism. Moving to the second initiative. We're pleased with our recent announcement to sell a 45% stake in Sempra Infrastructure Partners for $10 billion. We view that transaction as a major catalyst in unlocking Sempra Infrastructure's franchise value while also benefiting Sempra in numerous ways, including: number one, improving our business growth profile as the mix of regulated earnings significantly increases; number two, unlocking reinvestment capital for our U.S. utilities; number three, adding an average of $0.20 to EPS accretion over the 5-year period starting in 2027; and number four, fortifying our balance sheet, deconsolidating Sempra Infrastructure Partners' debt and paving the way for improved credit metrics. In parallel, the ongoing sales process for Ecogas continues to generate a lot of interest from a number of prospective buyers, and we're expecting to receive final bids before the end of the year. Both transactions are expected to close by the middle of 2026. The last initiative shown here at the bottom of the slide is aimed at improving community safety and driving operational excellence across the organization. This includes efforts to improve the regulatory environment with a view toward reducing enterprise risk. A great example is California SB 254, which strengthened the long-term stability of the state's wildfire fund while also improving claims liquidity. The key takeaway on this slide is that progress on these initiatives is translated into improved financial and operational results, and I cannot be more proud of our employees who have embraced our commitment to both modernize and scale our organization, improve our cost structure and better serve all of Sempra's stakeholders. Please turn to the next slide where Karen will walk through business updates. Karen Sedgwick: Thanks, Jeff. At Sempra, California, SB 254 was enacted, which is a significant derisking event for the California electric utilities. Jeff mentioned it earlier that the bill calls for an even split of funding between the California IOUs and their customers with no upfront contributions. Importantly, SDG&E share of the various contributions is a modest 4.3% for what amounts to just under $13 million per year through 2045, with additional future contingent contributions being required only if needed. Continuation account also strengthens the cap on reimbursement in the event of a finding of imprudence. It's also important to note that any contributions made by IOU shareholders to the continuation account may be also counted as prepaid credits against potential reimbursement amounts in the future. Taken together, we believe these measures, which are outlined on Slide 15 in the appendix, significantly strengthened the financial safeguards for electric utilities, an important achievement for all of California. As we approach year-end, we're tracking several regulatory matters in California that we hope to wrap up, including Track 2 of the GRC, the T06 proceeding at FERC and the CPUC's cost of capital proceeding. Moving to Sempra Infrastructure. We previously announced a definitive sales agreement that's expected to reduce our ownership percentage to 25% will be accretive to EPS forecast and credit. And following the close of the transaction, we expect to maintain a solid cushion above our FFO to debt thresholds. Among other benefits, a lower equity stake will also improve our regulated earnings mix, while allowing Sempra to deconsolidate Sempra Infrastructure's debt from our GAAP financials. In our LNG business, Port Arthur LNG Phase 1 continues to make notable headway with Train 1 expected to reach COD in 2027. We're on schedule and on budget with over 1/3 of piping installation complete on Train 1. Recently, we also completed the Tank A Roof Air Raise, which is another important milestone for the project. Earlier in the quarter, you'll recall that we also reached FID at Port Arthur Phase 2 and issued a full notice to proceed under our fixed-price EPC contract with Bechtel. This is important because it gives us the opportunity to leverage continuous construction at the site and reduce project risk. To date, we placed all high-value orders for long lead plant equipment and also completed the project's first permanent piles for Tank C and Train 3. I'll also add that the value proposition of Sempra Infrastructure's LNG franchise continues to grow. As the European Council recently backed the EU's proposal to end deliveries of pipeline gas and LNG from Russia by the end of 2027. Moving to ECA LNG Phase 1. The project is over 95% complete and pre-commissioning activities are ongoing. Certain systems have moved into the commissioning phase, and we're currently working on repairing an auxiliary turbine designed to increase efficiency. Based on progress at the site, we continue to expect first LNG production in the spring 2026 with commissioning cargoes expected to commence thereafter. At Cimarron Wind construction continues to advance with the overall project being approximately 95% complete. And just last week, Cimarron achieved initial synchronization of approximately 1/3 of the turbines that are now online and operational. And importantly, the project remains on target to achieve COD in the first half of 2026. Finally, at Sempra Texas. Oncor's base rate review continues to make considerable progress. In September, a settlement on interim rates was approved that allows Oncor to apply the final approved rates back to January 1, 2026, if the case is not finalized by that date. And through October, Oncor has evaluated interpreter arguments, submitted rebuttal testimony and is actively engaged in settlement discussions with all parties. Next, the procedural schedule calls for a hearing on the merits to begin the week of November 17. With completion of the base rate review and an updated 2024 test year, together with the opportunity to improve capital efficiency with the UTM, Oncor will be better positioned to support customer growth across its service territory. And at the end of September, we continue to see strong growth in Oncor's core markets. Oncor's active LC and IQ has increased over 10% from the prior quarter. Further, premise count increased by 16,000 and Oncor also built, rebuilt or upgraded nearly 660 circuit miles of T&D lines during the quarter. As customer growth continues to accelerate, in the transmission expansion plans advance, Oncor anticipates a substantial increase to its 2026 to 2030 capital plan. Please turn to the next slide. Turning to the Texas 765 transmission expansion. We believe this remains a key growth driver that's underappreciated by the market. ERCOT estimates $32 billion to $35 billion to complete the full build-out. And as a reminder, we estimate Oncor's portion of these projects will surpass 50% of the total investment with Permian projects expected to come online by the end of 2030 and non-Permian projects being completed in the 2030 to 2034 time frame. As a result, Oncor is now forecasting an increase of over 30% to its projected 2026 to 2030 capital plan. And though we're still early in our fall planning process, Oncor continues to see substantial upside opportunities to its updated base plan forecast. That's why at Sempra, we're prioritizing the Texas market within our portfolio and assuming a constructive rate case outcome you should expect us to allocate a significantly greater share of investment capital to Sempra Texas in our roll forward plan. Please turn to the next slide, where I'll review the third quarter financial results. Earlier today, Sempra reported third quarter 2025 GAAP earnings of $77 million or $0.12 per share. This compares to third quarter 2024 GAAP earnings of $638 million or $1 per share. Note that third quarter 2025 GAAP earnings include a $514 million tax expense related to classifying Sempra Infrastructure Partners as held for sale, which is nonrecurring in nature. On an adjusted basis, we're pleased with our strong year-to-date execution, as third quarter 2025 earnings were $728 million or $1.11 per share. This compares favorably to our third quarter 2024 adjusted earnings of $566 million or $0.89 per share. We believe this sets us up well for the remainder of the year as well as next year where we're anticipating strong year-over-year growth from the midpoint of our 2025 guidance. We're continuing to expect several regulatory decisions in the next several months and don't want to get ahead of the CPUC. Ultimately, the resolution of these matters will be helpful in determining where our full year financial results come in. Please turn to the next slide. Variances in the third quarter 2025 adjusted earnings as compared to the same period last year can be summarized as follows: At Sempra, California, we had $76 million primarily from higher income tax benefits, partially offset by higher net interest expense. This included $32 million associated with the election to accelerate deductions for self-developed software expenses authorized under OB3 as well as return to provision impacts and timing of flow-through tax benefits in the quarter. We're also pleased that Sempra California had $47 million from higher CPUC based operating margin, net of operating expenses, partially offset by lower cost of capital. Turning to Sempra Texas. We had $45 million of higher equity earnings from higher invested capital, Oncor system resiliency plan and unified tracker mechanism, partially offset by higher operating and interest expenses. At Sempra Infrastructure, we had $26 million, primarily from higher asset optimization, partially offset by lower transportation results, lower tax benefits and others. At the parent, the $32 million decrease is primarily due to higher net interest expense, lower investment gains and others, partially offset by higher income tax benefits from OB3. Please turn to the next slide. To conclude our prepared remarks, we continue to execute on our 2025 value creation initiatives and also have delivered solid third quarter and year-to-date financial results. Further, the Sempra Infrastructure Partners transaction is a significant positive catalyst for our company and reinforces our mission of building America's leading utility growth business. To accomplish that, we're targeting strong rate base growth in Texas and California with a view towards posting improved and more durable earnings and cash flows in the future. And as we've indicated, we think there are significant incremental capital investment opportunities to do just that over both the near and long term, which is why we feel confident in announcing that Oncor's roll forward capital plan is expected to increase by at least 30% over its current $36 billion base capital plan. Looking forward, we expect to officially announce Sempra's 2026 to 2030 capital plan on our fourth quarter call in February, subject to the completion of Oncor's pending base rate review. Thank you for joining us, and I'd now like to open up the line for your questions. Operator: [Operator Instructions] And our first question will come from Nick Campanella from Barclays. Nicholas Campanella: So look, you've done a lot to derisk the balance sheet with the transaction that you announced 5 weeks ago. Obviously, you're talking about this higher CapEx outlook at Oncor. Just with the proceeds that are kind of coming in on a staggered basis, '26 and '27, just how are you kind of viewing balance sheet capacity for this increase? And is it fair to say there should be no equity through '27? Or just how are you kind of thinking about that? Jeffery Martin: Yes. Thank you, Nick. Let me take the equity question first, and then I'll pass it over to Karen to give more color on the balance sheet. But I would just start on the equity side and just say we're in great shape on this front, right? As you indicated, the proceeds from the SI transaction are expected to eliminate 100% of the common equity that was previously in the 2025 to 2029 financing plan. It also sets us up well as we look to roll the plan forward to 2030, which we expect to discuss in February. But with the proceeds that you talked about being staggered and coming into us in 2026 and 2027, I think one of the key takeaways is we're in a great position to fortify our balance sheet, which Karen will talk about momentarily. We have more work to be done this fall, but Karen and I are committed to maintaining a strong balance sheet to efficiently fund growth. And as we have in the past, Nick, we'll use all the tools we have available to grow the business in a thoughtful way. Now let me turn to the balance sheet briefly. One of the things our management team does from time to time is we spend time discussing how we create a competitive advantage in every market cycle. And in today's market cycle, one of the things that we've identified with our Board of Directors is the importance of maintaining balance sheet strength, and that was a central part of the thesis that was behind the SI transaction and why we're taking a series of steps over the next 12 months to fortress our balance sheet to support the strong growth in our utilities. That is one of the key takeaways today. We're seeing remarkable growth in our utilities, particularly in Texas, and we expect that not just to end Nick in 2030, but to extend well into the middle part of the next decade. And that's why privilege and the balance sheet is so important. And with that, Karen, perhaps she could talk about how you're thinking about next steps. Karen Sedgwick: Sure. Thanks, Nick. Yes, I think you're looking about it as correct, Nick. We've been working closely with the rating agencies. They're giving us time to complete the SI transaction. And as we update our 5-year plan, we'll look to incorporate the benefits of that transaction. So as a reminder, we expect to get EPS accretion there, deconsolidate SI's debt and improvements to our overall credit. And I'll remind you that we expect to receive improved credit profiles from each of the agencies. So this includes improving our view of our risk profile, our business risk and improved downgrade thresholds. So as I mentioned in our prepared remarks, that we plan to build a solid cushion on our balance sheet, and we'll provide more specifics when we roll out the financial plan next year. But in the interim, we feel really good about where we are and the strategy we've laid out. Jeffery Martin: Thank you, Karen. Nicholas Campanella: And then maybe just switching gears to Texas. Just I see the schedule here going through April '26. Hearings are about 1.5 weeks out. Just since we're past testimonies now, is settlement less likely? Is this something that you're kind of still actively working towards? Can you talk to that quickly? Jeffery Martin: Sure. Allen and his team are doing a great job. I think, for the overall audience, I'd refer everyone to Slide 13 for the procedural references that Nick is referring to. And Allen, perhaps it might be best if you would just briefly talk about where you're at in the proceeding and what you think the next steps are. E. Nye: Yes. Thanks, Jeff. Where we are, I think, is accurately portrayed on Slide 13, as you all both mentioned, interveners and staff both filed their testimony now. Staff testimony didn't get us all the way to where we need to be, but we thought it was very constructive. We did file our rebuttal last Friday. We continue to engage in settlement discussions with the parties. And we will continue to engage in settlement discussions with the parties. At the same time, we've got a hearing set for the first -- for November 17, the week of, and we're preparing to go to hearing that week, if necessary. We're really confident in the strength of our case. I'll remind you that we do have an order on interim rates, which becomes effective January 1, 2026. So we'll continue to talk. We'll continue to see what we can get done on the settlement front. And if we're successful, we'll obviously let everyone know. And if we have to go to hearing, we'll be ready to go. We expect an order, as you said, at the second quarter '26. Jeffery Martin: Thank you, Allen. Appreciate it, Nick. Operator: Our next question will come from Jude Jordan from Wells Fargo. Shahriar Pourreza: This is actually Shar on for Jude. Jeffery Martin: Hey, Shar. Congratulations on the new assignment. Shahriar Pourreza: Appreciate it. Appreciate the support there. Just real quick on the SIP transaction. Can -- I guess, where do we stand on the leakage there? I mean, I know, obviously, you've got accretion numbers. You're looking at sort of a tax-efficient way to do this. I think you're still assuming around 20%. So what's the status there, I guess? Jeffery Martin: Yes. I think that that's a good number. We're still looking at that. Obviously, there's some complexity there given the assets we have in Mexico, the international implications, both state and federal, but 20% is still a good number for you to guide yourself to. Shahriar Pourreza: Okay. Perfect, Jeff. And then just, I guess, the 30% increase, just curious what's included in there? How much of that is awarded 765 kV versus base system needs increasing? And how does that increase kind of stack up against that $12 billion of prior upsides you called out in 4Q? So just any visibility there would be great. Jeffery Martin: Sure. Shar, I really appreciate this question because I think it's been one where there's been a lot of ambiguity and a lot of questions we've taken as part of the call. We tried to discuss this in our prepared remarks, but let me go through and provide a couple of reminders, I think, that will be helpful to the listening audience. When Oncor rolled out through 2025 to 2029 capital plan last February, we indicated a base plan of $36 billion, and you're exactly right, there was a defined set of upsides there of about $12 billion. With the updates we've had over the last several months, both from ERCOT as well as the PUCT on the 765 kV transmission expansion and early indications within the fall planning process, Oncor is very comfortable increasing their expectations for the base capital plan to increase by about 30%. And here's the key distinction. That's primarily being driven by the state's acceleration of the Permian plan that now needs to be completed early. It has to be done now, Shar, by 2030. The other key thing to note is that Oncor also has line of sight to additional upside. You remember the upside was previously about $12 billion we're now targeting something that's substantially similar. So Shar, when you put that together, the base plan increase and expected upside, Oncor will have a $55 billion to $60 billion capital opportunity through 2030. And I might just add for context that in our 2025 to 2029 plan for Sempra, we currently sit at $56 billion. So if you just take the midpoint of that expectation, the roll forward base plan and upside is bigger than Sempra's current 5-year plan. So the key takeaway from this call is, yes, we've had great financial results, I feel great about 2025 and the pull-through in the 2026. But we've made a commitment to back Texas, right? And to do that, with our Board of Directors, we launched a capital recycling program because we wanted to load our balance sheet, so we were in a position to officially fund the growth we're seeing in the future. And I think Allen and his team have come forward with some very solid numbers, and we look forward to giving you more specifics on that in February. Operator: Our next question will come from David Arcaro from Morgan Stanley. David Arcaro: Well, I guess I was curious now on the as you look at that Oncor load growth pipeline continues to chuck a lot and grow quarter-by-quarter. I guess I was just wondering if you could characterize. Like what is the maximum amount of new load that you could connect, if we're thinking about kind of the 2030 time frame? Are you full on data center activity? I mean how much could that actually increase as you look at the pipeline in order to feather it in or weave it in to even further enhance the load growth from here? Jeffery Martin: Yes. Let me do a couple of things here, and I'll provide some color, Allen, and I'll pass it to you to kind of walk through kind of summing up the numbers. But let me just start with what we've discussed in the past, David. We've indicated that the state of Texas has a coincident peak of about 86 gigawatts, okay? That's a historical record. Today, Oncor system peaks at about 31 gigawatts. And on the last quarterly call, Oncor indicated that they had line of sight at least to approximately 39 gigawatts. So between now and the end of the decade, they are very comfortable that they're going to double their load. What's interesting about the CapEx increase that they're now forecasting, it's really less about that, it's more about the acceleration of the transmission plan. So the key takeaway is you don't need to associate Oncor's growth as it's been announced today, with what might or might not happen relative to load growth. It is principally being driven by the state's desire to accelerate supporting the oil and gas industry and getting an expanded transmission grid in place in the western part of Texas. Now that being said, the team has done a great job of tracking what those new opportunities are. And the way to think about your question as Allen goes through it is what we're going to talk about in terms of potential load growth and how much to your language can be feathered onto the system, it's really driving our growing confidence in this story continuing well into the middle part of the next decade. So with that, Allen, maybe you could kind of talk about the different buckets of where you see growth are. And really, to David's point, where this quarter-over-quarter growth is coming from? E. Nye: Yes. Thanks, Jeff. Thanks, David. Growth remains incredibly strong. I think you've heard that multiple times this morning from kind of this load growth on the transmission side, these large industrial commercial customers. I think as Karen said, we have over 600 active requests now, that's up 60% since the same time last year, third quarter over third quarter. 210 gigawatts of data now versus 186 last quarter, an increase of about 13% and 16 gigawatts of other non-data LC&I customers. What's different this time and what Jeff was alluding to is we typically go through a process with these customers where we come up with a high confidence load number. And I talked about this the last couple of quarters. But we've had, as Jeff said, around 39 gigawatts of what we call high confidence load and that's made up of, in the past, 9 gigawatts of signed FEAs or interconnection agreements and 29 gigawatts that we submit an officer letter to ERCOT if those customers meet kind of 6 criteria that we lay out for them. And -- but we don't sign those FEAs until studies are complete and ERCOT has approved the interconnection. In order to try and get more visibility into this massive queue that we're talking about, we've kind of done something different over the last few months. And that is in addition to doing just a typical FEA process, or interconnection agreement process, we've instituted what we call the interim FEA process. And the interim FEA process is not a full FEA, the studies aren't done, ERCOT has not approved the interconnection, but what these interim FEAs do is the customers collateralize them. They give us about $6.5 million when we sign these things. The customer also provides us additional information that allows us to then begin or proceed with the studies we need to do that ultimately need to be approved by ERCOT. Very, very strong uptake; very, very strong interest in this interim FEA process. To date, we've signed up about 19 gigawatts pursuant to this interim FEA process. And I can tell you that interest in signing these is very high. The number will change by the next time we talk about it. Now a couple of caveats. It's not clear how ERCOT will view these interim FEAs versus the FEAs themselves. And obviously, with the SB6 rule-makings going on, it may alter the criteria that we ultimately need to use for this process. But I can tell you that in addition to the numbers I've already told you, I think I mentioned on past calls that when I got this job, we had about $200 million of collateral that we were holding and that had moved up to about $2 billion as of last quarter related to these activities. As of now, that collateral that we hold is up around $2.7 billion. That gives you a general indication of the uptake on this new process that we're using. David Arcaro: Excellent. Yes, makes sense. And then pivoting maybe a little bit. With strong earnings this quarter and now year-to-date, curious if you could comment how that positions you in terms of achieving the 2025 guidance? And maybe as you look forward to 2026, are you seeing opportunities for expenses to be pulled forward or other initiatives to give you a head start on that 2026 earnings outlook? Jeffery Martin: Yes, David, thank you for that question. I mentioned this in my prepared remarks. I'm just so pleased with the work of our team, and we spent a lot of time trying to make sure that we've got a common set of business objectives across our 22,000 employees and that's certainly showing up in the strong financial performance we've seen thus far for the year. So for 2025, I'd mentioned, we're tracking several regulatory matters, and we're pleased to be running well ahead of our financial plan for the year. That's why earlier today, David, we were comfortable affirming our 2025 guidance. And I would also mention that we believe we can finish in the upper half of that range. Turning to 2026. We also affirmed that guidance. Obviously, it's going to be a stub year because we expect to close the SI transaction sometime between Q2 and Q3. But I would just mention, we're in the middle of our fall planning process right now and still tracking several key items. Obviously, the SI closing with KKR as well as the base rate review that Allen just updated you folks on a few minutes ago. So our goal at this point is to review both 2026 and 2027 guidance with The Street at our February call, together with rounding out our full year results for 2025. So I think the summary point here is I'm really excited about the progress we've made in 2025. We feel great about 2026, and we're excited to get back in front of folks in February and provide guidance for 2027. Operator: Our next question will come from Carly Davenport from Goldman Sachs. Carly Davenport: Maybe just on the transmission expansion in Texas that you've referenced. One of your peers came out this morning with plans to expand manufacturing for transformers and breakers. Just kind of curious what you're seeing from an equipment and supply chain standpoint and how you feel about execution on growing capital plan? Jeffery Martin: Yes. I mean I really want to give credit to Allen and his team here and Allen, I'll let you talk about it in a second. But going back to the pre-COVID days and being part of the boardroom, and seeing Allen layout kind of this 11-point plan for growing that business, the supply chain has been front and center. In fact, Carly, in September, we took the Sempra Board of Directors to Dallas. And the #1 issue we wanted to talk about was their ability to deliver on their growth plans and the strength of their supply chain. We also had the benefit, Carly, to have Governor Abbott kind of join the Sempra Board in a private 3-hour dinner, as we continue to due diligence the growth case in Texas. And one of the things we did was we took the entire Board on a field visit to their Midlothian supply center. And this is an Amazon-like supply center. Hopefully, we can start hosting some investors there in the future, but they have a hub-and-spoke model across North Texas and that Midlothian center, which is about 45 minutes from Downtown Dallas, really is a state-of-the-art 21st century digitally driven warehouse center that not only supports their supply chain across the 5-year plan, it is the center of their storm recovery system. So we came away from that incredibly impressed with the work that's gone into it. And now, Allen, maybe you can provide a little bit more detail around what you've done to feel good about delivering on your 5-year plan. E. Nye: Yes, thanks for the question, Carly. I think Jeff did a pretty good job describing it. We started about 8 years ago fortuitously redoing our supply chain, redoing our logistics, adding the Midlothian facility, expanding the number of vendors for each type of product that we need and that has paid incredible dividends for us moving forward. I've said on past earnings calls that we had with regards to the prior plan, our current plan, everything we need to accomplish that 5-year plan. Nothing about that has changed. Look, every day, you got to stay vigilant on it. Our people work very hard to stay very close to our vendors and our suppliers. You got to deal with challenges. It doesn't mean I have every piece of equipment in a laydown yard somewhere, but it means I've gotten in some way line of sight either a contract or a commitment or an agreement for everything we need. We'll stay vigilant all that. We'll keep working on it, but we're extremely confident. We made a commitment to the state to complete the Permian plant by 2030, and we have every intention of doing so, together with all the other activities we have on our system. Jeffery Martin: Allen, you did -- one of the things you guys did, which I thought was really helpful was how you went out in the marketplace, both in Asia and Europe to taking care of the 765 equipment well before it became something that crystallized for the state. Can you briefly update the audience on that? E. Nye: Yes, we did exactly what Jeff is talking about. I mean we've been very blessed in that our Board and our shareholders have given us authority in advance of actually approval of plans, of financial plans, 5-year plans and 1-year plans, to go out and make commitments in order to be in a position to actually execute and we did exactly what Jeff is talking about with regards to the 765 step plan. Carly Davenport: Great. Super helpful. And then maybe just shifting gears a bit on -- just on California, curious as sort of the Phase 2 process kicks off, how you sort of envision Sempra's involvement there and perhaps any perspective that you'd share on the potential -- what potential solutions could look like? Jeffery Martin: Sure. I would just start by saying that Sempra has been very engaged in Sacramento on trying to find ways to improve public policy to support public safety. I got to give a lot of credit, Carly, to Governor Newsom, he has been out front and kind of leading this effort. He's made it a priority. It goes well beyond just serving electric customers. It's about making sure that the state of California continues to take steps that are progressive and thoughtful to reduce risk from a public safety standpoint. We have Caroline Winn with us today. She heads up, you may recall, both San Diego Gas Electric and SoCalGas and she has been front and center on the next steps on the study bill. And perhaps Caroline, you could share your thoughts on the study bill. Caroline Winn: Yes, be happy to. Earlier this week, the utility submitted a series of abstracts. The way to think about the abstracts is their problem identification statements that really frame the issues and it will inform the white papers due next month. Maybe I'll just note 4 areas of focus. One, we believe a shared risk model through new cost-sharing approaches needs to be looked at. Number two, new insurance and funding structures. Number three, enhancing the process for paying claims quickly and fairly for wildfire victims and fourth, maintaining affordability and accountability. Now these abstracts will form the foundation of, as I mentioned, the joint white papers next month, December 12, and will help inform the comprehensive report prepared by the California Earthquake Authority next April. I think the key takeaway here is that we believe that wildfire resiliency must be a shared responsibility between utilities, insurers, government and communities, and we're constructive on the effort to identify new models that will address wildfire risk across the state for decades to come. Jeffery Martin: Thank you, Caroline. The only thing I would add, Carly, to is and I tell folks this, but California is the fourth largest economy in the world, right? This is the home of technology and innovation. And this is just really a leadership opportunity here at the state level. And I think from Sempra's perspective, we're prepared to roll our sleeves up and do our part. But we're comfortable that we'll find a way between now and the next legislative session to take the next step to continue to derisk the state. Operator: Our next question will come from Sophie Karp from KBCM. Sophie Karp: On California, I guess, as you continue to emphasize Texas more in your capital plan and you see a lot of growth there. Could there be a more decisive step to deemphasize California or maybe through some strategic options for your California utilities? Jeffery Martin: Well, look, I think -- and you're asking a great question. One of the things we've done with our Board of Directors is take a step back and say, where can we allocate capital over the next 5 years to create the most equity value, the most long-term value for our shareholders by 2030? And I think our analysis points to making sure that we load capital in areas where we have the best risk/reward. And right now, we think that's Texas. But look, these things change from time to time. One of the things we're working on in the Texas market. As you recall, they have a relatively thin equity layer compared to other jurisdictions. And California is actually a very good complement because it allows Oncor to have -- its principal shareholder have a strong balance sheet, which we think is important to support its growth. We continue to have the largest natural gas utility in the Western Hemisphere, is here in California and that tends to have a 23% or 24% FFO to debt quality. It's a very important for overall credit stack within Sempra. We're a leader in our electric business here in California. So we're going to be thoughtful about allocating capital to make sure we minimize bill impacts. We have found religion, and we're working very, very hard to take cost out of the system in California to make sure that as we grow the business, it minimizes impacts on customers. But look, we have a strong leadership position in the State of California and very few companies in the United States have the leadership position we have in Americas 2 biggest economies. So California will always be an important part of Sempra, but it's really a very nice complement from the diversity of the investments here and the credit quality matched up with what we're trying to grow in Texas. Operator: And we have time for one last question today. And our last question will come from Julien Dumoulin-Smith from Jefferies LLC. Julien Dumoulin-Smith: Saved the best for last. There we go. I appreciate it. Let me try to wrap this up. So a couple of questions here. First on Oncor, well kudos. If I heard you right, $55 billion to $60 billion, well in excess of 30%. What's your confidence on being able to earn the ROEs at that level, just given that cadence of spend is pretty historic? I get the recent legislation. And then related just coming back to where we started the call on equity needs. At what point do you start to think about equity as being part of this? Because I would suspect that we're going to talk about this in a renewed fashion, just given the magnitude that we're discussing here, if you don't mind. Jeffery Martin: Well, let's do a couple of things. I'm going to start with talking about the $55 billion to $60 billion. Just remember, that's the roll forward of the base capital plan of $36 billion, and we're going to increase that by about 30%, Julien, and you can do the back envelope that's between $10 billion and $11 billion. And we're expecting a comparable number that will remain there in the upside. The upside we talked about before is still there. It's a very similar number. And that's how I got to this potential capital deployment, which we think is a real opportunity, by the way, between $55 billion and $60 billion. We're very excited about it. And the great news was, as I indicated earlier, we planned for this, right? We led a capital recycling program to fortress our balance sheet so we can fund this thing efficiently. Turning to your second question, which was on the ROE topic. You recall that they currently have an authorized ROE of 9.7%. And Julien, they have been under-earning that for 2 principal reasons over the last several years. Number one, there was this regulatory lag. The majority of that is resolved as part of the unified tracker mechanism. You've heard us reference several times today, we're starting to see material improvement in capital efficiency. So part of that under earning is being taken away by the UTM. And then secondly, part of that under-earning is associated with having a 2021 test year. Obviously, when the base rate review is resolved, their new test year will be 2024. So the state because it has a backwards test year, you don't really expect them to earn at the 9.7% level. And certainly, they're not authorized to ever earn over that like we are in California. But I think you're going to see a material improvement when we resolve both of those matters. And that's one of the reasons Sempra has been more willing to aggressively fund this business as part of our long-term plan. And then I think if I could tackle your third implied question, which was on capital and balance sheet. Look, there's nothing wrong with issuing equity, right? If you're thoughtful about using all the tools in your toolbox, if you look at Sempra, you recall from prior presentations, we've raised $15 billion from equity sales at Sempra Infrastructure since 2021. We're not reticent to find the most cost-effective way to fund growth. And at the same time, Julien, the great secret at Sempra is since 2017, we've gone from about $14 billion of rate base to a number that's over $60 billion and we're going to drive that well over $90 billion or $100 billion by the end of the decade. We are growing a remarkable utility within Sempra. So we will use equity as we need it. But the great news is we took equity off the table in the prior plan. We're going to load the balance sheet. We're going to maintain cushion. And what we're going to expect to do is as we go forward in that plan depending upon how our capital rolls out, we would certainly issue equity if we thought it was necessary. But remember, we're going to compete that against all the other options we have inside of Sempra. And if you followed us for a long period of time, I think that's been our track record. Julien Dumoulin-Smith: That's excellent. And let me put a capper on this. I mean it's been a phenomenal year, Jeff, in terms of turnaround here. I mean, truly, the 7% to 9%, right? You put this all together. Clearly, this wasn't contemplated when you articulated that 7% to 9% earlier. How do you think about the various pieces that go into this, right? Clearly, there's a little bit of equity offset or some other permutation that will dilute the upside here. But what are the other puts and takes? Because otherwise, it seems pretty meaningful relative to what you said previously. Jeffery Martin: Yes. Well, you remember, I talked about that 7% to 9%. We didn't put it in writing at the time, but I said it orally on the February call or the Q4 call. I think one of the things we've discussed as a management team before this call, Julien, is we remain bullish on our growth prospects. And that's why we came out today and obviously reaffirmed the long-term growth rate. But I would also kind of highlight some of the points you're making in terms of puts and takes. Let's start with Oncor. I talked about seeing improved capital efficiency there, and that's having a positive impact on their returns. And obviously, we're going to increase our capital program. Go over to Sempra infrastructure. We've improved the runway, Julien, of their growth by basically taking FID on Port Arthur Phase 2. One of the things that Justin feels really great about is, he's got 5 or 6 very significant construction projects that give us great EBITDA growth through the end of the decade. And now with Port Arthur Phase 2, you've got great visibility into the early part of next decade. And then we've talked about, and Karen did a good job in her prepared remarks, talking about the KKR transaction. Obviously, we think it's going to be accretive to credit and EPS, while allowing us to deconsolidate debt at SI. And again, it goes back to balance sheet. We see our balance sheet as a strategic resource to grow this business in the future. So I think our takeaway would be: The team has done a great job, as you highlighted kindly, by the way, this year of stacking a series of positive catalysts in front of our company. And to your point, it really gives us more support for what we think is a great long-term outlook. Julien Dumoulin-Smith: Excellent. Well, maybe with that, we'll leave it. Very curious to see what you guys have to say. Take care all the best, and we'll talk to you sooner now. Jeffery Martin: Thanks a lot, Julien. Operator: Thank you. That concludes today's question-and-answer session. At this time, I'd like to turn the conference back to Jeff Martin for any additional closing remarks. Jeffery Martin: Well, I'd like to just start by thanking everyone for joining us today. I know there were a number of competing calls this morning, so we appreciate everyone making the time to join us. I think it's a final point, many of you likely saw Oncor's recent 8-K announcing the retirement of Jim Greer. We want to make sure we take a moment and recognize his many years of service and major contributions to the growth and success of Oncor. In his role of COO, Jim Greer made a lasting mark on the State of Texas. I also think congratulations is in order for Ellen Buck, who will be succeeding Jim. Ellen is an absolutely outstanding leader, and we look forward to supporting her future success. And finally, I'd like to congratulate our friend, Don Clevenger, on a well-deserved promotion to Executive Vice President as he continues in his role of Oncor's CFO. If there are any follow-up items, please reach out to our IR team with your questions, and we look forward to seeing many of you at EEI in Florida next week. This concludes our call. Operator: Thank you for your participation. You may now disconnect.
Operator: Greetings, and welcome to Centuri's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce you your host, Nate Tetlow, Centuri's Vice President of Investor Relations. Please, you may begin. Unknown Executive: Thank you, Olivia, and good morning, everyone. Today, we issued and posted to Centuri Holdings' website our third quarter 2025 earnings release and earnings slide deck. Please note that on today's call, we will address certain factors that may impact this year's earnings and provide some longer-term guidance. Some of the information that will be discussed today contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are as of today's date and based on management's assumptions on what the future holds, but are subject to several risks and uncertainties, including uncertainties surrounding the impacts of future economic conditions and regulatory approvals. A cautionary note as well as a note regarding non-GAAP measures is included on Slide 2 and Slide 15 of the presentation, today's press release and our filings with the Securities and Exchange Commission. We encourage you to review these documents. Also provided are reconciliations of our non-GAAP measures to related GAAP measures. These risks and uncertainties may cause actual results to differ materially from statements made today. We caution against placing undue reliance on any forward-looking statements, and we assume no obligation to update any such statement, except as required by law. Today's call is also being webcast live and will be available for replay in the Investor Relations section of our website shortly after the completion of this call. On today's call, we have Chris Brown, President and Chief Executive Officer; and Greg Izenstark, Chief Financial Officer. I will now turn the call over to Chris. Christian Brown: Thank you, Nate. We're delighted to have you on board, and hello to everybody on the call. We appreciate you joining our third quarter 2025 earnings call. We are proud to have delivered record revenue for the quarter, improved our base profitability and produced third quarter adjusted net income of $16.7 million, an increase of $11.4 million from the same quarter last year. While the concept of discussing our base business performance is not new to us, it does reflect a new way of discussing our results with the market. With today's earnings release, we've introduced a couple of new non-GAAP measures, which are base revenue, base gross profit and base gross profit margin. Each measure simply excludes the impact of storm restoration services, which is out of our control and creates volatility in our reporting numbers. Storm restoration services are an important part of our service offerings for customers. However, we believe that these new measures will provide our stakeholders with better information, better aligned to evaluate the fundamentals of our business performance and provides for improved period-over-period comparisons. In the third quarter, we increased our base revenue by 25% and saw a 28% increase in base gross profit. This is remarkable growth and reflects the dedication of our teams across the U.S. and Canada, and their unwavering commitment to safety, productivity and delivering exceptional services to our customers. As I start with the commercial update, we have continued to make great strides in our business development. Our Q3 bookings of approximately $815 million reflects a book-to-bill of almost 1. Importantly, nearly 80% of the dollar value of the bookings reflects new revenue opportunities, meaning strategic bids on new MSAs. The work includes the 9-figure natural gas steel pipeline replacement project for an existing Midwest customer, driven by the PHMSA Gas Mega Rule pipeline regulations. Additionally, work scopes exceeding $50 million for data center campus projects across Pennsylvania and a sizable contract for a mechanical vapor recompression system serving a renewable natural gas sector. We are seeing continued momentum in the pipeline for bid opportunities, and we are now winning bids at a very constant rate. Total bookings for the year now stand at $3.7 billion, putting us well ahead of the 1.1x targeted book-to-bill for the full year 2025. On the MSA front, we booked $170 million in renewals, which included an extension with a long-standing utility partner in the Northeast. We also secured more than $65 million in incremental MSA work, which included new MSA contracts in the Midwest and Southeast for gas and electric distribution work. Our backlog reached a record high of approximately $5.9 billion, up from the $5.3 billion last quarter. We are experiencing significant growth with many of our existing customers, which gives us line of sight to incremental workload under existing MSA contracts. This is what drove the more than 10% increase in backlog from the last quarter. Our overall opportunity pipeline remains very robust at about $13 billion. We now have over 600 strategic bid opportunities in the pipeline, which collectively represent a little more than half of the $13 billion. The strategic bids also include $1.3 billion related to various data center opportunities. Over the near term, we are tracking $1.7 billion of strategic bids with an award decision expected by the end of the first quarter 2026 and about $1.3 billion across MSA renewals and new MSA awards also due by the end of Q1 2026. With the visibility we have in our backlog, the near-term booking expectations and a conservative baseline for incremental awards in '26, we have line of sight to double-digit revenue growth in 2026. More details on the backlog, pipeline and the growth outlook are on Slide 8 within the investor deck we've posted today. Let's turn to efficiency. We've executed a strategic fleet optimization initiative with the goal of generating more cash for the business. The initiative has 2 key components. First, we're targeting an optimal 50-50 funding mix, maintaining half of our fleet on the balance sheet whilst leveraging leasing structures for the remainder. Second, we are aiming for a 20% plus improvement in fleet efficiency through enhanced supply and pricing, improved utilization rates and optimized allocation across our business units. Last month, we began executing the funding plan by entering into operating lease agreements totaling approximately $50 million. These initial leases are primarily focused on equipment that we had been -- that we have had on the short-term rental agreements. We will continue to keep the market updated as we make more progress -- more significant progress on these initiatives. Recently, in September, we completed our separation from Southwest Gas Holdings upon the closing of their sale of the remaining shares in Centuri. In conjunction with the full separation, we appointed Christopher Krummel as Independent Chair of the Board of Directors. Chris brings over 30 years of financial executive experience in energy and construction and serves well to lead our Board. And lastly, we recently announced the addition of Ryan Palazzo as President of U.S. Gas. Ryan has more than 3 decades of experience, deep industry relationships and leadership capabilities to drive operational excellence, drive further profitability and strategic growth. We are thrilled to have added Ryan to our team. Now over to Greg to discuss the results. Greg Izenstark: Thank you, Chris, and good morning to everyone joining us today. Third quarter 2025 consolidated revenues totaled $850 million, a new quarterly record and was an 18% increase from Q3 2024. Consolidated gross profit was $78 million compared to $75.8 million in the prior year period, and gross profit margin of 9.2% in the third quarter of 2025 compared to 10.5% last year. When isolating our base results, the strength and growth of the business is clear, with base revenues up 25% and base gross profit up 28% compared to last year. Base gross profit margin was 9.1% in the third quarter versus 8.9% last year. Net income attributable to common stockholders in the third quarter was $2.1 million, or $0.02 per share compared to a net loss attributable to common stockholders of $3.7 million, or $0.04 on a per share basis in the same period last year. In the third quarter of 2025, adjusted EBITDA was $75.2 million, which compares to $78.8 million in the prior year's quarter. Adjusted net income in the third quarter came in at $16.7 million, or $0.19 on a per share basis compared to $5.3 million, or $0.06 per share in the prior year's period. The difference between our GAAP and non-GAAP adjusted net income primarily reflects the after-tax impact of amortization of intangible assets, certain non-recurring costs and non-cash stock-based compensation. Notable in Q3 2025 was $8.2 million, or $0.09 per share in charges related to the debt refinancing executed early in the quarter. Now to our segments. U.S. Gas revenue was $412.4 million, an increase of 13% compared to the prior year. This improvement largely reflects solid growth in MSA volumes and certain bid projects, demonstrating the underlying strength of our customer relationships and market position. Gross profit margin was 7.7% in the third quarter of 2025, modestly improved over last year's 7.6% in the third quarter. We continue to focus on margin improvement and our priority continues to be centered around better contract management and operational execution. Canadian Gas revenue was $74.2 million, up nearly 40% from the prior year period. Operational performance in this segment remains strong against the backdrop of sustained favorable demand as evidenced by the 21.9% gross profit margin in the quarter. Union Electric revenue was $214.5 million, an increase of 25% year-over-year. Base revenue in this segment was $213 million, reflecting a 29% year-over-year increase. Growth has been fueled by robust activity in projects serving industrial end-user segments, particularly substation infrastructure and inside electric work. Gross profit margin in the Union Electric segment was 9.1% in the third quarter of 2025, slightly ahead of the third quarter of last year. Base gross profit margin improved to 9% from 8.1% last year, driven by the strong increase in project work. Non-Union Electric revenue in the third quarter of 2025 was $149 million, an increase of 16% year-over-year. This segment is most relevant to base business comparisons as historically, a majority of storm restoration services related to this segment, including last year's very active hurricane season. Base revenue in Non-Union Electric was also $149 million in the quarter, which is a 58% increase from last year. This growth reflects the significant expansion we've seen in MSA activity, building on the momentum we discussed in recent quarters. Gross profit margin in the Non-Union Electric segment was 7.1% in the current period compared to 16.6% in the prior year period, reflecting the just mentioned significant storm work last year. Base gross profit margin was 7.1% compared to 8.7% in the prior year period. The primary driver of margin pressure in the quarter resulted from ramping crews for new and expanding MSAs. Specifically, headcount increased more than 20% this year to support the growth in workload. As crews gained experience and these operations mature, we expect to improve productivity, resulting in margin improvement. We have already seen margins improve in October, and we expect continued progress throughout the remainder of Q4. Turning to capital expenditures. Net CapEx was $21.5 million, and our free cash flow in the third quarter 2025 was negative $16.3 million. Our free cash flow generation tends to be seasonal in nature, with more generation occurring in the second half of the year. With the strong growth we delivered this year, our accounts receivable balance has increased. However, this is a timing issue, and we expect this to normalize in the fourth quarter. As such, we expect to generate meaningful free cash flow in the fourth quarter. Moving to the balance sheet. On a trailing 12-month basis, our net debt to adjusted EBITDA ratio was 3.8x at September 28, 2025, a slight uptick from 3.7x at June 29, 2025. With the anticipated step-up in fourth quarter free cash flow, we expect our year-end leverage ratio to be approximately 3.3x to 3.4x. We ended the quarter with $16.1 million in cash and cash equivalents on our balance sheet. Early in Q3, we successfully completed a refinancing of our debt arrangements. We extended our revolver maturity to 2030 and increased the facility size to $450 million. We also extended our $800 million Term Loan B maturity to 2032 at a modestly improved interest rate. Finally, turning to our 2025 outlook. We increased our full-year revenue guidance to $2.8 billion to $2.9 billion. The increase is consistent with the significant growth in our base business, which more than offset the lack of storm activity this year. For adjusted EBITDA, we expect between $240 million and $250 million. Again, this revision is consistent with lower forecasted storm activity, including a de minimis amount of storm work assumed in the fourth quarter. Lastly, our net CapEx. We've maintained our planned investment range of $75 million to $90 million. We remain confident in the outlook of our base business and are making the necessary investments in a more capital-efficient manner to optimize the growth opportunities ahead of us. I will now turn it back to Chris to wrap up our prepared remarks. Chris? Christian Brown: Thank you, Greg. As we wrap up today's call, I want to emphasize that Centuri continues to execute on its strategic vision of building a premier standalone utility services company capable of delivering sustainable and profitable growth. Our third quarter results demonstrate solid progress. Base revenue growth was 25%. Base profit -- gross profit was 28%, reflecting our team's commercial drive, dedication to operational excellence and customer service. Our commercial momentum remains robust with $3.7 billion in bookings through September, a record backlog of $5.9 billion and a total opportunity pipeline of $13 billion. Put together, our commercial success so far in 2025, it positions us well for double-digit revenue growth in 2026. The fundamental drivers supporting our business remains strong, accelerating utility infrastructure investment, the energy transition and expanding customer relationships across North America. As we advance our comprehensive multi-year strategic planning process, we're positioning Centuri to be a differentiated leader in this significant market opportunity. We very much appreciate your time and interest today. And operator, let's begin the Q&A. Operator: [Operator Instructions] Your first question comes from Justin Hauke of Robert W. Baird. Justin Hauke: Great. I appreciate the new disclosure with the base revenue and gross profit. That certainly helps. And I guess it leads to my first question is just to maybe understand the EBITDA impact from the storm because you obviously quantified it for the third quarter and gross profit. But the $15 million decline in guidance, how much of that EBITDA impact is the storm? Is that the full $15 million? And then maybe if you can quantify the impact of 3Q versus 4Q in the guide, given that there was a decent amount of storm activity last year in 4Q? Greg Izenstark: So the decline in the kind of the midpoint of the guidance is all related to storm activities. In fact, our forecasted storm activities were a bit higher, and we've actually been able to make up some of that with just our base business growth. And it was probably 60-40 from a percentage perspective between Q3 and Q4 on a storm basis, but that was our expectations, I think was your second question. Justin Hauke: Yes, no, I just was trying to confirm that it was entirely storm and that, that was the $15 million and the split between the quarters. So yes, I think that answers it. I guess my second question -- I got a couple here, but I guess the second one that I would just ask about would be, you called out some of the ramp in the MSA contract work that wasn't at full utilization, I guess, in the Non-Union Electric piece. And I was just hoping maybe you could quantify that impact. And would you expect in 4Q that's at full utilization? Or is that something that's going to linger as a cost until we get into '26 and kind of get the revenue contribution in line with that? Christian Brown: Justin, it's Chris. Let me answer that. If you just look at the process we go through, you've got to deploy capital to find opportunity, deploy capital to bid opportunity. You've then got to win it. You've then got to reposition resources. You bring in new resources. All of that sort of costs the business with no revenue contribution. You then mobilize the teams and it takes a while for them to get productive. So, I think when you've had such a massive ramp-up, I think the Non-Union business in the core is up about 50% year-over-year. There's always going to be a little bit of a lag before you get to that level of performance you want. I actually think as we look at October and we look into November, that more or less is fully recovered. By the time we close out the year, that particular scope of work will be at the levels we expected it to be from a margin standpoint. But I would caution, we will add progressively bigger scopes of work all around the nation, and we'll have a similar phenomenon. It's just the nature of project-related business. Operator: Your next question comes from Sangita Jain of KeyBanc Capital Markets. Sangita Jain: So, obviously, a lot of progress on bookings and the core profits improving. Can you help us understand the difference in margins between, let's say, the data center type opportunities versus PHMSA-related work or other bid work? Christian Brown: How do I answer that, Sangita? I would say -- I'll let Greg talk to the general margin profile in the business across the core and the MSAs in a minute. But let me talk more specifically around what we're seeing in the pipeline, first of all, and then to data centers. We've been playing a little bit of catch-up as we've discussed on prior calls to get a sufficient amount of both backlog and coverage to be sure that we're able to grow the business at the core and not rely upon storm. I think it's taken us to maybe the third -- getting into the third quarter to have sufficient backlog, sufficient coverage and a sufficient data set. So, we've really got a good handle on our business so that we can be predictable. We've got volume into the business, and we're basically able to recover the overhead that we need to for the size of the business. We're now coming to a point where as we look to the future and we start to look at new bid opportunities, of which -- we're looking at $2 billion at the moment. We're looking at where it makes sense to put margins up in the competitive environment. It's more difficult on MSAs that are renewals because there's already a price expectations set with the customer, and we're able to do some things. But we are now in a position as we start to look at new market opportunities, bid opportunities, including data center work where we can put our margins up in the core of the business. And that's what we're currently doing. It's been very difficult to do that until we have enough baseload work, until we've got enough volume into the business until we've got a good control on it. But we're now at that point where we've got full coverage for this year. So, we know exactly what work we're going to do between now and the year-end. We've got high visibility for next year, and you saw it in the coverage slide in the deck, I think it was Slide 8, if my memory is good. Our focus now is how do we put margins up and get a better return on our invested capital, simple as that. Greg Izenstark: And to follow on that, you asked about the margins kind of in our backlog. And while margins project by project might differ a little bit, I think we're very pleased with the bid margin that we're getting on the awarded work. Some of that data center-related activity is a project-based, so it's a bit higher than maybe some of the MSAs, but we're very pleased with what we're getting on award. Sangita Jain: Great. That was very helpful. Go ahead. Christian Brown: Sorry, Sangita. I was just going to add one thing is even with the sort of mobilization impacts in the Non-Union business, our core margins have gone up by 0.2% over the past. And that's despite the fact we've added over $100 million of core business of revenue in the quarter. So the work we were booking in the first part of this year, which is now going to the revenue line is already proving to be more profitable and it's still at its early stages of execution. Sangita Jain: Right, right. That was very helpful. And then just a quick follow-up. In your double-digit revenue outlook for next year that you just alluded to, is there any kind of storm that you're building in that? I know this year, it was an average of 3 years, but just wondering what you're thinking about for next year? Christian Brown: Sangita, I stress what we said in our text that -- in our spoken word. Storm will always be part of our business because customers want us to do storm work for them when they're in a crisis situation and with that bad weather come. Our customers want that, and the population needs that. But it's very difficult to plan because we can't predict the weather, even though we don't like to be able to do that. So, you will only hear us talk about base business, base backlog, base coverage. And if storm happens, it would be upside to what you see. It will not be in our planning purposes. And the logic being is one, it makes us more predictable. Two is if we add more to the base in terms of people, resources and equipment, it means that if there is a storm event, we get more opportunity and upside. So, we're just going to talk about the base in terms of growth, budgeting and guidance. And we will, of course, continue to let you know what storm has happened over a trailing period of time, so you can factor that in. But coverage is all going to be around base business that we can control. Operator: Your next question comes from Joe O'Dea of Wells Fargo. Joseph O'Dea: Can you just elaborate on the strength of the base revenue growth a little bit more in the quarter when you talk about that 25%? How that compared to internal planning? Anything that you saw coming into Q3 that you thought might be in Q4 versus just a broader acceleration? Christian Brown: Joe, without giving you my budget sheets, I talk generally. There was no -- let me deal with the second question first. There was no desire and no attempt, and there's no underlying pull from Q4 into Q3. That's not the case at all. So it's not like we've had a -- we pulled Q4 revenue into Q3. That's not the case. The $850 million that came out of the third quarter is exactly what it is, the revenue for the quarter. So, we've not looked to highly impressed in the third quarter. We've got really good coverage in the fourth quarter, and that's why we've raised the revenue guidance. So, we expect the momentum in the fourth quarter to continue. The only thing about the fourth quarter is we've clearly got 2 holidays being Thanksgiving and the year-end, and that's really the only factor we've got. In terms of base business performance, I think we've done better overall in our performance in the base business that we all expected and that's a good thing. And that's really driven by the success of our teams in finding the opportunity, getting the organization focused on servicing our customers and doing more for our customers that led to the backlog and has led to the revenue growth. And I think everybody has seen double-digit growth within their base businesses across all of the 4 service lines. And we would push to continue that going into next year. But we've performed better in the base business than we may have expected. But you also remember, Joe, we've only been at this as a team for a few quarters now. We're only just seeing the benefits of the pipeline. And it's good to be impressed and good to be pleased and good to exceed your internal targets on the base business. But we're also learning and we want more out of it, and that's what we seek to do in the future. Joseph O'Dea: And then how do you think about the process for prioritizing the bid opportunities in front of you when you talk about the 600 bid opportunities in the pipeline and how you think about margin as a prioritization focus versus top line growth versus where you've identified regions that you want to get bigger in? Just how all that comes together for prioritization around the bid opportunities? Christian Brown: Yes. That's a big question. Our number -- I think the #1 priority, I think, really rests within the gas business. We've had a fantastic quarter. We've had 2 fantastic quarters of performance in the gas business. And I think Q4 sits really well when we look at the backlog, look at the work the team has done. We've added more strength to the team, some new people. But the priority is to sort of eliminate the seasonality in the business. So, that work we are starting ahead as we come into the first quarter. So on the gas side, the priority is winning work around the U.S. that allows us to work 24/7, 365 days a year, primarily focused on the first quarter. So, that would be number one that jumps to mind immediately because once we're able to fix the seasonality, I think the profitability across the full gas business will completely change for us. Then when it comes to the rest, look, general principle on margins, I'll just repeat. We've now got the sales analytics. We've got the organization positioned to profitable growth. We have a very accurate data set now. We track win rates. We track margins. But we need to monitor this a little bit. We've got -- we believe we don't have a problem finding profitable growth. You've seen that in this year's performance. If you just look at where we're trending from a full-year revenue target, we put the coverage slide into the deck, I've repeated twice now. That demonstrates a further 10-plus percent just on what we know today. So, I frankly don't believe we're at that phase where we're worried about end market opportunity. So, we're going to start to prioritize and get our margins up. We've got to be very selective how we do that because we've got some core customers that we must nurture, continue to support because they rely upon us. But there'll be new opportunities with new customers where we can afford to price it up and we may win a few, we may lose a few. But the win rates are holding good already as we come through to the end of the third -- into the fourth quarter. So, we will be sensitive to trying to put our price margin -- our price up and our margins up as we look to the next phase of our growth going into '26. Operator: Your last question comes from Steven Fisher of UBS. Steven Fisher: Just wanted to follow up on a few of these things, particularly starting off with U.S. Gas. And I know you said you're pleased with the result. I'm just kind of curious how the margins and the overall profits from that compared to your expectations. It sounds like it's still somewhat of a business where you're putting some focus operationally. It sounds like there is some new leadership. Where is the focus there just from a sort of an execution perspective? I know you're trying to kind of build it out regionally to reduce the cyclicality. But just operationally, where is the focus there? And how did this quarter compare to your expectations? And then I'll ask my second question now is just with regard to the $3 billion of strategic bids, how are you thinking about the discrete overall project mix relative to sort of distribution work and MSA just kind of flow work. Where are you comfortable having discrete size project as a percentage of the overall business mix? Christian Brown: All right, Steve. I'll try and answer the question for you. Let me talk intimately about the gas business. I think 8 months ago, gas performance was consuming an inordinate amount of time as well as the leadership's time to sort of complete what was started last year, which was sort of simplification of the organization. The delayering that building ahead of me was much needed. There was a refocusing effort. There was some rightsizing needed to be done. There was some accountability and performance management we needed to do. And I think we've really come through that. I think the second quarter performance did better than I expected. The third quarter performance was very predictable with the mix of work we've got. And I think we're -- I wouldn't say we've taken our foot off the gas, nor have we taken our eyes off the ball here, but the team that leads that business is really operating at steady state now. And I don't foresee anything structurally we need to do there. I think we'll well up the experience curve about how we should be operating. And I think the margins are good. I really do. I know there's a lot written about the margin should be better. But if you look at -- and we just benchmark our margins. If you look at the margins in our gas business with the mix of work that we currently execute, we're very pleased with where the margins are. What we're not pleased with is the seasonality. And we had a negative $15 million in the first quarter this year. We've got to fix that as quick as we can. So, that remains to be a priority where we're spending our time talking to different customers and new customers and migration of customers where we know we can work in that first quarter. The second thing I would say to you is we've -- I'm proud of the gas business. I'm proud of the gas team. And I think Dylan and his team have done a fantastic job under difficult circumstances last year going into this year. We've got it at steady state, but we needed more bandwidth in the business so that we can grow with new customers. So the logic for bringing Ryan in -- and I'll talk a bit more about that in a second. Bringing Ryan in was to bring more bandwidth to the leadership team so that we can look at things differently. We can look at pricing. We've got slightly different customers but doing the same services and really much -- and focus the business more strategically about getting margins up. So on the gas side, very pleased where we are. The mix of work and the margins we've got are commensurate with where we are. I don't think there's going to be much that changes there. The real focus is seasonality, new customers that allow us to take the same services at higher margins. And that's why Ryan has been brought in to support the team here. So, that's where the gas business is. Steven Fisher: Super helpful. Christian Brown: On the $3 billion, Steve -- on the $3 billion -- so on the last call, and Nate is probably going to tell me, I'm not totally accurate on this. But we had -- I think July 4 week, when I got that sales report, we had about $2.2 billion of opportunities that would be decided in the next 6 months. That's now the $3 billion we referred to. So, this is like-for-like over a quarter period. And so that has increased well over 40%, 45%, which tells me that the opportunities that are in the pipeline are converted to real bids because that $3 billion are either tenders we've already submitted or the tenders we're working on and we're about to submit. It's not really stuff that we'll bid in the future. It's now. Its real and now. Of that mix, most of it is actually accretive bid work. It's about $1.7 billion, if my memory is good. And then $1.3 billion of it is really MSA renewals, most of which -- I think 85% of the $1.3 billion is MSA renewals and the other 15% are new MSAs or additive MSAs to the base business. Meanwhile, the $1.7 billion is new additive bid work that we're working on. The mix within that, I know you was going to ask me, is about 60% electrical work and 40% gas related. That's the mix. Does that answer your question, Steve? Steven Fisher: Yes. Operator: We have reached the end of the question-and-answer session. I will now turn the call over to Nate Tetlow. Please continue. Unknown Executive: Thank you all for joining the call today, and we appreciate your interest in Centuri. That concludes the call. Operator: Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to the Eversource Energy Q3 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Rima Hyder, Vice President of Investor Relations. Rima Hyder: Good morning, and thank you for joining us today on the third quarter 2025 earnings call. During this call, we'll be referencing slides that we posted this morning on our website. As you can see on Slide 1, some of the statements made during this investor call may be forward looking. These statements are based on management's current expectations and are subject to risk and uncertainty, which may cause the actual results to differ materially from forecasts and projections. We undertake no obligation to update or revise any of these statements. Additional information about the various factors that may cause actual results to differ and our explanation of non-GAAP measures and how they reconcile to GAAP results is contained within our news release, the slides we posted and in our most recent 10-Q and 10-K. Speaking today will be Joe Nolan, our Chairman, President and Chief Executive Officer; and John Moreira, our Executive Vice President, Chief Financial Officer and Treasurer. Also joining us today is Jay Buth, our Vice President and Controller. I will now turn the call over to Joe. Joseph Nolan: Good morning, and thank you for joining us today. Starting on Slide 4. Over the past 10 months, our team's relentless focus on executing on our key strategic initiatives has driven strong results and consistent performance. We are well on our way to delivering against these initiatives and ending the year on a strong note. Our strong results have also greatly improved our standing among our peers. On a year-to-date basis, our share price has been a top performer among the EEI peer group. Today, I'll walk you through how we're capitalizing on our unique market position, fueling sustainable growth and strengthening the balance sheet to power our future outlook. Moving to Slide 5. In the last few months, we have gained more clarity on the Connecticut regulatory environment and the impact for our ongoing and future regulatory proceedings at PURA. Additionally, each day of construction that passes yields progress on the derisking of Revolution Wind. We're seeing a constructive shift in Connecticut's regulatory landscape. Last month, Governor, Lamont appointed 4 new commissioners at PURA, filling out the 5-member requirement under Connecticut law. With this new commission on the way, there is now a genuine opportunity to collaborate with all parties on regulatory initiatives and to achieve more balanced regulatory outcomes. This will enable us to better serve the needs of our customers in this state and to do so with a strong focus on safety, reliability and affordability. Critical needs exist for state and regional infrastructure investments to maintain a strong, reliable and resilient grid that can accommodate new sources of generation to meet the increasing levels of projected electric demand. A transparent and predictable regulatory process is going to benefit all stakeholders, including our customers, and we are looking forward to getting back to work on Connecticut's energy goals. For our ongoing Yankee rate case, we submitted a motion to adopt an alternative resolution with PURA. This was in response to PURA's request for parties to reach a consensus based resolution to reestablish trust in balance in the regulatory process and avoid further legal appeals. Our proposal includes important customer affordability provisions that we believe are supportive of all stakeholders affordability goals. We expect to see a final decision from PURA today. We remain on schedule to receive a final decision for the sale of Aquarion Water on November 19 and we continue to expect to close the transaction by the end of this year. As you may be aware, we filed a comprehensive offer of compromise to address concerns raised by the Connecticut Office of Consumer Counsel. The commitments that were outlined in the offer of compromise provide additional assurances that the transaction will serve the interest of Connecticut and the customers served by Aquarion Water. Moving on to an update on offshore wind. We have substantially completed construction of the onshore substation for Revolution Wind project. We expect to provide back-feed energization to the offshore facilities by the end of November, which will support testing and commissioning of those facilities. In parallel, we will complete the final testing and commissioning of the remaining onshore equipment. Overall, as Orsted has stated, Revolution Wind is substantially complete and work has continued since the stop order was lifted in September. We recognized an increase to our liability to GIP in the third quarter, which was largely offset by tax benefits. We continue to support the project's owners in their completion of this important generation resource for New England. As I said at the start of the call, our execution has delivered positive results and we have made great headway on our many key strategic initiatives this year. We have continued to deliver on our operational metrics with top decile reliability performance among our peers. We have significantly improved our FFO to debt ratio through constructive regulatory outcomes and managed our balance sheet to support solid credit ratings. And we know we are not done yet. We have continued to invest in transmission and distribution infrastructure across our service territories. We are on track to invest nearly $5 billion this year. We have installed over 40,000 AMI meters in Massachusetts and completed the communication network deployment in the Western portion of our service territory. These achievements are just a few that underscore the strength of our execution engine and the depth of our operational rigor. As you can see on Slide 6, we have many growth opportunities ahead of us. Our service area is truly the crown jewel of the country. This area is home to cutting-edge biotech and research in the best universities and health care in the world. As these industries expand, they turn to us for a reliable, resilient grid, making us an indispensable partner in their success. We're seeing robust load growth, driven primarily by electrification of transportation and heating, decarbonization initiatives from both the public and private sectors and economic expansion across manufacturing and commercial sectors. These factors help to ensure that our growth is broad-based, durable and aligned with state sustainability goals. Year-to-date, we have seen weather-normalized load growth of 2%. And this summer, we experienced a peak of over 12 gigawatts, the highest record since 2013 as load growth in our service territory has started outpacing the impacts of distributed generation such as rooftop solar. The evolving electric demand landscape presents a need for numerous transmission projects such as upgrades linking onshore and offshore wind to load centers, interconnections improving regional reliability and addressing congestion as the generation mix for our region evolves. Some of the projects we are pursuing to get ahead of this continued load growth include the Cambridge underground substation, which will be the largest in the nation in 1 of 14 substations currently on the drafting table that we expect to build in Massachusetts alone to support future growth. Being opportunistic about land acquisitions in our service territory to support this growth, such as the Mystic Land acquisition we did last year with more in the pipeline. Responding to requests for proposals from ISO New England to address longer-term transmission solutions, such as the most recent one to bring power from Northern Maine to Southern New England. These opportunities, some being outside of our 5-year forecast period could add billions of dollars to our future investment plans. Each project that we are considering not only supports our growth trajectory, but also deepens our value proposition as a grid innovator. We also recognize that as demand increases, affordability must remain top of mind. We are working closely with our regulators to offer our customers various options to address affordability as shown on Slide 7. We collaborate with large and small customers to design rate structures that incent efficiency. For example, earlier this year, we worked constructively with our regulators in Massachusetts to offer a 10% discount to our gas customers during the winter peak months and recover that in the summer months to smooth the impact of high bills. Similarly, starting this month, we are offering a seasonal heat pump rate in Massachusetts. Eversource electric customers who use a heat pump to heat their homes can take advantage of a seasonal heat pump rate, which is a reduced rate during the winter months. We are expanding energy efficiency programs to provide incentives for residential and low income customers who choose to adopt energy-efficient technologies. These programs, coupled with AMI give customers greater transparency and control over their energy pocketbook. Our nation-leading energy efficiency programs have already generated $1.4 billion in savings for our customers. We have also implemented low-income discount rates for our most vulnerable customers, and we are recognized for our leadership in advocacy for state utility partnerships in hardship programs. We are excited about new energy supply coming into our region, which should alleviate supply cost pressure on customer bills. Over the next 12 months, Eversource is directly supporting new generation coming into the region totaling over 2,500 megawatts. We aim to deliver reliable, sustainable energy while keeping costs manageable and partnering with customers to ensure affordability through cost-effective investments, efficient operations and equitable rate design. Before I hand the call over to John, I want to thank our 10,000-plus employees for their dedication, our regulators for their collaborative spirit, and our shareholders for their trust. We're executing against a clear strategy, serving extraordinary customer base and working to build the grid for tomorrow, responsibly and sustainably. I look forward to your questions and sharing more details on our path forward. With that, I'll turn the call over to John Moreira. John Moreira: Thank you, Joe, and good morning, everyone. This morning, I will review third quarter earnings results, provide a regulatory update and discuss our recent financings and progress on credit metrics. I'll start with our third quarter results on Slide 9. As announced last month, during the third quarter, we recognized a net after-tax nonrecurring charge of $75 million, or $0.20 per share related to our offshore wind liability. This charge increased our estimated liability for future payments to GIP by approximately $285 million, which was offset by $210 million of tax benefits. These tax benefits were the result of a change to previously estimated tax attributes primarily associated with Revolution Wind. Our GAAP earnings for the third quarter of this year were $0.99 per share, including the impact of this recent offshore wind net charge. GAAP EPS for the third quarter of last year was a loss of $0.33 per share, reflecting the impact of the sale transaction of South Fork and Revolution. Excluding the after-tax losses from offshore wind in both years, non-GAAP recurring earnings for the third quarter of 2025 were $1.19 per share compared with $1.13 of non-GAAP recurring earnings per share last year. Now looking at the quarter results by segment, starting with transmission. Higher electric transmission earnings of $0.01 per share were due to increased revenues from continued investment in the transmission system. Next, we have higher electric distribution earnings of $0.03 per share that reflect distribution rate increases in New Hampshire and Massachusetts provided for cost recovery for infrastructure investments in our distribution system. These higher revenues were partially offset by higher interest, depreciation, property taxes and O&M. The improved results of $0.04 per share at Eversource's Natural Gas segment were due primarily to base distribution rate increases in both Massachusetts utilities and from capital tracking mechanisms to provide timely cost recovery of investments in our Natural Gas businesses. These revenue increases were partially offset by higher interest, depreciation and property tax expenses. Water distribution earnings were lower by $0.02 per share for the quarter as compared with prior year, primarily due to higher O&M and depreciation expense. Eversource parent earnings results were flat for the quarter, excluding the net impact from offshore wind that I mentioned earlier. As a reminder, all of these segment results reflect the impact of share dilution. Overall, we are very pleased with the solid performance for the third quarter and our recurring earnings are in line with our expectations. Moving to some key regulatory items as shown on Slide 10. As Joe mentioned, we recently filed an alternative resolution proposal in the Yankee rate case. If adopted by PURA without modifications, the alternative resolution would waive our statutory right to appeal the final decision, resulting in a fair and balanced outcome. The alternative resolution is an improvement over the draft decision, increasing revenues by approximately $104 million as compared with the PURA's draft decision of $55 million. The alternative resolution would also provide customer relief this winter to a greater extent than the draft decision by accelerating the refund of an existing regulatory liability. Also, as Joe mentioned, on the Aquarion sale, PURA has maintained its final decision date of November 19 and pending that decision, we continue to expect to close the transaction by year-end. In Massachusetts, we received the approval of our NSTAR Gas PBR adjustment, and we also filed a motion for reconsideration on the NSTAR Gas rate base reset. Next, let me reaffirm our 5-year capital plan of $24.2 billion, as shown on Slide 11, which reflects our 5-year utility infrastructure investments by segment through 2029. As a reminder, this plan only includes projects for which we have a clear line of sight from a regulatory perspective. Through September, we have executed on $3.3 billion of our $4.7 billion infrastructure investment plan. We are very pleased with this progress, and we are on track to meet our planned target for the year. We continue to see additional capital investment opportunities in the range of $1.5 billion to $2 billion within the 5-year forecast period. We plan to update our next 5-year capital plan in our fourth quarter earnings call. Turning to Slide 12. We remain highly focused on improving our cash flow position and strengthening our balance sheet condition. As I have stated before, we expect our FFO to debt ratio for 2025 to be approximately 100 basis points above the rating agency thresholds by year-end. In fact, our Moody's FFO to debt ratio was 12.7% as of the second quarter of this year and reflects an improvement of over 300 basis points from December of 2024. We expect this ratio to be over 13% as of the third quarter. As we have shared with you last quarter and as shown on Slide 13, we have executed on substantially all the items necessary to improve our cash flows and strengthen our balance sheet. As a result, our operating cash flows have continued to improve, increasing over $1.7 billion year-over-year through the third quarter. Moving on to our financing activity on Slide 14. While earlier this year we did not anticipate issuing long-term debt at the parent company during 2025. However, we did see the need to capitalize on favorable credit spreads, proactively prefunding an early 2026 maturity and strengthening our liquidity position. Given where our short-term debt balances were forecasted to be and in order to maintain an appropriate level of liquidity, we issued $600 million of parent company debt. On the equity side, to date, we have issued $465 million of equity under the ATM program. We expect that this level will take care of our equity needs for the near term. We also continue to pursue recovery of our deferred storm costs. As of the third quarter, 98% of our deferred storm costs are either under review or already in rates. And as a reminder, our previous cash flow improvement forecast did not assume securitization as the cost recovery mechanism for the Connecticut deferred storm costs. Next, I will turn to 2025 earnings guidance as shown on Slide 15. As announced in October, we are now in 2025 recurring earnings per share guidance to the range of $4.72 to $4.80 per share to a higher midpoint and reaffirming our longer-term EPS growth rate of 5% to 7% off of the 2024 non-GAAP EPS base. We remain confident in our EPS growth trajectory driven by disciplined execution of our strategic plan, targeted customer-focused investments in transmission and distribution are backed by constructive regulatory frameworks that enable timely cost recovery for our operations. Continued progress on storm cost recovery combined with strict O&M discipline strengthens our financial foundation and positions Eversource to deliver consistent long-term value to customers and shareholders. I'll now turn the call back to the operator to begin our Q&A session. Operator: [Operator Instructions] Our first question today comes from Shar Pourreza from Wells Fargo. Shahriar Pourreza: So just on Yankee Gas, obviously, everyone is watching this one. You've got this motion to adopt the alternative resolution out there. There's some stuff coming out now on it, I think. Is there anything you want to flag? And just remind us, what's kind of embedded in the plan around the outcome? Is it fair to assume that you're kind of conservative around what you're embedding there? And any sort of updates, I think we're starting to see some things come across. Appreciate it. Joseph Nolan: Sure. As you know, our call started at 9:00 and the commission went in and the order is out. We need to go through it. As you know, the devils are in the details. So we'll continue to take a good look at that, and I think we'll have some answers for folks on this call later today, I can promise you. John can talk to you a little bit about what's embedded in the plan. John Moreira: Yes. No, Shar, I would say it's in line with our plan, and it appears that the decision is a little bit better than the draft decision, which is very encouraging for us. But as Joe mentioned, we have to go through it. It's -- the ink is not dry yet at this point. So -- but we will have much more information when we meet with you all at EEI. Shahriar Pourreza: Perfect. I'm just glad we're getting through this process. That's good. And then just on the NSTAR Gas PBR, right? I mean, you have a proposal for recovery of roughly $160 million. Just walking through what you did and didn't get. Why did the Massachusetts, DPU deny that? Is there kind of an opportunity to get it later? And does this mean you're filing a rate case? Obviously, the governor has been kind of warning around rates being too high, then guiding the DPU to scrutinize everything. So I just want to get a sense there. I appreciate it. John Moreira: Good question, Shar. So the $160 million component, the piece is the 3 major items. One is a roll-in of GSEP, which is about $107 million. That really has no impact to customers. It's just going from the right hand to the left hand, the normal PBR adjustment, which was -- which did get approved of about $10 million. What we had proposed as a mitigation plan for the DPU was to allow us to roll in rate base similar to what we saw last year that the DPU approved for EGMA. That number is about $45 million. And we were very specific when we made that mitigation filing that if we did not receive the rate base role and then our alternative would be to file a general rate case. So as of yesterday, we filed a motion for reconsideration and we also filed our intent to file a rate case. There's been a lot of change, not only in the Connecticut PURA, but also in Massachusetts. The putting 2 new commissioners really have not been there that long. So we're hopeful that the efforts that we will work very closely with the DPU will move in the right direction. Shahriar Pourreza: Okay. Perfect. Big congrats, Joe, on sort of the traction. It seems like you guys are getting to a pretty good inflection point here. So congrats. Joseph Nolan: Thank you. Well, I'm very, very proud of the team. We've worked very, very hard at that, getting our message out there. We've been all over actually all the states talking about the issues and engaging key decision makers. So we're really, really proud of the team. It took a village [ job], but thank you, and I will see you at EEI. I'm looking forward to seeing you. Operator: Our next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just to go back to Connecticut, I guess just as you think about the recent changes from a regulatory standpoint, are there any updates you can share from conversations with credit agencies in terms of their views, just given the focus on the regulatory environment and some of the credit rating changes that they've made recently? John Moreira: Sure, sure. I would say, and I have -- I always have discussions with the credit rating agencies, but I'm sure you can appreciate. Right now, they're in a wait-and-see mode. They want to see some constructive regulatory outcomes to make the determination similar to what we expect and would like to see come out of PURA. But working collaboratively, we think that this new commission is focused on working collaboratively with all the utilities. So -- but I would overall, they're in a wait-and-see mode right now. Carly Davenport: Got it. Okay. That makes a lot of sense. And then just one other one, I guess, on Connecticut as well. I know you guys have talked previously about kind of timing to file another rate case at CL&P. Just kind of curious how the recent shifts kind of impact your views on timing there? Joseph Nolan: Yes, sure. We had never really had any intention to filing prior to 2026. So we are looking at that, as you know, a filing of that nature is comprehensive. So we would need to get test year and that type of stuff. This would not be something that would happen until at least second, third quarter, if we were to file. Obviously, we're going through that now, and that's what we're looking at, at this point, Carly. Operator: Our next question is from Jeremy Tonet with JPMorgan Securities. Aidan Kelly: This is actually Aidan Kelly on for Jeremy. Joseph Nolan: You're breaking up. Aidan Kelly: Can you guys hear me now? Joseph Nolan: Yes, it's better now. Yes. Aidan Kelly: Upon on the equity... Joseph Nolan: But Jeremy, we're losing you again. Can you call in and we'll come back to you? We'll put you back in the queue? Aidan Kelly: Sounds good. Operator: Our next question is from Andrew Weisel with Scotiabank. Andrew Weisel: First question, Joe, you talked about the land acquisition strategy. I know Mystic was a big one last year. Can you talk a little more how you're thinking about this? Is this kind of like a land grab where you're trying to get as much acreage as possible in strategic locations for your own stand-alone development? Or is it working with potential customers or partners like large load customers or data centers? And would it be right to assume that dollars are small, it's more about optionality? Joseph Nolan: Well, yes, a couple of things. This would be for our own use, for our own regulated business. It's in locations that are strategic in nature to allow the injection of energy, whatever energy that is. We are not in the data center business. We're not attracting data centers. As you know, we have a finite amount of generation in the region. What we're working on kind of the single and double strategy that I talked about is to be able to unlock the captive generation that might be in the New England market to allow it to fall freely also to allow anyone else to interconnect into our territory. So we did purchase the Mystic, and we'll have some news on another very strategic site that we're excited about that will position this company for decades to come. Andrew Weisel: Interesting. Looking forward to that. Okay, great. Then on equity, just a couple of fine-tuning questions maybe for John here. It looks like the 2025 outlook went up by about $200 million, and you removed the comment that the majority of the outlook will be issued in the back half of the forecast period. But John, I think I also heard you say that you're satisfied for the near term after the recent activity. I might have asked a similar question last quarter, but just wondering about the outlook. Maybe you can detail some of these changes, does that relate to kind of CapEx or the long term thinking of how to get to your targeted credit metrics? John Moreira: Yes, yes. So I mean, as I said in my formal remarks, for the near term, I believe we're done, right? Although we took that off the slide, it wasn't an indication that we're going to continue to issue equity. Still the majority is we may have issued like 37%, 38% thus far. So I still stick to my position that the majority of that will be issued towards the latter half of next year. With the approval of Aquarion, once we get that decision, that's going to bring in net cash at $1.6 billion. And then with the securitization of Connecticut storm costs likely coming in the door in '27, I think we're primarily covered for those years. So my position still stands. So as I said in my formal remarks, the near term, we're good for now. I have the appropriate level of liquidity. I'm very happy with that, given the financings that we did in the last 2 months. Andrew Weisel: Okay. That's very clear, and it sounds like you're in a good position. Thank you so much. Operator: Our next question is from Anthony Crowdell of Mizuho. Anthony Crowdell: I guess JPMorgan did an update of phone system in a new building there. Just, I guess, quickly on Revolution. I think it was reported from Orsted this morning, it's 85% complete, Revolution. Just if you could talk about what are maybe the critical parts left bringing the project to completion, that's end and is it second half '26 when you believe it's all finished? Joseph Nolan: Yes, Anthony. Yes, Revolution is going very, very well. And right now, we're -- Orsted announced this morning that 52 of the 65 turbines are installed, I will tell you that the work that we're doing in Rhode Island is pretty close to being finished. We've got great job at that onshore substation, we're going to begin to see some power there at the substation very, very soon. So right now, I know that Orsted is talking about a second half of 2026. But I will tell you that we've made significant progress. We've brought the dates in by 4 to 5 months. So we're hoping that we can see that improve. But I will tell you that I feel very, very good about the project and the work that's been done down there. So I think we'll see that project schedule improve. Anthony Crowdell: When is the first megawatt, first power expected to come online from the project? Joseph Nolan: Yes. That's an issue that -- for Orsted to discuss. We are basically a partner that's building the onshore piece. They are the conductor of this particular train. So let them -- they can tell you what's going on. Anthony Crowdell: Got it. And then just flipping to the storm cost securitization in Connecticut. I know it's with PURA. Any -- and I know the recent change there and it -- only recently has changed. But any update on maybe the timing of getting resolution on the storm cost securitization? Joseph Nolan: Yes. So a couple of things. I mean, our focus has been on the Yankee case. It has been on the Aquarion sale. So when we start to sequence these items, those are the things that were top of the list for us. We now shift our focus onto storms. I think the team has done an extraordinary job of documenting everything. We've had tremendous success in both Massachusetts, New Hampshire. And I don't think it will be any different in Connecticut. We have been asked that we pulled that ahead right now. It's a second quarter event, second, third quarter that we'll see a decision. But we think given that the decks have been clear that PURA we're hoping that, that can improve. We can get a decision that will allow us to go forward with securitization and get that money in the door for us. So yes, and the other issue is the interest cost, which -- that will provide us a great opportunity there to stop the interest cost. Operator: Our next question is from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Look forward to see you guys next week. Look, I wanted to just follow up on the Massachusetts backdrop. I know Shar asked it, but just how would you frame expectations here from gas onto the electric PBR? Just with respect to the backdrop here, anything to read -- again, I get that the gas PBR had very specific metrics but anything that you'd read into the backdrop here on the electric or EGMA? John Moreira: Well, the -- similar to what we have on the electric side, we have the same composition on the gas side. We have to perform. And on the gas side, this was the first touch point being under the PBR structure for Yankee -- for NSTAR Gas. So there's several performance metrics. There's really 3 criteria that you have to meet. One of them is you have to meet the performance measures that have been approved by DPU. We -- there were 18 actually. We performed very well in 15. So 3, we did not perform. And those 3 are very, let's call it, very subjective opinion surveys like J.D. Powers and surveys that we do, which are very driven by how the customers perceive us. The history of the precedent in front of the DPU as it relates to these performance measures is always viewed as while the company didn't have control. Okay, the company couldn't have done anything. And obviously, in a high-cost environment, it's very challenging. So that was the reason that the DPU took the action and did not allow us to roll the $45 million into rate base. And as I mentioned earlier, yesterday, we did file for a motion for reconsideration. So we will continue to work with the DPU. Obviously, as I mentioned, it's -- we have some new players sitting at the table, and we look forward to working with them very closely as we progress on this motion. Julien Dumoulin-Smith: Right. But the PBR metrics on the electric side kind of have that same composition, though? John Moreira: And we performed well. We have performed well. It's not an annual assessment with NSTAR Electric, it's a 10-year deal, you have a 5-year. So the fifth year happens in 2028. Julien Dumoulin-Smith: Excellent. No, indeed. And then just if I can -- I mean, obviously, you guys roll forward typically with 4Q. But any early indications, especially as it pertains to transmission and long lead time right time investments where you perhaps had some visibility here already? And any indications from ISO New England's planning process this year? John Moreira: Well, as you've seen in the last 5-year plan that we rolled out, the latter years are no longer a dip. And I expect that trend to continue where the outer periods will be more increasing versus what we've seen historically. So that's the reason -- that is the primary driver, that's because we have the clarity, and we have the projects that are in the queue to allow us to roll that into our plan. Julien Dumoulin-Smith: I appreciate the disclosures on the credit side, and we'll talk to you soon. John Moreira: Operator, I would like to correct a statement that I made earlier to Andrew Weisel's question. I think I may have spoken I just want to get that on the record. The equity, I said that our equity needs in the near term are taken care of. And I stay with my statement that I had made previously that the majority of the equity needs will be towards the tail end of our forecast period. I think in my former -- in my answering Andrew's question, I may have said next year. That is not the case. Operator: Thank you for that clarification. Our next question is from Paul Patterson from Glenrock Associates. Paul Patterson: So just on -- I'm having a little trouble with this. How should we think about your tax rate on an adjusted basis for the quarter and how you see it going forward? John Moreira: Paul, this is John. So as I've said previously, over the past several years, we have taken advantage of some very attractive tax benefits last year, and I may have said this previously, we were in the high teens. The expectation is this year, it's probably be in the low 20 -- 20%. But I think next year in 2026, we probably would get to more of a normal sustainable level. But we've taken full advantage of some nice tax benefits for the past several years and we will continue to harvest any and all tax benefits that we can actually achieve. Paul Patterson: Okay. Because when I look at the after-tax benefit or the -- excuse me, the hit on the offshore wind that was offset by the tax benefits, should we -- are all of those tax benefits reflected in the non-adjusted number? In other words, they seem to be allocated. When you talk about the write-off, it seems like that's being allocated to the write-off. And that isn't leaking into the -- correct? John Moreira: That is not the case. So let me -- the percentages that I just mentioned only relates to our normal recurring results. The $210 million that we harvested to offset the tax liability is directly related to offshore wind. And it's primarily the final change in estimate from where we were at the end of the year of 2024. And the characterization of that benefit is really we were able to deem the loss on wind as more ordinary versus capital. So we changed the percentage that we had used in '24 versus that tax split of capital at ordinary increased in this year when we file our tax return in the third quarter. So we were able to allocate more as ordinary versus capital and ordinary, we can carry forward for 15-plus years. So that's really what changed in our tax position as it relates to offshore wind. Paul Patterson: Okay. And there's -- and so okay, that answers the question, that's kind of what I thought. So okay, I appreciate the clarity. Operator: Our next question is from Sophie Karp with KBCM. Sophie Karp: I don't know if you guys know this on top of your head, but I'm curious what legally constitutes kind of the end of the Revolution project as far as your agreement with Orsted? Like at what point are you no longer on the hook for anything there? Like is that first power? Is that something of other milestones? Any color would be helpful here. Joseph Nolan: Sure. So it's similar to the protocol we're using on the South Fork project. It would be COD. At COD, we will hand that over and that is when we are off the hook. Sophie Karp: And what is COD specifically? Joseph Nolan: Full operation, turning over of all of the documents all -- anything associated with the work that we have done and the PPA is in full force. Operator: I'm showing no other questions at this time. So I would now like to turn it back to Joe Nolan for closing remarks. Joseph Nolan: Thank you once again for taking the time to join us today. We know many of you have been patient investors over a long time, and we will continue to execute our key strategic initiatives that create value for our customers and shareholders. We look forward to seeing many of you at EEI next week, safe travels. Operator, this ends our call today. Operator: Thank you. This does conclude the program, and you may disconnect.
Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the SmartRent Q3 2025 Earnings Call. [Operator Instructions] Now I would like to turn the call over to Kelly Reisdorf. Please go ahead. Kelly Reisdorf: Hello, and thank you for joining us today. My name is Kelly Reisdorf, Head of Investor Relations for SmartRent. I'm joined today by our President and Chief Executive Officer, Frank Martell; and Daryl Stemm, Chief Financial Officer. Before the market opened today, we issued an earnings release and filed our 10-Q with the SEC, both of which are available on the Investor Relations section of our website. Before I turn the call over to Frank, I would like to remind everyone that the discussion today may contain certain forward-looking statements that involve risks and uncertainties. Various factors could cause our actual results to be materially different from any future results expressed or implied by such statements. These factors are discussed in our SEC filings, including in our annual report on Form 10-K and quarterly reports on Form 10-Q. We undertake no obligation to provide updates regarding forward-looking statements made during this call, and we recommend that all investors review these reports thoroughly before taking a financial position in SmartRent. Also, during today's call, we will refer to certain non-GAAP financial measures. A discussion of these non-GAAP financial measures, along with the reconciliation to the most directly comparable GAAP measure is included in today's earnings release. We would also like to highlight that our quarterly earnings presentation is available on the Investor Relations section of our website. And with that, I will turn the call over to Frank. Frank Martell: Thank you, Kelly. Good morning, everyone. I'm pleased to report that the third quarter was a period of substantial progress for SmartRent. We continue to grow our annual recurring revenue and significantly narrowed our operating loss in line with the commitments we made on our last call. During Q3, we continued to expand our installed base, which now includes more than 870,000 units, up 11% from prior year. SaaS revenue grew 7% from prior year levels and now represents 39% of total revenue, up from 37% in Q2 of this year. SaaS growth is being fueled by our increasing installed unit footprint and higher pricing. As we look forward to the balance of this year and into 2026, we expect to continue to significantly expand our installed base as we capitalize on the investments we are making in our sales organization as well as expanding platform capabilities to deliver even greater ROI to property owners and operators. Let me now highlight 3 important milestones from the quarter. First, we completed the actions necessary to reset our cost structure that we outlined last quarter, unlocking more than $30 million of annualized expense reductions. We believe that this will result in adjusted EBITDA and cash flow neutrality on a run rate basis exiting 2025. Cost efficiency was the primary factor in narrowing our adjusted EBITDA loss from $7.4 million in the second quarter of this year to $2.9 million in Q3. Second, our relentless focus on achieving profitability, combined with disciplined working capital execution helped us to exit the third quarter with unrestricted cash of $100 million compared with $105 million at the end of Q2. Maintaining our strong liquidity position should provide ample capacity to fund high ROI reinvestments, which are expected to drive customer and shareholder value and build a strong base for long-term success. And third, we added a seasoned expert during the quarter with a consistent track record of transforming key workflows and processes. Our go-forward goal is to simplify and automate our key internal processes over the next 18 months. We expect to see significant financial and operational benefits from this initiative beginning in 2026. Our progress in Q3 is the outcome of clear priorities, disciplined execution and a focus on what matters most, building expanding profitable and durable platform. I will now focus the remainder of my comments today around our business model and why we believe it provides a platform for durable revenue growth and higher levels of sustainable profitability in 2026 and beyond. From my point of view, SmartRent's opportunities for accelerating profitable growth and sustained market leadership are compelling. We operate in a large expanding market with a purpose-built differentiated platform and a growing SaaS footprint. As a hardware-enabled SaaS company with meaningful scale, our foundation is domain expertise and close alignment with the needs of our customers. Our solutions are retrofit friendly, integrates seamlessly with third-party hardware and systems and are designed to deliver measurable ROI. With IoT-focused platforms deployed 870,000 rental units and over 1.2 million users relying on our operational and community management workflow tools, we have a significant advantage. I believe we are increasingly poised to leverage our scale advantage to improved operational execution, the introduction of new and enhanced capabilities driven by data and analytics and the infusion of AI. SmartRent delivers strong value that our customers rely on. As a result, we have developed sticky and long-term customer relationships. Our net revenue retention rate is well above 100%. In a recent survey, 90% of property managers cited net operating income expansion as a key reason for continued investment in SmartRent. I want to conclude my prepared remarks today by saying how energized I am about the opportunities for growth and transformation at SmartRent. Over the past 4 months, I've had the chance to spend significant time with many of our key stakeholders, including our largest customers. These sessions have provided me with critical insights into both the company's foundational strengths as well as areas we need to address to realize our full potential. On the next call, I will be providing a 3-year strategic framework for evolving our business model to capture the unique benefits we provide to the rental market and its key participants. In closing, I believe we made important progress in the third quarter and are well positioned to exit 2025 with accelerating momentum. I want to thank our team of dedicated SmartRent employees for all their focus and commitment. It's making a difference. I will now turn the call over to Daryl for a detailed discussion of our Q3 financial results. Daryl Stemm: Thank you, Frank, and good morning, everyone. We appreciate you joining us today to discuss our third quarter 2025 results. Our third quarter results demonstrate clear progress across both profitability and operational execution, highlighted by reduced losses, lower operating expenses and a stronger recurring revenue mix, and we remain firmly on track to achieve our run rate targets as we exit 2025. For the third quarter of 2025, total revenue was $36.2 million, down 11% year-over-year. The decline primarily reflects our strategic move away from bulk hardware sales that occurred in advance of customer implementation time lines in favor of a more sustainable SaaS-focused revenue mix. Breaking this down a bit further, SaaS revenue reached $14.2 million and increased 7% year-over-year. SaaS revenue now represents 39% of total revenue compared with 33% of total revenue in the same period prior year. Hardware revenue totaled $11.5 million in the third quarter, a 38% decline year-over-year for the reasons previously noted. And Professional Services revenue increased by 113% year-over-year to $7 million, reflecting the higher installation volume and improved project efficiency. The shift in revenue mix towards SaaS continues to strengthen the quality and predictability of our model, a key objective in our path to profitability. Our annual recurring revenue reached $56.9 million, up 7% year-over-year reflecting steady expansion of our recurring base and the successful execution of our strategy to scale higher-margin platform-driven growth. As of September 30, our installed base reached 870,000 units, up 11% from the prior year, with 83,000 net new units added since the same quarter prior year. We deployed more than 22,000 new units during the quarter, a 49% increase compared to the prior year period and booked 22,000 units for a 30% increase, reflecting continued customer demand and stronger execution resulting from our investment in our sales organization. Turning now to profitability. Gross margin was 26%, lower year-over-year as a result of nonrecurring inventory charges related to our decision to sunset our parking management solution and focus on our core IoT and smart operation solutions, partially offset by a higher mix of our higher-margin SaaS revenue. Professional Services gross profit improved by $3.7 million, shifting from a loss of $3.5 million in the prior year quarter to a profit of $200,000 this quarter. We believe the breakeven performance of our Professional Services revenue stream, which was driven by ARPU increases and cost reductions is sustainable. Operating expenses decreased by 34% year-over-year to $16.6 million, an $8.6 million reduction from the prior year period. Our third quarter operating expenses were aided by approximately $2.5 million of accrual reversals, which we don't expect to recur in future periods. Net loss improved 36% year-over-year to a loss of $6.3 million and adjusted EBITDA improved 23% to a loss of $2.9 million. Our $30 million cost reduction program is complete. These efforts have meaningfully reshaped our expense base, aligning them with our current revenue level and created a leaner, more efficient operating structure that supports future growth. We ended the quarter with $100 million in cash, no debt and $75 million in undrawn credit, giving us a strong balance sheet and the flexibility to execute from a position of strength. Net cash burn improved by 79% from roughly $24 million in the same period prior year to $5 million this quarter. This improvement is primarily driven by a reduction of operating losses and improved accounts receivable collections. From here, our focus turns to selective reinvestment especially in our sales and account management functions where we're seeing early traction from targeted hiring and process improvements. Equally important, we're investing in product innovation, as Frank mentioned, to strengthen differentiation and fuel long-term growth. We remain committed to preserving the cost discipline and operating rigor that have driven our turnaround. We're operating with discipline, building momentum and have clear line of sight to achieve run rate non-GAAP neutrality exiting 2025, positioning SmartRent for durable, profitable growth in 2026. Thank you for joining us today. Operator, you may now open the line for questions. Operator: [Operator Instructions]. And your first question comes from the line of Ryan Tomasello. Ryan Tomasello: Looking at SaaS revenue growth of 7%, that came in lower than deployed unit growth of 11%. And it looks like the drivers there are ARPU related, which I think is partly driven by site plan. So I guess my question is, what's the current strategy at site plan, which seems to be a drag on growth? And then within core IoT ARPU, it looks like that was still flat sequentially, backing out site plan. So are there any other drivers there to call out? I think you mentioned the sunset of your parking management solutions, whether or not that was an impact? Any color on that would be helpful. Daryl Stemm: Yes. Thanks for the question, Ryan. So first of all, with regards to the overall SaaS ARPU, I would say that this is a 1 quarter aberration. We had some adjustments to revenue, SaaS revenue that were non-IoT related. So primarily smart operations were site plan as you mentioned. And that had an impact of about $0.15 on our reported SaaS ARPU number, which should correct itself in Q4. And so I would expect to see a return to the $5.65 to $5.70 range of SaaS ARPU in Q4. Ryan Tomasello: Can you just elaborate what that -- what those adjustments were? Daryl Stemm: Yes. We have a number of accounting estimates that we make on both revenues and on expenses. And so the adjustments were really just around some estimates that we use in our calculations. And we're constantly tweaking our estimates to make sure that our financial statements are reasonably representing to use the auditing term, our true financial results. This quarter, it was just a little bit larger than typical. Ryan Tomasello: Okay. And then Frank, your commentary certainly is suggesting optimism about growing the installed unit base next year. Can you elaborate just on the progress you've made specifically within the sales organization? And if you're able to, at a high level, discuss the type of annual unit deployment capacity you think the business can structurally support based on your current sales and installation infrastructure? Frank Martell: Yes, look, I think I'm -- the company has kind of settled in that 20,000 to 25,000 level. We can do more than that, significantly more than that with the current capacity. As I said in my prepared remarks, I visited most of the major clients. Everybody is talking about their plans, which include potentially quite a number of units to be installed. The macro environment is a little challenging. So that's creating a little bit of friction. But by and large, I think there's a lot in the hopper out there. We did add a leader about a year ago, terrific person that's really driving expansion. We've expanded dramatically our account -- key account management structure. We have a lot of, as you know, large clients. So more specific attention to those clients. We launched a customer council, which we're excited about, which will allow us to better coordinate our -- some of our new products and solutions that we have in place. So that's a positive. And then I think we have just more sales folks, some former employees that have come back, plus a few new ones. So we will, I think, be positioned well to ramp up from the current levels. We're doing 22,000, 23,000 units right now. And I expect that to increase, but more to come on that front. And you mentioned site plan. So as Daryl alluded to, smart IoT and operations are the core of this company and will remain the core of this company. We're actually holding serve at smart operations. We have over 1 million users. We're putting some investment behind the solution sets there, and we'll continue to do that, probably accelerate that into next year. So smart operations is a core component. It's is not declining. It's kind of holding serve. So I just want to make sure that, that was clear. Operator: And your next question comes from the line Yi Fu Lee with Cantor Fitzgerald. Yi Lee: Great work on reaping operational improvements in the cost structure and flowing this benefit to better profitability. So Frank, I just want to start with you. You mentioned like the past 4 months, you spoke with a lot of stakeholders, right? Just want to get your feedback, like what are some of the positive and negatives you're seeing in the field? Frank Martell: Sure. Look, I think I've covered a lot of ground with customers. And I think one thing about SmartRent that's very interesting is that the companies like the solutions very much. They value the return on investment that we generate. They're very supportive of the company despite some of the challenges over the last year or so. And I would say it's a very open collaboration. So I think from a customer point of view, it's actually quite positive for SmartRent, support of SmartRent. And I think that's fantastic. It's also -- it's a collaborative discussion with them about how we can continue to evolve our products and solutions to be a bigger part of their business. And that's why I think things -- we did not have any problem creating our customer product council, which we've already kicked off and was very active. So I think that's, again, a kind of encouraging sign. And the last thing I'll say is we don't -- we have very little to none customer turnover, which is not something that's very common. And so I think from that point of view, we are a sticky solution. And I think from that perspective, it's a great base to work with. So it's really encouraging from that perspective. I think now that we've got more predictability in the business, I'm hopeful that we'll see an acceleration in unit orders despite the fact that there's some challenges in the macro environment. Yi Lee: And with that, Frank, like, I know like, Ryan, asked about the sales organization. I want to continue to focus on that. You guys made a lot of investments from last year, bringing in a new CRO, hire a couple of folks in key pillars, right? Just want to get a sense, what are the things like in terms of go-to-market that you think -- and you mentioned the run rate is about 20,000 to 25,000 units per quarter, right, of new net units. What are the go-to-market things that you think the changes you made that could help improve, let's say, in 2026? Frank Martell: Yes. I think, first of all, one thing I would just say on the unit count that Daryl talked about in his presentation, we've been working through the overhang of these bulk hardware sales that were made over the course of early 2024 and late 2023. That had a reduction -- an effect of reducing our run rate on units because they were pulling forward into earlier periods. We should be through that by the end of this year. So we'll have a run rate that looks more like the market demand cycle looks and that should be a benefit. It's not very far from 23,000 to 30,000 units, really. And so we're shooting for a much higher number and building the organization to accommodate that. And I think things like improving the sales organization in terms of numbers of people, and frankly, the underlying systems that support that group, that's all well in hand. As I said earlier, we have a fantastic leader that's really doing a very good job on the organizational enablement front and also the client relationship building front. I will remain active with the clients. And I think there's a lot of upside there. Yi Lee: Got it. And then Daryl, flipping to you on the financial side. I think Frank mentioned that by the end of this year, the bulk hardware sales should normalize the headwind. I was wondering, can you give us some color? Does it mean like in 2026, we should see a smoother growth rate quarter-over-quarter? And then your comments about run rate cash flow neutrality to exit 2025, should we get used to this going forward, Daryl? Daryl Stemm: Yes. So first -- to answer your first question with regards to what the growth rate might look like, what you've been seeing for most of the past year is that our hardware revenues, in particular, have been muted because we've made the shipment of the hardware for much of the installation volume that we're still now undertaking a year ago plus. So our -- I would expect that even if our volume were simply to stay in the 20,000 to 25,000 units per quarter range, that our hardware revenue would increase as we have to, then as we work through the whole hardware sales, we will be shipping hardware for current period installation. So there'll be a more closely coupled cadence to the hardware revenue with the deployment volume. And can you repeat your second question, please? Yi Lee: The second one was the possibility. You mentioned our free cash flow exiting end of this year to be positive. So that -- should we get used to this discipline -- financial discipline in 2026, meaning like this consistency? Daryl Stemm: Well, we're certainly going to strive to be as disciplined as we have been this past quarter and for Q4. I think that our initial desires were simply to reduce the cash burn so that we can then evaluate how to use the $100 million of cash that we have in -- and apply it for its best purpose, be it reinvesting in the company or otherwise. So my expectation would be that we'll continue to remain very disciplined in our use so that we can then make very disciplined decisions around how to best use the $100 million. Operator: There are no further questions at this time. That concludes today's call. You may now disconnect.
Operator: Good morning, and welcome to the Inspired Entertainment Third Quarter 2025 Conference Call. [Operator Instructions] Please note that today's event is being recorded. Before we begin, please refer to the company's forward-looking statements that appear in the third quarter 2025 earnings press release and in accompanying slide presentation, both of which are available in the Investors section of the company's website at www.inseinc.com. These also apply to today's conference call. Management will be making forward-looking statements within the meaning of United States securities laws. These statements are based on management's current expectations and beliefs and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from those exposed or implied in such statements. For a discussion of these risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission. The company assumes no obligation to update or review any forward-looking statements, except as required by law. During today's call, the company will discuss both GAAP and non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in today's earnings release and slide presentation, which are both available on the website. As a reminder, the slide presentation will be advanced by the operator to accompany management's remarks. A PDF version of the slides will be available following the call in the Investors section of the company's website. With that, I would now like to turn the call over to Lorne Weil, the company's Executive Chairman. Mr. Weil, please go ahead. A. Weil: Thank you, operator. Good morning, everyone, and thank you for joining our third quarter conference call. As we reported earlier this morning, third quarter and trailing 12-month adjusted EBITDA were $32.3 million and $110 million, respectively, both well ahead of consensus and last year, and a result that we're pleased with. In a departure from [ press ] protocols, we have prepared a brief slide deck today summarized here on Slide 4, which will be presented by President and CEO, Brooks Pierce, and myself. There are a lot of moving parts right now, the sale of holiday parks, the restructuring of pubs, the continued phenomenal growth of interactive as examples that paint a very exciting picture, and we feel that this kind of comprehensive discussion will help us put everything in proper perspective. Then at the conclusion, we will discuss earnings, balance sheet and cash flow projections for '26 and '27. To begin, I'll hand it over to Brooks, who will discuss in some detail, current results and operations. Brooks Pierce: Okay. Thanks, Lorne. Before I dive into the business update, I want to briefly address the upcoming U.K. budget announcement on November 26 and the discussion around potential tax changes in the gaming industry. There's been a lot of coverage and discussion on all sides of the issue and its impact on the industry, but frankly, this isn't new. We've managed through -- we managed through the 2019 triennial, which cut maximum stakes in betting shops from effectively GBP 50 to GBP 2, a major change that we successfully navigated through product innovation and operational discipline. Today, performance in that business is well above pre-triennial levels. Potential shop closures have been in the headlines as well, and our experience tells us that this is also manageable. Typically, lower-performing shops are most at risk, and much of that play finds its way to nearby shops, effectively lowering our servicing costs. The potential increase in remote gaming duty would be another facet we have experienced dealing with. We've managed similar changes in other markets, and our performance in the Interactive segment speaks to our ability to adapt effectively. Once the U.K. budget is announced, we'll share more specifics. But in the meantime, we're planning proactively and are confident in our ability to manage changes effectively, just as we have in the past. And we have a number of levers and opportunities at our disposal to navigate our way through this. Okay. Moving to the next slide. We're pleased with the performance of the business in the third quarter, and are carrying that momentum into the fourth quarter. We're confident we'll exceed Q4 2024 performance and current guidance, assuming current FX rates don't change materially. The Interactive and Gaming segments were particularly strong, with Interactive achieving more than 40% year-over-year adjusted EBITDA growth for the ninth consecutive quarter. October is now complete, and is the single largest revenue month for this segment in our history, and last week was the biggest week we've ever had. This was all highlighted by the success of some of our seasonal games, but frankly, we're seeing strong performance throughout the portfolio and market share gains across our key geographies in both the U.K. and North America. We're also pleased to see a second consecutive quarter of stabilization in the Virtual Sports segment, and are confident that it will grow year-over-year in the fourth quarter. The close of the sale of the holiday parks business on November 7 is a milestone in our shift to higher adjusted EBITDA margins, lower CapEx and close to 40% lower head count going forward. Taking the proceeds from the holiday park sale to improve our net leverage puts us in a stronger financial position as we move through the fourth quarter and into 2026. In addition, we announced today that our Board has reauthorized a $25 million share buyback plan as part of our plans going forward. The next slide demonstrates the success of our strategy in making North America a bigger part of our business, in large part due to the growth we're seeing in this market from our Interactive business, but we're also gaining momentum in our North American VLT business that I'll cover in more detail later in the presentation. The success of the Vantage cabinet in the William Hill estate is coming through in our results and was highlighted recently by evoke in their trading update. We're also starting to see the impact on performance of the refreshed terminals in the Greek estate. Although the year-over-year performance in the Virtual segment continues to be impacted by the taxation that started in January in Brazil, our comps in the fourth quarter and 2026 will be easier, and we've also introduced a number of initiatives and increased our customer counts in Brazil and Turkey, and we're starting to see some of that improvement come through the numbers. As you can see on Slide 8, we've been generating solid year-over-year adjusted EBITDA growth every quarter, and the trailing 12 months adjusted EBITDA is now at $110 million. It is certainly a positive, but the most important aspect of this slide is the impact we expect to see going forward with the sale of the holiday parks business and the move in our pubs business to a machine and content-led strategy. Both the Interactive and Virtual segments are operating at higher than 60% EBITDA margins after corporate allocations, and we expect the operating leverage of both of these segments to strengthen further as revenue increases. Combination of margin expansion, the sale of the holiday parks business and the change in the pubs business model will significantly reduce our capital intensity and have a very positive impact on cash flow. The next couple of slides highlight not only the strong performance of the Interactive segment, but frankly, the significant opportunity we see ahead as additional iGaming states potentially come online, the potential we believe could be transformational for our business. Our content is resonating broadly across all the key geographies, and we're positioning the business to scale across even more. Looking ahead to next year, we plan to increase game deliveries through added capacity and a new interactive studio. The most common feedback we get from customers is they want more of our great content, and we're excited to deliver on that challenge. As we've talked about in the past, we're very bullish on the opportunity for an increase in the number of iGaming states. It's clear that iGaming is a much larger opportunity than online sports betting, as you can see in the GGR from just 3 of the existing iGaming states. The delivery of additional states is very seamless, and frankly, should produce significant operating leverage as the only real cost to add states is in bandwidth. We don't have a crystal ball, of course, but we're confident that states will see the opportunity and feel it's a matter of when not if. Now moving over to Hybrid Dealer. We've been talking about Hybrid Dealer for some time, and we felt validated to have won the award at G2E for innovative product of the year. More importantly, we're starting to see the network effect of rolling this product out across our customer base. We have a very good mix of both Tier 1 and Tier 2 customers and have seen success with both. Our William Hill-branded roulette game in the U.K. is producing amazing results, which we view as a proof point for other operators. The next phase of development will emphasize and highlight our proprietary player-favorite content, such as our Wolf It Up! and Piggy Bank family of games. We see this as the natural evolution of our product strategy, supported by an increasing pace of game delivery to meet the strong market demand. While Hybrid Dealer is not expected to be as large as the broader interactive market, we believe it will be a valuable complement to our portfolio, enhance our offering, add diversity to our content and contribute meaningfully in 2026 and beyond. Moving over to Gaming. Our Gaming business continues to perform well across our 3 key markets of the U.K., Greece and North America. In the U.K., we're gaining share in the betting shop business with the addition of 2 key customers. In Greece, our new cabinets are strengthening our leading position. And with nearly half of our machines still to be upgraded, we see continued opportunity for growth. In North America, performance in Illinois and key Canadian provinces is at its highest level since we introduced these products into mature markets, which frankly, is never easy. Notably, 98% of our Illinois customers ordered our game pack subscriptions this year, validating our philosophy that server-based gaming is a powerful tool for operators to keep their players engaged, and we see applicability for that in many more markets around the world. And now I'll pass it over to Lorne. A. Weil: Thanks, Brooks. A lot of interesting concepts and data to digest. I'll begin with Slide 14, giving a snapshot of where we are at the end of the third quarter. I apologize if some of this material was repetitious for those who have been following us for a while, but will help level set for anyone new to the story. So we're starting with trailing 12-month revenue, adjusted EBITDA and EBITDA margin of $310 million, $110 million and 35%, respectively. The digital retail mix is just under 50-50 and net leverage ratio of 3.2x. As we move through the rest of the material, I'll try to explain why we're confident in projecting significant expansion in margins, reductions in leverage and strong free cash flow. Slide 15 summarizes the underlying dynamics that have been underway for some time. Earlier, Brooks talked about the high margin relatively low CapEx and scalability of our digital business. It's the swing of the mix of our business in that direction that's a primary driver of financial performance. In parallel, the divestiture of the holiday park business provides an immediate boost to margins. And the operational reengineering going on throughout the company allows us to make up for the divested holiday parks EBITDA. In a moment, I'll quantify with some specificity on the exact impact of each of these 3 elements. Slide 16 summarizes the 3 things that, of course, everybody wants: revenue growth, expanding margins and growing free cash flow. Although generally, in my experience, you only get to pick 2. And as the slide implies, in our case, the 3 are highly interdependent. Our revenue growth is driven by the compounding of market share gains within growing markets, with content development and greater allocation of resources to marketing, having recently been the principal underlying drivers. Revenue growth, revenue mix and scalability together drive expanding margins, and the latter combined with declining CapEx drives free cash flow, if only it were that easy in execution. Slide 17 decomposes our projection of a 1,000 basis point increase in adjusted EBITDA margin between now and 2027, with the increase being almost equally split between the increased digital mix, the sale of holiday parks and the operational reengineering that we have undergoing. Regarding the latter, we expect most of the benefits to begin to take effect in the first quarter of 2026. Which finally brings us to Slide 18, where we bring this all together. To summarize, we're projecting the digital mix after corporate allocation to reach 60% by 2027; headcount to decline by nearly 40%; adjusted EBITDA margin to grow by 10 percentage points, from 35% to 45%; free cash flow conversion to reach 30% of EBITDA; and net leverage to decline to 2. A few minutes ago, Brooks discussed the expectation of increased U.K. gaming taxes in the November U.K. budget. It's for this reason that for now, we've expressed absolute adjusted EBITDA guidance in terms of high single-digit growth, which will then translate to more specific guidance once the tax proposal is known. As Brooks mentioned earlier, we've been through this drill before, and we're confident we can do much to mitigate any impact. And I should mention that certain important upsides, new iGaming states, for example, would be significant additional mitigating factors as they [ do not ] factor at all into our analysis. Finally, this entire discussion is focused on organic growth and does not reflect any expectation of M&A impact, which we continue to look at very carefully. And with that, we can open to Q&A. Operator, we can have Q&A now, please. Operator: [Operator Instructions] And your first question comes from the line of Ryan Sigdahl of Craig-Hallum. Ryan Sigdahl: Appreciate kind of the targets and laying out the path over the next several years what this company looks like. Still kind of digesting that in real time, but very back of the envelope math, maybe staring at Slide 18 here. If we assume EBITDA grows at a high single-digit CAGR, EBITDA margin expands by 10 points over the next 2 to 3 years. I guess that implies revenue is kind of flattish, maybe even down? I guess, walk through what's going on there, and maybe part of that is the starting point of holiday parks included or not? Brooks Pierce: Yes. I think the -- well, the principal reason for that is obviously the holiday parks business going away. So that's the single biggest driver of the revenue that you kind of modeled out. But I wouldn't say we obviously are confident that the rest of the business segments are going to continue to grow at varying degrees. Obviously, the Interactive business continues to race ahead, but the Gaming business and the Virtuals business, both we expect to grow. Ryan Sigdahl: Helpful. Yes, I think it's just a comparison of kind of the starting baseline there. Virtual Sports, I think I heard expect year-over-year growth in Q4. I guess, what gives you that confidence in the acceleration because it was up [ 1 ] decimal point sequentially, and so it appears like it's stabilizing. But what gives you the confidence to see a reaccelerating growth, at least sequentially, which will get you back to year-over-year growth by Q4? Brooks Pierce: Yes. A couple of different things. We've made some adjustments with our biggest customer that we're starting to see the benefits coming through already. We've added additional customers in Brazil. I think we added 6 in the quarter, which you wouldn't have seen full impact up, and we'll get that in the fourth quarter. And we've also seen some nice growth out of some of the business that we're doing in Turkey, and we're adding another stream of content in the Turkish market. So a combination of kind of all of those things gives us confidence that we're going to grow. I think the fourth quarter number EBITDA is [ 7.2 ] from last year. So it's not an insignificant amount we need to grow, but that's what our target is. Ryan Sigdahl: If I may, a quick follow-up just on that, any commentary or added detail on what those adjustments with your largest customer were? And then I'll hop back in the queue. Brooks Pierce: Thanks. No, I think we'll probably keep that to our -- between us and our customer, if you don't mind. Operator: Your next question comes from the line of Barry Jonas of Truist Securities. Barry Jonas: Lorne, can you expand a little on your M&A commentary in the prepared remarks? Just curious what the pipeline looks like and the types of companies deals you'd be most interested in? A. Weil: Sure. Well, I think to begin -- from a financial point of view, we're only interested in deals where they're going to -- there are significant touch points with the company and our operations now so that we can anticipate meaningful immediate synergies and a deal that makes significant financial sense. We're not going to do anything that's highly in a diversification mode or pay crazy prices that we can't mitigate by having a lot of operational synergies. So that's sort of -- that's the overarching concern. In terms of kinds of companies, we're interested -- we would be interested either in what people nowadays call tuck-in acquisitions that strengthens one of our existing businesses. The most likely would be an interactive studio or an interactive business that had products that we don't have or was addressing markets that we don't address that we could easily fold in. Same thing would be possible in our equipment business. I think it's unlikely that we would do something very big in an M&A sense right now because the business is running beautifully. There's plenty of opportunity to, as I said, to do tuck-in acquisitions, and that's kind of what we're doing, Barry. Barry Jonas: Got it. And then I noticed there was a release about your premium iGaming entrance into West Virginia recently. Just curious if you could talk more about that? And then any other notable jurisdictions you'll be soon to enter, hopefully? Brooks Pierce: Yes. So we've started with DraftKings and Rush Street, I think, are the 2 first customers in West Virginia. For a while, we're kind of waiting to see how some of these markets develop. Delaware as well, which was originally pretty small, but Rush Street's made that into a pretty amazing market. And same thing in West Virginia. So a number of our operator customers were pressing us to get the content in all their markets. So clearly, so West Virginia is rolling out, we'll start seeing the impact of that here in the fourth quarter. I think the rest is what we talked a little bit about is new states. I think the only state we're not in now is Rhode Island, which is kind of a unique environment. So certainly, if any states were to be added, that's a huge bonus for us. In terms of the international markets, I think we have almost 500 customers now. And we're pretty much in every market you can think about. I would say that probably the biggest market that we're not participating in a meaningful way that we hope to is probably South Africa. But Brazil is growing and some of the other Latin American markets are growing. So we kind of have no lack of geographical opportunities for us. Chad Beynon: Great. Congrats on the quarter and appreciate the new targets. Operator: Your next question comes from the line of Jordan Bender, Citizens. Jordan Bender: Maybe just follow up on the M&A comments. First, you mentioned you're going to open a new interactive studio. Are you buying this or is this an organic initiative? And then maybe more broadly, kind of related to the M&A part of this, have you seen multiples for studios come down at all? I know those have been quite elevated in years past. It seems like that's kind of a natural fit for the trajectory of your business at this point? Brooks Pierce: Sure. Maybe I'll answer the first part and a little bit of the second part, and then Lorne can expand. So the studio is going to be -- we're building it ourselves. We've hired the guy who run the studio. He's got a noncompete. So he'll get started after the first of the year, and we'll build it out. And it will be a lot of the content that we are kind of known for, but we also will give him some runway to try some newer types of content that maybe will help broaden our portfolio. In terms of M&A, we've looked at lots and lots and lots of studios. And probably the single biggest issue for us is there's lots of markets where some of these studios get revenue that we won't go into, and that's probably the single biggest gating factor as to why we haven't done an acquisition in that space before, but we continue to look at it. And as the content pipeline gets bigger and bigger, there's more and more of these companies that are popping up. So we're constantly looking at that. And maybe, Lorne? A. Weil: Yes. No, I don't have anything to add to that. I think that's right. Jordan Bender: Perfect. And just following up, on the share buyback, it's been a couple of years since you've bought back stock. Can you just maybe remind us of your philosophy, is this going to be kind of a programmatic buyback opportunistic? Just anything to help us there. A. Weil: Yes. I mean I think -- well, just to address the point about not having done a buyback for the last couple of years, that largely was occasioned by the accounting issue that we, fortunately now has completely behind us. But while it was going on, we weren't able to buy back stock. So now we're in a situation where that's all behind us. We're generating plenty of cash. We -- our cash position itself is strong. And so we're obviously in a position to do it. And we think right now, our stock is at a level where, regardless of what anybody's philosophy is about the subject of share buybacks in the context of capital allocation, it's -- our view is it's obviously very attractive. I don't think it's going to be programmatic, though. I think it's still going to be opportunistic because we're constantly balancing the goal to bring our leverage ratio down to the level that we talked about in these projections, and I think that's a priority. And we don't know whether and when a meaningful M&A opportunity will come across or will come along and then we need to act on that. So I don't think we want to be programmatic about share buybacks because again, we're balancing all of these factors. But we're certainly going to be more aggressive than we've been in the last couple of years. That's for sure. Operator: And your next question comes from the line of Chad Beynon of Macquarie. Chad Beynon: I wanted to revisit, Brooks, your comment about interactive October being the largest in history and obviously looking at the financials for Q3, the $11 million of EBITDA. So maybe first question, are you adding new partners in your biggest market like the United Kingdom? Are you just gaining market share? And then the second part of that, do you think that certain partners are better cushioned against some regulatory changes? I know we'll hear more about that. But yes, I guess, just wanted to ask about Tier 1, 2, 3 partners versus just overall share in that market. Brooks Pierce: Yes. Thanks, Chad. Yes, I mean it's kind of exactly what you would want. It's pretty broad-based. It's across our 3 biggest markets, North America, U.K. and Greece, but some of the other smaller markets are growing as well. And principally, it's us gaining share. I think we are ranked #4, #5 in the most recent Eilers report in North America. I think we've made a pretty focused shift to having build games that resonate with the North American players, and that's turning out. And so all the big guys, whether it's DraftKings, FanDuel, BetMGM, Rush Street are all doing better and better. But it really goes all the way through Tier 2, Tier 3, lower markets. So it's pretty broad-based across the business. And like I said, the October numbers were great. You get the advantage of having Halloween. I mentioned that last week was the single biggest week we've ever had. We had the confluence of payday in the U.K., Halloween and the resetting of limits all happen in one week. So that kind of led to pretty phenomenal results. But we obviously, as we go into the fourth quarter, December is historically one of the biggest, if not the biggest months with all the Christmas games. And November is also a very good month. So the fourth quarter is shaping up nicely. Chad Beynon: And then on the prediction markets. Obviously, you guys have extremely minimal exposure to, I guess, North American sports betting. We have seen a lot of the publicly traded equities trade off as a result of some competition there. Can you just talk about prediction markets, if that -- if you believe that affects any of your business segments here? Brooks Pierce: No. We don't -- we certainly aren't seeing anything. Unfortunately, it's because we don't have -- the one that it might potentially impact would be Virtuals in North America. And as I've said on a number of the calls, we're frustrated by the pace at which we're getting Virtual Sports in North America. The content, the NBA content, the NFL content is resonating with markets outside of North America, but we're still struggling to get more and more operators in North America launch. So that's really the only part of the business that I would see impacted. We certainly aren't seeing any impact in the interactive space from prediction markets, taking players away. I think they're fairly -- even though the operators obviously try and cross-sell, I think they're fairly separate and distinct players. Operator: Your next question comes from the line of Josh Nichols of B. Riley Securities. Josh Nichols: Great to see the parks business approaching a sale here and the stock buyback. Sorry if it was already addressed, I joined the call a few minutes late. But I wanted to just talk about the Interactive business, phenomenal growth that you've been seeing there overall. I think it's on pace for something like close to like 50% growth this year. Do you expect that, that pace is likely to continue next year? And what are the key kind of drivers that you see that's going to be driving Interactive, whether that's like Brazil or [ expanding ] your partnerships with some players in the U.S. and things that are in the pipeline for that business? Brooks Pierce: Yes. We sort of addressed it a little bit earlier, but I'm happy to go back through it. Yes, I mean, look, 9 quarters in a row of more than 40% EBITDA growth is -- eventually the math gets a little bit more challenging, but as I mentioned, the October numbers were great. We expect the fourth quarter to continue to build on that momentum. The biggest issue for us, which, again, I talked about a little bit, is what our customers are saying is, "Your games are great, your game mechanics are great. We just want more of them." And hence, that's why we're investing in the studio to increase the capacity so that we can get more games out to the market, which I think will hopefully help us sustain the growth levels. There's so much content out there now that you really do have to have the combination of the quality and the quantity, but our game design teams have come up with some really interesting mechanics. We mentioned in the presentation about this persistence game that we're doing called Player Link that's driving increased play. So we've got lots of levers that we're pulling, and we hope this streak continues. Josh Nichols: And then last question for me, Virtual Sports, obviously, a smaller piece of the business today, but good to see how that business has stabilized over the last couple of quarters. You talked about trying to get up and running with some more operators in the U.S. What needs to be done to really get that business back into growth for 2026? And are there a couple of larger opportunities that you're kind of optimistic about when we look beyond just the fourth quarter but for next year really? Brooks Pierce: Yes. I mean, so not to put any undue pressure on BetMGM, but they're likely to be the first big operator in North America. So they've gone live with us in Ontario and they're seeing phenomenal results over the last few months. And it's got some regulatory and resource challenges that we're working through with them, but we expect, hopefully, to go live with them yet this quarter. And I'm hoping that, that will be a catalyst for a number of other operators to see that virtual sports resonates and works in every other market around the world we've been in, and we think it will in North America. So unfortunately for us, we haven't been able to, frankly, because the operators have lots of priorities that they're working on for their iGaming, and their sports business and virtuals just kind of has slid down their priority list a little bit. But I still believe that it will resonate. I still believe we have licensed content with the NFL, NBA, and NHL that will resonate with the North American player base. And once -- like I said, it's doing phenomenally well in Ontario. I think once we get one of the big guys, hopefully BetMGM first, live in North America and they do well, I think that will hopefully be a catalyst for the other big operators to put some resources to this. Because it's not a challenge for us, it's really just a resource issue for the other guys. Operator: And there are no questions. I will now turn the conference back over to Mr. Weil for the closing remarks. A. Weil: Thank you, operator, and thanks, everyone, for joining the call today. I know -- is it Sportradar, just started 5 minutes ago. So we probably lost a few of our listeners, but just to reiterate where we are, we're feeling very ebullient about the business right now. The rest of this year looks solid, and we're pretty confident that as we move through '26 and '27, we can achieve the kind of performance parameters we talked about in the presentation. So thanks again for your support, and we look forward to talking to you in a few months. Thanks. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Henrik Andersen: Good morning, and welcome to Vestas' Q3 reporting and also closing and looking forward to close a very solid year 2025. I'll also take here the opportunity to extend a big thank you to our customers, colleagues and not least our external stakeholders, great support and commitment through the current environment through the first current 9 months of the year to the execution we are talking and going to talk much more about, today. So with that, could I go here to the key highlights. So, key highlights, revenue of EUR 5.3 billion. That's an increase of 3% year-on-year driven by higher deliveries, despite negative foreign exchange development. When we look at the EBIT margin of 7.8%, earnings achieved through improved Onshore project execution, lower warranty costs, partly offset by our manufacturing ramp-up, which is continuing, but also progressing well. When we look at the order intake of 4.6 gigawatts, up 4% year-on-year, driven by U.S. and Germany and Onshore is up more than 60% quarter-on-quarter comparison to last year. When we look at the manufacturing ramp-up, the driver cost and also investments the Onshore and Offshore ramp-up is progressing as we focused on delivering a very busy fourth quarter but also as importantly, getting a strong start of 2026. By this, we also decided to return value to our shareholders, I think, most importantly, in line with our capital structure strategy and also solid liquidity position, a share buyback of EUR 150 million will be initiated and will be starting as of tomorrow morning. And then on the outlook, we narrowed the outlook in terms of turnover EBIT, reflecting the lower Service EBIT, but also the stronger Onshore execution. With that, I will talk about the market environment we are in. And again here, wind energy is key to affordability, security and sustainability. That is our narrative and we can see it actually working in across many of our markets, as you've also seen in our order intake and not least also in our delivery table. When we look at our global environment, no doubt, inflation, raw materials and transport costs are stable, but tariffs will increase cost over time for the end user. When we look at the ongoing geopolitical and trade volatility leading to a regularization. We have spoken about that in now many of the previous quarters, and I will almost say the previous years. And we are seeing it's continuing, and we are dealing and planning and executing well in it. When we look at the market environment, there is a heightening focus on energy security and affordability across many of our main markets. The grid investment is prioritized in our key markets and we can see it's progressing in a number of markets, but also probably have status quo in the numbers of others. On the permitting side, it is improving in some markets, but overall permitting auctions and market design is still challenging. Maybe here is the perfect place also to just express a bit of a concern with Europe's continuing introduction of rules like CSRD, CBAM and others, while the rest of the world are after competitiveness. However, when we then look at the project level, I will say, Vestas, we see a strong project execution in the quarter and also year-to-date. We see some regional disruptions from time to time, but we are coping very well with it. And of course, that's then leading to the result we are also seeing in Power Solutions today, which I'm sure Jakob will talk us much more in details about. When we look at the Power Solutions in Q3 2025, strong quarter across all key markets. So, when we look at the Q3 order intake of 4.6 gigawatt, that's up 4% compared to the last year. The increase was mainly driven by strong order intake in the Americas, especially in the U.S. as well as continued positive momentum in EMEA, especially in Germany. There are no Offshore orders in Q3, so it is a clean Onshore order intake quarter. The ASP declined to EUR 1.01 million per megawatt in Q3 compared to EUR 1.11 million per megawatt in the prior quarter. The decline was driven by a change in the order mix with higher share of supply-only orders in the U.S. Generally, we are very pleased with the positive continuing price and price discipline we are showing and our customers' support and understands it. When we look at the order backlog in Power Solutions, it increased to EUR 31.6 billion. That's up EUR 3.3 billion compared to 1 year ago as our energy solutions continue to have good traction with customers across our core markets. And you can see more of the details in the chart to the right. With that, on to Service. So, Service outlook revised and also the recovery plan is progressing as we go through and we are now three quarters in. So, the Service order backlog increased to EUR 36.6 billion from EUR 35.1 billion a year ago, despite EUR 1.5 billion headwind from foreign exchange rate movements year-to-date. When we see a Service, it reached 159 gigawatt under Service. It's flat compared to Q2, as additions were offset by a higher level of expiries and also deselecting in the quarter as the commercial reset continues. This is some of the consequences we have spoken about in the previous quarters as part of our Service turnaround. And I think we can now start seeing that some of it also shows at least in the Service under -- the gigawatt under Service as such. When we look at the Service recovery plan, which runs until the end of 2026, it's progressing, and we are seeing early signs of operational improvements and also a reduction especially in our overdue work orders and the backlog of the same. That's very healthy, and it's very positive to see. And of course, we will continue working with that, and we look forward to talk more in details over the coming days. However, earnings in Service are also affected by foreign exchange rate headwinds as well as some costs related to some specific Offshore sites, which has led to a revision of the 2025 outlook of Service. You will see here to the right, the breakdown of the Service order backlog, EUR 36.6 billion overall, of which EUR 31 billion is Onshore, 159 gigawatts under active Service contracts and then an average duration of 11 years. You will see the breakdown on the regions below. And as you will also not surprisingly see in Asia Pacific, if you don't have new order intake, it also is limited to how much you grow gigawatt under Service. With that, take you through development. Development, not a lot, so I'll have that pretty quickly. Discipline, the same. We also focus very much about finding projects and advancing projects. But as you can also see, the environment right now is a lot of focus on in the key markets to progress projects, and we haven't really progressed anything in Q3. So, I'm pretty sure from a performance point of view, they also feel that for Q4. In Q3 2025, we had a pipeline of development projects that were stable around 27 gigawatts with Australia, U.S., Spain and Brazil, holding the largest opportunities. Strategic focus is on maturing and growing a quality project pipeline as well as conversion of mature projects in project sales and related turbine order intake. You can see the regional breakdown below. And I'll go to sustainability. In Q3, Vestas is the most sustainable energy company in the world, and we keep having that focus also with our customers and stakeholders. When we look at the turbines produced and shipped in the last 12 months, they are expected to avoid 461 million tonnes of greenhouse gas emissions over the course of their lifetime. You will see that here to the right. And of course, as we are ramping up, we expect that to continue increasing. The carbon emission from our own operations over the last 12 months increased by less than 1%, which is actually a very positive achievement, because our activities are increasing. So therefore, keeping Scope 1 and 2 at the current level is a testament to the focus and execution of our operations across. It is also saying when we ramp up Offshore, it is a significant change in business mix. So, there will be an upward pressure on the carbon emission, because we are using and spending more time at sea, at vessels and other transport measures. When we look at the number of recordable injuries per million working hours, that was up from 2.8 to 3.3 year-on-year. Safety remains a top priority for us as we tirelessly work to improve our safety performance across our value chain. I think also here from a personal point of view, I would say this is not good enough. When we see overall the year, we have less serious injuries and we have no fatalities that's positive. But the higher frequencies in especially Northern Europe and North America with onboarding many of our new colleagues, that also means that when we ramp-up Offshore, we see some of those frequent injuries we shouldn't see. So therefore, we have highlighted that. We talked directly to our colleagues, how do we see our colleagues and our family members remain safe on sites in this. So therefore, we are taking it extremely serious that it has not gone down, but actually gone up in the last 12 months after Q3. With that, I will hand over to the financials. Jakob, take it away. Jakob Wegge-Larsen: Thank you, Henrik, and let me take us through details. I'll just flip the slides. Let us take through the details of the income statement and the highest ever third quarter gross profit. Revenue increased 3% year-on-year, driven by growth in Power Solutions offset by slightly lower revenue in Service, primarily as a result of negative foreign exchange rate developments. Gross profit, that I just spoke to, increased to record-breaking EUR 772 million in the quarter, the highest ever in the third quarter. The record was achieved by improved profitability in Onshore, lower warranty costs, partly offset by manufacturing ramp-up costs. And EBIT margin before special items was 7.8% in the third quarter. As mentioned throughout the year, '25 is a backend-loaded year. The third quarter that we are just going out of was a strong start to a busy second half, and we expect a better balance between earnings in the third and fourth quarters compared to previous years. Diving into the segments starting with the strong performance in Power Solutions, as Henrik also alluded to. Revenue increased by 4% year-on-year, driven by higher megawatt delivered at stable average selling prices. EBIT margin before special items improved to 3.9 percentage points year-on-year to 8.1%. The improvement was driven by lower warranty provisions, continued strong onshore project profitability and importantly, execution, partly offset by costs related to the manufacturing ramp-up in our Offshore in Europe and Onshore U.S. Moving into the Service segment. Service revenue declined 3% year-on-year due to lower transactional sales compared to last year, while contract revenue was stable. Revenue growth in the quarter was affected by 3% currency headwind. Service generated EBIT of EUR 153 million, corresponding to an EBIT margin of 17%. The profit levels is in line with recent quarters, but we expect additional costs in Q4 related to some specific Offshore sites. The Service recovery plan continues and it will take time before benefits are visible in the financials. Net working capital decreased in Q3, mainly due to a reduction in inventory as a result of high project deliveries in the quarter and continued focus on working capital management. Important to notice, compared to Q3 last year, we have seen EUR 1.4 billion improvement in the net working capital. That leads us into the cash flow statement, where importantly, and what you have seen also where we say we initiated a share buyback on the back of strong cash flows and our net cash position. Our operating cash flow was EUR 840 million in the quarter, a significant improvement compared to last year. The improvement was driven by better profitability and a favorable development in net working capital, as you just saw. Adjusted free cash flow in the quarter amounted to EUR 508 million, also a substantial improvement, driven by the same reasons as mentioned in above. And then finally, we ended the quarter with a net cash position of EUR 0.5 billion. Total investments in the quarter amounted to EUR 274 million in quarter 3. The spending is primarily related to tangible investments such as transport equipment and tools as well as property plans and equipment across our turbine portfolio, such as the Offshore 15-megawatt EnVentus and our 4-megawatt platform in the U.S. Importantly, we are also very pleased to welcome more than 400 new Vestas colleagues at the Onshore blade factory in Poland, which we took over in September from LM Wind Power. The factory will deliver blades for our EnVentus platform and expand our industrial competitiveness in Europe. Looking at provisions and our lost production factor, we see signs of stabilization. The repairs of the sites mentioned in previous quarters are now largely completed. Disregarding these sites, the underlying LPF has trended down during '25. Warranty costs amounted to EUR 160 million in the quarter, corresponding to 3% of the revenue, and that is a significant improvement from the 6% we saw in Q3 last year. Warranty consumption was EUR 206 million for the quarter. The higher consumption level in the quarter is related to the above-mentioned repairs. And finally, ending on a high, we can report our best EPS and RoCE in 5 years. Net debt-to-EBITDA ended the quarter at minus 0.2x compared to 0.9x a year ago. Investment-grade rating from Moody's, we still have with a stable outlook. Earnings per share, measured on a 12-month rolling basis, improved to EUR 0.9, driven by the better profitability. Our return on capital employed, which broke the 10% barrier last quarter improved again and now to 13.6% as the earnings recovery continues. And finally, our strong financial position and improved key metrics allows us to return cash to shareholders. Thus, we are initiating a share buyback of EUR 150 million starting tomorrow. And now back to Henrik to take us through the outlook. Henrik Andersen: Thank you so much. So thank you, Jakob, and thanks very nice slide to finish with. And if we were a bit out of sync, I have to catch up with that change of your slides in the future. But we will rehearse that. When we look at the outlook, the outlook for the year, revenue narrowed EUR 18.5 billion, EUR 19.5 billion from previous EUR 18 billion to EUR 20 billion. Of course, there are some negative foreign exchange that you picked up. On the EBIT margin before special items, 5% to 6% narrowed from 4% to 7%, and Service is expected to generate an EBIT before special items of around EUR 625 million. And then total investments remained stable at EUR 1.2 billion, as we also had in our previous outlook. With that, I will just say thank you for listening in. I will pass to the operator, and we will go to the Q&A. And also in that slide, you will be able to see the financial calendar for 2026. Over to you, operator. Operator: [Operator Instructions] The first question comes from the line of Sean McLoughlin from HSBC. Sean McLoughlin: Let me just come to Offshore. The ramp looks to be progressing as expected, but you've postponed the investment in the blade plant in Poland. I wanted to understand just what is your latest view here on the market? And what is the risk that we might see in early peak of deliveries in '26 and '27 and potential underutilization thereafter? And ultimately, what would it take in your mind to kind of put that blade expansion back on track? Henrik Andersen: Thank you, Sean, and with a little bit of risk of using an expression here and throwing a good colleague under the bus. I will sort of say here, that blade factory that is so-called stopped in Poland was never built in Poland either. It's actually an old decision that was paused 18 months ago. It got interpreted a bit and probably got its own life and that I will use a bit also to say to everyone here on the call and others listening in. It seems like Offshore is getting an unreasonable bashing everywhere in the day-to-day press or among analysts. Yes, there have been headwinds and others. But from us, we don't see that. It is a piece of land we have. So if we, at some point in time, wanted to do a further capacity expansion, then it's an opportunity and option for us. And right now, we are working well. We are progressing well with our own capacity plant upgrade and that we will just wait and see. This is a dependency on what happens in the backlog when we look 4 years plus ahead that's where we will adjust capacity. Currently, we don't see any reason for raising the question or question too, if we need to adjust capacity downwards. That's for sure, Sean. So, we are ramping up. And therefore, in a call like this, start talking about capacity downwards. That's not -- we have a backlog of more than EUR 10 billion of projects and we will be throughout this year, next year and into '27 reach what we will call a more stable full capacity utilization. Sean McLoughlin: And if I could just follow up on Offshore is looking at the moving parts for you effectively not lifting the midpoint of the guidance after the strong Q3 surprise? I mean, is Offshore a component of that? Or is that really driven by Service? Henrik Andersen: I don't -- as I said here, if we look at the midpoint here, you can sort of see if you have three quarters now, you can see we struggled to absorb the Offshore ramp and the ramp-up cost in generally, if we are laying around EUR 2.5 billion in turnover. Now we are above EUR 5 billion. We have a very good quarter. But again, there, it's a lot easier to absorb it when we have a higher turnover. So, we are pleased with where we are, probably is around the maximum of the ramp we are seeing here in the second half of the year. So therefore, coming into '26, we should start seeing also, it's reducing and disappearing over time. So, that is sort of the -- in our heads, the timing of it. And then as I said, in the mid-range, also here, Sean, of course, we still have also the business absorbing for instance, tariff and other exchanges that happens in the world. So, we're not -- we're actually very pleased with what is in here, and we're also very pleased with what Onshore execution is supporting our continued investment into Offshore. Operator: The next question comes from the line of John Kim from Deutsche Bank. John-B Kim: Two questions, if I may. If we think about the updated guidance here and include the headwinds in Service, I believe it still implies a sequential -- a weaker margin in Q4 for Power Solutions. I'm just wondering if you could give us a bit of color here whether it's more about the cadence of the Onshore deliveries or potentially a bigger drag in Q4 from Offshore? How should we think about that? Henrik Andersen: I think here, it's the busiest quarter again in Q4. We walk into Q4. You will have seen it. We always said when we started the year back end loaded, but it's second half of the year. I will sort of say here, when you look at that, John, I would much rather see it in that we have managed to equalize Q3 and Q4 much better. Last year, we didn't. So therefore, compared to last year, we are looking into a Q4 that looks fairly much as execution of Q3. And then there can be a variation to the theme of what do we have in the backlog in there. You shouldn't read more into that. Then it is a busy quarter. We got 56 days to go, and we will always be subject to the normal variables in Q4. So that -- yes, we won't try to make it worse, that's for sure, in the Onshore execution, which we so far have had a really good run at this year. John-B Kim: Okay. Helpful. And on the Service guidance, EUR 625 million as the updated guide. I want to say there's a little bit under EUR 20 million in FX headwind. Is the remainder of the difference from EUR 700 million to EUR 625 million due to the Offshore that you had mentioned in the commentary? Henrik Andersen: I won't comment on your FX calculation. I think, we probably will see it slightly a bit more than that. But as I said, let's not do that. What we are just saying here, if we have a couple of things where we put a lot of vessels and a lot of people see in a Q4, it will drag something. So when we see that in a Q4 of a Service, which, let's just say, between us, we maybe end up around EUR 1 billion in turnover, then you can easily invest EUR 20 million in some of these Offshore sites in a quarter, and that's why we are guiding towards the EUR 625 million. Operator: The next question comes from the line of Kristian Tornøe from SEB. Kristian Tornøe Johansen: I have two questions. First one is about the production ramp-up in Offshore and Onshore as well. So, you've been fairly clear stating that it has a material earnings dilution impact this year. Considering the progress you've done so far, how confident are you that this will have a materially lower dilution next year? Henrik Andersen: How material are we, we had listed. We know that it's ordinary ramp. So, that means, the longer you get in, the better we get added, Kristian. But it's also here for both the Onshore U.S. and Offshore. We see a tendency too that we are further into the Onshore U.S. So, that should be definitely disappearing over the coming 2026. And then, as I said, in the Offshore ramp, listen, we opened these the nacelle factory less than 6 months ago. So therefore, we are at a maximum of both onboarding and running the education and training there. So, I can't give you a date where it maxed out and then it starts coming down, but we do everything we can to actually having coming out gradually over '26. Will it be totally done in '26? I don't know, because there always be things. So that we will talk more about when we get to 2026 outlook in February. But we are comfortable with it, and that's probably the main reason here. We have more than 0.5 gigawatt I see now in the Baltic Sea and the North Sea. So, we see that progressing. But of course, we are into the winter season where it's a slightly different environment to construct and install Offshore. Kristian Tornøe Johansen: Understood. Fair enough. And then, my second question is on your order intake in the APAC region, which again this quarter was fairly low. So, just any commentary on the outlook and your optimism for actually seeing APAC orders pick up? Henrik Andersen: I would just say nothing more than he should be doing better. There's a whole region out there in Asia Pacific, so that we encourage them to do. I think, it's lumpy when you are in markets of the nature of what they have in Asia Pacific. They are a bit more depending on when does it come over the finish line. I'm pretty sure that it's a whole region and not wanting to show us and you that they are good. They're doing zero in fourth quarter, because that's not the intention. So, we'll see where they end in 31st of December, but game on for the region to build a proper FOI in fourth quarter. Operator: The next question comes from the line of Dan Togo Jensen from DNB Carnegie. Dan Jensen: Sorry, can you hear me now? Henrik Andersen: Yes. Dan Jensen: Okay. Good. A couple of my questions from my side as well. On warranty provisions, low this quarter here, but how should we think of this level both absolutely and also relative, of course, as you put on more on the Offshore side? Can you maintain this level here? Or is there a risk that we will start to see level or an increase in that ratio? And then a question on the share buyback, the EUR 150 million. Can you elaborate a bit about the math behind reaching the EUR 150 million? I mean, cash flow -- free cash flow generation was more than EUR 0.5 billion, and you have almost EUR 0.5 billion in cash by end Q3, and how should we think of it by end Q4? Will you again be possibly in a position where share buybacks could roll into the current program be released by a new program? Jakob Wegge-Larsen: Dan, this is Jakob here, let me take the first part, and then Henrik will comment on the latter. Warranty, what we should remember, and I'm sure that those are also the numbers you're looking at. '23, we had more than 5%. '24, we were down to 4.3%. And then this year, we are hovering around the 3%. So, it's something we're really proud of, and it's an outcome of our focus on quality. We also see the underlying LPF reducing as we say, except for these couple of sites. And our ambition is to continue that journey down. And again, looking at next year, we'll talk about after Q4, but it's certainly our ambition. We are not satisfied with the current level of 3%. We see further potential and we have higher ambitions. Dan Jensen: Okay. Sounds good. And then, on share buyback? Henrik Andersen: On the share buyback, I think always when we do these things, we look at it in a bigger scheme of things. We have had a highest EPS, as Jakob mentioned, highest EPS and highest return on capital employed for 5 years. As you know, our Chairman very well. It's probably also the highest EPS for most of the 10 years. So therefore, when we look into this, we think it's fairly reasonable that we also say to shareholders, you will get cash back. Could we have done more? Yes. Could we have done less? Yes. But we ended EUR 150 million, because it's also the time of the year where we can get this done until the 17th of December. And then, of course, we get together again in beginning of February. And as you're rightly saying, we're not about piling up cash here in an environment where we feel very comfortable of the investments we have been doing and still are doing in Offshore, but that is also to say if people have struggling to see the value in Vestas shares, then share buyback is the best way we can also say, we -- at least, we trust in the Vestas share. Operator: The next question comes from the line of Akash Gupta from JPMorgan. Akash Gupta: My first one is on Service. So, I think when we look at your Q4 -- implied Q4, it's slightly over EUR 140 million adjusted EBIT, which is smaller since 2020. Can you tell us maybe how much of this is structural and how much of this is like temporary figures? And can you also talk about growth rates for Service in Q4, given last year, we had 30% year-on-year growth in Service top line. So, that's the first one. Henrik Andersen: Thanks, Akash. I will say sort of top line first. When you see the Service top line, there can be, and there was also last year some repowerings. Therefore, if Q-on-Q, there are differences in the top line that can relate to special things like that. And you will also appreciate we do have transactional sales as part of it, which can vary. We don't comment much about that and don't want to comment much about it. But as we also discussed over the last quarters when we have embarked into this Service reset. It is important for us that also we get better in saying, in this quarter, we already know this is what we are going to do in the quarter in especially some of these Offshore sites. So therefore, we have to give you a bit more guidance on some of these. That is not a recurring thing. So therefore, when you're into next year, you should see probably year-to-date and what we have done in the previous quarters is the underlying run rate of the business. So, I'm not so nervous of that, but we got to pick it up with you when we have already now a month into Q4. So that's the reason why we are seeing it. And as I said, it relates to something specifically in Offshore that is in the quarter, dragging it down. Akash Gupta: Are these Offshore sites are same as where you were fixing some quality issues where you took provisions or they are different? Henrik Andersen: They are partly, partly different. So therefore, it's not related to any of that, and it's not related to the 236 either. So, this is something where we just know that when you're in this season, and you got to have it, then it's a focus from us, and it's a focus from the customers, and it is very few customers involved as well. Akash Gupta: And my second one is on produced and shipped turbine in the quarter. You had slightly over 3 gigawatt, which is down 17% year-on-year, and we had growth here in first half, and now we are flat on a year-to-date basis. Can you tell us what is driving it? Are there any supply chain issues like probably sourcing of magnets or any retooling of facilities? So, can you elaborate what's driving this Q3 produced and shipped turbines and expectations for Q4? Henrik Andersen: No, I will say here, and I think Jakob spoke to that, if I can point to a positive here. We get better and better together with our partners in having a straight through on the production and also the supply chain. So, we've been better able to control inventory. And therefore, if we do that, then are we also, to some extent, in some quarters, you can't adjust it completely from what is going to be delivered and constructed next quarter. So, we have been better at that, and there are no -- we haven't yet seen any influence of any supply chain shortages, then we wouldn't have used the expression of very good execution in Onshore. So, we actually, again, coming into Q4, we won't be many weeks away from when we have all what we need on site. So therefore, Akash, we are -- we see good traction on execution towards the end of '25 as well. Operator: The next question comes from the line of Colin Moody from RBC. Colin Moody: Just focusing on the very strong margin performance in Power Solutions this quarter, well understood on the drivers regarding warranties and volumes. But maybe just on that project execution point. Am I right in thinking this is essentially a contingencies release? And could you help us understand how much of a contributor this was and generally, should there be some more in Q4 to come? And generally, on contingencies, do you recognize the benefits of that release every quarter as projects approach the end or more kind of towards the back end of the year? Henrik Andersen: I don't know if I'm commenting on something a new special way of doing. We do exactly what we've always done. If we have a project, we do a pre and post cal cap, when we get the final payment from the customer, we put it into our P&L. So therefore, I can't comment on what others are doing in contingencies or whatever. We run whatever we do when we have a project, as you would expect us to do, there's always something in a project where you have what if something goes wrong. And of course, that gets released when you also have the project completed. So, it's a quarter where Onshore execution has been and delivered this. And of course, even in this quarter in Power Solutions, we have also spent quite a lot of amount in ramping still and investing in the Offshore and Onshore ramp. So for us, this is a normal quarter. But I think you should read back to what I started saying by it is difficult to absorb our investments in ramp when you have a much lower turnover and top line as you saw in Q1 and Q2. That's what you should read into it. There is nothing else. Then it's just a clean execution and profitability, and that's also what we are looking in for the full year. Colin Moody: Well understood. And then maybe just a second question, if I could. On U.S. market trends, clearly, very strong U.S. orders intake year-to-date. Just thinking about the July safe harbor coming up in 2026. How do you think about order developments going forward? And am I right in thinking that you shouldn't necessarily expect a big peak or ramp ahead of that deadline. But actually, you could continue to see very strong order momentum even beyond 2026 into 2027 and beyond? Henrik Andersen: Yes. Thank you. As I said, it's always difficult to predict in individual quarters. You know my statistics in that, that has been relatively poor, as Claus Almer will remind me of. So I think here, we are also saying we take the orders we can get to. I think it's also fair saying we are pleased with what we are seeing. We are having a well-covered order backlog in the U.S. and people are building out and planning for building out. What is that based on? That's based on that the Wind also in the U.S. has a very attractive levelized cost of energy. It goes well in combining up against gas and others. So therefore, it's a build-out ROCE that we will continue to see in the U.S. also beyond whenever PTC is expiring or not. I think we will probably have had more orders if we haven't had some uncertainties around the tariff side. But outside that, no, we love getting close to our customers in the U.S. and keep developing that plan for the coming years. So, we're in a good state. I won't comment on when orders are coming because that's simply too difficult to predict. But don't forget, when we talk about tariffs, we have a very, very large local supply chain that has been there for more than 2 decades. And of course, that we are supported well for and customers can come and see both the sourcing of the components and supply chain into the U.S. factories, which gives a very comfort situation and confidence situation between us and customers in the U.S. Operator: The next question comes from the line of Claus Almer from Nordea. Claus Almer: First of all, congratulations with the solid Q3. I will not ask about orders, but about the tariffs. So, first of all, did tariffs in Q3 had an impact on the profitability in power? That would be the first one. Henrik Andersen: Yes, it will always have now because if you're paying and your sourcing and you're constructing, Claus, you can see the deliveries in the table we have in the interim report. So therefore, of course, part of that is already under influence of tariff. And of those, that is -- that will be fully booked under and also split in the ratio between customer and us. Claus Almer: So, it's the quote that you're expecting to be able to mitigate some of these effects. So, could you maybe quantify what was the headwind in Q3 that maybe will vanish over the coming quarters or years? Henrik Andersen: That goes a little tight in what we are sitting with. So, we have a P&L to optimize in and for our customers and that we do very well. We can't mitigate 100% of tariffs, because there is not an opportunity to be 100% local sourcing in the U.S. So therefore, there will be a tariff and they will come on either projects or components and therefore, be booked up against the projects when we execute on them. We don't have an interest in sharing that. Why is that? It's not a market for many. So therefore, we keep that execution with us and our customers. They understand what we are doing and they support what we are doing, and I think we are in the best possible way, trying to mitigate what we can mitigate, but mitigate all of it, not possible. Claus Almer: Fair enough. Then my second question, which is also tariffs. So, there's been some quotes out today from you, Jakob, that U.S. customers are holding back due to the tariff uncertainty, which also was mentioned on this call. I guess this is mainly the ongoing U.S.-China situation which may last for quite a while. So, is there any way that you can reduce this uncertainty and thereby unlocking some of these projects in the pipeline? Henrik Andersen: I will just say maybe Jakob better comment on his -- himself. We fully agree on that. Of course, as I also said to the previous one, we will probably have taken more if it wasn't for the tariff, and that's absolutely right. And there is also probably a continuing backlog sitting and waiting for clearance on a few of these things. So therefore, let's see what happens there. But as I said, I'm not trying to predict sort of macroeconomics and geopolitics these days, because it's simply not predictable. So therefore, we do what we do. Whenever there is clarity and whatever the offtake is there, there are also cases now where the offtake is so much in demand that you actually will execute on it, whether there is small, low or even high tariffs on it, because that's what you need to get to your electricity and your energy supply. So year-to-date, we have more than 2 gigawatt of orders and our U.S. team are doing a cracking job in doing that. So, we do what we can to support them, Claus. So I think here, really, really good progress. Claus Almer: There's no doubt on 1.8 gigawatts from the U.S. -- player from the U.S. was quite amazing in the quarter. That was all for me. Operator: The next question comes from the line of Ajay Patel from Goldman Sachs. Ajay Patel: A couple of questions, please. Firstly, on Offshore, we're largely through this year, I'm just thinking about the Offshore business where that has been hampered by a number of issues this year, fixed cost absorption, ramp-up cost, maybe lower margins on the contracts. And I'm thinking beyond because that's a sizeable proportion of the reflection on the profitability of Vestas. Is there any sort of guide you can give on the ramp-up costs this year so that we can have better modeling of how that profitability may turn? And then the second question I had was you're performing really well on the Onshore side. You can see the green shoots of Offshore turning around sizably. You talked to Service margins improving by the end of the Service plan. It looks like the significant profit improvement to happen over the next 2 to 3 years. I'm just thinking today's buyback. Can we infer that sizable amount of cash flow that buybacks will be very much part of that debate. And that really, we're really looking at a picture that's got returns of value as a sizable proportion of the investment case? Henrik Andersen: You're asking me quite a number of questions in the question. S,o, I will try to, sort of, we believe very much in our three business areas. Onshore, very mature, very well developed. And you can say the Onshore has been -- if I was an inside Vestas colleague has been paying a lot for some of the investments we have continued doing in the Offshore. We are absolutely convinced and we adamant that Offshore will be a really great business area, not only for Vestas, but for a few around and also for our customers. So, we are not being caught by the same, I call it, a bit the frustration or depression over Offshore. But the great days of Offshore in the P&L for Vestas will rightly so come when you look beyond the further ramp-up in terms of projects in '26. So therefore, second half '26 into '27, you're right, Offshore would start looking much more like what we're also seeing in the Offshore profitability. That comes together with that we are doing the right things in Service. So yes, you can definitely come into a higher EBIT margin when you do the future years. It's not why we are looking at a share buyback in an individual quarter. But I think it's a testament from the Board and also from management here to see, we feel confident of what we are doing and where we are and that confidence you need to see. Because if there's something we probably discussed in the last 4 quarters, which is, when did the business turn around, when was it, we were comfortable of the turnaround we have done? And is it working? And I think today, we can definitely say to people, this is the first sign of it's working and then, of course, everyone can do their predictions. The more cash we get available, the more we will probably redistribute back. Because the biggest part of the investment we needed to get done in Offshore is actually behind us. Operator: The next question comes from the line of Alex Jones from Bank of America. Alexander Jones: Great. Two, if I can. First, just to follow up on tariff costs. To what extent were those already hitting the P&L this quarter? Or are there still the sort of incremental increase in tariff costs ahead as you work through inventory imported before the various tariff measures were put in place? And then second question, if I can, on Offshore. And sorry if I missed it, but could you explain exactly what is happening at the Offshore sites either because of technology or because of your customers' demand that is driving additional costs in Service in Q4? Henrik Andersen: If I take the Offshore first, then I can leave the tariff a bit more on to Jakob. I think we've spoken about the tariff already. But on the Offshore, it is specific sites. It is where we are manning up. It is not related to our 236, and it's not related to the, sort of, back in Q3 and Q4 last year, where we had a component failure in one of the platforms. So, this is about that we have, what I would probably more call a hyper care in a couple of Offshore sites where we agreed that with the customer. And therefore, of course, we are also investing in that. So, that is in winter and a high season for Offshore is a way of also us saying we are investing with in also prioritizing cost here. So that's what we have done and that's what we are sort of pre-guiding you on for Q4. Jakob Wegge-Larsen: And on the question around tariffs, it is hitting our books right now. As Henrik also answered in the previous question, continue hitting in Q4. But what is important is, and that's what we're also saying with our narrowed guidance, we can keep that within the narrowed guidance and you will see doing the math that we have the same midpoint as we had basically since the beginning of the year. So in that sense, yes, it's in there, and it will continue to be in there. Operator: The next question comes from the line of Max Yates from Morgan Stanley. Max Yates: Just one question from me. Just on the Services business. Could you give us an update on how the turnaround program is going? Are customers kind of accepting the renegotiated terms? And I guess maybe if you could just help us with the kind of how long we will actually -- how long it will take to actually see this in numbers? I guess you're kind of operating in a 16% to 18% margin. I appreciate you won't want to give guidance to '26, but do we still see sort of '26 as a year where the groundwork is being laid for future margin improvement? Or do you really see it as we'll start to see some of the improvement is actually coming through in kind of growth and margins in the Service business as we go into 2026? Just trying to get a sense of -- so we don't anticipate it happening sooner than we actually see it in numbers. Henrik Andersen: Max, I'll really, really appreciate your comment in that way, because I couldn't agree with you more. This is a global business that has 159 gigawatt under Service. And we have more than 15,000 employees. So, when you do a reset and a turnaround of the business, it will take longer time. So, please don't start making things in 22% or 25% Service margin in '26. We have said it takes the 2 years. We are 5 quarters away from finishing this work, because it does take some time. I'm really pleased with where we are in the Service team and Christian Venderby, who heads it, have done a really good job. We know the details of what we are going through, but I think also as we are hinting here. When we looked and talked about this 2 or 3 quarters ago where we said we probably would foresee that we will have some flat gigawatt under Service, then surprisingly it didn't happen in the first 1 or 2 quarters. Now it does happen, because we are getting to some of the gigawatts where, as I think we also spoke about that, for instance, something like multi-brand, it doesn't make an awful lot of value for shareholders, and it doesn't make an awful lot of sense for us, unless we have customers that ask us specifically to do it more on a cost-plus basis. So therefore, you will see now that we're actually having a real firm grip of what is happening from quarter-to-quarter. So, we're in good momentum. We're in good momentum of addressing where we wanted to have a better operational environment. And then we have a good momentum and also talking to customers straight and that includes even escalations to me as well. So, we are actually pretty pleased of where we are with the commercial reset and we are not done with it. That will be wrong. But that's because you cannot fix that much in 1 or 2 quarters. But run rate up until third quarter is the run rate. I will say, and that's, for me, the middle of the road we are going with. Operator: The next question comes from the line of Lucas Ferhani from Jefferies. Lucas Ferhani: Just a follow-up on Offshore. When are you kind of booked out to? I know you said you have EUR 10 billion of projects in the backlog that kind of last you until 2027, even into 2028. And then, when you look at the kind of the recent failed auction in several countries in Europe, and maybe the AR7 in the U.K. that was maybe slightly below expectations. It depends on who you asked to, how do you feel about kind of the ability to kind of get those redone and then rebid and then the orders coming through to the turbine suppliers kind of roughly on time? Henrik Andersen: Yes. No, as I said, it's a good 10 gigawatt. We are sitting and muscling around. We have more PSAs, but there are also more PSAs in discussions. So, I'm not so worried about that. And then, when you look at the near term right now, we have a lot to do in the coming 3 to 4 years. So that is also the cycle of it. So, where you come from -- and I keep in currency stay -- don't compare. Compare, but don't compare between the backlog and the process we're running between Offshore and Onshore. Because Offshore processes are longer and therefore, not so nervous about that. If there's one thing that concerns me and I hinted that a bit here is that we, at least in Europe, where Offshore should be one of the biggest solutions to get our, I would call it, less energy dependence on friends outside Europe. We are 50% dependent on energy import and Offshore should be one of the things we scale faster. But it seems like every country in Europe choose to go through a failed auction before they get it right. And of course, that takes time. And we've seen a number of countries, including the Danish government went through, I think last year, but that also means now you have a CFD backed. And even with the CFDs that will significantly improve the Danish electricity price as well. So therefore, it works and it works across. So, we are not so nervous about that. And when we look at AR7 in the U.K., I can only give a praise. Maybe I will also have one of the ones that would like to have a bit larger budget committed. But on the other hand, the government and the Secretary of State, that knows a lot about, Ed Miliband. Yes, he has conditioned himself that he can take individual projects out and also potentially progress that. So, I think we got to work through this. And if somebody wants to characterize it as an Offshore crisis, I'm not in that category. So, I think it's a proven technology. It's a proven market access that works and therefore, now is the time to show leadership, both from developers and OEMs to get it built out. So, we are more positive on that. We see '25, '26 to some extent, I'm happy that we are doing what we are doing right now, because if we had more stress on the factories and the ramp-up, that would only -- that will actually only create more concerns at Vestas. So, we don't have that. So, we are comfortable executing on it. And what I'm probably most encouraged by is also our customers like the discussions and the detailed discussions we are having leading up to 2030 and even beyond. Lucas Ferhani: Perfect. And just a quick follow-up on tariff. I think most of what we are seeing and what has impacted you so far is more the section 232 on maybe steel or specific components. But there's also a probe that has been launched in the U.S. into Wind specifically. Can you talk about how do you understand that? I obviously see that there's not much information out there. But how do you look at that risk of what could come out of this probe? Henrik Andersen: I know and there is sections and there are EU tariffs and there are other tariffs that seems to be changing every quarter. So, we are basically taking the stand that we will deal with it as it's being thrown at us, and therefore, we are also dealing with this. Outcomes, I can't predict, but what we are both guiding for, for the rest of the year is what we know and what we are dealing with and therefore, it's priced in. And I think we are best doing and best served with doing that. Because otherwise, we have to start changing every time there is a change in legislation. It might be -- it goes up in tariff, it might be that it goes -- I think the last week, we've seen initiatives that seems to be maybe talking to tariff returning towards the zero again in some areas. But let's see. I don't comment on that because it's way outside my area where I can affect it. What we can affect is how we execute and how we deal with them. And that's where we have a fantastic team in the U.S. and North America that are absolutely on the details with that. Operator: The next question comes from the line of Henry Tarr from Berenberg. Henry Tarr: Congratulations again on a strong quarter. The first question is just around Onshore and Onshore margins into 2026. Clearly, that business is running very well today. As I look into next year, what are the key drivers, sort of, volumes look relatively stable, pricing seems to level out. How are you seeing, sort of, cost trends and mix? Do you think there's more -- a little more juice left in that onshore margin as you look out? Or are we already sort of performing as well as you can hope? Henrik Andersen: Thanks, Henry. I think, I don't know, juice left, maybe I should comment differently. I think on '26, we'll comment on the 5th of February. I've learned that lesson over the years. We do nothing in the Onshore business to try to make it run worse right now, and we're actually doing reasonably well. So, what we have seen here expect more of the same. If we can do more and we can get more, it's probably where we have more concurrent projects where we can avoid having change cost and other stuff in the Onshore. But I'm really just pleased with seeing what is happening in the Onshore. And of course, we don't do that. I think that's also only fair, because there are limited players. So there's no need for them to sit and read the P&L of individual business segments between Onshore and Offshore. Onshore really well, and we will see if we can do more of the same next year. And we will try very hard. Henry Tarr: Fair enough. And then, just on staying on the Onshore from an orders outlook. You sort of covered the U.S. How about the rest of the world as you look to Europe and so on? I know you sort of referenced in the materials that you see potential for high single-digit growth in Onshore wind, sort of, globally out to 2030. Are you still, sort of, happy with that view and you still see a lot of movement and activity in Onshore Wind in Europe as you look out over the next few years? Henrik Andersen: I think there are two reasons in Europe. I think some of the countries are leading the way. If you take Germany, if you take a couple of countries like Romania and others, I think they are leading the way and saying, this is how we can get more done and built. And I think, those countries are absolutely examples to follow. I think on the -- on top of that, I think it's getting more and more discussed in details how we can do a repowering in Europe which again speaks back to Wind was very much founded and invented out of Europe. And therefore, we also have an aging fleet and that, of course, opens up a European repowering that could be a real business opportunity for people like us. It could also be a huge business opportunity for the owners and the developers. And secondly, it's a fantastic way of increasing the energy production in Europe. So that -- there are two levers there. I will avoid -- I would avoid commenting on countries where they potentially haven't got it right. But let us say, we are very pleased with our Spanish colleagues and our factory in Spain. But I think on the permitting side and the flow of projects in Spain, there's probably still some outstanding to wish for. So therefore, in Europe, we see really positive underlying. And of course, Germany is one, if you -- if we spoke about it 3 years ago, Henry, we wouldn't have gotten to the number we see today. And that's thanks to both current and previous government in Germany. When it comes to Asia and Asia Pacific, a lot is being done. A lot of also is being considered. Some of the countries are a bit new on the block getting into that. But as I said, there's still some firm order intake to be shown from our colleagues in Asia Pacific. And then, in Latin America, similar, we have had Brazil that's probably gone very low in PPAs. And therefore, we'll see when Brazil returns to that. But we do have some good feelings around that also Latin America will start showing some strength again, because some of the data centers and others are moving into LatAm across. So, I think bit disappointed probably where we are year-to-date in Asia Pacific and LatAm, very encouraged by where we are in North America and in Europe. And that, I think, is a trend that we see continuing. Operator: The next question comes from the line of Casper Blom from Danske Bank. Casper Blom: A bit of another kind of question from my side. I think it's been close to 7 years since you launched the EnVentus turbine platform. And we now see that more and more of the orders you get in are for these larger 6, 7-megawatt Onshore turbines. At the same time, we've also seen you talk about stable pricing environment now for the last 3 years or so after that was this material price hike a few years ago. Is it fair to say that there is an opportunity from you guys, sort of, sticking to the current technology, keeping pricing flat, and then basically just having, how could you say operational efficiency from the fact that you have now gained very, very material experience in developing this turbine? And as a supplement, do you have any kind of plans of adding new platforms in the foreseeable future? Henrik Andersen: First of all, platform introductions never happened on an analyst call. So Casper, that's the first. The other thing is EnVentus, we are super pleased. And you can say that you're touching spot on. The more we ramp up and the more we get in the backlog, the better we become at it and that also goes for our supply chain. So, when I started extending a big thank you here, it also goes to our partners in the supply chain, because they help us getting some of those costs out. And I think today, from when we have been in an environment where inflation was very close to zero or even at par and then interest rate. Everyone have seen a cost inflationary which, of course, also for some projects have either potentially dangered the project for being built. Now it's also about getting and returning and getting it built, and therefore, cost out is absolutely name of the game for all of us. So that goes through the supply chain and it goes into our factories. And the more volume you have, the better you get at it. So, that's an overarching one. And I think you saw some of that. If you take the V163, 4.5 megawatts that are now selling across most of the world, but particularly in North America and in the U.S. That was developed as a probably an 80% component from a 4-megawatt platform. And that also means that we are running high cost-out programs on. So of course, that's a school and textbook example of how we want also to build the EnVentus. So, you're right, Casper. And I think some of it will be using to continue to improve our profitability. Some of it, we will definitely also let go back to the customer. So, we make sure that the projects are being built and not being stopped for not having attractive enough investments case with local governments. Casper Blom: If I may supplement. I think, if one goes back in time, there was sort of a general rule of thumb that pricing would come down by maybe 3% or 5% a year due to technological advantages and sharing this with customers. Isn't it then fair to assume that, when -- as long as you can stick to current pricing and you continue to get better, then it's in favor of your margin? Or is that too simple? Henrik Andersen: I think, it's maybe a bit from an industrial company of nearly EUR 20 billion and maybe it is a little simplified. But I will say here, now you bring 5% in as a price reduction and other stuff. I think, we are now back at a profitable area for Vestas. So, it's not this morning, we got up and said, now we need to lower prices. As I said, we like the commercial discipline. We need to make money. If we don't make money, we don't invest in the technology for the future either. So therefore, it's a combination. But as I said here, we will share it in a reasonable ratio with our partners and customers. Come on, there's nothing better than having a signature and winning a business with a customer. So therefore, that's the prime target, and that pays for the rest. So therefore, Casper, what you've seen today is we can now definitely say and prove that we are out of the dark days of '22. And I think that's really what we want to say to both you and the rest of the market with what we are doing today. Operator: The next question comes from the line of Deepa Venkateswaran from Bernstein. Deepa Venkateswaran: I had two questions. So Henrik, I wanted to pick up on something that you mentioned, which probably is not something a lot of investors focus on, which is your CapEx. So this year, you're spending over 6% of revenues on CapEx. You've also said that your big investment program in Offshore is nearly done. So, on an ongoing basis, particularly given cash is king and can be buybacks in the future, what is a more reasonable level of CapEx for your business going forward, either absolute or percentage of revenues, of course, assuming no big investments and further platforms, right? So that was my first question. And secondly, I think on demand, particularly in the U.S. there's a lot of hype about demand from AI. People want to be building a gigawatt a week and so on. So, what are you sensing in terms of the opportunity for Vestas to kind of capture and what are you hearing from your customers on the impact from this new AI demand? Henrik Andersen: First of all, a gigawatt a week, then I will not get much sleep, that's for sure. Deepa Venkateswaran: Maybe that was global. Henrik Andersen: Okay. But as I said here, the reality is real. And that's maybe the way to prevent it. In AI terms, the reality is real. It's happening, and the electricity demand is going up. Then we can always discuss sometimes is the demand and supply out of sync. Then of course, it only gives one thing, which is an underlying increase of electricity prices, which unfortunately, you are seeing in part of the U.S. And I think, for that matter, will come to Europe as well. So I think there's something in this AI where we as said, we are part of the underlying base load. So therefore, we are the ones that has to build part of the baseload together with many others. So therefore, energy in demand is definitely it. And I think if we look at a country that normally does very long-term planning, namely China, you can see how they have built out energy sources in the last 3, 4 years. And namely, last year, they build as much renewable. They build as much coal. They build as much some of the nuclear as the rest of the world did together. So, somebody is taking bigger upfront decisions than probably the rest of the world are doing. And so for me, as a pretty fact-based person, I like to see that we take some of these decisions may be a bit quicker, and that also goes for the U.S. So U.S. are in a demand for energy and electricity. And therefore, we will continue to see that build out and Wind is part of it. Maybe we should call it something else than wind, but it actually is with a low LCOE, and it does local manufacturing, and therefore, it's supporting U.S. in its energy supply. So that's really. On the CapEx side, don't underestimate, there will still be tools and there will still be factories and other stuff that from time to time will affect the CapEx. But I think Jakob is nodding that when we look at EUR 1.2 billion, that's probably a bit where we spent quite a lot this year. But if a factory or other footprint comes in, that will then variate and deviate to the theme. But as we said all along, it should be start going slightly lower, but we won't give a guidance for it until we are in February for the coming year. And then, as you can see, we are not nervous for actually using the cash to buybacks. Because if we're not forced to invest more, then actually buying our own shares is with a pretty good return on the multiples we are seeing. Could we have the last question, Operator? Operator: So the next question comes from the line of Martin Wilkie from Citi. Martin Wilkie: Just a follow-up to that question on data center. When we look at some of the hyperscalers and where they're signing renewable PPAs. A lot of it seems to be in Latin America and Europe and actually not very much in the U.S. And when you look at the outlook and potential for data center orders, is that how you see it as well that they're actually more realistic in those regions? Or is there actually sort of pent-up demand opportunity in North America, where obviously, the volume of data center is probably a lot higher. Just to understand regionally how we could think about that. Henrik Andersen: Martin, I will say, I don't think so. I think, when you see other continents like Europe and Latin America wanted to announce data centers, I think it's actually because they want to have a bite of the party. I think the two main places to have these data centers will be China and the U.S. That's where the AI balancing act is happening. We are behind in Europe. So, if we get a data center somewhere in Europe and we are building it, yes, sure. We will applaud it. But I think the underlying is that U.S., but they are probably not just announcing it to the same extent as you are seeing. Because as much as you see the demand and supply, the demand side is right now higher than the supply side of possible build-outs. And that's probably why you're seeing less of those announcements in the U.S. But working for an American bank, I'm pretty sure you will know a lot of what goes on in the U.S. as well. So thanks, Martin. Martin Wilkie: Can I just have one unrelated follow-up just on Service. And obviously, you talked about these costs in the fourth quarter. But just to clarify, these will be effectively a onetime hit in the fourth quarter. And obviously in the past when you have percentage of completion, then you can amortize these costs over the life of service contracts, but we shouldn't read anything into the revised outlook for the fourth quarter in terms of what it could mean for '26. And I know you're not guiding '26 yet, but just so we can understand that these costs should be contained in the fourth quarter? Henrik Andersen: You're absolutely right. It should be contained in fourth quarter, and we don't intend that, and that also sits outside any POC for the service contracts in Offshore. So you're absolutely right -- assumption is right, Martin. Okay. With that, thank you so much. Thank you for listening in. Thank you for all your interest and the question. Really look forward to meet many of you over the coming days. And therefore, thanks again year-to-date, and see you soon.
Operator: Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q3 2025 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on November 5, 2025. And I now would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead, sir. Geoff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our third quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to Slide 2 for a disclaimer regarding the use of forward-looking statements, which form part of this morning's remarks and Slide 3 for a note on the use of non-GAAP financial measures and other terms used in this presentation. To discuss the results today, I have with me our CEO, Charles Brindamour; our CFO, Ken Anderson, Patrick Barbeau, our Chief Operating Officer; and Guillaume Lamy, Senior Vice President, Personal Lines. We will begin with prepared remarks followed by Q&A. And with that, I will turn the call over to Charles. Charles Brindamour: Well, good morning, everyone. Thank you for joining us today. I'm very pleased with the quarterly results we reported yesterday evening. Net operating income per share of $4.46 was the result of strong underwriting performance across all geographies and lines of business. Top line growth increased 6% in the quarter, while we delivered another sub-90 combined ratio. This highlights our ability to grow, while not compromising our margins. Our operating ROE is outperforming across all regions and has improved in the last year by 4 points to 20%. The industry environment is constructive in every market where we operate. We're gaining market share in personal lines. In commercial and specialty lines, we benefit from being predominantly exposed to the SME and mid-market space. In large accounts where we continue to see elevated competition our sophistication in pricing and risk selection as well as more than 20 specialty verticals enable us to choose where we play. This environment really plays to our strengths. The quality of this quarter's performance gives me a lot of confidence about the future, whether it's next quarter, next year or next decade. Now let me provide some color on the results and outlook by line of business, starting with Canada. In Canada, our business is firing on all cylinders. Our outperformance has never been stronger. We closed 2 points on growth and 10 points on combined ratio. And keep in mind, this is 2/3 of our business globally. Personal auto premiums grew 11% in the quarter, including a 3% increase in units. As profitability for the industry remains challenged, we expect hard market conditions to persist. Our underlying loss ratio improved 1.6 points year-over-year, contributing to an overall combined ratio of 91.5%, this is a strong result. We're positioned to continue to deliver a sub-95 combined ratio, in line with our objective. Moving to personal property. Premium growth was 10% in the quarter, supported by a 2% increase in units. Given the elevated level of weather and climate-related claims over the past few years, we expect current hard market conditions to persist. The combined ratio was healthy at 92.4% and we're well positioned to maintain a sub-95% combined ratio even with severe weather. Overall, in Personal Lines, which is nearly half of our business, we continue to see industry growth in the high single-digit to low double-digit range over the next 12 months. With strong absolute and relative performance in the first half of the year, we're really well placed to sustain growth and combined ratios going forward. In Commercial Lines, premium growth increased to 3% in the quarter, a clear sign that our growth initiatives are gaining traction. We see overall market conditions as constructed with industry premium growth in the mid-single-digit range over the next 12 months. With 85% of our business in SME and mid-market where pricing is favorable, there's significant opportunity for us to further improve top line growth. That's in addition to our ability to choose where we grow for large accounts and in specialty lines. Profitability remains very strong with a combined ratio of 82.8%, reflecting continued underwriting discipline, emerging AI benefits and prudent reserving. We remain well positioned to deliver a low 90s or better combined ratio going forward. Moving now to our UK&I business. Premium in the quarter were 5% lower year-over-year. Remediation efforts within the DLG portfolio continue to temper top line growth by driving improvement in the combined ratio. As remediation tapers off towards the end of '25, I expect growth to move in positive territory. Our teams in the U.K. are focused on integrating our products, raising the bar on service and expanding our distribution relationships. The fruits of their efforts will become more visible in the new year. When it comes to the industry, we see premium growth in the U.K. in the low to mid-single-digit range over the next 12 months. The combined ratio of 95.5% was solid as it included 3 points of excess cash. Our pricing and risk selection actions are gaining traction and we remain focused on evolving our UK&I combined ratio towards 90% by the end of '26. In the U.S. premiums were up 8% year-over-year with our growth initiatives leading to higher new business and improved retention. And this growth is driven by our strategy to grow in our most profitable lines. Indeed, the fastest-growing segments or those that grew by more than 20% are the ones that have sustainable low 80s combined ratio. That's the beauty of specialty lines. You can choose where you grow, regardless of the environment in which you operate. In the U.S., we see industry premium growth in the mid-single digits over the next 12 months. The combined ratio of 83.6% in the quarter improved by 4 points year-over-year. Our steady deployment of predictive models and pricing and underwriting allows us to grow, while not compromising our margin. This was the ninth quarter in a row with a sub-90% combined issue, and the business is built to maintain this performance going forward. Our team also continued to execute on our strategic priorities in the quarter. Let me highlight a few achievements. In the overall Specialty Lines, our team is making good progress on our growth agenda. We're both expanding our distribution footprint and deepening our existing broker relationships. Additionally, our teams are collaborating to export product expertise and verticals across geographies. On the back of our technology and entertainment products having successfully grown in Canada from the U.S., we've recently added Life Sciences in Canada. There are many of these growth opportunities that we're pursuing: Marine; renewable energy; surety; and trade credit are all examples across-border opportunities that we've launched or are working on. The sandbox we play is 10x larger than it was a decade ago. There's a lot of opportunities for growth. The investments we've made in AI over the past decade are currently generating more than $150 million in annual recurring benefits. We've accomplished this primarily from optimizing our pricing, risk selection and how we leverage data. Recently, we completed the rollout of our third-generation machine learning models and personal property and commercial fee. Our AI investments are also helping us to grow our top line faster. The recent expansion of our underwriting adviser from Canadian Commercial into one of our specialty lines has already resulted in our ability to quote 20% more than before due to faster data ingestion and processing. We expect this level to significantly increase over time. This quarter, we officially rebranded RSA, NIG and FarmWeb to Intact Insurance across the U.K., Ireland and Europe. This unites our global operations under one brand, a significant milestone for Intact 15 years after its birth. The reaction of brokers, partners and employees across our markets was exceptional. And so when combined with raising the bar on service, broadening our product range, and expanding our distribution relationships, this will drive profitable commercial growth and support our ambition of becoming the leading commercial and specialty lines insurer in the U.K. Our most recent employee engagement survey has again placed our Canadian and U.S. businesses as best employers for the tenth and seventh year in a row with, respectively. We've also made huge gains in the U.K. and Europe, placing in the top quartile of employers within short distance of best employer status. No doubt, this is where our teams are going in both U.K. and Europe. Engaged employees are crucial to delivering superior experiences for our customers and brokers. The strong performance we're posting again this quarter is a result of their contributions. And I want to thank all of our employees for that. I also want to highlight the tremendous efforts our people have made supporting communities in Atlantic Canada that were impacted by wildfires this quarter. It really was impressive to watch many regions mobilize together, including our teams at on-site. Intact's responsiveness is a demonstration of our values being put into action and the strong employee engagement we foster as an organization. The engines driving our outperformance have never been better. Operating ROE has clearly shifted into a higher zone and has been above 16% for the past 4 quarters. We view this shift as sustainable as it is underpinned by our competitive advantages in pricing, risk action and claims, but it's also supported by our mix shift towards commercial and specialty lines and our growth in distribution, coupled with very strong capital management. As we look ahead, we're well positioned to achieve both our key financial objectives of outperforming the industry ROE by at least 500 basis points every year, but also delivering NOIPS growth of 10% annually. On that, I'll turn the call over to our CFO, Ken Anderson. Kenneth Anderson: Thanks, Charles, and good morning, everyone. This quarter again underscored the earnings power of our business. Net operating income per share for the third quarter reached $4.46, which was $3.45 higher than last year, both our top line growth and our bottom line underwriting performance were strong. We delivered double-digit earnings growth in our distribution business and our investment portfolio continued to provide healthy and consistent returns. Our operating ROE at 20% highlights our ability to successfully navigate market cycles and continue to compound earnings growth. Let me add some color on the third quarter results. We reported a strong underlying loss ratio of 54%, 1 point better than last year, with improvement in all regions and lines of business. This is a testament to our rigorous focus on growing our competitive advantages in pricing, risk selection and claims. Catastrophes in the quarter totaled $394 million, primarily due to the wildfires in Newfoundland, weather events in Canada and some large commercial fires in both the U.S. and the UK&I. While this quarter wasn't as heavily impacted as last year, catastrophe losses were broadly in line with third quarter expectations. Favorable prior year development was solid at 5.2% in the quarter. This aligns with our near-term expectation of being around the upper end of the 2% to 4% range and continues to reflect prudent reserving across all segments. The consolidated expense ratio was 34.2% for the quarter, a 1.7 point increase versus last year. This was largely driven by increases in variable broker commissions and employee incentive compensation, reflecting our improved profitability and increased outperformance versus the industry. Overall, the year-to-date expense ratio at 34% remains in line with full year expectations. Operating net investment income increased 2% to $402 million in the quarter. This reflected higher invested assets. Our reinvestment yields are broadly in line with book yields and we remain on track to deliver approximately $1.6 billion of net investment income for the full year. Distribution income continues to grow at a healthy pace, increasing 11% to $147 million. This reflected higher variable commissions as well as the benefits from our continued capital deployment. On that note, I'm proud to highlight that BrokerLink outpaced its year-end goal by reaching $5 billion in annual premiums during the third quarter. With over 200 locations nationwide, BrokerLink continues to build scale and distribution through both organic and inorganic growth in personal and commercial lines. This positions us to grow distribution income by 10% on an annual basis. Nonoperating gains totaled $83 million in the quarter, and our ROE increased to 17.3% in the 12 months to September 30. This fueled a 5% sequential growth and a 14% year-over-year growth in our book value per share to $103.16. Over the last decade, our book value per share has compounded at an annualized rate of 11%. Our financial position continues to be strong with total capital margin of $3.3 billion and solid regulatory capital ratios in all jurisdictions. Our capital management framework is robust. We have positioned our balance sheet to deal with any external shocks that may arise, while also maintaining significant capacity to capture growth opportunities. Our profitability profile means capital generation is also very strong, and this will continue to provide fuel for M&A, be it distribution or manufacturing. Given the level of capital generation, we will utilize our open share buyback program opportunistically when we see our shares are significantly undervalued. This past quarter, we deployed $145 million to repurchase 535,000 shares. Even after these repurchases, our debt-to-capital ratio was 17.9%, well below our 20% target. We're positioned to continue to pursue inorganic growth opportunities. In conclusion, Charles mentioned that our operating ROE has moved into a higher zone. This will support us maintaining or even beating our impressive track record of 650 basis points of annual ROE outperformance over the past decade. It will also support our delivery on our other key financial objectives to compound net operating income per share growth by 10% annually over time and the pillars of NOIPS growth are strong. Our top line initiatives across personal, commercial and specialty lines platforms are gaining traction. We continue to invest in our competitive advantages in data, AI and claims, and this will drive further margin expansion. And strong capital generation will continue to provide fuel for growth opportunities. We are in a great position to deliver on both financial objectives for our stakeholders in the years ahead. With that, I'll give it back to Geoff. Geoff Kwan: [Operator Instructions] So Sylvie, we're ready to take questions now. Operator: [Operator Instructions] First, we will hear from Bart Dziarski at RBC Capital Markets. Bart Dziarski: I wanted to ask around the core loss ratio. So I'm thinking current accident year plus PYD, it's come in really strong. It's sub-49%. And when I look at the LTM kind of run rate, like there's been sequential improvement in that number for 8 quarters running. So wondering sort of at the top of that, what are some of the key drivers there in terms of that strong performance? And then how are you thinking about the sustainability of that? Charles Brindamour: Yes. So broadly speaking, because I think your question is on the overall performance. I think the first order of business, Bart, for us is to make sure that we stay on top of inflation. We do that in -- we're very focused on that and tend to move before the market moves. Second, Ken talked about the ROE outperformance track record. This is not something we take for granted. And at all times, we have multiple initiatives to expand the outperformance. And that goes straight to the underlying loss ratio, whether it is AI, whether it is in-sourcing, claims management and so on. And so that feeds straight into that in my mind. Thirdly, it is about footprint. And so we have a sophisticated view of where margins are beyond cost of capital. We equip the field with that affirmation and our growth is over-indexed towards areas where we feel that we're more than well rewarded for the risk. And I'd say, Bart, this is the sum of those 3 things that lead us to see an improvement in the underlying performance. It's not even across the board. But certainly a very deliberate game plan to continue to grind out performance and hopefully, absolutely important. And on the footprint point, I want to point out that if you look at the shift in mix of business over the past 5, 6 years, there is a bigger portion of our business that is in a sustainable low 90s, sub-90 zone than it was before. So when you look at our overall performance in aggregate, the growth in those segments will also lead to an overall improvement in performance. Bart Dziarski: Great. That's very helpful. And then just one other one for me is we're hearing lots on this sort of AI infrastructure thematic around the required CapEx that's needed. Is there an opportunity for insurance to play a role here? Like could you guys -- could this be a new source of sort of premium growth opportunities as we see the build-out in other sectors? Charles Brindamour: Yes. It is, and it's primarily true our specialty lines segment in the construction and engineering segments, in particular. There are opportunities in the energy segments. We have very strong verticals, whether it's traditional or renewable energy. And our teams in those verticals are focused on finding opportunities where we feel that we can achieve strong performance, and that's clearly an area of growth. Operator: Next question will be from Doug Young at Desjardins Capital Markets. Doug Young: Wanted to dig a little bit into the pricing cycle and the deacceleration that we're kind of seeing. And I get your comments around commercial and that you're more SME focused and personal is hardening. Hoping to dig a little bit further into what you're seeing, why is this time potentially different? And I know it's been a long time since we've seen a turn in the cycle, but why would it be different this time around versus the last time? And I guess, specifically on the personal side, we're seeing softening in the U.S., and I know the U.S. market is very different than Canada on the personal property and auto. But why wouldn't we start to see some softening after many years of really hardening pricing in personal auto and personal property. So I know it's a big question. I know there's lots in there, and I promise this will be my only question, but I was just hoping to get a little more detail. Charles Brindamour: Yes, sure. Let's see how we take your four questions. Seriously, I think we're not seeing this cycle in commercial lines will be different than previous cycles. I mean all cycles are different. But Doug, you've been following our story for a long time. You know that we're pretty stable throughout cycles actually, and that includes in commercial lines. And I don't see this being very different this time around, just to put things in perspective. And I think we're highlighting that more than 70% globally of our portfolio in CL NSL is in the SME and mid-market space. It tends to be a more stable space, and that's an advantage we have as a firm, not just because of the cycle, but because the law of large numbers works in the small, midsized business. And therefore, our pricing acumen can be put to work. That makes it even better to navigate those cycles. We've been flagging for well over a year that large accounts -- initially, we said cyber and financial lines were softer. And that's been true for the last year, 1.5 years, we've seen earlier this year an acceleration in large property schedule that is still true. It hasn't changed this quarter, but it certainly took place this spring and we're just watching where that's going. But it's really happening more at the tough end of the market in larger accounts than at the bottom end of the market. And so our job here is to basically make sure that we grow in the SME and mid-market space where conditions are quite constructive and then use our toolbox in pricing risk selection, our broad product range that we can export from market to market to basically find ways to grow even in large accounts, where I think we've got an excellent value proposition compared to many of our competitors. So we're not calling a different cycle or this time, it will be different. The difference between now and, say, 10, 15 years ago, is we have way more tools to navigate the environment in which we operate. With regards to PL, which is in a whole different zone in a hard market. I'll ask Guillaume to give a perspective on the market. But I think your question is also about why is it different? Or is it different than what's happening in the U.S. We think it is. So go ahead, Guillaume. Guillaume Lamy: Yes. So in personal auto, yes, there's been lots of rates. But when we look at the industry, it remains unprofitable with a combined ratio above 100%, both last year and this year. So the industry needs to take -- continue to take rates. So we expect our market conditions to persist and our growth momentum to flow into '26. As we pointed out, it's a contrast with the U.S. where the industry has reached profitability with key player posting pretty strong year-to-date results. We need to understand there's key differences between Canadian and U.S. market and personal auto. So Canada product is more heavily weighted towards liability coverage, so the cost equation is quite different. Secondly, regulatory framework in Canada and the U.S. are different with Canada generally being more stringent. So both those factors are driving very different competitive dynamics. Maybe coming back to Canada, we're really at that point in the cycle where we're outperforming on both top line and bottom line, and that's currently true in every region. So our growth was in the double digit for the 8 quarters in a row at 11%. That's fueled by 3 points of unit growth, an increase over Q2. And really, every metric is painting a positive picture. Retention is the highest it's been in 2 years. Quotes are up double digit from increased marketing investments. Our competitive position is improving with competitors still catching up. So the net result is that our new business sales are up 15% year-over-year. Think you were also touching on personal property. We do expect hard market conditions to persist in property as the industry is pricing in the weather trends. So despite 2025 being a milder year so far, CAT activity was well in excess of expectations in the last 2 years. So when it comes to pricing, CATs are expected to be volatile from one year to the next, and it's crucial to look at really deeper and longer-term trends. So the market in Canada is behaving quite rationally. So we expect industry to continue to reflect those long-term trends in pricing and the market to remain constructive even if we were to have a few good CAT years in a row. So here again, I'd say both our absolute and relative performance is strong, and we maintain a positive outlook on this product. Charles Brindamour: And Doug, if we go back to Bart's earlier question, which is how do you grind an improvement here. The first thing I said was to stay on top of inflation. And I think in first line, let alone that were on third-generation machine learning models in the field, us dealing with inflation, both from a pricing and a supply chain management has made a huge difference here. And I'll take you back just 2 years, where we shrank our units in personal automobile by 0.5%, thinking that the industry was not seeing the inflation that was coming. Fast forward today, outperformance, massive in personal lines. From a bottom line point of view, we're making the most from a top line point of view in this environment. And I think it really plays to our strength and kudos to Guillaume and his team to have navigated this so well. Operator: Question will be from Jaeme Gloyn at National Bank Capital Markets. Jaeme Gloyn: First question related to Canada Commercial Lines and the commentary that some of the growth initiatives are starting to take hold, but growth at 3% is still below the industry. And so I look at some of the commentary in the MD&A around AI and machine learning and the new broker platform. Is the view that these new initiatives, which are maybe gaining traction now will allow Intact to outperform the mid-single-digit industry growth rate that you're expecting? Charles Brindamour: I think nearly all these initiatives help us outperform from a bottom line point of view by a big margin. I'd say one portion of the headwind is mixed. If you look at our growth in commercial lines in Canada, 3% in Q3, you -- right there, you had a point drag of mix, and this has fluctuated this year between 1 and 3 points, and it's a function of uneven competition across the board. So I -- look, I'm -- we're not forecasting outperformance on growth on a 12-month horizon compared to the industry. But we have lots in the toolbox to generate more growth without compromising margins, just leveraging specialty lines across our distribution channel, it's one of those initiatives. The other one is we're in the process of deploying our technology, the broadest technology from a product and from a transaction point of view, to brokers in the field in addition to working on the funnel, which shows that we're also growing in units at the moment. It's hard to tell whether it will outperform from a growth point of view, the Canadian industry. I don't know, Ken, do you have anything additional you want to... Kenneth Anderson: Just to add a bit of context, I guess, at an industry level, when we look at MSA, the data at Q2, we have seen at an industry level growth tempering in the second quarter relative to the first quarter in commercial P&C. I think that's in line with the large account pressure at an industry level. At the same time, we've moved the 3% growth from a 1% growth in -- from Q2 to Q3. And that's where our trajectory is moving in a different direction to the industry overall. And that's what we've observed at the second quarter. Charles Brindamour: Purely. And we're using all the tools we have in the toolbox. We don't do that at the expense of margin. Jaeme Gloyn: Okay. Understood. And then in the U.S., obviously, a good result, up 8%, and it sounds like there are certain segments that are really driving that growth at plus 20%. Can you give us a little bit more color as to what segments those are that are driving that extra or excess growth rates? And then in terms of winning new business, what are some of the factors that are allowing Intact to win that new business? Is it just new products? Or is it something else within existing lines? Charles Brindamour: I think in the U.S., we have a very good business. It's outperforming, but it's small in relationship with the opportunities that exist in this market. And so distribution management is one big lever of growth. Investing in the lines that are most profitable is another big lever of growth, whether it's people or technology. In a number of our segments, we're adding products and that is making a difference. We're big push on, for instance, cargo in our marine units. And there's lots of levers we're pulling at the moment to make sure that we're capturing the growth opportunities that exist in this market. Patrick, do you want to highlight maybe some of the areas of growth in the U.S.? Patrick Barbeau: Yes. And it will also highlight what you were describing, Charles, earlier on how the mix in specialty in particular, help us with the bottom line. But if you take the top 3 or 4 lines that are growing the fastest right now in the U.S., and examples of that would be Surety, Cyber and some of the Accident and Health. Overall, that's about 40% of the book of business. It's growing north of 20% in the quarter, and it has produced a combined ratio in the 80% to 82% range over the past 3 years on average. So good for momentum on growth, while also sustaining very good profitability on the book overall due to mix change. Jaeme Gloyn: And just on how you're winning new business is -- just a quick comment on that. Charles Brindamour: Yes. How we're winning new business? First is we're expanding the reach to the number of brokers we're dealing with. Second, we're leveraging more verticals for brokers within their operation. Third, we're adding products on the shelves. And fourth, we've also bought a number of MGAs and you know, we're interested in deploying capital in the U.S., and that expands, so to speak, the shelf on which we can put our products. And that's really how we're winning new business in the U.S. Operator: Next question comes from John Aiken at Jefferies. John Aiken: I just wanted to drill down a little bit more on the U.S. If you take a look at the reported claims ratio, where the underlying current year loss ratio for the quarter exceptional. And I get the commentary that you're talking about product mix. But was there anything unusual that was driving the lower combined claims ratio this quarter. I guess the flip to that is, how sustainable is this moving forward in terms of do you think that you're going to be able to continue to outpace growth in these higher profitable lines? Charles Brindamour: Well, that's certainly the plan, but let's just keep in mind that when growth was a little more tepid in the U.S., it's because we were into meaningful remediation efforts. And as I said last quarter, I expected that the tempering effect of this remediation would slow down in the second half of this year, and that's what we're seeing in Q3, and I expect that to continue into next year. Remediation to keep in mind, is something that you continually should do, but sometimes there's more than others. And I think in the last year, 1.5 years, there was, and therefore, we're seeing now the potential of the business emerge more peerie without that noise. John Aiken: And when we talk about remediation, are you as excited about the prospects with remediation flowing off in the U.K. as what we saw this quarter in the U.S.? Charles Brindamour: Yes. I think the U.K. is a different ball game from the perspective that we're integrating the NIG portfolio, which we've acquired in '24 and what it means in practice is we're trying to improve its performance, which we have. We're bringing segmentation as well. And I do expect that the impact of the integration, which is almost a full 5 points this quarter will taper off as we enter into 2026 and towards the end of this year and as we enter into 2026. In the U.K., we're investing massively in technology in our regional presence. We're broadening our footprint. And I do expect that this will be a growth engine for us over time. But it's a meaningful transformation at the moment. Operator: Next question will be from Paul Holden at CIBC. Paul Holden: Maybe sort of a follow-up to that, Charles, on the U.K. business. So some good color around the DLG integration. Maybe you can talk about the business ex the DLG and how that's growing and the profitability there. Charles Brindamour: So the business ex DLG is doing well, I would say the area that's still in remediation in the U.K. is what we call the delegated authority business where we're shrinking that footprint a bit to make sure that it's our price, our product and our claims that we're using for the greatest extent possible in that segment of the market. That is creating a bit of a drag. Otherwise, the rest of the business would be in the low single-digit range. And we haven't really seen the impact of expanded distribution. That takes a while and I'm confident we'll start seeing that in 2026. And we haven't really seen the full impact of broadening our product range specialties, in particular, across a much broader distribution channel in the U.K. than we had before the NIG transaction. In the U.K., if I take you back 3, 4 years, RSA was focused on tens of brokers. Only the NIG integration, we're dealing with over 1,000 brokers. We're deepening the relationship by about 100 brokers a year. Anyway, this year, the idea is to deepen the relationship with 100 brokers with whom we didn't have a deep relationship before. You just get a sense of the scale of opportunity that this can bring. And you layer over that, a broader range of products, whether it is distributing marine, financial lines, et cetera, across those distributions. So there's a fair bit of upside there. I don't know, Patrick, if there's anything you want to add. Patrick Barbeau: No. There's some good momentum also in specialty lines and the combination of the DLG and the existing RSA products, to your point, as we get into Q4 and early Q1 will also expand the offer through the broker. So RSA getting -- RSA broker getting some of the offers that were only offered by DLG and vice versa. Paul Holden: And I guess the second part of that question was also with respect to margin. So if you suggest the DLG is roughly a 5-point drag on margin. It suggests you're getting your low 90s in that RSA book. Correct? Charles Brindamour: Ken? Kenneth Anderson: Well, yes, I think if you look at the quarter performance at 95.5%, firstly, you would -- there's 3 points of excess CAT losses in their 8 points of CATs in the quarter. So if you strip out the 3, I think you're back to a low 90s performance, which right now, that's where we would expect to be. I think the continued -- if that remediation tapers off, it will start to earn through into '26 and '27 and that's the further improvement that you'll see emerging in the, if you like, underlying combined ratio for the UK&I over the next 12 to 18 months. Paul Holden: Got it. And then the second question for me is just going back to Canada and personal auto. So good growth in written insured risks. It seems like you are building some momentum there. We can see it quarter-over-quarter-over-quarter. What should we expect over the next few quarters? Like it's my impression is you're saying competitors are still catching up to where you are on pricing. So that would suggest, if anything -- and you seem to like the margins. So if anything, maybe we can assume that written insured risk growth accelerates from here? Is that a reasonable expectation? Guillaume Lamy: Yes. So I think when we look at personal auto and our rates, inflation is stabilizing in the mid-single digit. Our rates are also stabilizing, I would say, just below 7% and we expect to stay in that range in the foreseeable future. As we're pricing for the inflation that we're observing. So when you look at the industry that still has some catch-up to do, I think we're very comfortable in our competitive position. We've seen that improve. We're seeing our retention improve. So we expect to stay in kind of market share growth going forward. So will it keep increasing from 3%? I think time will tell, but we're certainly expecting the current momentum to continue into the next 12 months. Charles Brindamour: Yes. And I think, Paul, the direct channel, the digital channel, these are all levers that we're pushing really hard in this environment. Nothing to do with rates, everything to do with building on those margins to gain market share where we can. Operator: Next question will be from Tom MacKinnon at BMO Capital Markets. Tom MacKinnon: Charles, when we look back at your Investor Day, you talked about how you could accelerate your NOIPS growth without any strategic capital deployment, and that was 2%. NOIPS CAGR and with DJ Capital deployment, we get up to 4%. But what's interesting is sort of without any M&A, it would have just been 1% through distribution income, which I assume just augmenting that with some bolt-on distribution acquisitions, smaller ones. And then it also said 1% through share buyback capacity. The last 10 years, you added 1% growth to NOIPS through share buybacks. If I annualize what you did in the quarter, 0.3% of your shares you bought back in the quarter, so that's over 1% annualized right there. Is this sort of the base case? Or should we sort of think about, hey, if you don't see anything major on the M&A front? That a 1% share buyback that you've demonstrated in this quarter would kind of be -- I mean, it seems to be consistent with what you laid out in your Investor Day earlier this year and consistent with what you've done in the past. So any comments around that? Charles Brindamour: Thanks, Tom. I'll ask Ken maybe to share some perspective on that. Kenneth Anderson: Yes. Well, I would say, firstly, Tom, in relation to the capital deployment component of the NOIPS growth compounding ambition. When it comes to distribution, yes, certainly, we feel with regular ongoing distribution capital deployment that will generate 1 point. I would say in an adverse if you like, scenario where we didn't do M&A, that was the scenario where we were just, I think, demonstrating that share buybacks are a tool in the toolbox to deliver a 1% NOIPS growth. But to be clear, that's been a scenario where there are no M&A opportunities. And that's not the scenario we're in today, to be clear. The earnings power and earnings growth is really strong. I think what we did this quarter was we're opportunistic in deploying $145 million to buy back a little over 0.5 million shares. But you will have seen that the capital margin has grown from $3.1 billion to $3.3 billion. The debt-to-capital ratio has come down. The dry powder has increased in the quarter in terms of what's available to deploy on M&A opportunities. And it's in that context that we're very happy to have the dry powder that we do. Charles Brindamour: Yes. And I think the point I made at the Investors Day was that the denominator is much bigger than it was a decade ago. So we proved to ourselves that we have the earnings power to grow at that clip prospectively. I think the point we made is, organically, we get in the zone. But then when you look at capital deployment opportunities, we would comfortably, we think, be north of 10%. And so when you look at the landscape from an M&A point of view, the first thing that matters to us as a firm is where do you outperform. And frankly, today, we outperform everywhere we operate. What therefore means that the sandbox for capital deployment is 10x bigger than what it was a decade ago. And within that, there are manufacturing opportunities in Canada, global specialty lines and in the U.K. and our distribution investment opportunities, in particular, in North America. And so for me, the M&A landscape is actually quite good. The sandbox is much bigger. But timing matters. We have very clear financial objectives, and that drives timing for us. Operator: Next question will be from Mario Mendonca at TD Securities. Mario Mendonca: This might be a request that you put a finer point on some of the things you've already said on this call. Charles and Ken, you talked about this higher new level of ROE. Now this quarter was special in some respects, the trailing 12 month increased significantly because the Q3 '24 CATs fell off and a more modest level of CATs fell into the trailing 12 months. So what I'm asking is, when you say this higher level of ROE is sustainable. Are you talking about the 19% nearly 20% plus this quarter? Or are you referring more to that what you've historically referred to around the 17% range? Kenneth Anderson: Well, I think what we're saying -- what we are saying, Mario, is that we've moved into a zone above mid-teens. Yes, Q3 was close to 20%. But as Charles mentioned in his remarks, it's been above 16% for the last 4 quarters. And I think that's what we were referring to. And we view that as sustainable in the context of the continued investments that we're making in the competitive advantages, pricing, risk selection and claims. And as Charles has also pointed out, the tilt of our business towards commercial and specialty lines gives us more room and coupled with the potential growth now, not just from manufacturing, but also from distribution, we feel we're very well positioned to sustain above mid-teens. Charles Brindamour: So beyond the drive to expand the ROE outperformance in the business in which we operate, you've got 2 structural changes. If you look forward 10 years compared to the last decade. The first one is distribution income is bigger, more stable and contributes positively to our forward ROE. And second, and that's very important, is the mix of business has pushed us in zones where we can earn meaningfully higher ROE than what we were able to earn a decade ago. So as you know, Mario, I never pinpoint a specific ROE. This is an industry with a certain degree of volatility. But what's clear to me is that we're in a different zone. And in a decade from now, when we look back 10 years, it will be a better ROE than when we look back 10 years today. Mario Mendonca: But that sort of brings me to the next question. You've -- when you're talking mix, I suspect you're talking about global specialty markets. It sounds to me like this business really suits you looking forward. Is there something about the business that makes growth through acquisition more challenging? Is it such a relationship-driven business that acquisitions generally don't work and this has to be done organically? Or can this business grow through acquisition? Charles Brindamour: This business can grow through acquisition, Mario. We've entered the U.S. in specialty lines through an acquisition. We've kept all our teams, all of our people, but we've taken the combined ratio from 100% to something that starts with an 8%. And how we done that? Well, that's the old recipe. Define success well, make sure the values are in place and then it's about pricing, sophistication, strong governance in the field, in-sourcing of claims and good capital management. We then, in 2021, did the same exact thing as we acquired RSA, which had a pretty big specialty lines business, both in Canada and London market as well as in Europe. We've taken the playbook, and we've done the same thing. I think there are meaningful M&A opportunities in global specialty lines, whether it is manufacturing or distribution, and we're very focused on those. But you know how we define success when it comes to an acquisition, this needs to generate at least 15% IRR at the long-term capital structure and it's an area that we're active in finding opportunities. Mario Mendonca: My last question is about the 10% annual NOIPS growth that you've described over the years. What I'm trying to figure out here is whether that actually applies to 2026. And I'm asking about 2026, specifically because there are a couple of reasons why it wouldn't apply. There are potential declines in reserve development, potentially higher CAT losses against a rather low year. So the question is this, does the 10% apply each year? And does it apply to 2026? Or is that more of a medium-term objective? Kenneth Anderson: So to be clear, the objective is to grow at a compound of 10% annually over time. It will -- by virtue of catastrophe losses, et cetera, there will be some lumpiness also M&A when it comes, can tend to shift your ROE into a new zone. But over time -- the objective be clear is over time. I think if you look at 2025 specifically, Mario, obviously, we'll see where the year end. At the 9 months, the CAT losses are a little below our expectation on a year-to-date basis. So I think that would be the one item that would contextualize how you would think about 2026. Operator: Question will be from Stephen Boland at Raymond James. Stephen Boland: Just one question, I don't want to delay this. Have you had any preliminary conversations with your reinsurance partners with renewal coming up? I'm just curious the outlook that pricing is going to be rational as there's going to be softness. Kenneth Anderson: Yes. So I would say, in relation to the [ 1/1 ] renewal reinsurers have had strong profitability in 2022 when the market hardened and that was a result of some structural changes and seasons taken higher retentions and pricing levels have gone up since then. But we would expect reinsurer capacity will exceed demand across the business as we head into the renewal. So I would say favorable conditions from our perspective as we head into the renewal season. Charles Brindamour: Yes, I think it should be a favorable renewal cycle. We manage our risk very tightly. This gives us an edge when it comes to buying reinsurance. We're not huge buyers of reinsurance also. We do that pretty much for tail risk purposes, but this should be a good renewal season for us. Stephen Boland: Okay. And Charles, just I'll sneak one in. I know I'm a bit late. But have you ever considered a stock split, the price has been elevated now for a while. I don't think you've ever done one. Is that something you could consider? Kenneth Anderson: Yes. I would say it does hit the radar from time to time, we evaluate it, but we haven't acted on it to date on the basis that. In substance, it's not really changing anything in substance and I think that was the conclusion that we've reached. Charles Brindamour: Yes. It's abated from time to time. I mean if you guys think this is something we should seriously consider. We'll look at it. I'm of the view that I don't know if it's a needle mover and therefore, we concentrate on other things, but we're open to feedback. Operator: Ladies and gentlemen, this is all the time we have today. I would now like to turn the call back over to Geoff Kwan. Geoff Kwan: Thank you, everyone, for joining us today. Following the call, a telephone replay will be available for 1 week, and the webcast will be archived on our website for 1 year. A transcript will also be available on our website in the Financial Reports section, and of note, our 2025 fourth quarter results are scheduled to be released after market close on Tuesday, February 10, 2026, with the earnings call starting at 11 Eastern Time the following day. Thank you again, and this concludes our call. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.