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Operator: Thank you for standing by. My name is Van and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 Planet Fitness Earnings Call. [Operator Instructions] I would now like to turn the call over to Stacey Caravella, Vice President of Investor Relations. Please go ahead. Stacey Caravella: Thank you, operator and good morning, everyone. Speaking on today's call will be Planet Fitness' Chief Executive Officer, Colleen Keating; and Chief Financial Officer, Jay Stasz. They will be available for questions during the Q&A session following the prepared remarks. Today's call is being webcast live and recorded for replay. Before I turn the call over to Colleen, I'd like to remind everyone that the language on forward-looking statements included in our earnings release also applies to our comments made during this call. Our release can be found on our investor website along with any reconciliation of non-GAAP financial measures mentioned on the call with their corresponding GAAP measures. Now I will turn the call over to Colleen. Colleen Keating: Thank you, Stacey and thank you, everyone, for joining us for the Planet Fitness third quarter earnings call. In the first 9 months of the year, we made considerable progress in executing our strategic imperatives and are feeling energized to capture even greater opportunities in the evolving fitness landscape. Our strong financial performance in the third quarter is indicative of that progress and allows us to raise elements of our 2025 outlook, which Jay will touch on in greater detail. As consumers increasingly prioritize their health and well-being, we are pleased to have ended the quarter with approximately 20.7 million members and 6.9% system-wide same club sales growth. We added 35 new clubs and ended the quarter with a global club count of 2,795. Our reach is unparalleled. At the same time, with population growth and deurbanization over the past several years, we see increased opportunities to bring our high-value offering to an ever-growing community of fitness-minded consumers in more geographies than ever before. In September, we announced record-breaking participation in our 2025 High School Summer Pass program with more than 3.7 million teens completing over 19 million free workouts in our clubs. Participation was up roughly 30% from last year, reflecting teens' desire to stay active and prioritize their well-being during a critical time when school is out. We believe that the marketing emphasis on our expanded product offering, including more strength equipment, is resonating with younger consumers. We also shifted our marketing approach this year by increasing the number of influencers we use to promote the Summer Pass and we prioritized platforms that drive participation such as TikTok. This year alone, we've invested nearly $170 million in waived membership dues. Historically, we've converted mid-single-digit percentages of the participants to paying members over time. To reach these highs in the fifth year of the program speaks volumes about Gen Z's commitment to their health and wellness. Key findings from this year's participants are particularly affirming with 93% of surveyed participants reporting that the program helped them create sustainable fitness routines and 78% feeling more confident. Let's now turn to the progress we've made on our 4 strategic imperatives during the third quarter. As a reminder, the 4 strategic imperatives are redefining our brand promise and communicating it through our marketing, enhancing our member experience, refining our product and optimizing our format and accelerating new club growth. I'll start with redefining our brand promise. In the third quarter, we continued with our "we are all strong on this planet" marketing campaign that highlights our best-in-class equipment, our welcoming atmosphere and the supportive community we offer. Our strong join trend has continued, and our member count at the end of Q3 was in line with our expectations. We also saw increased Black Card penetration in the quarter with 66.1% of our total membership now at the higher tier, a 300 basis point increase from the same quarter last year. Consumers continue to recognize the value of the Black Card with the smallest price gap between our 2 membership tiers since we launched the Black Card. As many of you know, we held off on increasing the price of our Black Card membership until we got on the other side of the Classic Card price increase anniversary. After thoughtful consideration, significant testing and data analysis, we've made the decision to raise the Black Card price to $29.99 after our peak join season in 2026. We're also continuing to test new Black Card amenities such as dry cold plunge and red light technology that would add even more value to our Black Card offering. We unveiled several of these potential new offerings to our franchisees last week at our annual franchisee meeting and they were met with great enthusiasm. We look forward to sharing our plans to modernize the Black Card Spa at our Investor Day next week. Finally, we're excited to announce that we'll be sponsoring New Year's Rockin' Eve next month in Times Square for our 11th consecutive year. This is a high visibility event that continues to put Planet Fitness on a global stage and keeps our brand top of mind for consumers as they think about prioritizing their health and fitness goals in the New Year. Now to member experience and format optimization. We know that establishing a relationship with our members is important to their engagement and retention. And utilization matters as people tend to be more loyal to brands that they use regularly. It's an indication of the value they find in their Planet Fitness membership, which is why we're pleased to see utilization rates continue to increase, a leading indicator of member stickiness. We're partnering with our franchisees to put the member at the core of everything we do, along with the team members in our clubs who play a critical role in personally welcoming every member. We see time and time again when club team members greet our members by name and provide personal recognition, it enhances the experience for both the member and the team member. Our goal is to create a deeper sense of loyalty and emotional connection to drive retention and ultimately, revenue. A recent consumer insights study showed that Planet Fitness outperformed several other fitness brands on feel welcomed. This is an important emotional equity when we consider that gymtimidation can be a barrier to gym membership and usage. We also saw strong positive associations for Planet Fitness with convenient location, value for money, price, easy access and machine variety and availability. These are strong associations for our brand. Member experience goes beyond a welcoming atmosphere. It includes providing members with the ideal equipment mix in a club with a format optimized layout so they can achieve their workouts their way. To this end, we gave franchisees who are developing or renovating clubs this year the opportunity to build a traditional layout or one of the new format optimized clubs and 95% elected to build one of the newer club formats. By the end of 2025, close to 80% of clubs system-wide will have some version of an optimized format. That's nearly 4 out of 5 clubs. We will share more about this next week at our Investor Day. And finally, our efforts to accelerate new club growth. We continue to refine our product offering and enhance operational efficiencies to maximize the economic value proposition for our franchisees while delivering the most relevant on-brand experience for today's members. That said, we're a top line-driven business and we are keenly focused on driving unit economics through top line growth. In August, our franchisees voted to shift 1 percentage point of the marketing funding from the local advertising fund to the national ad fund. This change will enable us to unlock new marketing opportunities to drive consideration and conversion, spend our dollars more efficiently and ultimately, fuel member growth. Our goal is to drive top line revenue as it is the key driver of unit economics. We do this through more effective marketing while enhancing the bottom line through greater marketing efficiency and the flow-through on incremental revenue in this high-margin business. We're grateful to our franchisees for this vote of confidence in our marketing leadership and strategy. Finally, we proudly received 2 notable honors recently. First, we were named to Fortune's 2025 100 Fastest-Growing Companies list. And second, we were recognized as #22 in this year's Franchise Times Top 400 as the top-rated fitness concept. These honors illustrate the strength of our brand and are a testimonial to the dedication of our esteemed team members and franchisees. Now I'll turn it over to Jay. Jay Stasz: Thanks, Colleen. We're very pleased to deliver another quarter of strong results. And as Colleen mentioned, we're raising our full year '25 outlook. Now to our third quarter results. All of my comments regarding our third quarter performance will be comparing Q3 of '25 to Q3 of last year, unless otherwise noted. We opened 35 new clubs compared to 21. Included in our openings are 5 locations where a franchisee acquired and converted regional gyms to Planet Fitness clubs. This is a strategy that we will use as another option to accelerate new club growth. These clubs, in many cases, open with a built-in membership base, giving franchisees a jump on top line ramp. We delivered system-wide same club sales growth of 6.9% in the third quarter. Franchisee same club sales increased 7.1% and corporate same club sales increased 6.0%. Approximately 80% of our Q3 comp increase was driven by rate growth, in line with our expectations with the balance driven by net membership growth. Black Card penetration was 66.1% at the end of the quarter, an increase of 300 basis points from the prior year and a sequential increase of approximately 30 basis points from Q2. Our Q3 ending member count of approximately 20.7 million members was in line with our expectations as the third quarter is typically not a quarter with significant membership change. Our join trends during the quarter were strong, including conversions to paying members from our High School Summer Pass program. Attrition rates, while elevated on a year-over-year basis, were not out of line with historical levels and we started to see moderation late in the quarter. For the third quarter, total revenue was $330.3 million compared to $292.2 million, an increase of 13%. The increase was driven by revenue growth across all 3 segments, including an 11% increase in franchise segment revenue and a 7.6% increase in our corporate-owned club segment. For the third quarter, the average royalty rate was 6.7%, flat to the prior year. Equipment segment revenue increased 27.8%. The increase was driven by higher revenue from equipment sales, including both new equipment and reequips. We completed 27 new club placements this quarter compared to 15 last year. For the quarter, replacement equipment accounted for 82% of total equipment revenue compared to 85% last year. Our cost of revenue, which primarily relates to the cost of equipment sales to franchisee-owned clubs was $58.2 million, an increase of 27.3% compared to $45.7 million last year. Corporate club operation expense increased 11.4% to $79.8 million. The increase was driven by operating expenses from 30 new clubs opened since July 1 of '24, including 10 in Spain. SG&A for the quarter was $30.5 million compared to $32.6 million, while adjusted SG&A was $30 million or 9.1% of total revenue compared to $31.3 million or 10.7% of total revenue, a decrease of 4.2%. National advertising fund expense was $21.4 million compared to $19.7 million, an increase of 8.7%. Net income was $59.2 million, adjusted net income was $67 million and adjusted net income per diluted share was $0.80. Adjusted EBITDA was $140.8 million, an increase of 14.4% and adjusted EBITDA margin was 42.6% compared to $123.1 million with adjusted EBITDA margin of 42.1%. Now turning to the balance sheet. As of September 30 of '25, we had total cash, cash equivalents and marketable securities of $577.9 million compared to $529.5 million on December 31, '24, which included $56.4 million of restricted cash in each period. During the quarter, we used approximately $100 million of cash on hand to repurchase and retire approximately 950,000 shares of our stock. Moving on to our revised '25 outlook, which we provided in our press release this morning. With 2 months remaining in the calendar year, we are confident in our ability to open between 160 and 170 new clubs, which includes both franchise and corporate locations. We recognize that we have a lot of clubs to open during the fourth quarter but this is standard business practice and we've completed this number of openings in prior fourth quarters. We are also confident that we can complete the 130 to 140 equipment placements in new franchise clubs. Given our strong results in Q3 and the overall strength in the business, we are increasing our outlook for '25. We now expect the following: same club sales growth of approximately 6.5%, up from 6%; revenue to grow approximately 11%, up from 10%; adjusted EBITDA to grow approximately 12%, up from 10%; adjusted net income to increase in the 13% to 14% range, up from 8% to 9%; adjusted net income per diluted share to grow in the 16% to 17% range, up from 11% to 12% based on adjusted diluted weighted average shares outstanding of approximately 84.2 million shares, inclusive of the impact of the shares we have repurchased throughout the third quarter. We expect net interest expense of approximately $86 million and D&A to be approximately $155 million with CapEx to be up approximately 20%. In closing, we are excited by the momentum in the business and evidence that our strategic imperatives are producing results. We had a highly successful High School Summer Pass program as we continue to build loyalty with Gen Zs. And our franchisees are investing in opening, remodeling and adding strength equipment as they see the benefits of our work to reposition our brand and optimize our layouts, putting the member at the core of what we do. I will now turn the call back to the operator to open it up for Q&A. Operator: [Operator Instructions] And your next question -- or your first question comes from the line of John Heinbockel with Guggenheim Securities. John Heinbockel: Colleen, your thought on holistically this marketing split, right, between local and national. I know the 1% shift that adds maybe, I guess, $50 million to the national piece. How do you want to spend that? Where do you think that goes over time, right? And what's sort of the right level? I guess you would think as you get larger, right, maybe you end up spending closer to in total, 7% of sales as opposed to something higher. What's the thought on that? Colleen Keating: So I'll speak to the shift of the 1 percentage point from the local ad fund to the national ad fund. I won't get super granular for competitive reasons, of course, but this will enable us to augment some of the marketing that we're doing digitally, use AI and augment our CRM, digital content optimization and a number of other things that, again, will give us the opportunity to have greater reach with each of those marketing dollars. It will also enable us to buy media more efficiently on a national basis. So again, really get more mileage out of every dollar that we're spending. John Heinbockel: Okay. And maybe a follow-up. I know, right, you've got this 5,000 store or club target in the U.S. Just remind us how you thought about that in terms of density. And then when you think about -- as you referenced geographies, is there a bigger opportunity than you thought for smaller markets, less dense? And does that require to make the economics work or how much smaller of a club do you need to make that work? Colleen Keating: So there's a couple of questions in there and I'll start maybe with the first one on the opportunity and density. As you know, we are more dense on the East Coast, so Northeast, East Coast, Southeast, less dense Midwest, West. And at the same time, where there has been population growth, job growth, deurbanization, new home construction, which, again, demographically meets the demand coming from millennials as forming households. We think there's opportunity where we're less dense to increase our penetration. And we think that some of the demographic shifts that have occurred with that deurbanization and population growth over the last several years complement that very well. And we've had several studies done to opportunity size the domestic landscape that supports that growth. Generally speaking, those growth numbers are supported with 20,000 or traditional 20,000 square foot club. At the same time, I think we've talked before, we're developing prototypes that are a bit smaller than the 20,000 square foot club that will enable us to go into markets that maybe don't have quite the population density but might be underserved from a fitness standpoint today. Next question comes from the line of Sharon Zackfia with William Blair. Sharon Zackfia: I wanted to actually double-click maybe on the churn. There was a lot of chatter kind of within the quarter amongst investors that maybe the click-to-cancel churn was much more elevated than what you expected but it doesn't seem like that was the case. So I wanted to check on that. And you mentioned moderation. Are you kind of back to normal levels of churn? And should we expect member growth to sequentially resume again in the fourth quarter? Jay Stasz: Sharon, this is Jay and I'll respond to that to start. And we don't guide to the membership growth, so I'm not going to comment on that. But we're pleased, right, as we said, the 20.7 million members was right in line with our expectations. And in regards to attrition, the rates were elevated on a year-over-year basis. But when we take a multiyear view, they were not out of line with what we've seen historically. And to your point, we did see some moderation late in the quarter. So what we have in our outlook and what we've modeled is continued elevation on a year-over-year basis. And that's very consistent with the way we thought about it in -- on the last call for Q2 and now this call and that's what we've modeled. It's included in our outlook that we've guided. So we're pleased with what we're seeing in the underlying trends in the business. Sharon Zackfia: And Jay, can I just follow up? Is that continued elevation just the tail from click-to-cancel? Or is it something you're seeing that's more macro? Jay Stasz: No, we think it's driven by the click-to-cancel tail. Operator: Your next question comes from the line of Jonathan Komp with Baird. Jonathan Komp: I want to just follow up. Could you maybe talk a little more directly when you look at the guidance raise for the year, combined with the confidence to commit to the Black Card pricing after your peak period coming up? Could you maybe just talk about more directly what's driving your increasing confidence to announce both of those today? Jay Stasz: So I can start with those items. I think, look, from a guidance standpoint, we had good results in our third quarter. So obviously, that is nice to see and gives us confidence. When we think about some of the drivers in the increase for the year, we have obviously some nice momentum in our equipment business, right? The franchisees, they are leaning in on these new formats, not only with the new clubs but certainly reequips and adders as we call them. So we've got some nice trends there. From an SG&A standpoint, we called out on the call, obviously, we had a decrease in the quarter. And some of that was driven by a annual franchisee conference that we're -- we were lapping last year that was pushed into the fourth quarter this year. But taking that out, we are seeing nice trends on SG&A. And we're also carrying forward, obviously, the upside that we had on the sales in the third quarter, pushing that into the full year guide. So all of those components are resulting in the guidance that we gave. We think that's a nice trend, seeing some separation between revenue, getting some leverage and driving EBITDA growth. In terms of the Black Card price increase, so as we said, we've tested this, we've analyzed it and made the decision to go to $29.99. When we've tested that, obviously, we've had -- it's been accretive to the AUV. So we're not going to really comment on the impacts for next year. We'll get to that when we actually do the price increase. But historically, what we have seen when we've made a change on the Black Card price is that the acquisition rate on Black Card does decrease for a period of time but usually rebounds within the year so that the penetration of Black Card gets back to where it was. The wrinkle and the difference now is that we've had the Classic Card price increase. So that increase is an element that we haven't had historically. So we'll have to wait and see on that. But again, we would expect for that Black Card price increase to be accretive to AUV. Jonathan Komp: Okay. That's great. And then maybe just a follow-up, Colleen. I know there's quite a bit of -- quite a few positives in today's announcements but it's unique that you have an Investor Day coming up next week. So could you maybe just share at a high level, maybe what we should expect to hear or the plans that you hope to share going into next week directionally just to set the stage. Colleen Keating: Yes, sure. Happy to. We'll give you a bit more granular detail on the progress that we're making on our strategic imperatives. And we'll also give you a multiyear view of what you can expect from a growth trend standpoint. So you'll get some numbers beyond, obviously, just a single year. So some multiyear projections from us. Operator: Your next question comes from the line of Joe Altobello with Raymond James. Joseph Altobello: I guess first question on the competitive landscape. Curious if you're seeing any shifts at all, whether it be from low-priced, high-value competitors or even some of the more higher-priced competitors in the space. Colleen Keating: I'll start and just say for the quarter and year-to-date, we've been quite pleased with the join trends and the join volume. So again, as I've said before, I think our biggest competition is fear of walking in the front door. And our marketing is really resonating with consumers today, both the strength equipment and the ability to get strong at Planet Fitness but also conveying the sense of community at Planet Fitness. So again, feeling very good about the join trends. Joseph Altobello: Helpful. And maybe just to follow up on that, in terms of new store openings for next year, I know, obviously, there's not a ton of visibility at this point. But what does the availability of real estate look like? And could we see more acquisitions and conversions like you did this past quarter? Colleen Keating: So we're not obviously guiding next year yet. But what I will talk about a little bit is -- and I have before, the real estate landscape and the fact that this year, for the first time in several years, we're seeing negative absorption specifically of shopping center retail space. So enclosed malls have had negative absorption but shopping center retail space, the type of space that we're looking for, for a Planet Fitness, negative absorption for the first time in several years year-to-date this year. And also a moderation in rent escalation where rents were going up quite dramatically in this year, the first half of this year, both quarters, they were below the rate of inflation. So we think those are positive indicators. And of course, the retail bankruptcies that have been occurring, store closures and even seeing grocery stores demising space and going to a smaller footprint, all of that is -- those are positive indicators for increased availability of retail space for clubs. Operator: Your next question comes from the line of Randy Konik with Jefferies. Randal Konik: Colleen, back to you. I think the question was asked what you're going to share at the Analyst Day next week. You gave a brief answer. Maybe give us some perspective on -- based on the content you plan to share next week, some of the kind of key themes or takeaways you want us on the buy and sell side to kind of take away about the Planet story, Planet business model as we go to the -- ahead of the meeting next week. Colleen Keating: Absolutely. Happy to do that and thanks for the question. So I know that many are looking for kind of the puts and takes to an algorithm to help project our business. But I think, most importantly, we want to really convey the kind of the macro tailwinds for this industry. The -- I've said we're in the golden age of fitness and I believe that's very much true. The demand for the offering that we provide, people are more fitness-minded than ever before. There's an incredible addressable landscape for fitness-minded consumers and our ability to answer that call. So we'll get into some specifics on that next week. So really kind of secular tailwinds, macro. And then the other thing is we've been talking about building our Blue Ribbon team. And we've had a couple of great new leader additions and then had some of our seasoned team members take on expanded roles and want to give everyone an opportunity to meet and hear from them. So marketing, development, operations, including the international opportunity. And you'll hear from a number of our new team members, our team members with expanded roles next week as well. Randal Konik: And then finally, just on how you're thinking about the globalization of the brand. Give us some perspective on how you're thinking about kind of telling that story for us next week. Do you think about taking Spain and kind of pushing that each year into a new country or another couple of countries each year beyond that? Or do you think about potential acquisitions ever? Just how do you think about the globalization of the brand, i.e., Planet taking over the planet? Colleen Keating: Absolutely. So I'm going to save a couple of things for next week but we absolutely will talk about the global expansion opportunity and the success that we have -- the success that we've enjoyed in Spain, the strong performance of our brand there. It was -- we launched Spain really as a kind of proof of concept and it's been wildly successful. So we'll give you some very specific data on Spain on how we define that wildly successful. And then also talk about where we see additional opportunities for growth and what the cadence of global growth could look like as a component or as one of the building blocks to the kind of the multiyear outlook for unit growth. Operator: Your next question comes from the line of Rahul Krotthapalli with JPMorgan. Rahul Krotthapalli: Colleen, can you discuss your thoughts on the strategic brand partnerships with like either large retail or consumer brands, hotels, airlines, whatever you're free to talk about and given the efforts around ramping the marketing strategy and the strong membership base you have? And I have a follow-up. Colleen Keating: So we've launched a number of partnerships and brand partnerships already that have inured to the benefit of our members. And we've had year-to-date well over $7 million of perks redemptions for our consumers. And that -- those redemption rates have been on a growth curve over the last 5 years because we're focusing on expanding that offering for our members. We do see additional opportunities for brand partnerships and we have some that we're cultivating today. Again, for competitive reasons, I won't speak to specific brands until we're ready to go to market with the partnership. But you're right that, that's something that we've been focused on. We've seen good utilization from our members where we've had partnerships in the past, again, with a new high watermark this year in redemption. And more opportunity. One of the things that Brian Povinelli brings from his prior experience is one of the absolute leading membership and loyalty programs in the hospitality space, rebranding that and relaunching that after a merger. So he's got a lot of experience with that and has brought perspective. So you'll see more of that to come. Rahul Krotthapalli: Perfect. And just on -- tacking on to the membership retention. You guys have lot of data, 20.7 million members. Can you give a preview under the hood on how you plan on utilizing AI and other technology tools you would like to invest in to improve membership retention and utilization? Colleen Keating: Yes. So from an AI perspective, I touched on it a little bit in marketing at a pretty high level. So think about AI-enabled CRM, think about AI-enabled marketing with digital content. So serving up content that is more targeted to a consumer. But again, I won't get into a ton of granular detail just for competitive reasons. And then I think you'll see it embedded in our app. We've talked about kind of the revitalization of our app, our app being one of the most downloaded, if not the most downloaded fitness app on the App Store and the opportunity to leverage AI to more personalize the experience for our members when they're utilizing the app and can enhance the in-club experience and out-of-club experience. Operator: Your next question comes from the line of Chris O'Cull with Stifel. Christopher O'Cull: Colleen, I know the company has been testing additional services in the Black spa -- Black Card Spa area like red light therapy and spray tanning, among others. But what are you learning about the value of those services to members? Colleen Keating: We're measuring utilization and also surveying our members for feedback. And as you know, we rolled out NPS earlier this year across the company, which is giving us immediate real-time feedback and the ability to capture more consumer data. So we also shared the potential Black Card amenities with our franchisees last week at our franchisee huddle and the franchisees were quite enthusiastic. We had a number of the vendors that were there and they were saying -- our franchisees were asking when can I get this? So we want to do the right amount of testing to make sure that we're really optimizing the Black Card Spa offering. At the same time, that data will help inform where we go to market with some new offerings to continue to invigorate the Black Card Spa. Christopher O'Cull: Great. And then I believe last year, you had some incremental marketing investment in the fourth quarter. So I was just hoping, could you maybe share or elaborate on how you plan to lap that this year? I'm assuming it may be safe to assume that year-over-year spend will at least be in line with the total spend last year. Colleen Keating: So keep in mind that as our revenue grows, so too does the marketing fund. So a big part of the marketing fund is influenced by the capture or the percentage capture on the growing revenue. At the same time, without being specific about Q4 kind of promo intentions, what I will say is we've -- we used to think about Q1 as the join quarter and what we've come to realize is that they're all join quarters and we know that we can put marketing to work in all quarters of the year and have favorable benefits. Operator: Your next question comes from the line of Max Rakhlenko with TD Cowen. Maksim Rakhlenko: Great job, everyone. Very nice quarter. So first, you recently ran a perk, which was a discount on a workout planning app. I'm not sure if that was new or not. But with an increase in popularity in many of these digital personal training or workout planning apps, are there bigger opportunities to embed this sort of technology into the Black Card membership? There was previously a push in the personal training and something that some of your HVLP peers are doing. So just curious, is leveraging technology an opportunity to both unlock revenues as well as provide a better member experience? Colleen Keating: So certainly and I touched on this a little bit when Rahul asked about AI, use of AI and we do see an opportunity to use AI or leverage AI to more personalize the experience for our members. And one of the ways we could use it is in personalizing workout plans for our members as well. So all of that is on the AI road map as well as the app revitalization road map. Maksim Rakhlenko: Got it. That's helpful. And then can you just unpack the implied 4Q comps guide for us as there are some puts and takes and how we should think about that versus 3Q's 6.9% and just comments around sort of better churn, especially exiting the quarter, just how we should think about mix and member rate as well. Jay Stasz: Yes, Max, this is Jay. And the way we're thinking about it and we don't want to get too granular but it should be relatively consistent quarter-over-quarter. Obviously, the big driver there is as we anniversary the Classic Card price increase that we did last -- at the end of June last year, right? As we've said, we do get a rate benefit from that but it diminishes over the tenure of our membership. So that rate benefit is decreasing, which is driving the decrease in the comp comparing Q3 to Q4. Operator: Your next question comes from the line of Logan Reich with RBC Capital Markets. Logan Reich: Congrats on a strong quarter. My question was on the High School Summer Pass. I mean, up 30% is a really impressive number and you guys talked about the strength of equipment and the marketing. I guess my question was more on the conversion rate to paying members that's in the mid-single digits. Just any more color you guys can give on that just on the timing of when those high school pass users convert, kind of the shape of that? And any sense on if that number could potentially be higher than historical levels, just given participation is up a lot. Just curious if that translates to upside to your conversion rate as well? Colleen Keating: Sure. I'll start. So we'll report on conversion at the end of the fourth quarter because we continue to convert through September, October, even a little bit in November because they are able to utilize the pass through the end of August and then we see this kind of surge in conversion in September, October, a bit into the fourth quarter as well. So we'll give you more data on that at the end of Q4. And when I think about the number of paid members converted out of summer pass, obviously, it's a bigger denominator. So even at a similar conversion rate, the numerator is going to be larger. But what we're seeing so far is fairly similar conversion percentage and really encouraged by the overall strength of the program. Operator: Your next question comes from the line of Brian McNamara with Canaccord Genuity. Madison Callinan: This is Madison Callinan. I'm on for Brian. First, are we now behind the lion's share of expected click-to-cancel impact? And do you expect any positive impact on rejoins next year as a result? Jay Stasz: Yes. So we're not giving guidance outside of this quarter right now. Of course, we'll be meeting next week and giving long-term targets and more color there. And from an attrition standpoint, as we said, right, consistent is that we have seen elevation in the attrition rate year-over-year. When we look at it at a multiyear lens, it is more consistent with what we've seen historically. We have modeled the elevated attrition rate into Q4 and that is included in our outlook. Colleen Keating: Yes. Can I also just add, one of the things that we have seen and we saw it in the test environment, a couple of test environments previously. One thing that has proven true is that where we are now able to say one click to cancel or cancel any time in the join flow, we are seeing it give us a lift in the join conversion. Madison Callinan: And then I know that you touched earlier on rate. But with 80% Q2 comp driven by rate and a Black Card increase coming next year, when should we expect volume to return to be the primary driver of comp growth again as it has been historically? And would you expect Black Card penetration to return to its historical 60% penetration levels after that price increase goes into effect? Jay Stasz: We'll talk more about that next week. And certainly, from a Black Card standpoint, we'll get into specifics on that more when we do the price increase. Operator: Your next question comes from the line of JP Wollam with ROTH Capital Partners. John-Paul Wollam: If we could just start first on kind of franchisee returns. A lot has been done in the last few years with the new growth model to really improve those franchisee IRRs. So I'm just wondering, are there maybe 1 or 2 data points you can share about kind of just some accelerating license sales or maybe interest in new licenses that you can share? Jay Stasz: I'll start. Yes. I mean we're not probably going to talk about ADA or license sales or franchise agreement sales. But what I can speak to the IRRs and how we think about it. We track, certainly our more recent club openings post the new growth model post the Classic Card price increase and we're tracking those from a top line basis to see if we're hitting kind of our internal hurdle rate for the IRRs, which obviously are shared with ourselves and the franchisees' lens. So we're pleased to report that those are tracking right in line. So we're seeing the lift as we would expect from those initiatives. And that's a top line lens. Obviously, part of the new growth model was giving some more flexibility on the CapEx reequipped timing schedules. So that's positive as well. And I think to your point, with Chip now here as the CDO, he continues the effort to value engineer the club build-out costs and we spoke about that to the franchisee group last week at our huddle. We've also, as part of our fit for strategy structure, established a formal procurement team under the finance org, under my org. And we've started some initiatives there where we think we can save the franchisees' money. Colleen Keating: Yes, I'll chime in on that, too. I think a couple of things. One data point I'd point to is franchisee same club sales growth coming out of the quarter at 7.1%. The franchisees are definitely feeling the strength of the join volume, the marketing landing. And then I think a couple of other proof points that we have talked about, real estate availability having been a bit of a headwind on development and I talked a little bit about earlier about that easing. I think another proof point is, we've had a franchisee last year and this year buy a couple of few conversion clubs and several conversion clubs. And those were conversions that enabled them to bring additional clubs into the system quickly. And that's a strong signal that franchisees are excited to continue to grow with us. I think the third is that in every case where we've had portfolios transact, certainly, in my tenure here, in every case, we've had incumbent franchisees at the table wanting to buy additional territory or additional clubs when they become available. So that -- I think that's another proof point of franchisee confidence in the system. At the same time, we're not letting up on enhancing franchisee economics, all of the things that Jay talked about and the things we're doing in build cost and trying to bring build costs down for our franchisees while also protecting the member experience. John-Paul Wollam: Perfect. And then just one quick follow-up and I think fairly straightforward. But I assume most of the unit openings coming in the fourth quarter are largely through a lot of maybe permitting and municipal processes. And I would assume it's largely all on a local basis. But anything in terms of the government shutdown that would be a potential risk to unit openings in the fourth quarter? Colleen Keating: We've not heard about government -- the government -- the federal government shutdown having any impact on openings. And you're right, a lot of permitting is done early in the build cycle. And then, of course, there's -- there are municipal inspections late in the build cycle like final COs and sign-offs. And those are done at the local municipal level, not at a federal level. Operator: Your next question comes from the line of Arpine Kocharyan with UBS. Arpine Kocharyan: Could you talk to the general trends you saw in terms of gross adds for the quarter? What you saw in Q3 and what you're seeing into Q4 as we see churn kind of normalize a bit here? And you saw slightly lower membership in Q3 versus Q2, which is, I think, in line with what you saw last year quarter-to-quarter. But last year, you were going through the price increase on Classic Cards. So maybe if you could talk to the gross adds versus underlying attrition trends in the quarter? And then I have a quick follow-up. Jay Stasz: Yes. And I -- you broke up for the back part of that question. So I heard the part about the gross joins. Could you repeat the back half of your question, please? Arpine Kocharyan: Yes. Just your membership is slightly lower in Q3 versus Q2, which is, I think, in line with what you saw last year quarter-over-quarter. But last year, you were going through the price increase on Classic Cards. So maybe if you could talk to the sort of gross adds versus underlying attrition trends in the quarter that you saw would be helpful. Jay Stasz: Yes. Well, I can start. And right, we don't speak to the gross joins or cancels. But I mean, we did see strong join trends and we commented that on the prepared remarks. Those join trends were offset by the elevated attrition rate that we talked about. And the attrition rate was elevated year-over-year. Again, when we look on a multiyear basis, it is more consistent with what we've seen historically. And the third quarter, generally speaking, is not a high net add quarter, right? It could be flat or slightly down. We've seen that before. That's what we experienced this quarter and it was in line with our expectations. And again, we think those trends will continue going forward on both fronts, right? We have nice trends in the strong join side and we do -- and we've modeled continued elevated attrition on a year-over-year basis. And both of those are included in our outlook for the year. Colleen Keating: And I think also important to note that as we've said in the past, where we rolled out click-to-cancel previously, after about-ish about 12 weeks, we started to see it moderate. Given when we rolled out click-to-cancel in Q2, we were within that expected elevated attrition window in the beginning of Q3. And as Jay indicated, we started to see that -- we start to see that moderate. And then we've also continued to have very strong rejoin rates. So in the mid-30s again from a rejoin rate standpoint throughout the quarter. And our marketing is very effectively driving join volume and we're also retargeting lapsed members and that's helping to drive the strong rejoin rate. Arpine Kocharyan: That's super helpful. And then just a really quick follow-up. Maybe just a bit of a bigger picture question. It seems like some of the demographic shifts you're seeing is younger customer that is maybe using the clubs more at a higher frequency, which should be good for structural retention, I would say, in longer term but maybe more wear and tear for the equipment. Does that mean more frequent replacement of that equipment longer term? And what implications that has for franchisee returns? Colleen Keating: Do you want to start? Jay Stasz: Well, yes, I'll start. I mean part of the strength of this brand is the quality of our equipment and the way we maintain it. So it is high-grade durable equipment and we would not expect any changes to the replacement timing because of wear and tear. Colleen Keating: I think the fact that we pushed out the reequip schedules by a year with the new growth model last year and the fact that also strength equipment does have a longer life than cardio, the utilization of strength actually is a piece of equipment that has a longer life. So there's no expectation that we're going to pull forward reequip schedules for our franchisees. And yet at the same time, we know that the consistency of our replacement cycles and the quality of our equipment is something that our members appreciate at Planet Fitness. Operator: Your next question comes from the line of Marni Lysaght with Macquarie. Marni Lysaght: I think recent more topical matters such as churn, et cetera, have been well covered in prior questions. But my question is mainly concern -- or just in terms of like your outlook for rollout, can you kind of give us a bit of color or maybe it's more of an appropriate topic to discuss next week at the Analyst Day. But just about when you're competing for space and you talked earlier about prototypes for smaller formats, how do we think about franchise groups and yourself looking at those sites and who you may be competing with for that space? Colleen Keating: Yes. I think one of the things that our real estate team is doing in partnership with our franchisees is getting ahead of space availability and talking with the large landlords and brokers to make sure that we articulate the value proposition of putting Planet Fitness in a center, particularly we skew heavy female. We contribute to traffic to the center because we don't have classes, we're not taking up significant amounts of parking at a given time and we also contribute traffic to a center during off-peak times because most retail centers are getting heavy traffic on the weekend and our heaviest traffic is weekday, in the early part of the week. So it's really about making sure that we highlight why Planet Fitness is a prospective great tenant and also the resiliency of our business, the durability of our cash flows, the fact that we came through COVID with a number of temporary club closures for municipal reasons but not one club permanently closing for financial reasons. And compare that to the retail closures and retail bankruptcies, we should be a very attractive tenant. So it's really about promoting the value of having Planet Fitness in the center. Marni Lysaght: Understood. Another question I have is just more about like the split of how you think about rate growth. So I think you said back at the prior results, 70-30 for the back half of this year to be driven by rates and volume. And you previously alluded to like a 50-50 split, just given the nuances here about your members coming in line with your internal expectations and some of the other dynamics at the moment, what's the correct way to be thinking about that? Jay Stasz: Yes. So we'll guide into that for future periods, we'll talk -- we won't guide into it but we'll talk about it next week from -- as we kind of lay out the growth algorithm. And really, what we talked about given the dynamics this year was kind of a 75-25 or an 80-20 split. This quarter landed right in line with our expectations and we don't think that's going to change dramatically in Q4. Colleen Keating: Yes. I will say, historically, when we've taken Black Card pricing in the past, we have seen a little diminution on the Black Card penetration but not on the join volume. So taking Black Card pricing in the past was not a headwind to join volume. It was just a little bit of a diminution on the Black Card penetration, the mix. Operator: [Audio Gap] further questions. I will now turn the call back over to Colleen Keating for closing remarks. Colleen Keating: Well, first, I'd like to thank our team members and our franchisees for delivering such a strong -- such a solid quarter. I'm very encouraged by the momentum that we're carrying through into the fourth quarter to complete a strong 2025. We look forward to providing more insight into our long-term growth opportunity at our Investor Day next Thursday. Thank you, everyone. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning, and welcome to the Matrix Service Company conference call to discuss results for the first quarter of fiscal 2026. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to turn the conference over to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations for Matrix Service Company. Kellie Smythe: Thank you, Marvin. Good morning, and welcome to Matrix Service Company's First Quarter Fiscal 2026 Earnings Call. Participants on today's call include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call up for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. As a reminder, on today's call, we may make various remarks about future expectations, plans and prospects for Matrix Service Company that constitute forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements because of various factors, including those discussed in our most recent annual report on Form 10-K and in subsequent filings made by the company with the SEC. The forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. Finally, all comparisons today are for the same period of the prior year, unless specifically stated. Related to investor conferences and corporate access opportunities, we will be participating in the Sidoti & Company Year-end Virtual Investor Conference on December 10 and 11, 2025. We will also be participating in the Northland Capital Markets Growth Conference on December 16th. This conference is also virtual. If you would like additional information on this event or would like to have a conversation with management, I invite you to contact me through Matrix Service Company Investor Relations website. As we shift our focus to safety, I want to underscore its vital importance to our business. At Matrix, safety stands as our foremost core value. And as Mr. Hewitt frequently emphasizes, nothing outweighs the physical and mental well-being of our employees, subcontractors, clients and others who may be present at our job sites or in our offices. This is simply -- this is not simply about compliance. It's about continuously cultivating an environment where safety is ingrained in our culture. Every one of us deserves to feel safe at work and return to home to our families and loved ones at the end of the day. And while safety is always the right thing to do, it's also a business imperative. It strengthens our competitive edge, enabling us to bid on and secure vital projects, foster lasting client relationships and attract and retain top talent. Our clients trust us to execute their projects safely and with unrivaled quality. This trust is something we value and we hold ourselves accountable to the highest standards. By maintaining our unwavering commitment to safety, we position Matrix not just as a leader in engineering and construction, but as a dependable partner dedicated to excellence and care. I will now turn the call over to John. John Hewitt: Thank you, Kellie, and good morning, everyone. We began fiscal 2026 with strong execution, resulting in double-digit revenue growth and our highest quarterly gross margin in over 2 years. This performance reflects the continued maturation of our backlog and the disciplined approach we've taken to project bidding and delivery. Bidding activity remains healthy across our segments, and we saw a solid level of new awards. Our opportunity pipeline also remains robust for not only near-term projects, but several large multiyear projects with anticipated award dates beginning in late fiscal 2026 and into fiscal 2027. Based on our first quarter performance, our strong backlog and the visibility we have today, we are reiterating our full year revenue guidance of $875 million to $925 million. Typically, the first quarter reflects a seasonal slowdown in demand for maintenance and repair services. This year, that was largely offset by increased activity on larger projects. Our mix of project work drove gross margin improvement. Representing our best quarterly gross margin in more than 2 years. We expect continued margin improvement as we move through fiscal 2026, supported by conversion of backlog to revenue. Award activity in the quarter was stable, resulting in a book-to-bill of 0.9, and we ended the quarter with a total backlog of $1.2 billion. During the first quarter, we removed approximately $197 million from backlog related to 2 projects. While Kevin will provide more detail in his remarks, these removals do not reflect the reduction in demand, changes in the market or business performance issues. In both cases, the clients changed their commercial strategy and neither project had mobilized. Importantly, the removal of these projects from our backlog does not impact our Q1 results or full year guidance. We continue to be disciplined in our bidding and contracting efforts to ensure our project risk and financial return profile meets our standards. Now let's talk about our markets and what we see in the organic opportunities that will drive the business. First, our total opportunity pipeline currently sits at $6.7 billion, with the majority of those opportunities in storage and related facilities for LNG, NGLs and ammonia, which feed our Storage Solutions and Utility and Power Infrastructure segments. We continue to see a steady level of incremental bidding opportunities supported by strong investment in domestic infrastructure and a favorable regulatory environment. Growing demand for sustainable and reliable power is creating significant project opportunities upstream from the massive investment in data centers and advanced manufacturing, among other expanding electrical consumers. So whether it's LNG for backup fuel or peak shaving, upgrades to existing LNG facilities, new baseload or backup power generation or substation upgrades and new construction, our business will benefit from these investments in this critical infrastructure. And while the timing of awards can be fluid over the coming quarters, we expect that the level of awards will be similar to what we saw during the fourth quarter. This award portfolio will be made up of midsized projects on top of our normal cadence of small projects and maintenance. These projects will reinforce our strong backlog, continue to provide more predictable revenue flow and build our resource base as the business grows. One recent example is the award of a balance of plant construction at the Delaware River Partners multiuse port facility in Gibbstown, New Jersey that will support growing export demand for NGLs, including propane and butane. This award, which was taken into backlog in the first quarter of fiscal 2026, follows a fiscal 2025 award associated with the construction of our large full containment dual service storage tank at the same facility. These 2 projects represent our ability to provide integrated delivery for complex storage facilities, which is a key differentiator for the business. As we move into late fiscal 2026 and into fiscal 2027, we anticipate a reacceleration in award activity for larger multiyear projects, which we are currently in the process of pursuing. In our Process and Industrial Facilities segment, our strategic focus is to expand our markets, client base and footprint to build backlog and revenue while executing safely with high quality and financial outcomes. Actions include strengthening our position in core geographic markets, realigning our business development resources with our growth priorities and leveraging our strong customer relationships to expand organically. Focus areas include repair, maintenance, turnarounds and small cap projects in various process industries, including refining, chemicals and renewable fuels. Mining and minerals in support of the demand for nonferrous metals and rare earth minerals, thermal vacuum chambers where we hold a dominant position as well as various natural gas value chain opportunities. We are positioned to capture opportunities in this segment and deliver improved results over the long term. With project activity continuing to build due to the steady conversion and replacement of our backlog, we are highly focused on ensuring that we deliver consistent performance for our customers and the highest level of quality and safety. The recent changes to our organization structure, which we have talked about in our previous calls, has enhanced our agility, competitiveness and performance. These changes, along with strategic actions we have taken over the last few years, our already strong service offering position us to deliver on current commitments and complete effectively for the substantial opportunities within our robust pipeline. We remain committed to disciplined capital allocation. Our strong balance sheet supports the working capital needs of active projects as these jobs progress through key execution phases. As we return to sustained profitability in the coming quarters, we'll deploy capital thoughtfully, targeting growth opportunities that expand our market share and drive long-term shareholder value. In summary, I'm proud of the team's continued execution as we proceed through this critical chapter of growth for Matrix. We have plenty of opportunities ahead of us, which will not only support this fiscal year, but will continue to create growth in fiscal 2027 and beyond. I am confident that our focus on our core pillars of win, execute and deliver will serve to drive compounding profitable growth and long-term value for our shareholders and customers alike. So with that, I'll turn the call over to Kevin. Kevin Cavanah: Thank you, John. The first quarter of the year went about as we anticipated from an operating results, balance sheet, cash flow and project award perspective. Revenue of $211.9 million represented a 28% increase compared to $165.6 million in the first quarter of fiscal 2025. This is mainly due to growth driven by larger new construction projects in the Storage and Terminal Solutions and Utility and Power Infrastructure segments. We expect this revenue growth to continue as we move through the rest of the fiscal year. Consolidated gross profit increased 82% to $14.2 million in the first quarter compared to $7.8 million in the prior year. With strong project execution in both periods, the gross profit increase was the result of revenue growth as well as improved construction overhead recovery. Consolidated gross margin improved to 6.7% versus 4.7% in the first quarter of fiscal 2025. SG&A expenses were 7.7% of revenue or $16.3 million compared to 11.3% or $18.6 million in the same quarter last year. The $2.2 million decrease is primarily the result of the efficiency improvement changes implemented by the company over the last 2 quarters. The company will continue to work to leverage SG&A to its 6.5% target as revenue grows while also investing in resources when needed to support strong market demand and growth in our business. As expected, the company incurred $3.3 million of restructuring costs in the first quarter related to the efficiency efforts mentioned. The company has completed the bulk of restructuring activities and expects minimal restructuring costs during the remainder of fiscal 2026. For the first quarter of fiscal 2026, the company had a net loss of $3.7 million which includes a $3.3 million of restructuring costs as compared to a $9.2 million net loss in the first quarter last year. GAAP EPS was a loss of $0.13 compared to a $0.33 loss in the prior year. Excluding the restructuring costs, adjusted EPS was nearly breakeven at a loss of $0.01 in the first quarter. This performance reflects the operating leverage inherent in our business model and is consistent with the expectations that we have previously communicated, which is that we expect to achieve breakeven on a GAAP net income basis at a quarterly revenue level of $210 million to $215 million. Adjusted EBITDA in the first quarter was a positive $2.5 million compared to a loss of $5.9 million in the first quarter of last year. Moving to the operating segments. Let's start with Storage and Terminal Solutions, which represented 52% of consolidated revenue. First quarter revenue in this segment was $109.5 million compared to $78.2 million last year. The $31.2 million or 40% increase continues a trend, which began in fiscal 2025 and was driven by LNG storage and specialty vessel projects. We expect this growth trend for Storage and Terminal Solutions segment to continue as we move through fiscal 2026. Segment gross profit increased by $1.8 million or 38% in the 3 months ended September 30, 2025, compared to the same period last year due to higher revenue volume. The segment gross margin of 5.9% for the quarter was consistent with the segment gross margin of 6% in the same period last year. Gross margins for the segment continued to be primarily impacted by under-recovery of construction overhead costs, which we expect to improve as activity on projects currently in backlog increases through the remainder of fiscal 2026. Moving on to the Utility and Power Infrastructure segment, which accounted for 35% of consolidated revenue. First quarter segment revenue increased 33% to $74.5 million compared to $55.9 million in the first quarter of fiscal 2025, benefiting from higher volume of work associated with LNG peak shaving and power delivery projects. Segment gross profit increased by $5.5 million or 419% in the first quarter compared to $1.3 million in the same period last year. The growth resulted from the revenue increase and an improved gross margin, which increased to 9.1% compared to 2.3% in the same period last year. The margin improved due to strong project execution and construction overhead cost recovery as a result of higher revenues. Finally, the Process and Industrial Facilities segment accounted for 13% of consolidated revenue or $27.9 million in the first quarter of fiscal 2026 compared to $31.4 million in the first quarter last year. As John discussed, the market presents good opportunities in this segment to improve the revenue level. Segment gross profit decreased to $0.6 million or 28% in the 3 months ended September 30, 2025 compared to the same period last year. The segment gross margin was 5.1% for the quarter compared to 6.4% in the same period last year. The decrease is primarily attributable to an unfavorable change in the mix of work. Segment gross margin in both periods were impacted by under-recovery of construction overhead costs due to low revenue volumes. Moving to the balance sheet and cash flow. As expected, cash decreased in the first quarter, ending at $217 million, down $32 million from the start of the quarter as the company continues to make progress on the large projects in backlog that were in a prepaid position. Exiting the quarter, the balance sheet and liquidity remain in a strong position with liquidity of $249 million and no outstanding debt. We will continue to proactively manage the balance sheet and have the financial strength and liquidity needed to support the positive earnings inflection we anticipate as we progress through fiscal 2026. Now let's discuss project awards and backlog. Project awards in the first quarter were consistent with what we anticipated. They totaled $187.8 million for a 0.9 book-to-bill with the Storage and Terminal Solutions segment accounting for $136.1 million of the awards. As John mentioned, during the first quarter, we made the decision to remove 2 projects totaling $197 million from backlog, neither of them impacting our fiscal 2026 revenue guidance. Each project reflected a different situation. The first and largest was within our Process and Industrial Facilities segment and was formally awarded to us in late fiscal 2023. Our scope of work on this project was construction only and the start of field work had been -- had already been delayed by over a year due to slow progress on scoping, design development and engineering, which is outside our responsibility. Just recently, the owner decided to adjust its execution and contracting structure, which resulted in their decision to rebid the construction portion of the project. The project will be rebid in packages later this year, and we intend to submit bids on certain aspects of our original scope. That said, due to this change, we removed the original awarded project from our backlog, consistent with our backlog recognition policy. The second project was in our Utility and Power Infrastructure segment. In this case, the project was formally awarded in the fourth quarter of fiscal 2025. Subsequently, the client sought to modify the terms and conditions of this agreement in a way that significantly increased our risk on the project. This change was inconsistent with both the as-bid basis of our proposal and our commercial policies. As a result, the award was rescinded, and we removed it from backlog. After removal of these 2 projects, backlog remains strong at $1.2 billion and is supportive of our revenue guidance of $875 million to $925 million. When we started the year, we mentioned that we were going into the year with 85% of our revenue booked at the midpoint of our guidance range. As a result of awards during the first quarter, this percentage has decreased to more than 90% -- I'm sorry, the percentage has increased to more than 90%, and we continue to be confident in our ability to achieve our revenue guidance. The improvement in our consolidated revenue, combined with continued focus on execution excellence and leverage of our construction overhead and SG&A cost structures will allow us to return to profitability as the fiscal year and make us -- and make significant progress towards the achievement of our long-term financial targets. This concludes our prepared remarks. We'll now open for questions. Operator: [Operator Instructions] And our first question comes from the line of John Franzreb of Sidoti & Co. John Franzreb: I just want to start with where you finished about those 2 projects. It doesn't seem like there's much in common with them, and it seems like the start dates are probably due in 2027, if not later. But I'm curious if that suggests that the competitive landscape as one was rebid and when the terms were changed a bit, the competitive landscape we're getting a little bit tougher for larger projects out there? John Hewitt: I don't think so. I don't think both those situations were really not associated with as you pointed, the competitive landscape. I think it's just the way the larger project, as Kevin had said, we've been in our backlog for almost 2 years, and there was a lot of scope and design changes that were going on between the owner of the project and our client. And I think the ultimate client, the owner decided that they were going to just change their execution strategy and try and do it in a different way. . And so -- and then the other project, really, I frankly, applaud our teams for not being sucked into taking a job that had a much higher risk component, certainly one that we were not given additional remuneration for to take on that risk. And I think we're able to make that decision to do that because there's a significant amount of opportunities in the marketplace for that kind of work, where we've got a very strong brand position. We've got a very strong position in those markets. And so I think at the end of the day, it was a positive thing, particularly when neither one of those projects really impact our fiscal 2026. John Franzreb: Got it. And John, I might be reading too much into this. But I think in the prepared remarks, you mentioned that midsized projects are growing. But later in your prepared remarks, you said that you look for a reacceleration of large project work. Did I hear that properly? And if so, what's the timing of when you expect large jobs to be let out again? John Hewitt: Yes. I mean we put some pretty large projects into our backlog 18 months ago. And so it's just the timing of the development of the bigger energy facilities, certainly around LNG and NGLs, ammonia jobs. It takes -- just takes longer to get those things through a proposal process and development process. And so there's a number of those projects out there that we are tracking. We may be providing upfront feed work for, so maybe some engineering development, scheduling, budgeting, helping some of our core clients in those markets that are continuing to add more infrastructure or planning to add more infrastructure. And so it's just a timing thing. And so we're really comfortable about our positioning there, the number of opportunities that are out there that we're going to be able to play a role in. And so -- but in my comment there is the -- over through this fiscal year, there continues to be a lot of what we call mid-scale projects available to us. I think the -- we announced the DRP project this morning, which is -- went into backlog in our first quarter, typical kind of projects that we see out there in our pipeline that we're currently bidding on or have bid and that we're working through details with the clients on that. So each of those projects individually, they're not short-term projects. They may not be a 3-year project, but they could be 12 to 18 months. They allow us to continue to maintain a strong backlog to really build our teams as the bigger projects come down through the opportunity pipeline. And so I feel really good about, a, our ability to continue to maintain a solid backlog and to continue to strengthen the company's operations through a lot of these, what you'd call smaller projects. Now these projects are certainly aren't tiny, but they're not the kind of the mega stuff for us, the mega stuff that we put in the backlog 18 months ago. John Franzreb: Understood. Just a question on the restructuring. I'm wondering how that changes the breakeven dynamics? And if there's any other things that you're thinking about as far as the year ahead or any of the other kind of actions? Kevin Cavanah: Yes. So it does have a good impact on our cost structure, decreases that, which does lower our breakeven point. And at this time last year, we were talking about it took us $225 million quarterly revenue to get to breakeven. That's decreased to somewhere between $210 million and $215 million to get to breakeven. It's those changes also decreased the level of revenue required for us to reach full construction overhead cost recovery. That's now around $250 million, and it decreased the amount of revenue we need to get our SG&A down to our 6.5% target. That's also down to $250 million. So that definitely had a positive impact on the earnings power of the company. As we mentioned, we're substantially complete with the restructuring items that would have a cost impact. So there may be some minimal costs that flow through the rest of the year, but not much is expected there. With that said, we're continuing to focus on improving the business and have actions and plans in place to address all the issues within the -- throughout the business to continue to focus on returning to profitability and producing a strong bottom line on a quarter-over-quarter basis. Operator: Our next question comes from the line of Augie Smith of D.A. Davidson. Augie Smith: To begin, can you guys touch a bit more on kind of what projects you're targeting within the gas power project space? In previous conversations, you had mentioned you're looking at some gas power plant work, but kind of more specifically, what are your capabilities there? And how do you see that playing out moving forward? And then is this something we should be considering for fiscal '26? John Hewitt: Yes. So if you've been around us for a while, when there was a lot more activity in the late '90s, early 2000s, we, as a company and part of our legacy members of our company were involved in a number of the larger combined cycle gas-fired power plant build out across the country. California, Ohio, into Pennsylvania. So a variety of different areas. So not only as acting as a general contractor on those projects, but in some cases, we would provide the centerline erection, boiler erection, the mechanical piping systems. And so we have those skill sets reside in the organization. We have those capabilities. . Over the last -- certainly the last few years as that market flattened out pre-COVID, those resources were applied into other industries and other markets that were maybe gaining strength. So we can see in the current market for power generation and a combination of increased demand for generation, looking for more sustainability, more reliability and maybe a little cleaner generation moving from coal to natural gas. So it plays very well for us. So we have those -- all those construction skill sets to not only have a role in the construction of new power generation, but also to do all the backup fueling, natural gas and LNG as well as peak shaving terminals. So we have a very strong brand position there. And so if you think about upstream from the new major demand for generation back up into existing power suppliers, they need to expand their generation resources. They need to make sure they had reliable generation, backup fuel for that generation. And so all those things are creating project opportunities for us. And frankly, in our opportunity pipeline, I would expect that to grow here over the next year as more power generating related projects come into -- move from our prospects phase into our opportunity pipeline. Augie Smith: Okay. Awesome. And then kind of shifting gears again back to the backlog. So obviously, backlog was impacted this quarter by the removal of those 2 awards. But kind of moving forward, should we continue to view backlog in the $1 billion-plus range? And then kind of more specifically, you guys mentioned that the Process and Industrial Facilities project that was removed was because the client wanted to split it up into multiple bids. Do you guys envision this kind of becoming a pattern with other clients as well? Or do you guys think of this as more of a one-off? John Hewitt: Yes. I think that's a one-off situation for -- at least for the projects that we're involved in. I would say what we're seeing more of a turn is clients that are trying to lock up resources and construction -- engineering and construction capabilities. And so in some cases, they are looking at alliances, looking at partnering agreements, looking at more better risk sharing through reimbursable kind of contracts. So I think we're in that place in the market right now where it's becoming -- I hate to use the term, it's becoming a seller's market. But certainly, I think that pendulum is moving a little bit in some areas and some regions of the country where you're going to see more contractors getting locked up with owners to get their infrastructure put in place. So I think right now, it's a pretty good place to be in, a, to have the kind of brand strength that we have and capabilities in the markets we can perform in. And -- but not just for us, certainly for some of our peers as well. Operator: I'm showing no further questions at this time. I'd now like to turn it back to Kellie Smythe for closing remarks. Kellie Smythe: Thank you. As a reminder, the Sidoti & Company Year-end Virtual Investor Conference is scheduled for December 10 and 11. We will also be participating for the first time in the Northland Capital Markets Virtual Growth Conference on December 16, 2025. If you're participating, we look forward to speaking with you. Additionally, if you'd like to have a conversation with management, please contact me through the Matrix Service Company Investor Relations website. You may also sign up to receive MTRX news by scanning the QR code on your screen. Thank you for your time. Operator: Thank you for your participation in today's conference. This concludes the program. You may now disconnect.
Operator: Good morning. My name is Marissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Primo Brand Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Logan Grosenbacher. Logan Grosenbacher: Welcome to Primo Brands Corporation's Third Quarter 2025 Earnings Conference Call. The call is being webcast live on Primo brands website at ir.primobrands.com and will be available there for playback. This conference call contains forward-looking statements regarding the company's future financial results and operational trends, estimated synergies, impacts from economic factors and other matters. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's quarterly report on Form 10-Q and other filings with the SEC. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements, except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP, when the data is capable of being estimated is included in the company's third quarter earnings announcement released earlier this morning or in the Investor Relations section of the company's website at ir.primobrands.com. In addition to slides accompanying today's webcast to assist you through our discussion, we have included a copy of the presentation and a supplemental earnings deck on our website. Certain information discussed on this call concerning our industry and market position is based on information from third-party sources that we have not independently verified and is subject to uncertainty. I'm joined today by Dean Metropoulos, a member of the Board of Directors and former Nonexecutive Chairman; Eric Foss, Primo Brands Chairman and Chief Executive Officer; and David Hass, our Chief Financial Officer. Our prepared remarks will begin with Dean discussing the leadership transition we announced this morning. Following that, David will discuss the third quarter performance of Primo Brands and the outlook for the full year 2025. And then Eric will share his thoughts on the business as he steps into the role as Chairman and CEO. Following that, Eric and David will take your questions. With that, I will now turn the call over to Dean. Dean Metropoulos: Good morning, and thank you, everyone, for joining us. As you have probably seen this morning, we announced that the Primo Brands Board of Directors appointed Eric Foss as Chairman and Chief Executive Officer. Eric is an experienced executive, having served as Chairman and CEO of Global Consumer businesses. He has served as Director of the company's Board and its predecessor, Primo Water. I welcome Eric's energy and abilities as a transformative leader. He is known for his people-first leadership philosophy, brand-building experience, operational and executional expertise and the ability to drive long-term growth through customer focus, innovation and creating a winning culture. He's highly qualified to lead Primo Brands future growth and value creation. I want to also express our deep confidence in the future of Primo Brands with its unique historic brands and unmatched and now highly integrated and efficient national network that will reach consumers in every aspect of their lives. In addition, Primo Brands is a major beneficiary of strong tailwinds that are driven by an unprecedented consumer focus on healthy hydration. We're all very confident that Eric will lead Primo brands in this exciting new future, and we thank all of you investors for the continued support and interest in our Primo brands. Thank you. In conversations with the Board, as we move into the next phase, following our breakthrough merger and integration, now is the right time for me to step away as Non-Executive Chairman. I will remain on the Board as a director and will support Eric during the transition. Robbert will lead the company and the Board to pursue other interests. We want to thank him for his hard work and contribution to the consolidation and integration of Primo Water and BlueTriton Brands during the past year, and we wish him continued success. I want to express my deep confidence in Eric as he assumes his new role and thank all of you again for your continued interest in Primo Brands. With that, let us turn the call over to David. Thank you. David? David Hass: Thank you, and good morning, everyone. As you know, we announced a lot of news this morning. In parallel with today's management transition, our team has been hard at work decisively executing against our strategy to drive organic brand growth, synergy capture and operational excellence across our platform as our integration progresses. We are working with a clear sense of urgency to realize our potential as the leading branded bottled water player in North America an important category that consumers continue to rely on for everyday healthy hydration. We are pleased that improvements in operational and financial performance in our Q3 2025 results demonstrate the resilience in our business, strength of our brands and success across channels and offerings, reinforcing our confidence that Primo brands will return to delivering against our long-term financial algorithm. Overall, for the third quarter, we generated net sales of $1.766 billion, a 1.6% comparable year-over-year decline, but a 90 basis point improvement from the 2.5% comparable year-over-year decline in the second quarter. Our top line results reflect ongoing unit case volume growth, which increased 0.7% versus the prior year period with investment in price and promotion in our home and office delivery network as we prioritized customer retention during the quarter. We delivered profitability ahead of expectations with comparable adjusted EBITDA growth of 6.8% year-over-year to $404.5 million for a margin of 22.9%. I will discuss these results in more detail shortly. First, let me turn to an update on our integration and synergy capture. This summer, we worked with a sense of urgency to remediate challenges that emerged in our delivery business. And I am pleased to report that service levels are now back to pre-integration levels. Importantly, demand for our 5-gallon product remains strong as evidenced by the year-over-year net sales growth for our exchange and refill offerings where we continue to grow distribution. Large format unit volumes also grew sequentially within the quarter, and we anticipate direct delivery customer base improvements as we exit 2025, an important indicator that our integration efforts are back on track. Our delivery service rate, or DSR, is currently back to approximately 95%, consistent with historical levels. And our relationship Net Promoter Score is continuing to trend in a positive direction from July lows. At the same time, our announced synergy plan remains on track and we are confident we will achieve the $200 million and $300 million run rate targets by 2025 and 2026 year-end, respectively. To date, we have now closed 49 facilities or 16% of our premerger footprint, while optimizing head count to enhance productivity and efficiency. This fall, we seamlessly completed our latest round of integration, which gives me confidence in our final two rounds of integration as they are far less complex and will proceed smoothly. We are particularly excited about the future growth and margin prospects as we optimize routes and lean into cross-selling our brands, products and services. From our viewpoint, we believe that we are in the early innings of consolidating our position as a durable branded category leader. Primo Brands has a strong arsenal to drive long-term value creation through several foundational elements. First, we are anchored by our iconic brands with deep heritage, such as Poland Spring and Pure Life, coupled with our emerging growth leaders Saratoga and the Mountain Valley as well as the Primo brand. Together, these give us great customer awareness and resilience that will help carry our momentum. Second, we enjoy the benefit of being fully integrated from spring sources direct to our consumer. As well as one of the few branded beverage companies that owns our own Spring assets, which helps us sustain our water stewardship initiatives. Third, Primo Brands is the #1 player in the U.S. retail branded bottled water category by volume share. In Q3, we increased both volume and dollar market share by 15 basis points and by 25 basis points, respectively, according to Circana. Primo Brands was the only scaled bottled water company to grow volumes in Q3. Fourth, we expect that our extensive market reach, as demonstrated by our access to customers through more than 200,000 retail outlets will help propel us into the second position in liquid refreshment beverages and provide a competitive edge for our business. We are making steady progress towards returning to our growth algorithm and have a clear line of sight to accelerating net sales, profitability gains and increased free cash flows as the calendar advances towards 2026. Now turning to results. As a reminder, the GAAP financial comparisons in this morning's press release reflect the Q3 2025 results of the new Primo Brand versus the 2024 results of the legacy BlueTriton business. This is standard GAAP reporting following a merger transaction, which can lead to growth metrics that are not comparable. To assist with the comparisons that include both entities in the prior year period, we will be primarily discussing comparable results while adjusting for the exited Eastern Canadian operations for both years 2024 and 2025. Year-to-date, comparable net sales were down slightly by 0.5%, when compared to the prior year at the 9-month mark. When factoring in the leap day impact, normalized comparable net sales decreased by 0.2%. As a reminder, our year-to-date net sales results reflect the impact of the Hawkins tornado of approximately $27 million. The cumulative impact of these activities is approximately $45 million, which would have put the business slightly ahead versus the prior year. While off our algorithm for 2025, we believe these results demonstrate the resilience of our business even with our short-term disruption in the direct delivery business. At the comparable adjusted EBITDA line, we were able to capture a year-to-date increase of 6.4%, well ahead of our comparable net sales growth, while expanding comparable adjusted EBITDA margin by 140 basis points. With that as the backdrop, let me share the financial details of Q3. Comparable net sales in the quarter were $1.766 billion, which declined approximately $29 million or 1.6% year-over-year. Contributing to our Q3 results was flat volume and pricing mix that was down 1.6%, largely due to mix within our noncore revenue streams like office coffee services and other investments in the retail channel. Within those results, dispensers and office coffee services contributed approximately $14 million to the quarter's $29 million year-over-year reduction, which was as anticipated. Sequentially, net sales increased $36 million from the prior quarter and our year-over-year decline relative to the year-over-year decline in the second quarter improved by 90 basis points. Turning to specifics on the performance. Our branded retail business delivered 2% net sales growth in the quarter, ahead of category growth driven by exceptional brand strength and remarkable distribution expansion of 12% in total points of distribution. This strong distribution growth positions us well for future quarters as we expect these new placements will mature into velocity gains. The combination of expanded household reach and enhanced retail presence, demonstrates the strength of our brand portfolio and our ability to execute. In Q3, we continued to see strong results from our premium water portfolio products with Mountain Valley and Saratoga. Combined, premium net sales increased more than 44% year-over-year. Moving into the direct delivery business. As a reminder, in our slides, we list our main net sales disclosure channels for Primo Brand. Our direct delivery channel includes the home and office delivery business, water filtration, water exchange deliveries to our retail partners and our office coffee service that we are in the process of winding down by year-end. The dispenser and refill businesses are separate and listed across the various retail channels within each of the account relationships. For the quarter, the comparable net sales of direct delivery included a decline of 6.5% or approximately $47 million. The Office Coffee Services or OCS business, that reports within this disclosure channel, accounts for approximately $8.2 million or 113 basis points of decline, which came in as anticipated. Separately, credits provided to customers in the direct delivery business increased by $3.7 million year-over-year in the quarter. We believe this increase is temporary as we prioritized retention during the integration disruptions and will return to normalized levels as we exit 2025. The cumulative impact of these items was approximately $12 million, which would have resulted in the channel being down 4.9% versus the prior year. As we previously shared, our direct delivery integration challenges in Q2 occurred over a shorter period as the disruption began in late May through June with Q3 exposed to a longer window of disruption. This disruption was balanced with improving service that continues to this day. It was clear that customers experienced peak disruption in July and the direct delivery business has recovered into quarter end and further to today's earnings call. Our goal remains to improve customer volumes to both existing and new household and commercial customers, as well as resume our cross-sell and upsell activities. As a reminder, our home and office delivery business has a known base between residential and commercial customers. Our exchange and refill businesses have an implied user base of customers transacting directly with our retail partners, but we can estimate this from buying patterns. These customers continue to grow uninterrupted through this period. Going forward, new user creation continues through the sale and rent of our dispensers, the razor, as well as new customer sign-ups through our digital and club channel opportunities and additional households adopting self-service exchange or refill services. This led to volume growth in Refill and Exchange in Q3. Comparable adjusted EBITDA increased 6.8% to $404.5 million, with comparable adjusted EBITDA margins of 22.9%, an increase of 180 basis points versus the prior year. Within these results, our synergy capture continued, although some of the stabilization efforts remain in the business as we improve our product supply and deliveries to meet the demand of our direct delivery customers. Turning to the balance sheet and cash flows. At the end of the third quarter, our debt gross of deferred financing costs and discounts totaled approximately $5.2 billion. Our $750 million revolving credit facility remains undrawn at the end of the third quarter, providing us with approximately $612 million of available liquidity after accounting for standby letters of credit totaling approximately $138 million. Our liquidity remains strong with approximately $423 million of unrestricted cash on the balance sheet. When combined with the $612 million of availability under our revolving credit facility, our total liquidity is approximately $1 billion. At the end of the third quarter, our net leverage ratio was 3.37x. Moving to cash generated from the business. In the third quarter, Primo Brands generated $283.4 million of cash flow from operations. When accounting for significant items, including, but not limited to our integration and merger activities, our cash flow from operations would have totaled $362.4 million. Additionally, we invested $51.3 million in capital expenditures, excluding integration-related and natural disaster Hawkins related capital expenditures which resulted in adjusted free cash flow of $311.1 million. When compared to the prior year, on a combined basis, this resulted in adjusted free cash flow growth of $15.9 million. We also closely track our conversion of adjusted free cash flow to adjusted EBITDA. On a trailing 12-month basis, our adjusted free cash flow totaled $733.9 million yielding a conversion ratio of 51.9%. Looking ahead, we remain focused on disciplined capital allocation while maintaining a strong balance sheet to support our ongoing integration and organic growth initiatives. We plan to continue to prioritize reducing our debt to our medium-term net leverage target of 2 to 2.5x and plan to take advantage of opportunities to repurchase shares with our newly authorized share repurchase program. Since our recent authorization, we've repurchased $73.2 million of our stock and approximately 3 million shares. There remains approximately $177 million on our share repurchase authorization. Yesterday, our Board of Directors authorized another quarterly dividend of $0.10 per Class A common share, which represents an 11% increase over last year's quarterly dividend rate at Primo Water. Before turning to our financial outlook, I want to provide an update on our last international divestiture transaction that closed after our quarter ended. On October 23, 2025, we completed the sale of our Israel business for approximately $42 million in net proceeds. The sale proceeds will be reflected in our cash balance when we report year-end results in February next year. I want to thank the local Israel management team and all associates of Mey Eden for their tireless efforts in running the business with flawless execution during the last 2 years. As we know, this has not been a normal operating environment since the events of October 7, 2023, but the team remained focused on serving their customers while also protecting the safety of their fellow associates. Moving to our financial outlook. We remain confident in the progression of the business, notably our retail performance. Our Q3 retail performance exceeded our estimates, and we remain confident that the business has stabilized from the combination of the impact post-Hawkins tornado and weather events that challenged first half performance. In fact, we continue to gain share in retail scan data and see this momentum building into 2026. Similarly, our Exchange and Refill businesses experienced strong performance in Q3 and we expect this to continue into year-end into 2026. Lastly, our OCS business continues on track with our exit plan and our dispenser business also remains on track with the decline previously stated into year-end. Based on recent trade relations, we are likely to enter 2026 with a more favorable tariff environment, alleviating some of the headwinds faced in 2025. Narrowing in on our direct delivery business, we continue to see signs of recovery. The remaining gap between our operational and financial recovery and our original guidance expectation continues to be unit volumes at the customer level. Our product supply was originally disrupted, but we have now stabilized and increased our days on hand of inventory. We continue making progress expanding our customer reach as a result of specific programs. First, we are expanding our Club booth program at Costco, Sam's Club and BJ's and we are seeing an exciting level of club additions since the end of the quarter. These partnerships help build awareness, demonstrate our quality and promote our robust customer service. Second, we have specific strategic digital acquisition campaigns in place to help expand our customer footprint. Our digital marketing team is focusing on increasing our top of funnel and bringing in new customers through various online platforms, including web, social media and applications. We are seeing strong results from these efforts as our digital customer acquisitions grew 8.2% versus Q3 of last year. Last, we believe this momentum combined with the reduced customer churn from improved execution and improved public sentiment is positioning us well to mitigate the volume impact as we turn the page towards 2026. The outliers are onetime activities like Hawkins, dispensers and OCS are all coming in according to our original estimated impact as is our retail business. With the ongoing recovery in our direct delivery business, this is requiring a shift in our net sales guidance range. We still remain confident in the recovery of the business, but the recovery path is not at the right magnitude to deliver the midpoint of our previous guidance. We now expect a net sales decline in the low single digits versus the prior year. This shift in guidance is solely related to the recovery path of the home and office delivery business, within the direct delivery disclosure channel. On the adjusted EBITDA side, our path of stabilizing our service to customers has offset some of the gains of the synergy capture. However, this will help transition us into 2026 with optimal customer and volume recovery. With that, we are moving our adjusted EBITDA guidance to approximately $1.45 billion or 21.8% margin, up 180 basis points from prior year. The majority of this shift is resulting flow-through of the shift in the net sales guidance with some additional expenses related to supporting the business into year-end. We are reiterating our adjusted free cash flow guidance with a range between $740 million to $760 million. Looking ahead to 2026, we see several key growth opportunities that we believe will support the return to our algorithm. First, we are fueling the growth of our premium brands, Mountain Valley and Saratoga by investing in new capacity including more than $66 million in our new Hot Springs facility for Mountain Valley as well as a new bottling factory in Texas for Saratoga. Both brands have been growing consistently robust double-digit while being capacity constrained, and these investments will support new highly accretive growth. Second, we are focused on sustained total distribution point growth starting with Mass and Club. In September, we were awarded distribution and water exchange at Sam's Club, adding to the over 1,000 incremental exchange racks installed earlier this year to support our customer demand. This distribution is expected to drive accretive and profitable growth in our large format network, particularly as we introduce higher value regional spring water brands and implement harmonized pricing actions across our exchange and refill offerings. Simultaneously, we continue to see strong performance from our case back distribution in alternative channels like convenience, foodservice and omnichannel. Finally, we are preparing to implement pricing actions across our retail exchange and refill offerings. While we continue to prioritize retention in our home and office network for direct delivery, we are charting this offerings pricing strategy, which we will prioritize in 2026. In the meantime, we have taken price, pricing and harmonized terms for dispenser purchases in our Club channel effective last week. At retail, we are sharpening our capabilities to better blend price and mix growth with volume growth by improving trade spend efficiency, taking price and optimizing revenue growth management and price pack architecture. These activities will contribute to our 2026 top line growth. Looking ahead, I am confident in our ability to deliver value for all stakeholders. We are a category leader in North America, with a comprehensive portfolio to serve all usage occasions. We have a differentiated coast-to-coast network, powerful reach in retail and a robust delivery footprint. And we continue to act with urgency, agility and focus on operational excellence and the best-in-class service that our customers have come to expect from Primo Brands reinforcing our performance in 2026 and beyond. With that, I'd like to turn the call over to Eric. Eric Foss: Thank you, David. It's great to be here, and thanks to everyone for joining us today. Let me start by saying what a privilege it is to be Primo Brands new Chairman and CEO. For those of you who don't know me, I've spent my entire career running global consumer-centric asset and people-intensive business models in the food and beverage industries. As CEO, I believe the purpose of the company is really the centerpiece of any enterprise. Our purpose as the premier healthy hydration company in North America is to hydrate a healthy America each and every day. I'd like to thank all of my Primo brands teammates for their passion and tireless efforts in focusing on our consumers and customers every day. Over the last couple of years as a member of the Board of Directors of legacy Primo and now Primo Brands, I've had a front row seat and a hand in helping to create Primo brands to be a bigger, stronger and faster company with not just a purpose, but with promise in a bright, bright future. Since coming together about a year ago, our team has made a lot of progress. There's still more work to do to achieve our full potential, consistently meet our customers' expectations and deliver results that are consistent with our commitment to our shareholders. I feel blessed to step into the CEO role of a company that has strong leading brands across all consumer consumption and channel purchase options. I'm also fortunate to have an exceptional and flexible go-to-market system that helps us drive speed, reach and frequency. That aims to meet or exceed the expectations of our customers. We have a passionate, capable and committed team. And I'm a big believer in the phrase, the team with the best players wins. Let me spend a minute sharing some of my thoughts on where we are just about 1 year into our journey as Primo Brands. First, the investment thesis communicated at our Investor Day in early 2025 is fully intact. We compete in an incredibly attractive category. Bottled water isn't just the largest beverage category in the United States, it's continuing to grow. The long-term outlook is powered by an aging population and an increased focus on health and wellness. What's just as important, our products are sourced right here at home. We're locally manufactured and more than 98% of our sales come from the United States. Primo Brands is the #1 player in the U.S. retail branded bottled water category by volume share. Our portfolio of leading brands have deep heritage and consumer loyalty. We have a diversified portfolio with the potential to serve people when they want, where they want and how they want to hydrate. From iconic regional spring brands to pure and premium offerings, we give consumers a choice. And when it comes to premium, we have an unmatched portfolio with tremendous potential with our Saratoga Springs and Mountain Valley brands. We're going to keep investing in our capabilities in building these brands and expanding distribution so that they can reach their full potential. Just last week, we broke ground on a new greenfield production facility for Mountain Valley in Hot Springs, Arkansas, set to open in spring of 2026. This merger has given us an opportunity to unlock the true power of Primo through synergy capture, ongoing cost and productivity that can be either reinvested in growth for expanding our margins. Over the coming days and weeks, my focus is simple: to listen and learn from our consumers, our customers, our employees and our shareholders. That will help shape our agenda for the future. In the near term, my focus really centers on four areas. First is to get the business growing. We'll do that by building deeper connections with our consumers, focusing on brand building and innovation and making sure we sell, serve and execute with excellence. We'll tap into the full potential of our two leading premium brands, Saratoga Springs and Mountain Valley. Second, we're going to raise our game in customer service. We'll sharpen our service and execution making sure we fully address and improve customer service levels. My third focus is on creating a winning culture, one that's anchored in performance and recognition. By ensuring we recognize the hard work and achievement of our people every day. And finally, I'll work with this dedicated team to make sure we deliver on our financial commitments by growing the top line, driving earnings, generating free cash flow and creating lasting value for our shareholders. In closing, thank you for your continued interest in Primo Brands. Logan Grosenbacher: Thanks, Eric. To ensure we address as many of your questions as possible, please limit yourself to one question only. And if we have time remaining, we will repoll for additional questions. Operator, please open the line for questions. Operator: [Operator Instructions] And your first question comes from Derek Lessard with TD Cowen. Derek Lessard: I just had one for me. Is there anything that fundamentally changed from the time you closed last year to now, I mean, you had a hiccup in Q2 that seems to be fixed. Anything that we should be thinking about that justified the leadership change? David Hass: Thanks, Derek. This is David. I think, again, the Board felt this was the appropriate time for a change. They've made that change with Eric stepping into the role. Fundamentally, no. I mean, from the macro perspective, our consumer remains very healthy. The category remains very healthy. In the retail part of our business, the share gains continue to express the brand strength that we possess, and how our consumers are gravitating to those brands, notably the premium side, which again, put another quarter up of 44% growth. This all largely remains contained to the home and office side within the direct delivery channel. But no, I think broadly speaking, this was the time for a change, and that's what happened. Eric Foss: And Derek, it's Eric. If you wouldn't mind, I'd just make a brief comment. I think as I step in, I think the Board felt like this was the right step for the company at this point in its journey. I think David referenced that and it's really all around maximizing the full potential of this business. So I want to emphasize that the long-term investment thesis here is still fully intact, right? We have a very attractive category, large and growing. As you continue to see consumer tailwinds around health and wellness and hydration, that's going to continue to be at the forefront of their decision-making matrix. And we're the #1 player. We've got leading brands. In the quarter, we actually saw an improvement in household penetration. We saw volume growth on the retail side, along with some share momentum. So I really do think that the long-term kind of value creation thesis and the financial model is still fully intact. We have an issue that, as you mentioned, started a quarter ago that we've got to get our hands around, which is really around last mile direct delivery. Derek Lessard: Okay. That's great detail. And then just maybe one follow-up to that, David, is it -- I guess, is it safe to assume that the majority of the integration challenges are now behind you guys? David Hass: Yes. Again, as I mentioned in my prepared remarks, product availability and stability and days on hand is back to their normal potential. Most of the routes are performing at or above expectations from pre-merger. And then when you look at some of the sort of consumer-oriented data points, call volumes are now back below sort of pre-integration levels. And then consumer sentiment, while that I understandably takes a little bit of time to rebuild trust, those that are choosing to post are starting to improve their sentiment and the large negative sentiment spikes we saw during the peak integration challenges have pretty much dissipated. So we feel very comfortable there. It's just a matter of time of resuming volumes to those customers and continuing day in and day out of building trust back with those customers. Derek Lessard: Okay. And congrats to Eric. Looking forward to working with you. Operator: Your next question comes from Daniel Moore with CJS Securities. Dan Moore: Yes. I wanted to ask, I know we'll get into a lot of detail in terms of the numbers, but high level, either for Dean or Eric or both, we had the disruptor Hawkins that said, the integration much more complex and challenging than we expected or believed it to be. Was it simply a case of moving too quickly? Or are there sort of naturally larger dissynergies at least initially involved than expected, projected. Any high-level thoughts there would be really appreciated? Eric Foss: Sure, Daniel. It's Eric. I'll take that. I think again, to use the term, I think most of the direct delivery disruption has been self-inflicted. And sometimes mergers can be complicated and more complex than maybe even anticipated going into them. I do think we probably moved too far too fast on some of the various integration work streams. There's no doubt that, that speed impacted product supply. There's no doubt that, that speed impacted our ability to get through a lot of the warehouse closures and route realignment without disruption. And the ultimate output of that was the customer service issues that we've highlighted. There are also where, I believe, some just integration issues related to the technology move over. But at the end of the day, as David said, the team has really been and continues to work hard to address those and correct those. I think in the quarter, David highlighted this, we saw continued improvement on multiple fronts. I think on the product supply front, we're pretty much corrected on that relative to in-stock conditions. But we still have work to do at the moment of truth around making sure our deliveries are on time with the right product. We did see each of the kind of process metrics around customer call volume and did see both improvements in the quarter on customer sat scores. But again, there is more work to do on this front to completely get the issues solved and corrected. Dan Moore: Really helpful. And a quick follow-up. Are there -- if we sort of look at Q3 as a baseline, is there more cost investments that will need to be made in terms of routes, drivers, customer service, marketing, et cetera, kind of more permanent costs that may need to incur relative to our initial expectations to maintain that customer service. David Hass: Yes, Dan, this is David. You'd be right there. Across Q2 and Q3, we started to move some routes back in to stabilize success rate across the customer visit. Obviously, we've had some, what I'll call, middle mile or interbranch transfer cost to sort of keep product supply stable. Those will largely dissipate and again, once we have a more stable and consistent pattern of delivery success, which has been happening post quarter to today's call, that will allow us to start to slowly work back out some of the excess routes or what I'll call over time or weekend support, which will bring our units per route up. And as you are familiar, legacy Primo Water really had a large drive toward that productivity at the route level, that will resume. And as we head into '26, we'll really start attacking miles, which was really part of the main benefit of this merger, which was the density of the route between the two customer bases. So yes, I would say that, in short, we've had some surges in costs to both handle call center and the routes and the labor across the middle mile. And those things will start to unwind as we exit the year. And that puts us back into allowing the synergy capture to start to reveal itself more clearly in the P&L. Operator: Your next question comes from Eric Serotta with Morgan Stanley. . Eric Serotta: So a shorter-term question and a longer-term one. In terms of the short term, can you help us unpack the fourth quarter guidance between direct delivery and retail? It would seem that if retail is going to be -- growing even modestly, the guidance implies a pretty steep decline in direct delivery. And along with that, like what was the exit rate, whether you want to talk September or recent weeks, like what is HOD running in terms of a year-on-year rate now? And then longer term, just wanted to circle back on the prior question, make sure I understood correctly. You're expecting the incremental costs to dissipate? Are you reaffirming the earlier back from February, the '26, '27 EBITDA margin targets or should we assume that between or EBITDA dollar target, should -- or should we assume that even if the majority of these costs dissipate that there is some incremental cost that will be ongoing that will kind of lower the earnings power versus what you previously thought? David Hass: So yes, as mentioned, a lot of the -- let's go through the exit categories. So like office coffee, exiting on trajectory, the dispenser headwind from tariffs exiting on trajectory, exchange and refill performing to their pretty regular nice growth, nice consistent volumes. And then the retail business, obviously the largest part of our business, once we've been through the Hawkins moment, if you will, and weather being less of a challenge, it's going to perform and exit the year sort of on track with our previous revision back in August, which has about a 2% second half exit rate. So we feel very confident there. Obviously, that leaves us now with the direct delivery business, which is largely the HOD component. As I mentioned, I wanted to clarify just for people who are curious what all goes into that disclosure line in our earnings supplement. And that's largely the HOD part. And so again, we are at a moment where we're successfully visiting customers on schedule. It's accurately and to the maximum potential fulfilling their order, whether that be in the base 5-gallon unit, whether that be in a case pack unit or a premium unit that comes off the route. So again, most of that exit challenge remains just fulfilling volumes to the appropriate level, but we have greatly reduced friction by missing their original dates or things that led to call center or negative sentiment online. Transitioning to the second part of your question around margins. We obviously will have a lower base as we ideally exit the year at $1.45 billion in EBITDA. And approximately 22% margins. From there, we do intend to, again, unwind costs at the end of this year and early in Q1 and then resume sort of our margin expansion walk. Dollars obviously, will be slightly different than the original outline. We are not changing our synergy capture targets. And obviously, we'll look at 2026 when we provide full year guidance likely in February of next year. So again, I think it remains a very healthy story, a very healthy exit on service that's helping sustain our customer retention at this point, but it's really getting back into the merits of this original deal, which is the right route count, the right drivers, the right units per route and the right support cost in the business. Eric Foss: And Eric, I would just add to David's comments. I think as I mentioned earlier, the investment thesis is intact, but the long-term algorithm is also doable, and I want to make sure you hear that from my perspective. We have to get this business growing, and we certainly have plans to do that. But at the same time, we do continue to have margin opportunities. And so I think the way to think about this is there are multiple value creation levers available to us, multiple growth vectors. Obviously, the synergy capture is on track, and it's been executed pretty well, and we'll have ongoing cost and productivity initiatives as well that should lead to improved profitability, free cash flow generation and conversion and wealth creation -- value creation going forward. So again, I want to make sure that is fully, fully recognized. Operator: Your next question comes from Bonnie Herzog with Goldman Sachs. Bonnie Herzog: And Eric, congratulations. I look forward to working with you again. I also have a couple of questions on your direct delivery business. I guess, first, I really want to make sure I understand what drove the sequential deterioration in Q3. I mean did you lose more customers in Q3 than what you lost in Q2. And then I guess I'm trying to understand why the implied decline in Q4 is worse if service is improving. And then ultimately, curious if you expect these declines to persist into the first half of next year as well. And do you have any visibility into a return to your long-term algo for your total company of the 3% to 5%? I mean, should we think about that more of a second half '26 or '27 story? Just any help there would be appreciated. David Hass: Sure, Bonnie. Thanks. This is David. Again, we believe that July was basically the peak disruption in customers where our add was not outpacing sort of the churn or the challenge from sort of our integration friction. As we've exited Q3 and entered into October, that has largely stabilized. We believe we'll be at a point where we will be able to get to a net positive customer position in the month itself as we exit the year, and that requires us to then continue to recuperate some of those lost volumes from that period of time, if you will, of where that ultimate friction occurred with the consumer and our delivery customer. So it's largely isolated solely to the home and office side. Exchange is a business that runs off that truck. That business has resumed its growth as the consumer is shopping every day at our regional and national chains like Lowe's, Walmart, Home Depot, et cetera. When you move into next year, Q1 obviously was a 3% positive quarter, 4.2%, I believe, when we leap adjust it. So that will be obviously a difficult quarter to compare based on the exit rate and sort of our run rate within that home and office delivery business, but our optimism remains in the other parts of the company. And again, we'll continue to repair customer volumes in the home and office side that will get us back towards that long-term algorithm. But we'll comment specifically on '26 and longer-term outlook in February. Eric, anything else you want to add there? Eric Foss: No. Operator: Your next question comes from Steve Powers with Deutsche Bank. Stephen Robert Powers: I guess following up on that. So if I heard you right, then net customer add losses will be assuming -- I don't know where we are entering the quarter, but if we're going to exit the quarter positive, they should be down relatively thinly -- relatively narrowly, which implies that the -- the sales decline in direct delivery is going to be a combination of either just lower velocity on those customers or lower value per customer because of price inducements or what have you. So is that right? What is the kind of the estimate around those variables? And then how do those -- how does the velocity and the kind of the value per customer pricing kind of dynamic flow into next year as you get back to net customer adds in your... David Hass: Yes. Thanks, Steve, for the question, it's David. With regard to the customers, again, in the closing months here of 2025, we'll be at the monthly level we believe we'll be back to an add position. That will take us a few months to sort of repair some of the losses. Again, what we really focus is on volume. So in the past using the exchange business, using the refill business and other things that consume 5-gallon units, along with the home and office delivery side. We believe we can get back to volume growth. That volume growth has also been complemented by upsell and premium that comes off route. At this point, part of the disruption, we really focused on was getting 5-gallon supply stabilized back into the hands of our branches, back into the hands of our consumers or customers. And as that stabilizes, that should help improve. As we head into '26, we're going to look across price pack architecture for the entire company whether that be retail, premium, our retail-oriented 5-gallon products like exchange or refill or the specific harmonization activities that occur in HOD, which was part of the original thesis that we had of bringing these businesses together with what I would call the pricing matrix that was not aligned appropriately for how we wanted to run the business at the local market level. So those will be all areas available for us with regard to growth vectors that we can sort of improve as we continue to work through the customer part. Stephen Robert Powers: Okay. And just to clarify, when you say net customer adds on a monthly basis, are you saying, you're going to be adding in December versus November? Or are you saying you're going to be adding in December versus last December? David Hass: Yes, we would just be, in the month itself. The adds less the quits of the particular month we'll be back to a positive position in the month itself. And as you -- the more months you string together of that outcome, you obviously start to replace sort of the trough of your base spread. Stephen Robert Powers: So adds versus the end of November? David Hass: That's correct. Operator: Your next question comes from Andrea Teixeira with JPMorgan. Andrea Teixeira: I was just hoping to see if you can speak to the -- kind of consumer dynamics in the purified water, in particular, I know you had increased some promo during the quarter to support some of the affordability we have been seeing in the consumer side. Can you comment to that? And then another question is how you're seeing distribution of the premium segment on the retail side, obviously, unfolding and how you can see this? Obviously, you had this 46% growth in the premium water segment, how we should be thinking as we enter 2026, any particular gains in distribution or even on-premise or off-premise that you wanted to highlight? And from there, also how you're going to balance this price pack architecture as we go into next year? And finally, welcome, Eric. Looking forward to working with you. Eric Foss: Thanks Andrea, it's Eric. I'll start and let David fill in. But I think if you really look at the consumer and how the consumer is engaging with the category and our brands, there's really a lot to like, I think, first and foremost, while you do have a change in consumer sentiment broadly, the reality is, is their appetite for healthy hydration hasn't waned as evidenced by the household penetration numbers in the quarter that were actually up for our brands, and we have a pretty significant penetration advantage versus our other key competitors. If you look at the brands really broadly, I'll come back to premium in a minute, but obviously, premium has been on fire and we'll continue to be on fire given some of the continued opportunities we have and just the brand strength of both Saratoga and Mountain Valley. So -- but at the end of the day, it's really important to come back to the broad, I think, strength of our brand portfolio. We're seeing good growth across that portfolio. The regional springs, Arrowhead, Ice Mountain, Poland Springs, et cetera, we saw in the category at retail. We grew our volume, we grew our revenue, we grew our -- both our volume and value share. So a whole lot to like. Relative to premium, we continue, despite great progress by our sales teams to have distribution opportunities. We're going to continue to invest in capacity. We referenced that in our prepared comments. The way I would describe it is we are in the very, very, very early innings of a long runway of opportunity for those brands. And I think relative to your pricing question, we're going to be balanced relative to the growth algorithm. It's going to be volume and price. You can expect -- other mechanisms. Operator: Cut out there a little bit during that answer. Eric Foss: You have us now? Operator: We have you now. Yes. Thank you for confirming. Eric Foss: I'm not sure where I was cut off. So let me double back. I think my point was from a consumer standpoint, really, really encouraging. We continue to create household penetration, both the category and our brands. Premium has been on fire. Saratoga and Mountain Valley have tremendous upside and runway ahead, good growth on our regional spring water. So at the end of the day, at retail, we grew our volume, grew our value share. Strong performance will continue on premium, distribution opportunities and investment in capacity, early innings with long runway ahead of us. And on pricing, I was mentioning that we'll be balanced in our approach, but start with the consumer, make sure we understand how she defines value and again, take advantage of that opportunity as we walk forward. David? David Hass: Andrea, I think all I'd add to that is as we head into '26, we've talked about the Mountain Valley supply constraint. That's coming online in the spring and summer. And we really think that helps unlock -- within these results, I would say Mountain Valley has been held back a little bit, so I really think that unlocks us for '26. Andrea Teixeira: That's super helpful. I just want to maybe double click on the retail side, especially the purified. Is there any improvement there as you exit the quarter? And then a second clarification with the exit into the Israel? David Hass: We can hear the operator, and I did hear Andrea, but she was cutting out, if there was a follow-up. Andrea Teixeira: Yes, please. If I can just follow up on, as you exit the quarter -- two follow-ups. One, as you exit the quarter, how was the purified performance, just to think about like if the consumer got slightly better as you exit? And then a clarification on the exit of the Israel operations. Like is that -- was that included in a headwind into the quarter or no? David Hass: No, let me start there, please, just to clarify for everyone. Israel had always been in discontinued operations since the announcement of the original international sale. So that had nothing to do with the quarter itself. Andrea Teixeira: From an investor, and I figured that was the case, but yes, I wanted to clarify. David Hass: That's correct. And then with regard to the purified water, largely the disruptions within the home and office delivery space created the challenges there. But at retail, our Pure Life brands and the Primo Water brand that goes to market through the exchange and refill services remains quite strong. Operator: Ladies and gentlemen, due to timing. Our last question will come from Andrew Strelzik with BMO. Andrew Strelzik: When you were talking about the service levels over the last several months, you gave some good kind of regional color about some of the markets that were lagging and kind of how that was progressing. And so I was just hoping to get a sense for the breadth maybe of this fulfillment issue that is ongoing. Is it kind of nationwide? Is it more concentrated in certain areas? Any help around that would be helpful. David Hass: Sure. Thanks, Andrew. So again, we go to market in six divisions. We track our DSR rate that we've talked about throughout the last couple of months of our journey. Again, that exits and sits today -- exited Q3, right around the 93-ish or so percent range. Today, it stands at 95%. Generally, there are a couple of divisions performing above that. And then some of the more slow-to-recover areas have been in the Southeast and the Mid-Atlantic, but those are within 93%, 94%. So again, the overall mean is where we want it. Again, we need to continue to improve the volume of those routes, however. We -- as I mentioned in the prepared remarks, we did go through a wave of integration in September because we had more time to prepare for the team for the change of management, the amount of leaders that went to the market to ensure that success that was very successful. We had very little friction at the consumer or customer level. So again, that really gives us the confidence that as we head into the first quarter with our remaining two waves that the time and the preparation activities that we can put into it is quite helpful for the success of that. So again, I think we're just continuing through improving at the volumetric level at this point. Andrew Strelzik: Okay. And is that challenge also kind of regionally concentrated? Or is that more broad-based? I guess that's what I was -- I mean I guess I was trying to get. David Hass: Yes, it would be in those same regions that we're continuing to support and improve over time. Operator: It's my pleasure to turn the call back over to Eric Foss for closing remarks. Eric Foss: Thank you. So in closing, let me just emphasize the confidence we have in this business looking forward. I think the combination of our brand leadership position, as well as the increased focus on execution and operational performance can and will deliver a resilient top line algorithm as well as value creation going forward. And so I look forward to sharing our progress in the coming quarters. Operator: Ladies and gentlemen, this concludes today's conference call. We thank you so much for your participation. You may now disconnect.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 2025 Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Dan Meziere, Vice President of Investor Relations and Treasurer. Dan, please go ahead. Daniel Meziere: Thank you, Tiffany. Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review our financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 37 and are more fully described in our SEC filings. I will now turn the call over to Kevin. John Akers: Thank you, Dan. As Tuesday is Veterans Day, I would like to take this opportunity to thank those who have served in our armed forces and those currently serving. Approximately 300 of our Atmos Energy teammates are a part of the 18 million Americans who bravely served our country. Thank you for your service. Yesterday, we reported diluted earnings per share of $7.46. This marks the 23rd consecutive year of earnings per share growth. Fiscal '25 also represents the 41st consecutive year of dividend growth. Our fiscal year results reflect the focus and dedication of the entire Atmos Energy team and their continued successful execution of our proven strategy of operating safely and reliably while we modernize our natural gas distribution, transmission and storage systems. Their exceptional work has us well positioned for fiscal '26 and beyond. During fiscal '25, we continue to experience solid customer growth, adding approximately 57,000 residential customers with over 44,000 of those new customers located in Texas. We also added nearly 3,200 commercial customers and 29 industrial customers during fiscal '25. When these industrial customers are fully operational, they are anticipated to consume approximately 4 Bcf of gas annually. This usage is equivalent to adding over 74,000 residential customers on a volumetric basis. Over the last 5 years, we have added nearly 300,000 residential and commercial customers. And over the last 5 years, we've added 225 industrial customers with an estimated annual load of 63 Bcf when fully operational. On a volumetric basis, this is equivalent to adding nearly 1.2 million residential customers. This growing natural gas demand from all of our customer classes continues to demonstrate the vital role natural gas has in economic development across our entire service territory. According to the Texas Workforce Commission for the 12 months ending August, the seasonally adjusted number of employee Texans reached 14.35 million. Texas again added jobs at a faster rate than the nation over the last 12 months, growing at a rate of 1.14%. And Texas was recently ranked the Best State for Business for the 21st year in a row by Chief Executive magazine. According to the North Central Texas Council of Government, the current population estimate for the Metroplex is approximately 8.6 million people as of April 2025. And many analysts project the Metroplex to be the third largest metropolitan area in the U.S. by 2030. The U.S. Census Bureau has the population for Texas at 31.3 million and it is projected that Texas will reach a population of 32.4 million by 2030. Now turning to Atmos Pipeline-Texas. Our Bethel to Groesbeck project is nearing completion of approximately 55 miles of 36-inch pipeline from our Bethel storage facility to our Groesbeck compressor station. This project will provide additional pipeline capacity to transport gas from our Bethel storage facility into the growing DFW Metroplex and the Interstate 35 corridor between Waco, Temple and Austin. This project is anticipated to be in service late this calendar year. APT's Line WA Loop Phase 2 project is also nearing completion of approximately 44 miles of 36-inch pipeline. This phase of the multiyear project will provide additional pipeline capacity from our Line X to the northern areas of the growing DFW Metroplex. This phase is anticipated to be in service late calendar year 2025. APT completed our integrity inspection and verification per Texas code for our Bethel Salt Dome caverns 2 and 3, and we have begun the integrity inspection and verification work on our Bethel cavern #1. This work is expected to continue into late calendar year 2026. Turning to our updated 5-year plan through fiscal 2030. Focus continues to be on safety and reliability through system modernization, being mindful of customer affordability, timely recovery of our costs through our various regulatory mechanisms and maintaining a strong balance sheet. Following our robust 5-year planning process, we plan to invest $26 billion with approximately 85% of that planned investment allocated to safety and reliability. This investment will support the continued modernization of our natural gas distribution, transmission and storage systems and support the growing natural gas demand across our jurisdictions. Approximately $21 billion or 80% of our total planned capital spending is expected to be incurred in Texas. The 5-year plan reflects the impact of Texas House Bill 4384 on our earnings. As a reminder, House Bill 4384 reduces lag in Texas by permitting gas utilities to defer post in-service carrying costs, depreciation and ad valorem taxes associated with non-eligible Rule 8209 capital investments, such as customer growth and system expansion. With the passage of House Bill 4384, we will now begin to recover over 95% of our capital spending within 6 months and 99% within 12 months. We believe the successful execution of our strategy will support earnings per share growth at 6% to 8% from the midpoint of our rebased fiscal '26 EPS guidance. Additionally, we intend to grow the dividend in line with earnings per share growth. Now I'll turn the call over to Chris, who will provide some additional color on fiscal '25 and the fiscal '26 5-year plan, and I'll return later with some closing comments. Chris? Christopher Forsythe: Thank you, Kevin, and good morning, everyone. We appreciate you joining us this morning. Before getting into the details of our fiscal '26 5-year plan, I want to share a few highlights from fiscal '25. As Kevin mentioned, fiscal '25 earnings per share was $7.46. Included in this amount is $0.12 resulting from the adoption of Texas House Bill 4384. Approximately $0.09 was recognized in our distribution business and the remaining $0.03 is recognized at APT. Consolidated capital spending increased to $3.6 billion, 87% dedicated to improving the safety and reliability of our system. In fiscal '25, we replaced over 880 miles of distribution and transmission pipe and nearly 54,000 service lines and rate base increased by 14% to an estimated $21 billion as of September 30. Consolidated O&M, excluding bad debt expense of $874 million came in slightly above the midpoint of our updated guidance for fiscal '25. O&M spending continued to focus on system monitoring and damage prevention activities. We also experienced higher employee-related costs, primarily due to increased headcount to support growth and higher employee training and administrative costs. We had another busy regulatory calendar in fiscal '25. We implemented $334 million in annualized operating income increases excluding the amortization of excess deferred tax liabilities. We also completed general rate cases in Kentucky, portions of our Mid-Tex division and in our West Texas division. Finally, we finished the fiscal year with an equity capitalization of 60% and approximately $4.9 billion of available liquidity, which leaves us well positioned to support our future operations. Of this amount, $1.6 billion relates to forward equity proceeds that we get priced through our ATM program. This amount fully satisfies our fiscal '26 equity needs and a portion of our anticipated fiscal '27 equity needs. Looking forward, we have initiated our fiscal '26 earnings per share guidance in the range of $8.15 to $8.35. Because of the impact from Texas House Bill 4384, we are rebasing our earnings per share guidance beginning this fiscal year. From the midpoint of this rebased guidance range, we anticipate earnings per share growth of 6% to 8% annually, with anticipated earnings per share in fiscal 2030 to be in the range of $10.80 to $11.20. Additionally, this week, Atmos Energy's Board of Directors approved a 168th consecutive quarterly cash dividend with an indicated fiscal '26 annual dividend of $4, a 15% increase over fiscal '25. This increase reflects a rebasing of the dividend to align with the rebased earnings per share guidance. Our updated 5-year plan assumes that we will increase the dividend annually in line with earnings per share growth. Over the next 5 years, we are planning approximately $26 billion in capital spending, with over 85% of our capital allocated to safety and reliability spending. This level of spending is expected to support 13% to 15% annual rate base growth. By the end of fiscal 2030, we anticipate rate base to approximate $42 billion. And in fiscal '26, we anticipate capital spending will approximate $4.2 billion. Approximately $21 billion or 80% of our 5-year spending plan is currently allocated to Texas. Of this amount, approximately $15 billion is planned in our Texas distribution division and approximately $6 billion is planned at APT as it continues to focus on gas supply reliability and supply diversification while fortifying its system to support the growth of its LDC customers. As a reminder, our Texas distribution operations have deferral mechanisms to support the recovery of safety-related spending. Texas House Bill 4384 applies similar deferral treatment to our remaining capital spending in our Texas distribution business and to all of APT's capital spending. As a result, we will now begin to recover 95% of our capital spending within 6 months. We anticipate that approximately 60% of the impact of Texas House Bill 4384 will be recognized in our distribution segment over the 5-year plan. From a revenue perspective, we have assumed normal weather, market conditions and modest customer growth in both of our segments. In fiscal '26, most of our regulatory outcomes are anticipated to come through the execution of our annual regulatory filing process. For these filings, we are assuming existing ROEs, capital structures and regulatory features, meaning we are not assuming the approval of new mechanisms or other new regulatory features. Since the beginning of fiscal '26, we have implemented $146 million in annualized operating income increases in our distribution segment. Of this amount, $139 million relates to the implementation of our annual rate review mechanism in Mid-Tex. Regarding O&M, we continue to assume 4% annual increases driven by system safety, system monitoring and damage prevention activities and employee costs, and we will continue to evaluate options to accelerate compliance-related work as system conditions dictate or other opportunities arise. For fiscal '26, we currently anticipate O&M, excluding bad debt expense to range from $865 million to $885 million. Finally, this 5-year-plan includes approximately $16 billion in incremental long-term financing to support our operations and cash needs, including the expected payment of the corporate alternative minimum tax beginning in fiscal '27. We will continue to use a combination of long-term debt and equity to preserve the strength of our balance sheet, minimize the cost of financing for our customers and reduce financing risk. And we continue to anticipate meeting all of our equity needs through our ATM program. As a reminder, this incremental financing is included our earnings per share guidance for both fiscal '26 and through the 5-year plan ending in fiscal 2030. Thank you very much for your time this morning. Now I'll turn it back over to Kevin for some closing remarks. John Akers: Thank you, Chris. Our operational and financial execution in fiscal '25 has laid the foundation for continued success into fiscal '26 and beyond. Our 5-year plan supports our ability to meet the safety, reliability and economic development expectations of our customers, our communities and our key stakeholders across the service territory. As you've heard me say before, the things that differentiate Atmos Energy are that we operate in a diversified and growing communities that are supportive of natural gas and our investment in natural gas infrastructure to supply their growing economy and energy needs. That 96% of our rate base is situated in 6 of our 8 states that have passed customer choice for all fuels legislation. We operate in regulatory jurisdictions that support reliability, versatility, abundance and affordability of natural gas and the modernization of our natural gas distribution, transmission and storage systems to provide safe and reliable delivery. The strength of our balance sheet and available liquidity. We have a weighted average cost of debt of 4.2% with an average maturity of 17.5 years, and currently have $4.9 billion in liquidity. That our residential customers' average monthly natural gas bill is again expected to remain the lowest utility bill in the home. Consistent performance, 23 years of consecutive earnings per share growth and 41 consecutive years of dividend growth. That all 5,500 of us here at Atmos Energy proudly serve our customers and our communities as we continue to be guided by the simple values of our Founding Chairman, Charles K. Vaughan of honesty, integrity and good moral character. Those differentiators will continue to support the vital role we play in every community to safely deliver reliable, efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. We appreciate your time this morning, and we'll now open the call for questions. Operator: [Operator Instructions] Your first question comes from the line of Jeremy Tonet with JPMorgan Securities, LLC. Unknown Analyst: This is [ Eli ] on for Jeremy. Just wanted to start on maybe some of the larger load customers you guys are seeing across your service territory. I recognize that the refreshed capital plan contemplates a lot of that demand. But can you just talk about and help quantify what's in the plan? And then what could kind of be incremental to that and just bifurcating those two? John Akers: Yes. Again, as Chris said on the front end, there -- we've got 85% of our spend is dedicated towards safety and reliability. We do have some modest growth included in the plan as well. But again, most of that is going to be focused on safety, reliability. We do have some additional fortifications that are in that to support that growth. That our long-range planning models have indicated we need because of the folks moving into Texas and the demand anticipated with them coming in and the load from their use of natural gas. And then any other thing that will be outside of that will be probably driven by safety, reliability and anticipated fortifications to handle that additional growth. Unknown Analyst: Great. And then maybe just talking a little bit about capital recovery. I know that you guys were able to kind of ratchet up the speed there? And can you just kind of talk about a little bit more about how you're able to -- how that flows into the plan and optimizes growth going forward, just recognizing that's kind of some of the best capital recovery out there. John Akers: Yes. Again, we're very blessed with the jurisdictions we serve in, and they recognize and support natural gas and our need to fuel these communities and meet the needs of all stakeholders, our communities, the state legislative bodies and the overall demand for natural gas. But I'd also say that we haven't sped anything up. This has all been part of our planning process since 2011, 2012, and identifying the needs of the system, both safety, reliability and growth. So this has been on the same cadence year after year. And through our robust planning process, we go out and identify and look at our systems each year for the need, not only for population and demand growth, but also from the safety, reliability need, fortification needs. So this is all well laid out, well-orchestrated through the demand models, the integrity models, the forecasting of population growth. Year after year, we repeat that same sort of process. And that's what drives the investment at the end of the day. Unknown Analyst: Awesome. Yes. And then just if I could squeeze in one more, apologies. But just I think the 2030 implied range is about 7.5% off the '26 midpoint. So is it kind of fair to say you guys are targeting the upper half of the CAGR? Christopher Forsythe: Jeremy, this is Chris. We talked about a 6% to 8% growth rate off of the rebased guidance range from the midpoint. So that falls in line with that 6% to 8% expectation, and that's what we're intending to pursue at this point in time. Operator: Your next question comes from the line of Nicholas Campanella with Barclays. Fei She: This is Fei for Nick today. Maybe I just want to double-click on the EPS rebase, if I could. Now seeing over 95% of CapEx is recovered within 12 months comparing to the previous 90%. Would you be able to just parse out how much incremental reg like improvement are you seeing in this refresh plan? Is it mostly coming from the Texas legislation? Or is there something else baked into the assumption? John Akers: Yes, I'll start, and Chris can add if he wants to. Yes, as we mentioned in our opening remarks, it's all coming from the House Bill 4384. Again, our plan has been the same year after year on how we approach the capital budget. It's by identified projects and needs of the system and supporting the growth. And this 4384 will now allow us to include APT's investment into its system as well. Christopher Forsythe: Yes. And Nick, this is Chris. I'll just remind you, again, on our regulatory cadence, annual funding mechanisms are contemplated throughout the 5-year plan. We have a couple of small general rate cases that we plan to execute this year. But the overall theme there is the recoverability, and we assume in this 5-year plan that there's no new regulatory features, no new deferral mechanisms, regulatory asset treatment. It's basically we plan it based on what we know and have today. Fei She: Understood. That's very helpful. And if I could, just on O&M budgeting for '26. Could you just help clarify on how are we getting to a lower assumption for '26 and how those ramping to a 4% annual increase would evolve going deeper into the longer term? Christopher Forsythe: Yes. I think that the guidance that we put out there is pretty much -- the midpoint of the guidance is pretty consistent with where we were this year. We had some opportunities in fiscal '25 to spend some additional O&M dollars and compliance-related activities. As we saw market conditions at APT materialize, particularly in the late in third and fourth quarter. So we kind of reset the O&M plan based on what we need to do from a compliance perspective, what we want to do from a system monitoring, system -- damage prevention activities. And then, as I said, we'll continue to evaluate that O&M throughout the year. And if system conditions dictate or other opportunities arise, we'll evaluate options and alternatives to pursue further compliance and safety-related spending. Operator: Your next question comes from the line of Gabriel Moreen with Mizuho. Gabriel Moreen: So Waha gas prices have been on a bit of a wild ride the last couple of weeks. I'm just wondering to what extent you've incorporated some of the deeply negative prices here that we've seen over the last couple of weeks into your guidance for '26, and maybe what you're assuming for the rest of the year as far as your Waha outlook? John Akers: Yes. As we've done with all of our 5-year plan roll forwards, we do not incorporate that in. We assume normal activity. We continue to monitor and look at that. We're still very early into the season right now, just basically just out of October, if you will. So it's something we'll continue to keep our eye on as we move forward, but we do not try and use a crystal ball to forecast what's going to happen with that market at all. And we'll continue to keep you updated on our quarterly calls. Christopher Forsythe: Gabe, you know, too, that all that activity to the extent that it materializes, 75% of that impact flows back to the benefit of our customers. So well, like Kevin said, we'll keep an eye on it. And we'll provide updates as we move through the fiscal year. Gabriel Moreen: And then maybe if I could follow up, it looks like you raised your long-term gas price assumption in the 5-year outlook. Can you just talk about drivers behind that, if there's anything beyond the forward curve? And also was that an impact at all and maybe slightly moderating your kind of CapEx CAGR within the context of kind of how you're viewing customer builds over the medium to long term? John Akers: Yes. That's just the forward curve that's out there that we have available to us now. And again, I think if you go back and look at what we projected in that long history on that slide, whether it's Page 23 or 24 there, we generally have come in under that. So right now, that's just a forward-looking curve. We're projecting outward on our customer bills. And again, probably point you to the Pages 23 through 25 there as we talked about customer bills and going forward. And I'd like to remind everybody that when we look at the household bills overall, our natural gas residential bill is again expected to be the lowest bill in the household going forward into '26 at this point. We continue to remain anywhere between 2 to almost 5x more affordable than our electric counterparts in each of our states and jurisdictions that are out there. And again, there's a slide out there on percent share of wallet for our customers as well, and we remain right at or below the natural gas industry average for a percent of wallet share and about 2 to 3x below the percentage of wallet share on the electric side. So I believe we're extremely well positioned right now and always keep affordability at top of mind. That's part of our both short term, mid-term and long-term planning process as we look at investments, we always run through what the potential impact may be on our customer base as well. But again, I feel like that we are well positioned and mindful of affordability. Operator: Your next question comes from the line of Aditya Gandhi with Wolfe Research. Aditya Gandhi: Great. Maybe just starting on Texas HB 4384. I appreciate that you've rebased the '26 range higher. Can you maybe just clarify what the annual impact from the legislation is just roughly? Is it fair to assume that if we annualize the $0.10 impact from Q4 that you mentioned on last quarter's call, $0.40, is that a reasonable run rate? Christopher Forsythe: This is Chris. So in the rebasing, we assumed the impact of House Bill 4384, and from fiscal '25 to '26 because we will have a full year impact of the House Bill 4384, that's why you're seeing that rebasing going forward. And then after that, it will begin to -- become a little bit more consistent year-over-year. So again, we factored all that in, into our 6% to 8% of the midpoint via a guidance range right now, is right around $8.25, and we will intend to grow at 6% to 8% off of that. Aditya Gandhi: Okay. And then maybe just touching on the equity. You mentioned balanced equity and debt funding. Can you just clarify whether that sort of means 50% of that $16 billion -- roughly 50% of that $16 billion over the course of your 5-year plan? And then just could you give us a rough sense of how much equity you're assuming in 2026, and how we should think about the cadence of equity beyond 2026? Christopher Forsythe: Right. So looking at the incremental plan over 5 years, we've got roughly $16 billion that's out there. We are very comfortable with our equity capitalization of approximately 60%. And as of September 30, we intend to keep our equity capitalization at that level. I think the strength of the balance sheet is important for financial strength to be able to withstand unexpected events supporting our customers if we need to in terms of moving our PGAs around as we pass through gas costs. So when you think about capitalization being where it is, it's roughly 50-50 split between debt and equity. And then by year, you can see generally about 50% of our annual cash needs are coming from our FFO number, which I think you have. And then you can apply by year in your modeling, 50% roughly for equity, 50% for debt. Operator: Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Spark Li: This is Spark on for Julien. Congrats on the strong quarter. I have -- if I can quickly come back to the HB 4384 benefits. I appreciate the color on the prepared remarks. I believe you mentioned 60 -- roughly 60% for distribution, 40% for APT. I'm just thinking, would that 60-40 split change meaningfully year-over-year just given potentially different CapEx cadence at each segment each year? John Akers: No, we do not expect that. Again, our 5-year planning process has been the same year in and year out. Our team does a robust deep dive into the needs of that and has it well laid out year after year. So we're very confident in what we have put out there for the 5-year plan. Spark Li: Got it. Another question on the dividend. I mean, nicely done on the dividend guide up here. Just given the durability of the HB 4384 uplift, is it fair to view this dividend guide up as a long-term guide up here? Christopher Forsythe: I think in our prepared remarks, we mentioned that we moved the dividend 15% from '25 to '26 on an indicated basis to basically rebase that dividend in line with the rebased earnings per share guidance, and we intend to grow the dividend 6% to 8% over the next 5 years. Operator: That concludes our question-and-answer session. I will now turn the call back over to Dan Meziere for closing remarks. Daniel Meziere: We appreciate your interest in Atmos Energy, and thank you once again for joining us. Have a great day. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Thank you for standing by. My name is Van, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Hecla Mining Company Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn the call over to Mike Parkin, Vice President, Strategy and Investor Relations. Please go ahead. Mike Parkin: Thank you, and good morning for joining us on Hecla's Third Quarter 2025 Results Conference Call. I am Mike Parkin, Vice President, Strategy and Investor Relations. Our earnings release that was issued yesterday, along with today's presentation, are available on our website. On the call today is Rob Krcmarov, President and Chief Executive Officer; Russell Lawlar, Senior Vice President and Chief Financial Officer; Carlos Aguiar, Senior Vice President and Chief Operations Officer; Kurt Allen, Vice President, Exploration; as well as other members of the management team. At the conclusion of our prepared remarks, we will all be available to answer questions. Turning to Slide 2, cautionary statements. Any forward-looking statements made today by the management team come under the Private Securities Litigation Reform Act and involve risks as shown on Slide 2 in our earnings release and in our 10-Q filings, with the SEC. These and other risks could cause results to differ from those projected in the forward-looking statements. Non-GAAP measures cited in this call and related slides are reconciled in the slides or the news release. I will now pass the call over to Rob. Robert Krcmarov: Thank you, Mike, and good morning, everyone. So turning to Slide 3. Let me just start by reminding you why Hecla stands apart in the silver sector. As the oldest silver company on the New York Stock Exchange with a history dating back 134 years, we operate exclusively in the premier jurisdictions of the United States and Canada. We maintain peer-leading silver exposure on both a revenue and resource basis with an average reserve life that's double our peer group. We're building project momentum through strategic investment in our pipeline, and we're achieving cost excellence as the lowest cost producer among our peers. I've got to say these are exciting times, and Hecla really is thriving on strong silver and gold prices. We're using this momentum to strengthen our finances, fund high-return projects and boost shareholder value. But I think the outlook is even brighter. Silver faces its fifth consecutive year of supply shortages with rising industrial demand and investment flows expected to support prices for years to come. And unlike most of our peers, we're uniquely positioned with one of the most favorable silver to gold revenue ratios in the sector, allowing us to capitalize on the silver strength and drive meaningful value creation for our shareholders. Moving to Slide 4. Q3 really was exceptional, and just let me walk you through why. Firstly, record results. We delivered record results this quarter. We hit revenues of $410 million. Net income came in at $101 million and adjusted EBITDA was $196 million. These aren't just numbers. They prove that our business model works. We capture upside in strong markets while our cost position offers protection in weak ones. Now here's what matters a lot, and that's our balance sheet transformation. Net leverage has improved from 1.8x this time last year to 0.3x in Q3. So that's an 83% reduction. And that's in a single year. That's a structural derisking of the company. This deleveraging consisted of fully repaying our revolver, redeeming $212 million of debt and paying the CAD 50 million note due to Investissement Quebec. So this deleveraging effort has eliminated over $15 million in annual interest expense. We've gone from being capital constrained to capital flexible. Our cash flow generation has been nothing short of stellar. We've generated $148 million in operating cash flow, while consolidated free cash flow came in at $90 million. And here's the key piece. All 4 of our producing assets, Greens Creek, Lucky Friday, Casa Berardi, Keno Hill generated positive free cash flow for the second consecutive quarter. So that's operational momentum. On the operational front, our silver production was 4.6 million ounces, up 2% from last quarter. Cash costs were negative $2.03 per ounce, thanks to strong by-product credits, while all-in sustaining costs came in at $11.01. As a result of this performance, we've tightened our production guidance and reiterated the cost guidance. Lucky Friday surface cooling project is progressing on track and is expected for completion in the first half of 2026, while Greens Creek received its wetlands permit for the dry stack tailings expansion. Completion of these projects is critical to the future success of the company. So in summary, our operations have executed really well. We've derisked the balance sheet and built financial flexibility. We're cash-generative across all assets. And we're positioned to invest in growth, and that's the transformation story. I'll now pass the call over to Russell. Russell Lawlar: Thank you, Rob. Moving to Slide 6. I want to continue to highlight the strong financial performance we delivered during the third quarter. We generated $393 million in mine site revenues with silver continuing to be our primary revenue driver at 48% of the total, followed by gold at 37% and base metals rounding out the balance. This percentage of silver revenue, especially with the jurisdictions in which we operate makes us a standout in the industry. Our silver margins remain robust at $31.57 per ounce, representing 74% of the realized price of silver with all-in sustaining costs of just over $11 per silver ounce. We're demonstrating excellent cost discipline across our operations. Our net leverage ratio improved to 0.3x during the quarter, the lowest in more than a decade, down from 0.7x in the second quarter. This reflects our adjusted EBITDA growing to $506 million on a trailing 12-month basis as well as our significant reduction in overall gross debt outstanding while maintaining disciplined capital spending. Most importantly, we generated consolidated free cash flow of more than $90 million during the quarter. Greens Creek led the way with nearly $75 million, demonstrating why it remains one of the world's premier silver mines. We continue to see the free cash flow inflection we've been speaking about at Casa Berardi with nearly $36 million in free cash flow during the quarter, while Lucky Friday added $14 million and Keno Hill impressively contributed more than $8 million, while we continue ramping that asset up. The third quarter marked the second consecutive quarter of all of our producing mines contributing to positive free cash flow. As you can see, at current prices, we anticipate generating significant cash flow. As we turn to Slide 7, I'll walk through our capital allocation framework, which is a discipline and focus -- which is disciplined and focused on 6 clear priorities with each one having a specific purpose. Our first priority is investment in safety and environmental excellence. This is non-negotiable and is the foundation of everything we do. Second is investing in sustaining capital at our operating mines. We target a minimum of 10% to 15% returns at these operations. Investing in sustaining capital keeps our production stable, extends our mine lives and generates cash flow with low execution risk. Third is our investment in growth capital, where we target returns of at least 10% to 12%. This investment is intended to increase production and extend mine life. However, we will only make these investments if they demonstrate robust economics at conservative prices. Fourth is investment in exploration. Historically, we've underinvested in exploration. However, because of the deleveraging of the balance sheet and associated cash flow that's been freed up, we anticipate further investment in this area. In fact, we are currently targeting 2% to 5% of revenues as we look to 2026. Investment in exploration provides asymmetric upside. And although we're planning to invest more in this area, we'll also be prudent with our investors' dollars and target the highest return opportunities, both brownfield narrow mines and greenfield optionality. Fifth is we plan to make further investments in deleveraging and strengthening our balance sheet. From a pure financial perspective, we anticipate a return of 5% to 7%. However, more importantly, having a strong and delevered balance sheet reduces risk and provides flexibility. It also allows us to maintain investment during downturns and seize opportunities when they arise. The last priority is shareholder returns. We currently pay a quarterly dividend, and we'll consider further shareholder returns only after operational requirements are met and the balance sheet is strong. That said, we're confident enough in cash flow to start thinking about this. In summary, this framework isn't complicated. It's about maximizing value while maintaining financial flexibility to navigate cycles. We're operating under this framework now, and we've seen better prices and stronger cash flows. We'll see those -- the capital and exploration projects we invest in meet these above criteria, including the remainder of this year. And with that, I'll turn the call to Carlos. Carlos Aguiar: Thank you, Russell. Turning to Slide 9. Greens Creek is delivering exactly what we need from our cornerstone asset, a strong operational quarter, driving robust free cash flow generation. The third quarter silver production came in at 2.3 million ounces with 15,600 ounces of gold, both tracking well to full year guidance. Sales came in at $178 million, up 46% from last quarter, driven by higher volumes sold and metal prices. More importantly, the unit economics are excellent. Cash costs came in at negative $8.50 per silver ounce and AISC of negative $2.55 per ounce, both offset by-product credits. Free cash flow was nearly $75 million for the quarter. Based on our strong year-to-date performance at Greens Creek, we are tightening our silver and gold production guidance and lowering our capital expenditure guidance while reiterating our cost guidance. Moving to Slide 10. Lucky Friday continues to do what it does well, deliver consistent profitable silver. Third quarter silver production was 1.3 million ounces with a 7% increase in milled silver grade. Sales came in at $74.2 million, up 15% quarter-over-quarter. The free cash flow was $13.5 million, nearly triple the prior quarter, reflecting improving operational momentum. The surface cooling project is on track for 2026 completion. This investment is strategic. It opens access to deeper high-grade zones, extending mine life and profitability. Thanks to our strong year-to-date performance on Lucky Friday, we are tightening our silver production guidance, reiterating our total capital expenditure guidance and modestly raising our cost guidance. Turning to Slide 11, Keno Hill. We have now delivered 2 consecutive quarters of positive free cash flow, a significant milestone. Third quarter silver production came in at nearly 900,000 ounces at an average milling rate of 323 tons per day. Keno Hill is well positioned to deliver on its 2025 silver production guidance. The free cash flow was $8.3 million, positive cash generation while still in ramp-up and investment mode. We have hedges through the second quarter of 2026 providing silver price protection during this period of capital investment. Our reliability improved significantly in the third quarter, thanks to the Yukon Energy successful repair of the hydroelectric plant. This reduced a key operational risk we have been managing. Consistent with the other 2 primary silver mines, we are tightening our silver production guidance at Keno Hill based on a strong year-to-date performance. Capital expenditures are expected to modestly exceed our original guidance as we are outperforming on several key factors, including the underground development, which is tracking 13% above plan year-to-date. Turning to Slide 12. Casa Berardi delivered another solid performance, setting the mine up well to achieve guidance. Gold production of 25,000 ounces, down 11% due to planned lower underground ore grades, and cash costs of $1,582 per ounce and AISC of $1,746 per ounce. We are tightening gold production guidance for Casa Berardi based on a strong year-to-date performance while maintaining our cash cost and AISC guidance. Our 2025 capital expenditure guidance for the mine remains unchanged. The company is actively evaluating options to extend production beyond 2027. These initiatives could potentially reduce the previously disclosed production gap and enable Casa Berardi to remain a sustaining cash flow contributor to the portfolio. I'll now turn the call over to Kurt. Kurt Allen: Thanks, Carlos. Moving to Slide 13. Our Nevada assets offer opportunities to unlock hidden value. We have 3 key properties with significant historical production. Midas, 2.2 million ounces of gold historically, with a fully permitted mill and tailings capacity. Hollister, 0.5 million gold equivalent ounces within hauling distance of Midas. And Aurora, 1.9 million ounces of gold historically with an on-site 600 ton per day mill. All properties have significant exploration potential, minimal regulatory hurdles and existing infrastructure. We're developing a comprehensive Nevada strategy with an exploration update on Nevada, Keno Hill and Greens Creek coming later this month that will shed light on our Nevada exploration progress and what's to come next year. You can expect a heightened level of activity in Nevada next year as we work to surface value from this exploration portfolio. I'll now turn the call over back to Rob. Robert Krcmarov: Thanks, Kurt. I'm pretty excited what you and your team are doing in Nevada, so keep up with this work. We've got 4 strategic priorities that flow directly from our transformation. And the first is long-term value creation at Keno Hill, prioritizing permitting and execution. At current prices and even at lower prices, this asset is expected to generate material returns at 440 tons per day and has expansion optionality beyond that. Second, continued deleveraging and strengthening our balance sheet with focus on free cash flow generation across all assets. And we've proven in Q3 that we can do this rapidly when the metal prices support it. Third, establish a capital allocation framework, balancing further debt reduction, organic growth investment, exploration and potential shareholder returns. And fourth, portfolio rationalization, continually assessing which assets deserve more capital and where to monetize noncore assets for high-return opportunities. With that, I'll turn it over for questions. Operator: [Operator Instructions] Our first question comes from the line of Heiko Ihle from H.C. Wainwright. Heiko Ihle: Can you hear me all right? Robert Krcmarov: We can hear you. Heiko Ihle: Perfect. Do you want to just go through some of the inflationary factors that you're seeing at mine -- at your asset base across the mines. I assume the effects of that have been muted a little bit in the last few quarters. But maybe just go through some of the inputs or equipment or hires, whatever, where you're still seeing inflationary impacts and also maybe some supply chain bottlenecks? Russell Lawlar: Heiko, this is Russell. I'll take this question. And Carlos, please chime in as well. But I would say that the biggest inflationary factor we've likely seen or the biggest maybe cost pressure that we've seen is with the metals price environment that we've seen, there's obviously competition for labor. And so we have to be competitive as it relates to what we pay for labor, but also filling roles and looking for where we can't fill them, we have to fill them with contractors. And that's been something -- a challenge that we've had now for quite some time. It's just with the higher price, you see that getting exacerbated. But then in addition to that, what we do see from a pure inflationary perspective, I'd say the impact is relatively muted, like you said, but we are seeing some tariff costs as we think about capital projects and maybe there's components that we have to import. And so then we'll see potential tariffs on those types of items. We try to minimize that, right? And we try to find the best competitive bid for the quality of components that we're looking for. But there's a little bit there as well. Carlos, do you have anything to add to that? Carlos Aguiar: Yes, there's a little bit related with mining supplies and reagents and air movement. That is mainly all the stuff related with the workforce consultants and labor. Heiko Ihle: I had a different follow-up question planned, but now you got me curious. I mean you spent almost $9 million on exploration, $8.8 million, I think it was. What are you seeing with labor costs related to drilling and also timing for getting your assays back? Is there any positive or negative changes? Robert Krcmarov: You, Kurt? Kurt Allen: Yes. This is Kurt. We have seen some increase in our drilling costs. Really, it's associated with labor, drillers and drillers helpers. Regarding assaying, turnaround has been somewhat normal. Of course, this time of the year, it starts to tighten up a little bit as people are getting their summer sampling programs into the assay labs. But it hasn't been as bad as it was a few years ago. Operator: Our next question comes from the line of Alex Terentiew from National Bank. Alexander Terentiew: Congrats on another great quarter here. I got 2 questions. The first one, I think your last comment there about providing an update on exploration and projects in about a month or so that may kind of -- might have to wait for that, but I'll ask it anyways. I mean obviously, your balance sheet has improved quite a bit and your cash flow outlook has improved. So when it comes to exploration next year and projects that you're getting excited about, can you give us any kind of taste of where you are? What you're thinking about? Maybe you got the permit approval to start doing some exploration as well. You made a good mention here of Nevada. I'm just trying to get a better look of -- a sense of what we can expect there? And then my second question, Keno Hill, again, the second quarter in a row where you guys look to seem to have made some pretty good progress. Can you remind me of what metrics you need to see there to get that mine or that project rather declared commercial? Robert Krcmarov: Sure. I'll start with exploration, and then I'll hand it over to Kurt to fill in some more details. So we're going to substantially increase our exploration budget in Nevada. In fact, we've increased it beyond what the starting budget was this year. I'm quite excited by the results that we're getting there. We've also had quite a few dormant projects, which we expect to reinitiate. So things like the Rackla build targets up in the Yukon. This is virgin country with outcropping gossans, and so we need to make some advance there. And then obviously, our near-mine exploration where we continue to do resource extension drilling and seek new discoveries. Could you just fill in some more gaps, please? Kurt Allen: Yes. Next year, we're really planning on focusing on near-mine and brownfields to start with. That's going to get the biggest part of the budget for next year. And then we're also doing more greenfields exploration and early-stage exploration than what we've done in the past with a generative exploration program that will be kicked off next year as well. We've got some really good targets. We've got some really good property packages. As Rob said, the Rackla district is just ripe for discovery, and we're looking forward to getting in there and spending the summer, doing the basic boots on the ground field work there. And then Nevada as well. Go ahead, Rob. Robert Krcmarov: Kurt, Sorry. Kurt Allen: And Nevada, I'm really excited about. Like we talked about, we've got infrastructure, minimal requirements on the permitting side of things. So that's really, in my view, a faster track to production probably from any of our exploration projects outside the mine -- the current mine operations areas. Robert Krcmarov: If I could just... Alexander Terentiew: Yes, go ahead. Robert Krcmarov: Sorry. If I could just add, Kurt touched on a point that's quite important, and that's that we're increasing our project generation efforts. I mean coming into this -- coming into Hecla, one of my observations was that we generally stuck to our knitting. We stuck to our existing mine sites and focused all of our exploration there. I've talked about portfolio rationalization, and we will be farming out and divesting some projects, but we need to replace that. And so project generation is an important skill to have. We also need to become a little bit more commercial and create a whole series of options. And so look in the future for us to be doing earn-in agreements on other company properties. So that's exploration. On Keno Hill, look, for commercial production, we've got 5 criteria that we laid out for commercial production. And honestly, we're really only there on one, and that's the silver recoveries right now. Everything else, the completion of the major components, hitting 75% of mill capacity, finishing the major CapEx, that's all still in front of us. And so our current ramp-up plan really has us getting to commercial production around about 2027 at roughly 345 to 385 tons per day. And then the following year, 2028 would move towards nameplate throughput. And that's assuming that we get the water discharge approval sorted with the Yukon regulators. So in summary, call it, 2027 for commercial and 2028 for full nameplate. Alexander Terentiew: Okay. That's great. And obviously, a lot of exciting stuff to come next year on the exploration front. Looking forward to it. Robert Krcmarov: Thanks, Alex. Operator: [Operator Instructions] Our next question comes from the line of Joseph Reagor from ROTH Capital. Joseph Reagor: I had a question on your guidance. Obviously, raising the low end was great. But it seems like if I look at, say, like Greens Creek's gold production, Lucky Friday's silver and Casa's gold production, you'd have to have a pretty weak quarter for Q4 to not hit like above the high end. And so I'm wondering if that's just a matter of like company policy not to raise the high end of guidance? Or is it that you guys are having some expected downtime or anything during the quarter or lower grades? Just help me figure out how to stay within that high end. Russell Lawlar: I think, Joe -- Joe, this is Russell. I'll take the question, but my colleagues, they will chime in as well. If you go look and take a look at the -- in our earnings release where we have our past 5 quarters of production, you will see Greens Creek, for example, does have kind of a production profile that will vary, right? So Q3 of last year, Q4 of last year, we were less than 2 million ounces. I think what the guidance would probably tell you is we'll probably see a 2 million or so ounce quarter at Greens Creek for the Q4. And I think as we think about our guidance, we try not to guide to the quarter, but we also understand that we've only got 1 quarter left. And that's kind of where our models say we're going to come in. Joseph Reagor: Okay. That's fair. And then looking at the really strong price realizations you guys had in the quarter. I mean normally, there's some fluctuation, but it was abnormally strong this quarter. Was there anything specific that led to that? Was it just timing of shipments? Did you have more like late quarter shipments and early quarter shipments and that's how the weighted price got so well above spot? Or is there something else I'm missing there? Russell Lawlar: I would say I'll jump in again. There's 2 factors here. One is the timing that you mentioned. The Greens Creek, obviously, is our largest silver producer, and they ship once a month. And they tended to ship later in the quarter. And as you see the price change throughout the quarter, it ran up at the end of the quarter, which obviously weighted our sales toward the end of the quarter. That's part of it. The other thing that -- and I've got Anvita Mishra here, she's our Treasurer. You guys all know her since she did IR recently. With the change of the silver dynamics, where we've seen the more upside potential, I'll say, we've actually started to utilize more collars as it relates to our provisional hedging, which gave us that upside. And so I think in the past, you would have seen us use forwards. But as we saw the market change, we started to be more flexible on using collars for provisional hedging, which has allowed our investors to enjoy more upside. So I would say it's both of those factors. Operator: [Operator Instructions] There are no further questions. I will now turn the call back over to Rob Krcmarov, President and CEO, for closing remarks. Robert Krcmarov: Thank you, Van. So let me bring this all together. We came into 2025 with a clear mission, and that's to transform Hecla from a cash-constrained operator into a financially flexible company that can pursue value-creating opportunities. And I think our results clearly demonstrate that we've executed on that plan. And really, there's 4 things I want to reemphasize. First is operational execution is solid. All 4 of our producing assets generated positive free cash flow this quarter. Greens Creek and Lucky Friday are performing as we expected. Casa Berardi is tracking cost improvements, and Keno Hill has achieved consecutive quarters of profitability and is ramping towards our next production target of 440 tons per day. Secondly, record financial performance with quarterly revenue, net income and adjusted EBITDA at all-time highs. And we did not leave deleveraging to chance. We combined operational cash generation with strategic capital deployment to fully repay our revolver, redeem $212 million in debt and fully repay the maturing IQ notes from free cash flow. And in doing so, we moved from 0.7x to 0.3x leverage in a quarter. So that's a disciplined capital management, and it gives us the flexibility that we need. Third, we have general -- we have genuine optionality now. So reserve lives between 12 and 17 years, expansion potential at Keno Hill, strategic evaluation of the broader portfolio to surface value for shareholders and the ability to pursue value-creating M&A, but only if the right opportunity emerges. And that flexibility is what we lack as a cash-constrained company. The next phase is about demonstrating consistent execution, stable cash generation, continued deleveraging and disciplined capital deployment. And that consistency is how we recapture our historical value premium, and we're confident in our path. Fourth, strategic direction with 4 well-defined long-term pillars that will guide our capital allocation, and we'll elaborate more on that in our Strategy Day on the 26th of January, our Investor Day rather. And so summing up, I think there's a compelling valuation with industry-leading reserve life, peer-leading silver exposure and strong jurisdiction quality, all at reasonable valuation that we believe offers significant upside. And we're executing on our plans, generating substantial free cash flow and building a foundation for sustained value creation for shareholders. With that, thank you, everyone, for dialing in, and have a good day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good morning. Thank you for attending today's Semrush Holdings Third Quarter 2025 Results Conference Call. My name is Jerry, and I will be your moderator today. [Operator Instructions] I would now like to pass the conference over to our host, Brinlea Johnson. Brinlea Johnson: Good morning, and welcome to Semrush Holdings Third Quarter 2025 Conference Call. We'll be discussing the results announced in our press release issued after market close on November 5, 2025. With me on the call today is our CEO, Bill Wagner; and our CFO, Brian Mulroy. Today's call will contain forward-looking statements, which are pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, statements concerning our expected future business and financial performance and financial condition, expected growth, adoption and existing and future demand for our existing and any new products and features, our expected growth of our customer base and specific customer segments, the continued development of our products, industry and market trends, our competitive position, market opportunities and growth strategies, sales and marketing activities and strategies, future spending and incremental investments, our guidance for the fourth quarter of 2025 and the full year 2025 and statements about future pricing and operating results, including margin improvements, revenue growth and profitability, assumptions regarding foreign exchange rates and plans. Forward-looking statements are statements other than statements of fact and can be identified by words such as expect, can, anticipate, could, believe, seek or will. These statements reflect our views as of today only and should not be relied upon representing our views at any subsequent date, and we do not undertake any duty to update these statements. Forward-looking statements address matters that are subject to risks and uncertainties that could cause actual results to differ materially from these forward-looking statements. For a discussion of the risks and important factors that could affect our actual results, please refer to our most recent annual report on Form 10-K filed with the Securities and Exchange Commission as well as our other filings with the SEC. And finally, during the course of today's call, we will refer to certain non-GAAP financial measures. There is a reconciliation schedule showing the GAAP versus non-GAAP results currently available in our press release issued yesterday after market close, which can be found at investors.semrush.com. Now let me turn the call over to Bill. William Wagner: Thank you, and good morning. I'm pleased to share that Semrush reported a strong quarter with revenue of $112.1 million, non-GAAP operating margin of 12.6% and cash flow from operations of $21.9 million. Demand across our portfolio once again delivered double-digit revenue growth, and we saw one of our strongest organic net new annual recurring revenue quarters in years. In addition to the growth we continue to see across our industry-leading SEO portfolio, customers are experiencing tremendous value from our new products. We've now introduced 3 new products for our enterprise customers in the last 15 months, and growth in that segment accelerated in Q3 to 33% year-over-year. Our AI search products, including our AI Toolkit and AI Optimization products that were launched this year, added $10 million in ARR in the quarter, more than doubling from Q2 to Q3. These products are not only attracting new customers to Semrush, but we're also seeing unprecedented growth from our existing customers, where our average ARR per customer has increased 17% year-over-year. Before going deeper into the results of the quarter, I'd like to step back and discuss the dynamic environment of online visibility and what we're hearing from our customers and how Semrush is positioned to capture this market opportunity. Over the last decade, the digital landscape has become more crowded, fragmented and competitive. During this period of change, websites and blogs persisted as essential elements, not just as branded destinations for consumers and customers, but as critical content repositories that support a brand's narrative and provide an important underpinning of its digital presence. On top of these foundations, new content channels emerged as social media properties like Instagram and TikTok began to look more like traditional media, competing for eyeballs and selling advertising. The one constant during this period has been the role of search engines in driving traffic, clicks and transactions. Semrush emerged as the category leader by helping companies stand out in this crowded digital landscape, giving marketing teams a single integrated platform to understand their market, track competitors and optimize performance across websites, blogs, social media and other channels. As we exit 2025, we believe we are at another inflection point. For the first time in a generation, we have seen important changes to the search landscape and how people engage online. The headline is that more people rely on search than ever before, but the ways consumers use it and what they expect from it are changing rapidly. Google remains the dominant front door to the Internet with over 5 trillion searches a year, representing more than 90% of all daily searches and continuing to grow. In addition, people are also using LLMs, often for a different type of use case altogether, such as planning a trip, doing product comparisons or other zero-click activities. This means that we are living in a moment of expansion in both the volume and the use cases of search. This, in turn, creates a significant opportunity for Semrush. While AI introduces new ways to answer questions, large language models still need source material, and they start with the same indexes that power the traditional blue links world of classic search. These models don't just read your company's website and content. They also weigh what others say about your brand in order to assess credibility. That creates new challenges and opportunities for our customers. Companies must now track and influence what appears on review sites like Yelp on user-generated platforms such as Reddit and in videos on YouTube. And this isn't only our point of view. Our users and customers have validated it. We recently brought together more than 1,300 marketers, influencers and industry analysts at our Spotlight conference in Amsterdam, and the energy was palpable. Practitioners and experts alike realize that they are at the beginning of a new frontier and suddenly see themselves at the center of attention as CMOs, CEOs and even board members talk about their brand visibility or lack thereof in AI-generated answers. While there's still uncertainty about the future of this emerging space, over the course of a few days, it became clear that this group agrees on 2 things: first, that building a strong presence in LLMs begins with SEO. And second, that while a well-thought-out and executed SEO strategy is absolutely essential, it's no longer sufficient without adding a strategy to increase discoverability in LLMs. AI has raised the bar for discoverability, but it builds on the same fundamentals that already separate leaders from laggards. The winning path is not to abandon SEO, but to combine proven SEO with systematic optimization for AI engines, so brands are found, cited and chosen, whether in a search engine results page or in an AI-generated answer. At our core, Semrush is a data company with a software interface built around it. We have one of the richest and largest data sets in the world, a combination of proprietary and industry data that includes 27 billion keywords, 43 trillion backlinks and over 800 million domains. To this data set, we apply our proprietary algorithms to provide unmatched insights to our customers. Over the last several quarters, we've been busy augmenting our data set with LLM data. And today, we've assembled one of the largest prompt databases in the world. As the world's largest platform for digital visibility and with the largest data set of both traditional and LLM search data, Semrush is uniquely positioned to help our customers generate results. We have a clear opportunity with proven leadership and the capabilities and ambition to lead marketers through this new era. As we saw during Q3, customers are flocking to our products to help them navigate this exciting evolution. One of the top priorities I noted earlier this year was doubling down on AI because we believe we are approaching a time when every marketing team will need to add AI search capabilities on top of their SEO foundation. We saw this play out in the most recent quarter as the traction in our AI products accelerated. Today, more than 10% of Semrush customers are already using at least one AI product, and we see a path for adoption across the majority of our customer base, representing a significant expansion opportunity. Our AI Toolkit launched in March 2025 and Enterprise AI Optimization launched in June of this year, both are among our fastest-growing products in company history, enabling our AI portfolio ARR to more than double from Q2 to Q3. Together, we expect our AI products will approach $30 million in ARR as we exit the year. For existing customers, these products are additive rather than a replacement for their SEO tools. And it's one of the primary reasons we're seeing double-digit increases in average ARR across all segments of our customer base. We expect continued AI momentum in the fourth quarter with further acceleration in 2026 from Semrush One, our newest product that we launched just a week ago. Semrush One offers marketers a way to win in every search, whether in a search engine like Google or on a platform like ChatGPT, Gemini or Perplexity, all in a single tool. Having launched AI Optimization for enterprises earlier this year, Semrush One now makes AI visibility accessible to marketing teams at companies of all sizes. Instead of buying multiple products or switching between different solutions, marketers can have it all in one simple-to-use product with unified workflows. The new launch strengthens our position with an extensive portfolio for all customer segments, and we believe Semrush One will emerge as a new benchmark for the industry. Finally, I'd like to close by highlighting our progress in the quarter from our Enterprise segment. Focusing on this segment was another priority we highlighted earlier this year, and our investments in both the enterprise product portfolio and go-to-market strategy continue to drive strong growth. Our Enterprise SEO product, which was introduced just last year, is the largest driver of revenue growth as we successfully move upmarket and take share away from legacy incumbents in Enterprise search. Our average revenue per user in this segment is now above $10,000 and the number of customers paying over $50,000 per year increased by 72% year-over-year. In Q3, we also began introducing our new Enterprise Site Intelligence product, which along with AI Optimization is our second new product for the Enterprise segment we've launched in the last 6 months. We've been very pleased with the adoption of these new products and now see a path to $100,000-plus average ARR for customers that adopt our Enterprise platform, up from the $60,000 target we mentioned at our Analyst Day just a year ago. In summary, the search landscape is shape shifting before our eyes, and we're giving marketers the power to have a full picture of their visibility, act quickly and improve their position to win. AI search isn't replacing the SEO opportunity, it's compounding it. We've helped define the SEO playbook and as our Q3 results highlight, we're doing it again for AI search. We believe our targeted shift towards enterprise customers and our expanding AI product portfolio will position us well for long-term growth. Our pace of innovation and new product development, along with our comprehensive and expanding data set will allow us to take advantage of the massive market opportunity in front of us. With that, I'll turn the call over to Brian to walk you through the financial results of the quarter and discuss guidance. Brian Mulroy: Thanks, Bill. We delivered a strong quarter with revenue of $112.1 million, non-GAAP operating margin of 12.6% and cash flow from operations of $21.9 million. Annual recurring revenue was up 14% year-over-year and grew $20 million sequentially to $455.4 million. This represents a meaningful step-up in net new ARR generation from the last several quarters, driven by AI adoption and continued momentum in our Enterprise segment. Notably, we more than doubled our ARR from our recently launched AI products and delivered 33% ARR growth from our enterprise customer segment, driven by strong adoption of our new Enterprise portfolio. Our average ARR per paying customer increased to $4,000, representing growth of more than 17% compared to the same quarter last year, which is the highest level of growth we've achieved in 13 quarters. Additionally, we're seeing rapid growth among our largest customers with the number spending over $50,000 annually, increasing 72% year-over-year. As of September 30, 2025, we reported approximately 114,000 paying customers, down from the prior quarter, primarily reflecting our strategic focus on engaging more sophisticated and higher-value customers. Our dollar-based net revenue retention held steady at approximately 105% in the third quarter. Within Enterprise, net revenue retention continued to strengthen, reaching 125%, an improvement of nearly 800 basis points year-over-year. Customers that have adopted at least one of our AI solutions are performing even better with net revenue retention approaching 150%, reinforcing that AI drives incremental use cases and expansion alongside traditional SEO. As our mix continues to shift towards Enterprise and AI, we expect overall net revenue retention to trend higher over time, reflecting deeper product adoption, larger deployments and more multiproduct expansion. We achieved positive non-GAAP operating income of $14.1 million in the third quarter, up 20 basis points year-over-year, resulting in a non-GAAP operating margin of 12.6%, exceeding our guidance. Cash flow from operations was $21.9 million in the third quarter, representing a cash flow from operations margin of 19.5%. Free cash flow was $17 million in the quarter, resulting in a free cash flow margin of 15.2%. As a reminder, we encourage investors to evaluate our cash flow performance on an annual basis given the inherent quarterly variability driven by annual subscription renewal cycles, the timing of tax payments and prepaid expenses. We ended the quarter with cash, cash equivalents and short-term investments of $275.7 million, up $42.8 million from the prior-year period, reflecting the continued strength of our free cash flow generation. Turning now to our guidance. For the fourth quarter of 2025, we expect revenue of $117.5 million to $119.5 million, which at the midpoint would represent growth of approximately 15.5% year-over-year and non-GAAP operating margin at approximately 12.5%. For the full year 2025, we expect revenue in the range of $443.5 million to $445.5 million, representing approximately 18% growth at the midpoint. We are reiterating our previous full year guidance of approximately 12% for both non-GAAP operating margin and free cash flow margin. Our non-GAAP operating margin guidance now absorbs an incremental expense headwind of approximately $10 million resulting from recent exchange rate movements. Our initial guidance assumed a euro to U.S. dollar exchange rate of $1.05. And while we are currently modeling $1.16, rates during the first half reached as high as $1.18. As a reminder, approximately 30% of our expenses are denominated in euros. And since our revenue is almost entirely in U.S. dollars, our margins are effectively unhedged against these currency fluctuations. Absent these exchange rate impacts, our full year operating margin would have reflected meaningful leverage inherent in our model. Said another way, excluding these currency impacts, our margin guidance would have implied a year-over-year expansion of approximately 230 basis points. Similarly, we continue to expect our full year free cash flow margin to be approximately 12%, representing a 260-basis-point improvement compared to 2024. This expansion is driven by improved profitability as well as continued growth in our Enterprise segment, where we typically structure deals with a minimum annual commitment and annual billing, resulting in favorable cash flow dynamics. In closing, our Enterprise and AI products are exhibiting remarkable strength and momentum, exceeding our early expectations. As Bill noted, discoverability is compounding and customers need to win in both traditional search and AI-generated answers. Our data advantage and product velocity are meeting that moment. With $275.7 million in cash and equivalents and growing free cash flow, we are well positioned to capitalize on the opportunity ahead with discipline. Our results reinforce that our strategy, directing investments in resources toward Enterprise and AI growth initiatives is working. The mix is shifting towards higher-value customers, average ARR is accelerating and net revenue retention is improving across our more sophisticated customer base. Looking ahead, I remain optimistic about our ability to drive durable growth, profitability and strong cash flow. We are aligned with where the market is headed and well positioned financially, operationally and strategically with the right data, product portfolio and customer base to deliver long-term shareholder value. With that, we'd be happy to take your questions. Operator, please open the line. Operator: [Operator Instructions] We will now take our first question from Scott Berg from Needham Bank. Scott Berg: Nice quarter here. A couple for me. I guess I wanted to start off with Semrush One. I like the product announcement, but would like to help understand maybe what's different in that platform, if anything, than a customer buying, I don't know, your traditional SEO kind of product set along with AIO. Is Semrush One just really bringing those 2 together into a single offering? Or is there really something may be materially different for us to consider there? William Wagner: Scott, thanks for the question. Yes, Semrush is fundamentally a different product. So while it leverages a lot of the same capabilities that are in our core SEO products, and a product like AI Visibility Toolkit, it's integrated in a way that allows workflows across both of those platforms, so both of those capabilities. So integrated workflow, it still has the same kind of leverages our data, which we think is one of our strengths and differentiators in the market. But it allows -- gives marketers really for the first time, really a holistic view of how AI and classic search work together. Scott Berg: Understood. Helpful there, Bill. And then a nice bounce back in net new ARR in the quarter after the challenges that happened in the second quarter. I guess maybe a little bit of commentary on what you're able to do differently in Q3 versus Q2. Do you see anything different out of some of the Google paid search algorithms, which have been a great customer acquisition channel before? And is maybe what you're seeing in Q3 here, what we should generally expect out of the business going forward versus those challenges you did see in Q2? Brian Mulroy: Yes. Scott, I think that's exactly it. We had a very strong net new ARR quarter, delivering $20 million overall. That's a pretty significant inflection from the last few quarters. And overall, it was driven by strong adoption of our Enterprise and AI products. For our AI products, we were able to more than double the amount of ARR, adding $10 million in annual recurring revenue in the quarter. And then with our Enterprise segment, mostly by the Enterprise products, that segment grew 33% year-over-year and expanded its average ARR to $10,000. So it's a combination of the 2. Our investments are working within AI and Enterprise and generating very strong results, and that's momentum that we actually expect to continue in the future. Operator: We will now take our next question from Elizabeth Porter from Morgan Stanley. Elizabeth Elliott: I wanted to go back to the idea of kind of the inflection point heading into fiscal '26. If I look at the fiscal '25 exit rate, we're looking at about a 15%. And the back half of the year is a bit of a slowdown from the first half. And total ARR, really encouraging on that net new ARR metric. But ARR did kind of overall modestly decelerate. So as we look into this inflection point into fiscal '26, one, kind of qualitatively, how are you stack ranking the drivers to inflection? And then second, what are some of the financial leading indicators that we should be looking towards first to see that turn? Brian Mulroy: Elizabeth, very early. Yes, we'll provide guidance on 2026 in our next earnings call, but to give you some directional trends to support an expectation there. We're very optimistic about our ability to drive durable growth. Remember, the first half, there were 3 fundamental dynamics. The first is we had a few acquisitions in 2024 that we've now lapped. So going into the second half of this year, we have pure organic growth. The second part and probably most significant is we launched a number of new products. So we launched our AI Visibility Toolkit in March that started to build traction. And then we launched AI Optimization in June and now our Enterprise Site Intelligence products. The third part is around our go-to-market. That's something that we started to build in 2024 and, of course, started to get significant capacity and productivity and ramp out of that sales organization. So when you combine the 3 of those factors together, that's what's driving our strong growth in the second half and what we expect to be driving growth into 2026. Elizabeth Elliott: Great. And then just a follow-up on that last point on the capacity and the sales org, how are you feeling about kind of the capacity today? How much incremental is there to go in sort of improving productivity relative to the kind of leading indicators on demand that you're seeing? And any sort of need to kind of free up that upmarket investment given the move? William Wagner: Elizabeth, yes, I think we are still early days in building out our capacity. We've made great strides over the last 12 months. The team has done really, really good work and really building the framework around scaling up an enterprise sales organization. And now I think we have that framework in place. We'll continue to work on it. But really, as we look to next year, we're going to continue to scale out and those efforts are underway, scale out. We think the opportunity is there. As we said, only 10% of our base actually today has our AI products. And if you think across our Enterprise segment, we have 9,000 -- roughly 9,000 enterprise customers, but only a few hundred have our enterprise solution. So that -- think of that from an ARR step-up point, that's what we're seeing prove out. And really, we're just investing behind that momentum. Operator: We will now next take Luke Horton from Northland Capital Markets. Lucas John Horton: Congrats on the quarter. Just wanted to talk about kind of how you're thinking about pricing here with the launch of several new AI and Enterprise-focused products. Are you kind of pricing this on a per customer, per use case basis or kind of flat pricing for each tool or capability or kind of general pricing leverage and how that's sort of evolving with the rollout of these new products? William Wagner: Luke, right now, I would say the pricing of the new product is really like a lot of SaaS companies, it's a hybrid model. So you see -- you do see per seat pricing, but you also see usage pricing. You also see pricing for add-on capabilities, which have proven out for us really well this year, people adding in different toolkits to the pricing. So that -- philosophically, that hasn't changed. Semrush One being our newest product, we -- that has introductory pricing. We think it is frankly, pretty disruptive for the capabilities it brings to the table. So we'll monitor that pricing as we move forward, whether we adjust that up or down. But right now, I think that provides a new entry point to the market for what we believe is the new benchmark, which is bringing together SEO and AI search into a single product. Lucas John Horton: Got it. And then just kind of looking at capital allocation, obviously, significant cash balance over $275 million. Last quarter, you announced the buyback program, obviously, investing into the business here, but how should we think about capital deployment going forward? And then also just kind of the M&A landscape and opportunities from a data or product standpoint. Brian Mulroy: Luke, yes, I can take that. As you mentioned, we do have a very strong balance sheet with $276 million and, of course, a very strong and growing free cash flow generation. That's a trend that we expect to continue, and it puts us in a really good position to be able to invest and allocate capital into a number of different areas. Our first priority, of course, is organic investment in the business. We see a significant opportunity ahead with AI and Enterprise across both product and go-to-market, as Bill mentioned this morning. So we're going to continue to invest in that area and make sure we're positioned ahead of the rest to be able to fully capitalize on that opportunity and drive growth. M&A, of course, continues to remain an attractive opportunity, and we'll continue to selectively assess different opportunities going forward where it makes sense for our strategic priorities going forward. And then the share repurchase, of course, is something we'll continue to focus on. We have -- we're in a fortunate position to have flexibility with that much cash and free cash flow generation, and we'll leverage all forms of capital allocation to make sure that we're optimizing shareholder value. Lucas John Horton: Got it. And were there any repurchases during the quarter? I didn't see anything in the prepared remarks there. Brian Mulroy: We did not this quarter. There was -- it was some litigation that we were subject to this quarter that we're working through. We expect that we'll be able to navigate through that, and we'll update investors as we advance through. Operator: We will now take our next question from Jackson Ader from KeyBanc Capital Markets. Jackson Ader: First one is on the seasonality of the business. Should we expect a bigger -- a larger-than-usual ARR build in the fourth quarter now that the mix of the business continues to shift toward enterprise? Brian Mulroy: Yes, absolutely. So I mean our business, there's 2 fundamental seasonality dynamics. What we've experienced over the years is the seasonality of our PLG business. As we've talked about, our first quarter tends to be the strongest when marketing teams establish their budget and strategy for the upcoming year. And then there's seasonality dynamics in the lower end with SMBs and freelancers around holidays in the summer. With our Enterprise go-to-market and Enterprise portfolio, it's almost the opposite. We start -- we build momentum as we advance through the year. And as you would expect with an enterprise SaaS business model, that would mean that the back half is stronger. That's something that we expect will continue to shift as enterprise product portfolio continues to ramp and build momentum. And of course, we continue to make investments in scale in our Enterprise go-to-market. Jackson Ader: Okay. Great. And then a quick follow-up on the dynamics between AI ARR and the rest of the business. Is it fair to say, okay, each quarter kind of take out the AI ARR added to get a better sense of the core growth rate of the business? Or are those 2 so linked that, that doesn't make any sense? William Wagner: Jackson, this is Bill. I think they're becoming increasingly linked. I mean our belief clearly is that marketers need both. And I think the data would show and not just our data, but experts in the industry are saying more and more, they recognize that you're building AI search on top of SEO principles. And that's really what's fundamentally behind Semrush One, which is one product as opposed to buying multiple products that does it all. So I think it's increasingly going to be difficult to separate it. We'll do the best we can. We're seeing growth in SEO, and we're seeing growth in AI search. But increasingly, I think our products will have components of both. Operator: We will now take our last question from Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: I wanted to ask on the competitive landscape in AIO. I think we've all seen some of the headlines around VC funding in the AI Optimization space. So maybe just take a step back and walk us through your right to win, particularly given your historical success has primarily been in the SMB space, but is increasingly happening in the Enterprise space. Any interplay there would be helpful. William Wagner: Sure, Adam. Yes. So I wouldn't say we've seen any change in the competitive landscape in terms of any impact to our business. There are definitely a lot of start-ups in AI visibility or GEO with copycat products. Most don't have any foundation in SEO. They don't have the experience nor the comprehensive data set that we've built over the last decade plus. So I'm sure some companies will emerge from that, but I think most will be absorbed or will fold, frankly. And I think if you believe the experts, SEO is something that is foundational. So we think the 3 things that differentiate us are, first of all, we have that foundation. We're the leader in SEO search. We have more SEO -- more people using our products across more companies than anyone else in the space. So that customer base and that experience and that -- those SEO tools provide us a great foundation. Secondly, the data that we've talked about, our data set is just much richer than anything else that any competitor can bring to the space. That gives a much more holistic view of what's going on, not just in AI search, but across classic search and social media and other tools, so I think that's the second real big differentiator for us. And I think the third, frankly, is the brand recognition that we have. We have -- we are the leader in the space. We're going to continue to leverage that brand. Even in our own customer base, we're still vastly underpenetrated from AI search capabilities. So that's a big opportunity for us. And McKinsey published a study last month that said only 16% of companies are actually monitoring their AI visibility systematically. So it speaks to the market opportunity that's pretty significant we see in front of us. But we feel really good about where we are competitively. Adam Hotchkiss: Okay. Great. That's really helpful. And I think this is sort of an offshoot of that question. But are you seeing any -- I think we've all heard management teams, there being pressure from CEOs and Boards of Directors to spend on AI broadly. And I guess for your nontraditional SEO customer, maybe someone you haven't interacted with previously, are you seeing any new inbound sort of AIO-driven interest based on your launch of that product from someone who maybe wasn't an SEO customer historically. How much of that is really a driver here? Or maybe the opportunity is a little bit more with your existing base? William Wagner: Yes. I think we believe there's strong opportunity in both new customers and existing customers. So I think we started when we launched the products, they were really around existing customers and selling into our base. I think more and more, we're seeing -- as you pointed out, this is in every boardroom is talking about this. So we're starting to see a lot more customers from the outside, even customers who are coming to us for the first time. Maybe they're using other products in the SEO search space, but they're using us now. They're coming to us for AI search, and that's really encouraging. Operator: Thank you. I will now pass the conference back over to the management for any additional remarks. William Wagner: Thank you for joining us today. We reported a solid quarter and our positive momentum in the Enterprise segment and our AI solutions continues to build. We're excited about the future prospects, and we look forward to speaking to you again next quarter. Operator: Thank you. That concludes the Semrush Holdings Third Quarter 2025 Results Conference Call. Thank you for your participation. You may now disconnect from your line.
Operator: Thank you for standing by. This is your conference operator. Welcome to the Intrepid Potash, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Evan Mapes, Investor Relations. Please go ahead. Evan Mapes: Good morning, everyone. Thank you for joining us to discuss and review Intrepid's third quarter 2025 results. With me today is Intrepid's CEO, Kevin Crutchfield; and CFO, Matt Preston. During the Q&A session, our VP of Sales and Marketing, Zachry Adams will also be available. Please be advised that comments we'll make today include forward-looking statements as defined by U.S. securities laws. These are based upon information available to us today and are subject to risks and uncertainties that are more fully described in the reports we file with the SEC. These risks and uncertainties could cause Intrepid's actual results to be different from those currently anticipated, and we assume no obligation to update them. During today's call, we will also refer to certain non-GAAP financial and operational measures. Reconciliations to the most directly comparable GAAP measures are included in yesterday's press release and are available at intrepidpotash.com. I'll now turn the call over to our CEO, Kevin Crutchfield. Kevin Crutchfield: Thank you, Evan, and good morning, everyone. We appreciate your interest and attendance for today's earnings call. I'm pleased to report that Intrepid sustained its strong financial performance in the third quarter. This was highlighted by a net income of $3.7 million and adjusted EBITDA of $12 million, which compares to a net loss of $1.8 million and adjusted EBITDA of $10 million last year. Outside of the record pricing we saw in 2022, our year-to-date adjusted EBITDA of $45 million represents our best start since 2015. I'd like to take the time on our call to specifically recognize all of our employees and congratulate them on this excellent set of results, both for this quarter and year-to-date. Our strong results were primarily driven by 2 key factors: first, higher pricing in Potash and Trio as we realize the entirety of the first half increases in both segments in quarter 3. And second, our higher production over the past year has led to better unit economics. Both Potash and Trio improved our cost of goods sold per ton by low-single-digit percentages during the quarter and year-to-date our Potash cost of goods sold improved by 9% to $327 per ton, while in Trio, the same figure improved by 15% to $238 per ton. For Trio, specifically, our production has been consistently exceeding our expectations quarter after quarter, and we're confident we can continue to sustain these higher run rates, which should further improve our unit economics in 2026. Turning to market commentary. While sentiment in U.S. agriculture had softened over the past few months, there are some green shoots emerging. This was, of course, highlighted by last week's trade deal with China, which included soybean purchase commitments and yesterday's follow-through where they also confirmed they would remove retaliatory tariffs on certain U.S. farm goods including soybeans. While China soybean purchase commitments essentially put our exports back to historical levels, when those are combined with much higher recent domestic soybean crush, the total domestic soybean use has the potential to again reach recent historical highs. This, in turn, could also provide some relief for corn if we get lower planted acres next spring although corn exports have remained very strong regardless. In summary, the U.S. agriculture landscape is certainly looking better, which is also evidenced by corn and soybean futures, both now being up by 15% since August lows. For the broader Potash market, global supply and demand remains relatively balanced where demand in key international markets has been resilient throughout the year. Given the lack of significant additional potash supply until mid-2027, we think the market will continue to see pricing support for the foreseeable future. Furthermore, potash is currently trading at similar levels to where it was this time in 2023, offering good relative value compared to other fertilizers. Putting this together, we remain constructive on our sales volumes and pricing as we wrap up the year, and we'll continue to prioritize selling into our highest netback markets. Before passing the call on to Matt, I'll end my remarks with a couple of operational highlights. In potash, we're still working on the permitting and evaluation process for the AMAX Cavern at our HB facility and hope to have our permitting efforts wrapped up in the first quarter of 2026, which is consistent with the time line we outlined in the last earnings call. In Trio, as I alluded to earlier, our financial and operating performance continues to exceed expectations. This has largely been driven by the 2 new continuous miners we placed into service in the second half of '23 as well as the restart of our fine langbeinite recovery circuit. In addition, in January 2026, we expect to take delivery of another continuous miner, which will further improve our mining rates and continue our trend of year-over-year production increases. Accordingly, we now forecast our quarterly Trio production will be in the range of 70,000 to 75,000 tons for 2026, and our team is continuing to challenge itself to find even more tons through improved mining efficiencies and increased mill recoveries. Higher production should drive another year of record Trio sales volumes for Intrepid. And given that Trio pricing is close to parity with potash, this will also help to offset the modestly lower 2026 potash production guidance we gave on the last earnings call. Overall, Intrepid continues to deliver solid financial results and the recent improvements in U.S. ag markets is certainly a positive development. Looking ahead, we'll remain focused on strong operational execution, improving our margins and free cash flow through the cycle. As the only domestic producer of potash, we'll prioritize our investments into our core business to fully capitalize on our multi-decade reserve lives. So with that, I'll now turn the call over to Matt. So please go ahead. Matt Preston: Thank you, Kevin. Starting with our Potash segment. We delivered another quarter of solid results, primarily underpinned by improved pricing and higher sales volumes. Our Q3 average net realized sales price for potash totaled $381 per ton as we fully capture the approximately $60 per ton increase for sales into agriculture markets compared to the first quarter. Compared to the prior year, our higher sales volumes of 62,000 tons in the third quarter were driven by the increase in production over the past 12 months. As we noted on last quarter's call, during the third quarter, we did delay our production at HB with the goal of maximizing late season evaporation, which was the reason for our third quarter potash production decreasing to 41,000 tons. Despite the reduced production, we're still experiencing solid year in economics in potash particularly when you consider the other revenue streams of salt, magnesium chloride and brine that enhance our cash flows. In terms of segment gross margin, our Q3 figure of $6.3 million was approximately $2.2 million higher than last year. And year-to-date, our segment gross margin totaled $13.6 million, which compares to $13 million in the same prior year period. Due to the above average rain at HB in the summer of 2025, we expect our annual potash production next year to be in the range of 270,000 to 280,000 tons. Moving on to Trio. In the third quarter, we sold 36,000 tons at an average net realized sales price of $402 per ton. The strong pricing was driven by the continuation of supportive potash values and improved realization of low chloride pricing premiums in key markets and also reflects realization of first half price increases which totaled approximately $60 per ton since the start of the year. As for the lower Q3 Trio sales volumes, that was driven by 2 factors. First, our Trio demand was heavily weighted to the first half of 2025 and where we sold a record 181,000 tons and second, normal seasonality as customers focus exclusively on third quarter application needs. Last week, we announced the Trio fill program, where we reduced our reference pricing by $35 per ton for orders placed through the end of October, with pricing after the order period back up $25 to match levels seen during the spring season. We saw a very good subscription from our customers in the fill and expect to end the year with good sales momentum. Our East mine production rates and mill recoveries continue to exceed expectations in the quarter with Trio production of 70,000 tons, again driving solid unit economics. Trio's COGS per ton totaled $257 in Q3, which compares to $272 per ton last year and $235 per ton in the second quarter of 2025, with the sequential increase in Q3 attributable to a higher mix of premium Trio sales, which have a higher carrying cost relative to our other products. Overall, a combination of operational efficiencies, improving unit economics and higher pricing have driven a significant improvement in our Trio results. Our Q3 gross margin of $4.4 million was approximately $4 million higher than last year. And through the first 3 quarters, our gross margin totaled approximately $23 million, which compares to $1.6 million in the same prior year period. This is truly a step change in operating performance that we expect to not only maintain but continue to improve upon in 2026. For next year, we expect our Trio production to be in the range of 285,000 to 295,000 tons, which we expect will also drive a 5% to 7% improvement in our per unit costs and deliver another year of very solid margins. In Oilfield Solutions, lower water sales and oilfield activity reduced our gross margin in the quarter with water significantly lower, mostly due to last year's Q3 having the largest frac job in company history. Despite the dip in Q3, our year-to-date revenues and profitability on the South Ranch have mostly been consistent with recent historical performance. While not included in our segment results, I want to highlight another strategic sale of land on our South Ranch in the third quarter, where we sold approximately 95 fee acres for a gain of $2.2 million. These sales, while infrequent, highlight the strategic value of our ranch in New Mexico, and we will continue to pursue options to monetize our land position in the Delaware Basin. As for fourth quarter sales and pricing guidance, in Potash, we expect our sales volumes to be between 50,000 to 60,000 tons at an average net realized sales price in the range of $385 to $395 per ton. Compared to last year's fourth quarter, our Q4 volume should be roughly in line with pricing up approximately $45 per ton as our geographic advantage, diverse sales mix and limited sales into the corn belt are expected to insulate us from a potential slower start to the fall season. For Trio, we expect our fourth quarter sales volumes to be between 80,000 to 90,000 tons at an average net realized sales price in the range of $372 to $382 per ton. Compared to last year's fourth quarter, our Trio volumes are expected to be almost 60% higher after the very good subscription to the fill program with pricing up roughly $45 per ton, and we expect this sales momentum will again carry into the spring season. For our 2025 capital program, we expect our spend will be in the range of $30 million to $34 million. Our 2025 spend includes approximately $5 million related to the HB AMAX Cavern with the balance directed to other sustaining projects across our Potash and Trio operations. Overall, we're pleased with our year-to-date results and encouraged by the outlook. While we've had some pricing tailwinds this year in both Potash and Trio, much of the success has also been driven by the operational improvements we put into place, particularly at our East mine. Moreover, our debt-free balance sheet and cash position of roughly $74 million continues to put Intrepid in a position of strength and we're looking forward to a very strong finish to the year. Operator, we're now ready for the Q&A portion of the call. Operator: [Operator Instructions] The first question comes from Vincent Andrews with Morgan Stanley. Justin Pellegrino: This is Justin Pellegrino on for Vincent. I just wanted to touch on the AMAX Cavern and the permits. Can you give us an idea of what the CapEx would be associated with the injection well in the pipeline should those permits be obtained? And then within the overall capital allocation priorities for next year, I imagine this is impacting your decisions and how you're planning on going forward. But can you just give us an idea of where that falls within the potential for returning any other excess cash back to shareholders or any other projects that you might be taking on? Matt Preston: Yes. Thanks for the question, Justin. As we continue to evaluate the HB AMAX Cavern, if you recall, that capital will be spread out over a couple of years. Certainly disappointed that the cavern didn't have brine when we got the injection well or the extraction well, excuse me, drilled in the summer of '25. But as we evaluate it, I mean, the capital spend, it will really just kind of like I said, I mean, be over a couple of years. And kind of how that plays out is something we'll have a little more color on here as we get to the first part of the year. I mean, Kevin, I'll let you touch on the capital. Kevin Crutchfield: Yes. Yes, Justin. Thanks for your question on capital returns. I mean, I think the answer is consistent with the past. What we're really aimed at doing is continuing to reinvest in these core assets like we talked about before, to establish a position of resiliency, consistency, predictability, et cetera. So you've got repeatable results year-over-year-over-year. I think once we get to that point and are generating predictable steady free cash flows and cash flows, then that's when we can enter a period of what does a capital return policy begin to look like. And as we've said before, it's something that the Board registers very clearly and squarely with them, and it's something we talk about routinely. So I hate to give you the same answer, but it is the same answer. And we're kind of on the path as we begin to examine that going forward. Operator: Your next question comes from the line of Lucas Beaumont with UBS. Lucas Beaumont: So farmer economics has sort of been pressured in the U.S. There have been concerns around demand destruction kind of across some of the nutrients. So I just wanted get your view on sort of how your order book is looking for both Potash and Trio and if you're seeing any indications of that at all? Or it seems like a nonissue in terms of cost cutting from the growers so far? Zachry Adams: Lucas, this is Zachry. I appreciate the question. I think first on Trio, as Matt noted in his remarks, we saw a really good response to the fill program we released last week there. So order book looks really strong on that front, and we're really fully committed for fourth quarter at this point there. And then on the potash side, a similar story. Order book looks good. We're almost fully committed here for the fourth quarter versus our guidance values. And -- and the 1 thing I'll highlight is just the diversity of our potash mix between our feed sales, industrial and the geographies that we focus on. So that insulates us a bit if there is a slower start, as Matt said, to demand for fall in the Corn Belt, for example, and we feel good about where we're sitting today. Lucas Beaumont: Great. And I guess just as a follow-up then on the new well at AMAX. So I guess, could you maybe just give us a bit more detail around I guess, what the pathway forward would be. So if you get kind of -- if you get the permit in the first quarter, like when would you kind of look to sort of execute on that? And then what would sort of be the next steps if that's either successful or sort of not successful to then continue kind of moving the project forward? Matt Preston: Yes. I look to provide a little more color, Lucas. I mean depending on the permitting, we did the extraction well. It's about $5 million we spent on that. There's certainly a little more work to completely put that in service with pipeline. It'll only depend on timing of permitting and when we want to put the injection well in and what that time looks like to get that cavern full. When it comes to an injection well, it's about $5 million to $6 million for the well, a few million dollars for injection pipeline. But as far as exact timing of when that will spend and when that final completion capital around the extraction well will happen, that's something that I just will have more color on here as we get a little more clarity on permitting into the first part of 2026. Lucas Beaumont: Great. And then just, I guess, while the potash volumes are kind of going to be impacted and be a bit lower heading into '26 in the near term, when should we sort of start to see the negative kind of cost absorption there flowing through? I don't know if you can kind of give us a view on sort of what portion of your cost base there in potash, you sort of view as fixed versus durable maybe to kind of help with that as well. Matt Preston: Yes. I mean given the slightly lower production guide here in '26, we'll start to see, all else equal, some higher cost per ton here in the first quarter as we start to start harvesting the tons that were laid down in our ponds in the summer of '25. I think it's probably 5% to 7% increase for the full year cost per ton for potash compared to '25, which we're pleased is kind of offset by that improvement in our Trio segment. Lucas Beaumont: All right. And then I guess just in Trio, I mean you mentioned at the start that the pricing there has continued to be very attractive and they're sort of trading kind of in line with potash at the moment. How do you kind of see that dynamic that are playing out as we sort of move through 2026? Zachry Adams: Yes. Lucas, I think we continue to see strength on Trio, and it's really due to the components of that product. Obviously, kind of year-to-date, we've seen strength across the potassium markets. And not just on the potash side as well on the SOP side, too, where we're seeing a greater realization of that low chloride K value in the Trio. And then kind of pivoting over to the sulfate component of Trio, we did see a bit of a seasonal adjustment in the summer as expected. But just looking at sulfur values overall, they're starting to trend back up here in the fall, and we think that provides support going into Trio into 2026 as well. Lucas Beaumont: Great. And then just lastly on Oilfield Services, I mean, it's sort of in a tough water sales environment there that you called out with the low activity levels in the quarter. So how is kind of -- is the fourth quarter kind of tracking the same? And I guess, how should we kind of think about the outlook there for that business into '26, both on the sale side and I mean like you saw, you saw a fair bit of margin pressure there in the quarter as well, which I'm assuming the bulk of that is probably tied to the sales decline. But I mean, if there's anything else there to maybe roll out for us to kind of just help frame how we should think about the potential earnings if we're sort of running at a lower sort of sales level kind of going into next year? Matt Preston: Yes. I mean Q3 was certainly quite a bit lower, particularly when we compare it against last year's record frac. I mean, we're very exposed to kind of the drilling activity that's on our feed land there, and it's really kind of feast or famine with some of those bigger drilling jobs. As we look into Q4, we certainly expect it to be down a bit compared to what we saw in the first half of the year, where we were pretty consistent margins around $1.3 million and $1.6 million. So some improvement over Q3, but we see still a slower water environment here in the fourth quarter and likely into the first part of '26. Operator: Your final question comes from the line of Jason Ursaner with Bumbershoot Holdings. Jason Ursaner: Just for Kevin, it's been, I guess, nearly a role since your were -- nearly a year since you were announced in the CEO role. But I think you've been pretty clear on the priority in terms of consistency of earnings, sustainability. Just looking at the results, it does feel like a lot of that work to get back to structural profitability, at least the heavy lifting is kind of either done or kind of on the path. So I guess, in your mind, what else sort of -- what are the big steps that you're looking for to kind of get you there? Kevin Crutchfield: Well, I mean, the focus has been intense just around the core assets. And look, I'll tell you that while we're posting more consistent, more reliable results, we're still not pleased with where we are. We think there's more work to be done, and we're going to continue that work because what we'd like to do is continue to take costs out of the system move ourselves down the cost curve. Some of that comes from the removal of cost that you can avoid because some of that comes through tweaking the volumes. And I'd like to just specifically recognize the Trio team for the work that they're doing at our East mine, have been dramatic improvements there over the last year. And I think they'll continue to outperform going into next year. We've still got some work to do on the potash side. We had the AMAX disappointment and then the weather at the end of the year that kind of threw a little bit of a ranch into early part of next year, but we'd like to get that back on track and kind of get back over that magic 300,000 ton mark and even a little higher. So while we're pleased with what has been done, there still is more work to do to achieve that resilient, predictable, as you just said, structural reliability. So that continues to be job one. And once we feel reasonably satisfied that we've accomplished that, then we can start to think about where we go from here. So bottom line is pleased with progress to date, but we still have more work to do and look forward to reporting out on those results in the coming quarters. Jason Ursaner: And in terms of the capital allocation stuff, I mean, is it waiting to see it? Or is it kind of a linear thing where, I guess, or is it -- at what point you kind of feel like it's in the works sort of, I guess, is where I'm trying to go, is it just obviously sitting with a pretty big percentage of your market cap in cash. So the commentary on waiting for capital returns, just sort of how does that go together? Kevin Crutchfield: Yes, the nature of this business and a lot of businesses, you can make a capital investment and see the result in a week. Here, it can take a year or 2 before that stuff starts to play out, just given the long-dated nature of largely the evaporation seasons and our -- the impact that weather can have on us. But I would say that a lot of that's in flight. We still have more work to do, specifically around Carlsbad and Wendover and frankly, Moab as well, making sure that those assets are performing at what we believe to be sort of their entitled level of performance. So we've sort of done a couple of years of catch-up capital. I think next year will be another one of those years. And you'll start to see the benefits of those manifest themselves late next year and moving into 2027, I think. Operator: This concludes the question-and-answer session. I would like to turn the conference back over to Kevin Crutchfield for any closing remarks. Kevin Crutchfield: Again, I'd like to take just another moment to thank our team for their hard work and dedication this year and posting solid results year-to-date and look forward to continuing to work with them in the coming quarters. And thank you all for attending today's call, and we look forward to keeping you posted in the coming quarters. Everybody, have a good day. Thank you. . Operator: This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning, and welcome to Evergy's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Peter Flynn, Senior Director of Investor Relations and Insurance. Please go ahead. Peter Flynn: Thank you, Haley, and good morning, everyone. Welcome to Evergy's Third Quarter 2025 Earnings Conference Call. Our webcast slides and supplemental financial information are available on our Investor Relations website at investors.evergy.com. Today's discussion will include forward-looking information. Slide 2 and the disclosures in our SEC filings contain a list of some of the factors that could cause future results to differ materially from our expectations. They also include additional information on our non-GAAP financial measures. Joining us on today's call are David Campbell, Chairman and Chief Executive Officer; and Bryan Buckler, Executive Vice President and Chief Financial Officer. We will cover third quarter highlights and provide updates on economic development activities and our regulatory agenda. Bryan will cover our third quarter results, retail sales trends and our financial outlook. Other members of management are with us and will be available during the Q&A portion of the call. I'll now turn the call over to David. David Campbell: Thanks, Pete, and good morning, everyone. I will begin on Slide 5. This morning, we reported third quarter adjusted earnings of $2.03 per share compared to $2.02 per share a year ago. The increase over last year was driven by a recovery of regulated investments and growth in weather-normalized demand, partially offset by higher interest and depreciation expense and dilution from convertible debt. Our year-to-date adjusted earnings are $3.41 per share compared to $3.46 per share a year ago. With these results year-to-date, we are narrowing our 2025 adjusted EPS guidance range to $3.92 to $4.02 per share from our original 2025 adjusted EPS guidance range of $3.92 to $4.12 per share. The lower midpoint is primarily due to weather headwinds from below normal cooling degree days in the second and third quarters, which negatively impacted our results by $0.13 per share. I would like to compliment the team for implementing mitigating actions across the business, offsetting more than half of the weather headwinds. However, we have not been able to offset the full magnitude in what has otherwise been a strong year of regulatory and operational execution while advancing our strategic objectives. Our fundamental long-term outlook remains very strong, bolstered by tailwinds from a generational economic development opportunity and the investment needed to enable it. Bryan will discuss the quarterly drivers and our earnings outlook in more detail in his remarks. We've achieved strong operational and reliability performance through September. Year-to-date, our generation availability as measured by the forced outage rate as well as our overall grid reliability as measured by SAIDI are both favorable to target. These results demonstrate the benefits of our continued infrastructure investments and the hard work of our operations teams. I'd also like to recognize Wolf Creek as it nears completion of our 27th refueling outage with strong safety and overall performance. Wolf Creek generates around 1,200 megawatts of non-carbon-emitting energy enough to power more than 800,000 homes. I'd like to thank everyone on our nuclear team for their hard work and focus on sustaining the excellent operational performance of the plant. I'm happy to announce a 4% increase in our quarterly dividend or $2.78 per share on an annualized basis. This increase is consistent with our updated growth outlook and working toward the midpoint of our 60% to 70% target payout ratio. Looking ahead, we will provide a comprehensive financial outlook update on our year-end call in February. We will include refreshed views on our load forecast based on large customer impacts, our 5-year capital investment plan, the related financing plan and our long-term adjusted EPS growth outlook. The 5-year capital plan will incorporate expected generation investments to serve load and meet SVP's increasing reserve margin requirements as well as transmission and distribution projects to support reliability. As Bryan will discuss with respect to the long-term update, we believe there are noteworthy tailwinds to our earnings power as we advance our plans to support growth and economic development that will benefit our Kansas and Missouri customers and communities. Slide 6 outlines our economic development pipeline and opportunities over 15 gigawatts, which relative to our size, represents one of the most robust backlogs in the country. Reflecting the geographic advantages of our region, the overall pipeline is strong in both Kansas and Missouri, and we are well positioned to continue to attract new businesses. Large customer interest in the Evergy service territory remains very strong. Focusing on the top 3 categories of the pipeline, we outlined a 4 to 6 gigawatt opportunity of large new customer load that represents the most active part of our queue. This Tier 1 demand represents a transformative 10-year growth opportunity for Evergy. When executed, we expect these projects will deliver significant regional benefits across our states, supporting a leading -edge digital economy, creating jobs and expanding the tax base while enabling us to spread system costs over more megawatt hours, helping to maintain affordability for all customers. We continue to work closely with Tier 1 large load to develop and implement transmission and distribution solutions to serve their expected ramp rates over the coming year. We are confident that we will be successful in winning and serving a large portion of this queue, which would in turn transform the size and growth of our company and enhance the economic prosperity of our region. The remaining pipeline totaling well over 10 additional gigawatts highlights the robust activity and sustained interest in Kansas and Missouri. Many customers have already secured land or land rights, finalized site plans and are actively participating in capacity studies. While not all of this load will ultimately be addressable, the ongoing dialogue underscores the depth of engagement and the readiness of customers to step in should others exit the queue. Slide 7 expands upon the 4 to 6 gigawatt Tier 1 large customer load opportunity. Beginning with the actively building category, I'm happy to report that last week, Lambda announced its plan to transform an unoccupied data center located in Kansas City, Missouri into a state-of-the-art AI factory and data center. Their facility is expected to launch in early 2026 with 24 megawatts of capacity and has a potential to scale up to more than 100 gigawatts -- 100 megawatts, excuse me, in the future. This project is a great example of a data center leveraging existing infrastructure with an ability to ramp load relatively quickly with minimal grid investment required and exemplifies why Missouri is an attractive destination for projects of all sizes. For the balance of our actively building customers, Panasonic and Meta are up and running, and our third large customer is making good progress through its heavy construction phase. Inclusive of Lambda, we now anticipate peak demand of 1.2 gigawatts from these customers with over 500 megawatts online by 2029, supporting our demand growth forecast of 2% to 3%. Moving to the finalizing agreements category, we remain in the final stages of negotiation with large customers for 2 data center projects. Subject to final agreements and project announcements, we expect to see an impact on our demand growth from these customers in 2027 and '28 and into the next decade, which would raise the overall company demand forecast to 4% to 5% load growth through 2029. Approval of the LLPS tariffs in both states is a key next step for finalizing these negotiations. Additionally, we recently added a third data center to this category, reflecting significant progress and initial executed agreements. This project was previously in our advanced discussions category and demonstrates the high interest from large customers in advancing their projects. We also remain in advanced discussions with multiple customers whose load would represent approximately 2 to 3 additional gigawatts of peak demand. These customers have secured land and land rights, shared site plans and in some cases, reached letters of agreement and provided financial commitments to move the evaluation forward. Load from these customers is not contemplated in our upside view of 4% to 5% annual load growth and therefore, would be incremental. Overall, we continue to see an incredible level of interest in our service territories, and we're making progress with potential new large customers across all stages of discussion. Each category reflects potential new entrants that will empower growth, investment and drive prosperity for our region. Now moving to Slide 8, I'll touch on our latest regulatory developments. 2025, as you know, has been a busy year for our regulatory team, and we've demonstrated considerable progress in advancing our strategic objectives. The team's results this year reflect the constructive policy framework and economic development opportunities in both states as well as our ability to find alignment with broad groups of stakeholders and achieve constructive settlement agreements. Beginning with Kansas, we filed for and received approval of predetermination to own partial shares of 2 new combined cycle natural gas units and a solar farm, both -- are all at Kansas Central. These projects were identified in our IRP preferred plan and reflect our all-of-the-above approach to meeting growing customer demand and higher capacity margin requirements in the SPP. The Kansas Corporation Commission issued an order approving a unanimous settlement agreement for Kansas Central rate case on September 25. The settlement achieved a balanced outcome for all parties, including adequate recovery for the investments needed to provide reliable and affordable electric service. A key open agenda item in Kansas is the unanimous settlement agreement we filed on our large load power service tariff docket on August 18. The proposed tariff applies to customers with demand exceeding 75 megawatts and establishes a rate structure with a focus on large customers paying their fair share and being subject to additional protections that I'll describe later in my remarks. We believe the LLPS establishes a competitive rate and positions Evergy to attract and serve large new loads, enabling growth and prosperity for our communities. We anticipate an order from the KCC on the settlement agreement as part of the commission's business meeting later today. Pivoting to Missouri, we've successfully advanced plans to construct new generating resources. The MPSC approved settlement agreements in our CCN applications for 2 solar farms, partial ownership in 2 combined cycle natural gas units and full ownership of a simple cycle natural gas plant. We believe these projects form a cost-effective package of reliable energy solutions for our customers, and this outcome demonstrates alignment with the Public Service Commission's interest in securing additional generation resources for our Missouri utilities. Similar to Kansas, the large load power service tariff proceeding continues to advance in Missouri. Parties filed a nonunanimous settlement agreement earlier this fall with terms similar to those filed in Kansas, including contractual protections, provisions to ensure that large customers pay their fair share of system costs and a competitive rate that supports economic development. We anticipate an order from the MPSC by the end of the year. Last, the planning process for our upcoming Missouri Metro rate case is underway, and we expect to file the case in February 2026. Slide 9 highlights legislation and regulatory mechanisms that support growth in our region and help to position Kansas and Missouri as premier destinations for infrastructure investment to ensure reliability and new advanced manufacturing facilities, data centers and other large customers. These mechanisms are the product of broad-based alignment between Evergy, the governor's office, state legislators, our regulatory commissions and key stakeholders as well as our shared commitment to seize on the growth opportunities ahead of us for our customers and communities. Constructive regulatory frameworks that enable timely infrastructure investment to meet the needs of both existing and new customers are critical to our success and the bills passed over the past 2 years in both states advance these priorities. This supportive landscape reinforces our region's position as a top destination for growth. Evergy is committed to delivering safe, affordable and reliable service to our 1.7 million customers. As large new customers join our system, all stakeholders benefit from broader cost sharing and unprecedented economic development. I'll conclude my remarks on Slide 10, which highlights the core tenets of our strategy. I'll focus specifically on affordability. Since the merger that created Evergy, we have achieved tremendous progress on affordability and regional rate competitiveness, driven by significant reductions to our cost structure and investing at a slower pace than peer utilities. Over that time, our rate trajectory has remained well below regional peers and far below inflation. This required hard decisions and the full focus and dedication of everyone in our company. I'm very proud of the results that these activities enable us to deliver for all of our customers. It is critical that we sustain this momentum as we enter a new era of growth and demand and economic development. This new era will require the same level of dedication and focus from our company, and that's exactly what we intend to deliver. As part of that focus, we will continue to invest in infrastructure and operate our business in a way that maintains reliability and benefits all of our communities. Higher levels of investment to serve new large customers must be fairly borne by those customers, and we designed our large load power service tariffs to do exactly that. Under the proposed LLPS tariff, new large customers will pay a higher rate than that paid by our existing large customers. As a result, the revenues from new customers will directly mitigate future rate increases for our existing customers as we are able to spread the fixed cost of our system over a broader base. In short, new large customers will pay a reasonable premium to the cost to serve them while also maintaining a competitive rate. And all customers will benefit from a modernized grid and new highly efficient generation resources. The tariffs are also designed with key safeguards in place. These include, among others, customer commitments of 12- to 17-year terms, an 80% minimum monthly bill requirement, exit fees upon early termination and collateral posting. It's important to note this tariff structure is consistent with the intent of our large new customers to be good stewards as part of our Kansas and Missouri communities. In the LLPS dockets, they were active participants throughout the process and along with many other stakeholders, contributed to and signed on to the settlement agreement. As I noted earlier, these agreements are currently pending approval by the Kansas Corporation Commission and Missouri Public Service Commission with the KCC's decision expected later today. Collaboration with large customers does not stop at paying their fair share. Their projects will create construction jobs, permanent jobs and expanded property tax base and community development benefits. As an example, one of our customers announced it will bring its Skilled Trades and Readiness or STAR program to the Kansas City area. The company is collaborating with Missouri Works Initiative and the Urban League to help increase the entry-level pipeline in the skilled trades with a focus on underrepresented communities. All STAR preemployment programs are paid training programs and offer networking opportunities to help participants move directly into employment on local construction projects. We hope and expect that this example will be just one of many. The vitality of our region has made it an attractive destination for advanced manufacturing and data center customers and their investments in turn have tremendous potential to drive a virtuous cycle of growth and prosperity in Kansas and Missouri for years to come. I will now turn the call over to Bryan. W. Buckler: Thank you, David. Thank you, Pete, and good morning, everyone. Let's begin on Slide 12 with a review of our results for the quarter. For the third quarter of 2025, Evergy delivered adjusted earnings of $475 million or $2.03 per share compared to $465 million or $2.02 per share in the third quarter of 2024. As shown on the slide from left to right, the year-over-year drivers are as follows: first, a 2% increase in weather-normalized demand growth drove the majority of the increase of $0.06 per share in the margin shown on the slide and recovery of and return on regulated investments contributed an additional $0.11 of EPS. Offsetting these favorable drivers are higher depreciation and interest expense related to our infrastructure investments, leading to a $0.07 decrease in EPS and dilution from our convertible notes led to a $0.03 decrease for the quarter. Turning to Slide 13, I'll provide more detail on our sales trends. On the left-hand side of the page, you'll see weather-normalized demand increased by 2% in the third quarter as compared to last year, following the 1.4% year-over-year increase we experienced in the second quarter. This continued strong momentum was driven by increases in both residential and commercial usage, including load from the Meta data center in Missouri that is reflected in our commercial customer class. At a macro level, the continued robust customer demand in our service areas is supported by a strong labor market as the Missouri, Kansas and Kansas City Metro area unemployment rates remain below the national average of 4.3%. Moving to Slide 14, I'll provide some further detail on our expectations for full year 2025 results. As David mentioned, we are narrowing our guidance range to $3.92 to $4.02 as compared to the original guidance range of $3.92 to $4.12. Our mitigation efforts of approximately $0.10 of EPS benefit are expected to offset a substantial portion of the $0.13 of headwinds experienced by below normal cooling degree days in the second and third quarters. In addition, we now anticipate an incremental $0.02 of dilution related to our convertible notes given our recent strong stock performance. We have forecasted incremental dilution from the convertible notes in our 2026 EPS modeling and continue to expect to achieve the top half of 4% to 6% growth in EPS in 2026 off of the midpoint of our 2025 original guidance range. As I'll discuss shortly, Evergy's fundamental long-term outlook remains stronger than it has been in decades, bolstered by tailwinds from a generational economic development opportunity and the investment needed to enable it, which will benefit all future years in our financial plan. Slide 15 outlines a recap of our long-term financial expectations and considerations for our comprehensive growth update we will share with you during our fourth quarter call in February. First, we highlight our Tier 1 customer opportunity of 4 to 6 gigawatts of peak load. As a reminder, our current 5-year plan incorporates load growth of 2% to 3% annually through 2029, reflecting solid growth in our current customer base and buoyed by the Panasonic, Meta and Google projects. This load growth expectation is further bolstered by rapid development data centers such as the Lambda facility discussed by David earlier, which is able to scale more quickly than the mega data centers via their use of existing buildings and existing electric infrastructure. Also, we are nearing final agreements with 2 data center customers that could drive an incremental 600 megawatts by 2029, which would raise our load growth forecast substantially to 4% to 5% on a CAGR basis through 2029. We've also made great progress with customers in the advanced discussions category, which represents a 2 to 3 gigawatt opportunity, driving even more load growth toward the back half of our 5-year plan. We certainly believe we have one of the most compelling customer growth opportunities in the entire industry that we expect will drive robust growth, not just in our 5-year forecast, but into the next decade for Evergy and for the communities we serve. Next, I'll discuss our capital expenditure and rate base growth forecast. The foundational earnings power of the company will be fortified by our capital investment program. Higher levels of infrastructure investment are needed for grid modernization and incremental generation capacity to support the expansion of our existing customer base and new large load customers. These are tailwinds to our current $17.5 billion capital plan and corresponding to 8.5% rate base growth through 2029. On the regulatory front, to maintain the credit profile of our utilities and to incorporate the affordability benefits of large loads, which allow us to spread system costs over a broader base, we plan to be on a somewhat regular cadence of rate case proceedings. With a large infrastructure plan comes regulatory lag. And over the past couple of years, the states in which we operate have taken proactive steps to help utilities better manage elevated depreciation and interest expense through the use of plant and service accounting mechanisms. We also utilize natural gas CWIP provisions in both Kansas and Missouri. These constructive mechanisms help to reinforce our solid credit profile. During this phase of significant infrastructure build-out, we will utilize equity and equity content financing options to fund a portion of our capital requirements and to support our strong investment-grade credit rating and FFO to debt threshold of 14%. It is important for you all to know that we will continually evaluate the overall level of equity funding needs, recognizing that large load customers in our pipeline could significantly improve our cash flows from operations, beginning in 2026 and accelerating throughout the next several years. Thus, there is a real opportunity to moderate our equity needs for the current $17.5 billion capital investment plan. Now our company can only be successful when our communities thrive and we maintain affordability for our customers. We are committed to staying laser-focused throughout the years ahead on affordability for our current customers, and we believe our long-term plan will be successful in doing so. As we look to rolling out our updated 5-year plan in February, I'll mention again the many tailwinds to our current adjusted EPS growth outlook and the transformational opportunity for us here at Evergy. We're excited for what's to come and look forward to sharing details with you on our year-end call. And with that, we will open up the call for your questions. Operator: [Operator Instructions] Our first question comes from the line of Paul Zimbardo from Jefferies. Paul Zimbardo: The first one I wanted to touch on just as we think about 2026 in Missouri legislative session, obviously, there's been a lot of progress in recent years for all the different flavors of utilities. Do you have any priorities or anticipate efforts for 2026? And could this influence the rate case cadence? David Campbell: Paul, we were pleased to work closely with many stakeholders last year in Missouri. It had a list, obviously, the Commission Chair Hahn, the governor's office. legislative leadership of the utilities and key stakeholders. So there's a lot of progress made in SB4. A lot of next year will be around implementing and following through on the elements of SB4 related rulemakings. So I don't anticipate there's -- I always talk with the team, we always talk with the team about ways that we continue to advance constructive mechanisms. But after such a busy year and such consequential legislation last year, I think it might be a little lighter calendar in 2026. But important steps to undertake to advance forward on the constructive mechanisms on SB4. Paul Zimbardo: Okay. Understood. And then obviously, you've got the big refresh coming ahead. Just maybe a little bit of a sneak peek, not so much on the numbers, but even just the cadence in the current plan, it's slower upfront and then accelerates. With whatever -- to the extent you do change the growth rate, should we think about that as kind of a linear profile or also accelerating as you move towards the end of the decade? David Campbell: Gosh, Paul, it's hard to answer that question without getting into what will be in our year-end update. So I think that Bryan did a nice job of describing the multiple tailwinds that are -- make us so excited about the prospects for growth in our region and all that's going to bring for our customers and communities, and that's both the load growth element, the investments needed to make sure that we can serve that load and meet SPP's higher reserve market requirements and beneficial impacts it can have in the financing plan. So the -- our prior capital plan, we laid that out by year. We'll lay it out by year in our upcoming capital plan. There's obviously a significant amount of investment. You can see what that is by year, but there's also loan growth that helps to mitigate any regulatory lag. So we're really excited about the tailwinds around it, and I won't get ahead around the profile. I think Bryan did describe for 2026 itself. We got -- we're reaffirming our confidence being in the top half of the range of '26, and then we'll be talking about the -- how those tailwinds manifest themselves in upgdeddated set of -- an updated financial plan that we'll outline in the year-end call. Paul Zimbardo: Okay. I understand. I had to try. David Campbell: We're excited, Paul, as you know, because we're excited because of the benefits it's going to bring to our region, our customers and communities, and it's a comprehensive set of factors that are driving that excitement. Operator: Our next question comes from the line of Travis Miller from Morningstar. Travis Miller: It seems like Kansas and Missouri have been working pretty well together here over the last few years. I was wondering within your service territory, how much competition is there at the local level in terms of attracting some of these large loads? I got to think just the way all states work that there might be some competition here, either legislatively, politically, local to try to get some of this economic development. Is that happening? David Campbell: That's a great question. And as a person, I'm now nearly 5 years in this region. And I've been very impressed. And of course, our service territory extends over to Central Kansas and Wichita. So we're -- it's much broader than just the Kansas City area, and there are parts of the states that are more distant from the state line. But to ask the question narrowly about our region, I'm Vice Chair of a group called the Kansas City Area Development Council. It represents counties on both sides of the state line extending all the way from Topeka to Kansas City and Eastward to North and South. So it's -- and it's a collaborative approach. There's actually been legislative truths in the past to mitigate potential poaching of that might go on across state lines. So they really do a nice job of collaborating the -- in the great state of Texas, I live 250 miles from many state lines, and I was reasonably close to them. Here, I'm quarter mile from the state line, and it's the collaboration that happens when you've got that kind of seamless integration, I've been very impressed to see. I've got an older brother. There are times when within a family, you might have dynamics, and that can happen. But in general, the teamwork is strong and the collaboration is high. Travis Miller: Okay. We'll hear more family stories later on. David Campbell: Indeed, -- they often involve. Travis Miller: Yes. And then other question. In terms of that $17.5 billion CapEx, assuming that you get the large load tariff there, you've got -- you'll have that, you'll have the PISA, the CWIP. How much of that $17.5 billion would actually be subject to a typical rate case filing, right? Essentially, how much of that can you recover without going through a regular rate case, as you call it, the cadence of base rate cases? David Campbell: Yes. So there's -- ultimately, all of our investments are subject to reviews to make sure they're prudent and reasonable. There's a set of different mechanisms that help to mitigate the cash regulatory lag. With PISA in both states that mitigates the earnings lag, but we've got riders in place in both states. all from property taxes to pension to other elements. And the CWIP will help with our new natural gas plants. We lay out the different parts of our capital plan in the appendix. So the new generation component is shown, I think it's on Slide 21. So that could give you a good measure for what -- which pieces of the capital plan. are in the more traditional category versus what's in the new generation category. The CWIP mechanism is slightly different between Kansas and Missouri. But in both states, we were pleased to get that -- those provisions introduced. It was in Kansas '24 and Missouri in '25, reflecting the support in both states. We're building new natural gas generation and recognizing that, hey, with the investment programs of that size is important to have some mitigants to lag. So that's -- out of our total capital plan, you'll see that new generation is about 1/3 and 2/3 is in the traditional categories, grid modernization, ensuring reliability, keeping the lights on and providing great service to our customers. Travis Miller: Okay. That makes sense. So then the other one, transmission would be obviously FERC so to pull that out. So it would be the 3 buckets of potential base rate would be legacy generation distribution in general. David Campbell: Yes. And most of our transmission investments in the Kansas side, you've got that right. Operator: Our next question comes from the line of Nicholas Campanella from Barclays. Nathan Richardson: It's actually Nathan Richardson on for Nick. I just have a quick one for you. So I was wondering if you could talk a little bit about the third data center you mentioned. And given the 4% to 5% sales growth guidance, I was wondering how impactful that third data center specifically could be in moving the needle for the sales growth. David Campbell: Nathan, that's a great question, and I'm glad you asked it. So the -- as you know, we've included in our financial plan that we provided last year, a 2% to 3% annual load growth, but we have quantified that the 2 customers in the actively building category have potential to raise that annual load growth to 4% to 5%. The addition of the third -- I'm sorry, the addition of the third customer, and this is in the finalizing agreements category, even I'm mixing up the categories. So the 2% to 3% load growth is from the actively building category. The potential to go to 4% to 5% is from the first 2 customers in the finalizing agreements category. You're absolutely right, that third data center customer we've now added to the finalizing agreements category would be additive to the 4% to 5% as with the customers in the advanced discussions category. So thank you for that clarification. Nathan Richardson: Is there any quantification there or just that is incremental? David Campbell: No. The bulk of that, we expect would be post 2029, but we've not quantified it, but that will be part of our -- obviously updated the year-end call what the overall view is on load growth tailwinds. We added it to the category of finalizing given just the sheer amount of progress we've made with that customer in terms of advancing discussions and advancing agreements and agreements related to those. So it made sense to include in that category. We've not quantified the incremental amount, but we've just noted that it's -- those additional customers beyond the 2 that are in the finalizing agreements category would actually be additive to the 4% to 5% annual load growth potential. Operator: Our next question comes from the line of Steve D’Ambrisi from RBC Capital Markets. Stephen D’Ambrisi: Yes, I just had a quick one on the LLPS tariff discussions. Given you guys have a settlement, I know it's not unanimous, but can you just talk about like effectively at a high level, what's left there, what the main sticking points are? And what you think kind of the time line for resolution around some of this stuff is? I'm pretty sure there's a settlement conferences coming up and then expected time line is the end of February, but just want to hear about that and then how that works into kind of moving some of these finalizing agreement buckets into the actively building bucket or signing ESAs associated with it. David Campbell: You bet. I'm glad you asked the question because I'll clarify because I think you may be thinking about the time line that's occurring on a different side of the state. in Missouri. So for us, we have 2 LLPS proceedings. One is in Kansas. We have a unanimous settlement agreement that we signed in Kansas, and there's already been briefing on that. And it's actually -- we expect a decision on that by the Kansas Corporation Commission later today. It's on the docket for today. So given that they've already had a hearing on that unanimous settlement agreement, we actually anticipate a decision in Kansas later today. And that was a unanimous settlement agreement covering all issues, including all parties. In our Missouri LLPS proceeding, we did have a partial settlement. We have gone through a hearing. Not all parties were alignment on it. The structure of the settlement that included many parties, but not all, has terms that are very similar to the ones in Kansas. So it has protections. It has a rate that is higher for the LLPS customers. And it's a structure that ultimately like as we saw in Kansas was a result of robust dialogue and included the large customers. So I think it's a competitive rate as well. We think it aligns with the governor's policy in the state and support for growth and development and with the commission's overall focus on that. But we'll have a decision on that we expect by the end of the year in our case. There are other proceedings in Missouri for other utilities that are a little behind ours. We filed that first. So hopefully, that makes sense with respect to the different context in Kansas. Stephen D’Ambrisi: That's helpful. And so basically, the comment on the slide that talks about announcements expected after LLPS tariffs are finalized to the extent the facilities are in Kansas, that could be freed up as early as tomorrow, and then we'll see when Missouri gets done hopefully by the end of the year. Is that -- those are the kind of the gating items from a time line perspective? David Campbell: I like your thinking. I've got some team members in the room now, and I'll tell them they need to be -- no, I'll kidding aside. Yes, I think the LLPS being signed is a very important enabling step. So that's -- and we do hope -- Kansas has always been a little bit ahead schedule-wise, but Missouri is not far behind. So we think that the time line sets us up well for what we know is going to be an important update in the year-end call. And it's important for these customers as well. The queue is a very active one. Folks are eager to come online. A big chunk of why we have a such a big queue is because we've got customers lined up for any reason, and we don't see those reasons happening. There's tremendous interest in the customers who are interactively building and finalized agreements with the category, a lot of momentum, but we've got folks lined up behind them. So we believe that the LLPS decisions being on the time line they are should enable us to move on the time line we're hoping to achieve. Operator: Our next question comes from the line of Paul Patterson from Glenrock Associates. Paul Patterson: Just on the financing plan and the $2.8 billion, and I see the forward -- we obviously have the forward and what have you. But I'm just wondering how we should think about this? I mean, you're also mentioning, obviously, the potential for what you guys mentioned earlier about the cash coming from these potential new agreements being finalized. How should we -- if you could just sort of quantify like how that -- how much that you think that would impact the $2.8 billion and the sort of timing or if you could just elaborate a little bit more on how we should think about the finalizing of those agreements and what have you. W. Buckler: Paul, it's Bryan. Thanks for the question. As a reminder for everyone, our current capital investment plan 5 years is $17.5 billion. In total, we believe that will be funded in part by up to $2.8 billion of equity and equity content capital market instruments such as JSN's Junior Subordinated Notes. I do think it's important for you to know that we'll continually evaluate the overall level of equity funding needed, recognizing that, as you say, that energy usage from customers in our pipeline could significantly improve our cash flows from operations beginning in earnest in 2026 and then accelerating throughout the next several years. Thus, there's a real opportunity to bring that level of equity down by what I've said before, hundreds of millions of dollars. I should also mention that we continue to see upside bias in our capital investment needs to serve our existing and expected new customers in the year ahead, which will also necessitate a somewhat balanced approach to debt and equity financing. Does that help? Paul Patterson: Yes, that does. I mean -- but just to sort of clarify, so that would be something that would obviously have -- require more capital needs and therefore, might be an offset to some of this cash flow that you'd be seeing as well. Is that how we should think about it? W. Buckler: Yes, that's the way to think of it for modeling for sure. Paul Patterson: Okay. And I guess we'll get more clarity, obviously, as time goes on. But -- and then I guess I wanted to -- on the $0.10 of mitigation measures that you guys had, with respect to the earnings. How should we think about those mitigation measures going forward? Do those -- are those a timing issue and they'll show up next year? Or are those things that you found that you think are more ongoing or some mixture of the 2? David Campbell: Paul, I'll describe those. Those are in-year mitigation measures. So obviously, we are -- the size of the weather headwinds and a little bit of incremental headwind from the convert was -- we would hope that we could offset all of it, but we were able to offset $0.10 of it, but that's really in-year mitigation measures. It doesn't impact our fundamental long-term outlook. I've now been -- this is my fifth year at the company. There are 2 years where we had really warm weather and adjust the range upwards didn't change our long-term fundamentals. This is a year where we have weather headwinds, so it's going to impact our performance of this year, but it's -- both the weather impacts and the mitigation measures are really within the context of this calendar year. The drivers for our fundamental plan, as Bryan mentioned, our view on 2026 and then the drivers for our long-term plan remains intact and sort of unaffected by the vagaries of weather. Paul Patterson: Okay. And then with respect to the Lambda deal, which would seem sort of interesting here. I'm just wondering, would that -- I guess, first of all, when would it go -- at what time frame would it go from 25 to the 100? I guess 25, it sounds like it would -- the 25 megawatts would be beginning of next year, but then it goes to 100. I'm just wondering how long does that ramp-up take? I'm just curious. Or is it known? David Campbell: Yes. We -- as I described, it's the in the 25-megawatt range starting next year, and it's probably in the next 4 to 5 years that it gets to that potential overall size. Really excited about that project, new company deploying advanced technology in their data center and AI factory as they describe it. So it's -- we are pleased to see that announcement. It was tied well with some economic development meetings here in town and reflects how attractive our region is and really impressed by how they leverage an existing building, an existing T&D infrastructure largely, and that's how they were able to ramp up to that level. Historically, a 25-megawatt customer would be considered very large. Now in the new era, it is a new era. But it's still obviously a creative approach, and we're pleased to have an advanced facility like that taking advantage of a building like that. Paul Patterson: Right. That sounds kind of unique. I guess what I also wondered was like in terms of the context of these large load tariffs that you were describing, since it's under 75 megawatts and then going to 100 megawatts, would a scenario like that be subject to -- obviously, it's hypothetical as and all they approved. But I'm just wondering how in the context of these settlements that you've had with these large load tariffs, how would a customer like that be treated? Would that be a large load since it came in initially below the 75 megawatts, but would go to the 700 megawatts, do you follow what I'm saying? Or would it be because the final number is 100, it would be a large load. Does that make sense? David Campbell: Yes. Typically, these customers are focused on what their ultimate load level is going to be because they want to make sure that they've got the infrastructure and capacity to get there. And this is an example. So the tariff addresses as you ramp up getting up to those higher levels. And again, these customers, the ones that go into the large loads definitely want to make sure they've got the capacity and ability to do this, and they know and are contemplating getting up to the LLPS. If ultimately stay in the 25-megawatt range, you need a different tariff level. But the ones that -- these customers are very interested in those higher levels of loads, and they know that as they get there, they get to that tariff rate. Paul Patterson: Right. So it's what they ultimately get to, would it be 1 of these like -- okay I got it, I understand. Operator: Our next question comes from the line of Anthony Crowdell from Mizuho. Anthony Crowdell: If I could follow up, I think, on Steve's question earlier. On Slide 7, is the actively building category, is that what's currently in the 4% to 6% EPS growth rate and the finalizing advanced discussion is what's not included in the current growth rate? David Campbell: Yes, the actively building -- that was probably my fault for how I answered it earlier. So if you look at Slide 7, a good place to go. The actively building, which is Panasonic and Meta and the third customer is in the heavy nearing completion of construction, that's in the 2% to 3% load growth rate. And that's... Anthony Crowdell: And in the 4% to 6%, right? David Campbell: No, the 4% to 6%, you get to if you include the 2 data center customers that are in the finalizing agreements category. This is the annual load growth rate. You're talking about -- if you're talking about the earnings growth rate of 4% to 6% -- sorry. The earnings growth rate of 4% to 6% that we said we're targeting the top half and then we're going to update on the year-end call. That is reflected in the 2 that are in the actively building category. Anthony Crowdell: Great. Just the 2, not the third? David Campbell: Correct. Anthony Crowdell: Great. And then I think when I look at your spread between your rate base growth and your earnings CAGR, it's roughly about 250 basis points. Is that a good spread going forward or the adoption of the large load tariff or the additional load, if you expect that to change, where is a good place to think where that settles out? David Campbell: Yes. So we haven't given guidance on that specific range. But I think if you look at our -- the $17.5 billion capital plan going back in time, there were higher levels of capital in the out years in that plan. We know that we will be presenting as part of the year-end call an integrated financial plan that reflects the relationship between rate base growth, incremental load growth is obviously help in reducing regulatory lag and the relationship that you see between that rate base growth and earnings growth. And there's a range that you see across different companies, and there's no reason why we would be outside that range, though obviously, links as well to what the phasing is of both the load growth and the capital in the plan. So we would -- we know that that's a question that we'll be addressing as part of our year-end update and the load growth and as we move into higher years in our capital plan, that will be reflected in the update that we provide. Anthony Crowdell: Great. And then just lastly, you talked earlier, I think, in your 5 years there, you've seen some big weather swings. I think for 3 of the 5 years this year, very mild weather, you ended up lowering 25. As you work on rolling out a new capital plan with a new load, does the very big swings in weather, will that cause you either to give a wider range or bake in more conservatism in your plan, given you've seen how much of a swing weather could be in your yearly performance? David Campbell: I think it's a very insightful question. I think it's something I really like having Bryan and Pete join the team. Bryan worked with a couple of different utilities. I know in my background, I'd like being able to describe to investors here are the factors that we can control, here are the factors that are clearly outside of our control and are readily quantifiable, but recognize that a number of our peer utilities and there's -- like the investors can like to see, hey, you can offset even if it's something easily track and identifiable like weather, you find mechanisms in your plan or build in an approach in the plan that can offset that. So we'll continue to have that discussion internally because we recognize that feedback. We'll always be very transparent -- plan to be very transparent with [indiscernible] because they -- as I mentioned, they didn't impact the fundamentals when they were positive. They're not going to impact the fundamentals when it's in year when it's a little more mild. It's a very mild August in particular here. But it's something that we'll consider, and Bryan will be a real helpful thought partner as we consider what the best approach is there. But again, we're very excited about the long-term fundamentals. We're certainly not overreacting to the -- was demonstrably a very mild Q2 and Q3, recognizing that we needed to implement the offsets that we did. And we're certainly always going to strive to be within hitting our targets and hitting our ranges. So it's a good question. We'll continue to think about it. Operator: Our final question comes from Paul Fremont from Ladenburg. Paul Fremont: I guess my first question, I just want to get a sense of the type of data center developments that are in your service territory. When the largest of those sort of build out, how many megawatts is that in terms of demand for the largest of your customers right now? David Campbell: We haven't given the size by customer, though I suppose you can -- if you go back to our last -- well, we've said it's 3 customers in the finalizing agreements category are 1.5 to 2 gigawatts. So that gives you a pretty good sense for the average size. That's a good indicator for us. We haven't given more specificity in terms of size by customer. But that math will give you a pretty good road map for what the peak size typically is. There's some variability by customer, of course, but clearly large -- 3 large customers making up that 1.5 to 2 gig. Paul Fremont: Okay. Because -- I mean, it does seem like the size is smaller than in some of the neighboring states. And I was just wondering, is there some factor that is causing sort of the size of your facilities to be more modest? David Campbell: Most of our customers want to expand past their regional peak once up. Some of these projects are similar customers involved. So I don't think there's a fundamental dynamic there. And for most of the -- we obviously track what the other customer announcements are. And there are a couple of unique large ones out there. But we're -- it's an average size that is in the 600 to 700 megawatt range is still a very, very large customer and very large data center. And as I noted, the most want to expand past original peak if we're able to accommodate it, but we like some diversification in customers and sites, which is reflected in a robust queue that helps keep everyone motivated as well. Paul Fremont: And then at what point would you need to build new generation in terms of, I guess, the 3 categories that you've outlined actively building, finalizing and advanced discussions? David Campbell: So we -- that's a great question. And as we noted, that's going to be one of the factors that's a driver for our plan update that we plan to give. Our integrated resource plan that we filed in '25, and we outlined in the appendix, which projects in the integrated resource plan were in last year's capital plan, which were not. As we develop that integrated resource plan, we included -- because track this information, we had included the 2 customers that were in the finalizing agreements category. You will see in that IRP from last year, a significant amount of incremental generation required to serve that load that was not yet included in the plan. So we have taken steps in terms of long lead time equipment, actions we need to take to be able to serve the customers that we've lined up. So we have some flexibility to do that. But I'd also note that we're going to be -- the next update to our capital plan and our integrated resource plan is going to factor in not only load growth expectations and the plants we need to serve those, SPP's reserve margin requirements, but also changes in federal and local policies impacting renewables. If renewables are less economic or harder to build, for example, we'll look at market capacity options. We'll look at potential retirement delays. We're going to look at the whole package to make sure that we are driving reliability and affordability for our customers. But at the end of the day, there's some incremental investments that we expect are going to need to be made. But we're going to look at that package of things in terms of what's that right mix of generation and how do we make sure we ensure reliability, take advantage of the growth opportunity, but also always keep an eye on affordability. Paul Fremont: And last question for me. Taking into consideration all of the legislative and regulatory changes, what estimate would you have for regulatory lag on a go-forward basis in your jurisdictions? W. Buckler: Yes. Paul, this is Bryan. We haven't given an exact number for regulatory lag we expect compared to allowed our authorized ROEs in our states. Things we point to is that historically, you've seen us earn -- have some pretty low ROEs, but the PISA and CWIP legislation certainly help in that regard. We also have loan growth that we haven't seen in many years, and we think it's going to be at a level that we haven't seen in many decades, which will help us kind of bridge that gap and get, we hope, very close to our authorized level of ROE. So that's directionally what I would give you, and we'll share more details in February. Operator: This concludes the question-and-answer session. I would now like to turn it back over to David Campbell for closing remarks. David Campbell: Thanks, Halen, and thanks, everyone, for joining the call today. We look forward to seeing all of you at EEI this weekend and next week. And that concludes today's call. Thank you. . Operator: Thank you for your presentation in today's conference. This does conclude the program. You may now disconnect.
Operator: Greetings, and welcome to the Altice USA Third Quarter 2025 Earnings Results. [Operator Instructions] It is now my pleasure to introduce your host, Sarah Freedman, Vice President of Investor Relations. Thank you. You may begin. Sarah Freedman: Thank you. Welcome to the Altice USA Q3 2025 Earnings Call. We are joined today by Altice USA's Chairman and CEO, Dennis Mathew; and CFO, Marc Sirota, who together will take you through the presentation and then be available for questions. As today's presentation may contain forward-looking statements, please carefully review the section titled Forward-Looking Statements on Slide 2. Now turning over to Dennis to begin. Dennis Mathew: Thank you, Sarah. Good morning, and thank you all for joining us today. Throughout today's presentation, we will discuss the progress we have made, the challenges facing our business and most importantly, how we are responding with urgency and discipline to ensure we continue to strengthen our business for the long term. I want to start by recognizing where we stand today and the work that still lies ahead. Over the past 3 years since stepping into the CEO role, we've been executing a comprehensive transformation aimed at stabilizing the business, driving operational discipline and slowing declines to position us for future growth. Our financial performance is starting to reflect our operational investments. Gross margin percentage reached an all-time high. Capital efficiency continues to improve. Adjusted EBITDA decline is moderating and we are targeting year-over-year adjusted EBITDA growth in the fourth quarter. We have also made significant progress in elevating our customer experience and the quality of our network as we continue working to rebuild trust with our customers. Because of this progress, despite market pressure, we are reaffirming our full year outlook of approximately $3.4 billion of adjusted EBITDA. Our outlook includes revenue of approximately $8.6 billion and direct costs and other operating expense, each of approximately $2.6 billion. We recognize that achieving our full year outlook implies a meaningful ramp in the fourth quarter performance and believe that our focus on profitability over subscriber growth at any cost positions us for financial improvement. Our results in the third quarter reflect shifting dynamics. The first part of the quarter was relatively stable, both against fixed wireless and fiber overbuilders. However, in September, competitive intensity significantly accelerated with aggressive offers paired with heightened marketing spend from our competitors as well as elevated FWA activity, which impacted our results. In the face of this, we remain disciplined by prioritizing financial stability and protecting margins over chasing lower-value gross adds. At the same time, we recognize that we must be bolder in our go-to-market and base management strategies to stabilize broadband performance. That being said, while we have made progress, we know there is more to do to attain consistent broadband subscriber growth. Reflecting this evolving competitive landscape, in the third quarter, we recorded a noncash impairment charge of approximately $1.6 billion related to our indefinite live cable franchise rights. The fair value of these assets was originally established during the company's formation in 2015 and '16. Since then, competitive and macroeconomic pressures have evolved, including incremental market entrants and low move activity. The impairment reflects the anticipated persistence of these conditions for the foreseeable future, which are factors that were not contemplated in the original valuations at the time of the Cablevision and Suddenlink acquisitions. This was a noncash charge and it does not affect our cash flow, liquidity or ongoing operations. As we move into the final months of 2025, our priorities remain consistent and clear. We are focused on evolving our go-to-market and base management strategies to improve our broadband and revenue trajectory, driving operational efficiency and enhancing and growing our network. Turning to the next slide, I'll review highlights from the quarter. Adjusted EBITDA declined 3.6% year-over-year and grew 3.3% quarter-over-quarter. Adjusted EBITDA margin of 39.4% expanded 70 basis points year-over-year and 200 basis points quarter-over-quarter. Gross margin reached an all-time high of 69.7%, reaching the milestone of approximately 70% a full year ahead of plan and largely reflects a mix shift away from video. Other operating expenses improved by over 2% year-over-year and by over 6% quarter-over-quarter. These results reflect our efforts to operate with discipline by driving innovation enhancing the customer experience and improving operational and financial efficiency across the business. On revenue, we maintained a disciplined approach to our revenue strategy prioritizing margin accretion and profitability as industry growth remains near record lows. In addition, we remain focused on expanding penetration of new and existing products designed to unlock additional revenue over time. While total revenue declined 5.4% year-over-year, driven primarily from video pressure, we showed revenue momentum in mobile service revenue, which grew 38%, Lightpath, which grew almost 6% and underlying news and advertising, which excluding political, grew almost 9%. Turning to our network. We continue to advance our network modernization efforts with the deployment of mid split upgrades across our HFC footprint. Later this month, we expect to begin offering 2 gig speeds in our first HFC market, an important step toward our multi-gig evolution with additional markets expected in 2026. Additionally, we continue to expand our network with total new passings expansions and additional hyperscaler contracts awarded at Lightpath. In August, Lightpath announced plans to construct 130 route miles of AI grade fiber infrastructure in Eastern Pennsylvania to connect the rapidly developing hyperscale data center ecosystem in the region. Turning to Slide 5. I want to provide more context on our Q3 broadband subscriber results and our disciplined strategic and financial focus as broader market conditions persist. In the quarter, we lost 58,000 broadband subscribers. We continue to operate in a challenging market, characterized by historically low growth intensified competition and ongoing consumer financial strain as more providers compete for fewer customers who are increasingly price-sensitive. This dynamic has led to elevated subscriber acquisition spending across the industry. Specifically, late in the quarter, we saw competitors ramp up promotions and significantly increased marketing spend, often combining deep discounts with aggressive add-on offers, which impacted our ability to capture win share. We maintained margin discipline in managing subscriber acquisition costs during this time, prioritizing quality growth and returns over uneconomic volume. Looking ahead in this environment, we intend to maintain this discipline. We recognize that we need to continue to adapt and evolve our go-to-market approach to compete more effectively. We have made steady progress in our head-to-head performance against fiber overbuilders and have observed encouraging trends there. Though on the fixed wireless side, as I referenced earlier, the competitive landscape demands a stronger stand. And we are developing and executing on a plan centered on our faster, more reliable network and superior product set, including mobile to execute with urgency and win. Turning to Slide 6. We continue to expand our product portfolio and increase penetration across both new and existing offerings. Our goal is to create stickier customer relationships, compete more effectively and capture additional revenue opportunities over time. We added approximately 40,000 customers to our fiber network and ended the quarter with over 700,000 fiber customers, representing a penetration rate of 23% across our fiber network. Thanks to the investments we made to enhance the quality and reliability of our HFC network, we refined our fiber migration strategy into a balanced returns-driven approach, one that prioritizes customers who benefit most from our superior fiber speeds and low latency experience. This strategy allows us to improve portfolio yields by balancing the strengths of HFC and fiber to deliver the right performance at the right cost to the right customer segments, ensuring each connection drives the greatest impact for both our customers and our business. On mobile, we added 38,000 mobile lines in the third quarter, representing a year-over-year uptick in mobile line growth and a consistent pace with the prior quarter. As we focus on customer quality and churn reduction, we are pleased with our progress. Annualized churn improved by approximately 900 basis points and we expect the potential for further gains as we continue to prioritize gross additions of higher-quality customers, those who port their number, finance the device or choose unlimited plans. While this strategy is expected to keep gross additions muted in the near term, lower churn is expected to offset that impact, driving steadier net adds in the long run. This deliberate shift improves efficiency and profitability, building a more stable, high-value customer base and reducing acquisition costs over time. Of note, today, only 35% of our mobile customer accounts include more than 1 line, which highlights a significant growth opportunity. We are evolving our mobile strategy with more attractive simplified pricing that makes it easier for customers to add lines and bundle services. Specifically, we have a heightened focus on driving multiline adoption, strengthening broadband convergence and enhancing pricing and offer competitiveness. We expect this evolved mobile go-to-market approach to roll out in late Q4, which we believe could position us for improved performance heading into 2026. Last year, we introduced a new and simplified 3-tier video offerings, Entertainment TV, Extra TV and Everything TV. These packages deliver greater value by including the most watched content, offering customers more flexibility and choice while enhancing our video margin profile. In the third quarter, we added or migrated a total of 58,000 video customers to these new tiers, representing a ramp from the phase launch in this prior year ending the quarter with 13% penetration of residential video customers. We continue to evolve our video strategy as we bring in partners such as Netflix, Disney, Hulu and others to strengthen our value proposition and bring more optionality to our video customers. More broadly, we have launched several new value-added services and products over the past few quarters, including Total Care, Whole-Home Wi-Fi and B2B add-on services such as connection backup and Secure Internet Plus. These offerings continue to scale and together with other products in our road map helped to create stickier customer relationships. Over time, we believe these services may help offset ARPU headwinds from declining legacy products such as video. In closing, over the past year, we've strengthened our foundation anchored in product quality, network reliability and customer service, which we believe remains central to winning in the marketplace. Our focus remains on enhancing our value proposition, rebuilding customer trust and sharpening our go-to-market and base management strategies to compete more effectively in this highly competitive landscape. Although market conditions remain challenging, we remain focused on the elements within our control, maintaining discipline and execution, competing with precision and allocating resources with intent. This balanced approach protects profitability near term while positioning the company for durable growth and value creation over time. With that, I'll now turn it over to Marc to walk through the financial results in more detail. Marc Sirota: Thank you, Dennis. Let's begin on Slide 7 with a review of our financial performance. Total revenue of $2.1 billion declined 5.4% year-over-year. Video cord cutter remains the primary driver of year-over-year revenue declines, representing nearly 6% of total declines with residential video revenues down close to 10%. News and Advertising revenues declined 10%, driven by the benefits in the prior year period from incremental political ad revenue. Excluding political, News and Advertising revenue grew by almost 9%. Over the full year, we expect to offset most of the revenue pressures through continued improvement in programming and direct costs as we manage expenses in line with the lower revenue environment. Residential ARPU declined 1.8% year-over-year to $133.28, lower by $2.48, primarily driven by the impacts from video. In the third quarter, video contributed to a $3.16 decline year-over-year to total residential ARPU. This is related to volume, partially offset by disciplined video price expansion and representing nearly 130% of total ARPU decline. Offsetting those declines, we saw steady improvement in all other service revenue, contributing to a $0.68 year-over-year improvement driven in part by rate discipline and growth of mobile and new product sell-in. This underscores that even with improving margins, video's revenue pressure remains the biggest factor weighing on top line and ARPU performance. Broadband ARPU declined slightly year-over-year to $74.65, tied mainly to seasonal trends with expected low promotional roll-off volumes. We expect full year broadband ARPU to be slightly up year-over-year, supported by additional rate benefits in the fourth quarter. Continuing on Slide 8, our gross margin reached an all-time high of 69.7%. Gross margin expanded by 160 basis points year-over-year reflecting the continued mix shift away from video, along with a disciplined approach to stronger programming agreements and ongoing efforts to optimize video margins. Adjusted EBITDA of $831 million declined 3.6% year-over-year. This represents a moderation in the rate of decline compared with recent quarters, reflecting the benefits of ongoing operational efficiencies and disciplined cost management, as evidenced by the 3.3% sequential improvement in adjusted EBITDA in Q3 compared to the second quarter. Third quarter adjusted EBITDA margin expanded by 70 basis points year-over-year to 39.4%, representing our highest EBITDA margin in the past 2 years, and underscores the continued progress in improving efficiency. In the fourth quarter, we are targeting year-over-year growth in adjusted EBITDA, which will represent the first quarter of growth in 16 quarters. The expected step-up in adjusted EBITDA is driven by both improvements in top line trends and our cost profile. On revenue, we see a path of slowing the rate of decline in our core residential and B2B businesses. Our strategy focuses on more disciplined ARPU management through a seasonal timing of rate actions and continued expansion of value-added services. For the full year, we expect broadband ARPU to increase slightly year-over-year, supported by anticipated growth in the fourth quarter. As expected, third quarter results were impacted by typical seasonal dynamics, including back-to-school and lower promotional roll volumes. As noted, Video continues to be the largest driver of our revenue declines. However, we have successfully slowed the rate of decline by adding incremental subscribers to our new video tiers, and we expect this trend to continue. Additionally, our Lightpath business continues to gain share in the hyperscaler market. As we exited 2024, we announced more than $100 million in awarded contracts. And since then, we've meaningfully increased both the total value of awarded deals and opportunities in the pipeline. We expect these contracts to begin contributing to revenue in the fourth quarter with continued growth through 2026 and beyond. In News and Advertising, while we continue to face year-over-year headwinds from the prior year political cycle, we expect to see acceleration in our advanced advertising platform driven by seasonal contracts, primarily tied to the NFL season in the fourth quarter. Additionally, we anticipate some political advertising benefits this year from races in New York City and New Jersey. On direct costs, our teams have done a great job at resetting and executing innovative programming agreements which contributed to a 14% reduction in programming costs year-to-date. We expect this momentum to continue, supporting our full year outlook on direct costs of approximately $2.6 billion. And finally, on operating expenses, we continue to expect benefits from our workforce optimization efforts. These actions were taken without impacting our customer-facing teams, ensuring no compromise to the quality of our customer experience. In addition, we see continued reductions in call volumes and truck rolls tied to the strength of our network in AI-driven automation yielding up savings. And last, as we said previously, we expect moderation in consulting and professional fees tied to our transformation efforts. All of these opportunities from incremental revenue to lower cost profile give us confidence in the path to achieving approximately $3.4 billion of adjusted EBITDA in the full year. Next, turning to Slide 9. I'd like to go a bit deeper regarding our operational efficiency momentum. In the third quarter, our operating expenses improved 2.4% or approximately $16 million lower year-over-year, marking the first quarter of year-over-year OpEx improvement in 6 quarters. As we discussed in August, we delivered OpEx moderation, staying on track to achieve a 4% to 6% reduction in full year 2026 operating expenses compared to full year 2024. Historical OpEx elevation was driven by incremental investments on our transformation journey to refine processes and implement new tools, some of which have now begun to taper, portion of transformation-related costs remain in our operating expenses today but are expected to further decline in Q4 and into 2026. In addition, we reduced sales and marketing expenses in the third quarter, reflecting our disciplined approach to managing subscriber acquisition costs and avoiding overspending on lower-value customers. Salaries and related costs are running below the prior trajectory driven by workforce optimization actions taken in the second quarter with the full benefit expected in the fourth quarter. Although this is partially offset by employee-related health and wellness costs, which continue to run at a higher rate than 2025. Specifically, health and wellness costs were higher by $8 million year-over-year in the third quarter and higher by $30 million year-over-year in the third quarter year-to-date. Beyond OpEx, we continue to drive efficiency across our operations. First, annualized service call rate improved by approximately 6% and the annualized service visit rate improved by approximately 20% year-over-year in the third quarter. Next, we continue to focus on strengthening our programming agreements and take a data-driven analytical approach to these negotiations, ensuring our content strategy aligns with customer preferences and viewing behaviors. This approach, combined with continued adoption of our new video tiers, supported video gross margin of expansion of almost 350 basis points year-over-year in the third quarter. We continue to integrate AI tools across multiple areas of the business from predicting outages to coaching sales reps. AI is helping drive efficiency and supporting growth opportunities. For example, we launched our AI virtual assistance in sales and build partnerships with companies like Google and Cresta to transform customer support. So far, the results have been fewer customer touch points, faster resolutions and better experiences. And finally, our customer satisfaction continues to improve with the relationship NPS up 6 points in the last year and up 17 points over the past 3 years, reflecting ongoing enhancements to network performance and overall customer experience. Stepping back, these overarching trends reflect the progress we've made and laying a foundation of quality across our products, network and services. The discipline and efficiencies we built into the operations are now beginning to be reflected in our results as we position the business for sustained improvement. Next, on Slide 10, I'll review our network investment and capital expenditures. We now project full year 2025 capital expenditures of approximately $1.3 billion compared to our prior outlook of approximately $1.2 billion. The increase reflects incremental investment at Lightpath to support continued hyperscaler build activity, which is now expected to be at the higher end of the Lightpath capital range of $200 million to $250 million. In addition, there are some timing impacts towards the end of the year that are contributing to our higher 2025 capital outlook. Cash capital expenditures in the third quarter were $326 million, down 9.4% year-over-year. This reflects lower capital spend in the second half of the year as more capital-intensive phases of our build activity occurred earlier in the year, and capital has tapered substantially each quarter since. In the third quarter, we added 51,000 total passings and 30,000 fiber passings. Year-to-date, we've added 112,000 total new passings and continue to target 175,000 total new passings in the full year. As we discussed in previous calls, the majority of our passing growth in 2025 is expected to come from new fiber deployments. In addition, we are efficiently upgrading portions of our HFC network to enable multi-gig speeds. We continue to deploy mid split upgrades at a low cost per passing and expect to begin marketing multi-gig HFC service in our first market later this month. And finally, turning to Slide 11, we will review our debt maturity profile. As discussed in August, we are pleased to have partnered with Goldman Sachs and TPG Angelo Gordon on a $1 billion asset-backed receivable facility loan. This first of its kind securitization transaction backed primarily by HFC assets has added additional debt capacity. The loan transaction was completed in July of 2025 and is included in our consolidated debt maturity profile and debt calculations presented. At the end of the third quarter, our weighted average cost of debt is 6.9%, our weighted average life of debt is 3.4 years, and 73% of our total debt stack is fixed. Consolidated liquidity is approximately $1.2 billion and our leverage ratio is 7.8x the last 2 quarters annualized adjusted EBITDA. Before we close, I'm pleased to share that earlier today, we announced the alignment of our corporate identity with Optimum, a brand trusted by millions of customers. Effective tomorrow, November 7, we expect to change our corporate name from Altice USA to Optimum Communications. In connection with this, starting on November 19, our Class A common stock, which currently trades under ATUS ticker symbol on the New York Stock Exchange is expected to begin trading under our new OPTU ticker. We view this transition as an important milestone in our multiyear transformation journey, uniting us under a single Optimum brand identity. In closing, we believe our strategy and unwavering discipline and focus enables us to build a more resilient business over time, positioned for sustainable, long-term growth and enhanced value for our shareholders. With that, we will now take questions. Operator: [Operator Instructions] Our first question comes from the line of Kutgun Maral with Evercore ISI. Kutgun Maral: Two, if I could, one on broadband and one on cost. First, on broadband trends, Dennis, as always, your candor and the detail around the market realities are much appreciated. It's clearly a dynamic backdrop. As we think about your commentary that competitive intensity has significantly accelerated in September, along with the high likelihood that there'll probably be even further pressures from the big 3 telcos on both fixed wireless and fiber ahead. What's the right way to think about the broadband subscriber trends for Optimum going forward? Broadband net losses widened from 50,000 last year to 58,000 this quarter, particularly given your disciplined financial approach, it seems like these year-over-year pressures will likely widen, but would welcome your thoughts. And second, I was hoping to get more color on the cost structure since there have been a number of puts and takes this year given the ongoing transformation efforts. I know it's way too early to talk about 2026. But as we try to put the pieces together for EBITDA, is the fourth quarter cost base the right way to think about the shape for next year? Dennis Mathew: Yes, I'll start with the broadband trends, and I'll let Marc jump in on EBITDA and OpEx and provide some color commentary. As you know, last quarter, we did make some progress in terms of year-over-year performance as we were executing our hyperlocal strategies, our income-constrained strategies, and we were starting to make some progress. But I also indicated that we are working on a much broader transformation of this company, and we are working to ensure that we deliver long-term subscriber revenue and EBITDA growth and as such, we are prioritizing financial discipline. And as we entered into Q3, we found that in this low growth environment that the competitive landscape continues to evolve, and the marketing spend by our competitors continued to increase. We had competitors that were increasing marketing spend in certain instances by double digits. We also had -- since I've been sitting in the seat, the most aggressive offers I've ever seen in the marketplace. I mean I'll just be quite frank with you. There are competitors offering 3 and 4 months of free service, $500 plus of incentives, free streaming, $29 gig and these are all being stacked on top of each other. And so we meet every day, every week, and we decide how are we going to continue to drive this business we've committed to the $3.4 billion in EBITDA, keeping EBITDA relatively flat year-over-year. That is our focus. And so we decided that we're not going to chase high-cost, low-value gross adds that we are going to continue to stay disciplined. And we're doing that across the east and the west, in the East. We see heightened competition from fixed wireless in particular. And then in the West, we do have some fiber overbuilders that are very, very aggressive on price. That being said, we have the right network, the right products and the right value propositions to compete as I mentioned in the last quarter, we saw some benefits from our hyper local strategy, and that continues to bear fruit in Q3. But we have to be bolder. We have to scale. We have to accelerate and drive our marketing to tell that story more effectively across the West. And in the East, we have to do a much better job of really showcasing that our products superiority against fixed wireless and our value proposition. And so those are the things that we're focused on from a go-to-market perspective, really continuing to evolve those strategies and continue to scale those strategies. And then on the base management side, in this low-growth environment, we have to continue to focus on managing our base effectively. And while churn has remained relatively stable. There's more opportunity. There is more opportunity. We have to -- we focused, as you know, over the last couple of years on making sure we have the right quality in terms of network and product and service, we have to sharpen our toolkit in terms of value. And folks want crystal clear transparency on pricing and packaging, and we have some opportunities there, and we're working on that. So this is not a time where we're going to go chase high-cost, low-value gross adds. We're going to remain disciplined. And the competitive intensity continues into Q4. But the good news is that we've got a great team, and we've got more tools than we've ever had to be able to test and learn and evolve our strategies so that we can compete most effectively and find the right balance of rate and volume into Q4 and going into Q1. Marc, do you want to talk about the cost profile and how we're managing our financials. Marc Sirota: Absolutely. Yes, really pleased on our operating expense moderation that you saw in the second quarter this just reflects our continued focus on optimizing our operations. You saw and we talked about in the last quarter, we were optimizing our workforce and that transformation really started to highlight some results here in the third quarter. We continue to remain disciplined, as Dennis mentioned, around marketing expenses and being balanced on our subscriber acquisition costs. We are not going to chase low end, gross adds and results are reflected in our results today. And as we mentioned, we saw less consulting fees and things tied towards the transformation. Those are really first half of this year related. Those will wane. And we'll continue to moderate expenses as we look into the fourth quarter, again, driven by how we're managing the network. We see service call rates as we talked about, down 6% quarter-over-quarter service digits rate down 20%. We're deploying AI throughout our ecosystem which is just getting customers the answers quickly and first time right, is at an all-time high in those rates. And it's a very personalized experience with our customers. So we'll continue to moderate. Proud of coming out of the second quarter, our annualized run rate was over $2.7 billion coming out of this third quarter, we brought that down to $2.55 billion, a 6% reduction already and we expect further reductions in the fourth quarter. So as you think about long term, I think you'll be thinking around that space and how we're moderating expenses for the long term. Operator: Our next question comes from the line of Vikash Harlalka with New Street Research. Vikash Harlalka: Two, if I could. Dennis, you've spoken at length about all the changes that you're making to improve your long-term broadband trends and then you've also spoken about the competitive impact on your subscriber trends. Could you just unpack the 2 opposing forces for us so that we can understand how much benefit you're seeing from the improvement that you're making and how much that's being taken away by the increased competitive intensity. And then second question on the EBITDA guide. I know you mentioned about rate increases. And then you also mentioned the workforce rationalization, there's a lot of skepticism among investors about your 4Q guide because the implication is you're looking at double-digit growth. So it would be great if you could just help us understand how much effect it has been driven by price increases versus the cost.. Dennis Mathew: Thanks, Vikash. I'll, of course, answer the first, and then I'll let Marc jump in here. But on the broadband trends, as you've heard me say time and time again, we are evolving the way we operate, the way we go to market. We've upgraded our leadership team. We've made changes in terms of pricing and packaging and how we compete at the market level and all of these things are really helping us gain command of our acquisition and base management strategy. We now have the ability to provide strategies, not just one size fits all across the country. But as we've established these OMS areas and as we've really laid a foundation to help us create playbooks depending on what type of competitor is in the marketplace, whether it's a fiber over builder, fixed wireless, those are helping us. That being said, we are in an environment with both macroeconomic challenges and extreme competitive intensity. And so we do need to continue to evolve. The good news is we are able to see what's working, what's not working and continue to act in a rational fashion, evolve those strategies, and that's exactly what we're doing. As we looked at our performance from Q2 to Q3, we saw that there was an opportunity to continue to really be ensured that we're leaning into being more transparent with our pricing, a bit more aggressive and bold in terms of the pricing and packaging strategies in the East and the West, making sure that we're not overly surgical, but we're able to really go into a market and provide the marketing halo necessary to be able to tell our story most effectively and to continue to do that town by town, neighborhood by neighborhood. These are things that we could not do when I showed up. And so it is something that we are looking to continue to evolve in a disciplined fashion. That being said, we are seeing the competitors react. We saw them react from Q2 to Q3. by increasing their marketing spend and by increasing the aggressiveness of the offer. And so we're going to stay disciplined and not chase -- not have a chase to the bottom but really find the right balance of rate and volume. Marc, do you want to talk a little bit about EBITDA question? Marc Sirota: The EBITDA question? Yes. The cost, good to hear from you. You may need to mute your line. I think we're picking up some of the typing. Just on the full year EBITDA guide, pleased to be able to reiterate that we have confidence in our ability to deliver that both from a top line perspective and a cost perspective. Again, in my prepared remarks, we mentioned some of the path to get there. Again, we see from a top line perspective, we'll continue to drive improvements, mainly through ARPU management, through just the seasonal timing of normal rate event activity, including promo role. In addition, we continue to sell our value-added services, and we continue to see that trend continuing. On the full year, we do expect broadband ARPU to be up slightly year-over-year with some incremental acceleration coming out of fourth quarter. And just to note again, the third quarter was seasonally down, really tied to back-to-school activity and just less promotional roll activity. And just really want to stress, the largest contributor to our revenue decline is really still tied to video only have slowed the rate of video declines as we add more and more customers onto our EBITDA accretive new tiers of services. We expect that trend to continue. In fact, we are more than offsetting all video revenue declines with direct cost savings and that strategy is boosting our gross margins to their highest levels ever a year ahead of where we originally thought they would get to actually. Additionally, we see real acceleration coming out of our Lightpath and news and advertising businesses. First, on Lightpath, as we've talked about previously, the hyperscaler market is a large opportunity for us. The team has done a fantastic job winning a large amount of contracts. We think those contracts really start to pay dividends here in the fourth quarter and beyond into 2026. So I think that's a real tailwind for us. And then our News and Advertising business, despite the political headwinds, we expect to see some acceleration. You saw that in this quarter's results we expect that to continue really coming from some seasonal contracts really tied to the NFL season. Plus, we had some benefits here in the quarter tied to the New York City and New Jersey political races. Can't stress again enough how well the team is doing on direct cost management, being disciplined in this time of revenue pressures tied to video cord cutting. We've driven down our programming cost by over 14% year-to-date, I think, industry-leading. And I think that trend continues and will drive us to our guide of approximately $2.6 billion. And then just on OpEx, we mentioned the workforce transformation. We cut heads by nearly 5%, again, without sacrificing quality. The benefit showed up slightly here in the third quarter, we expect the full benefits to manifest itself in the fourth quarter. We continue to see call volumes and truck rolls decline as we strengthen our network and really drive AI automation into each department. And then just we're moderating our use of consultants and fees tied to the transformation efforts, and that showed up in the third quarter, and we'll continue to see the benefits of that discipline in the fourth quarter. So all of those things, both the top line improvements and our discipline around profitable growth and cost controls and optimizing the operations give us the confidence to deliver our first quarter of growth in 16 quarters in the fourth quarter and get us to our approximate $3.4 billion guide for the full year. Operator: Our next question comes from the line of Frank Louthan with Raymond James question. Robert Palmisano: This is Rob on for Frank. So you might have touched on this a bit earlier in your prepared remarks, but can you give us an update on the lower-end product that you guys were looking to sell into rural areas? Have you gotten any traction with that yet? What are you seeing in the way of take rate there? And going off of that, can you talk about East versus West CapEx investment and how you guys expect that breakdown to trend going forward? Dennis Mathew: Yes. Thanks, Rob. I'll let Marc talk about CapEx. But in terms of our income-constrained product, we are seeing double-digit improvement in terms of sales and connect rates. And so now is the opportunity for us to scale that across the footprint and really go a bit larger with that strategy. As we continue to see headwinds, and we continue to see competitive pressures, we really wanted to test our way into this to make sure that we were doing a good job of managing rate and volume and ensuring that we had the ability to control access to that offer and where we were providing that offer in a just a very surgical fashion. We do have the ability to now scale that a bit further and to really start to market it. We haven't done any real public marketing of it. And so this is an opportunity for us to start to get a bit more aggressive as we round out the year and go into the first half of next year. Marc, do you want to talk about CapEx? Marc Sirota: Sure. Again, just pleased on the discipline we're showing around our capital envelope and lowering capital intensity. And the team has done a great job in, and really being able to be efficient with every dollar we spend to drive maximum ROI. You'll see, as you kind of think about East West, we'll continue to guide to 175,000 total new passing. Again, that will be mainly in a fiber-rich manner. A lot of that build is actually happening in our West footprint. And we're really excited about the investments that we're able to do at a very economic and efficient way to drive mid split technology and really excited here in this month to launch our first multi-gig HFC network service that will be in the West and excited to see that occur and really speaks about the trajectory of where we're heading with our network performance. So again, pleased on the how the team is managing capital and being disciplined and again, driving growth. Operator: Our next question comes from the line of Craig Moffett with Moffett. Craig Moffett: I had 2 questions, if I could. First, can you just give us some sense of how you're thinking about the 2027 maturities wall at this point? Presumably, you've been looking at options to term that out if that was possible. So how do -- have conversations started with your creditors about how you address the 2027 wall? And then just to clarify the remarks that you just made, Dennis, about the introductory or the kind of the low-end offer that you've got for rural markets. That seems to be a bit of an odd when you say you're going to be more aggressive with that, a bit at odds with the overall message of today's call, which sounds like you're going to be more disciplined. I wonder if you could just help us reconcile those 2 things. Marc Sirota: Craig, let me jump in on the first question around the '27 maturity law. We are not going to be actually taking any questions on our capital structure today. So we'll leave that and I'll pass it. Dennis Mathew: Yes. And Craig, so to your point, when I say we're going to be a bit more aggressive, is that we've only launched that across a portion of our footprint. We have now the opportunity to launch it broadly across the footprint, but it's going to be very surgical. We're not going to -- this is exactly why we've been taking it very methodically. We didn't want to make it broadly available and then erode ARPU and erode kind of the entire footprint. So we do have the ability and the data sets now to be able to identify the demographics and the areas where this would resonate most effectively so that we can compete at that local level versus making this general market offer. And so this is some of the foundational things that we had to put in place so that we could have really command and control of what offers are available when? When I started, it was -- everything was available everywhere across the footprint. And there was really no control and so over the last couple of years, we've had to do a lot of work in our billing systems and in our offer management to be able to be more controlled and more surgical. We think that this is an opportunity for us, but we do want to have command of it. And so we've tested in a few states, in a few areas within those states, and we've seen the benefit in terms of sales velocity and so now we're going to continue to roll that out in areas where we think it will resonate most and help us compete most effectively. But to your point, my earlier comments still prevails. So we are going to be disciplined, and we're going to continue to compete in a disciplined fashion to make sure we balance rate and volume. Operator: Our next question comes from the line of Sebastiano Petti with JPMorgan. Sebastiano Petti: I mean, I guess, just kind of following up on -- I mean, to the same tone of Craig's question there, but how are we thinking about the overall pricing environment? Dennis, you're talking about trying to be disciplined. But obviously, against the broader backdrop within cable here, we've seen one of your peers suggesting maybe they're going to forgo a pricing increase but just kind of given the overall level of competitive intensity in the market. I mean, is this -- what you're seeing in the market, does that change how you're thinking about the growth algorithm and your ability to kind of take price and have pricing power in the market against the backdrop of a more competitive market and trying to be more disciplined? Dennis Mathew: Sebastiano, customers want quality and they want value. And when I started, we really didn't have a product portfolio that could deliver any sort of value. And so over the last couple of years, we've started to fill up the product portfolio. We now have an amazing product in mobile and we've made some progress, but admittedly, there's more work to do. And over the last couple of quarters, I mentioned last quarter in particular, that the near-term focus was to ensure quality gross adds and so we've leaned in on that. And we've seen a 900 basis point improvement in churn as we focus on selling in more lines as we focus on boarding in phone numbers as we focus on making it easier for customers to finance devices, and that's a huge value proposition that customers are looking for, and it's resonating. And so we're going to continue to drive that across all of our channels, drive participation and continue to evolve the pricing and the packaging to make it simpler and also provide value and value when you buy both together. When you buy both broadband and mobile and so some of that is going to be coming to life over the next couple of months. The other nice thing is we've launched a whole host of other value-added services like Total Care, which we now have over 100,000 customers in the time since we've launched it, like our streaming billing on behalf of products. We now have over 200,000 -- over 100,000 customers on that product. And so these are all opportunities for us to provide value. The video packages as well have been resonating. We've been able to hold our gross add attach flat this year, but in previous years, we have seen that coming steadily down. We now have over 200,000 customers on these new video packages. And so we're focused on quality, as you know, in terms of making sure we have great products and network and service. And now we have these tools like value-added services, mobile and these video packages, and it's up to us now to bring those packages together so that we deliver the best value. That being said, that customers also want transparency in their pricing, and we have to do a better job, and there's more work that we need to do even on the fundamentals of our billing system and the way we present our bill and making sure people understand what they're paying and how much they're paying. Admittedly, we are seeing that folks are resonating with price locks but we're going to do that in a very controlled fashion. We're going to test into that and see where there's opportunities to leverage price locks to help us accelerate our go-to-market but we're not going to do that in an undisciplined way. We're going to do that in a disciplined fashion and find ways to leverage that as well to continue to drive our go-to-market and base management strategies. Sebastiano Petti: And then if I could quickly follow up. Any update on the MDU strategy? Obviously, or just the overall rollout because obviously, Verizon, a little active in the market acquiring Starry, any impact on what you're seeing from them from a competitive standpoint? I guess maybe where you are internally in terms of the strategic rollout and trying to tap that opportunity. Dennis Mathew: Yes. So MDU is a huge focus for us. We've continued to evolve our strategy there. We've got a big focus as we come upon contract renewals to focus on exclusive and bulk agreements. That has continued to increase over 2 million opportunity homes passed in our footprint. And so we've continue to upgrade our leadership team, continue to upgrade the tools that we have to be able to really go after these underpenetrated properties in particular. I'm excited about where we are in this journey because this is really upside opportunity for us to have a very disciplined go-to-market strategy. We didn't even have visibility into all of the units and what level of penetration until earlier this year. And so now that we have that visibility, we're mobilizing our teams to go after these opportunities proactively so that we manage those relationships. We provide those building owners with the right level of value in line with the competition. We didn't even have the platforms to be able to do that. We now launch those platforms. We have those capabilities. And I do believe that this will be a tailwind as we go into 2026. Operator: Our next question comes from the line of Sam McHugh with BNP Paribas. Samuel McHugh: Just a bit of a follow-up, I guess. So it sounds like you're planning some price-ups in Q4. Obviously, we heard Comcast talking about pausing price up activity. How do you think about the need to do that as well just to kind of get towards that stabilization in the broadband base in the medium term and reducing churn. It seems like you're still struggling to balance the two. So how should we think about price up going forward? Dennis Mathew: Yes. So we remain very disciplined in evolving our promo roll rate event activity. We can see in real time what the impact of those activities are, how much call volume that's driving, how much churn it's driving, how do we make sure we maximize the monetization of those promo roles and rate events when they do occur. When we first joined, there was a lot of art and not a lot of science, now we're doing a lot of science and making sure that we have complete command of how we do that most effectively. So that is strategy that we continue to evolve. The key -- some of the key things that we found helping us maximize the monetization of those events is proactively communicating with the customers, helping them understand what we're doing, why we're doing it and doing that ahead of time and then giving them options, giving them the opportunity to repackage themselves into these more attractive, valuable margin-accretive video packages, for example. And we're finding customers raising their hands and saying, hey, I don't want to be in this legacy package. I actually want to be in this new package. We're messaging them about the opportunity to take mobile so that they can make sure that they're able to manage their monthly expense most effectively because as customers are looking to manage their monthly expense, we can provide the best value through the mobile service. And so historically, it was really little to no communication, no ability for customers to have any options other than to call us and demand the credit. We are now going on the offensive and communicating ahead of time what's happening, why it's happening and giving them options and customers appreciate that. And so we're going to continue to evolve and find the right balance so that we can balance ultimately rate and volume and not only stabilize our financials, but we will ultimately get to a path where we stabilize broadband as well. And I'm confident that we have the products and the tools and the capabilities to do that over time. Sarah Freedman: Thank you, operator. I think that concludes our Q&A. Operator: I'll turn the floor back over to management for closing remarks. Dennis Mathew: Thank you all for joining. Please reach out to Investor Relations or Media Relations with any additional questions. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Shawn Amini. Thank you. You may begin. Shawn Amini: Thank you for joining us today for Texas Pacific Land Corporation's Third Quarter 2025 Earnings Conference Call. Yesterday afternoon, the company released its financial results and filed its Form 10-Q with the Securities and Exchange Commission, which is available on the Investors section of the company's website at www.texaspacific.com. As a reminder, remarks made on today's conference call may include forward-looking statements. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those discussed today. We do not undertake any obligation to update our forward-looking statements in light of new information or future events. For a more detailed discussion of the factors that may affect the company's results, please refer to our earnings release for this quarter and to our recent SEC filings. During this call, we will also be discussing certain non-GAAP financial measures. More information and reconciliations about these non-GAAP financial measures are contained in our earnings release and SEC filings. Please also note, we may at times refer to our company by its stock ticker, TPL. This morning's conference call is hosted by TPL's Chief Executive Officer, Ty Glover; TPL's Chief Financial Officer, Chris Steddum; and Executive Vice President of Texas Pacific Water Resources, Robert Crain. Management will make some prepared comments, after which we'll open the call for questions. Now I will turn the call over to Ty. Tyler Glover: Good morning, everyone, and thank you for joining us today. Our third quarter 2025 performance underscores the power of our unique business model and active management and consolidation strategy focused on accretively growing our oil and gas royalties, surface and water assets. This was a record quarter for many of our major revenue and volume performance indicators. Oil and gas royalty production achieved a record of approximately 36,300 barrels of oil equivalent per day representing 9% sequential increase and a 28% increase year-over-year. Record water sales of $45 million represents 74% sequential growth and 23% growth year-over-year. Record produced water royalty revenues of $32 million represents 5% sequential growth and 16% increase year-over-year. In sum, this was the first quarter in TPL's history where we recorded over $200 million of revenue. We accomplished all this despite some of the weakest benchmark oil and gas prices the industry has experienced since the COVID pandemic period. Focusing on our oil and gas royalties. Production volumes continue to benefit from robust activity in our Northern Culberson, Northern Reeves and Central Midland subregions. Production growth has been driven by an increase in net wells turned to sales and longer lateral lengths. Average lateral lengths year-to-date in 2025 are approximately 7% longer than last year and 23% longer compared to laterals spud in 2019. TPL's portfolio of acquired minerals and royalties is also performing very well. We began acquiring minerals and royalty interests in 2018 and in the third quarter, that portfolio was responsible for 18% of TPL's consolidated royalty production. Combined, the minerals and royalties acquisitions are generating a mid-teens pretax cash flow yield. TPL's legacy NPRIs are also performing well with double-digit growth year-over-year. Turning to our Water Services and Operations segment. This business rebounded considerably from last quarter. As I mentioned earlier, water sales revenue was a record for third quarter 2025. Although rigs and frac spreads have trended lower, upstream operators continue to prioritize development efficiencies, as we see persistent deployment of co-completions and simul and trimul fracking. Our investments in brackish and treated water infrastructure have established TPL as one of the few systems in the Permian capable of accommodating the volume intensity required to keep up with operators. On the produced water royalty side, revenues and volumes continue to perform well. Year-over-year, quarterly revenues and volumes were up 16% and 19%, respectively, as we see strong demand for both in-basin and out-of-basin pore space. Similar to our oil and gas royalties, TPL's Water segment has benefited from both organic investment and inorganic growth. Since its formation in 2017, we've invested nearly $200 million to build out our source water and recycling infrastructure. We've also acquired approximately $220 million of surface acreage in pore space. These acquisitions were substantially funded by approximately $150 million of 1031 and 33 exchanges and land sales, consisting of acreage that was either noncore or have limited strategic value. In return since inception, the Water segment has generated over $600 million of earnings, a $142 million of earnings in the last 12 months. Size and scale of our water segment across both sourced and produced is one of critical competitive advantages. For source water, it allows us to maintain and grow market share and preserve pricing when the overall industry is pulling back on completions. For produced water royalties, our size and scale allow us to grow our market capture, attain strong royalty rates and meaningfully complements our recycling and water sales efforts. Although commodity prices today are lower than what the industry believes ideal, we consider this current cycle a uniquely attractive opportunity to consolidate high-quality Permian assets. First, current oil prices are well below average historical oil prices. Since 2010, Brent prompt month oil prices have averaged $78 per barrel. Brent prompt month today is around $65. Although we are not in the business of predicting commodity prices over the short term, we do believe that longer-term mid-cycle oil prices will be higher than current spot prices. OPEC reducing spare capacity and bringing barrels back to market has resulted in looser supply and demand balances, and consequently, a weaker price environment. However, longer term, this ultimately will result in a healthier market dynamics. Despite uncertain macroeconomic conditions over the past year, global liquids demand continues to grow at a steady pace. Oil supply will eventually rationalize in response to pricing signals, albeit the process can unfold slowly as CapEx and development cycles tend to be sticky over the short term. Although we firmly believe that the Permian still has substantial remaining inventory and growth runway, other shale basins that have historically contributed to U.S. supply growth now appeared to be in terminal decline. According to the EIA, the Bakken's most recent peak oil production month was in late 2019 at 1.5 million barrels per day. Today, the Bakken is down to 1.2 million barrels per day. The Eagle Ford's most recent peak oil production month was also in late 2019 at 1.4 million barrels per day; whereas today, it's 1.1 million barrels per day. In fact, if you were to exclude the Permian, total U.S. oil production appears to have peaked 5 years ago and is down about 1 million barrels per day from that peak level. Though the U.S. contribution to global oil supply will still benefit from Permian growth, it could likely be offset with increasingly larger declines from non-Permian basins. We suspect that extracting additional global supply will be much harder going forward. Permian was responsible for virtually all of the world's crude oil supply growth over the last decade. Since the beginning of 2015, global supply growth of crude oil, excluding NGLs and other liquids, has been 4.2 million barrels per day. Permian crude oil supply growth during that time was 4.8 million barrels per day, which implies that, on an aggregate basis, the Permian made up for global crude oil declines over the last decade while also providing all of the incremental growth. With structural liquids demand globally still on a growth trend for the foreseeable future, many key supply regions in structural decline and OPEC reducing spare capacity, we believe that over the long term, there is a very favorable skew towards right tail high oil price cycles. Despite the low commodity price environment today, TPL still retains abundant access to attractively priced to external capital. Last month, TPL closed on its inaugural credit facility with $500 million of lender commitments that accrues interest at SOFR plus a spread of either 225 or 250 basis points depending on TPL's debt-to-EBITDA leverage ratio. TPL's first-ever credit facility enhances our liquidity and allows us even greater flexibility towards funding growth opportunities and other general business purposes. The simultaneous occurrence of below mid-cycle commodity prices and a robust supply of low-cost capital has historically been rare and short-lived for oil and gas companies. But currently, those elements have aligned for TPL. Because TPL is built and managed towards long-term value creation, we can arbitrage depressed valuations for long duration assets impacted by short-term volatility. During these periods where TPL can take advantage of down cycles and opportunistically leverage our resilient business, high cash flow margins and fortress balance sheet to consolidate high-quality Permian royalty surface and water assets. We can tolerate periods of low commodity prices for assets that will likely generate cash flows for many decades. To that end, yesterday, we announced acquisitions of Permian oil and gas royalties and surface acreage, which fits seamlessly into the broader TPL portfolio. On November 3, 2025, we acquired approximately 17,300 net royalty acres, standardized to 1/8th, located primarily in the Midland Basin in Martin, Howard and Midland counties. Total purchase price was approximately $474 million, funded entirely by cash on our balance sheet. Approximately 70% of the acquired interests are adjacent to or overlapping drilling spacing units that TPL already owns. Meaning, we essentially acquired additional royalties in current and future well locations we already retain an interest in. Approximately 61% of the royalty acreage is operated by Exxon, Diamondback and Occidental. The royalty acquisition currently produces more than 3,700 barrels of oil equivalent per day with an approximately 80% oil and natural gas liquids cut. We expect to generate a double-digit pretax cash flow yield at realized oil and natural gas prices of approximately $60 per barrel and $2 per 1,000 cubic feet, respectively. In September, we closed on an acquisition of approximately 8,100 surface acres in Martin County, Texas. The surface acquisition is adjacent to land TPL already owns, providing TPL an even larger contiguous block in a strategic area that is prospective for source and produced water, SLEM and other next-gen commercial opportunities. In conclusion, we're not overly concerned with near-term commodity price volatility. Although TPL's oil and gas royalty revenues remain below the peak from third quarter 2022, it's entirely attributable to lower commodity prices as our royalty production has increased 55% since then. We can't make any promises as to if or when commodity prices improve. But as TPL's royalty production has substantially grown both organically and inorganically, TPL retains immense upside leverage to the next oil and gas price up-cycle. That potential incremental revenue represents pure inflation-protected margin, as our royalties are not burdened by capital costs in most operating expenses. In addition, our water business just had a record quarter, as we execute on multiple growth opportunities such as out-of-basin disposal and produced water desalination. Overall, TPL is positioned exceptionally well over the near and long term, and we remain intently focused on exploiting our commercial potential while deploying capital opportunistically, as we seek to maximize shareholder returns. With that, I'll hand the call over to Chris. Chris Steddum: Thanks, Ty. For the third quarter of 2025, consolidated total revenue was $203 million, and consolidated adjusted EBITDA was $174 million. Adjusted EBITDA margin was 85%. Free cash flow was $123 million, representing a 15% increase year-over-year. Royalty production this quarter was approximately 36,300 barrels of oil equivalent per day. The royalty acquisition that we announced with yesterday's earnings release closed after September 30 and did not contribute to the production or revenue for the third quarter 2025. As of quarter end, TPL had 6.1 net permitted wells, 9.9 net drilled but uncompleted wells and 3.1 net completed but not producing wells. We expect our recent royalty acquisition to add approximately 2 net wells to our line of sight inventory. Turning to our desalination project. Construction continues on our 10,000 barrel per day facility in Orla, Texas. We expect to begin commissioning the facility by the end of the year. Once fully commissioned, we will expand our testing process, as we seek to evaluate the system's capabilities at scale and assess its performance under a wider variety of operating conditions and water specifications. Our previous CapEx estimates remain unchanged from our last update. On the regulatory front, we have received an additional approved land application pilot permit from the Texas Railroad Commission. This permit allows us to use the facility's treated freshwater output to irrigate land with the aim of restoring native bush grass in a nearby area. With respect to our TCEQ discharge permit, we continue to be responsive as we work towards permit approval. We believe our proprietary desalination technology and beneficial reuse efforts can play a critical role in providing a sustainable solution for Permian-produced water beyond just subsurface sequestration. In the near term, our goal is to prove that our patented freeze desalination process can work economically at scale to advance on the regulatory and compliance fronts and to further investigate waste heat capture, process efficiencies and colocation designs. We plan to provide updates on these key initiatives next year as our Phase 2 facility ramps operations. Turning to our balance sheet. Yesterday, we announced that our Board approved a 3-for-1 stock split of the company's common stock. This stock split is expected to be completed in December 2025, subject to finalization of the record date and distribution date by the Board. At the quarter end, TPL had $532 million of cash and cash equivalents and no debt. As Ty discussed, last month, TPL closed on a credit facility with $500 million of lender commitments. Credit facility was oversubscribed. It contains favorable terms and the interest rate spreads for borrowed funds are attractively priced for TPL. The facility was undrawn at close and remains undrawn today. This augments our liquidity position even as we maintain a net cash balance sheet today, and it expands our ability to capitalize on opportunities countercyclically. As always, we remain intently focused on maximizing intrinsic value per share with a disciplined capital allocation approach aimed on maximizing returns over the long term. And with that, operator, we will now take questions. Operator: [Operator Instructions] And our first question comes from the line of Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ]. Derrick Whitfield: Congrats on a strong [Technical Difficulty] we would assume flattish activity. What's a good run rate for the business? And how much of your water sales are recycled barrels versus water firm source [Technical Difficulty]. Operator: And our next question comes from Oliver Huang with TPH. Hsu-Lei Huang: Just wanted to, I guess, hit on the royalty acquisition you all announced this morning or last night. Just any sort of color on how this deal came together? Also how many incremental net locations on a 10,000-foot equivalent basis would you all say were acquired in your valuation underwriting for the asset? And just when we're kind of thinking about the 2 net incremental, I guess, work-in-progress wells, any sort of color in terms of which bucket it falls into? Chris Steddum: Yes. Thanks for the question. We probably won't go into the total location count. But when we think about this type of asset and the type of assets we've purchased in the past and hopefully, the type we'd want to purchase in the future, having a lot of inventory that allows for future growth for years to come is one of the most important aspects of the types of assets that we look to acquire. And so our view is that this is going to be a great asset. It's going to provide a great growth outlook to complement our legacy asset base, and so that's kind of how we've thought about it. Obviously, some of that growth is dependent on the level of activity and commodity prices, but we still think it's a very high-quality asset. It's operated, as you heard in the comments, by some of the most well-capitalized operators in the Permian. And so we feel really good that over the coming years, it's going to grow and provide really strong returns for TPL. Hsu-Lei Huang: Okay. Perfect. And maybe just, for a second question, on the power side of things, just power data center type of conversations that are occurring. How do you all feel about your position in terms of being able to participate out in West Texas versus, say, a quarter ago or even the start of the year to capture some share of this market? And just given the expansiveness of your footprint, just any sort of color you can provide in terms of which areas seem more prospective for getting such deals executed on? Tyler Glover: Yes, sure. Thanks for the question. Look, we feel like TPL is very well positioned. We have all of the attributes needed to be very attractive to power generators and data center developers, hyperscalers. I think we've probably got more available land with those attributes needed than anyone else in West Texas, and I think West Texas is quickly becoming more and more popular as an area to build out multi-gig facilities and campuses. I would just say that we're -- we continue to have really good conversations. I think we're pretty close on a couple of opportunities that are very interesting. So hopefully, we'll have additional news to share here in the very near future. Operator: And next up, we have Derrick Whitfield with Texas Pacific Land Corporation (sic) [ Texas Capital Securities ]. Derrick Whitfield: Let's try this again. Can you hear me? Tyler Glover: Yes, we got you now, Derrick. Derrick Whitfield: Awesome. Sorry about that, and congrats on a strong financial and operational update. For my first question, I wanted to focus on your outlook for water resources business. Over the last 2 quarters, we've seen a bit of volatility in water sales, assuming flattish activity, what's a good run rate for that business? And how much of your water sales today are recycled barrels versus water from source water wells? Robert Crain: When you look at -- Derrick, it's Robert. When you look at the change of quarter-over-quarter, it's something that we're always trying to work to minimize that volatility and you can really attribute it to -- mainly to consolidation and diverse acreage position that you see. Our footprint allows us to expand off that legacy acreage, and that's what we're attempting to do to capture as much as that diversity that we see because of the consolidation is so centralized in activity area from one area to another. As far as what the produce looks like, it's really a moving target every quarter. Obviously, the goal is to maximize the amount of recycled produced your putting it on operation, but there's a lot of factors that go into that, mainly the availability produced and the demand of what that frac is going to be in that area. So that's where our team works with the operators every day to look at what that balance looks like, how can we maximize produced and how can we backstop it with the brackish and keep up with the simul and trimul demand that we see today. Derrick Whitfield: Makes sense. And then for my follow-up, Robert, we could probably stay with you. Just wanted to focus on how you're thinking about progressing desal beyond Phase II and Phase III and the degree of conversations you're having with the industry about your technology? And then also I'd love to get your views on the permit that was just approved for NGL for 800,000 barrel produced water treatment plant for beneficial reuse and recharge into the Pecos River basin, sorry? Robert Crain: I'll start on desal. I'd say that we were the first entry into desal in the market. I think our expanse of footprint and diversity of operators and midstream companies allowed us to see that desal was going to be necessary at some time in the future. And we got to think, we're 4 years into this at this point of starting from exploring different technologies, doing the R&D on which technology we selected, we're confident in desal and our technology to bring desal to the future. When we look at commercialization of desal and how that fits into the upstream market, what the ultimate commercial model looks like right now is yet to be determined for the industry as a whole. What we see the biggest benefit on ours is you go back to the power component, waste heat capture of really what we'll be exploring a waste heat capture and use of our technology and then freeze technology and how that fits into direct air cooling and direct chip cooling utilizing the freeze technology. So when we look at 2026, for us, it's not necessarily growing in volume, it's working with those other synergies of how we how we implement direct capture. And you got to think anything that you can do in that to, one, decrease the input cost of energy into desal and to maximize any value you can get of the output of the water greatly helps the economics of bringing desal to full commercialization. On the NGL permit. There were a couple of draft permits issued. There have been no final permits issued so far from the TCQ. NGL and us included, are in draft permit phase right now, as we work with the commission to get that into permit -- final permit approval. Derrick Whitfield: And maybe one more, if I could, on M&A more broadly. While we tend to see less opportunity at lower prices due to wider bid-ask spreads, you guys are having success as evidenced in this quarter. I guess when you kind of think about the broader picture, both surface and minerals, how would you characterize the competitive landscape in the Permian at present and the opportunities really you're seeing across the broader Permian footprint, both Delaware, Central Basin Platform and Midland? Tyler Glover: Yes. I mean we've been successful getting some of these deals done here recently. They've been sourced just through our relationships. I mean the lower commodity price environment makes it a little tougher because of the bid-ask spread, like you said. But I think we're still seeing a pretty healthy amount of opportunity in the pipeline, and so I think we'll continue to be successful. And there's probably some equally interesting opportunities in the Delaware and the Midland and starting to see some kind of interesting stuff across the platform as well when you think about out-of-basin disposal in some of these next-gen type projects, power generation, data centers, things like that. So pretty excited looking forward on the opportunity set in front of us. Operator: Thank you. And with that, this does conclude today's question-and-answer session and it also concludes today's teleconference. And thank you for your participation, and you may disconnect your lines at this time, and have a wonderful day.
Operator: Good morning, ladies and gentlemen and welcome to the Kimball Electronics First Quarter Fiscal 2026 Earnings Conference Call. My name is John and I'll be your facilitator for today's call. [Operator Instructions] Today's call, November 6, 2025, is being recorded. A replay of the call will be available on the Investor Relations page of the Kimball Electronics website. At this time, I would like to turn the call over to Andy Regrut, Treasurer and Investor Relations Officer. Mr. Regrut, please begin. Andrew Regrut: Thank you and good morning, everyone. Welcome to our first quarter conference call. With me here today is Ric Phillips, our Chief Executive Officer; and Jana Croom, Chief Financial Officer. We issued a press release yesterday afternoon with our results for the first quarter of fiscal 2026 ended September 30, 2025. To accompany today's call, a presentation has been posted to the Investor Relations page on our company website. Before we get started, I'd like to remind you that we will be making forward-looking statements that involve risk and uncertainty and are subject to our safe harbor provisions as stated in our press release and SEC filings and that actual results can differ materially from the forward-looking statements. Our commentary today will be focused on adjusted non-GAAP results. Reconciliations of GAAP to non-GAAP amounts are available in our press release. This morning, Ric will start the call with a few opening comments. Jana will review the financial results for the quarter and guidance for fiscal 2026 and Ric will complete our prepared remarks before taking your questions. I'll now turn the call over to Ric. Richard Phillips: Thank you, Andy and good morning, everyone. I'm pleased with the results for the first quarter and start to the new fiscal year. Sales were in line with expectations, driven by strength in the medical vertical. Margins improved year-over-year. Cash from operations was positive for the seventh consecutive quarter and debt at the end of Q1 was the lowest level in over 3 years. We have ample liquidity to navigate the current operating environment and plenty of dry powder to opportunistically invest in growth. I continue to be impressed with our team's progress in positioning the company for the future. Our solid footing as an EMS provider and our capabilities as a medical CMO are unique in the industry and we look to expand upon them through organic and possibly inorganic channels. We remain confident this powerful combination will result in a return to profitable top line growth next year and we are reiterating our guidance for fiscal 2026. Turning now to the first quarter. Net sales for the company were $366 million, a 2% decline compared to Q1 fiscal '25. From an end market perspective, strong results in Medical were offset by declines in Automotive and Industrial. Starting with Medical. Sales in the first quarter were $102 million, up 13% compared to the same period last year and 28% of total company revenue. Nearly half our medical sales were in North America, the other half roughly split between Asia and Europe. The increase in Q1 was driven by robust sales growth of approximately the same amount in both Asia and Europe, while North America was up mid-single digits. We expect the growth to continue as we lean further into the medical space with production capabilities beyond electronics and printed circuit boards, expanding into higher-level assemblies and finished medical devices. Our new medical facility in Indianapolis will add capacity for manufacturing medical products, single-use surgical instruments and drug delivery devices such as autoinjectors. This is also where we are focusing our efforts on inorganic growth, potentially adding new end markets, customers or even new geographies. We continue to view the medical market as a compelling opportunity to diversify revenue and leverage our core strengths as a trusted partner in a complex and highly regulated industry, particularly as the population ages, access and affordability to health care increases, medical devices get smaller in size and require higher levels of precision and accuracy and the adoption by patients and end users increases. Next is Automotive, with sales of $164 million, down 10% compared to the first quarter of last year and 45% of the total company. The decline in Q1 was driven by lower sales in North America, a result of the electronic braking program transferred out of Reynosa in mid-fiscal '25 and a decline in Asia. This combined impact was partially offset by strong sales growth in Europe as the new braking program in Romania continues to ramp up. Longer term, we expect to return to growth in this vertical, particularly as new systems and technologies such as steer-by-wire and brake-by-wire or electronic mechanical braking continue to increase the electronic content being added to vehicles. Finally, sales in Industrial totaled $100 million, a 1% decrease compared to Q1 last year and 27% of total company sales. Our industrial business is heavily concentrated in North America and the decline this quarter was in the low single-digit range, where we are seeing softening demand for HVAC driven by the slowing housing market. Europe, which is a much smaller business for us, was down more significantly, while Asia reported strong sales growth in Q1. Before I turn the call over to Jana, I would like to provide a brief update on tariffs. As you know, beginning in February 2025, the U.S. implemented tariffs on a variety of countries and commodities. The global tariff landscape is evolving at a rapid pace with changes impacting businesses and markets around the world. While these increased tariffs have and may continue to impact end consumer demand, we expect that we will recover the tariff costs by passing them on to our customers. If we're unable to fully recover these costs, our operating results and cash flows could be adversely impacted. We are working closely with manufacturing constituents and lawmakers to address the challenges real time. As we monitor the progression of tariffs, reciprocal tariffs and the geopolitical economic environment broadly, we are committed to profitability and expect to incur additional restructuring costs over the course of the fiscal year as necessary. I'll now turn the call over to Jana for more detail on Q1 and our guidance for fiscal 2026. Jana? Jana Croom: Thank you and good morning, everyone. As Ric highlighted, net sales in the first quarter were $365.6 million, a 2% decrease year-over-year. Foreign exchange had a 1% favorable impact on consolidated sales in Q1. One housekeeping item on our split of sales by vertical. Beginning this quarter, certain customers previously included in automotive were reclassified to industrial. This was done because our work for these customers is more aligned with commercial vehicle applications versus passenger vehicles. All prior periods have been recast for comparability. The gross margin rate in the first quarter was 7.9%, a 160 basis point increase compared to 6.3% in the same period of fiscal 2025, with the improvement driven by favorable product mix, the closure of our Tampa facility and global restructuring efforts. Adjusted selling and administrative expenses in the first quarter were $11.3 million, nearly flat year-over-year. When measured as a percentage of sales, the rate was 3.1% this year compared to 2.9% last year. In the first quarter of fiscal year 2026, following a customer termination of a program, an agreement was reached for the customer to compensate us for incurred costs, resulting in recognition of a $2 million recovery recorded in selling and administrative expenses. As I indicated in the last earnings call, we anticipate adjusted S&A will increase as a percentage of sales over the course of the year as we make strategic investments to support our long-term needs as we return to growth. Adjusted income for the first quarter was $17.5 million or 4.8% of net sales, which compares to last year's adjusted results of $12.6 million or 3.4% of net sales. We expect Q1 to be our strongest quarter from an adjusted operating income perspective as demand and costs related to tariffs and softening in the U.S. housing market pressure margins in North America. Other income and expense was expense of $3.5 million compared to $6.2 million of expense last year. Once again, this quarter, interest expense drove the decrease, down 50% year-over-year. The effective tax rate in Q1 was 8.3% compared to a tax benefit of 9.4% last year. The lower rate in Q1 of this fiscal year is driven by tax opportunity related to OBBA. As you may recall, last year's negative rate was a result of a favorable ruling on a prior period tax audit. For the full year of fiscal '26, we continue to expect an effective tax rate in the low 30s. Adjusted net income in the first quarter was $12.3 million or $0.49 per diluted share, up 2x from last year's adjusted results of $5.5 million or $0.22 per diluted share. We are pleased that despite top line declines, we have made efforts across the business to rightsize expenses, reduce debt and take advantage of tax opportunities, all of which meaningfully contribute to net income and EPS. Turning now to the balance sheet. Cash and cash equivalents at September 30, 2025, were $75.7 million. Cash generated by operating activities in the quarter was $8.1 million, our seventh consecutive quarter of positive cash flow. Cash conversion days were 83 days, a 2-day improvement compared to Q4 of fiscal '25 and a 25-day improvement year-over-year. This represents our lowest CCD in over 3 years with receivables and payables posting the largest improvement within the quarter. Inventory ended the quarter at $272.7 million, roughly flat versus Q4 but down $62.6 million or 19% from a year ago. Capital expenditures in the first quarter were $10.6 million, with much of the spend on leasehold improvements in the new facility in Indianapolis. Borrowings at September 30, 2025 were $138 million, a $9.5 million reduction from the fourth quarter and down $108 million or 44% from a year ago. Short-term liquidity available, represented as cash and cash equivalents plus the unused portion of our credit facility totaled $370 million at the end of the first quarter. We invested $1.5 million in Q1 to repurchase 49,000 shares. Since October 2015, under our Board-authorized share repurchase program, a total of $105.2 million has been returned to our shareowners by purchasing 6.7 million shares of common stock. We have $14.8 million remaining on the repurchase program. As Ric mentioned, we are reiterating our guidance for fiscal '26 with net sales expected to be in the range of $1.35 billion to $1.45 billion and adjusted operating income of 4% to 4.25% of net sales. We continue to estimate capital expenditures of $50 million to $60 million in the fiscal year. I'll now turn the call back over to Ric. Richard Phillips: Thanks, Jana. Before we open the lines for questions, I'd like to share a few thoughts. It is customary at the beginning of the fiscal year that I complete a profit sharing bonus tour. It's an opportunity to travel to each location in our global footprint, connect with the teams and experience real time the strides we're making to return to profitable growth. I'm very pleased with our progress. Whether it's in the new business we're winning in all verticals, improvements in our operations, quality, on-time delivery or cost initiatives. The engagement and accomplishments are evident. I'm also very encouraged by the early impacts on the top line in the medical business. This is expected to continue. As we evaluate the medical CMO space, we see an opportunity for accelerated growth and higher margins over time. Our strategy to pursue growth with blue-chip customers with long product life cycles and a high degree of visibility. We're building a scalable platform that supports the work we already do well, creates opportunities for vertical integration and positions us to take on more of the complex programs that align with our strengths. A great example is the new facility in Indianapolis, adding production capabilities and capacity but it's not the only. Our medical businesses in Thailand and Poland focused on HLAs and finished devices are also having a meaningful impact. As I noted earlier, we are looking to augment this growth with a tuck-in acquisition strategy that will add new end markets, manufacturing capabilities and new customer relationships. I'm confident in this strategy and have never been more excited about the future of the company. In closing, I am proud of how our entire organization addressed the challenges of the past 2 years while remaining keenly focused on our strategic future. We look forward to a return to growth in FY '27 centered on the medical space, aligning with our goal to even out our verticals and improve margins over time. We will continue to provide updates as the year progresses. Operator, we'd now like to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Mike Crawford from B. Riley. Michael Crawford: And I really appreciate the working capital management. But as Kimball starts -- resumes top line growth, is that around the same time we should also expect to see an increase in the working capital? Or is there still more work -- progress you can make there? Jana Croom: Mike, that's a great question. So yes, I would not expect a significant amount of increased working capital management and debt reduction. To your point, as we prepare for growth in FY '27, we're going to have to buy all the inventory. We're going -- and so I would actually take that as a good sign. So to your point, we've done a lot to wring out the excess inventory in the balance sheet and improve working capital. But as we return to growth, you're going to see us have to spend some dollars and you're going to see those numbers start to move. Michael Crawford: And Jana, the cash conversion days, would that -- I mean, is this a good level to think about it remaining stable at? Jana Croom: Ideally, I would like it to have a 7 in front of it. But realistically, if we just stay where we are in the very low 80s, particularly as we start to grow the business again, I think stabilizing it here is pretty good. Michael Crawford: Okay. And then we like the 7.2% EBITDA margin in the quarter. We do have the message and as modeled, have that stepping down for the rest of this year. But we also have that declining further next year. And I would -- is that the wrong way to be thinking about your business given where you are? Or is it too early to tell? Jana Croom: Well, so it is early days to think about FY '27. But I will say this, I would not expect a deterioration, right? As we return to growth, as we get better absorption in our facilities and we're going to work to do some additional restructuring over FY '26, we would actually expect EBITDA in FY '27 to be better, right? We need to get to a consistent adjusted operating income margin of 5% and then corresponding EBITDA margin on top of that. So I would not be projecting declines next fiscal year. Operator: Your next question comes from the line of Max Michaelis from Lake Street. Maxwell Michaelis: Nice quarter. I want to jump to the Medical segment here. And I know you talked about some inorganic opportunities. So what's sort of the focus around potential acquisitions and maybe expanding already current platform offerings or kind of heading into new markets? And then can you also touch on some of those new markets that are kind of at the top of the charts? Richard Phillips: Max, thanks for your question. Yes, definitely an area from an M&A standpoint that we are continuing to explore. It would be focused in the medical CMO space specifically. We like our differentiated capabilities there with our ability to handle drug and have significant experience with the FDA and so on. But there's always additional extensions of that, that we could think about. And as I mentioned, that could include new technologies that extend us and allow us to play a bigger role with our customers there. It could include new customers. It could include new geographies. So we look quite broadly at those potential opportunities but again, very focused only on the medical CMO space at this point. Maxwell Michaelis: All right. Perfect. And then looking at my notes from last quarter, I think outside of medical growth, I think you guys maybe had expected some modest industrial growth. And I know sort of the HVAC softness kind of hindered that this quarter. But do you see any sort of maybe breakeven or maybe low single-digit growth in the industrial? Or should we kind of think of kind of the declining 1% as a solid cadence throughout the rest of the year? Jana Croom: You could take Q1 results in terms of percentage of sales increase as sort of a proxy for full year FY '26. So industrial is going to be softer than we had previously anticipated. Medical is going to be much stronger. And automotive is going to come in roughly as expected. Maxwell Michaelis: Okay. Perfect. And then just sort of your largest customer on the medical side in the respiratory care, the assembly and in higher-level assemblies, how did that perform in the quarter up to your expectations or compared to your expectations? Richard Phillips: It's been very good. It's been very good. Our relationship with that customer has probably never been better. We expect continued growth and the partnership in that program that we talked about has been very strong. So we feel good about that. Operator: Your next question comes from the line of Derek Soderberg from Cantor. \ Derek Soderberg: So I want to start with the Medical segment, ramping up really nicely here on an organic basis. To me, it feels like you guys have been signing on new programs for over a year now, meaning these programs are starting to reach production and revenue. Can you talk about that pipeline of medical projects sort of turning into revenue over the next 6 months? Maybe how that compares to where we were sort of at a year ago and how it sort of sets up the company for accelerated growth? How does that pipeline of those projects turning on look over the next 6 months? Richard Phillips: Thanks, Derek. Yes, we're really pleased with our funnel. I mean we're very focused across our leadership team on driving growth in medical. And so we have very regular reviews of what new is coming in the funnel, what did we win? What can we add? And so the outcome of those things in the funnel are uncertain, of course. But I would say the volume of that, particularly in medical, as you asked, is as high as it's been. So we're really pleased about that and we're hoping to close those as we move throughout the year. And again, we track it really closely but good funnel. Jana Croom: And I think it's important to note the growth in medical was not centered in one customer or one program. It wasn't even centered in one geography, right? And so the growth that you saw in medical was split between Europe, Asia, with a smaller piece in North America. So to your point and Ric's point, multiple programs and customers. \ Derek Soderberg: Yes, that's great to hear. And then just a quick one on the Automotive segment. Can you maybe talk about the core automotive business? What's maybe the run rate of high visibility revenue, revenue with long-standing customers on your core products? Can you talk about that? Are we sort of bottoming here in automotive? It sounds like we're going to be kind of flattish from here. Richard Phillips: It's hard to say, Derek. I mean I actually just met with our top 4 automotive customers in a week. And I'd say that they anticipate challenges over the next couple of years in the overall automotive market. So again, we really like where we're positioned and electronic content being added to vehicles is huge for us. Our relationships are strong. We're continuing to be strategically focused in those areas of automotive that work for us and that are not commoditized. But we anticipate continued pressure, whether it's from tariffs or the impacts on the economies around the world that put pressure on people buying cars. Derek Soderberg: Got it. Got it. That's helpful. And then, Jana, a couple for you. Just with the balance sheet where it's at, you guys are buying shares back, paying down debt, much leaner company than you had been in the past. How are you feeling about -- there was a question on inorganic growth. How do you feel about making a move like that? And how do you balance just continuing to improve operations organically, using your new capacity in medical, continuing to generate cash flow, et cetera. How are you guys thinking about that? Jana Croom: Yes, that's a really great question. And capital allocation has been top of mind for probably the last 9 months as we were looking at the strengthening balance sheet and how we were going to deploy capital to grow the business most efficiently. What I can tell you right now is, given the 18-month growth pattern we had in terms of organic expansion with Thailand, Poland and Mexico from just a pure organic growth, we've got a really great footprint. You're seeing us now put capital to work in [ India ] for the CMO. And so we need to grow into that body of manufacturing facilities. And so we have plenty of dry powder for an inorganic opportunity. If there was something that came to this leadership team that was going to augment the CMO in a meaningful way, allow us to improve our EBITDA margins for the business, we would definitely take advantage of that. But nobody has got a burning hole in their pocket to spend cash. So we're not going to do something foolish. This company is very, very disciplined. And I think you guys know I'm a balance sheet CFO. And so it would have to be really thoughtful. We wouldn't want to issue equity to do it unless it was something absolutely compelling. And quite honestly, I don't see that being feasible. And so it's how much debt can you spend and still keep your balance sheet strong enough to support the working capital needs of the organization while it returns to growth. Derek Soderberg: Yes. Yes. Got it. And one final one, Jana. Can you talk about the accelerated depreciation within the latest, the Big Beautiful Bill? Is that impactful for you guys at all? That's my last question. Jana Croom: It is. And so the bigger impact for us, for OBBA is, I mean, certainly accelerated depreciation but some things that we were able to take advantage of related to specifically interest expense deductions on domestic income. That for us was actually a slightly bigger benefit. We're looking specifically at R&D credits and some other things that we can take advantage of for sure as well. And also to be honest, we're still working through it. Yes. Operator: [Operator Instructions] Your next question comes from the line of Anja Soderstrom from Sidoti. Anja Soderstrom: I'm just curious with the gross margin expansion despite the lower revenue, what's the puts and takes for that? Jana Croom: Sorry, you just caught me having a big drink of water. So a few things related to gross margin. The first was we had favorable product mix. And that was driven across geographies with the ramping of certain programs coming online and just better absorption and utilization. As you know, we spent much of FY '25 and FY '24 doing restructuring. We're seeing some of the benefits of that come through. But the biggest benefit is closing our Tampa facility and all of the fixed costs associated with that facility that are no longer part of our cost structure. And one of the things that we're doing is continuing to evaluate cost structure, restructuring efforts, S&A needs as we grow to figure out timing of some of those things so that we can hold not just gross margin but S&A at a level that we're delivering solid operating income margin and EBITDA to our shareholders. And that's really important. Anja Soderstrom: Okay. And then did you say you expect the SG&A to increase as a percentage of sales for the rest of the year? Jana Croom: We do. It was artificially low in FY '25 purposefully and that was a result of us being really mindful about the challenges that we were having and the need to tighten the belt. But similar to working capital needs, there's S&A that we are going to have to spend in order to prepare for the growth. Anja Soderstrom: Okay. And then that should come down then into 2027 as you expand your revenue and [indiscernible]. Jana Croom: Yes. And the focus areas for S&A are really going to be around things like technology, business development, areas where we just need to grow so that we can support the business. Anja Soderstrom: Okay. And then how do you -- you touched on it a little bit already in terms of debt reduction but how should we think about further debt reduction? Jana Croom: So I actually think next quarter, debt is going to climb just a little bit and it's going to be due to some of the needs that we have to fulfill. So think about FY '27 return to growth NPI launch. We had to order all of that inventory. It's got to come in now so that we can be prepared for it. And so you're going to see us spending a little bit in support of the growth that's coming. But I actually take that as a really good sign. Anja Soderstrom: And then in terms of M&A opportunities, it seems like you are quite actively looking for opportunities there. How would you say the market has changed over the recent quarter? Jana Croom: So M&A has been really interesting, especially as a strategic buyer, right? And so what you saw probably for the last 3, 4 years was the PE companies being prepared to pay what I would consider to be somewhat absorbent multiples to buy up some of these companies. What you're seeing now is a much more rational market, people being able to have the confidence to walk away if something just seems overly expensive. And so because of that rationality, we actually feel better about being able to buy the right opportunity at the right price point and then integrate it and grow it as part of our CMO strategy. But we are very disciplined as a strategic. We don't want to get in over our skis. We've got a solid organic growth strategy. Nobody's got a burning hole in their pocket where we're going to do something that is not going to drive shareholder value, first and foremost. Operator: [Operator Instructions] There are no further questions at this time. This concludes today's conference call. A telephone replay of the call can be accessed by dialing (877) 660-6853 or (201) 612-7415 with the access code 13756429.
Operator: Greetings, and welcome to the EchoStar Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Dean Manson, Chief Legal Officer. Dean Manson: Thank you, Joe. Welcome, everyone, to EchoStar's Third Quarter 2025 Earnings Call. We will begin with opening remarks from Hamid Akhavan, President and CEO of EchoStar Capital, followed by Charles Ergen, CEO and Chairman of EchoStar. We are also joined by other members of the leadership team. We request that any participant producing a report not identify other participants or their firms in such reports. We also do not allow audio recording, which we ask that you respect. All statements we make during this call other than statements of historical fact, constitute forward-looking statements made pursuant to the safe harbor provided by the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be materially different from historical results and from any future results expressed or implied by the forward-looking statements. For a list of those factors and risks, please refer to our annual report on Form 10-K for the fiscal year ended December 31, 2024, filed on February 27, 2025, and our subsequent filings made with the SEC. This information and supplemental materials related to today's call will be posted on our Investor Relations website. All cautionary statements we make during the call should be understood as being applicable to any forward-looking statements we make wherever they appear. You should carefully consider the risks described in our reports and should not place any undue reliance on any forward-looking statements. We assume no responsibility for updating any forward-looking statements. We refer to OIBDA and free cash flow during this call. The comparable GAAP measure and a reconciliation for OIBDA is presented in our earnings release and in the case of free cash flow in our Form 10-Q as filed with the SEC today. With that, I'll turn it over to Hamid. Hamid Akhavan: Thank you, Dean. Welcome, everyone, and thank you for joining us today. I would like to start by addressing the change in our call format this morning in that we have Charlie Ergen, our Founder and Chairman, here with us today. Charlie and I will provide some updates on our business, our recent transactions and discuss some changes within our organization. As you know, we recently announced the signing of a series of major transactions, one with AT&T at the end of August and another with SpaceX in September, valued at approximately $23 billion and $19 billion, respectively. These transactions were instrumental in resolving the FCC's review of the company's spectrum utilization. Further, just this morning, we announced an amended definitive agreement with SpaceX, which builds up on the agreement the company entered into in September to sell EchoStar's unpaired AWS-3 spectrum license for approximately $2.6 billion in SpaceX stock. Once these transactions close, we will have the capital runway necessary to continue to expand our existing operations as well as the freedom to pursue new opportunities. This focus on new growth avenues significantly broadens the aperture of our business going forward. In light of this increase in the scope of responsibilities for the company, Charlie and I have decided to create a new division focused primarily on capital management and M&A. Going forward, I will lead this new division as the CEO of EchoStar Capital. I will also continue to manage Hughes Network Systems. Charlie will take on the position of EchoStar CEO in addition to his role as Chairman. Managing our video and wireless operating business units, these changes are effective immediately. Building up on a 45-year operating heritage across communications, media and technology infrastructure, EchoStar Capital will be a great steward of our resources. a vision and thesis-driven and strategic investment-oriented operation with a global perspective and a proven track record of value creation. Our institutional knowledge and experience uniquely positions us in the marketplace to create superior and lasting value through innovation, execution and integration, allowing us to invest in operating businesses, we can expand our capabilities and market reach and focus on initiatives that generate sustainable shareholder value. I'm incredibly excited about this opportunity and ability to usher in this new phase for EchoStar. I will now hand off to Charlie for a few comments. Charles Ergen: Well, it's good to be back on the call, and it's funny kind of way. But I just have a couple of comments and you knew my style is just to take questions because I never know what's on your mind. Hamid and I will do that and team. One housekeeping issue is we agree with the President in the sense that we think corporations should just only file -- have to file twice a year instead of quarterly because it just takes -- by the time you finish the quarter, you're almost starting to work on the next one, it takes enormous amount of time. But since that hasn't changed, obviously, we'll still continue to file quarterly. But we may, from time to time, not do quarterly conference calls like this because we'll try to stay focused on our business. We will do a call next quarter for year-end. And obviously, we'll have a lot of things change between now and then. But after that, we may be sporadic in terms of how we do how to do these calls. So with that, let's take questions. Operator: [Operator Instructions] And the first question comes from the line of John Hodulik with UBS. John Hodulik: Maybe first on EchoStar Capital. Charlie, could you talk about how it will be capitalized? Will all the proceeds from the spectrum sales go into EchoStar Capital? Or just anything you could tell us about those proceeds would be great. And just what areas do you expect to invest in? And then lastly, if I could, you still have the AWS-3 spectrum. Any update you can give us on the potential sale of that block? And just how do you think of relative value for the paired versus the unpaired transaction we just saw? Charles Ergen: Yes. Thanks, John. I'm going to take the second part of your question. I'm going to have, I think, Hamid, the better person to answer the EchoStar Capital question. But on AWS-3, the big picture is the sale to SpaceX is timely. I think it's because we still own the paired AWS-3 and we sold some spectrum to AT&T, the unpaired was for us, somewhat orphan spectrum. But in SpaceX hands, it gives them a lot of flexibility of combining uplink and downlink and it gives them a lot of flexibility for where spectrum might come in the future. So, for them, obviously, went for a lower price, but they're going to be able to make obviously much better use of it than we can in today's terms. And so -- and we're pleased to get SpaceX stock because we think that's -- Hamid will talk about this maybe later, but that's obviously the kind of the first place EchoStar Capital is going with the equity interest in SpaceX. And we can talk more about why we think that's an excellent investment. The paired spectrum is we still have. Obviously, we would transact if there was a meaningful transaction. AWS-3 is quite a bit more valuable. When you -- for us, this is -- and I think other people -- I think the other carriers look at it the same way. When you look at spectrum, value comes really from three sources. One is, is it in phones? And so is it in devices. That was one of the biggest problems we had in building our own network was getting some of our spectrum in devices. But our AWS-3 paired spectrum has always been in devices for as long as I can remember. I doubt there's -- there may not be any phones in the United States that have AWS-3 spectrum in it. So it's already valuable in that sense because you don't have a bunch of extra cost on devices. But the second thing is who uses AWS-3 and the three major carriers all use AWS-3 spectrum. It's a very wide band, 70 by 90 megahertz, it's a very wide band and all three of them use it. And in most cases, they're adjacent to our spectrum. So -- and then that brings up the third thing is most -- what does it cost you to deploy the spectrum. And in most cases, it's my understanding that the radios that are out there today, all can take our AWS-3 spectrum without having to climb the tower and put new radios in for the most part. So it's a very valuable spectrum in that sense. We'll get a sense of that, obviously, as the auction comes up next year for some of the spectrum from a smaller swath of spectrum, but we're very comfortable with that spectrum. And we'll work with the FCC in terms of the auction rules and how that might all take place. But I think it's -- I think it's the most valuable piece of the spectrum we have, and we'll see where that goes. Hamid? Hamid Akhavan: Yes. Thank you. I'll answer the question regarding the proceeds from the sales. Our intention is that all of that would be within the EchoStar Capital. And EchoStar Capital will -- I believe our shareholders would be remiss if we didn't take advantage of 45 years of our institutional heritage and thesis-driven innovation and execution in the broad fields that EchoStar has been involved in to maximize the value that they can get for that capital that comes into the company. I can't see too many companies that have the strategic understanding and the breadth that EchoStar brings to the table across telco, space, aero, defense and all the fields that the portfolio families of EchoStar have been leading and involved in. Now obviously, we always will be great stewards of capital, and we'll maximize the use of the capital. And if distribution of capital is necessary, we'll do that in an optimized way to our shareholders as necessary. So the road map is not 100% laid out at the moment, depending on how we see the market and opportunities come to us, we'll try to take advantage of every opportunity in the best way. And as I said, I can't imagine too many companies out there with the breadth and knowledge that EchoStar has gathered over the past 45 years. That's our plan at the moment. Obviously, as time goes on, we will be more specific about how and where we deploy that capital or any sort of distribution that could be decided in the future. But to start, we need to get all of that in place. The money is not here yet. So we have time to organize ourselves around how we would maximize the use of that capital. John Hodulik: Great. And one more follow-up, if I can. Just Charlie, any update on negotiations with the tower companies? And what happens to the entity, the DISH network that has the deals with the towers? Will that entity sort of stay in place? Charles Ergen: Well, the -- obviously, we had some unprecedented kind of curve out on us when the SEC informed us that they were going to investigate take the spectrum. So obviously, we believe that's a force majeure event. And so we're happy to -- we'll work with all our vendors. Obviously, we're the biggest company that got affected by that. But obviously, we also have other vendors and people we worked with for a long time they're affected by that, and we'll work with them to the extent that they want to work with us to try to resolve those issues. Unfortunately, one company has already commenced litigation, and that kind of sour some of the ability to talk to people because once things go into litigation, it's lawyers talking to lawyers and it's not business people talking to business people. And so that's a bit unfortunate. But -- the network is obviously an independent company when we did it, still an independent company. And it will obviously handle this through that entity. It will handle all these negotiations through that entity. So we'll see where that shakes out, and we hope that everything can -- other than the current litigation, we hope that those things can be resolved, and we're open to have those discussions. Operator: The next question comes from the line of Brent Penter with Raymond James. Brent Penter: A couple of follow-ups on some of John's questions. So you clearly are excited about the SpaceX stake that's now getting bigger. As you bring in some of this net cash, how do you think about that as an additional area to deploy capital? And as SpaceX raises additional capital, do you have rights in terms of maintaining or potentially growing your stake? Just help us think about that SpaceX stake and then where you might put your capital. Hamid Akhavan: First of all, we are very excited about having that equity on our balance sheet. We consider that our first investment in EchoStar Capital. We believe that Equity has tremendous growth opportunities just by the fact that SpaceX has such a significant lead in the technology within the space and space is becoming the next infrastructure in the world as launch capabilities and cost has become economical and also global security and communication has become more important in the age of AI. So we see that as being a strategic holding. We obviously will keep that our balance sheet excited about having the additional $2.6 billion that joins it. We certainly look to have additional investments of similar strategic nature as we -- as I mentioned, there's a number of areas, a number of industries that we have a heritage and a deep thesis about understanding of those trends within the industry. We'll be very careful about investments that are synergistic with our thesis and understanding -- very excited about that opportunity. I can't comment about us getting more SpaceX equity or some other transaction. As I said, we are just -- this is the first day of our announcement about how we're going to go forward. But we will be diversified. We'll certainly have -- we'll be great stewards of capital. And as time goes on, we'll be more specific about the transactions. Good news is that we still have a few more months before we even have the capital on our balance sheet. So we do have the time to do a proper job of planning and communicating with you where we're headed. Charles Ergen: Yes. And I'm just going to follow up a little bit with -- this will give you some insight, I think, to the way Hamid and EchoStar will think about extra capital will think about things. But SpaceX in terms of -- we're excited about that as an investment. And what things we look at -- first thing we look at is management. And SpaceX management, we've got to work and gotten to know over the last 10 years because we've launched on them. And they really have been the best vendor that we've worked with the space and solve very complex problems for us to move very quickly. And then we've worked a lot closer, obviously, as we've gone through these deals. And so they don't brag about themselves. They're pretty understated, but they are doing -- based on my experience, they are doing incredible things with space, whether it be launching or satellites or services. So the second thing you look at is, obviously, are they -- is this a place that over the next decade, there's going to be business. And as Hamid said, space is going to continue to grow particularly you see governments with golden dome and security, but it's also the consumer and the ability to do broadband from satellite and also connected devices, those two things fit together. There's a lot of synergy between those two things in one company. And the third thing is who's going to be the winners and losers. And we look at other industries, I don't know who the winner in AI is going to be. One thing I'm sure of, there will be winners and there will be losers. I just don't know which one will be winners and which ones will be losers. But in space, I think it's pretty obvious that while there's some companies doing some very interesting and creative things, SpaceX is going to be the leader for the foreseeable future because they have the most efficient launch capability and satellite manufacturing capability, in my opinion, that I've seen. So when you add all that together, and then I think we built for 17 years, this ability to technically be able to go satellite device and regulatory-wise in the spectrum and all those kind of things. We've now -- that's now in SpaceX hands or will be in SpaceX hands. And we know that worldwide capability and the same frequency, we know that that's -- we would have built a good system, but they're going to build even a greater system in a faster period of time. So that's going to be -- that's going to grow their business by -- that's going to -- that business by itself is going to be a huge part of where they grow. That's not probably in people's calculations of their value today. So that gives you a feel how we think about things. Brent Penter: Okay. Great. I appreciate all the detail there. And then a follow-up on the tower side. Since you all feel that you're relieved of those tower payments, what would actually cause you to stop making your payments to the tower companies? And then just any update on the timing of when we might have a resolution as we think about litigation and negotiations with them? Charles Ergen: Yes. I just don't think we would get into that. I mean the only thing I would say is litigation is not positive. Operator: The next question comes from the line of David Barden with New Street Research. David Barden: I guess my first question, Charlie, there weren't many numbers in the press release today about the SpaceX AWS-3 unpaired deal. But one of those numbers was that you pay or you invested at a $212 price. So could you, for the public side investors, tell us what information do you have? What information can you share to support what apparently is your belief that $212 is an appropriate valuation for the SpaceX company today? And then I guess my second question is maybe for Hamid or maybe also Charlie. The taxes on the asset sales, Joe, what the taxes would be helpful kind of given all the different moving parts on depreciation and capitalized interest. But also there's a theory out there that if your frustration of purpose argument works with respect to the towers that you have access to the 1033 stepped-up basis on these spectrum sales and that the taxes could be far less than maybe the market imagined. So I wonder if you could kind of opine on that. Charles Ergen: Yes. So I really -- in terms of valuation of SpaceX, I would just say that I think I'm always repeat myself that we don't -- we have a pretty good feel of what they're doing and where they are. I think they just publicly announced 8 million customers and in broadband, I think you could overlay their growth in broadband and then overlay a device growth and look along that same curve, and you would see a greater -- much greater valuation than the $400 million. So -- and again, as I said, the management team is excellent and understated in my opinion, in terms of what they do. And they have a pretty big moat around their business. They have 90% of the launch business, and that's -- and they've launched the new generation of satellites, which is at least twice as big as anything else out there, maybe even bigger. They've launched it 12x and they've caught it, returned back, right? And other people unfortunately are struggling to get their first ones up. So I just think -- I actually, I think their lead is actually growing. Their biggest competitor is China probably, but China, I don't know this has even successfully landed rocket. So their lead is big and growing. So if you had to pick a winner in an industry, from my opinion, I could be wrong on this, of course. And while they'll face competition and there's creative things going on in their space, they're the most obvious, of any industry that I know, they're the most kind of obvious winner, right, in terms of every other industry, you just got a lot of people that you just don't know who roughly ends up on top. And of course, SpaceX still has challenges to get through, but -- and there's still risk there. But that's the way we think about it. That's the way we'll think about things that our capital, who has those characteristics. On the tax side of it, we're well aware of 1033, but maybe I turn it over to Paul, do you want to take that? Hamid Akhavan: I'll make a comment on then we go with Paul. First of all, I absolutely endorse Charlie's statements on SpaceX. But first, we want to mention that we are not insiders to SpaceX. So we have no inside knowledge of SpaceX. And Charlie and I views are 100% aligned and common on how great a SpaceX is, but that's just personal views. And based on what we have seen, you should rely on SpaceX's statements on what they see about the valuation of the business. We are excited about having that equity -- just -- as Charlie said, we see all the trends in the space being good and SpaceX being a leader in there. Naturally, we think that this is a good place for us to go. Now on taxes, we have not broken out the taxes separately from our other liabilities in the towers and others that we just referenced. As we have previously said, we've not sharpened our numbers since the last time we spoke in Paris. We still believe that somewhere in the range of $7 billion to $10 billion is the combination of our unoptimized taxes and unoptimized value of our liabilities. So that range is what we essentially think we have. Now can 1033 provide additional benefit and reduce that number? I'll ask Paul. He might have some knowledge in terms of how applicable that may be, Paul. Maybe you can comment on that. Unknown Executive: Thanks. So there's a lot of puts and takes there. Obviously, the AT&T transaction is going to close in '26. The SpaceX transactions expected to close in '27. We have NOLs that play into the mix. And we're going to do everything we possibly can to mitigate the exposure. We're working on that currently. But the range that Hamid gave that includes both decommissioning costs and tax of $7 million to $10 million is still currently our best estimate. David Barden: So just to follow up real quick. The 1033 is not in the $7 to $10 million, but it's a possibility. Does it -- is it contingent on kind of how these litigations go and whether you're successful in making this frustration of purpose argument, which would allow you to kind of move up the basis and shift assets to another class? Charles Ergen: I'll just say, it's been used. I think some of the 600 megahertz broadcasters when they put a spectrum in auction, I think they used 1033 in some cases successfully. So we're aware of it. And obviously, it's -- there seems to be a lot of similarities between how it's been used in the past, but everything is specific, and we'll look at that as part of our strategy. And I don't think it's contingent. Unknown Executive: Yes. I would just add to what Charlie said, it's not contingent on what happens with the litigation. Those are totally independent concepts. Operator: The next question comes from the line of Walter Piecyk with LightShed. Walter Piecyk: On SATS cap, I assume all the cash from all the spectrum sales is going into there. Does that keep it away from DBS shareholders and any OpEx obligations, meaning like the tower companies? And then, Hamid, you kind of like danced around returning the capital saying if it's necessary to do it. I don't know when it's ever like required that you distribute cash. But can you give us a little bit more color on kind of at what point do you say, hey, we've used our 45 years of experience. We've looked around. There's not enough interesting stuff, and we're going to send cash to the shareholders. Hamid Akhavan: Let me take that piece first. Look, first of all, comments of dancing around. First of all, Walter, it's a little early for me to give you an exact formula or recipe or road map for how we're going to utilize the cash. But as you would expect, as any great company that has institutional knowledge and heritage within certain verticals, the best ability, the best option usually is to use that knowledge to deploy the capital because they're strategic. They're the insiders to an industry that a financial investor from outside will never, never get that insight, right? So we would be remiss not to take advantage of all that institutional knowledge and return the capital to shareholders that would now they have to deploy that capital in a way that they would not take advantage of this disability. I think the shareholders that have been with us, and we have great ones around the table right here, Charlie himself, would certainly want us to maximize the value. Now there's a limit to that. If I had $2 trillion, I couldn't use all of it. How much institutional knowledge I have, I probably couldn't use enough because the industry just doesn't have that ability or just the opportunity is not there because the market is not good or the industries that we are focused on are out of favor or they just don't have enough great opportunities for us, then we obviously, as great stewards of capital, we figure out how we would distribute that capital back to the shareholders in a tax-optimized way. We are not novices in this. And certainly, we're not walking into this without a full understanding of the options ahead. The only thing I can say is that we have deep heritage. This company has proven it can return value by the fact that you have seen for the past year, the thesis that Charlie had put in place decades ago has come to play. There's much more we could do there. But if at the end of the day, we have excess capital beyond what we can properly use -- strategically use, we certainly will not sit on it in an unoptimized way. Very, very early stage for me to make any further detail on that. It would be premature for me to say that. Just trust us that we'd be great stewards of capital. We manage it like our own capital as it is our own capital primarily. Walter Piecyk: And then just is this protected from DBSD and the tower companies? And then just really a follow-up on that. Can you at least say that you're not going to like build a network or something of that ilk? These are really more passive investments that you're giving -- that you're using your years of expertise to look at? Charles Ergen: Yes. This is Charlie. I'll take -- maybe Paul want to jump in there, but the -- obviously, our capital structure is well known, and they are obviously separate independent entities for specialized purposes. One thing that is clear for the AT&T transaction is we will be paying to DBS. DBS will receive about $2.8 billion for Tranche B, which is the C-band spectrum that we're selling to -- that's collateral there. So the one thing you can say is that there will be capital moving into DBS at at least $2.8 billion. Walter Piecyk: And then just on the types of investments, is this -- I assume these are not operational. These are all passive like, hey, we're investing in great new things that maybe SpaceX gives us access to? Hamid Akhavan: So, well, we certainly don't intend to be purely passive investors. We don't intend to do that because, obviously, we do not want to be, and it does not -- it's not in our best interest of our shareholders to become a fully act regulated company, investment company. We will have to manage this according to those rules, which means we'll make a combination of active and passive investments. And even when we make a passive investment, it will be strategic for us. It will be a thesis-driven investment. It will not be just -- we're not wealth managers. We don't view ourselves as just broadly deploying capital in the marketplace. And we only focus on areas where we understand. Now in some cases, that investment cannot be a controlled investment or significant influence investment as is the case for SpaceX. The valuation of that company is very high. We would not be able to provide enough and we would not have access to enough equity to make that a control or significant influence as defined by the '40 Act. But we will balance that with other investments that we will have control and we will have operating influence to the point that we manage around any sort of regulation that will be in front of us. We will be much more precise in all of this as time goes on. Great questions for today, but we are aware of how we need to manage that, and we are not going to become a passive investment company. We like to rely on our heritage of operations. As I mentioned, we think we can -- a combination of our understanding of technology, our ability to execute and our heritage of innovation will give us a very good platform to create great value. Charles Ergen: And I would just add, realize we own and run three different companies today and Hughes and DISH and Sling and Boost. So -- and clearly, obviously, from a Boost perspective, we think we have -- that's a business that should grow. And obviously, the video business is somewhat challenged as it has been for a decade, but we still see those businesses lasting for a long time. Hamid Akhavan: Yes. And we obviously have -- both Charlie and I have extensive operating experience, not just domestically, but also globally. We have a very broad range and scope of places and domains and verticals that we can deploy the capital effectively. Operator: The next question comes from the line of Michael Rollins with Citi. Michael Rollins: Charlie, in your brief opening comments, you described the reasons that you're going to do an earnings call for the fourth quarter was it's end of the year. And there's -- you alluded to changes that could be coming between now and then. I was just curious if you could give us a little bit of a preview or a road map of the range of potential changes that can continue to happen for EchoStar between now and your fourth quarter earnings call? And then secondly, just a follow-up on kind of moving beyond being a wireless network operator. As you're selling the spectrum, at what point can you unplug the radios so that you're no longer meeting the minimum use requirements, but you're able to start saving money from doing that? Is it when these transactions close? Is it now that you've announced a few transactions and you have maybe some more possibly that you have to kind of figure things out for? Or what's the formula where you could just start unplugging? Charles Ergen: Yes. On the second part of that, we work with -- we really need to work with regulators on that. And so those discussions are ongoing. And so it wouldn't be appropriate to discuss that. But obviously, we'll have more color on that early next year. I'd say I'm going to give you a general answer because it's a very good question about what might happen between now and February. You asked a good question. I think while we -- I think we pivot two pivots in our company. One is the pivot to being a capital-rich company, maybe more asset-light. But the other pivot is within EchoStar, where I'm going to be involved in the day-to-day operations now is to pivot to long-term thinking. So we had to think about things short term because we're putting all our capital into the build-out of our network. And we had lots of requirements, regulatory to do that. So we did that. So we had to think about things in the rest of our businesses in a short-term way. That historically is not the way we think as a company. One of our principles is to think long term, and we can get back to that principle now. And so I think you'll see that we're -- by making -- by thinking about things long term, we maybe we'll take a little bit of a step backward short term -- because when you go from short term to long term, it's a little bit of a step backward. But I think you'll see that in a general sort of way, we'll be more competitive in terms of what we're doing in some of our businesses. We think about things in terms of long-term cash. We don't really think about it for EBITDA and those kind of metrics. We think about deploying capital where we get a return. And we think about strategically, particularly in wireless, where you're one of really five county cable, you're one of five companies that are basically doing the same thing. How do we do some things differently and how do we look like a little bit different animal than what everybody else is doing. And so we're kind of going -- we were building the highway and we were Uber and we were building the highway. Now we get to be Uber, and we don't -- we just rent the highway. And so for that, that puts us in a little bit different situation. And I will say that I don't think people truly understand the efficiency of what we call a hybrid MNO where we rent the radios, but we have the core, basically the brain, the cloud and how the system operates. So we can have a differentiated experience for our customers. We can -- we do get a lot of data from what we're doing with customers so we can make that experience better and automate that experience. And yet we don't have the burden of building and maintaining the towers, which normally wouldn't be a problem, but our scale is so small that was a challenge for us. So I don't know that I totally answered your question, but from a big picture, we're going to be thinking a little bit longer term in the core business. Operator: The next question comes from the line of Ben Swinburne with Morgan Stanley. Benjamin Swinburne: Charlie, good to have you back on the call. Appreciate your time I was curious if you could talk about any opportunity to sort of wrap the remaining AWS-3 spectrum that hasn't been sold with the upcoming auction where you are, as you know, on the hook for any shortfall with a multibillion-dollar liability. Is there any opportunity with the FCC to sort of combine those two try to monetize the spectrum and also kind of derisk the auction from an EchoStar perspective? Would love any thoughts if you have any to share. Charles Ergen: Yes, Ben, it's a good question, and I'm not going to answer it, but I'll talk around the edges of it. But I mean, obviously, this FCC put us in a difficult situation. We went kind of through the five stages of grief denial and anger and depression and now we're in acceptance, of course. And that's the first thing from our perspective. The second thing is we really hadn't talked with the FCC folks for a couple of years. And once we started having conversations, we've gotten on the same path. And this FCC has quite the vision of -- we didn't totally agree with it, but they want spectrum to get used more quickly and for the benefit of more Americans. And it's hard to argue with that vision. And once we've started communicating, now we're in lockstep really with where the FCC wants to go, and it's our job to now work with them and make sure that every -- all our assets get put to the best use for American public. Part of that indirectly goes to your question, as you look at the AWS-3 auction coming up, there potentially are ways to make that the most efficient auctions. There may be -- and we're in the process of those discussions with the FCC, and they will -- obviously, others will have input into that as well. But we at least have a sounding board to say, how can we share your vision this FCC to get the spectrum in use as quickly as possible and in the hands of people that will compete with it. One of the great things about the AT&T deal we did is because of our MNO hybrid MNO deal with AT&T, we could actually use the spectrum that we sold to. So you can think about those things in a different way. And so this FCC is going to -- they have a vision of where they want to go, they're going to -- they're going to be the most influential FCC that I've worked with ever. And so it's our job to help them get there where they want to go, and that's what we're going to do. Benjamin Swinburne: That's helpful. And just a follow-up on the Boost business now that you're running it. The history of MVNOs, these are typically not great businesses, and I know this is a hybrid MVNO. But you sound excited about the opportunity. It's got revenue scale, but it's at least to a degree, but it's still burning a lot of cash flow. I know you're going to start decommissioning and you've started decommissioning the network. Just can you talk about, I guess, the strategic vision for the business? And then I don't know if there's any help you can give us on the path to getting this thing to cash flow positive now that you've switched models. Charles Ergen: Yes. So the strategy is simple. We have to do things -- we have to do two things. right? And if you look at any company that's the fourth or fifth player, this is what they have to do to be successful. You have to do two things. You have to use technology in a way to be different. And you have to do things that the other guys aren't doing or they could do, but they won't do. It didn't make sense for them to do it. So on the technology side, we've already made our first strategic move, which is an agreement with SpaceX for our Boost customers to have worldwide connectivity to the handset, both for voice, text and broadband. So I'm sure others will follow suit with SpaceX. But carriers now are -- many carriers have some choice as to who they might sign up with. And so there's a wide variety of where those carriers are going. We are highly confident that we have aligned with which the company is going to have the best technology, and we can do some things different than others. So we've already started that. That's two years away, probably realistically, but that we've already started. How we do things differently, I think, is for our team to come up, we'll -- I officially start like Monday. So we'll start having strategic sessions on how we can think about how we do some things differently. I don't think it's a good path. I don't think we can be successful if we look just like the other guys. They just have too much scale. Benjamin Swinburne: And any help on just getting the business to profitability? I don't know how much of the expense base goes away when you fully convert, anything like that? Charles Ergen: Those of you who have been with us for 30 years as a public company know that we'd like to run things for cash, and we don't like losing money. So I don't have a -- we'll have a lot more on that. But I think that as you move to long-term thinking, that becomes an easier path. And short term is always difficult. But that was -- that's just the cards that we had to play short term. Now we get to play a bit better. We're better as a company when we're thinking long term. And we're definitely going to be -- and again, if -- I think the nature of our hybrid MNO, it's underestimated by the market. People try to say it's an MNO or that. It's a different animal. And the AT&T network that we ride on is a great network. And with our spectrum, they're already putting our C-band to use, is my understanding, some of it. So that network is only going to get better. And so I just think -- I think we could be more competitive. We certainly will be more competitive than we have been in the past. Hamid Akhavan: Yes. So adding to that, one of the things that hopefully shortens the path to profitability is the reduction of the fixed cost of the business, which you can imagine is drastic. Certainly from a network side, you need a much greater scale to reach that profitability going to retire the fixed cost. Obviously, not having that shortens the horizons tremendously. And second, having an MVNO deal with AT&T kind of makes our costs more variable on a usage basis. So again, another way to create operating leverage for us as the more we sell, I mean, obviously, we don't need to have a large scale in order to reach growth. So all the strategic things that Charlie is talking about, should get us to profitability in a much shorter horizon than you would have originally modeled. We're not going to give you that today. But obviously, as time goes on, that information might become more available to you. We're excited about -- we're really excited about our ability to develop that business as the most scaled MVNO -- hybrid MNO, MVNO model in the marketplace with the benefit of having access to space and having to the great coverage of AT&T, which is using our spectrum now will be the best coverage in the nation in our view. Operator: The next question comes from the line of Bryan Kraft with Deutsche Bank. Bryan Kraft: Had a few, if I could. First is a follow-up on the tax side. I was wondering if you could confirm that there will be a tax benefit from the impairment charge that you're taking today? And is that benefit excluded from the $7 billion to $10 billion range that you cited? Secondly, just a follow-up on AWS-3 and the auction. Does the timing of the auction matter as it relates to you selling the paired AWS-3 licenses? Is it optimal to wait? Is it better to do it first? Just wondering how you're thinking about that? And then also the converts, I was wondering if ultimately you plan to settle those in cash or stock? And then lastly, I would just love to hear your latest thoughts, Charlie, on a potential DBS merger with DIRECTV at this point in time. Charles Ergen: Paul, do you want to take the first? Unknown Executive: Yes. This is Paul. Good question there. I'll take the tax question. As it relates to the impairment charge, some of the items have already been deducted. For instance, we take bonus depreciation on the network or amortize the FCC spectrum. So we won't get a benefit of that. But the other costs, we will. And to answer your question, is that included in the $7 billion to $10 billion range? Yes, that is. Charles Ergen: And this is Charlie. In terms of AWS timing, and so again, that's -- I wish I could give you more information, but we're really working with the FCC to make that, a, to make sure this most successful auction possible and that spectrum gets used as quickly as possible. But we're -- again, it's pretty valuable spectrum, I'd say that. And as part as the converts, we'll make a decision at the time that we can call those converts as to whether we call them or not. And if so, is it cash or stock or some combination of that. That would just be premature to speculate on that today. And Hamid, maybe I'll throw over to you on DIRECTV. Hamid Akhavan: Yes. Certainly, at EchoStar Capital, we look at every opportunity for value creation through inorganic transactions. The DISH and DIRECTV always has seemed like a natural combination and it's been an in-house combination. Our track record of making that work has not been great. So it's hard to predict how it might go. But certainly, we will always look at any opportunity to take advantage of assets we have in-house with a transaction. I can't make any prediction right now about how that might go, but that item has always been on our radar, and Charlie has been very vocal about the fact that the combination of the two companies would create significant and tremendous amount of value. Charles Ergen: Operator, we'll have time for one more question. Operator: And the last question will come from the line of Chris Quilty with Quilty Space. Christopher Quilty: I was hoping you could possibly give a long-term update on the plans for one of those operating businesses, Hughes. You've obviously got downturns in the VSAT business and the consumer broadband. It looks like IFC is growing. Are there thoughts on either growing that business organically or nonorganically? And what markets are you most focused on? Hamid Akhavan: Chris, thank you. Regarding Hughes, as you know, we have been on a multiyear journey at Hughes at least three years now. to transition that business more towards an enterprise business from a consumer business and purely from the realization and understanding that the consumer connectivity to satellite is now highly competitive given the SpaceX's offerings and perhaps in the future, other LEO offerings such as Kuiper. We recognized years ago that we could not have a LEO system on the broadband side to compete with those. So we started shifting towards enterprise. Our expectation is that as early as next year, we'll be crossing over the 50% mark on enterprise revenue. We have had significant progress in an aero, which we had almost no share on three years ago, and now we are only one of the couple of companies in the world that are growing on the aero side. So there are some progress being made in there. We're happy with that. We still have a long journey to make Hughes much larger scale in the enterprise. We are on the Gartner's leader quadrant as one of the few -- in fact, in this industry, in their industry, in its industry, there is none other than Hughes on the Gartner's leader quadrant. So it shows the ability of Hughes to serve global brands across the world. We'll try to monetize and maximize that if there's any sort of M&A opportunity. As I mentioned, on the list of areas, domains where we will be looking for additional M&A. You saw three or four of those actually fall within the Hughes purview. That's aero, space. we talked about enterprise services. We talked about defense and domestic manufacturing, which I think all of those are areas where we have green shoots and a good understanding of the trends. And if there's -- at EchoStar Capital, if we find opportunities in any of those domains that would enhance users' position, we'll take advantage of that. Charles Ergen: That concludes our call. Thanks for joining. Thanks, everybody.
Operator: Good day, and thank you for standing by. Welcome to Pharming Group N.V. Third Quarter 2025 Results Conference Call and Webcast. [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, Fabrice Chouraqui, Chief Executive Officer. Please go ahead. Fabrice Chouraqui: Thank you, operator, and good morning and good afternoon, everyone, and welcome to the Pharming's Q3 2025 Earnings Call. I'll be joined on this call today by Steve Toor, our Chief Commercial Officer; Anurag Relan, our Chief Medical Officer; and Kenneth Lynard, our new Chief Financial Officer. On this call, we will be making forward-looking statements that are based upon our current insights and plan. As you know, these may well differ from future results. As you saw in our press release earlier today, we delivered another very strong quarter. Total revenues grew by 30% in the third quarter of 2025 versus the same quarter last year, and operating profit jumped to $15.8 million, nearly 4x last year's result. Operating cash flow came at $32 million, putting our cash position almost back to where it was at the end of 2024 before the acquisition of Abliva. Our strong top line growth was fueled by the continued significant growth of our 2 commercial assets, RUCONEST and Joenja. RUCONEST grew 29% year-on-year, fueled by continued strength in new prescribers and in new patient enrollments, even amid the launch of a new oral on-demand therapy in July. This reflects RUCONEST's unique value proposition for severely affected HAE patients, which Steve will elaborate upon in a minute. Joenja third quarter revenue increased by 35% reflecting the 25% year-on-year growth in patients on treatment and our increasing success in finding new APDS patients. The drug continues its uptake in the 12-year plus APDS segment. And when looking ahead, we anticipate adding new sources of growth with the pediatric indication, the reclassification of the U.S. patients and our geographic expansion. The strong momentum for our 2 commercial assets support an upgrade to our full year 2025 revenue guidance to $360 million -- to $365 million, $375 million from the previous $335 million, $350 million, for which Kenneth will provide more details later in the call. Finally, the recently announced significant reduction in G&A headcount follows through on our plan to optimize capital deployment to high-growth initiatives to fully capitalize on our significant growth prospects. Before we review our commercial and financial results in greater detail, I'd like to highlight that our Q3 performance reflects our strong growth foundation. In just a few years, Pharming has transformed from a single asset company into a fast-growing biotech with 2 high-growth commercial products and a late-stage pipeline with 2 programs with over $1 billion sales potential each. As we've seen, RUCONEST continues to grow double digits after 10 years on the market. Its unique value for severe HAE patients and specific manufacturing process make it a reliable cash engine to fund our future growth. Joenja is just at the beginning of its life cycle with multiple growth catalysts. The recent data published in sales suggests significantly higher APDS prevalence and the expansion in larger PIDs and CVID could unlock a much larger market. KL1333 for primary mitochondrial disease is another $1 billion-plus opportunity with a positive futility analysis in the ongoing registrational study. So this combination of durable revenues, first-in-disease innovation and late-stage pipeline positions Pharming well for substantial value creation in the near and long term. With this portfolio and pipeline as the foundation, we can leverage our strong rare disease capabilities to build a leading global rare disease company and deliver on our vision. I'll now hand over to Steve, who will discuss our commercial progress during the quarter and elaborate on the continued strong growth of RUCONEST and Joenja. Stephen Toor: Thank you, Fabrice. Good morning, everybody. As Fabrice said, RUCONEST has delivered another very successful quarter with high double-digit growth of $82 million in revenue, which is up 29% on Q3 of last year. The strong growth is being driven by the continued increase in prescribers quarter-on-quarter. New prescribers are recognizing the value RUCONEST brings to patients suffering with moderate to severe HAE, and this underpins our consistent prescriber growth over the years. In fact, we've added an average of 22 new prescribers in the past 6 quarters, which leads directly to the high level of new patient enrollment and the vial volume increase over prior year, which is at 28% versus the first 9 months of 2024. Pharming's sustained success unabated by the recent launch of the oral product reflects RUCONEST's unique profile and strong differentiation in the acute on-demand HAE market. RUCONEST remains an important treatment option for moderate to severe patients who experience more frequent attacks, which explains the continued strong momentum and our confidence in the product's long-term growth prospects. As a reminder, RUCONEST is a highly effective product serving all patient types, type 1, type 2 and normal C1, specifically those patients suffering from frequent moderate to severe debilitating HAE attacks. They've also typically failed other single pathway-specific targeted acute therapies such as Icatibant, which have not been effective for them, often leading to the need to redose to stop their HAE attack. As the only recombinant C1 protein replacement therapy, RUCONEST uniquely addresses the root cause of HAE, providing strong differentiation versus single pathway targeted therapies. This differentiation is why RUCONEST is a cornerstone treatment for HAE attacks. You can see in the photographs on this slide an actual RUCONEST patient, and this is exactly the type of patient I mean, with a more severe course of disease attacking frequently and having to redose on other therapies along with her recovery as she resolves the attack. HEA patients with the disease profile I've described need RUCONEST on hand, which through its IV mode of action delivers a bolus of C1 straight in the vein, which is critical for them. As a result, by using RUCONEST, patients get complete resolution in a single dose for 97% of their attacks. Half of those patients actually get complete attack resolution in 4.5 hours with the vast majority within 24. That efficacy is both critical and reassuring, and that is direct feedback from the patients we serve. Switching gears to Joenja. As with RUCONEST, we've delivered another strong third quarter. We achieved high double-digit year-over-year revenue growth of plus 35%, generating $15.1 million in revenue for the quarter. The number of U.S. patients on paid therapy is up 25% versus Q3 2024. And importantly, we've identified 13 additional APDS patients in Q3 alone, which shows our ability to keep building the patient funnel in this ultra-rare disease. We're finding patients faster than we did in 2024 with a total number of APDS patients in the U.S. now at 270. Importantly, the resulting significant increase in patients versus 2024 on patients consistently high adherence to therapy is driving this strong revenue growth. The launch of Joenja in the U.K. is also going well, and this is an important first step as we execute our focused geographic expansion plans. Let's now review the next significant inflection point, which is the pediatric launch in the U.S. for patients aged 4 to 11. The FDA has granted priority review of our application to expand the label and assigned a PDUFA date or an approval date of January 31, 2026. Our preparations for launch after the expected approval in January are on track. As we approach the U.S. pediatric launch, the team has already identified 54 patients diagnosed with APDS aged 4 to 11. 1/3 of those patients are already on therapy through Pharming's early access program and with many others likely to go on therapy soon after launch. So this represents an important growth driver for Pharming, which starts in just a few months. I'd like to now hand over to Anurag, who will discuss our development programs and the forthcoming data presentations at the American College of Allergy, Asthma and Immunology later this week in Orlando. Anurag Relan: Thanks, Steve. In addition to the commercial successes in the quarter, we continue to advance our pipeline in the past 3 months. In APDS, as you mentioned, Steve, the FDA granted priority review for our sNDA for 4- to 11-year-old children, underscoring the seriousness of the disease and the potential to offer a new treatment option with leniolisib. We also have regulatory filings under review in Europe, Japan and Canada with approvals anticipated in 2026. We have 2 Phase II proof-of-concept studies for PIDs with immune dysregulation, and these are also on track for readouts in the second half of '26. And then our newest addition to the pipeline is also progressing nicely, KL1333 in a registrational study for primary mitochondrial disease, where enrollment and site activation are advancing, and we continue to expect to read out in late 2027. As you recall, there was an important publication in Cell in June. This work has implications for the variants of uncertain significance or VUS reclassification work, which is ongoing by the labs. The publication in Cell, however, also opens another potential avenue to expand the APDS population. Specifically, the paper found more than 100 new gain-of-function PI3K delta variants. What surprised the researchers was that these gain-of-function variants were much more commonly found in population databases, suggesting an APDS prevalence up to 100x higher than current estimates as well as a broader set of clinical symptoms. This raises a number of key questions to determine how these variants may cause disease, including which variants cause clinically meaningful gain of function, what symptoms and diseases do these variants cause and how do we find patients with these variants. We started a number of activities now to help answer these questions. First, we're convening a global KOL at [ AG Board ] this month to address how these variants can cause disease. In parallel, we're sponsoring work to build a predictive AI-driven model that could identify patients who could benefit from targeted PI3K delta inhibition with the goal then to be able to apply the model to large EMR databases. And given the significant findings, we can actually identify more gain of function variants with newer base editing technologies. Generating additional variants will be important not only to understand the broader prevalence, but also for the ongoing VUS resolution project. So much more to come on this exciting work. We also have new data being presented at the American College of Allergy, Asthma and Immunology. There are 5 posters on RUCONEST where we performed a reanalysis of our clinical trial data with recently used definitions of key endpoints. These data highlight the key symptom benefits in HAE patients experience with RUCONEST across a number of clinically relevant outcomes. In addition, an indirect treatment comparison with sebetralstat will be presented, providing additional evidence for the unique benefits that RUCONEST offers HAE patients. On the APDS side, we have posters describing the treatment burden of the disease on both patients and caregivers. We also have a number of posters on Joenja with real-world data highlighting key benefits, including a reduction in infections. Lastly, ahead of our expected pediatric approval, we have new data in this 4- to 11-year-old APDS population, showing important outcomes, especially on quality of life improvement seen in the study. I'll turn it over now to Kenneth, our newest member of the team, to review our financials. Kenneth Lynard: Thank you, Anurag. As the new CFO, I'm excited to have joined Pharming at such an exciting time and have the opportunity to provide more color on our strong financial performance and outlook. Q3 was an excellent quarter with revenues at $97.3 million, up 30% versus the same quarter last year. We saw double-digit revenue growth for both RUCONEST and Joenja. Gross profit grew by 33% to $90.2 million, mainly due to the higher revenues. And accordingly, we recorded a gross margin of 93% versus 91% same quarter in 2024. Our operating profit with a slight adjustment, as it's noted here on the slide, almost increased to 4x to $16.0 million compared to $4.1 million last year. That came from growth in revenues, the improved gross margin and well-managed operating costs. Cash and marketable securities increased from $130.8 million at the end of the second quarter to $168.9 million at the end of Q3. This increase was driven by significant cash flow from operating activities with $32 million. And as Fabrice mentioned, the total balance of cash and marketable securities is now back in line with the end of 2024 prior to the Abliva acquisition. Our year-to-date consolidated financial numbers for the first 9 months show continued strong execution of our strategy. Total revenues grew by 32% to $269.6 million due to strong double-digit revenue growth for both products and gross profit grew by 35%. Operating expenses increased by $29.2 million, excluding $20.4 million of Abliva-related acquisition expenses and our operating expenses were up by only 4%. Adjusted operating profit, excluding nonrecurring Abliva acquisition-related expenses compared -- was $29.7 million, which compared to a loss of $15.3 million for the first 9 months of 2024. Cash flow from operating activities was $44 million in the first 9 months of the year. Following the strong results for the first 9 months, we are raising our 2025 total revenue guidance to $365 million to $375 million, up from $335 million to $350 million. This implies full year revenue growth between 23% to 26%. The increase is due to continued strong performance and outlook for the remainder of the year. We continue to expect total operating expenses between $304 million to $308 million, this assumes constant foreign exchange rates for the remainder of the year, includes $10.2 million of nonrecurring Abliva acquisition-related transaction expenses and excludes approximately $7 million in onetime restructuring costs related to the implementation of our G&A reduction plan. We continue to expect that our available cash and future cash flows will cover the current pipeline and related prelaunch costs. Going forward, we'll further accelerate setting the foundation for strong financial discipline with investments into areas that matters the most to spark near- and long-term value creation. On a personal note, I came to Pharming given my deep belief in its mission to bring life-changing therapies to rare disease patients and so the strong potential to develop a leading global rare disease company. I see great opportunity to sharpen our focus on profitable growth, effectively allocate capital to maximize return on investments and improve transparency and predictability in our financial reporting. And with that, let me hand back now to Fabrice for closing remarks. Fabrice Chouraqui: Thank you, Kenneth. So in summary, we are really pleased to report yet another strong quarter, reinforcing the strength of our business for sustainable growth and long-term value creation. As you heard from Kenneth, as a result of this performance and our outlook for the remaining of the year, we are raising again our full year guidance. Looking ahead, RUCONEST is poised to continue to grow and to remain the cornerstone treatment for severe HAE patients, underpinning a strong revenue base. Joenja is well positioned to generate a significant portion of our revenues in the future given strong growth and the additional opportunities we are actively unlocking. Our high-value pipeline is advancing rapidly with a clear objective to deliver 2 potential blockbuster assets, creating a meaningful value creation catalyst for shareholders. And we are also taking decisive steps to enhance financial discipline, including optimizing G&A headcount to ensure efficient capital allocation and maximizing our return. I'd like to end this call by expressing my sincere gratitude to Steve Toor for his contribution to Pharming over the past 9 years. We look forward to his continued support as an adviser to the company, and we are very excited to welcome Leverne Marsh as our new Chief Commercial Officer to drive the next phase of commercial growth. Let me now open the line for questions. Operator: [Operator Instructions] First question comes from Jeff Jones of Oppenheimer. Jeffrey Jones: Congrats on a really strong quarter. Two questions from us. With respect to RUCONEST, can you speak to any impact you're seeing from the new oral that has come on to the market? Where do you see it being adopted? Do you anticipate any pressure on your patient base? And then for Joenja, you mentioned that 1/3 of the pediatric patients already identified are currently on therapy through early access. Any impact on revenue from these patients when the product is formally approved next year? Fabrice Chouraqui: Thank you so much, Jeff, for your question. So on RUCONEST, I mean, clearly, we don't see RUCONEST competing head-to-head with sebetralstat. And so that's why I cannot comment on how sebetralstat is doing. As I mentioned, I believe we have a highly distinctive value proposition that serves a different type of patients, more severe patients. And this is due to a unique mode of action that replace the missing, the deficient protein underlying the biology of the disease and a very specific mode of administration. As such, I believe that many more patients could benefit from RUCONEST, many more patients who are not yet well controlled on an on-demand treatment. And that's the vast majority of the RUCONEST patients. These are patients who have not been able to be controlled appropriately with other treatments and ultimately got the efficacy that they needed with a treatment with RUCONEST. When it comes to the pediatric, the question on Joenja and pediatric, as you rightly said, we have identified already 54 pediatric patients in the U.S. and about 1/3 of them are on our early access program. We expect to convert these patients, those patients who are already on the drug fairly quickly. And as such, which is typically what you see in rare disease, in ultra-rare disease, we expect somehow a bolus of patients to come on drug. This will then add to the patients that are already identified that we will strive hard to ensure that they can benefit from RUCONEST. And then will come additional patients, pediatric patients that we are committed to identifying. So the normal sequence where you have, first, patients who are on access program that will convert, second, patients who are already identified that will probably come on drug if the doctors decide so. And then new patients that you identify. So really, that sequence will probably happen next year. And given the number of patients that we have already identified, 54, it's a large number, we believe that pediatric, the expansion of the pediatric -- the label to the pediatric population will be a significant growth driver that will add to the current source of business in adults in the 12-year plus segment. Operator: Next, we have Lucy Codrington from Jefferies. Lucy-Emma Codrington-Bartlett: I've got a few, if I may. So just following then on RUCONEST, and apologies if I missed this at the beginning of the call, I was late joining. The plan to stop RUCONEST outside of the U.S., have you given a time frame on when that will become effective? And then just in terms of the competitive threat from Ekterly, given -- I'm totally understanding your -- the different positioning of the drugs. But how often are typically HAE patients seen by their specialist for them any -- if there were to be any switching for that to potentially become apparent? And then moving on to Joenja. In terms of the VUS opportunity, are you happy with the rate at which the -- this -- I mean, my understanding is we might start to see VUS patients in the second half. And I noticed that the guide no longer -- the kind of details with your outlook no longer kind of suggest that. So is that something that you think is now more likely to be pushed into 2026? And what is the process for VUSs outside of the U.S.? And then if I may, 2 more. Just in terms of the compliance rates on Joenja, I think before it's been roughly around 85%. Is that something you're still happy with? And then just in general, your rate of progress identifying patients, what do you think the anticipated peak could be within the U.S.? Sorry for so many. Fabrice Chouraqui: Thank you, Lucy. I'll try to cover all your questions. So I'll start with RUCONEST and your questions related to the delisting of RUCONEST in some countries in Europe. We plan to complete this by the first half, first quarter -- end of the first quarter, first half of next year. When it comes to -- and again, this is really driven by the fact that we don't see the commercialization of RUCONEST in these countries that's financially sustainable. Given the number of growth drivers that we have, we hope to be financially disciplined and ensure that we deploy our capital appropriately. Obviously, we are working with all stakeholders in those countries to ensure that those patients will be able to access the right treatment and if needed, ensure continuity of supply of RUCONEST through compassionate use access mechanism. When it comes to Ekterly, I mean, I said that clearly, for me, the RUCONEST and Ekterly are serving 2 different types of patients. And as such, I don't see a second threat for RUCONEST. I mean, RUCONEST is a drug that has a unique mode of action that replace the missing or deficient protein underlying the biology of the disease. RUCONEST has a very unique mode of administration that allow a very fast onset of action. And as such, it has a unique value proposition for more difficult-to-treat patients. That's why the vast majority of patients on RUCONEST are more severe patients, are patients that often have failed other treatments, are patients that need actually that level of efficacy, that speed of onset to really address their more frequent and more severe crisis. All right, moving to Joenja and your question about the U.S. as Anurag said, test labs are in ongoing conversations with the researchers, which published this paper in Cell. And we expect that over time about 20% of the U.S. patients to be reclassified as APDS. We have obviously to remain arm length, obviously, to what's happening and hope that the discussion will progress well and that we will see some patients being reclassified. Outside the U.S., the process will be the same. Test labs will have to, again, understand the data, incorporate the data, identify patients who are carriers of those newly identified variants. And if those test labs feel that those patients needs to be reclassified, then they'll call the doctors and then the doctors will probably reach out to the patients. The adherence rate is -- we don't see any change actually in the adherence rate for Joenja. It is actually remains extremely strong and around the magnitude that you have mentioned. When it comes to patient identification, you're right that we're very pleased to see that our efforts continue to pay off and that we have added 13 new APDS patients in Q3. We have identified 13 new APDS patients in the U.S. in Q3. That shows our capability to identify patients in this ultra-rare -- suffering from this ultra-rare disease. You asked about the peak. I mean, there are in the U.S., if you consider the prevalence, at least 500 patients suffering from APDS. On top of it, we've said that we expect that 20% of the U.S. patients actually could be reclassified as APDS, and that could increase the potential of this population by 50%. And then on top of that, Anurag mentioned the efforts that we are making to really leverage the work that has been published in sales and which suggests that APDS prevalence may be far higher. And that could be actually an upside. So again, I think there are some very concrete numbers I've shared with you. And on top of it, the potential upside, which we cannot quantify today. The authors suggested up to 100x. Again, this needs to be verified, and you can see that we have a very concrete and solid kind of action to be able to come back to you with more next year. I hope I addressed your question, Lucy. Operator: Next we have Sushila Hernandes from Van Lanschot Kempen. Unknown Analyst: This is [ Maridith ] for Sushila from Van Lanschot Kempen. I have 2 questions. First, given your more disciplined approach, what are your priorities for capital allocation? Can we expect another M&A transaction similar in size to Abliva? And second, how is your basket PID trial progressing? And when can we expect top line? Fabrice Chouraqui: Hi, thank you, Sushila. Thank you for calling out the disciplined capital allocation. That's true. And hopefully, it was very apparent. And with Kenneth joining, clearly, I'm extremely happy that given his track record, I'll be able to really embed that mindset, which is absolutely essential if you want to run a high-performing organization. I think as you see, we have a number of growth catalysts in our commercial portfolio in the short term. We also have a number of pipeline catalysts next year and the year to come. So when it comes to value inflection point, growth catalysts, we have a lot, and we are committed to showing that we can execute. Now it is true that we have higher ambitions, but there is no rush actually in doing any M&A. Obviously, given the strong growth platform, our ability to generate cash, the very strong capability platform that we have built over the years in clinical development, in supply chain, in commercial, in access, I believe we can be much more ambitious, and we should be looking at the continued expansion of our portfolio and our pipeline. And as such, we are continuously looking at potential opportunities to expand our portfolio and pipeline. So there is nothing planned. There is no rush. Anything that we would want to do will have to be value accretive for our stakeholders and shareholders. But clearly, this is something that we keep in mind. It is part of the work that we're doing. And if we find the right opportunity, obviously, we will engage with our shareholders. Anurag Relan: And I think you had asked also about the basket PID trial. And if you remember, this is a study with multiple genes that can drive the PI3K pathway, a Phase II proof-of-concept study. And this study is actually progressing very nicely. We continue to expect readout from the study in the second half of '26. So a very exciting program, along with the CVID program, both on track for second half '26 read out. Operator: Next we have Joe Pantginis from H.C. Wainwright. Unknown Analyst: This is Josh on for Joe. So I just wanted to ask a question about the new formulation. If you could give any more color on this new pediatric formulation for the 1- to 6-year-old group? And if there's any specific manufacturing hurdles that you may need to clear for this formulation? Anurag Relan: Josh, so we have indeed a new pediatric formulation for the youngest population, again, because this youngest population of children wouldn't be expected to be able to follow a tablet, which we currently have available for the older kids as well as the adolescents. For this youngest population, the formulation is granules. And so these granules, we've manufactured them, we've done PK work on them, and we're going through the -- we've actually completed the study with this 1- to 6-year-old population. So we expect to follow a similar process in terms of the regulatory path. And obviously, we've engaged with FDA, both with discussions on the formulation, but as well as on the study design. So I think all of it remains on track. Operator: Next, we have Natalia Webster from RBC. Natalia Webster: Firstly, I just wanted to ask around your revenue guidance uplift, just confirming how much of this comes from better-than-expected RUCONEST versus Joenja. And then in particular, for RUCONEST, how you're expecting that to develop into Q4 and 2026, given that you're not seeing much pressure from competition and also continue to see increases in prescribers and patients there? My second question is on Joenja and the international rollout. It seems that this is contributing around 11% this quarter. So curious to hear a bit more about how that's evolving and how you expect that mix to evolve over time? And then thirdly, just around the RUCONEST withdrawal from ex U.S. markets. Are you able to comment a bit on the savings you'll make from this and where you plan to redirect those resources? Fabrice Chouraqui: Thank you, Natalia. So when it comes to our revenue guidance, as Kenneth said, it was driven by the continued strength of our business that we've seen in Q3 and throughout the year in 2025. So obviously RUCONEST plays an important role because of the size of the drug, of the RUCONEST revenues in the total size of the revenues. But this upgrade is driven by both, obviously, the continued performance of RUCONEST and also the continued performance of Joenja. As Kenneth said, the new guidance suggests a growth for the year between 23% and 26%. We have not yet provided guidance for next year. But as we mentioned during the call, we expect RUCONEST to continue to grow as it's serving a differentiated population and has a unique value proposition for these more severe patients. And obviously, the acceleration of the growth of Joenja. Acceleration because until now we were able to source patients from only a unique source of business, the 12-year-old plus APDS patient population and that tomorrow we'll be able to unlock new source of business with the expected expansion of the label to the pediatric population that will add a significant number of patients. We have already identified 54 patients. That's a large number of patients. 1/3 of whom are already on drug, which we'll be able to convert, I hope, and fast. And then obviously, having already identified patients, these patients are more likely to be put on drug, and we will continue our efforts to identify more patients. And then we have other growth opportunities that we have elaborated upon in detail, the U.S. and then the geo expansion. That was actually one of your points. I think the launch in the U.K. is going very well. So we are very encouraged to see this. I think that shows our ability to launch a drug like Joenja in other countries. We have selected 8 markets outside of the U.S. where we believe we can develop a significant business for Joenja. And so we will roll out this strategy. Obviously, we are -- we will be -- we will make sure that reimbursement authorities in these countries reimburse the drug at the right price. It's absolutely. So the goal is not to launch just for the sake of launching. We have access program in place to allow patients to benefit from the drug at the present time. Obviously we are not a philanthropic company, and we need to have our drug reimbursed, but it cannot be done at any cost, and we will be working actively on this. When it comes to the RUCONEST withdrawal, as I said, we have to be more disciplined in the way we allocate our capital. We felt -- clearly we felt that maintaining the commercialization of RUCONEST in these countries was not financially sustainable. We'll take great care to ensuring -- great attention to ensure that patients can continue to access the right treatment. In terms of financial implication, it's difficult to quantify. It's going to be minimal. I mean you know that actually the vast majority of revenues came from the U.S. So I don't expect meaningful impact whether on the top line and in the bottom line, this is actually combined with our financial discipline efforts to really manage our cost structure more tightly. Operator: Our last question comes from the line of Simon Scholes from First Berlin. Simon Scholes: I've just got 2 questions. So you recorded a gross margin of 92.7% in the third quarter, which I think compares with 90% in H1 and 89% in '24. I was just wondering how we should think about the gross margin in your existing markets going forward? So do you think this 93% is sustainable going forward? And then you also say in the presentation, I mean, you said you've got -- you've seen an increase in more severe frequent attack patients. Does that mean that these more severe frequent attack patients are actually increasing as a proportion of the overall number of patients? Fabrice Chouraqui: So I'll start with the latter, and I'll let Kenneth actually elaborate on the gross margin point. So it is true that RUCONEST is serving a quite distinctive population in the on-demand market, more severe patients. And by more severe patients, I mean, patients who are having more severe crisis, often life-threatening crisis and more frequent crisis. And so that's basically the bulk of the patients. And so as the sales of -- as the revenue of RUCONEST developed, we see that pattern being reinforced. So RUCONEST is a drug that is primarily used on more severe patients, patients who are having more severe crisis, more frequent crisis. And I don't think that, that will change. I think there will be other treatment options for other type of patients. And RUCONEST will be able to continue to serve those patients, leveraging, again, the reliability that is built among this patient category and with prescribers. And I think that also illustrates the fact that quarter after quarter, although 10 years on the market, we see more prescribers using the drug. When it comes to the gross margin, I'll let Kenneth elaborate. Kenneth Lynard: Yes, thank you. Thank you, Fabrice, and thanks for the question. It's obvious that we have a high gross margin and it's impacted also by the mix of sales and across different geographies. As you see, so to say, the Joenja share growing and faster growing than RUCONEST, we're having a benefit coming from that. So we don't want to kind of give specifics in terms of the forward-looking performance, but I think you have seen kind of a slight increase on a continuous basis as we start to build out the Joenja sales to a larger extent. So I think Q3's performance is very encouraging, but we are not at this point of time giving the specifics around forward-looking, but think about it in that context of the Joenja share growth. Operator: That concludes the Q&A session. I will now hand back to Fabrice for closing remarks. Fabrice Chouraqui: Thank you very much, operator. Thank you all for attending this call and for your continued interest in our company. With that, I'll close the call. Thank you. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Sun Life Financial Q3 2025 Conference Call. My name is Galeen, and I will be your conference operator today. [Operator Instructions] The conference is being recorded. [Operator Instructions] The host of the call is Natalie Brady, Senior Vice President, Capital Management and Investor Relations. Please go ahead, Ms. Brady. Natalie Brady: Thank you, and good morning, everyone. Welcome to Sun Life's earnings call for the third quarter of 2025. Our earnings release and the slides for today's call are available on the Investor Relations section of our website at sunlife.com. We will begin today's call with opening remarks from Kevin Strain, President and Chief Executive Officer. Following Kevin, Tim Deacon, Executive Vice President and Chief Financial Officer, will present the financial results for the quarter. After the prepared remarks, we will move to the question-and-answer portion of the call. Other members of management are also available to answer your questions this morning. Turning to Slide 2. I draw your attention to the cautionary language regarding the use of forward-looking statements and non-IFRS financial measures, which form part of today's remarks. As noted in the slides, forward-looking statements may be rendered inaccurate by subsequent events. And with that, I'll now turn things over to Kevin. Kevin Strain: Thanks, Natalie, and good morning, everyone. Turning to Slide 4. We had a good Q3 for top line and for bottom line, demonstrating the benefits and strength of our diversified business model. Our underlying EPS was $1.86, up 6% year-over-year. Underlying ROE was 18.3%, progressing well towards our medium-term objectives, and our book value per share grew 3% quarter-over-quarter. Individual - Protection sales grew 35%, Group - Health & Protection sales grew 12%, and we had almost $3 billion of positive net flows in Asset Management and Wealth. We achieved strong underlying earnings in Asia and Canada with solid underlying earnings in Asset Management. We continue to navigate the industry challenges in our U.S. business, which performed below our expectations this quarter. Results in our U.S. business were challenged by unfavorable insurance experience across group and dental, reflecting the structural changes occurring in the U.S. healthcare system, which are driving higher claims frequency and cost. It is important to remember that our U.S. Group Benefits and dental businesses are repriceable over a 1- to 3-year time frame, and our experience is largely in line with or better than industry trends. Our Employee Benefits business saw higher disability claims in July, but this started to normalize in August and September, and we see this as normal volatility. In our medical stop-loss business, we saw a higher frequency of claims over $1 million in the quarter, and we increased our stop-loss ratio assumptions to reflect this accordingly. We are industry leaders in the stop-loss business with scale and strong capabilities, and we continue to have industry-leading claims ratios. We have seen cycles like this in the past where the claims run ahead of pricing, and we continue to be confident in our ability to pick the best risk and manage the pricing. In Dental, we continue to navigate industry-wide headwinds from the slower pace of Medicaid contract repricing. We remain focused on improving our U.S. dental business performance through repricing, expense actions, and growth of our commercial business. In Asia, we achieved double-digit growth -- double-digit protection sales growth in six markets, with new business CSM growing 20% year-over-year and overall CSM has more than doubled over the past 3 years, reflecting sustained momentum across Asia. In Canada, we continued with strong individual protection sales driven by solid demand for our participating life policies sold through both third-party and proprietary channels. We are also continuing to see steady growth in our asset management net flows, including strong capital raising and deployments at SLC Management and institutional net inflows at MFS. We ended the quarter with a LICAT ratio of 154%, demonstrating our strong capital position, announced a $0.04 increase to our dividend to $0.92 per share, and we repurchased approximately $400 million of shares in the quarter. Turning to Slide 5. We've invested significantly in our asset management business over the past decade and have industry-leading capabilities, which span across public equities and public fixed income at MFS to alternative asset management at SLC. With $1.6 trillion in assets under management, we are Canada's largest asset manager and are one of the largest asset managers in the world. We also have significant wealth management capabilities in Canada and Asia that we can leverage. $1.4 trillion of our AUM is managed by our asset management businesses, of which $1.2 trillion is on behalf of third-party investors. Our asset management pillar today includes both MFS and SLC. And a few weeks ago, we announced Tom Murphy as President, Sun Life Asset Management. Tom has a deep asset management background. He previously led investment businesses in Europe and the U.S. before joining SLC Management in 2018, where he was the President of SLC Fixed Income. Over the past 3 years, Tom has been Sun Life's Chief Risk Officer. He will assume his new role on January 1, 2026. It is important to note there will be no change in how MFS or SLC are managed under this structure. MFS is a global leader in public equities and public fixed income with a strong management team and a focus on the client. We support the MFS strategies, including growing public fixed income and active ETFs, and we saw good progress in both this quarter. SLC has equally strong management capabilities and is equally focused on clients. We are seeing significant interest in partnering with SLC from banks, insurers, reinsurers, and others and are focused on unlocking these opportunities. We see long-term growth potential in Asia asset management. We currently manage over $140 billion in assets through our general account and wealth businesses. In addition, our asset management JV in India sits at $65 billion in assets under management. Adding further capabilities in Asia will support growth in asset management and investment returns in our insurance and wealth businesses. Unlocking the synergies between our asset management business and our insurance and wealth businesses will be an important part of Tom's mandate. I'm excited by the opportunity to accelerate the growth of our asset management businesses globally. We have an excellent mix of capabilities across asset management, insurance, and wealth. Sun Life Asset Management will be an important growth engine for Sun Life going forward. Turning to Slide 6 and staying on Asset Management and Wealth, we saw good momentum across our platform this quarter. At SLC, fee-earning assets under management grew 9% year-over-year, driven by strong capital raising and deployments across all platforms. We are on track to achieve our full year underlying earnings target of $235 million. At MFS, net outflows of USD 0.9 billion were the lowest since 2021. Strong institutional gross sales of USD 12.9 billion included large mandate wins in separately managed accounts and collective investment trusts. We also had solid net inflows in public fixed income and active ETFs. MFS continues to deliver industry-leading pretax net operating margins with a 39.2% margin this quarter. In Canada, Sun Life Global Investment marked its 15th anniversary of helping Canadians grow and protect their wealth. Since launching in 2010, SLGI has grown to over $44 billion in AUM and has become the largest Canadian-based provider of target-date funds for group retirement plans. This quarter, SLGI launched its first ETF series in Canada, leveraging the power of our asset management platform, we are providing investors and advisors with more ways to access the deep expertise of MFS, SLC, SLC Fixed Income and Crescent Capital. Moving to Asia. We saw robust individual protection sales. Agency sales were up 25%, bank insurance sales were up 36% and broker sales were up 47% year-over-year, highlighting the strength of our distribution in Asia across channels. Asia Asset Management gross flows and sales of $2.2 billion were up 17%, driven by higher fixed income fund sales in India and MPF sales in Hong Kong. We are poised for growth in Canada, Asia, and Asset Management and are focused on aligning our U.S. business for growth in the new realities we face in the U.S. health space. We have strong capabilities in the U.S. health space and scale in these businesses. They are capital-light and they are repriceable by design. I have strong confidence in the U.S. management team and will work closely with David Healy to manage through the repricing and repositioning that needs to be done for growth. Overall, we are committed to our medium-term objective of 10% underlying earnings growth, 20% ROE and dividend payouts in the range of 40% to 50% of underlying earnings. With that, I'll turn the call over to Tim, who will walk us through the Q3 financial results in more detail. Timothy Deacon: Thank you, Kevin, and good morning, everyone. Turning to Slide 8. Overall, our third quarter results reflect the benefits and strengths of our diversified businesses as strong growth in Asia and Canada, and solid results in Asset Management were partially offset by lower earnings in the U.S. In Q3, we reported underlying net income of $1.047 billion, up 3% year-over-year. Underlying earnings per share of $1.86 were up 6% over the same period. Asset Management and Wealth underlying earnings were up 5% over the prior year on improved credit, higher fee income in Canada and higher net seed investment income at SLC Management. Group - Health & Protection underlying earnings were down 18% year-over-year, driven by unfavorable insurance experience across the U.S., partially offset by business growth and favorable insurance experience in Canada. Individual Protection underlying net income was up 25% over the prior year on business growth, favorable mortality experience in Asia, joint venture earnings in India, and higher investment earnings in Canada. Underlying return on equity was 18.3%, up from the prior year on higher earnings and the impact of share buybacks. Reported net income was $1.1 billion or 6% above underlying net income, driven by a gain from our increased ownership in Bowtie, partially offset by amortization of intangibles, acquisition-related expenses, market-related impacts and the impact of our third quarter review of actuarial assumptions or ACMA. Market-related impacts reflect unfavorable real estate experience as modestly positive returns in the quarter were below our long-term expectations. We completed the annual review of actuarial assumptions, which resulted in a modest net loss of $13 million and $139 million benefit to total CSM. Total CSM, which reflects future profits, increased 12% year-over-year to $14.4 billion, driven by strong organic CSM growth. New business CSM of $446 million increased 16% on strong sales compared to the same period last year. Organic capital generation, net of dividends, was strong at $624 million or 60% of underlying net income, well above our target range of 30% to 40%. Our capital position remains strong with an SLF LICAT ratio of 154%, up 3 points from the prior quarter, driven by a $1 billion debt issuance executed in the quarter and organic capital generation, partially offset by share buybacks. Holdco cash was $2.1 billion, and our leverage ratio remains low at 21.6%. Our book value per share increased 2% over the prior year, demonstrating our ability to generate strong growth while returning value to our shareholders with over 19 million shares repurchased in the last 12 months and 4.8 million shares repurchased this quarter. Finally, we announced a 4.5% increase to our common shareholder dividend. Turning to our business group performance on Slide 10. MFS is underlying net income of USD 215 million was down 1% over the year, primarily reflecting a decrease in net interest income, mostly offset by higher fee income on average net asset growth. Our pretax operating margin of 39.2% decreased 1.3 percentage points from the prior year, primarily from lower interest income. Assets under management of USD 659 billion were up 2% over the prior year and up 4% over the prior quarter. The sequential movement in AUM was driven by market appreciation, partially offset by net outflows. Overall net outflows of USD 871 million were at the lowest level since 2021 and included retail outflows of $4.7 billion and institutional inflows of $3.8 billion. Retail outflows reflected continued investor preference for risk-free investments and were in line with industry. Institutional gross and net flows were the highest they've been in 10 years and were driven by several large mandate wins over $1 billion in separately managed accounts and new target-date product offerings in the defined contribution retirement channel, a key growth segment for MFS. MFS also had positive net flows in public fixed income and active ETFs this quarter. Turning to Slide 11. SLC Management generated underlying net income of $54 million, up 15% year-over-year, which reflected the impact of higher net seed investment income and higher fee-related earnings. With year-to-date underlying net income of $184 million, SLC is well-positioned to achieve its underlying earnings target of $235 million for 2025. Fee-related earnings of $78 million were up 8% compared to the prior year, primarily from strong capital raising. Reported net income was $23 million, down from the prior year due to a revaluation gain on acquisition-related liabilities in the third quarter of 2024. SLC Management continues to demonstrate strong momentum across the platform with capital raising of $5.6 billion, primarily in Crescent, BGO, and SLC fixed income and deployments of $7.4 billion across all asset classes. SLC's fee-earning AUM of $199 billion was up 9% year-over-year, driven by net flows, partially offset by realizations. Turning to Slide 12. Canada reported net income of $422 million was up 13% over the prior year on strong business growth, favorable insurance experience, and higher fee income. Reported net income of $414 million was up 8% over the prior year, driven by underlying net income growth and favorable ACMA, partially offset by market-related impacts. Asset Management and Wealth underlying earnings were up 19% year-on-year on improved credit experience and higher fee income from AUM growth. Asset Management and Wealth AUM of $213 billion was up 11% with the prior year on market appreciation. Group - Health & Protection earnings were up 15% year-over-year, reflecting business growth, favorable mortality and morbidity experience from lower claims volumes and shorter durations and improved credit. Group sales were down 21% from last year due to the timing of large case sales. Individual Protection earnings were up 3% compared to the prior year on higher investment earnings. Individual Protection sales were up 16% year-over-year, driven by solid demand of nonparticipating life products across both third-party and proprietary sales channels. Turning to Slide 13. Sun Life U.S.'s underlying net income was USD 107 million, down 34% from the prior year. In Group - Health & Protection underlying earnings were down 50% from the prior year, reflecting unfavorable insurance experience in medical stop-loss, higher claims frequency in Dental and unfavorable disability experience in Employee Benefits. U.S. Group - Health & Protection sales of USD 273 million were up 25% year-over-year, driven by higher large case sales in Employee Benefits and higher government sales in Dental. In Employee Benefits, we experienced moderately elevated long-term disability claims in July, which improved over the remainder of the quarter. In Medical stop-loss, the unfavorable insurance experience this quarter is comprised of residual claims from the pre-2025 business and the impact of existing pricing shortfalls and moderately elevated claims volumes on January 1, 2025, business. As a result, in Q3, we increased our loss ratio assumption on the January 1, 2025, block for the impact of 3 quarters of expected experience to date, reflecting our disciplined approach. In Dental, we continue to experience pricing shortfalls and higher claims frequency in our Medicaid business. In addition, we're seeing seasonally higher utilization in Q3 as the majority of our Medicaid membership base is comprised of children who typically receive dental services prior to the start of the school year. Individual Protection underlying earnings were up 29% year-over-year on other experience gains, improved credit experience and higher investment contributions. Reported net income of USD 72 million was down 71% compared to Q3 of 2024, reflecting unfavorable ACMA and lower underlying net income. Turning to Slide 14. Asia posted record underlying net income of $226 million, up 32% year-over-year. Individual Protection earnings were up 38% over the prior year on strong continued sales momentum and in-force growth, favorable mortality experience and higher earnings in India. Asset Management and Wealth earnings were in line with the prior year. Reported net income of $373 million was higher year-over-year, driven by the gain from our increased ownership in Bowtie, favorable ACMA and higher underlying net income. We continue to see strong sales in Individual Protection, up 38% year-over-year, driven by double-digit sales growth across most of our markets and channels. Asia's total CSM of $6.5 billion grew 17% over the same period last year, driven by strong organic CSM growth. New business CSM of $322 million was up 20% over the prior year from strong sales. Overall, our results were underpinned by the growth in Asia and Canada and solid results across Asset Management. We remain focused on executing the actions to position our U.S. health businesses for growth in the current environment. We are confident that our strong fundamentals, diversified business mix in geographies, and a robust capital position will enable us to continue to deliver on our medium-term objectives. With that, I will pass it back to Natalie for Q&A. Natalie Brady: Thank you, Tim. To help ensure that all of our participants have an opportunity to ask questions this morning, please limit yourselves to one or two questions and then requeue with any additional questions. I will now ask the operator to pull the participants. Operator: [Operator Instructions] Our first question is from Paul Holden with CIBC. Paul Holden: Two questions, both related to U.S. Dental. I guess the first would be what kind of expectations do you have for Medicaid repricing to start 2026, i.e., what are you hearing from the states? And what should we expect? And then the second one is maybe talking about growth in U.S. commercial premiums up roughly 6.5% year-over-year. So it's growing. But should we expect sort of reinvigorated efforts to accelerate that growth so to diversify away from the Medicaid business? David Healy: Yes. So thanks for the question, Paul. This is David. So yes, we're very much focused on pricing in the U.S. business. The way to think about it is we have states and direct relationships with them, which is the majority of our business, but we also have a significant relationship with health plans where we're the delegated provider of dental services. And then we also have ASO business, which is a mix of both states and health plans. Generally, we're making reasonably good progress with states around '26 with the exception of one large space. Health plans is going slower. We're making less progress. And how we're thinking about it is we continue to focus with them on pricing and repricing appropriately. In some cases, we're making structural changes to plans, including as appropriate, maybe moving from risk to ASO with some health plans and also including maybe terminating contracts if we can't get the price we need. So we're very much committed to it. We're making progress. I would expect it to be gradual in '26, but we're continuing to stay focused on it. Also on the ASO front, we continue to enhance the value of our services to make sure we're getting paid appropriately for the work we're doing in support of those contracts, but it is slow progress. With respect to commercial, your second question, yes, we're making progress. Since the acquisition, premiums have grown more than 30%. Membership has grown more than 20%. This is an important opportunity for growth for us into the future. As you know, in the U.S. market outside of healthcare, commercial dental is the #1 sought-after benefit after healthcare, and it's a great opportunity for us to package commercial dental with the rest of our group benefits products, and we have a really strong employee benefits offering and a great distribution system in which to bring that through. So we're very much focused on that. It will take time, of course, it's a competitive landscape, but we expect to continue to make progress over time with commercial dental sales. Operator: The next question is from Alex Scott with Barclays. Taylor Scott: I wanted to see if you could talk about the asset management flows. And can you give us a feel for the institutional progress that's been made there? And to what extent should we view that as more lumpiness and something driven by more of a single mandate as opposed to the things that you're doing to improve the more medium- to long-term trajectory of the flows in the business? Ted Maloney: Sure. This is Ted Maloney. I think lumpiness, the word you use is a really important one to use, and it is a reminder that we do have lumpiness in both directions. And so in the quarter, we got a couple of large inflows that Tim mentioned that we think are indicative of themselves longer-term trend. But the broad trends, both institutionally and retail remained with more headwinds than tailwinds. Some of those headwinds may be lessening on the margin, but the headwinds persist. Within that, we'll continue to have big wins as well as continued losses. And in this quarter, we had those couple of big wins. I can give you a little bit more color on them, which might be helpful to think about longer term, which is -- one was a separately managed account within the -- what we would characterize as institutional that is in our -- one of our international strategies, so the world minus the U.S., which is one of the many areas where we have a really dominant set of franchises and are seeing as market leaders. And so that's been a nice growth tailwind for us for a period of time and should continue to be, but that was obviously a very big chunk of a tailwind. The other is actually smaller, but perhaps more exciting. Tim mentioned this as well, the collective investment trust vehicle is the most important vehicle in the retirement space. And there's a unique feature to it, which is that you can't see it yourself, you need a client to be an initial investor. So getting that first investment in a target-date CIT was a huge win on its own, but also allows us to fund CITs across all the components of the target date. So we think that's another one that will provide long-term tailwinds. But again, I do want to reiterate the headwinds across the industry that we've been talking about for a long period of time persist. We are executing well. We believe within those headwinds, they may be abating slightly on the margin, but we are not declaring a change to that. Our long-term strategy very much includes long-term net flow positive growth over time. We think we've got a very clear strategy to execute on that, and we'll continue to do that. We'll need some help from those industry headwinds abating. Taylor Scott: Got it. That's helpful. Second one I had is on stop loss. I wanted to see if you could provide a little more detail around how much of it this quarter was unfavorable development from earlier or loss picks that were made earlier in the year. And maybe further to help us think through how much of the cash claims do you still have to come in? And are we getting late enough in the year that it's potentially becoming a little too late to reflect what you're learning in the 1/1/26 renewals? Or do you feel like you are fully getting that? I'm just trying to get a better sense for what to expect going into next year. David Healy: Okay. Thanks for the question. It's David again. Yes, let me just break down the unfavorable insurance experience for medical stop loss in the quarter. There was really three factors involved. About 20% of it was related to the pricing shortfall that we've previously discussed on this call that we knew this year. 35% of it was related to late emergence of claims from cohorts prior to 1/1/25, including one large claim that came through in the quarter. And the rest, just under half was related to the 1/1/25 cohort itself. So we did see a higher number of greater than $1 million claims late in the quarter. So we did update our loss ratio pick for the year. It's important to know that as a result of doing that, it reflects really 3 quarters of updates to reserves, as Tim had mentioned, for Q1, Q2, and Q3 premiums that came in. You'd also asked about pricing and I think how we're looking at it for 2026. Well, obviously, U.S. healthcare costs are elevated. Medical trend has been rising to 8.5% this year, and we expect that to continue into 2026. And our pricing reflects our view of leverage trend. And it's also considering recent experience. So we continue to stay focused and disciplined in our pricing approach. You asked about how much of it has come through. In terms of what we see at this point in the year, obviously, Q3, we had enough credible claims to be able to update our loss ratio pick for the year. We typically see about 30% of our claims by Q3 and then a further 30% come through in the fourth quarter. So it's still early in the cohort of 1/1/25, but we're certainly updating our view on experience as we see it. Kevin Strain: Alex, it's Kevin. I just wanted to maybe sort of reiterate some of what David was saying. We expected significant increase in price when we went into this year, and we increased prices by 14%. And as we saw the year-end experience, we added another 200 basis points to that. So we continue to see that trend. And then this quarter, we added another 1% approximately, which was for the 3 quarters sort of experience we were seeing. This business is repriceable. But when costs are rising so rapidly, it's hard to keep up with that repricing. But over time, we will be able to do that. We have confidence in our ability to do that because we do have scale and we do have good risk selection there. But when costs and claims are rising so rapidly, we can lag a little bit, and we've seen that in the past. So I think that we're taking the right actions. A chunk of what you saw this quarter was for the year-to-date, but it all reflects that increasing claims experience that we're seeing at the higher end, which I referenced in my speaking comments. Operator: The next question is from Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: Yes. So if I understand correctly, your 17% of the total repricing target, and that's the number you'll try to have fully embedded in the book by Jan 1, '26. And I guess aside from pricing actions, what other -- and the timing of the effectiveness, what other considerations are there? It's one thing to just increase pricing, but market share impact. There are some known unknowns, I guess, because we saw that with dental, where there's a dynamic with the counterparties that wasn't anticipated. And I'm wondering if there's a similar kind of dynamic that we should be aware of when repricing or seeking repricing when it comes to this stop-loss business, which is a commercial one, not state. Kevin Strain: Gabe, it's Kevin. Let me just -- since I mentioned the [ 14 and the 2 and the 1 ], that's for this year, right? That's what we thought we would have priced at if we had all the full information of how claims were coming through. So that's related to this year, and we're going through the repricing for next year right now. So I'm not signaling what we're doing for next year, but maybe David can go into some more detail. David Healy: Yes. Just to add to that, as Kevin noted, we do have a typical underwriting cycle in this business, and there are times when claims can come out ahead of pricing updates, and we've seen this before. Historically, we've had amongst the lowest loss ratios in the industry, and we continue to do that. There are other things, of course, we're doing. We have a very talented team. We're not just only focused on pricing, although it's a specific focus for us. We continue to build out our cost containment programs, which are really important. We have expert clinical capabilities. Our clients are really seeking out more cost containment support in light of the rising healthcare costs. And then we have care navigation capabilities as well, which we're building that help support employers and their employees as they deal with the escalating costs in the U.S. healthcare system. So we're confident that we can work through this. We have an industry-leading position, and we're certainly continuing to stay focused on it. Operator: The next question is from Tom MacKinnon with BMO Capital Markets. Tom MacKinnon: Maybe you can share with us sort of an outlook for the Medicaid dental loss ratio going forward? How much is that going to be improved as a result of any pricing benefits? And as we move into 2026, would you reset your expected -- your earnings on PAA business in the U.S. as a result of perhaps a different expected loss ratio for U.S. Medicaid Dental? David Healy: Yes. So I noted that we're very focused on pricing and working through them on a state-by-state and contract-by-contract basis. What we're seeing at the same time is we're seeing rising utilization in the U.S. and that has eaten up some of the pricing gains that we even saw coming through this year. We're still seeing a pretty conservative view on forward-looking trend in utilization. And so we're certainly trying to influence that in what we're doing and the work we're doing with states and health plans. But it is a gradual progress that we're seeing and that we're expecting to make. Tom MacKinnon: So if you were to maintain your best estimate here in terms of your Medicaid dental loss ratio, is the outlook for continued negative insurance experience with respect to this line at the kind of the same level that you had in the quarter? Or should it improve? David Healy: So it's important to note that this quarter is a seasonally high quarter. As Tim noted, we do typically see this in the third quarter. We ensure a lot of children, they go back to school. They use the dentist a lot in this quarter. It's traditionally the highest quarter in the year. Q4, by contrast is the most favorable quarter. And so we do expect things to improve in the next quarter. And like I said, going into 2026, we do expect gradual improvement in the loss ratio as we move forward, and we're continuing to work through that. Brennan Kennedy: Tom, it's Brennan Kennedy. Just on your question about the reset, the earnings on short-term insurance. So we do reset that at the beginning of the year, looking at the premiums in force and the pricing assumptions that are in effect. Kevin Strain: Tom, it's Kevin. I would say that there's a variety of reasons, but I've been following the benefits business a long time. And when people think their benefits are going to end because they're going to retire or something is going to happen to it, they tend to use them more. And I think that's what we're seeing in the U.S. Medicaid Dental space. There's concern that they'll be losing those benefits, and so they're utilizing them. There's other factors, but that's the big one. We do continue to believe that over time, the states will reflect -- this is an important benefit. David talked about it. This is an important benefit for people. And the states will reflect that cost and that need. It just will take some time to come through. So we still believe that this is going to turn. But as I was saying earlier, when you're in a rapid change in terms of utilization, it can take a little bit of time to get that reflected in the price. So it's not -- it's more of a shorter-term issue, 1 to 2 years. And over the longer term, we expect that to come back to more of our pricing levels when we did the deal. Tom MacKinnon: Great. And then as a follow-up, I mean, if I look at the organic capital you generated and you add the dividend here, it's over 100% of your underlying earnings. And that's been a trend -- that's been -- we've seen over the last several quarters here. So why not step up on the share buyback? I realize you've got some money here to be earmarked for SLC buy-ins. But if you're generating capital at this kind of rate, why shouldn't you step up the share buyback here to offset any kind of pain you might see from some of the dental? Kevin Strain: Well, Tom, as you know, we have the remaining purchase for SLC early next year for the BGO and the Crescent transactions. And so our current capital position does reflect that, and we're preparing for that transaction, which will be around $2 billion. Historically, we've also run the buyback at roughly what we're generating for capital, and we're committed to seeing the current buyback through, and we're committed to buybacks on a longer-term basis as one of our tools to manage capital levels. So I think you're going to see us be active on the buyback that we have in place, and you're going to see us be committed to the capital priorities that we've had, one of those being the buyback. And I think that consistent approach to the buyback is something that we think is important and valued by our shareholders. Operator: The next question is from Doug Young with Desjardins Capital Markets. Doug Young: Just maybe -- I apologize, back to the U.S. medical stop-loss business. I just want to make sure I understand this. So based on your description, it seems like you've had a 2% shortfall that's been running through and you had 3% shortfall coming through this quarter, but you had to kind of make up for the last 2 quarters. So when we look forward to Q4 and we think about the experience that should flow through in Q4, it should be about a 3% loss ratio shortfall. Do I have that correct? Any way you can quantify that? And then second part of the question, are there ways you can temper the volatility such as being a little bit more conservative on the reserve pick early in the year in these times of uncertainty and higher medical cost inflation? I just thought I'd throw that out there. David Healy: Yes. So in terms of the -- quantifying it for Q4, I would say, like I said, the 1/1/25 cohort, we did update our ultimate loss ratio pick for the year because we did that, it reflected reserve updates for the first 3 quarters. So in Q4, you would expect it to be 1/3 of that. So it would be a smaller amount in the single digits. And so that's how you should think about it. It was updated by just over 1 point from where we had in Q4. Doug Young: Sorry. And then just -- so single-digit U.S. dollar millions is the negative impact for Q4 and the experience. Is that what you suggested? David Healy: That's what our current projection is based on our cohort and how it has evolved so far. Obviously, it could get a little better than that or it could deteriorate further. And we've seen about 30% of the claim volume that we expect on that cohort. We'll see another 30% in Q4 that will be a more meaningful view of what the ultimate loss ratio will be for this cohort of business from 1/1/24. Doug Young: And then I don't know for David or for Kevin, just in terms of just mitigating the volatility in terms of is there ways you can be a little more conservative than the reserve picks early in the year? And similar to like property and casualty insurance and reserve development is the way I think of it. And just like I think I've asked this before, but has there been any conversations around that? Brennan Kennedy: Doug, it's Brennan Kennedy. So using our current method, this is the volatility we see. We continuously look at ways to refine things that we're doing to maintain best practice, and this is something that we've had discussions on and we will take away. Doug Young: Okay. And then just second, maybe for Manjit, Asia underlying earnings, 16.2%. I think you've hit your target already. Is there anything unusual this quarter? Is this kind of like the new sustainable run rate? And can you talk a little bit about where you think you can take that underlying ROE in Asia? Manjit Singh: Doug, it's Manjit. So as you noted, we've had some pretty strong performance in Asia over the last little while. I'm pleased with what we've been able to deliver. We delivered 17% earnings growth last year. And year-to-date, we've delivered 20% growth. I think there are a number of factors that's driving that growth, Doug. So first of all, I feel we have very good fundamentals. We're in attractive markets with high growth potential. We have good partnerships across the region. We've got strong distribution across banca, agency and broker, and we've got a talented team. We've also made some pretty good investments over the last little while. We've invested in digital to increase our straight-through processing. We've invested in delivering better client experiences, which has resulted in record high client satisfaction scores and also in our agent experience. We've also invested in our brand, and that's also resulted in record high brand awareness. And the third thing I'd point out is that we've also increased our focus and capabilities to drive strong execution. So I think all those things are contributing to the strong results that you're seeing. In this current quarter, the results did reflect some favorability that we had in high net worth mortality as well as some strong security gains. So those will bump around quarter-to-quarter. You won't necessarily see them in every quarter. Some quarters, it might go a little bit the other way. So I think fundamentally, we've got a very strong business and expect to see strong performance in Asia going forward. Kevin Strain: Doug, it's Kevin. Sorry, I was just going to say it's been a long time since we've seen 6 of our 8 markets growing in double digits. And I think Manjit is doing a good job creating momentum across the Asia platform, and I think that's really important. And it's all the -- it's a whole bunch of factors, but leadership matters, and I think he's doing a great job driving that change in the Asia outlook. Operator: The next question is from Mario Mendonca with TD Securities. Mario Mendonca: I want to look beyond 2025 and the medical stop loss and think about '26 and help me sort of gain this out. But assuming the company is sufficiently conservative in building the reserves throughout the year and again, perhaps in Q4, and you've got it right, assuming everything works out right, would it then be appropriate to assume that the experience gains and losses that we see in the U.S. would relate solely to dental and solely to experience on the 2026 cohort. Is that the right way to think about it? David Healy: Mario, it's David. Yes, that's a fair assumption. Mario Mendonca: And then -- so help me then go to the next level. So if you get that right, then growth in this business, then, of course, there would be a change in the level of experience gains relative to last year, that certainly helps. But what's the other big driver? Would it simply be the net premiums in the business and the extent to which that grows or perhaps shrinks as you push through some significant pricing increases? Is that the way to think about it that the base from which the short-term insurance earnings emerge could potentially decline during the renewal period? David Healy: That's the way to think about it is the base of premiums does drive ultimately the earnings over time. Mario Mendonca: And is it your expectation? Kevin Strain: Sorry, Mario, it's Kevin. I mean we've I think exactly like you're discussing. We've got the ability to price for the cost because the employers want this coverage. We've got the experience to underwrite this well. And it's that the costs have been rising rapidly with some of the structural changes that are happening in the U.S. And so that will eventually level itself out, and we will be able to price for the costs that we're seeing there. So I think you've got that exactly right. And our expectation is we'll be able to price right now for the 2026 experience that we expect to see. So that's our expectation. But we're watching closely what's going on with those structural changes in the U.S., which are driving that higher cost. Mario Mendonca: Where I was going with this is, is there a potential other sort of shoe to drop in the form of a much smaller business in 2026 relative to 2025, like that base, that install of business simply declines as your customers go to other providers or decide to self-insure. Is there some reason why that base could shrink materially in '26? David Healy: So no, we have -- we're very confident in our plans and how we're approaching the market. We have a great platform. We have a great distribution network, and we have strong customer relationships. We have historically had some of the most low loss ratios in the business, and we expect that to continue. We are going through this period of adjustment for sure, but we feel very well-positioned competitively, and we continue to expect to grow the business over time. Kevin Strain: I would add to that, Mario, that others are seeing the same higher cost. And so it's not like we're negatively positioned for that. In fact, given our scale, we're positively positioned. So I think our strategic positioning would support growth in that sort of environment versus declines. We do have pricing discipline, which is serving us well because our loss ratios remain less than the industry, but the industry is experiencing the same higher costs, and it's going to have to reflect that in pricing as well. Mario Mendonca: So that's your real -- that's the real takeaway. I'm taking from what you're suggesting that strategically, competitively, Sun Life is not disadvantaged. It's just a matter of the entire industry repricing going into 2026. Kevin Strain: Yes. I'd even say we're advantaged. Operator: The next question is from Darko Mihelic with RBC Capital Markets. Darko Mihelic: Just a follow-up on that line of questioning there. I just want to ensure one thing. Are we still talking about your targeted return of 7% in the stop loss? As you hit... David Healy: So if you look at our quarter results, our group benefits after-tax margin was at 6.9%, so slightly below our long-term target of 7% plus. We do price for a margin in the medical stop-loss business higher than what we're currently experiencing. And so we certainly expect that to move up over time. As Kevin noted, our loss ratios are 10 to 15 points better than others that disclose their loss ratios in the industry. So we're in a good position here, and we continue to work through the cycle. Darko Mihelic: Okay. So it's a hardening market and your expectation would be that with the entire market hardening that you should actually gain share in '26. Is that how I should at your targeted profit margin. Is that -- I just want to be very clear on that. Kevin Strain: Dark, I'd say it a little bit differently. We're holding our pricing discipline, and that will -- it will a little bit depend on what others are doing, but others are seeing high loss ratios as well. So we expect them would -- they would also be reflecting that. So we'll see how that turns out, but we will hold our pricing discipline. But we are very good risk selectors as well, and we've added additional capabilities, which support us being -- getting the types of margins that we have been getting. So we still see this as a really good business for us. We see -- we have a great management team there. And I think that over time, that we'll get back to being in a very strong competitive position. We'll see what others do when it comes to pricing. as we go through the process for next year. But we are not giving up on our pricing discipline, and we certainly think that even given that, we'll keep our scale. Darko Mihelic: Okay. Okay. That's helpful. And just a follow-up on the -- for the fourth quarter in terms of the expectation. I just wanted to make sure that I understood something. You had mentioned that the -- reserving this quarter for the stop-loss was based on 30% claims experience. Is that different from the 50% reports that you get by this time of year? David Healy: Yes. So this is David again. So this is an accumulation product, and we hold reserves for 26 months. And so how we [Audio Gap] to assess our ultimate loss ratio pick. We'll see another 30% of claims come through in Q4 and typically another 30% in what would essentially be [Audio Gap] how it will play out. Operator: The next question is from Gabriel Dechaine with National Bank Financial. Gabriel Dechaine: I guess, I got cut off. My line dropped there last time around. My second question, on the dental business and the repricing outlook there, there's a couple -- it's not so straightforward in that if you need 10%, 15%, 20%, whatever the number is, percentage pricing increases for your counterparties to accept those, they have to also accept an accelerated recognition of loss experience. So I understand it's a 3-year look back, maybe 1- or 2-year good years in the look back in there. So you want to have them emphasize the most recent experience, which hasn't been as favorable. I'm wondering how those discussions are progressing, if you can shed some light on how difficult of a challenge that is, if it is. David Healy: Yes. So it's David again. Thanks for the question. So we continue to work through it. As Kevin noted, this is a repriceable business, and we ultimately expect repricing to catch up with the experience. In Medicaid, the rates are reset annually and by the state. And they typically look back, as you said, through a period of time, can be more or less than 1 year, either directly with us, where we have those direct relationships or through health plans where we're subcontracting to those states. We can influence the rates. We provide a lot of data and insight and our opinion. And as you noted, it does include historical experience, but it also has to take into consideration a forward look for what utilization is going to be in the future And that's where we're seeing some conservatism in the rate setting process. Some of it is related to the dampening effect of really the broader government pullback on spending in healthcare. And so people are taking a more conservative view of what that utilization might be. But what we're actually experiencing is a higher rate of utilization in the claims experience from what they're projecting and actually what we were seeing even pre-pandemic when rates were more normalized. So we do expect it to catch up and return, but it is taking time, and we continue to influence the rate setting process as we educate on what we're seeing through experience coming through. Gabriel Dechaine: So there's a disconnect. Yes. Sorry, go ahead. Kevin Strain: I was just going to say -- sorry, I thought as your last question, and I'm going to just add to it a little bit. Gabriel Dechaine: What is my last question? It's not unrelated. So stick with the dental, I guess. Kevin Strain: Yes. Well, I was just going to say, Gabe, that it's -- I'm glad you asked the question again about the dental business, and we've had a lot of questions about stop-loss. And they are going through a structural change to some of these things in the U.S. This is a repriceable business. We will -- we've got a strong management team and capabilities and scale there. David comes from an IT and operations background, and he's been in the group business his whole career. He's ran our employee benefits and also our -- he's ran our dental business. He's ran IT there. I have a lot of confidence that we're going to work our way through these issues. And I think you heard that on the call. If you look at the quarter, the diversified nature of our business model and the growth that we saw in Asia, in Canada and the strong asset management results we're in line with our medium-term objectives, right? We -- so I think that I have a lot of confidence that Asia will -- or Asia and Canada will continue to do well, but the U.S. will turn this around, and that's going to be part of our growth story as we go forward. But it's going to be -- it's a difficult time, but they'll work their way through it, and they're doing all the right things to do that. But as a company, if you look at the diversified nature of our business, I still am committed even with the U.S. being a little slower to achieving our medium-term objectives, and you saw that in the quarter. So I think it's a very strong quarter in Asia and Canada under Manjit and Jess's leadership. I think we're poised for growth in the asset management space. And we're going to work through these issues in the U.S., and we're going to work through it together, and we're going to work through it with the same type of discipline that we provide. But we have good people there, and we have good scale, and we have good business capabilities. So it's -- when I step back, I see us really positioned quite well through the quarter and that it was a strong quarter. Gabriel Dechaine: No, I'm not disputing that. I think even in -- with this challenge, you have an 18% plus ROE or something like that. So it's just -- we're learning as we go a little bit and trying to get a sense of the moving pieces and what could -- what sort of timing and we should expect for stuff to stabilize, I suppose. But that brings me -- just to clarify Tim's comment about the Q4 stop-loss outlook, I believe you -- just to dumb it down, you've adjusted your reserves to accelerate recognition of these -- the trends in that 30% of the claims volume you've seen on the Jan 1 cohort such that if you have the same experience in Q4 as you did in Q1, same claims or whatever, you would have a lower experience loss, but then you would probably have some other item -- line item elsewhere that would be lower, I assume. I don't know. Maybe we can take that offline. David Healy: Yes. So it's David. I'll just quickly comment that, yes, we have updated our best estimate loss ratio pick for the entire 1/1/25 cohort, and that reflects what we currently expect in Q4, but it can change based on the claims that show up in the quarter. And -- but at the moment, that is how we are viewing it. Operator: The next question is a follow-up from Paul Holden with CIBC. Paul Holden: I guess the question that we're all trying to get at on U.S. dental is that USD 100 million profit target. Are you confident that, that can be achieved in 2026 or too early to know because of the uncertainty in terms of these utilization rates and uncertainty in pricing? David Healy: Yes. So I think we've signaled that we are continuing to focus on pricing, and we're making progress. We're taking a very careful approach to it and working closely with the states and the health plans we work with. But it's going to be slow progress over the course of 2026, and we do need to see some of the more recent utilization trends being better reflected in our pricing as we move forward, and that's something that we're working through. Paul Holden: Okay. So $100 million in '26 might be too much to ask at this point. That's what I'm going to take away. Operator: We have a follow-up from Tom MacKinnon with BMO Capital Markets. Tom MacKinnon: Yes. A question just with respect to other fee income, especially in Canada, up nicely year-over-year and quarter-over-quarter, probably up better than the asset growth rate. Is there anything else in that number that could be driving that? And how sustainable is it going forward? Jessica Tan: Tom, this is Jessica. Yes. No, I think there are two pieces. I think one is that indeed, our asset management and wealth is quite strong. If you look at our core, it was up 13%. If you look at the underlying growth, both in insurance investment, other fee income is underlying 7% growth. So our AUMA grew up by 11%. So that definitely helps a lot. And then I think our group business on the fee side has also increased. So you see our group premiums actually increased by 6%. So as Kevin was saying, I think both -- in Canada, there's strong underlying growth, and we continue to do well. Tom MacKinnon: So that kind of trend is continue -- should continue assuming asset -- assuming the markets behave. But I guess how much of that is really driven by ASO fees, which are probably just more a function of net premium growth in group? Jessica Tan: Yes. I think the wealth part, we expect to continue to do the momentum. You see that actually, if you take out DBS, which is more lumpy and is a softer market this year, we had net inflows in Canada of $1.5 billion, which is almost twice the net inflows from last year. So I think you'll continue to see strong growth in our asset management and wealth AUM. And if you look at year-to-date, our underlying net income in Canada is at 8%, up, which is, I think, well above our medium-term target of 6%. So we feel very confident of our 6% growth. Operator: This concludes the question-and-answer session. I'd like to turn the call back over to Natalie Brady for closing remarks. Natalie Brady: Thank you, operator. This concludes today's call. A replay of the call will be available on the Investor Relations section of our website. Thank you, and have a good day. Operator: This brings to an end today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good day, and thank you for standing by. Welcome to the Lundin Mining Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the conference over to Jack Lundin, President and CEO of Lundin Mining. Please go ahead. Jack O. Lundin: Welcome to our third quarter 2025 conference call. The financial results press release and presentation are on our website where you can also find a replay of this call. All figures today are in U.S. dollars unless stated otherwise. After the presentation, we will open the floor to questions. Today's webinar will include forward-looking statements that involve risks and uncertainties. Please review the cautionary notes on Slide 2 and the disclaimer in our MD&A. With me today is our Chief Operating Officer, Juan Andres Morel; and our Chief Financial Officer, Teitur Poulsen, to discuss our Q3 operating and financial results. Touching on the highlights from the quarter. Consistent operational performance continues to drive solid financial results, which I'll briefly summarize on the next slide, and Juan Andres and Teitur will provide additional details shortly. We've tightened our production guidance ranges, increased copper guidance and reduced cost guidance, reflecting the strength and stability of our operations. We continue to advance the Vicuña opportunity during the quarter given the positive momentum and many working fronts that are progressing well against the baseline plan, we felt it was the right moment to further strengthen the management team. Effective tomorrow, Ron Hochstein will be leaving Lundin Gold to join Dave Dicaire in the rest of the Vicuña Corp. team, where he will support as Chief Executive Officer of the joint venture. Ron joined a group of familiar former colleagues, many of whom were involved on the successful project phase of the Fruta del Norte gold mine in Southern Ecuador, currently owned and operated by Lundin Gold. Together, the team will look to build on a successful track record by bringing the Vicuña project towards the sanction decision and ultimately, development and operations. Our operational success goes hand-in-hand with our safety performance. In the first 9 months of the year, we're pleased to report no major injuries across any of our operations and the total recordable injury frequency rate of 0.29, the lowest in the company's last 10 years. This achievement underscores our commitment to risk management and the effectiveness of our proactive improvements to critical controls. Lastly, as we outlined at our Capital Markets Day in June, we're advancing several near and midterm growth opportunities across each of our three Latin American operations. One key initiative relates to the Caserones cathode growth opportunity, and I'll provide an update on that towards the end of today's presentation. On the next slide, we're pleased to announce that the third quarter was the best quarter year-to-date by most metrics. We're seeing the benefits of a simplified portfolio, full potential initiatives and disciplined planning and the execution of our plans are paying off now. Copper production for the quarter totaled 87,400 tons, primarily driven by a strong performance at Caserones from higher copper grades and elevated cathode production. As a result, we have increased annual copper guidance by approximately 11,500 tons in the midpoint. The new guidance range is 319,000 to 337,000 tons of copper, improving by about 3.5% when you compare the midpoint. Gold production was in line with the last quarter at 38,000 ounces, and year-to-date, we are tracking to achieve our full year guidance. During the quarter, we produced copper at a consolidated cash cost of $1.61 per pound, benefiting from stronger gold prices and cost reduction efforts at our assets through our full potential programs. We have since lowered cost guidance to $1.85 to $2 a pound and tightened our production ranges on several of our assets as we enter the final quarter of the year. We will provide details on guidance improvements later in this presentation. And on the operational financial performance, we delivered over $1 billion in revenue in Q3, making it one of the strongest quarters in the company's 30-year history. And we generated approximately $490 million in adjusted EBITDA and $383 million in adjusted operating cash flow. We also declared our 38th regular quarterly dividend, highlighting our commitment to financial discipline and shareholder returns. There were no share buybacks in the quarter. Year-to-date, we've purchased or repurchased 12.6 million shares for approximately USD 104 million at an average price of CAD 11.70 per share. With about $45 million remaining under our $150 million buyback program, subject to market conditions, we intend to complete the buybacks before the end of this year. However, any shares that are not purchased will be turned into a special dividend, ensuring we deliver on our $220 million total annual return target. I would now like to invite Juan Andres, our Chief Operating Officer, to discuss our production results for the quarter. Juan Morel: Thank you, Jack, and good morning, everyone. Our assets continue to perform well, and the focus on increasing our operational discipline is correlating to strong safety and production results. As mentioned earlier, we increased copper guidance, and I will discuss that later on. Copper production for the company was 87,400 tons for the quarter and 244,200 tons year-to-date, which puts us in a comfortable position to meet our increased guidance range for the year of 319,000 to 337,000 tons of copper. Gold production for the quarter totaled 37,800 ounces and 107,700 ounces year-to-date. The company is positioned well going into the end of the year and tracking to production guidance on a consolidated basis for copper, gold and nickel for 2025. At Candelaria, copper production for the quarter totaled 37,000 tons, along with 19,900 ounces of gold. Candelaria continues to be extremely consistent this year, softer ore from Phase 11 led to higher throughput in the mill, which processed 8.1 million tons of ore during the period. This is the highest throughput in a quarter in the last 5 years and the second highest quarter for throughput since we have owned the asset. Year-to-date, Candelaria has produced 111,000 tons of copper and 61,500 ounces of gold, which puts Candelaria well on track to meet guidance for the year. We anticipate production levels in the fourth quarter at Candelaria to be in line with Q3. At Caserones, copper production reached 35,300 tons in Q3, one of the strongest quarters since we have owned the asset. Year-to-date, it has produced 93,300 tons. As mentioned last quarter, the asset is second half weighted. Head grades have improved in the second half of the year and should continue through Q4, putting Caserones on track to meet guidance. Cathode production continued to outperform expectations, but in line with what we announced in June during our Capital Markets Day. A total of 6,300 tons of copper of cathodes was produced in the quarter driven by increased material placed on the leach pads and improved irrigation practices. We have updated the hydrometallurgical model for the dump leach and anticipate cathode production for the full year to be approximately 24,000 tons, which is higher than what we have planned at the beginning of the year. This strong capital production has led us to increase overall guidance for Caserones and tighten the range. The new copper guidance is forecast to be 127,000 to 133,000 tons for the full year at Caserones. In the quarter, Chapada produced 12,600 tons of copper and 17,900 ounces of gold. Production at Chapada continues to be weighted toward the second half of the year, and fourth quarter production should be in line with Q3. At Eagle Mine, nickel production was 2,700 tons and copper production was 2,400 tons for the quarter. Mill throughput was strong at 183,000 tons, which was the highest quarterly throughput in the last 2 years. Eagle is tracking to guidance and is expected to be within 9,000 and 11,000 tons of nickel and within 9,000 and 10,000 tons of copper for the year. Year-to-date, operations have been performing well. Strong capital production and throughput at Caserones has led to a guidance increase for approximately 10,000 tons. As mentioned, the new guidance range for Caserones is now 127,000 to 133,000 tons. With increased confidence going into the end of the year, we have tightened the guidance ranges for Candelaria and Eagle. The new copper guidance range for Candelaria is 143,000 to 149,000 tons and for Eagle is 9,000 to 10,000 tons of copper. Consolidated copper production guidance range is now 319,000 to 337,000 tons of copper an improvement of approximately 11,500 tons to the midpoint of the guidance. Consolidated gold production guidance is now 135,000 to 146,000, representing a tightening of the range for improved confidence at Candelaria and Chapada. Overall, we're in a good position entering the fourth quarter. With improved guidance and consistency from our operations, we are tracking to reach the midpoint for our guidance for all metals. I would now like to turn the call over to Teitur to provide a summary on our financial results. Thank you for your attention. Teitur Poulsen: Thank you, Andres, and good morning, everybody. I'm very pleased to be able to present a strong financial quarter for the company. The company's financial performance was supported by strong operational results, as Andres has just now presented, coupled with favorable copper and gold prices. These factors enabled the company to achieve another quarter of strong financial performance. The revenue for the quarter came in at $1 billion with our revenue remaining heavily weighted towards copper, which accounted for 79% of the revenue mix. Gold and nickel contributed 13% and 3%, respectively. With the price of gold hitting all-time highs, we have seen our gold revenue contribution climb by about 2 to 3 percentage points. During the quarter, our Chilean mines, Candelaria and Caserones generated 74% of the company's revenue. In combination with Chapada in Brazil, operations in South America represented 95% of total revenue. Looking at volumes sold inventory levels of concentrate and realized pricing. During the period, we sold approximately 79,000 tons of copper at a realized price of $4.61 per pound, which is slightly better pricing than the average LME spot price for copper during the period. As disclosed in our pre-release in October, we incurred a shipment delay of approximately 20,000 tons of copper concentrate at Caserones due to weather-related impacts at the port of Punta Totoralillo. This has resulted in company carrying higher than normal inventory levels at the end of Q3. This elevated level of inventory is expected to unwind during Q4, and thus having the revenue and cost of goods sold associated with this inventory to be recorded in the fourth quarter, 2025. Traditional pricing impact in the third quarter was positive by $11 million, primarily driven by gold ounces that settled in the quarter. The realized gold price during the quarter was just below $3,900 per ounce. At the end of the quarter, 78,000 tons of copper were provisionally priced at $4.65 per pound and 34,000 ounces of gold were provisionally priced at $3,800 per ounce and remain open for final pricing adjustments in Q4. Turning to Slide 14. Production costs totaled $490 million for the quarter, consistent with the past few quarters. At Candelaria, total costs were higher compared to previous quarters due to higher mining costs and higher ore milled during the period and due to reclassifying certain stripping costs from sustaining CapEx to production costs. Cash costs have continued to benefit from strong gold prices and remain in the $1.90 range. For the full year, we reiterated the cash cost guidance of $1.80 to $2 per pound for Candelaria. Caserones costs for the third quarter are lower than normal due to inventory build relating to the deferred shipment of concentrate into the fourth quarter, representing approximately $20 million in costs associated with this delay. Costs in the third quarter also benefited from certain one-off credit notes from certain suppliers and due to a new and more cost-effective equipment maintenance contract. Total costs were in line with expectation of $158 million for the quarter when adjusted for the above-mentioned items. Cash cost at Caserones were $1.86 per pound and benefited from better TCRC terms, stronger cathode production and byproduct credits as well as lower contract costs as mentioned earlier. We expect cash costs in the fourth quarter to continue to benefit from strong cathode production and byproduct pricing and have lowered our guidance range for Caserones to between $1.15 to -- sorry, $2.15 to $2.25 per pound, representing an approximate $0.30 per pound decrease. Chapada's total cost for the third quarter amounted to $96 million, reflecting higher mill throughput during the quarter and volumes sold. C1 costs continued to decrease compared to prior period and came in at $0.50 per pound for the quarter, primarily due to higher byproduct credits from gold prices. We are reducing the full year cost guidance range again to $0.90 to $1 per pound from the previous guidance range of $1.10 to $1.30 per pound. On a consolidated basis, our C1 cost for the quarter was $1.61 per pound, well below our full year guidance range of $1.95 to $2.15 per pound. Based on the adjustments mentioned above, we are, as previously mentioned, reducing our consolidated cash cost guidance range to $1.85 to $2 per pound for the full year. Total capital expenditure, including both sustaining and expansionary investment was $160 million for the quarter and $485 million for the 9 months of the year. Full year guidance for the total capital expenditure has been revised down by $45 million to $750 million due to a deferral of projects at Candelaria and Caserones, as well as reclassifying some of the capitalized stripping costs at Candelaria to production costs. For sustaining capital, we expect spending to increase going into the fourth quarter to reflect the roughly $170 million that remains to meet guidance for the full year. At Vicuna, capital expenditure during the quarter was $51 million and year-to-date, $126 million and is tracking to guidance of $250 million for the full year. Q3 expenditure was primarily focused on field activities for water program, drilling, trade-off studies, engineering, cost estimation and permitting and preparation for the integrated technical study in the first quarter 2026. Our key financial metrics for the third quarter are presented on Slide 16. Adjusted EBITDA for the quarter was $490 million, with a 49% margin. Adjusted operating cash flow for the quarter totaled $383 million and for the first 9 months totaled just below $1 billion, including cash tax payments of close to $300 million. The company achieved solid free cash flow from operations of $169 million despite the impact of $113 million working capital build during the quarter. Adjusted earnings amounted to $255 million for the quarter, which translates to an adjusted EPS of $0.18, an improvement of 64% from last quarter. Turning to cash generation during the third quarter. We entered the quarter with around $279 million in cash and a net debt position of $135 million. We generated adjusted operating cash flow of $383 million after cash tax payments of $86 million and incurred a working capital build of $113 million. The sustaining capital investment amounted to $109 million, which resulted in free cash flow from operations for the quarter of $169 million. We had total shareholder and NCI distributions of $43 million during the quarter, of which $17 million related to the payment of regular dividends. After debt, leasing and interest payments as well as the deferred payment of $10 million relating to our Caserones acquisition, we ended the quarter with cash of around $290 million and a net debt position of $108 million, excluding lease liabilities. By the end of the year, we expect to be essentially net debt free. We continue to advance the process to increase our revolving credit facility as part of our strategy to fund future growth plans. We have a number of interested banks, both existing lenders and potential new lenders and have been progressing term sheets and expect the process to conclude towards year-end or in the early part of next year. So overall, a very good quarter that aligns with the financial outlook that we provided at our June Capital Markets Day. So, I will now turn the call back to Jack for some final remarks. Jack O. Lundin: Thank you, Teitur. I'll take a few moments to discuss one of our near-term growth initiatives, which we outlined at our Capital Markets Day back in June. Cathode production at Caserones continues to improve. We delivered another strong quarter and are on track to produce approximately 24,000 tons of cathodes this year compared to an original plan of approximately 16,000 tons. Total cathode plant capacity is roughly 35,000 tons. As we discussed in June, our goal is to capture an additional 7,000 to 10,000 tons of cathode production from a baseline of 15,000 tons which was the average annual production over the 2 years prior to us acquiring Caserones. Over the past 8 to 12 months, we've implemented several key operational improvements. Firstly, we enhanced leaching practices, including better dump leach coverage and higher irrigation rates. Secondly, we have increased oxide material placement on the dumps supported by improved geological understanding and tighter waste control in the open pit. These actions are now translating into higher cathode output as the benefits flow through with leach cycle residence times. As mentioned by Juan Andres, we also recently completed an update to our hydrogeological leaching model, improving our ability to predict leaching kinetics and incorporate recent operational gains. Based on these improvements, we see potential for future annual cathode production to increase further, which we are now analyzing. On the next slide, before reaching the closing remarks, I would like to outline a few upcoming catalysts to look out for. We're in the final stages of completing our reapplication and see a potential window to submit before the end of the year. In the first quarter of 2026, we expect to complete the integrated technical report for the large-scale fully integrated development and operations plan for the Vicuna project. This milestone will outline a clear path for Lundin Mining to become a top 10 global producer once in full scale operation at Vicuna. In parallel, and as Teitur mentioned, we're advancing our financing strategy to support these growth plans. We've initiated the process to increase our revolving credit facility and continue to see strong interest from our existing banking partners as well as future lenders. We expect this process to conclude towards the end of this year or early part of next year, as Teitur mentioned. At Chapada, the Saúva project represents a compelling near mine growth opportunity with the potential to add 15,000 to 20,000 tonnes of copper and 50,000 to 60,000 ounces of gold annually, production increases of approximately 50% and 100%, respectively, for the Chapada operation. And the study includes expanding grinding capacity to process higher grade ore from Saúva through the Chapada mill. Permitting and technical work are underway with the pre-feasibility study targeted for completion by the end of this year. We look forward to providing further updates as this exciting project continues to advance. Touching on the conclusions now. We delivered our best quarter year-to-date, producing 87,353 tonnes of copper at a C1 cash cost of $1.61 per pound. Strong operations and higher gold prices enabled us to raise production guidance and lower consolidated cash costs. The copper guidance midpoint increased by 11,500 tons to 319,000 to 337,000 tons of copper driven by stronger cathode production at Caserones and improvements in the leaching circuit at Caserones. Cash cost guidance at Caserones and Chapada dropped lowering the consolidated midpoint by $0.125 to $1.85 to $2 a pound. We generated $383 million in adjusted operating cash flow, strengthening our balance sheet with the company expected to essentially be net debt free by year-end. We continue to be in strong financial standing as we look to advance our growth initiatives at Lundin Mining. Looking ahead, our priorities remain focused to continue to deliver on strong safety performance which directly supports our operational excellence programs, advancing near-term growth and preparing Vicuna for potential sanctioning in 2026. The company enters Q4 well positioned with key catalysts over the next 4 to 6 months, including, as mentioned, a RIGI application in the near term and an integrated technical report for Vicuna. All-in-all, a very solid quarter, and we remain poised to deliver a strong overall 2025. Operator, I'd like to now open up the call for questions. Thank you. Operator: [Operator Instructions] The first question will be coming from the line of Orest Wowkodaw of Scotiabank. Orest Wowkodaw: Congratulations on the strong quarter. I'm just curious with the integrated technical report for Vicuna District, I guess, only a couple of months now from completion. Just curious if there's been any thought to any potential scope changes on what Phase 1 or Phase 2 could look like and whether we should still be anticipating, call it, around 175,000 ton a day operation for -- that would reflect Jose under Phase I? Or -- I'm just trying to understand if any of the goalposts have been locked in at this point or whether the project scope is still under discussion? Jack O. Lundin: Orest, thanks for the question. I would say that, broadly speaking, the scope for Phase 1 has not changed significantly since we last gave an update on Jose Maria, which is considered to be Phase 1 for the Vicuna project. We're working through this integrated technical report, which will have a lower level of definition as you get into the later phases. But I would say our level of confidence, especially for Phase 1 continues to grow with that -- those numbers that you mentioned there. So, the oxides, we're looking at opportunities, continuously looking at areas where we can improve costs and drive value. And I think as this technical report comes together and we put all the phases together and look at various trade-offs like that will show in Q1 when the report is published, but Phase 1 specifically, we continue to refine and derisk on scope that was -- that we've been speaking about for the last number of quarters here. So, we're on track and no significant changes should be expected from Phase 1 particularly. Orest Wowkodaw: Okay. And just as a follow-up on the time line, just given already in November, do you have a sense of when in Q1, we could anticipate that? Jack O. Lundin: I can't pinpoint an exact date for you, Orest. But I would say in the towards the latter part of Q1. That will be coming out with the results. And then, there's going to be a period between when we come out with the results and when we actually publish a technical report. But obviously, the team is working very hard on trying to get everything together. So that, some part in the second half of Q1, we'll be able to publish the results followed by the report coming out within 45 days of when the results get published. Operator: The next question will be coming from the line of Lawson Winder of Bank of America Securities. Lawson Winder: Very nice quarterly results, and thank you for today's update. If I could also ask about the integrated Vicuna plan and just get a sense for one aspect that Filo had previously proposed, which was this idea of a precious metals-focused initial starter pit. I mean, for a smaller company like Filo, it made a lot of sense. For a larger company like Lundin, perhaps it's just not enough capital or cash flow to really move the needle. But I mean, that would be in a much lower gold price than I would make a comment like that, I think in the current gold price, I mean, is there any thoughts potentially doing some sort of precious metals-focused starter pit with Filo in conjunction with the Phase I at that you just spoke about? Jack O. Lundin: Right now, we're still considering kind of going ahead with the base plan that we've outlined Phase 1 being Jose Maria. Of course, with commodity prices going higher, we see if there's opportunities to maximize value based on that -- based on market conditions. But right now, Lawson, I would say Phase 1 still is very much contemplating Jose Maria and then Phase 2 being the oxides of Filo, which includes base and precious metals. So, to summarize, no, we're not considering changing the scope right now. Lawson Winder: Okay. Perfect. And then, just thinking about some of the opportunities that lie ahead, including the success you've had at Caserones, this update we're looking for in early 2026 on Sauva. The current 2026 CapEx plan that you've laid out, is there a risk that ex Vicuna, that could change materially from what you currently have in the market? Teitur Poulsen: It's Teitur, here. But on CapEx, we have not guided any CapEx for the company in 2026. What we did say at the Capital Markets Day that we had around about $155 million, I believe it was for the Sauva expansion, and that number remains intact. Lawson Winder: And then as we think about Caserones, I mean, could you expect something material or I guess the way to think about it then is, can you expect something materially higher from what you guys are on track to spend this year? Teitur Poulsen: No, I don't think so. I mean, we will come up with our usual annual guidance in January, and all that will be disclosed, but I would not expect any significant deviations on current trends. No. Jack O. Lundin: And that increase in cathode production that we outlined in the presentation doesn't come at any real additional capital requirements, which is why it's such a robust opportunity. And really, the team has been -- behind it has been just working on optimizing the leaching circuit. So, as Teitur said, we wouldn't expect to come out with any materially increased capital numbers for Caserones specifically. Operator: [Operator Instructions] And our next question will be coming from the line of Daniel Major of UBS. Daniel Major: Congrats on a good quarter. Just first question on the oxide production profile at Caserones is 25,000 ton run rate this year. Is that a reasonable assumption to bake into the subsequent couple of years? And can you remind us what was embedded in the 130,000, 140,000 guidance? I've got about 15,000 tons previously. So is there upside to that '26 previous guide number? Juan Morel: Daniel, this is Juan Andres. Thank you for the question. Yes. I think the answer to your question is yes. Looking forward we're looking at sustaining that level of production from the cathode plant. So, 24,000, 25,000 tons per day, at least for the next, let's say, 3, 4 years is a good, good assumption. Daniel Major: Okay. And then, just a question on -- follow-up on the CapEx, sorry, if I'm getting some of the numbers mixed up here. But is it fair to assume the sustaining CapEx for the group, excluding any spend at Vicuna would be a similar kind of run rate, so like $400 million or so? And then on top of that, you're assuming in late FID of Vicuna late in the year, probably a similar run rate of spend at the Vicuna. So, are we looking at a similar sort of $650 million, $700 million range. Is that reasonable for CapEx for next year, excluding any other FIDs? Teitur Poulsen: Yes. I mean, we -- as I said, we will come up with further detailed guidance in January. But this year, we guided $530 million in sustaining CapEx for the full year, and we've now guided that down to $410 million. I think it's important to say that, that saving is -- or that reduction is not really a saving. It's more a deferral of projects from 2025 into 2026. Also remember, our CapEx guidance is based on cash payments, not incurred activity. But I think that run rate from about the current of 2025 run rate we have, it should be roughly what we expect to see going forward. Jack O. Lundin: Just to clarify, $530 million down to $510 million. Teitur Poulsen: Sustaining CapEx, excluding growth CapEx. Jack O. Lundin: Okay. Yes. And for Vicuna, like we're going through the 2026 budget now with the Vicuna team. And similarly, we would be updating kind of the guidance range on that. But hopefully, we'll be in a position where we can continue to ramp up with activities prior to a sanction decision. So, it wouldn't be like -- you could expect that provided progress continues on the trend that it is, that it would be higher than -- higher next year than it is this year. Daniel Major: Okay. That's clear. And then, maybe just a final one. This reasonably sizable working capital build in the quarter, $112 million or something, which puts you not up quite a bit in terms of working capital year-to-date. Would you expect that to reverse in the fourth quarter? Teitur Poulsen: Yes, I would expect that. It's always hard to predict the exact timing of year-end shipments, et cetera. But if everything goes according to plan, we should see an unwind of that in the fourth quarter, yes. Operator: [Operator Instructions] And our next question is coming from the line of Dalton Baretto of Canaccord. Dalton Baretto: Congrats on a great quarter and also a great choice appointing Ron as CEO of Vicuna. I wanted to ask about some of these cross-border negotiations that are still ongoing. Jack, can you sort of remind us what elements are under discussion? What the status is? And what's going to be assumed in the technical report when it comes out? Jack O. Lundin: Thanks, Dalton. Yes, I fully agree. It's great to officially bring Ron over to Vicuna, starting effectively tomorrow once Lundin Gold gets through their quarterly results. So the -- there's a binational treaty that exists today between Chile and Argentina. I think it was established in 1997. There is on that treaty of Vicuna protocol that exists during this current exploration phase that the project is in. So, we're able to kind of move from one side of the border to the other freely. And at the moment, what we would be looking at doing is specifically when we get to Phase 4, and we're mining from Filo sulfides and getting to full scale, that would require the binational treaty to turn into kind of an exploitation arrangement. And at that time, we would be contemplating significant pieces of infrastructure like desalinated water line, potentially concentrate slurry line and really integrating all of the infrastructure together during that final phase of the project. But initially, what we're looking at doing is building Jose Maria, 100% within Argentina and then trucking the concentrate out. And so, we don't need to have that significant uplift in that treaty. But we have time. There is engagement between both the Chilean and Argentinian authorities to elevate this national treaty into exploitation phase, but that's not required during the initial years of production through Jose Maria. Dalton Baretto: Got it. So, no concerns around moving the concentrate out through Chile, no concerns around bringing water up or any of that kind of stuff? Jack O. Lundin: I think it's early days that we're working on that plan and that scope, and we have time to ensure that we do it the right way. So far, our baseline schedule is intact. And I think dialogue is strong, and we just need to continue building on that momentum. So overall, I think we're feeling very positive about all phases, and we'll just continue to derisk as we bring the project forward towards integrated study and eventual sanction. Dalton Baretto: Got it. And then, once the study comes out and you put a pin in it, what are sort of the next remaining steps before an FID? Jack O. Lundin: So, I think having fiscal stability, having the integrated technical report released and published, having our financing plan so that Lundin Mining can ensure that we can fund our 50% portion of Phase 1. And then, there's various permits that we're still working through and government agreements in the provincial level at San Juan that we would need to receive. We're updating our environmental impact assessment as well. So, there's a number of kind of items on the checklist that we would be required to fulfill before going to the shareholders being BHP and Lundin Mining for a sanction decision. But we're progressing well on all of those fronts. Dalton Baretto: So this could be a sort of a back half of next year type thing? Jack O. Lundin: If we continue to progress on the plan that we currently are on, then it's not out of the question to have a sanction decision coming at the back half of next year. Of course, a lot of work to be done between now and then, and we're working to make sure that we get all of our ducks in a row to achieve that. So, that's the hope. Dalton Baretto: That's great. And maybe just one last one. This is more of a confirmation thing than anything else. What you're applying for under RIGI, it's is all the phases, right? Jack O. Lundin: That's a great question. So, because we have Jose Maria and Filo del Sol together now under Vicuna Corp within the same SPV, the projects are integrated together and they're looked at as one large-scale project. However, for us, it's important to get fiscal stability and approvals and permits for Phase 1 as we have much more definition around Phase I, but the intention would be achieving fiscal stability on the entire Vicuna project, which includes both Jose and Filo and potential future discoveries in the region. As we know, it's a very prospective area, and we definitely feel like we'll be finding more minerals as we continue to spend more time in the area. Operator: Thank you. And there are no more questions in the queue. At this time, this does conclude today's conference call. You may all disconnect.
Operator: Greetings. Welcome to Ameren's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. At this time, I'll now turn the conference over to Andrew Kirk, Senior Director of Investor Relations and Corporate Modeling. Thank you. You may now begin. Andrew Kirk: Thank you, and good morning. On the call with me today are Marty Lyons, our Chairman, President, Chief Executive Officer; and Michael Moehn, our Senior Executive Vice President and Chief Financial Officer, along with other members of the Ameren Management Team. This call contains time-sensitive data that is accurate only as of the date of today's live broadcast and redistribution of this broadcast is prohibited. We have posted a presentation on the amereninvestors.com homepage that will be referenced by our speakers. As noted on Page 2 of the presentation, comments made during this conference call may contain statements about future expectations, plans, projections, financial performance and similar matters, which are commonly referred to as forward-looking statements. Please refer to the forward-looking statements section in the news release we issued yesterday as well as our SEC filings for more information about the various factors that could cause actual results to differ materially from those anticipated. Now here's Marty, who will start on Page 4. Martin Lyons: Thanks, Andrew. Good morning, everyone. Before we get into the financials, I want to highlight the strategy that drives our actions and deliver strong long-term value for our customers, communities and shareholders. Pursuant to this strategy, we've been investing in the electric and natural gas infrastructure of Missouri and Illinois to harden it and make it more reliable, resilient and safer. And we've been adding new energy generation resources to meet the needs of our communities today and in the years to come. Because we are committed to providing a strong value proposition for our 2.5 million electric and 900,000 natural gas customers, we are also laser-focused on optimizing our operations to keep customer rates affordable. As we look ahead, the region and communities we serve are poised for significant economic growth, bringing investment, jobs and tax revenue as well as necessitating incremental investment in utility infrastructure. To support this growth, we are actively engaging with stakeholders on economic development opportunities and to advance constructive regulatory frameworks designed to serve new large load customers and maintain just and reasonable rates for all customers. We're excited about the opportunities in front of us and believe the future is bright for Ameren and the communities we serve. Michael and I will dive into more details on the pages ahead. Now let's turn to Page 5 for a summary of our third quarter results. Yesterday, we announced third quarter 2025 adjusted earnings of $2.17 per share compared to adjusted earnings of $1.87 per share in the third quarter of 2024. Our recent FERC order provided guidance on ratemaking for net operating loss carryforwards. And as a result, we recorded a tax benefit of $0.18 in the third quarter of 2025. Given the nature of the tax benefit, we have excluded it from our adjusted third quarter 2025 earnings. The key drivers of our strong third quarter results are outlined on this page. As we move to Page 6, I'll cover how execution of our strategy has translated into tangible results for our stakeholders throughout this year. During the first 3 quarters of 2025, Ameren delivered on its commitments, deploying more than $3 billion in critical infrastructure upgrades for customers. For example, as part of our Ameren Missouri 2025 Smart Energy Plan, 11,300 electric distribution poles were replaced, 600 of which were upgraded to stronger composite poles. 300 smart switches were installed to reduce outages and speed restoration. 32 miles of subtransmission lines were hardened. 5 new or upgraded substations were energized and 55 miles of underground cable were replaced to strengthen system reliability. In Illinois, our customers are benefiting from the replacement of more than 8,500 stronger electric distribution poles, 8 miles of coupled steel gas distribution pipelines and 13 miles of gas transmission pipelines for safety. Further, our transmission business placed in service 11 new or upgraded transmission substations and 40 miles of new or upgraded transmission lines to deliver energy more efficiently. These are just a few of the many projects completed through September. We also continue to execute on Ameren Missouri's preferred resource plan. As you know, we updated this plan in February to reflect the growing energy needs of our customers and communities, including during extreme weather conditions. The plan calls for the addition of approximately 10 gigawatts of generation capacity by 2035, including 3.7 gigawatts of natural gas generation, 4.2 gigawatts of renewables and 1.4 gigawatts of battery storage. Through September, we've invested more than $825 million in new or existing generation resources and have requested CCNs from the Missouri Public Service Commission for 1.45 gigawatts of additional resources. In 2025, we also made the decision to spend more on operating and maintenance by accelerating certain tree trimming and energy center maintenance activities. All of these efforts underscore our commitment to delivering reliable energy for the long term. And as you know, our electric rates remain below both national and Midwest averages, a testament to our unwavering focus on continuous improvement and affordability. Now let's turn to Page 7. We have a long track record of strong and consistent earnings per share growth. As we look ahead, we expect this to continue. In February of this year, we updated our long-term earnings growth guidance, which included our expectation to grow earnings at a 6% to 8% compound annual rate from '25 through 2029 based off of our 2025 original guidance midpoint of $4.95. For 2025, we expect adjusted diluted earnings per share to be in the range of $4.90 to $5.10, up from our original guidance range of $4.85 to $5.05. We're well positioned to continue our long history of delivering above the midpoint of our original earnings guidance range. For 2026, we now expect diluted earnings per share to be in the range of $5.25 to $5.45. And we expect consistent earnings growth near the upper end of our 6% to 8% EPS compound annual growth rate range in 2027 through 2029. Consistent with prior years, we plan to update our long-term earnings growth guidance on our fourth quarter call in February 2026, including our 5-year capital and financing plans, which will reflect, among other things, firmed up capital estimates related to Ameren Missouri's preferred resource plan. Turning to Page 8. I'll provide an update on economic development activities in our region and associated sales growth expectations. We remain closely engaged with potential data center customers and are building a robust pipeline of large load opportunities that extend into the next decade. Data centers represent significant private investment opportunity for our states, bringing in thousands of jobs in fields such as construction, plumbing, electrical work and technology as well as substantial tax revenue. As we discussed on our earnings call in August, data center developers continue to evaluate opportunities in Missouri, given the numerous desirable construction sites in our territory, available transmission capacity and our ability to deliver power when needed at competitive rates. As a result of this engagement, Ameren Missouri's executed construction agreements with data center developers have expanded to 3 gigawatts, up from the previous total of 2.3 gigawatts. The developers of the data center sites with construction agreements in place have now made nonrefundable payments to us totaling $38 million to cover the necessary transmission upgrades and which demonstrates their confidence in and commitment to the proposed projects. We also continue to actively engage with potential data center customers to negotiate electric service agreements that are aligned with our proposed Missouri large load rate structure and, among other things, would establish anticipated minimum ramp schedules. I'll talk more about progress on that large load rate structure in a few minutes. As outlined in Ameren Missouri's preferred resource plan, we expect 1 gigawatt of new load from data center customers by the end of 2029 and a total of 1.5 gigawatts of new data center demand by the end of 2032. To give you a sense of the proportions, 1 gigawatt of new data center load by 2029 would represent approximately 5.5% compound annual Missouri sales growth from 2025. In addition, we're seeing notable expansion in the region's defense and geospatial intelligence ecosystem which is stimulating growth across multiple sectors, including advanced manufacturing. One such example is the opening of the National Geospatial-Intelligence Agency's new nearly $2 billion campus in St. Louis this September. The campus, which employs more than 3,000 people, represents the largest federal investment in St. Louis' history. Private sector participation is also strong with companies like Scale AI choosing to locate their headquarters downtown. The presence in St. Louis of federal and private sector geospatial operations, including advanced mapping, satellite imagery and spatial analytics, strategically aligns with our region's strength in defense and defense tech industries. Looking ahead, Boeing has begun construction of new facilities to build the F-47 fighter approved earlier this year. Production of the F-47 is scheduled to start in 2026. These developments further strengthen St. Louis' position as a national hub for innovation and strategic investment. In Downstate Illinois, developers are also advancing data center projects with expected incremental energy demand totaling 850 megawatts. We have signed construction agreements with these developers and received payments to support the necessary transmission interconnections. Energy supply for these projects is expected to be provided through third-party supply agreements. We expect to provide an update on our Missouri and Illinois 5-year sales growth expectations in February. Moving now to Page 9. We provide an update on generation resources currently in progress at Ameren Missouri. We have procured long lead time components such as turbines and transformers for our planned energy centers with expected in-service dates through 2029. And we have secured production slots for the 3 turbines for our combined cycle energy center expected to be in service in 2031, remaining on track to deliver the dispatchable resources called for in our preferred resource plan. In August, we requested a certificate of convenience and necessity for the Reform Solar Energy Center, a planned 250-megawatt solar facility to be located adjacent to our existing Callaway Nuclear Energy Center. Generation projects with CCN requests pending before the Missouri Public Service Commission will support progress toward our goal of maintaining a balanced energy mix. We're targeting approximately 70% generation from on-demand resources and 30% from intermittent resources by 2040. Ameren Missouri's planned generation portfolio is expected to provide an estimated $1.5 billion in customer savings from tax credits through 2029, of which approximately $270 million has been realized so far in 2025. Building, maintaining and operating a sufficient and optimal mix of energy centers to meet our customers' needs in an affordable manner is critical for our stakeholders, and I'm proud of the work our team is doing in those regards. On Page 10, we outline Ameren Missouri's proposed large load rate structure, which was filed with the Missouri PSC in May and updated in surrebuttal testimony earlier this week. In accordance with Missouri State law, any future large load data center customers would be required to pay for cost to connect them to our system and for their share of ongoing cost of service. Under the proposed large load rate structure, we would deliver service under our existing large primary service base rate, which is currently approximately $0.06 per kilowatt hour, and customers would agree to additional terms and conditions as part of an electric service agreement. The additional terms would include a service commitment of 12 years after ramp, a minimum demand charge of 80% of contracted capacity, exit provisions and credit and collateral requirements, all designed to protect existing customers. In addition, new customer programs would be available that would allow qualifying customers to advance their clean energy goals by supporting the carbon-free energy resource of their choice through incremental payments, which would help offset costs for other customers. This structure would offer a fair and competitive rate to large customers and maintain just and reasonable rates for all customers. While no deadline exists for Missouri PSC approval of our proposed large load rate structure, based on the existing procedural schedule, we would expect a decision by February of 2026. Moving now to Page 11 for an update on the long-range transmission planning process at MISO. Our focus remains on building the LRTP Tranche 1 and Tranche 2.1 projects that were assigned to us and developing strong proposals for Tranche 2.1 competitive projects. We are carefully evaluating each bidding opportunity, and we'll submit bids for projects when we believe we offer a clear advantage on project design, cost and execution. As we have successfully done in the past, when it enhances the strength and competitiveness of our proposals, we expect to partner with other entities. For example, in August, we submitted a joint proposal with 3 other partners on a Tranche 2.1 competitive project in Wisconsin. We expect MISO to select the developer for this project in early 2026. The bidding and selection process for the 4 remaining Tranche 2.1 competitive projects will continue to take place over the remainder of this year and next. As a reminder, we do not include investment related to competitive projects in our 5-year plan until projects have been awarded to us. Further, MISO continues to analyze increasing energy demand and updated resource mix assumptions across the region as part of the futures redesign process. We expect this analysis will show the need for significant incremental transmission investments that would benefit the wider MISO region over time. MISO is expected to issue its report in early 2026. Moving now to Page 12. Looking ahead over the next decade, our pipeline of investment opportunities continues to grow, standing today at more than $68 billion. We will provide further details in February as to the planned capital investments expected for the period of 2026 through 2030 and the associated financing plan. These investments will deliver significant value to all of our stakeholders by making our energy grid stronger, smarter and cleaner and by powering economic growth in our communities. Turning to Page 13. In February, we updated our 5-year growth plan, which included our expectation of 6% to 8% compound annual earnings growth from 2025 through 2029. This earnings growth expectation is primarily driven by strong anticipated compound annual rate base growth of 9.2%, reflecting strategic allocation of infrastructure investment to strengthen the grid in each of our business segments and to build new energy resources to meet increased demand. We expect to deliver strong long-term earnings and dividend growth, resulting in an attractive total return. I'm confident in our ability to execute our investment plan and our broader strategy across all 4 of our business segments as we have a skilled and experienced team dedicated to achieving our growth objectives while keeping customers at the center of everything we do. Now before turning the call over to Michael, I'd like to briefly share a leadership update. Effective January 1, Michael will assume the role of Group President of Ameren Utilities, overseeing the operations of each of our business segments. Michael is an experienced leader, bringing to this newly created position, deep financial and broad operational expertise, qualities that will continue to support our focus on delivering value for customers and shareholders. When Michael transitions to this new role, Lenny Singh, currently Chairman and President of Ameren Illinois, will transition into the role of Executive Vice President and Chief Financial Officer. Lenny has nearly 35 years of utility leadership experience with substantial operational, regulatory and profit and loss responsibilities. These experiences will ensure we continue to practice financial discipline aligned with our regulatory frameworks and deliver value for our customers and shareholders. I'm pleased with the strength and alignment of our leadership team and believe these changes position us well for continued execution of our strategy and strong performance. With that, I'll hand the call over to Michael. Michael Moehn: Thanks, Marty, and good morning, everyone. Turning now to Page 15 of our presentation. Yesterday, we reported third quarter 2025 GAAP earnings of $2.35 per share, which included a tax benefit related to our Ameren Transmission segment. This tax benefit was recorded due to IRS guidance and a FERC order issued to another taxpayer regarding treatment of net operating loss carryforwards. Pursuant to this guidance, this quarter, we decreased income tax expense by $48 million or $0.18 per share. Excluding this benefit, third quarter 2025 adjusted earnings were $2.17 per share compared to adjusted earnings of $1.87 per share for the third quarter of 2024. The key factors that drove the $0.30 increase in adjusted earnings per share are highlighted by segment on Page 16 and reflect the important investments we've made to strengthen the energy grid across our service territory. In addition to benefiting from new electric service rates in Missouri and warmer-than-normal weather in July, we continue to experience strong sales growth within Ameren Missouri's service territory. In fact, total normalized Ameren Missouri retail sales over the trailing 12 months through September increased across all customer classes with an overall increase of approximately 1.5%. Further, in light of the benefit from weather this year and to support stronger reliability, we've increased energy center and discretionary tree trimming expenditures, the latter in targeted areas to address vegetation growth near our power lines. Moving to Page 17. Since 2013, we've delivered strong, consistent normalized adjusted earnings per share growth of greater than 7.5% compound annually. Yesterday, we increased our 2025 earnings per share guidance range of $4.90 to $5.10. The midpoint of the new range represents approximately 8% growth compared to both our original 2024 earnings guidance range midpoint and our 2024 results. Outlined on the page are select earnings considerations for the fourth quarter of 2025, which I encourage you to take into consideration as you develop your expectations for the balance of the year. And moving to Page 18, we provide detail on our 2026 earnings per share expectations, which we also announced yesterday. We expect our 2026 earnings per share to be in the range of $5.25 to $5.45, the midpoint of which represents 8.2% growth compared to our original 2025 earnings guidance midpoint of $4.95. Expected 2026 earnings details by segment compared to our 2025 expectations are highlighted on this page. Robust planned infrastructure investment, strong expected sales and economic growth and strategic business process optimization opportunities give us confidence in our ability to grow earnings in 2026 and the years ahead. Now turning to our financing plan on Page 19. To support our strong credit ratings and maintain our balance sheet while we fund our investment plan, in February, we outlined a plan to issue approximately $600 million of common equity each year through 2029. We have fulfilled our equity needs for 2025 and 2026 through forward sales agreements that we expect to physically settle near the end of these years. Having utilized most of the capacity available under our existing equity sales distribution agreement, in August, we increased the program capacity by $1.25 billion to enable additional sales to support equity needs in 2027 and beyond. And in September, Ameren Illinois issued $350 million of 5.625% first mortgage bonds due 2055, completing our planned debt issuances for this year. We feel great about our financial position and the progress we've made in our financing plan. Turning to Page 20. I'll provide a brief update on ongoing regulatory proceedings in Illinois. Our Ameren Illinois natural gas distribution rate review is pending with the Illinois Commerce Commission, or ICC, and we expect a decision this month. As a reminder, we have requested $135 million annual base rate increase. In October, the Administrative Law Judge, or ALJ, recommended an annual base rate increase of $91 million based on a 9.93% return on equity and a 50% common equity ratio. The difference is primarily driven by allowed ROE, the common equity ratio and the treatment of other post-employment benefits. Following the ICC's decision, we expect rates to be effective in December. Turning to Page 21. Our 2024 annual reconciliation proceeding under the electric multiyear rate plan continues to progress. In September, the ICC staff revised its reconciliation adjustment recommendation to a $47 million increase compared to our updated request of $60 million, with the variance primarily driven by treatment of other post-employment benefits. The ALJ recommendation and the reconciliation proceeding is expected later today. An ICC decision is expected by mid-December and rates reflecting the approved reconciliation adjustment will be effective by January 2026. Turning now to Page 22. Our strong performance so far this year has positioned us well to continue executing our strategic plan, which will drive superior value for all of our stakeholders. We continue to expect strong earnings per share growth to be driven by robust rate base growth, disciplined cost management and a strong customer growth pipeline. Our strategy and team are well aligned and focused to ensure we capitalize on these opportunities for our customers and shareholders. We believe our growth will compare favorably with the growth of our peers. And further, Ameren shares continue to offer investors an attractive dividend. In total, we have an attractive total shareholder return story. That concludes our prepared remarks. We now invite your questions. Operator: Our first question is from the line of Jeremy Tonet with JPMorgan. Diana Niles: This is Diana Niles, actually on the call for Jeremy. So I was wondering with 3 gigawatts of signed data center construction agreements, would you foresee a need for future revisions to generation plans? Martin Lyons: Yes, it's a great question. Yes, we're very excited to have expanded the data centers that we have subject to construction agreements. As you know, last quarter, we were at about 2.3 gigawatts, and now we're up to about 3 gigawatts. And I'll tell you, it's great because it gives us even greater confidence in the sales projections that we put forward earlier this year. You'll recall that embedded in the integrated resource plan was about 1 gigawatt of sales increase by 2029 out to 1.5 gig by 2032. And as you can see on the slide that we presented in our materials, Slide 8, the current generation plans that we have in place would allow us to serve up to 2 gigawatts of increased sales out through 2032. So number one, the 3 gigawatts of construction agreements gives us greater confidence that we'll be able to achieve the sales growth expectations that we've got. And over time, we'll see what -- how these translate into actual ramp rates for the hyperscalers that would utilize these data centers. So as you know, we're working to get a tariff across the finish line with the Missouri Public Service Commission. Then we'll sign energy services agreements with hyperscalers pursuant to that tariff. Those energy services agreements will lay out what the hyperscalers expect to be their minimum ramp rates over time. And with that, we'll see where we land within these projections that we show on Page 8. Now I will say that the current generation plans that we do have allow us to serve greater than 2 gigawatts beyond 2032. So we'll really have to see what those ramp rates look like over time and what that means for added generation capacity over time. But again, the current plans that we have in place, the current plans that we're executing for generation expansion, it would allow us to serve up to that 2 gigawatts by 2032. Michael Moehn: Yes. The only thing I might add to that is that as we go through '26, as Marty indicated, we'll have another opportunity to look at this IRP. We'll have an IRP filing probably in the fall, around September '26. So that's something to keep an eye on as well. Operator: The next question is from the line of Nick Campanella with Barclays. Nicholas Campanella: Congrats to Michael and Lenny on the new roles. Yes, absolutely. So I just wanted to ask, you're delivering on an 8% year-over-year growth off of 25%. And I hear you on the communication upper half of the earnings range. But just given you've had some companies kind of moving out to 7% to 9%, what's your view on just what puts you lower in that 6% range now? And could that be up for kind of consideration as we look towards fourth quarter? Martin Lyons: Nick, this is Marty. I'll start, and then Michael can certainly tag on. But you're right, the guidance we gave today, obviously, we're delivering earnings this year and projecting earnings next year that are in the top end of that range as we look to '27 to '29, continue to expect to be in the top end of that 6% to 8% earnings growth range. So we feel really good about the growth that we've been achieving and the growth that we project over the next several years. I think as we look ahead, we've got some important things that will really solidify our plans. The most notable one we just talked about in response to the last question, which is really getting the tariff approved by the Missouri Public Service Commission and getting these energy services agreements signed with the hyperscalers and really getting some better firmness, if you will, to the ramp rates and to the sales projections that we see between now and 2030. So when we roll around to February, obviously, we're going to update our sales growth expectations. We'll update our CapEx, our rate base growth expectations as well as our financing plans and update our growth guidance. So right now, I feel real good about the 6% to 8%, feel real good about delivering near the upper end of that growth range. And look, we won't constrain the growth. We're looking for economic development in all of the regions, the communities that we serve in Missouri and Illinois and certainly don't want to constrain that. And if that translates into greater investment opportunities and greater growth opportunities for us, certainly, we'll pivot with that. Michael Moehn: Yes, not much to add there. I mean, as Marty said, I mean, you look at what we did here for '25, I mean, it's again, 8% off of '24. What we introduced for '26 is, again, 8.1% off of that $4.95 midpoint. And I think it's a fair question. As Marty said, we'll continue to evaluate it. I mean I think all of this is just consistent with the track record that we've had now for, what is it, 12, 13 years, 7.5% growth, and we'll continue to focus on delivering the upper half of that. Nicholas Campanella: Understood. Not going to constrain the growth rate. All right. And then maybe just as we prepare for the fourth quarter update, maybe how are you framing balance sheet capacity to serve some of the load in CapEx? And just you've always kind of operated at an FFO level that is north of your peers. But I'm just curious, one, is the increased sales forecast a net benefit to cash flow and thus should equity needs to be lower? And then two, just any interest in using some balance sheet capacity relative to your minimums? Michael Moehn: Yes, absolutely. And look, I mean, obviously, all the sales growth is accretive over time. I think we get -- you have to get these ramp schedules and get all that timing nailed down, but certainly look forward to that. And I think we've talked about these tax credits that we're flowing back to customers. There's a brief period of time where those are helpful as well. But look, Nick, I mean, we start this from a position of strength, as you know. I mean, we're sitting at Baa1, BBB+. Moody's is really that threshold metric for us. It is a 17% downgrade threshold today. I mean we're operating above that here in '25. So we got good margin above that. We continue to guard this balance sheet. I mean we've been very disciplined about the equity that we needed over time and been very good about getting it out there. And again, as you know, we've taken care of all of our '25 and '26 needs. We continue to have very constructive conversations with the rating agencies about sort of where that downgrade threshold will be. We'll see over time where those conversations continue to go. We have been leaning into the balance sheet, as you know, but it's a balancing act. But we do like our position where we are today and feel good about what we have, and we'll continue to give you the updates as we move into that February call. Operator: The next question is from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Maybe on the data center front, just with the construction agreements now at the 3 gigawatt level, is there anything you can share on that delta just in terms of how many customers that change is attributed to? And then I think there previously was an indication on the slides that you expected the ramp to begin in late 2026. Has that view changed at all? Just curious how we should think about that. Martin Lyons: Yes. Carly, we're really expecting the ramps to begin in 2027 at this point. So not so much in 2026. So as we've worked through this, a bit of delay there. But nothing discouraging overall as we talked about up to the 3 gigs of construction agreements. Carly, I don't have it in front of me, but I think that's one additional site. I mean these are big sites that folks are looking at. I'll tell you that overall, when you look at the development pipeline we have, we talked about this last year, just still a large number of sites being looked at and data center developers, I'd say, at a minimum kicking the tires, we've got across the 2 states, about 36 gigawatts of economic development opportunities broadly, and it breaks down about half and half. So think about 18 gigawatts in each state, Illinois and Missouri. Now -- and about 80% to 90% of those are data centers, by the way. But -- and most of those are in the early stages of looking at the various sites. But I will tell you in Missouri, in addition to the 3 gigawatts of signed construction agreements, there's another 2 gigawatts of considerations that are in, I'd say, advanced stages of discussion. So there are folks still looking very seriously at sites and considering entering into construction agreements there as well. Over in Illinois, by the way, I think I mentioned in the prepared remarks, we've got some construction agreements as well, about 850 megawatts of large load with construction agreements. So some good progress really in both states. Did I answer all your questions, Carly? Or was there something else there? Carly Davenport: No, that covered it. That's really helpful. And then maybe just a follow-up on Illinois, just with the Omnibus Energy bill passing over the last couple of weeks here. Just kind of curious your early views on any sort of implications for the business there. Martin Lyons: Yes. Overall, we were neutral on Senate Bill 25 that passed in the veto session, although I think that I'd probably highlight 3 things, and there were a number of things in this bill that go beyond the 3 things I'd cite. But one of them was that it does call now for an integrated resource planning process to be done at the ICC. I think it's the first time that we've really had integrated resource planning in states since 1997. So I think that is a positive thing that the state is going to be looking at integrated resource planning holistically. And my expectation is sort of utility by utility region by region. But I think that's a good thing. And certainly, we'll look to engage there as the ICC gets that process underway in 2026. The other thing, I think, driving this is that certainly, there's been concern as folks think about resource adequacy across the state and also want to be mindful of the clean energy goals that the state has. And so a couple of other things that I'd mention is that it does establish an energy storage procurement process across the state and also gives the Illinois Power Authority the ability to enter into long-term contracts for renewables. And all of those things are going to be subject -- they'll occur over time, and they'll all be subject to consumer protections that are built into the legislation. But again, processes that lawmakers believe over time will reduce the price of capacity and help to keep volatility and cost under control for customers as it relates to energy and capacity. And then the third thing I'd mention is increased investment in energy efficiency, which is something we -- does involve us that we partake in. Over time, we'd expect our investment in energy efficiency on behalf of our customers to double to about $250 million a year. All of that would continue to be subject to treatment as a regulatory asset recovery over time with a return. I will tell you that the return there is being reduced down to the return that was granted as part of the multiyear rate plan. However, we have the opportunity to earn up to 200 basis points of incentives. And we believe with the spending that's called for as well as the metrics to be achieved that we have a very good opportunity to earn incentives that would be additive to that ROE. So those are the 3 things that I'd really call out. There were some other provisions to the bill, but those are the things I'd highlight. Operator: The next question is from the line of Julien Dumoulin-Smith with Jefferies. Brian Russo: It's Brian Russo, on for Julian. Just a follow-up on the Clean and Grid Reliability Affordability Act in Illinois. Do you -- are there anything in that bill that could lead to incremental investments for the Ameren utilities, whether it's indirectly through transmission and distribution, maybe lesser so on the storage opportunities. Just wondering if you could provide more specifics there. Martin Lyons: Yes. Brian, good question. I think the -- really, probably the biggest opportunity, if you will, is in that energy efficiency space where, again, we do treat that as a regulatory asset. So it does get sort of rate base treatment in there. We do expect the investments in energy efficiency, as I said a moment ago, to double over time to about $250 million a year. But I'd say that's the only notable thing from a real investment opportunity standpoint. Brian Russo: Okay. Understood. And then also on the last earnings call, you had mentioned existing data center customers requesting more studies to pursue possible expansions. And I think there was about 1.7 gigawatts of existing customer expansion cited in some of the large tariff testimony. That's incremental to the 3 gigawatts. Is that correct? Martin Lyons: Yes, it is. I think that, again, with respect to the 3 gigawatts of construction agreements, we still don't know what the ramp rates are going to be with respect to the hyperscalers there. So again, some of that growth could be between now and, say, 2030 or it could be beyond. We'll just have to wait and see. But again, to your question, and I said a few minutes ago, besides that 3 gigawatts of signed construction agreements, another -- we got another 2 gigawatts that are in very advanced stages of discussion in Missouri, which would bring it to 5 overall. And again, the overall sort of funnel, if you will, of data center opportunities is much more significant because, again, we're looking at about 18 gigawatts of overall economic development opportunities in the pipeline. So there's a lot of other sites for data center developers to consider and to pursue. And as we talked about on the last call, the conversations with the hyperscalers are progressing very well with respect to the energy services agreements that would be pursuant to this tariff. And it's those hyperscalers that are also inquiring about these expansion opportunities that would be available to them after we sign these ESAs and serve their initial needs, they're certainly looking at expansion opportunities beyond that. And again, we've got plenty of sites in our part of Missouri to accommodate. Operator: Our next question is from the line of Paul Patterson with Glenrock Associates. Paul Patterson: It sounds to me -- and I apologize, I got slightly distracted when you were talking to Nick. But just to sort of summarize his question about the earnings, it sounds like you guys are sort of being conservative now. And when you guys refresh the numbers and everything, there's a potential for upside. Is that sort of a -- is that a good summary? Does that summary make sense or... Martin Lyons: I would -- I'll start out. This is Marty. Paul, I think that there's certainly upside. We do agree with that. In terms of conservative, maybe we're always a bit conservative, but I think what we really try to do is be accurate with you in terms of our expectations based on sort of what we know today. And again, what our plan has been based on is, as it relates to sales growth, you look at that Page 8 and you look at that 1 gigawatt by 2029, 1.5 gigs by 2032, which is sort of the demand expectations that are at the heart of our preferred resource plan, those are also the sales expectations that we've got built into our plan. But there's -- we still got to get the ESAs across the finish line. We've still got to get the ramp rates spelled out. But we also can serve, as we've talked about, as you see there, up to that 2 gigawatts by 2032, you see in the lighter green shape. And we've got construction agreements for up to 3 gigawatts of sites. So certainly upside in the plan. But again, I think what we're providing to you today is what we believe is sort of the best guidance given the facts that we've got today. Michael? Michael Moehn: Yes. And look, we are providing, obviously, quite a bit of clarity today. I mean I think the thing that's really missing is what Marty said, it's getting this large load tariff across the finish line, getting these ESA executed. And I think we can put a bit finer point in terms of the overall guidance. But we pointed to today is somewhere close to the upper end of that 6% to 8% off of this 26% that we just put out there at $535. So hopefully, that gives you a decent amount of visibility. Paul Patterson: No, I think it does. And then with respect to the tax gain, it sounds to me like it might be related to -- you guys did mention it was related to, I guess, a FERC order. And I'm just wondering, without getting into great detail on it, is there a potential for any rate base change as a result of the IRS and the FERC order that you're referring to? Michael Moehn: Yes, Paul, this is Michael. A small amount. I mean what you're effectively doing is taking some net operating losses and putting those -- setting those up as some tax assets. So you'll have some opportunity over time with a little bit of rate base. I wouldn't say that it's a material number. And again, that's really why we ended up excluding it from the GAAP earnings. Paul Patterson: Okay. And then just with Carly's question on the legislation. I was just wondering, it does seem like there's -- the ROE change that you referenced seems like an improvement. Of course, there's some execution issues there. I was wondering like -- am I right in thinking that? I mean, like -- I mean, just -- it sounds like that could be kind of a boost potentially. Obviously, there's execution, but you guys have been executing pretty well. So any elaboration on that? Martin Lyons: Yes. I'd go into it looking at it more as a neutral. I do think that there is some -- from an ROE perspective, I do think that over time, as I said before, there's opportunity for incremental investment. And you're absolutely right. We have a good track record of execution overall as a company, and we're going to look to execute well on these energy efficiency programs for the benefit of our customers. I think that's what is expected of us. And if we do that well, then we'll have the opportunity to earn the incentives that are in there. But you're right. I mean, we're -- there's some opportunity in there. I think about the overall ROE effect as being more neutral, some good investment opportunities. And certainly, we're going to try to maximize the impact for the benefit of our customers. Operator: The next questions are from the line of David Paz with Wolfe Research. David Paz: Yes. Just a couple of quick questions and clarifications here. First, how should we think of the $5 billion increase in your 10-year capital plan pipeline as we sit here today, is that back-end loaded? Or could we see the bulk of that in the '26 to '30 update? Michael Moehn: David, it's Michael. Yes. Look, we'll obviously give you some more visibility on that here in the February time frame. As you noted, I mean, there is a $5 billion increase there. I think Marty alluded to some of that -- I mean, I wouldn't say it's one thing. It's a number of things in terms of kind of firming up some of this generation, which you know is a bit back-end loaded. But there are other things in terms of just investing in the grid and continue to build out reliability and making sure that -- we're making investments that are benefiting customers, et cetera. I mean we have a massive service territory, 64,000 square miles, 1 million poles, thousands of substations, et cetera. And so as we continue to go through time and look at those opportunities, those are all things that are being accretive to the capital plan. Technology is also an opportunity here. As we continue to invest in systems, those are also leading to some increases as well. So not one thing I can point to, but we'll certainly give you visibility on the years as we roll forward into February. But some great opportunities in terms of the overall pipeline. David Paz: Okay. And then just on the [Audio Gap]. Can you break that down by Missouri and Illinois? Michael Moehn: David, you're back. We missed that question. Can you repeat it again? Sorry, we had a technical issue. David Paz: Sure. [Audio Gap] You gave a number that was in advanced discussions. Just can you break that down between Illinois and Missouri? Martin Lyons: David, I'm going to try to answer the question. I think you're asking, but you may need to ask it again. You've cut out twice. I think you're talking about sort of advanced discussions on the data centers. And when I talked about the 2 gigawatts of discussions that were sort of advanced, those were in Missouri. So we've got 3 gigawatts of signed construction agreements, another 2 gigawatts in advanced stages of discussion. If that didn't answer your question or you have more, why don't you repeat it again? David Paz: No, I think we're having a technical issue. Sorry about that. Noticing it elsewhere, too. But anyway, yes, that was the answer. It sounds like Missouri is the 2 gigawatts that were in advanced discussions. And then maybe just one quick one. Obviously, we've heard from some in the state of Missouri on new large load and affordability. Just maybe if you can elaborate on the regulatory and political engagement you have there and then touch on how those conversations might look in Illinois and your wires-only business. Martin Lyons: Yes. So in Missouri, I would say the state is very supportive and encouraging of economic development and including data center development and data center attraction. And so the state certainly wants to realize those opportunities. Certainly, there are certain communities that have expressed concern around various things, water usage, noise, electricity rates and the like, things that have to be addressed as we go through the process of getting these data centers approved and built. And I think those concerns can and are being addressed. And of course, these data center opportunities bring with them, as we said earlier, tremendous investment, a lot of jobs, especially in construction trades as well as tax base over time, taxes for communities over time. So a lot of good economic development benefits associated with these data center opportunities. Of course, I think a concern as it relates to utility rates over time is just making sure that these data center developers, the hyperscalers pay for the cost to serve them, the cost to connect them to the system, to make sure that over time, they're paying a cost of service that reflects the cost to serve them and that there's no detriment to the rest of the utility customers that we and other service providers are serving. And that was actually one of the focuses of Senate Bill 4 earlier this year in Missouri, where, again, they embedded in that requirement that the Missouri Public Service Commission as they think about the tariff that would be approved to serve these to make sure that, again, there was reasonable assurance that the rest of the customers were not being harmed by these data centers. And so David, when we filed our tariff with the commission, and again, we outlined the components of that on Slide 10. It was really designed to make sure that we were designing the tariff and charging the hyperscalers a rate, which would be in accordance with Senate Bill 4 and the provisions that I just talked about. And I think that's been a concern of some of our elected officials just making sure that we weren't providing the discounted rate, that we were providing a rate that held the rest of our customers harmless that there weren't costs included in rates for our existing customers that were associated with service to these large load customers. So I think that's sort of the balance of concerns that are out there. But back to your point, overall, the state is very supportive and very desiring of these economic development opportunities. We're certainly working in concert with the state as well as economic development organizations across the state to bring the fruition in our service territory. And we're going to try to do this the right way, where we make sure that there are rewards that are brought to the communities that we serve in terms of the economic development opportunities and that from a rates perspective, these customers pay their fair share and the rest of our customers are not harmed by their usage. Operator: Our final question is from the line of Stephen D'Ambrisis' with RBC Capital Markets. Stephen D’Ambrisi: Congrats to Marty and Lenny on the new roles -- Michael and Lenny, excuse me. Just really quickly on -- there's been some questions about Illinois legislation, but I thought given we'll probably see some bills get prefiled in December and Missouri, I was wondering if there's any legislative priorities that you guys are advancing or if there's anything we should be legislative topics that you think will be pertinent or come up kind of in the bill prefiling in December? Michael Moehn: Yes. Nothing to comment on specifically, Steve. I mean, obviously, we've continued to improve the environment there. I appreciate what the legislature has done. I mean the commission continues to be very thoughtful and forward-looking. I mean, trying to find ways to provide the right incentive for investment, but at the same time, continue to balance that with customer impact. So anything that would occur over the next couple of months, my sense is would be constructive and balanced, and we'll see what time brings. As you know, the prefiling is December 1. And so beyond that, it's probably a bit premature to get into the details. Operator: This now concludes our question-and-answer session. I'd like to turn the floor back over to Marty Lyons for closing comments. Martin Lyons: All right. Well, thanks to everybody who joined us this morning. A lot of great questions, a lot of great dialogue. As you can tell, we remain absolutely focused on strong execution of our plan, and we will continue to do that for the remainder of this year and into next as we work to really diligently serve our customers and deliver safe, reliable and affordable energy. So again, thank you all for joining us. I'm sure we'll see many of you at the upcoming EEI Financial Conference. And with that, have a great day and a great weekend. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines, and have a wonderful day.
Antonia Junelind: Good morning, and a warm welcome to the presentation of Skanska's Third Quarter Report for 2025. For those of you that don't know me, I'm Antonia Junelind. I'm the Senior Vice President for Skanska's Investor Relations. And here on stage in our studio today, I've got President and CEO, Anders Danielsson; and CFO, Jonas Rickberg. We're going to follow the typical structure of these press conferences. We will start by walking through the past quarter to provide you with a business, financial and market development update. And after that initial presentation, we will move over to questions. [Operator Instructions] If you are here in the room with us, then you can, of course, just ask questions by raising your hand. We will bring a microphone to you, and we will take it from there. So yes, I will no longer hold you off. We'll take you through the third quarter. Anders, let's do this. Anders Danielsson: Thank you, Antonia. Good to see everyone. Before we jump into the figures, I want you to look at the picture here on the slide. And that's called The Eight, one of our project development office building in Bellevue, part of Greater Seattle area in the United States. And it's actually a Class A building, one of the biggest or the biggest commercial investment we have had. We're also proud to be able to announce in a couple of years back that we have the greatest, the biggest lease here as well. And this -- today, the office building is leased more than 80%. So it's a great, great building. I'm happy to say that we're going to host the Capital Market Day in a few weeks in the same building. So I look forward to see everyone who will show up there. And we will also have a deep dive, of course, of the U.S. operation at the time, together with the commercial direction forward for the group. But now the third quarter. It's a solid quarter, solid third quarter. The construction is performing very well in all geographies, and we have strong market generated by a solid project portfolio. In Residential Development, we have very strong sales and margin in our Central European business, so a very high performance there. The Nordic market remains weak, which impacts both the sales and the profitability level. Commercial Property Development. We have 2 large lease contracts signed in the quarter, and I will come back to the profitability level here. Investment Properties, stable performance, stable cash flow and stable leasing ratio. Operating margin in Construction is 4.2%, very high level, very high compared to last year, 3.6%, and well above our target, as you know. Return on capital employed in Project Development, 1.4%, and that's on the low level below our target but it's driven by a slow market in different parts of our operation. Return on capital employed in Investment Properties is 4.7%, stable performance there on a rolling 12. Return on equity, 10% on a rolling 12-month basis. And we continue to have a solid performance on the financial position, and that's very important for us, of course, and a competitive advantage going forward. And we also managed to continue to reduce the carbon emission. And now we are at 64% reduction compared to our baseline year in 2015. So I will go into each and every stream, starting with Construction. Revenue increase in local currencies, 7%, which is good. Order bookings is around SEK 40 billion. And we do have a book-to-build ratio over 100% on a rolling 12-month basis. So we have a very good position when it comes to order backlog. I will come back to that. But it is on historically high levels. And operating income close to SEK 1.8 billion, increased from last year, SEK 1.5 billion. And again, the operating margin is very strong here, 4.2%. So strong result and high margin across all geographies, and that's very encouraging and also prove that we have kept our discipline and we have been successful in the strategic direction here. And we have a rolling 12 months group operating margin of 3.9%. Solid order intake for the group and a strong backlog. Moving on to the Residential Development. Revenue is pretty much in line with last year. We have sold 383 homes, and we have increased the started homes mainly driven by the Central European operation, 572 started homes. And we have an operating income of SEK 131 million, representing a return on capital employed 5.9% on a rolling 12. Very strong sales and result in Central Europe. We have started 2 new projects, and we have -- with a very good presale level, which drives, of course, the sales in the quarter. The Nordic housing market remains weaker and Nordic businesses recorded a very small loss there. But overall, it's driven by a weak market. We can see some signs of improvement in the Norwegian operation here, but overall, quite slow. Commercial Property Development. Operating income is minus SEK 397 million, which is driven by write-downs in impairments, write-downs in few projects in the U.S. properties. We'll come back to that. But that gives -- we also have a gain on sale of SEK 377 million in the quarter. Return on capital employed is 0, rolling 12. We do have 15 ongoing projects representing SEK 15 billion in investment upon completion of those projects. And we have 22 completed projects representing SEK 18 billion in total investment. The leasing ratio in those completed projects is fairly good. We are at 77% leased. So we have a good position there, giving us a cash flow -- positive cash flow. Three project divestment and one internal land transfer in the quarter. Result includes these impairment charges, of course, in U.S. And we have 2 large lease contracts signed in the same quarter. Investment Properties, operating income stable, SEK 143 million, and we do have a stable occupancy rate of 83%, it was the same as last quarter. The total property values continue to be on the same level, SEK 8.2 billion. If I go back to the Construction stream now and look at the order bookings. And here, you can see over time for last 5 years, the order backlog, the bars, the blue bars here. You can also see the rolling 12 order bookings, the light gray line and the order bookings per quarter, the orange. And also the revenue, the green, rolling 12, which you can see has had a slow increasing trend the last few years. And that's thanks, of course, that we have been successful in increasing the order backlog, which again is on historically high level. And you can see the yellow line, the book-to-build rates over 12 months. So I think it's important here to look at over the rolling 12 months' trend, because when it comes to order bookings, it can fluctuate quite a lot between a single quarter. And that you can see also when you look at the order intake in the quarter, which is down from SEK 50 billion to around SEK 40 billion. We'll come back to each and every geography here. But we are in a very good position. And if I look at the order bookings per geographies, you can see here that overall, we have a book-to-build ratio of 106%, and we have over well above in the Nordic and European operation slightly below in the U.S. operation on a rolling 12-month basis. But look at the months of production, 19 months in overall, and I'm very confident that we have a very good position. So we can continue to be selective going for projects that we see we have competitive advantage and that we have a good track record as well for the future. So with that, I hand over to Jonas to go through the financials. Jonas Rickberg: Thank you, Anders. And we'll continue here with the Construction side. And as you can see, the revenue is fairly flat here in SEK, but it's actually up then with 7% in local currency. The green line, we're actually then having a gross margin that has increased to 8% in the quarter, which really emphasizes the great quality that we have in the order book. We continue to have a strong and good cost control within the stream, and that is then generating that you can see over the line there, but that is also then showing here with a good result in the operating margin of 4.2%. Operating income of SEK 1.8 billion, an increase with 22% versus last year. Worth mentioning again, I would say, is the rolling 12 of 3.9% in operating margin. Looking here on the geographies, we still see that we have a solid delivery for all the areas, Nordic, Europe and U.S. That sticks out a little bit on the positive side here, it's actually Sweden with 4.9. That is building up from a strong portfolio right now, and it's very clear natural trends within the quarter and so on. So if we summarize the Construction line here, the Construction stream, we can see that we have a strong performance in all geographies right now. We have actually a 5-year track record here on margins that are on or above our target of 3.5%, which is strong. And of course, as you said, Anders, we had SEK 264 billion here in our order book that we can harvest from, and that is a real strength going forward. Moving on then to residential development. Here, we can see the income statement. And of course, you can see that half of the revenue actually come from Central Europe, which is really strength from that delivery point of view. We started 2 new projects in Central Europe in Prague and Kraków, and that had a really good presales level as well. We have reduced S&A significantly over the years. And right now, we have an organization that is set for higher volumes going forward to really get the leverage here on the S&A going forward. Also, please note that we have an upward trend on the rolling 12 operating margin at 8% here, which is strong. Looking at the operating income or income statement by geographies, you can see here very clear that Europe of SEK 159 million, that is really lifting or keeping up the strong -- the performance here in the stream on a margin of 17.5%. Secondly, here, you can see that Nordic is a little bit on the weaker side, and that is mainly driven by low revenue, actually low sales, few units sold. And also it confirms the trend here that we have said before that buyers really would like to buy close to completion and that we are selling mostly from projects that were a little bit weak in margin that is reflected here. Moving on to home started. You can see that we have out of the 572 units, we have 430 that is coming then from Central Europe and then 142 in Nordic here, and that is actually that we have started places here in Oslo and Uppsala and [ Östersund ]. And looking at the homes sold of the 383, you can see that 240 is actually then coming from presales started in Central Europe and 141 from the Nordic areas here. Rolling 12 months, you can see that we are very balanced when it comes to the sold and started homes, I would say. If we turn into our stock situation, you can see that we have -- the homes in production is actually then ticking up to a level of almost 2,900 homes in production, and that is up since Q2. Unsold completed homes is also coming down from Q2 level of 486, which is good as well. If you summarize the Residential Development area, we can see that we have a good performance despite we have a challenging situation in the Nordic, but it's really lifted up from the Central European unit here. And also that we are preparing here good projects within pipeline for start when the market condition is in a better place as well. If we move to Commercial Development, you can see here that revenue side, there are 3 divestments, 1 in Poland and 2 in Sweden. And also, we have the internal sales of land from -- in Europe here. Impacting the operating income is actually the gain from sales mostly related then to -- from a situation of SEK 234 million here in the gain of sales. Also, as we were into, we had an asset impairment in U.S. of SEK 658 million. And as we have mentioned earlier, it's low transaction volume in U.S. and it's very slow there. So it's -- the visibility is hard to compare there. So it's a few units only. The impairment has done, of course, to really ensure that we are having the right balance, the asset value in the balance sheet, and we are doing this continuously over quarters. And it's very clear that it has no cash flow impact, and it's then representing a little bit more than 3% of the book value of total U.S. portfolio. Moving on to unrealized and realized gains. Here, we can see that we had SEK 5 billion in the quarter, and it's an upward trend, which is good. And that is then sign actually of the starting -- of the fact that we are starting to see the positive impact of slowly starting new projects here with profitable and solid business cases. We have a situation. We have a good land bank in attractive locations that we really would like to build and harvest from going forward and actually making sure that we have solid business case for this going forward. In the portfolio, we have unrealized gains of 10% here in Q3. And as we have said many times before, it's very, very quite much in the portfolio between the different regions of started and older -- more new project versus older projects and so on. If we move on here to the completion profile of all the Commercial Development properties that we have, we have SEK 18 billion of already completed and 22 projects. And as we can see here, it's on the purple line, it's up -- it's 77% in leasing, and that is up from 74% last year. So it's a good trend there. Also, if you look into the green dots, and if you are very particular comparing them to the last quarter, they all have moved up, and that is a real strength here that we are leasing more with ongoing projects. And in Q3, we also made sure that we are having a better outlook here for Central Europe and Nordics when it comes to the commercial property. And it's very much based on the fact that we can see that we have -- there's better access to debt as well as the pricing on debt and so on, and that is driving a little bit the market here. And that is, of course, very encouraging to see. Focus even more here when it comes to the leasing part of commercial operation. We can see that we have in the bar there to the blue, last right, you can see 77,000 square meters let, and that is actually then coming from 2 big leases, H2Offices in Budapest as well as Solna Link that we have started there. Also, we can see, I'm very glad also that we have a trend shift here. Average leasing ratio of the ongoing projects is 64% versus then the compared to completion of 55%. And that is a strength, of course, that we are increasing the leasing versus then the completion that we have. To sum up, we have a strong leasing activity in the quarter. And of course, we see the importance here to turning the -- all the completed assets that we have and translate them going forward and also be able to make sure that we have solid business case to start with when the market is ready and so on. We have a lot of things to sell, but we are also very cautious about how -- and we have a very patient and good value for the -- we really would like to capture the good value that we have created over the years. So very good patience here to sell the good things that we have, I would say. When it comes to the Investment Properties, it's stable operational and financial performance within the stream. Operation income is positively impacted by a reassessment of the property value of some units here, and it's actually then SEK 53 million up. And that is also a sign that we can see that we have better outlook here for the Nordic markets real estate as well. Moving into the income statement. We can -- here, I would like to take the focus a little bit on the central items that is SEK 58 million, and that is actually then coming from a positive effect from release of provision on the asset management business related to some milestones in projects there. Also, we can see that cost varies between quarters and so on. And as I said last quarter 2, we are on the level that we are representing more or less the first half year of this year for the full year. And we are seeing a little bit higher cost here due to the fact that we have outsourced IT infrastructure that is impacting this year, but of course, it will be better here going forward once we can see these synergies. Also, looking at the elimination line there, you can see that, that is then connected to the internal transfer, that of SEK 234 million recognized in the commercial development area. And no swings really in the financial net, and we actually then recorded a profit of SEK 1.3 billion and an earnings per share increased by 36% versus last quarter. Moving into group cash flow. We can see that we had a 0 cash flow for the quarter, and that was a result of that we are in a net investment for Residential and Construction stream right now. If we lift ourselves a little bit more and look into the bigger trend of rolling 12, we can see that we have a really good underlying cash flow from the business operation, and we can see good -- and continue to have good level of negative working capital as we will come into soon as well. And also, we can see that we continue being a net divestment cycle that we really would like to be and releasing more cash and so on. Focusing on the construction and the free working capital, you can see it's fairly flat there between the Q2 and Q3. And we are quite comfortable with these levels as we have right now and so on. Also worth mentioning here is that the higher bars here last year, quarter 3 and quarter 4, are not representing really because it was very much connected then to mobilization of some milestones in big projects that we have an advantage of. And of course, we have 18.2% here in relation to revenue, which is strong. Moving on to the investment side. As mentioned, the quarter, we had net investment for the group. But rolling 12 period, we remain on the net divestment territory here. This means that we are taking down the capital employed level within Residential and Commercial Development here, as you can see in the bottom from SEK 64 billion then to SEK 62 billion and so on. Looking ahead, of course, as I said, we have a few assets on the balance sheet that we really would like to transfer and making ready for divestments. We are starting and preparing new products with really good solid business case as well. But the timing of these flows are of essential that the market and the demand and supply are meeting, then, of course, we will shoot off these. For sure, once we see that we are succeeding here with the divestments, we're making sure that we will then invest more going forward. If we look into the liquidity point here, we can see that we have a good liquidity situation of SEK 28.1 billion here. And that is then a super strong position, and we have a loan portfolio that have a balanced maturity profile as well. Finishing off here with the financial position, which is very, very strong, as you know, who has followed us. We have an equity of SEK 60 billion, and that is almost a level of 38% and equity ratio. We have an adjusted net cash of SEK 9.3 billion. And as you were into Anders, it's a good situation to be in and also good for all our customers that are really relying on us and making sure -- and trusting us in the fact that we are here to complete the projects no matter what. So we have the financial strength to do that, I would say. And by that, handing over to you, Anders. Anders Danielsson: Sure. I will go through the market outlook before we summarize and start the Q&A. Market outlook for Construction is pretty much unchanged from the last quarter. We have a strong civil market in the U.S., and we can see we are in a more traditional infrastructure operation in U.S. So we can see a strong pipeline, and we don't see any slowdown here. And there's still existing federal funding programs as running over time here. The civil market in Europe is more stable. It's strong in Sweden due to -- we can see that there's a lot of investments in infrastructure. We can see defense and also wastewater and that kind of facility coming out. So that's a good opportunity for us. And the building market is stable in the U.S., continue to be stable and more weaker, especially in the Nordic due to the slower residential and commercial construction market. But in Central Europe, it's more stable, both on civil and building. Residential Development, good activity, as we've been talking about in Central Europe, great market and driven by a lot of people moving into the capital cities and the largest university cities. And the lower-than-normal market in the Nordic housing market, even though we can see some signs, the underlying need for residential is there in the market we are operating in. The lower interest rates helps, of course, but I think we need to see some economic growth, GDP growth in the different market in the Nordics to really see that people are getting back the confidence and buying homes. But we do have an underlying need. Commercial Property Development, we're increasing the outlook in Central Europe and in the Nordics. We can see higher leasing activity in both Central Europe and Nordic, we can also see that the investor market and transaction market, they are more active, especially in Central Europe, but we can see signs of improvement also in the Nordics. So we are increasing it to a stable market in those geographies. Investment Properties. Here, we can see continue to be stable market outlook. There's a strong demand for high-quality buildings, office building in the right location with good train connection and so on. We can offer that. So we can see it's a polarized market, definitely, but we are in the right location there, and we expect rents to be mostly stable here. So if I summarize the third quarter. Construction, strong margin generated by the solid project portfolio. We had a great performance in Residential Development in Central Europe, weaker in Nordic. Commercial Property Development, 2 large lease contracts signed here in the Nordic and Central Europe. And again, the Investment Property is very stable. And very important, we are maintaining a solid financial position, which is a competitive advantage. So with that, I hand over to Antonia to open up the Q&A. Antonia Junelind: Very good. So yes, now we will open up for your questions. [Operator Instructions] But I will actually start by turning to the room to see if we have any questions here. If you have a question, then just please raise your hand. We will bring a microphone and we'll ask you to please start by stating your name and organization. We have a question here in the front. Stefan Erik Andersson: Stefan from Danske Bank. A couple of quick ones. First, the margins in the Construction division. It's a major jump year-on-year. It looks good quarter-on-quarter as well. We're not really used to that kind of jump up. We can see the drop sometimes, but rarely such jumps up. Could you maybe elaborate on -- 2 questions. What's behind that? Are you getting rid of problem projects, and therefore, the good ones are seen? And second question on that, is this a new level that we could be comfortable calculating also for the future? Anders Danielsson: I can take that question, Stefan. Yes, we have a very strong performance in the Construction stream. And I can say that we have been able to, by this good discipline, avoiding loss-making project. And that's a real key to be successful here. And also, we should not look at the single quarter, I said it before. So you should look more on the rolling 12 months. We don't have any positive one-offs in the quarter. It's a very good performance. And the key here is all geographies performing, and that's also quite unusual even though we have been on a good level for some years now. So right now, everyone is performing. And of course, that boosts up the underlying margin. And I also see that in a single quarter, it can fluctuate because we -- sometimes, we are completing large project, profitable project. And then since we have a conservative profit to take in -- during the construction, we can have a boost in the -- when we complete the project. So look more over time. What we expect of the future? I always expect to reach our targets and be above our targets, which we have been for some time now, and I have no other view on the future, definitely. Stefan Erik Andersson: That's good. That's enough. And then on orders, when listening to you, you're talking a lot about the rolling 12 months and don't look at the quarter above and all that. But 2024 was extremely good in -- with large orders. Should I interpret you as the level in 2024 to be a normal year? Or should I continue to believe that it was a very, very good year, unusually good year? Anders Danielsson: It was an unusually good year. If you look at the third quarter now in U.S. because you can see the Nordic and European is actually increasing the order intake. But the U.S., if you look at the current year, we are on a 5-year, 10 years average. And again, we have a rolling book-to-build of rolling 12, but it's very close to 100% in U.S. So I'm -- so that's how we should look at it. Stefan Erik Andersson: And then the final question on IP. You talked about the stable situation with the occupancy there, 83%. It's 80% in Stockholm, Gothenburg. To me, if you're not [ Kista ] with new stuff, it's actually a low level and it's not improving. So just wondering a little bit, is the specific properties that is a problem? Or is it just a general spread out issue? Anders Danielsson: I would say the leasing market is somewhat impacted by a slow economic growth. So there is -- we see some, as I said, increase in some signs of improvement, but it takes time, and it's a very polarized market. So if you have a Class A building and right location, it's much more attractive. So that's -- but it's -- you're right, it's on the same level for over a couple of quarters. Stefan Erik Andersson: Is there specific properties that are really... Anders Danielsson: No, I wouldn't say so. It's quite even spread. Antonia Junelind: So we're going to continue with a question here in the room. Albin Sandberg: Yes. Albin Sandberg, SB1 Markets. I had a question on the financial position, and you made a comment about a level where the customers are happy and they can trust you. At the same time, you have the financial targets that would allow you for substantially more debt, which I guess also is tied back to the commercial property activities and so forth. But what kind of levels do you need to be in order to have the customers to be sort of happy with you? And is there anything to read into where we are in the cycle now that makes you want to operate with a higher net cash maybe than what you theoretically could? Jonas Rickberg: Albin, of course, I mean, we are in a business that is very cyclical. And of course, we really would like to be able to take advantage of things and be opportunistic when things are possible to do that. So we are not really guiding how much we need and so going forward. But we are comfortable with the situation we are right now, definitely. Albin Sandberg: And my second and final question is, when it comes to your investment, the plans and so forth because obviously, your invested capital has come down a bit now year-to-date. Given what's happening on the office side and so on recently, what would take you to get the investments up now, let's say, over the next 12 months? Jonas Rickberg: No. But as we said, we can see that we have a good leasing traction and so on and also that the market is here in Central Europe as well as in Nordic, it starts to meet and so on. And of course, if we are successful here with the SEK 18 billion that we have in the balance sheet of [ 22 ] ready projects, and if we can make them fly here. And of course, then we are a little bit more appetite for the things that we have prepared, of course. So really looking forward to things to move here. Anders Danielsson: I can add to that, that we will start project and our starting project in geographies that we see that there's more -- better activity, we announced starting in Poland the other day as one example. Antonia Junelind: Very good. So we will then move over to the online audience. And I will ask you, please, operator, can you put through the first caller. Operator: [Operator Instructions] Our first question comes from Graham Hunt with Jefferies. Graham Hunt: I've just got 2 questions, please. First one is on the U.S. commercial impairment. So you only have a handful of assets in the U.S. So I just wondered if you could give any more color on where that impairment has been taken or what kind of assets it's been taken on region-wise, type of building wise. Just any more color on the breakdown of that impairment would be helpful. And then second question also on the U.S. construction business. Last year, you had quite a lot of order intake related to data centers, but that seems to have dropped off quite significantly in 2025. Is there anything that we should read into that as to your offering in data centers? Or is that just typical lumpiness in the market? Any comments around that would be helpful. Anders Danielsson: Sure, Graham. Thank you for the question. If I start with the U.S., we have an operation in 4 cities in U.S., as you know, and we haven't announced where. We have said now it's a few projects. And again, to Jonas' point, the value of this write-down represent just about 3% of the total value. So I don't see any drama in that. And if you look at the U.S. portfolio overall, we have mainly -- the main part is office building in those 4 cities. And we also -- but we also have high-end rental residential in the different cities as well. And we also have some small life science. But the main part is office building. And again, we have a good leasing ratio here. So we do get a good cash flow from them. But we have looked into this internally, external help, and we see due to the slow market, very few transactions. So we have to take this write-down in the single quarter. On the construction data centers, I don't think you should look in a single quarter. It can be quite lumpy. We do -- we have a healthy backlog with data centers, a lot of international -- strong international players, who invest in data centers, and we can see they continue. So we haven't seen any cancellation. And we can see that the strong pipeline will -- our expectation, it will materialize going forward. Operator: Our next question comes from Arnaud Lehmann with Bank of America. Arnaud Lehmann: A couple of questions on my side. Firstly, just following up on U.S. construction. Have you seen any implication from the recent government shutdown? We hear in the press about some projects being potentially canceled. So either in terms of order intakes or delays in payments or anything happening there in U.S. construction, please? That would be helpful. And secondly, I appreciate it's a small part of your business, but coming back on Residential in the Nordics, you mentioned the weakness. Can you give us a bit of color on why that is the case when rates have been coming down a little bit? And do you see at one point potential improvement into 2026? Anders Danielsson: Thank you, Arnaud. If I start with the U.S. civil and the -- U.S. construction operation and the government shut, we haven't seen any impact on our project, and we haven't seen any cancellation either or late payment. The most of our client in U.S. operation are states, cities, institution, large -- as I said, large player on the data center side. So we are having a close look at it, of course. But so far, we haven't seen any impact. And on the Nordics, yes, as I said earlier, the underlying need for homes in the Nordics are there, definitely. And we are on a very low level if you look at the whole market and new units coming out. But -- and the rates helps, of course, interest rates cut, it helps. But we need to see consumer confidence coming back. We saw it dropped quite a lot in the first quarter this year, and we also saw the impact on the sales. So I think we need to see some economic growth in the different geographies. There's a lot of now initiative, Sweden as one example from the government to boost the growth, economic growth. And if that materialize, I'm sure we will see a different outlook in the future. But right now, we think it will take sometime. Operator: [Operator Instructions] Our next question comes from Keivan Shirvanpour with SEB. Keivan Shirvanpour: I have 2 questions on CD. The first is that you lifted your outlook for the Nordics and Europe in Q3. What's your expectations on divestments going forward? Are you maybe optimistic for making some transactions before the end of the year? Jonas Rickberg: Okay. And as you all know, we don't guide here going forward. And right now, of course, we can see signs that, as I said earlier, when it comes to the leasing activities that is coming up and also that the transaction market is a little bit better with international players as well like this coming in and interesting to use the capital, so to say. So that was the main things why we are actually then increasing the outlook for the CD business here in Europe as well as in Nordic, I would say. Keivan Shirvanpour: Okay. And then my second question is related to the unrealized gains. First of all, the complete project that you have, you have unrealized gain, which is at 5%. And then for the ongoing projects, you have unrealized gains, which is up 20%. Could you maybe elaborate the difference? Jonas Rickberg: Sorry, once again, if you said that the unrealized in? Keivan Shirvanpour: Yes. Unrealized gains for the completed project is equivalent to 5%, but the unrealized gains for completed projects or ongoing projects is at 20%. Why is there such a difference? Jonas Rickberg: And that's, as I said, I mean, we had here the average of 10%, and that is then correlated to the fact that you are pointing out that we have a little bit older properties with lower, and then more new ones that is stable when it comes to the business cases and so on that is then generated the higher portfolio value there. Keivan Shirvanpour: Okay. So just -- maybe I'll follow up. So I assume that divestments that may occur from completed projects will potentially have quite low margins, potentially single digits, if I interpret that correctly based on that valuation. Jonas Rickberg: No. And as I said, I mean, we have the average here of 10%, and that is where we are communicating at the level right now. Operator: Our last question over the phone comes from Nicolas Mora with Morgan Stanley. Nicolas Mora: Just a couple of questions coming back on the U.S. First one on the order intake. You still seem to be struggling a little bit with the smaller projects, the one you account for below SEK 300 million. Is the market still soft there? There's just no real pickup in these small projects from either on the private side or the public side? That would be the first question. Second, on margins. So another very strong performance. All your peers are also doing better, especially, for example, in the U.S. civil works, but the Nordics peers as well have reported very strong results. Since everybody is being more disciplined, why not think about increasing the medium-term margin trend? You're getting very close to 4% now. Anders Danielsson: Yes. Thank you for that question. If I start with the U.S. order intake, the average size in the U.S. are larger than compared to Europe. So we would more proportionate more -- communicate more orders there compared to Europe. But I would not -- again, I would not look at a single quarter and compare it to -- last year was significantly higher -- unusually higher. And you should look more over time. And also, we are still on a 5 years average. And I think that's -- we have a very strong order backlog in U.S. as well. So I'm confident in that, and I can also see a strong pipeline. So I'm not worried about the situation. We can continue to be selective and go for projects where we can see a competitive advantage and we can go for higher margin. That's what we've been doing for several years now, and that's paying off, obviously. So that -- and if I look at the margin then, yes, we can see that it's increasing not only in U.S., we can see good margins in Europe as well. And we definitely -- we have been on the target level or above for some time now. And -- but the target is, as you know, 3.5% or above. And of course, I have no other view on it that we should maximize the profit from the operation. So -- but the target is still relevant. Nicolas Mora: Okay. And if I may, just following up on the question on data centers. I mean you -- obviously you said, I mean, these orders are lumpy. We should look at it over at least a 12-month basis. But if we -- indeed, if we look on a 12-month basis, it's been -- it's really been a dearth of projects in the U.S. in your sweet spot regionally and in terms of size, do you have an issue with your main customer? Or it's just basically bad luck on timing and things will pick up? I mean you say strong pipeline, but it's been now 5, 6 quarters with not much in terms of strong order intake. Anders Danielsson: Yes. But we have also communicated the last few quarters that some -- it's coming in new -- this data centers that needs to be cool and require more cooling. So sometimes we need to -- or the client needs to design the facilities to water cooling instead of air cooling and of course, that delays some of the projects. So I don't see any -- I haven't seen any cancellation. I have seen that some clients are postponing some projects due to the need for redesign. So I still -- I'm confident in that. Antonia Junelind: Very good. Then as far as I can see, there are no more questions from our online audience. Can you confirm that, George? Operator: That's correct. We have no more questions. Antonia Junelind: Perfect. And no more raised hands in the audience, or Stefan, you have one more question? Yes, sure. Stefan Erik Andersson: Just a follow-up there on the earlier question from SEB about the margin in the completed. When it comes to the projects that you -- over the last 2 years in the U.S. have written down the value on, I would imagine if you sell them to what you think is the market value, you wouldn't have any margin on those or -- so that's part of the explanation of the low margin or do I misinterpret that? Jonas Rickberg: No. But as I said earlier, sorry to repeat myself, I mean it's a full portfolio view we are looking into here and there is differences here between the older project and the new ones that we started and so on, and we don't give any guidance really for specific markets where we have the profitability, so to say. Stefan Erik Andersson: I fully understand that, but put it this way, when you write down the property value, you write it down, so you don't have any margin if you sell it, what you think you could get for it? I mean you don't write down and get the margin... Jonas Rickberg: Yes, correct. Correct. Antonia Junelind: Very good. So that was then the final question. Thank you, Anders, Jonas, for your presentations and answers here today. And thank you, everyone. Big audience in the room today. Thank you for coming here and joining us here today. And for those of you that have been watching, thank you so much for tuning in for this webcast and press conference. We will naturally be back with a new report in the fourth quarter. And even before then, as Anders mentioned here earlier, we are hosting our Capital Markets Day on November 18. So it will take place in Seattle. And if you can't join us there, we will also live stream part of the day on our web page. So turn into our IR pages there, and you will find the link, or reach out to myself or anyone else in the IR team. Thank you so much for watching. Have a lovely day.
Operator: Good afternoon. This is the conference operator. Welcome, and thank you for joining the d'Amico International Shipping Third Quarter and 9 Months 2025 Results Web Call. [Operator Instructions] At this time, I would like to turn the conference over to Federico Rosen, CFO. Please go ahead, sir. Federico Rosen: Good afternoon, everybody, and welcome to d'Amico International Shipping Q3 Earnings Presentation. So moving straight. Okay. Moving -- skipping the executive summary as usual and moving straight to Page 7, snapshot of our fleet. As of the end of September, we had 31 ships, 31 product tankers, of which 6 LR1s entirely owned, all owned after we exercised the purchase option on the Cielo di Houston, which was previously in bareboat chartered-in for $25.6 million at the very end of September. We had 19 MRs, of which 17 owned and 2 bareboat chartered-in, and we had 6 handy vessels. Still a very young fleet relative to the industry average. The average age of DIS fleet was 9.7 years at the end of September against an industry average of slightly less than 14 years for MRs and 15.4 for LR1s. We increased the percentage of our eco ships, which is now 87% of our fleet. This follows the sale of one of the Glenda vessels, the Glenda Melody, which was delivered to the buyers in July this year. Moving to the next slide. Bank debt situation, very straightforward. We had $19.6 million of bank loan repayment or scheduled bank loan repayments in the first 9 months of the year. We had $5 million of repayment on one of the vessels that we sold. We expect to have $6.2 million of scheduled repayments in Q4 this year. And going to '26 and '27, we're expecting to have slightly less than $25 million of scheduled loan repayments with a minimum level of debt coming to maturity in '26 for only $3.2 million. And a bit of a higher amount of $64.8 million coming to maturity in 2027. At the same time, as you know, we are expecting the delivery of our 4 newbuilding LR1s in the second half of 2027, and we're expecting to finance the ships with a 50% leverage right now, which equates to a bit more than $111 million. Pretty impressive, I would say, the graph on the right that we always show, this goes back really to the significant deleveraging plan that we have been implementing in the last years. Our daily bank loan repayment was $6,147 a day in 2019, and it dropped to $2,426 that we're expecting for 2026, with a total repayment, as I said before, of slightly less than $25 million per year. Moving to the next slide. A bit of a rough outlook on the Q4. Q4 looks really good so far. We have already fixed 54% of our days with time charter contracts, time chartered-out contracts at slightly less than $23,500 a day. We have already fixed 23% of our days at $28,262 on the spot market. So that means that for Q4, we have already fixed 77% of our days at $24,930. So it looks like another very profitable quarter for us. Looking on the right, as always, we show a bit of a sensitivity. So, should we make $18,000, which seems pretty unlikely on the 3 days that we have for Q4, so the days that are fixed right now, that our total blended daily TCE, so spot plus TCE would be of $23,355. Should we make $21,000 a day, our blended daily TCE would rise to $24,000 a day. Should we make $24,000 a day on these unfixed days, our blended daily TCE would be of $24,719 a day. Moving to the next one. Estimated fleet evolution, we're expecting to have 30 ships. As you know, we agreed a sale of 2 vessels, 2 of the older ships of our fleet at the end of Q2 this year. One ship, as I just mentioned before, was already delivered to the buyers in July. The other one is going to be delivered to the buyers by the 20th of December this year. So after that, we will have a fleet of 30 ships at the end of this year, mainly owned, 28 ships owned and 2, which are the High Fidelity and High Discovery, 2 MRs still bareboat chartered-in. Moving to the graph on the right at the top -- sorry, Carlos, if you go one back up. Potential upside to earnings, we still have a sensitivity for every $1,000 on the spot market of $6,000 a day for the remainder of this year. We have a sensitivity of $7.2 million for '26 for every $1,000 a day, we make more or less on the spot market. And the sensitivity is much bigger for 2027, is of $10 million right now. And at the bottom of the page, you also see, as always, what our net result would be for '25, '26 and '27, should we make -- should we breakeven for the day -- in the days that are not fixed right now. So, should we breakeven? For the days -- for the 3 days, we would make a profit of $21.9 million this year, $26 million in 2026 and $4.6 million for 2027. And on the right, you can also see the sensitivity relative to the spot market. So if we make $80,000 a day on our free days on the spot market for 2025 for the remainder of 2025, then our net result would be of $83.8 million. Should we make $21,000 a day, our net result would be of $85.6 million. If we make $24,000 a day, our total net result for the year would be of $87.5 million. And looking at next year, again, should we make $80,000 on the spot on the free days, our net result would be of $47.7 million. Should we make $21,000 a day, we would make a net result of $69.4 million. Should we make $24,000 a day on the free days, our net result would rise to $91 million. So, strong upside to earnings. Going to the next page on the cost side. OpEx, we had a daily OpEx of $8,148 in the first 9 months of 2025. We still have some inflationary pressure that we've been talking about in the last quarters, also in the -- also in Q3, also in the first 9 months of the year. However, the trend is staining a little bit. The overall daily figure is not significantly higher than the same period of last year. And it's really related, as we mentioned previously, to higher crew cost to higher insurance costs, which is also the reflection historically of higher vessel values and also to some inflationary pressure that we also had on some technical expenses. On the G&A side, we had $19.2 million of total G&As. And here, the variance relative to the previous years, as we mentioned in the past, is really related to the variable component of personnel costs, which is really correlated to the very good years that we've been having recently. Moving to the next page. Very strong financial position, as you can see. We had a net financial position at the end of September 2025 of $82.4 million or $80 million if you exclude a small residual effect related to the IFRS 16. Gross debt of $231.1 million, with cash and cash equivalent of almost $149 million at the end of the period. So if you compare a net financial position to the fleet market value of our fleet, which at the end of the quarter was assessed in $1,085.3 million. Our financial leverage, so calculated as the ratio between the net financial position and the fleet market value was of only 7.4%. And just to remind everyone that this figure, this ratio was 72.9% at the end of fiscal year 2018. And this goes back to this very significant deleveraging plan that we've been implementing. Going to the next page. On the income statement side, strong quarter. We made $24.3 million of net profit in the third quarter of the year, which is 24% better than in Q2. Looking at the first 9 months of the year, we made a profit of $62.8 million, which includes also an asset impairment of $3.8 million that is related to the 2 Glenda vessels that we sold. This was booked in Q2 that I just mentioned before. Excluding some non-recurring items from the first 9 months of the year, our net result would rise to $67.1 million. Of course, this is significantly lower than the same period of 2024, in which we had an even better, as you know, freight market, although as you can see, this year is still significantly profitable. Going to the next page, key operating measures. We achieved a spot average -- a daily spot average in the first 9 months of the year of $23,473. We also covered with time charter contracts, 48.4% of our days at $23,700 a day on average, which means that we reached a blended daily TCE of $23,583 in the first 9 months of the year. Looking at Q3, looking at the third quarter, we had a spot average of $25,502, which is a bit more than $1,000 a day more than in Q2 -- what we made in Q2 and almost $4,300 a day more than what we made in Q1. We also covered approximately 55% of our days in the quarter at an average of $23,378. And so our blended daily TCE for the third quarter of the year was at $24,335, and it is so far our best quarter this year. Next page, I pass it on to you, Carlos. Antonio Carlos Balestra Mottola: Good afternoon. Thanks, Federico. So now we look at our CapEx commitments. Not much left in this respect for '25, only maintenance CapEx. And then for '26 and '27, we have the remaining installments for the 4 LR1s ordered for a total investment of $191 million, of which only $17 million next year. And most of this instead due in '27 and more specifically at the delivery of the vessels. Going on to the following slide here, the leased vessels. We exercised the Houston, as previously mentioned by Federico. We still have the Fidelity and Discovery, which we can exercise. These are long lease contracts, which terminate only 2032 and interest rates still haven't come down to levels, which would make exercising these options attractive. So for now, we keep them going. But next year, a window might open up depending on the path followed by the interest rates for us to exercise these options. On the following slide here instead, we show the difference in the market value of the vessels, which were previously on TCE and whose options we exercised and their book value as at the end of September. And we see there's still -- the delta is very positive at around $46 million, slightly less than the $57 million, which represented instead the difference between the market value of the vessels and the exercise price at the exercise date. Going on to the following slide. Here, we show our contract coverage. And for Q4, we have a coverage of 54% at a very profitable average rate of almost $23,500. For '26, we actually have a slightly higher rate than that, $23,700 for 32% of the available vessel days. TCE rates have been gradually moving up over the last few weeks, reflecting the strong market conditions and the strong outlook for the market for the coming years for the reasons, which we will be discussing, outlining in the rest of this presentation. At the bottom, we show the increasing percentage of eco vessels that we are controlling as a result of the disposal of the new eco vessels in our fleet and of course, in the previous years also of the deliveries that we had of new eco vessels, which joined our fleet. Here, we see on this page that on the left, TC rates, the blue line and spot rates with the yellow line have been moving up since April. And on the right-hand side, we see also that asset values have stabilized and actually are moving also -- have been moving slightly up in the last few months. And we show here that the estimated rate for a 1-year TC for an eco MR today is at $23,500. So very profitable rate and for an eco LR1 at $26,500. So going on to the following slide. Russian exports of refined products, they held up very well after the onset of the war for some time. But more recently, we are seeing a decline this year, in particular from April this year. We have seen these exports starting to drop more decisively. And that is the result both of tougher sanctions being imposed on the country as well as the activities by the Ukrainians, which have been targeting Russian oil assets, infrastructure, terminals and in particular, also many refineries. At a certain point this year, we had almost 20% of the Russian refining capacity, which was offline, which could not be used because of these drone attacks by the Ukrainians. So as a result of these attacks, also the Russian government had to take some decisions to reduce exports of diesel, in particular, to keep more of the product domestically. And so I think this is only the beginning and the full effect of the latest sanctions, which were announced on Lukoil and Rosneft are still to be felt. And I think we are going to be start seeing them towards the end of November because there is a phase-in period end December. And then we are going to be starting to see a more pronounced decline in exports of refined products from Russia, which is an important exporter of such products. So, lower exports from this country is going to tighten the refined product market and has already contributed to an increase in refining margins, so as we will see later in the presentation. So here, talking about another disruption to the market, the attacks by the Houthis to vessels crossing the Bab-el-Mandeb strait. Although there is a peace agreement, fragile peace agreement, I would say, in place currently between Israel and Hamas. Vessels have not returned to crossing the strait in a normal fashion. Crossings are still well below where they were prior to the beginning of the conflict. And as we see on the bottom left chart, the red line, which depicts the percentage of crossings through the Bab-el-Mandeb strait. On the top right-hand chart, instead, we show the East to West and West to East CPP ton day volumes being transported. So as a result of more volumes having to sail the longer routes through Cape of Good Hope, if volumes had not been affected as a result of this conflict of having to sail these longer routes, we would have expected ton days to have risen and that authorized. That is what happened in the first 9 months of '24, where we saw a big spike relative to the red line, which is the average for 2023. But thereafter, we saw a decline -- a quite pronounced decline in the fourth quarter of '24 and a further small decline from that level in the first 9 months of '25. There was a pickup in activity over the summer. But nonetheless, the average for the period is well the average of 2023. And then there was a more pronounced decline in October. So, I would argue that even a normal -- if normal crossings were to resume because this peace agreement holds and then this will not -- is not likely to be negative for the market, and it could potentially be also positive. The environment we had in the first 9 months of '24 was exceptional. We had very, very strong refining margins and big arbitrage opportunities, which opened up to import these products into Europe, where stocks were very low. And therefore, traders could justify paying up for vessels and saving the longer route and incurring these additional costs associated with saving such longer routes. In a more normalized market, where these arbitrages are not as big than having to sail the longer route could actually be a negative because it could really kill the trade and force product to stay more regionally, which is what happened mostly since Q4 '24. And here, we show also the effect of cannibalization, which we do not see in the graph in the previous slide. So, not only the ton days overall declined since Q4 '24, but also a larger portion of the products of these products on this, in particular, East to West route were transported on non-coated tankers, VLCCs, but even more so on Suezmaxes. As we see here on the graph on the right-hand side, the blue bars are the Suezmax volumes transported. And on the left-hand side, on the yellow line here, we see the percentage of volumes transported on uncoated tankers. It did spike at 12% in 2024 when the dirty markets were weak and the clean markets were doing very well, and there was a big incentive for vessels -- dirty vessels to clean up to transport these products. It then declined very sharply this percentage, but then it bounced back and now it's at 7%. So, we continue seeing this cannibalization ongoing. It's more to do now with vessels performing maiden voyages. So, newbuilds delivered that transport CPP on their maiden voyages rather than cleanups, but there is also some cleanups which have happened this year. Going forward, it is -- this cannibalization is, we believe, is going to be driven mostly by new builds, transporting CPP on their maiden voyages because of the acceleration in deliveries of newbuilds that is expected, planned, let's say, for the rest of this year and the coming 2 years. Here, we see that the refining margins have increased quite sharply, especially here, we see crack margins for Rotterdam and they have moved up quite significantly over the last few weeks, in particular, for diesel and gasoline. And this spike here, we see coincides with the introduction of the tougher sanctions on Russia on Rosneft and Lukoil by OFAC. U.S. Gulf Coast refining margins also are holding up at very attractive -- at attractive levels by historical standards. So, this should drive refining activity, strong refining activity in the coming weeks and months in our opinion. And this year is actually very important, what we are seeing here on the slide. On the graph on the left, we see this increase in sanctioned oil and water. This is a very pronounced increase on sanctioned oil and water, which has been ongoing, but which gained new impetus this year and in particular, also over the last few months as a result of the tougher sanctions imposed on both Iran, but in particular, on Russia. On the right-hand side, we see the total number of vessels sanctioned, which is above 800 vessels, which on a deadweight ton basis represents more than 15% of the tanker fleet. So it's a huge number. And there are also other vessels which still haven't been sanctioned, which are still involved in trades, which are shady. So part of the, let's say, shadow fleet. So if we include also these vessels, we are at around 20% of the tanker fleet on a deadweight ton basis. So it's a very high percentage of the fleet. And these vessels when they are sanctioned, their productivity falls. We have seen that vessel speeds have increased for non-sanctioned vessels over the last few weeks and months as is to be expected given the strong freight rates, especially for crude tankers that we are seeing. But we have seen a decline in average speeds for the sanctioned vessels. And a lot of sanctioned vessels are really not able to find, let's say, a destination for the product. So now they are on a wait-and-see mode in some cases. So let's say, this increase in oil and water is linked to a more inefficient process to sell these vessels. But to a certain extent, it could also be seen as a sort of floating storage, which is happening because this sanctioned oil is finding it hard to then find the final buyer. We do expect that eventually this sanctioned oil will be sold because these counterparties have proven very adept at circumventing sanctions, but it creates inefficiencies in the market and the product might have to sail twice. There might be an intermediate destination to which the oil is sold and then it's retransported to its final destination where it is consumed. So the more use also of, of course, middlemen to obfuscate the origin of the product and of course, more ship-to-ship transfers. And here, we see instead the fees on both U.S. -- by both the U.S. and China, which were imposed and then removed. Of course, it started with the U.S. imposing fees on vessels, which were built or operated in China by Chinese companies. And these fees took effect on October 14. And just before they were supposed to take effect, China introduced similar reciprocal fees on vessels, which were linked to U.S. interest. And then a few weeks later, the 2 countries managed to reach an agreement to postpone the implementation of these fees by 1 year. But nonetheless, in particular, the fees imposed on Chinese vessels is quite impactful because China is such an important country for the production of vessels today. And the threat of such fees means that companies are not as keen in ordering in China as they otherwise would be. So, these fees might end up never being implemented, but there is a risk that they will be. And as they had been -- as per the last, let's say, version of these fees, those imposed by the U.S., a large number of bigger tankers would built in China would be affected. But of course, even if you are ordering a smaller tanker, you still would have concerns in doing so in China because you never know how the legislation could then be modified at a later date. Going on to the following slide, we see here the dynamics for oil demand and refining throughputs. Both are not growing at a very strong pace, but they are still expanding nonetheless. And what is quite important here is where this growth is happening, in particular, for the refined volumes. And what we are seeing is that quite important closures of refineries in Europe and in the U.S. West Coast. So, we are seeing declines in refining throughputs in these regions, which is being more than compensated by additional refining volumes coming from the Middle East, Asia and Africa. And that, I would say, is very supportive for the market going forward. As we saw over the summer here on the graph on the right, there was quite a sharp increase in refined volumes. And then the decline in October as usually happens because of refinery maintenance before winter in the Northern Hemisphere. And then we have this pickup in refined volumes, which usually happens in November and December and which we expect will occur also this year as refineries increase volumes in the coming months. Oil supply growth has been very abundant this year. It was expected to be a strong year in this respect. But with most of the increase coming from non-OPEC countries, OPEC instead decided to undertake an accelerated unwinding of the cuts, which had been previously implemented between April and September this year. It increased the production quotas by almost 2.5 million barrels per day with other increases then implemented in October and then also planned for November and December this year at a lower pace since October, but nonetheless, a very pronounced increase in production quotas from OPEC this year, which coupled with the non-OPEC supply, which came to market is -- would have created a very oversupplied market. But this didn't happen to the extent that could have been expected because China, in particular, stepped in to buy more products. So, China has been building up its oil stocks, strategic oil stocks, so compensating for what otherwise would have been an oversupplied market. And going forward, it is likely that the lower production from Russia and from Iran could also act as a balancing mechanism to compensate for the sharp increases expected in production also for next year. And that would be good for the market because we would have a situation where sanctioned oil is being replaced by non-sanctioned oil, which, of course, then will be transported on non-sanctioned vessels. So, increasing the demand and the freight rates for the compliant fleet. And going on to the following slide, we see here that the total oil at sea has been rising and not as much as the sanctioned oil at sea, but it has been rising nonetheless also and it's now at levels, which are higher than at any point in time since January 2020 and well above also the levels, which were reached in April 2020 when there was this trade war between Russia and Saudi Arabia for market share where they inundated the market with oil, and we had a big spike in floating storage as we see on the graph on the top. We are still not seeing the spike in floating storage, but we are seeing a big increase in oil and water. So as I mentioned, some of this oil and water is potentially, let's say, a kind of floating storage, which is still not being classified as such. But a lot of it is actually just oil, which is being transported in a more inefficient way, being triangulated more ship-to-ship transfers, vessels, sanctioned vessels slowing down. And going on to the next slide. Here, we see the individual components of oil demand growth. At the beginning of the year, naphtha was expected to be an important contributor together with jet fuel. Jet fuel maintained, let's say, its promises and it was the second biggest contributor, but naphtha disappointed to a large extent. And that has to do with the -- possibly the positive -- more favorable arbitrages available for purchases of LPG, which competes with naphtha as a petrochemical feedstock. And however, what surprised positively, the product which surprised positively this year was diesel for which at the beginning of the year, the demand growth was not very spectacular, the anticipated demand growth. And instead, it ended up being the product which contributed more positively to demand growth this year. Here, we see that despite what we were discussing on the previous slide and not very pronounced growth for naphtha demand, Chinese imports of naphtha have been growing quite sharply over the last few years and also this year despite a decline over the last few months. And that has also to do with the tariffs, which had been imposed by China on imports of U.S. LPG. U.S. is one of the biggest exporters of LPG. And given these tariffs imposed by China on this product from the U.S. it became more attractive for them to import naphtha. And here, we see this is quite an important slide now because as we have been mentioning now for some time, we anticipated the crude tanker market is doing well and that they were going to be providing support to the product tanker market through positive spillover effects because of these transmission mechanisms, which there are between these 2 markets. And that is happening now. So, this thesis is playing out in this moment, and we are seeing this very big spike in freight rates now for the crude tankers, in particular, VLCCs are doing very well right now, trading at above $100,000 per day, but also Suezmaxes and Aframaxes are doing very, very well. And not surprisingly, we have seen that the percentage here of LR2s, which are trading clean has fallen since July '24 from 63% to 57%. So, there's been a steady decline in the percentage. And this has happened despite the large and increasing numbers of LR2s that have been delivered over the course of this year. So as they are delivered, they are delivered as clean vessels, but they have -- a large portion of them have been moving straight into dirty trades, and that has contributed to this reduction in -- as well as the cleanups of vessels, which were previously trading clean to this sharp reduction in the proportion of LR2s trading clean. And this can continue. I mean, in July 2020, this percentage was as low as 54%, but there is nothing which prevents this percentage going even lower than that in the future. And given the strong outlook for the crude markets for next year, for the reasons that we previously discussed, I would expect this percentage to continue falling and therefore, to indirectly continue tightening the clean markets. And going on to the following slide, we see here that once again, there are these closures of refining capacity in Europe and in the U.S., particularly in the U.S. West Coast. And those in the U.S. West Coast also are quite important because of The Jones Act and the high cost of distributing product domestically in the U.S. The needs which are going to arise, import needs for the U.S. West Coast are likely to be met with imports -- increasing imports from Asia, so contributing very positively to ton miles. Here, we see Africa has been an important contributor in '24. Now, there is talks of Dangote, which opened the 650,000 barrels refinery last year, also expanding, more than doubling its production capacity in the coming years to 1.4 million barrels per day. So, Africa and in particular, Nigeria could become a very important exporter of refined products in the coming years according to the government plans. And on the slide here, we see that this is another very positive message that we can show here. And whilst at the end of '24, we had these 2 lines, the gray and the blue line on the graph on the top left, which were very close because of the sharp increase in the order book. Now, they are starting to diverge again. Very few vessels ordered this year. So the order book has declined as vessels have been delivered and now it stands at 14.4%. But in the meantime, the fleet continued aging. So, we had 19.5% of the MR and LR1 fleet now, which is more than 20 years of age. So, this gap between these 2 lines bodes well for the market -- for the future market despite the acceleration in vessel deliveries, which is planned for '26 and '27. But these vessels will then, as they age, soon start reaching also the 25-year mark as we see on the bottom left. And in 2028, you have 4% of the MR and LR1 fleet, which is reaching that threshold and then that percentage in the following years increases even further. So, there's ample scope for demolition starting from 2028, and that should support the market going forward. Demolitions on the bottom graph, you see that they are still at very low levels, but they have been picking up over the last few quarters. So, 11 vessels demolished in Q3. So, well below levels reached in 2021 and 2018, and even more so below what is anticipated from 2028. So on the top graph, we do see that there is this acceleration in deliveries from Q3 '25 and into next year. But if we look at the -- yes, here, we see only 37 vessels ordered this year. So, very low number if you analyze this. This is in the first 9 months, so very low relative to historical standards. And so despite this acceleration in deliveries, the fleet growth across all tankers for next year is around 3%. And given what we discussed with the increasing vessels being sanctioned, the decreasing productivity of the sanctioned vessels, the aging of vessels, we expect the market to be able to absorb this fleet growth quite well and for us to continue benefiting from strong markets also next year. It also should be pointed out that the fleet growth -- if we look at the fleet growth in the sub-20 fleet next year across all tankers, it's less than 1%. So, I think that's also an important indicator because vessels as they cross the 20-year mark, whether they are sanctioned or not, they do start trading in more marginal trades. And so the market for sub-20 vessels is still expected to be very tight also next year. And then finally, here, we show our NAV discount, which is still very significant, although it has fallen a bit over the last few months. We are still at 40%. Okay, this is at the end of September. Thus, the share price has traded up slightly since then, but we are still trading at a big discount to NAV. Here, on the CapEx commitments, I think we already covered this on the previous slide, the use of funds. And yes, just quickly to mention, we didn't talk about the dividends. The Board approved an interim dividend of a gross amount of $15.9 million. And so we don't -- as previously discussed in other occasions, we don't have a dividend policy. But what we can guide today, the market, we can provide some guidance in this respect to the market today in relation to the dividends to be paid out of the 2025 results. The expectation is that the Board is going to be approving for next year an additional final dividend, which would then imply a payout ratio, including the share buybacks where we haven't been very active this year of 40%. So the same payout ratio that we had out of the 2024 results. And so this dividend, which was approved by the Board today is an advance on what we expect them to be, the decision in relation to the dividend that will be approved next year. And finally, yes, we continue working to make our fleet as efficient as possible through energy-saving devices and operational measures. But I think these are the most important slides that we wanted to cover. So, I pass it over to the Q&A. Thank you. Operator: [Operator Instructions] The first question is from Gian Marco Gadini of Kepler Cheuvreux. Unknown Analyst: Just a quick one on the fixing of the spot rates on Q4. We see that they were pretty strong at $28,000 per day. And I was wondering whether this is due to specific events, specific routes or it's something that we can also expect going forward? Antonio Carlos Balestra Mottola: Yes. Thank you, Gian Marco. Thanks for the question. No, I believe it reflects -- I mean, I think we don't have such a big fleet today on the spot market. So, we are slightly more than 50% covered through period contracts now. So, of course, this creates a bit more variability in the spot results and our results can differ slightly more from the market averages because of that. So we were, let's say, I think we employed our vessels quite well over the last few months. So, we managed to catch some good spikes in the market. But we have experienced quite strong markets, I must say. So, this result is a reflection of a strong market, which typically, usually in October, we actually have a quite pronounced correction in the market because of the maintenance activity that we referred to before, and we saw the graphs from the EIA with refined volumes dropping quite sharply in October. But despite that, markets held up at very good levels, especially in the U.S. Gulf. I think they were very -- we had a number of spikes in the market, a lot of volatility, but a number of spikes. And also East of Suez markets held up quite well. So, that is why we have these good results in the days fixed so far in Q4. The markets at this very moment are slightly weaker than that, than these averages that we managed to achieve so far in Q4. But I personally expect that the market will then bounce back in the second half of November and in December, and we are going to have a very strong end to the year. And I'm not the only person expecting that. If you look at the paper markets, also the rate -- the levels are very strong for the last 2 months of this year. So, there is this expectation that we will end the year on a high note because of the very strong -- very high volumes of oil and water, the high refining margins that there are right now. So as these refineries come out of maintenance season in the coming weeks, they're going to be pumping more oil into the market, more refined products. Now, we have a lot of crude oil at sea, but very soon, we will be going to have also a lot of refined product at sea. Operator: The next question is from Massimo Bonisoli of Equita. Massimo Bonisoli: Carlos and Federico, I have 2 questions. One regarding the recent buildup in floating inventories. Could this dynamic accelerate into 2026 if the Brent forward curve moves further into contango? How much demand would create for clean tankers in your opinion? And the second, let's say, on the TC rates, how would you describe the current condition in the time charter market? Are clients still showing reluctance to commit to medium-term contracts? Or are you seeing sign of increased appetite to lock in rates? Antonio Carlos Balestra Mottola: Yes. Massimo, thanks. Good questions. On the floating storage, let's go back to the slide here, which maybe helps us. But this is the sanctioned oil and water, right, where we see this very big pronounced increase here of around over the last few months, 100 million barrels per day -- 100 million barrels, sorry. And that is the main factor, which has driven the increase in the total oil at sea, which we see here in this graph. It seems less pronounced, but still it is at very high levels here. What seems not to be still have risen very much is the floating storage. So, this is oil at sea and on vessels, which are moving. So, they are not being classified as floating storage, but part of this could end up becoming floating storage in our opinion. But a large portion will then be discharged eventually at shore. It will take longer than usual because of the sanctions, because of this need of triangulations. So it will create a more inefficient market. So unless the oil price curve goes really into contango, we are not going to be seeing the onshore storage filling up to the levels, which would then encourage also the floating storage. We are not there yet, but it could happen. Of course, if that were to happen, too, then that would be an even bigger contributor to a very strong market, right? So it would really fire the market up. And some analysts believe that could happen, and they think that if that were to happen, you could see VLCCs reaching $200,000 per day. So it's not inconceivable. We saw VLCCs a few weeks ago, they were at $120,000 per day. So it could happen, and it will drive up all the market, right, not only the VLCCs for the reasons we mentioned because of the transmission mechanism, which there are between these different segments of crude and product tankers. And whether it will happen or not will also depend on how efficient or effective Russia is in continuing to finding workarounds to continue exporting its oil, right, and then how the OPEC reacts to that. So, what is the reaction function of OPEC? If these sanctions do slow down and reduce Russian exports, that could act as a rebalancing mechanism for the market and coupled also with tougher sanctions on Iran could mean the market is not as oversupplied as feared, in particular, if the Chinese continue building stocks. And in that case, we wouldn't be seeing a market going into contango, the forward curve going into contango. If you said the market is flooded with oil because we have not -- Russia continues exporting at the same levels as it was previously. And we have this anticipated growth in non-OPEC and OPEC oil supply. The OPEC supply growth now apparently is going to slow down because they are going to -- after this increase in December, they seem to want to pause further increases for a few months. But there's still a lot of non-OPEC growth planned for '26 and apparently much more than the demand growth. So, that in itself could create a very oversupplied market and a forward curve that goes into contango, if it's not compensated by lower production from Russia and Iran. And in that case, we could see onshore storage filling up and then floating storage happening. That would not be positive for the market longer term because eventually, those stocks would have to be digested, but it would create a very strong boost to the market short term. But yes -- so we don't know how this is going to play out, but there is this possibility. With respect to TC rates, we are seeing more interest today for TC, a lot more interest actually. We have had a lot of counterparties knocking at our doors to take vessels on TC. Also more interest for longer-term deals, which is also a positive sign. And so we will take advantage of that to gradually increase our contract coverage, which is already now at a higher rate than -- we are already now at 32% contract coverage for next year. But I wouldn't be surprised if that rises more before the end of the year. Operator: [Operator Instructions] Gentlemen, there are no more questions registered at this time. I'll turn the call back to you. Antonio Carlos Balestra Mottola: Great. So if we don't have any more questions, thank you, everyone, for participating in today's call and look forward to seeing you again next year when we announce and present our full-year results. And yes, thanks a lot, and see you soon then. Federico Rosen: Thank you. Goodbye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your devices. Thank you.
Martin Adams: Good morning. Hi, everybody. Thank you for joining us this morning for our half year FY '26 results presentation. We have a short presentation from our CEO and Founder, Kristo, followed by a presentation by our CFO, Emmanuel Thomassin. And then we will move on to Q&A. We'll start in the room, and then we'll jump over to Zoom. Thank you. [Presentation] Kristo Kaarmann: I'm being here today with us again. So about 70% of people discover Wise because their friends and family tell them about Wise. We've been really proud about this. And I've just lost the notes on the back screen, which will come up in a second. But actually making ads is quite fun in Wise because what we get to do is basically tell the stories that our customers tell their friends, their family, tell the stories again and amplify them with the ads. So what you just saw now is a set of ads we're running in the U.S. on TV, and they kind of follow the same narrative. This is what our customers are telling their friends. Our update today will show how Wise is yet again serving larger and larger groups of people and businesses, moving more and more cross-border volume and how we're fixing larger and larger use cases for them. So let's get started. We added 2 million active customers over the year, coming to 13 million people and businesses now using Wise and cross-currency transactions in the last 6 months. So that is either moving or spending money across currencies. Our work on infrastructure and product, the service experience has led to stronger recommendations. And then assisted by advertising, it has led to more new customers, but also stronger affinity to Wise, which then means more recommendations, but also staying for longer. And these customers are transacting more with cross-border volumes up 24% to almost GBP 85 billion for this half year. This is quite incredible. This time last year, we took our -- we took pretty decisive action to reduce our average fees down by almost 15%. And so we shouldn't really be surprised that we saw customers react to that. They didn't only increase their persistence of recommending Wise to others, but they also voted with their wallet. So bringing us more transactions and larger use cases. And the volume growth that we've been seeing is especially pronounced in this segment of larger transactions and larger use cases. And you've heard us talk about customers shifting from transactions just using Wise transactionally to using the Wise Account for their international banking features. And my team can be really proud of actually 2 things here. First, clearly, the features we've been adding, they're really resonating. So people and businesses are getting more out of the Wise Accounts. They're using it more. But the other dynamic here is how fast the customer confidence is growing. So our customers are now trusting us with over GBP 25 billion of their cash today, holding this as a deposit or as an investment through the Wise Account. And over this last year, I feel like we pulled off a pretty incredible feat. We've taken down our price point by about 15%, effectively expanding our economic moat quite incredibly. And at the same time, we boosted the growth of volumes and customer holdings. So as the result, recording 13% growth in underlying income. So this is really the result of the efficiencies we get from the infrastructure that we're building, but also the product that we're serving. In the last 6 months, we've been pretty busy shipping more. So as we described on Owners Day, you should expect progress come in 2 main categories. One is the infrastructure side where we go deep in the direct integrations and also in the regulatory infrastructure. And then secondly, you'll see developments for international banking, as our customers keep getting more and more out of their Wise Account. And a good example maybe here is Brazil because in the last 6 months, on the infrastructure side, we went direct really deep with Pix -- brought Pix live to our customers and our bank partners. And then separately on the Wise Account, we added interest to both local currency and U.S. dollar holdings. And then in addition, on Wise Platform, actually, we brought live this integration with Itaú that we were talking about earlier. So we're seeing these investments pay off for our customers and platform clients and quite measurably. So when we look at the payment feeds, the things people really care about how fast the money is going to get on the other side, 74% are now instant. And I need to remind you again what instant means. Instant means money leaving your bank in one country and arriving at the recipients bank on the other side of the world, ready to use in less than 20 seconds and that's now 74% of the payments. And after this large investment in our price mode, we've kept the average rate -- average take rate stable at 52 basis points. Another highlight coming from our fastest-growing segment, Wise Platform, where we see the cross-border volumes now getting to 5% of our volumes. And we're on track to get this to about 10% in the medium term. You've heard us recently talk about the really impressive brand names and big banks that we've signed on Wise platform, but I'm actually really excited seeing the volumes growing on integrations that we brought live years ago. So this is where -- this is the growth that we're enjoying today. And before I hand over to Emmanuel, I just wanted to remind you of the huge opportunity we have ahead of us. Because we're building Wise to move trillions, there is a huge, fast-growing market, the network we've created with our products that customers love. These have been built to make money work across borders, the same as it works at home. So Emmanuel, please take us through. Emmanuel Thomassin: Thank you, Kristo. Good morning, everyone, and thank you for joining us today. I'm pleased to share our financial performance for the first half year 2026 and how our disciplined investments continue to drive sustainable and profitable growth. We're making progress across every single key metric. Our active customers have grown by 21% each year over the last 2 years to now over 13 million active customers for the first half year. The cross-border volume has grown at a similar pace to GBP 85 billion, and the customer holdings have exceeded GBP 25 billion. This is growing by 34% each year. Underlying income growth has grown by 16% to annually GBP 750 million, and we are delivering underlying profit before tax and at the top of the range. Our range is about 13% to 16%, our target margin. So what I want to focus on today is how we achieve this and through focus, targeted investments that build our competitive moat, but also drive long-term growth. Let's start with our customers because clearly, they are at the heart of everything we do at Wise. In the first half of the year, over 13 million customers complete an international transactions with Wise, experiencing the ease, the transparency, but also the affordability that they find us. Personal customers grew by 18% year-on-year to 12.8 million, and the business customers grew to -- by 17% to 613,000, and we're particularly pleased to see the acceleration in this business segment. This is the strongest sequel growth in net addition that we have had. The cross-border volume increased by 24% year-on-year to GBP 85 billion. This is a growth of 26% even in constant currency. This was mainly given by customer growth, but also in addition to that, our existing customers moving higher volumes, a sign of growing trust and deeper engagement. But also, we saw the strong growth in business volumes. And as Kristo mentioned before, the scaling of the Wise Platform, which is now 5% of the cross-border volume means 1% more than in the previous year. And in the first 6 months, we have the pleasure to have major partners like UniCredit or Raiffeisen Bank, and we are seeing also strong growth from our existing partners. So you surely notice that the volume grew at a faster pace than our cross-border revenue, and this is on purpose. Our cross-border take rate decreased by 10 basis points year-on-year to 52 basis points, the [ sharpest ] adjustments in the company history, while our cross-border revenue increased by 5% compared to last year. So we are investing in pricing because we believe that the lowest cost, the lowest price and the best infrastructure provider will win over the long term. The Wise Account is key to our strategy in increasing customer retention and broadening the product usage. The card usage has grown significantly with card spent exceeding GBP 15 billion in the first half year of 2026, generating GBP 132 million in revenue. This is an increase of 28% year-on-year. The popularity of the Wise Account also means that customers are holding more money with us, nearly GBP 20 billion in Wise Account and another GBP 5.6 billion in Assets, So that total customer holdings over GBP 25 billion at the end of the period. And this balance obviously generates significant interest income in H1, even if slowing down pictures of the year-on-year due to the lower yields in the market. So we're successfully shifting the mix of our revenue base, which make our business more resilient, but also represent multiple engine for growth. The non-cross-border revenue now represent 41% of our total underlying income. And we also have a diversified regional footprint, as we continue to invest into growing across multiple markets. So you've seen this investment framework before, but it's worth reinforcing it, as we explain our financial strategy. And this framework ensures a sustainable approach to investment and earnings growth over the long term. So once we achieve efficiencies, we consider investing back into the business. And we also can invest in price reductions, which drive customer and volume growth. This lead to increased profitability, and then we can reinvest. So this is -- let me go through how we deliver on this. Starting with our servicing function. As we build the right structure to onboard and provide a better service to a growing customer base, our investments in servicing increased by 20% year-on-year to GBP 134 million. And we are pleased with the benefit that we are seeing from AI and automation and customer servicing with big improvement here and a lot more is planned as we ramp up AI technology. But we are also investing into our teams, including compliance, which is critical to the success of our business. Our historic investments in servicing are paying off. And as you can see some key examples here on the screen. In particular, we have been able to expand our Net Promoter Score to 69. The high levels of service we provide and our investments into price continue to help us to building a loyal customer base. And this is clearly highlighted by the 70% of customers that joined Wise through the word of mouth. But we are also going beyond that, that as we continue to increase our investments into marketing and sales, as we shared at our Owners Day in April this year. We are investing more strategically across diversified channel, increasing our brand marketing spend and build awareness and drive more organic growth. In H1, our marketing and sales investments increased by 59% year-over-year to GBP 57 million. We invest as much as possible within our targets, and this is evident with our payback period remaining strong at 6 months. So this is -- in H1, we run brand campaign in regions like Australia, Canada and the U.S. And you saw some examples from Australia at our Owners Day in April. And today, we also played an ad of the U.S. earlier today, but that's not all what we are doing. Here, you can see some examples on how we brought the Wise brand to our Canadian customers daily commute. So through these investments, we have continued to drive a constant increase of new customer acquisitions. Importantly, we had 3.5 million new active customers in H1 2026. And this is a result of our strategic investments to attract and retain our customers, including investments into pricing. So next, on tech and development, we invest GBP 144 million in H1, and this is up by 18% year-on-year across multiple teams. This is a significant portion of the spend, goes to maintaining our existing and available products. And for the rest, we continue to invest in launching new features, but also reading out -- rolling out the existing features into new markets. And Kristo shared earlier example of many launches and improvements that the team is working on. So finally, we're also investing in corporate function and infrastructure. And these teams are -- might not be customer-facing, but they are essential for sustainable growth. The spend here increased by 35% to GBP 131 million, supporting areas like compliance, risk, people operations. And this is also including one-off investments related to our dual-listing project. We expect this investment pace to continue in H2 with the administrative expense of around GBP 1 billion for the full year. And this includes investments in our people across the area that I just covered. In H1, we welcome over 1,000 additional colleagues at Wise, and we plan to keep on hiring in H2. And these investments together, with the top line growth, delivered in the period that clearly highlight how we are delivering on our strategy, and as you can see clearly in our margin progression over the past 2 years. The increased profitability we generated in H1 2025 have been reinvested, taking us back to our underlying profit before tax margin target range of 13% to 16%. And this is exactly the model that we promise here, and it's working. So as you know, we only use the first 1% yield we receive of interest income within our underlying profit before tax because we are committed to building a business that is sustainable without relying on cyclical forms of income such as interest. Including additional interest income beyond the first 1%, we reported a profit before tax for the period of GBP 255 million. So now I'd like to cover our expectation for the rest of the year, and we are reiterating our previous guidance. So for the full year 2026, we continue to expect underlying income growth to be within our midterm range of 15% to 20% on a constant currency basis. And based on the phasing of our investments, we continue to expect underlying PBT of around 16% for 2026, excluding the one-off listing expense of circa GBP 25 million -- GBP 35 million. On our capital allocation framework, as we continue to make prudent decisions to deliver on our long-term mission, our business strategy aims to deliver strong profitable growth so that we can generate strong cash in the future. This means that we can sustain strong level of cash, maintaining a strong capital to ensure resilience and flexibility. And on the return of capital, I wanted to share an update on the share repurchase program we announced earlier this year. From -- of the incremental 25 million shares into our Employee Benefit Trust to find historic options, we have already repurchased half of it. So we are executing our strategy with discipline and seeing strong results across every single metric that matters. We're growing our customer base. We're deepening our engagement, diversifying our revenue and investing for the future, all this while maintaining our target profitability range. And the fundamental of our business had never been so strong, and we're just getting started. So now I'll leave you with another ad as we set it up for questions. Thank you so much. [Presentation] Martin Adams: Great. Okay. So we're just going to take any questions that you have. So what we'll do is we'll start in the room, and then we'll jump over to Zoom [Operator Instructions]. Unknown Analyst: [indiscernible] Goldman. Firstly, platforms demonstrated a strong inflection in the half, now 5% of volumes growing around 3x than the total volume. Can you talk to us about some of the momentum and ramp you're seeing within this segment and talk us through that midterm guide of 10% of volumes in terms of the growth you need to get there? And secondly, one for Kristo, please. Stablecoins are certainly gaining traction within the payment ecosystem. Can you talk to us about where you see Wise positioned with respect to stablecoins? And what are some of the opportunities and potential challenges, given you built one of the lowest cross-border payment infrastructures? Emmanuel Thomassin: Well, I'll start with platform. Well, thank you very much. Yes, you're right. I mean we have a very good momentum. I mean every time we meet, we are pleased to announce our new names, new partners joining the platform. That was also driving inbound calls so that we're really, really pleased with that. You see basically new names coming and we are integrating them. But also, as I mentioned in the presentation, you see also the ramp-up of names that we mentioned before, where we see the volume increasing over time. So today, we are at 5% -- a little bit more than 5%. So this is 1% more than our last meeting that we had in April. And yes, we're on track for delivering the 10% midterm and the 50% long term. So yes, we have a good momentum here. And we see interest from new partners or potential new partners. Kristo Kaarmann: On the stablecoin question, so indeed, you're right, we've built the world's fastest, the most efficient, the lowest cost way of moving money between countries and currencies. And we've been -- when we talk about this, we often talk about the direct integrations and how we link together the local payment networks. But in fact, Wise Network also comes with this regulatory infrastructure that allows us to do this in each of the jurisdictions around the world. So if we ask about stablecoins in that context of money transfers that goes just beyond moving U.S. dollars between wallets, then it's these regulated on and off ramps into those local currencies, how do you get the money into the USD stablecoin and out of that USD stablecoin. And that's actually the hardest thing to achieve reliably, which is exactly what we built Wise Network -- or this Wise infrastructure for. So if we want to think about Wise in that context, then as these legitimate use cases of USD clearing outside of the Federal Reserve and outside of the main banks emerge, and we're starting to see reliable anti-fraud, anti-bribery, anti-tax evasion, anti-money laundering mechanics come live on the stablecoin environments. Then of course, we have the best on and off-ramps to make use of this new technology across the world. And furthermore, if these challenges improve, I'm actually personally quite excited if we can add something like this to move U.S. dollars next to Fedwire and Zelle and Venmo and other options that are out there today for our own customers. Adam Wood: It's Adam from Morgan Stanley. So I've got 2 questions for you. Just first of all, on the pricing, obviously, a big reduction over the last 12 months. The policy in the past has always been to cut pricing as you engineer cost out of the platform. Could you just give us any change to that, first of all? And then any visibility insight you could give to how you're thinking about that over the next 12 months? And then secondly, on the investment side of things, obviously, a big investment gone in already and more in the second half. Do you see any change in the payback metrics that you're getting? Would you be more comfortable with maybe moving those payback periods out a little bit? And then critically, in some of the new markets you're in, there's a big flywheel effect with Wise in terms of getting people on and getting volumes up to bring the cost down, and we know how that works. Are you seeing that this advertising is accelerating that flywheel in some of these newer markets you're going into? And again, would that push you to do a little bit more to accelerate how you get to more of those instant transactions and so on? Kristo Kaarmann: Let me try to respond more principally, we're keeping our investments. We aim to keep our investments really balanced and steady. So we saw -- as we're describing, we did a pretty decisive move about a year ago and now been kind of stable. Going forward, we try to avoid big swings, but definitely, the strategy hasn't changed because we amazingly see this working. We see more volume even coming up in the short term, let alone this economic mode that we're building. So this is definitely going to continue, but we're going to try and avoid big swings. So that will be kind of a steady expectation. And then the other question that you had around do we see the marketing working? For sure. And I think we're one of -- potentially our marketing team is one of the world's most disciplined when it comes to payback. And I don't -- I think the magic still is if you can reach more people with the same investment return because at the end of the day, we're investing our shareholders' money and that has to have a return. Unknown Analyst: Kristo, first of all, looking at that photograph, I wanted to ask you which shampoo you use. But the real 2 questions really are, one is in terms of margins going ahead, are we kind of -- sorry, let me ask the margin question second. The first question really being, you obviously currently Wise transfers kind of charges per transfer. And are you thinking of something like an Amazon Prime model where somebody pays in, let's say, GBP 10 or whatever in whichever currency and then they kind of -- monthly, they can have so many transfers. Are you thinking about that? Have you already tried that in any particular market? So that was my first question. And my second question was about basically margins. Obviously, it's a huge, huge market out there. And are you also thinking of kind of saying -- willing to kind of take lower, lower takes and lower margins because obviously, the volumes that we are talking about are like 100 or 1,000x potential. Kristo Kaarmann: I'll take the first one. Emmanuel will take the second. Emmanuel Thomassin: Yes. So I won't talk about shampoo. But on the margin, look, I mean, we guide the market to 13% to 16%, and we are really serious about this. I mean, like we want to grow because there's a massive opportunity out there, as you know. So we -- Kristo mentioned just now how we reinvest in pricing, but this is one of the options that we have. This year, we are investing in marketing. We're investing in servicing. We're investing in product and development. We're investing in people so basically to offer the best service we can. And we anticipate, obviously, the growth. We have the strongest ad customers in this -- in history of Wise and basically for customers and businesses. So we know this is working. And while we still guide the market at the 13% to 16%. So this is a massive investment that we're doing. We're delivering not only on the fields that I mentioned, but also all the features the direct integration. So we're really, really busy. And we still deliver like on this margin at the top of the range right now. So I think in terms of margin, we are really disciplined. I mean the money, we don't spend, we invest. We want to have a return, and that's help us this discipline to guide the market to the 13% to 16%. As long as we get room to invest and we get a good return and the time is so fantastic, I think it will be set enough to do this, but you can expect us to be disciplined. Kristo Kaarmann: And your other question on the different charging models or bulking together. Of course, we play to a reasonable extent with all of those, and you might see some evolution there. But I think principally, we really value this loyalty that comes with our strings attached. And this is quite amazing if your customers don't come back to you because they bought a subscription, but they come back to you because they want to come back to you. And that's kind of something that however we end up pricing, I don't want to lose a trade away. Operator: This is Aditya from Bank of America. Aditya Buddhavarapu: Three questions from my side. Firstly, on the platform volumes, could you just talk about how much of the growth came from the, as you said, customers who have been live for a long time versus the ones who have been onboarded over the last year or so? Second, on the hiring, so you've hired 1,000 people just in the first half versus the initial expectations of, I think, hiring 700 people for the full year. So there's been an acceleration. So could you talk about why you decided to step up the pace of that? Which areas you've been hiring in? And then how should we think about that for H2 and for next year as well? And then the last one on GBP 35 million one-off, should we think about that -- as you think about the next year, does that one-off, I guess, get reinvested back into other areas? Or we should think about that, again, flowing back into the profitability? Kristo Kaarmann: I'll take the easy one, if you don't mind. Your question on investment and how did we -- how are we able to invest so much in this first 6 months. So I'm actually really, really, really pleased with that. It seems like it's a fantastic time to invest. If you look at all of those categories that Emmanuel went through, starting with servicing, so the payback that we get from like an instant service and the confidence that customers then bring like GBP 25 billion of their money to hold with you, that's amazing, and there's still room to invest there. Let alone the rate of the growth that we're now seeing, we need to be ready. There's going to be a lot more customers to serve going forward. So with that, then we talked about marketing already that has a very direct, very clear payback, has a very, very good ROI to use money. And then on engineering, we're actually -- if you look at the numbers, we're actually investing not as fast as our volumes are growing. So we're investing even lower. I wish we could go faster there. So -- and that will take a bit of ramp-up. So I'm actually pretty proud that we wanted to invest. We talked to you about this at the Owners Day that this is a fantastic time to invest now and feel like we made kind of more progress in the first 6 months than we hoped for, but... Emmanuel Thomassin: Yes. On the -- because your first question was on platform. Actually, what we see is that we have a ramp-up of new customers, like basically volume coming from new customers, but also partners that have been there before that are extending the contract with us. So we are in a very comfortable position where basically, as we told you, usually, we start with one route and then over time, they extend the contracts. This is what we see. So clearly, there's new customers that we signed last year. So -- and then on top of that, the former one that are extending the contract. So this is really a mix of both, which is very, very healthy. So that's -- and that's driving this 1% increase or a little bit more than 1% increase. Yes, on the hiring, just like as Kristo said, I mean, like Wise is a brand that people are attracting. And then basically, we are in a position where we can scale and anticipating the growth rate that we see on the customers. So that's very good. I think on the last question was the reinvesting capacities or -- yes, I mean this is clearly a one-off due to the dual listing. That's why when we guide right now on the margin, we clearly exclude basically the one-off. So we don't -- we're going to have a small part of recurring cost, but this one is a one-off in nature. You should not forget the left side. Pavan Daswani: Pavan from Citi here. I've also got a couple of questions. Firstly, on instant payments, good to see the step-up to 74% from 63% last year. What's really driving that? Is that mainly from the go-live with Pix in Brazil? And should we expect that to step up again when you go live in Japan? And then secondly, on the elasticity of pricing, you've reduced pricing by 15% over the last year. Has that really translated into the volume uptake that you've seen so far? Or is that really a multiyear payoff? Kristo Kaarmann: I'll take the first one. So you're directionally correct that these instant payment rates are basically a reflection to the large part of how good is our local connectivity, how fast we can get Australian dollars to the end recipient. Given the timings, I would probably attribute this more to our Australian integration that went live about a year ago or about 6 months ago, it kind of ramped up. So it's probably more of that than Pix. We'll see some from Pix as well going forward. So I'm definitely looking forward to this number going up further. Emmanuel Thomassin: And on the price elasticity, so it's clearly for us like a long-term strategy. We know that price matters to every single customer. So that's the first maybe statement. Like we know long term, price will matters, and it will position us at the #1 option. Last year, as we do the price adjustments, we also increased some price. I mean, like it was not only going down, and it was by design. So basically, what we've seen is that the larger transfer is becoming cheaper and more attractive for our customers. And that we saw immediate reaction. So we saw that basically people are reacting to our offering, as we decrease the take rate for the larger transactions. So there is an immediate reaction, but we think that price is anyway a long-term game, and that's why we want to push on efficiency so that we can pass this back to the customers. Unknown Analyst: I'm really interested in the decline in take rate that you're reporting. And can you just help me understand and unpick that a bit and the difference between changing mix in the business and like-for-like price cuts on your kind of rate card? And what's the balance between those drivers of a decline in the reported take rate? Kristo Kaarmann: I can take that. This is very much driven by us setting the fees and setting the fees lower than we did before. It does bring about a secondary effect of a bit of a mix shift. So for example -- kind of coming up with an example, if in a country, we used to be -- we discovered one payment method, say, people paying in with cards, is particularly more expensive and we raised the fees on cards, lower it on bank transactions, then what you do see is the shift from people who used to use cards before because they were kind of subsidized, moving into bank transfers, bringing down the take rate. But for them, this is actually a benefit. So you get these little secondary mix shifts, but generally, it is -- like we set the prices. Eleanor Hall: Eleanor Hall, Rothschild & Co Redburn. I just wanted to follow up a little bit more on the stablecoin question from earlier. And I know earlier on in the quarter, there was some news around you potentially exploring hiring in the digital asset space. I know you've been speaking to customers in terms of is this something they'd be interested in. And I'm just wondering if you could comment on the outcome of those discussions or any kind of further updates on things that you're looking at internally to do with stablecoins? Kristo Kaarmann: As I already covered, the investments that we're making are quite general in terms of we're building the network that will be useful in the context of stablecoins or without the context of stablecoin. So we're not making a bet on one payment scheme over another or one transaction method over another, but there's a lot of -- we're going to be very deliberate on what kind of use cases are we going to accept and how -- where is it actually going to be useful. So going forward, I think you should expect us to be very deliberate about that. Unknown Analyst: Vineet from Autonomous Research. Just 2 questions. What other countries do you see -- do you need to do direct integrations that will complete your overall infrastructure build? And any thoughts on rumors about Wise exploring a banking license? Emmanuel Thomassin: Well, on direct integration, we're not done yet, right? I mean like there are so many payment systems that we think we should integrate in order to be even increasing the instant payment. I mean, like we've done a tremendous job. I mean like if you remember, we were at 64%, if I remember last year, we're now at 74%. We want to integrate more systems. I mean we want to make sure that we come to the highest number as possible in terms of instant payment. So there are plenty of payment systems, and you can imagine that our team is working actively on that to add more in the future in terms of, well, having the license and then the technical integration. So we -- it's not over yet. I mean, like we have 8 today. We will continue to integrate more payment systems. Kristo Kaarmann: And then on the comment of rumors. So just the fact is the OCC in the U.S. has reported that we're in the process of a license application for a trust license, which is a form of banking charter. It's not quite a banking charter, but it's a trust charter. So that is indeed true. In the U.K., there haven't been any announcements. And generally, of course, we have licensing procedures or processes ongoing in probably 20 countries in parallel for different things that we could do for our customers. Unknown Analyst: Simon Young. Could you just help us understand what the correlation between your direct payments and -- sorry, instant payments and the ones that are direct and therefore, also the impact on the gross margin? Because if I understand it, the gross margin is very high on stuff that goes through the direct payments. And if it goes higher, obviously, gross margin should go up and yet gross margins in the first half were flat. Can you just help me understand what's going on, please? Kristo Kaarmann: I'll try a little bit. Just to build your intuition about this a little bit, I think if you look at mechanically on the cost base, you maybe see less of an impact going direct or having a very good indirect clearing mechanism. However, the COGS benefit or the cost benefit does come through quite a lot in the reliability that you get being direct and also the customer experience that you get. So it's not as direct as what I think you had in mind. But indirectly, indeed, we should see benefits operationally, benefits from customers and customer affinity and so on. So it's definitely very worthwhile investments, but I'm not sure you can translate this as directly into the gross margin increase. Unknown Analyst: Culture is a massive issue for any company. How do you embed successfully 1,000 people in a half and keep the culture that Wise has obviously developed so successfully in the last 12 years? Emmanuel Thomassin: I'm glad you asked this question because I'm here for a year, but I can tell you, basically, the onboarding is very successful. I mean, like you really quickly understand the culture of Wise. It's a developing culture and you get the support of your colleagues. I mean -- so I think Wise is a brand that is really highly seen by candidates. But the way we integrate people is really like supporting -- the team are supporting and managing to onboard newcomers like me very, very quickly. Last year, I have the pleasure to be here after 4 weeks. It was because basically my colleagues also in this room who were helping me a lot to onboard. So I think this is the culture that we have. We have one mission. We repeat this mission. We want to move [indiscernible] and everyone is working every day on that path. Kristo Kaarmann: I would amplify that the job of onboarding the 1,000 people is of the 6,000 that are already here. So it's not that hard if you take it this way, 6:1. Martin Adams: So moving over to Zoom, Justin Forsythe from UBS. Justin Forsythe: I want to hit a couple of questions on my side. So first, Kristo, the foray into stablecoins. Maybe you could just talk a little bit, it felt like 6 months ago, it was a bit of an afterthought for you guys. Clearly, quite an evolution there. Maybe you could just talk through a little bit your evolutions personally in coming to an understanding with this aspect of the market. And it does seem like there's a lot of players in this on- and off-ramp business within stablecoins. How do you expect to differentiate there? Is it simply because of your connection to local faster payment schemes? And is it fair to assume that a lot of those providers, those competitors, if you will, do not have the same level of licensure and local scheme connectivity that Wise has? Question number two, Emmanuel around the PBT margin. So I think 1H was ex-listing costs around 17.5%-ish. Now you effectively reiterated the full year guide, but ex-listing costs, so to me, that implies 2H margin down quite a bit sequentially, I think, around 14.5%. Then if you include listing costs, I think you're down at like 11.5%. So I just want to understand, one, if that's the correct math and maybe a little bit more detail on what's driving it. And what that also implies for the cost base going forward in the beginning parts of the next fiscal year. And on top of that, thinking about underlying income growth because it seems to imply that there's quite a large acceleration. Could you be doing 20% plus in 2H, as the take rate comparison eases? Kristo Kaarmann: Thanks, Justin. You were slightly tricky to hear in the room for the audio. It's probably an issue on our side. But let me try and respond to the first part, which was imagining the stablecoin ecosystem improving, then how are we competitive in these on and off ramps. And I think you're spot on there that the qualities that make these on and off-ramps so amazing in the fiat world of going from Australian dollar to U.S. dollar to euro, that's exactly the same cost speed, regulatory reliability, the same things that will matter in the stablecoin world. So this is -- you're spot on that this does work exactly the same way. Emmanuel Thomassin: I mean, like I start with the margin evolution. So the margin that -- the guidance that we give for the full year, excluding our one-off expense for the listing, and we want to be at the top of the range, we reiterated this, at the 16%, around 16%. What we will see basically in H2 is that we're driving the investments in first half year, and we will also continue to invest in H2. And this is basically our promises that we give in Owners Day. I mean we're going to invest where we can where we get a good return and still guide the market to the 13% to 16%. And that is without [indiscernible] or the dual listing cost? Bear in mind that this is a one-off by nature. I mean, for next year, we will have some recurring costs, but nothing compared to the GBP 35 million that we're expecting for this year. And when it comes to income -- underlying income growth, I hope I understood your question rightly. So yes, you have a kind of disconnect between the volume growth that you see, the cross-border volume and underlying income -- or the revenue that you generate out of this volume -- cross-border volume. But this is basically a like-for-like issue. So we're comparing basically 2 period of time where we had the price adjustments last year, in the first half year, that is coming to play. And then the comparison like-for-like is very difficult. You will see this -- we will see the real growth -- I would say, the real growth in brackets in the second half year when this pricing adjustment is not affecting anymore the comparison for year-on-year comparison. So I hope I answered your questions. If not, please just let me know. Martin Adams: We'll now move over to Bharath. Over to you, Bar. Bharath Nagaraj: Bharath from Cantor Fitzgerald. Could you highlight some of the logos that you signed previously within the platforms business where you're now seeing volumes ramp up? Is there any kind of like a case study with regards to how long it normally takes to ramp up volumes materially here? And what are the conversations that you're having with these kinds of customers? Is it to do with like lower take rates for these businesses or anything else? That's the first question. The second one, could you speak about your investments -- the marketing investments across the U.S., Australia and Canada, which ones are faring better? Are you seeing any regions with better ROI relatively speaking? And has there been any change in this ROI coming from these investments, given the macro worries? Kristo Kaarmann: I'll try to take the first one, Bharath, unfortunately, I think if we did a case study, it will be misleading because each of the -- we're onboarding the world's largest financial institutions often and each of them is so different. So it's going to be really hard to average those. The -- we're pretty -- we're very happy actually with our past announcement, past logos that have gone live, and you see that in the results. So it's something where it's very early to start singling anyone out, but we're very happy with the onboarding progress here, and that gives us confidence that we mentioned today where you kind of can see getting to 10% in medium term with the platform volumes. Emmanuel Thomassin: To your question on marketing and ROI comparing Australia and U.S. So first, maybe I should start that we're using the same discipline and the same KPIs, and we have the same expectation on return no matter, which campaign we started in which country. However, comparing Australia and the U.S. is difficult at this time because Australia campaign is running for 1.5 years, where the U.S. is basically starting, I think, 2 months ago or so. We are very pleased with the return that we see, and that's why we continue to invest in Australia. And we see also that the campaign in the U.S. is quite successful. We invest also in 3 other countries, New Zealand, Canada and U.K. So we are monitoring the progress in every single country, but it's really, really difficult because of the difficult -- it's challenging, let's put it this way, to compare Australia where we have this campaign running out for 1.5 years, and we continue to invest because we see the result. Result is, the CPA is going down. So the cost per acquisition are going down as longer we take the campaign. So that's -- we're monitoring. We're also adjusting to be quite frank, we do some time adjustment in tricks. We say this creative that you see today, we have to adapt this for this country, and then we start a campaign again. But what I can tell you is that we're looking at this with the same lens. So basically, we want to have the same return no matter what. And if a campaign is not as successful as we expect, either we do the creative again or we change the campaign or we stop the campaign and we come with a better idea. Martin Adams: Well, thank you very much for joining us today. That concludes our presentation and Q&A for our half year results for FY '26. Thank you very much. Emmanuel Thomassin: Thank you very much, everyone. Kristo Kaarmann: Thanks everyone.
Operator: Welcome to the CRH Third Quarter 202 Results Presentation. My name is Krista, and I will be your operator today. [Operator Instructions] At this time, I'd like to turn the conference over to Jim Mintern, CRH Chief Executive Officer, to begin the conference. Please go ahead, sir. Jim Mintern: Hello, everyone. Jim Mintern, here, CEO of CRH, and you're all very welcome to our Q3 2025 results presentation and conference call. Joining me on the call is Nancy Buese, our CFO; Randy Lake, our COO; and Tom Holmes, Head of Investor Relations. Before we get started, I'll hand over to Tom for some brief opening remarks. Tom Holmes: Thanks, Jim. Hello, everyone. I'd like to draw your attention to Slide 2 shown here on the screen. During our presentation, we'll be making some forward-looking statements relating to our future plans and expectations. These are subject to certain risks and uncertainties, and actual results and outcomes could differ materially due to the factors outlined on this slide. For more details, please refer to our annual report and other SEC filings, which are available on our website. I'll now hand you back to Jim, Nancy and Randy. Jim Mintern: Thanks, Tom. We'll now take you through a brief presentation of our results for the third quarter of the year, highlighting the key drivers of our performance, our recent capital allocation activities as well as our expectations for the year as a whole. We will also share our thoughts on some of the trends we are seeing across our markets as we look ahead to 2026. So at the outset, on Slide 4, let me take you through some of the key messages from our results. We are pleased to report a record third quarter performance and raise the midpoint of our adjusted EBITDA guidance for 2025, reflecting the continued execution of our strategy, our unmatched scale and connected portfolio of businesses. Assuming normal seasonal weather patterns and no major dislocations in the political or macroeconomic environment, we expect full year adjusted EBITDA to be between $7.6 billion and $7.7 billion, representing 10% growth at the midpoint and another record year for CRH. Supported by our growth algorithm and the CRH winning way, we delivered double-digit adjusted EBITDA growth in Q3, reflecting our leading performance mindset. We have also been busy investing for future growth and value creation across our 4 connected platforms of aggregates, cementitious, roads and water. Our ability to deploy capital in high-growth markets, integrate at scale and deliver unique synergies to our connected portfolio is a real differentiator for our business. In the year-to-date, we have invested $3.5 billion in 27 value-accretive acquisitions, and we have a strong pipeline of further growth opportunities in front of us, supported by our proven growth capabilities. Looking ahead to 2026 and based on the visibility we have across our key markets, the outlook for our business is positive. And I will take you through that in more detail later in the presentation. Turning now to Slide 5 and our financial highlights for the third quarter. A record performance with revenues, adjusted EBITDA margin and diluted EPS, all well ahead of the prior year period. Total revenues of $11.1 billion represent a 5% increase over the prior year, supported by positive underlying demand, continued pricing momentum and contributions from acquisitions. This enabled us to deliver $2.7 billion of adjusted EBITDA in the quarter, a record for CRH and a 10% increase over the prior year. I'm also pleased to report a further 100 basis points of margin expansion in the quarter, demonstrating our relentless focus on performance across our business. All of this translated into further growth in our diluted earnings per share, up 12% year-on-year. So what is driving the consistency of our financial delivery? Outlined here on Slide 6 is our growth algorithm, which we presented during our Investor Day in September. As the leading infrastructure play in North America, we are uniquely positioned to capitalize on 3 large and growing megatrends: transportation, water and reindustrialization, which we believe will support significant above-market growth and value creation for our business going forward. Next, the CRH Winning Way, core to who we are deeply embedded in our culture and the engine behind everything we do. Through our winning way, we execute our superior strategy with discipline and focus. We drive leading performance across 4,000 locations through a culture of continuous improvement. We are responsible stewards of our shareholders' capital. Every dollar we deploy is rigorously assessed to ensure that it drives maximum long-term value, and we leverage our proven growth capabilities to build leadership positions in high-growth markets. All of this is supported by 4 key enablers: customer centricity, empowered teams, unmatched scale and our connected portfolio of businesses. Our winning way is what really sets CRH apart. It is the multiplier that enables us to fully capitalize on growing infrastructure megatrends. It underpins our proven track record of delivering consistent double-digit earnings growth and being the leading compounder of capital in our industry. Now at this point, I will hand you over to Randy to take you through the performance of each of our businesses. Randy Lake: Thanks, Jim. Hello, everyone. Turning to Slide 8 and first to Americas Materials Solutions, which delivered a robust performance in the third quarter against a strong prior year comparative. Total revenues and adjusted EBITDA were 6% and 5% ahead, driven by good underlying demand, positive pricing momentum and contributions from acquisitions. Aggregates pricing increased by 4% or 6% on a mix-adjusted basis. Cement pricing increased by 1%, reflecting regional variances across our operating footprint and supporting another year of margin expansion. In our Roads business, Q3 revenues were 5% ahead, supported by good levels of activity in transportation infrastructure, which continues to be underpinned by strong state and federal funding. We also continue to see significant growth in reindustrialization, particularly in large-scale manufacturing and data centers. I'm also pleased to see continued strength in our margin at approximately 28%, reflecting strong cost discipline and operational efficiency across our business. So overall, a strong performance for our Americas Materials Solutions business. And as we look ahead to the remainder of the year, I'm encouraged by the positive momentum in our backlogs. Next to Americas Building Solutions on Slide 9, where our business delivered strong profit growth and further margin expansion driven by favorable underlying demand and good commercial management. We continue to experience robust data center demand which is a key focus for our business. In addition to being very materials intensive, these highly specified facilities require state-of-the-art water, energy and communications infrastructure, which fits very well with how we've strategically positioned our business and our customer offering. By leveraging our unmatched scale and connected portfolio, we're able to deliver more value to our customers and generate higher profits, cash and returns on these types of projects. In our Outdoor Living business, where we continue to experience resilient underlying demand in residential repair and remodel activity, Q3 revenues were 2% ahead of the prior year. For Americas Building Solutions overall, total revenue growth of 2% translated into a 22% increase in adjusted EBITDA and a further 380 basis points of margin expansion, reflecting the benefits of ongoing business and asset optimization initiatives, including the disposal of certain land assets across our operations. Moving to International Solutions on Slide 10, where our business delivered a strong third quarter, supported by continued pricing momentum, ongoing performance improvement initiatives and contributions from acquisitions. On top of a 5% increase in revenue, we delivered a 15% increase in adjusted EBITDA and a further 170 basis points of margin expansion. In Central and Eastern Europe, we experienced positive underlying demand across our key end markets and early signs of recovery in new build residential activity. While in Western Europe, activity levels continue to be supported by infrastructure and nonresidential demand. In Australia, our business is performing well, benefiting from strong demand and synergy realization from recent acquisitions. At this point, I'll hand you over to Nancy to take you through our financial performance and capital allocation activities in further detail. Nancy Buese: Thank you, Randy. Turning to Slide 12. And as Jim mentioned earlier, we delivered a record third quarter performance with further growth across our key financial metrics. Q3 adjusted EBITDA of approximately $2.7 billion was 10% above prior year, driven by positive underlying demand, continued pricing momentum and contributions from acquisitions. We also delivered 100 basis points of margin expansion, keeping us well on track to deliver our 12th consecutive year of margin improvement in 2025, demonstrating our leading performance mindset and the consistency of our financial delivery. Turning to Slide 13 and to talk about our capital allocation activities so far in 2025. Starting with M&A, where we have invested $3.5 billion on 27 value-accretive acquisitions, further strengthening our connected portfolio and leading positions in high-growth markets. We've also invested $1.2 billion in growth CapEx through the third quarter, leveraging our size and scale to fully capitalize on low-risk, high-returning investment opportunities that expand our capabilities, support margin growth and enhance long-term shareholder value. We also continue to deliver significant accretive returns to shareholders through dividends and share buybacks. Year-to-date, we've returned over $700 million in dividends, and we've also announced that our Board has declared a further quarterly dividend of $0.37 per share. representing an increase of 6% on the prior year, in line with our strong financial position and policy of consistent long-term dividend growth. Through our ongoing share buyback program, we have also repurchased $1.1 billion of shares so far this year. And today, we are commencing a further quarterly tranche of $300 million. Since the inception of our buyback program in 2018, we have returned over $9 billion to shareholders, representing 23% of our outstanding shares at an average price of $49 per share. Overall, we have deployed $6.5 billion towards growth investments and shareholder returns so far this year, demonstrating our focus on the efficient allocation of capital to maximize shareholder value. As we communicated during our recent Investor Day, over the next 5 years, we expect to have approximately $40 billion of financial capacity to invest for future growth and deliver further returns to our shareholders, consistent with our long-term track record of value creation and reinforcing our position as the leading compounder of capital in our industry. I will now hand you back to Jim and Randy to provide some further color on our recent growth investments. Jim Mintern: Thanks, Nancy. As you can see here on Slide 15 in North America, our largest market, we have strategically and deliberately built out our 4 key growth platforms to become the #1 infrastructure play in the region. Let me step you through each of these in turn. It all begins with Aggregates, a valuable finite resource and the backbone of our business. In fact, approximately 95% of our revenue is connected to Aggregates. Aggregates feed into everything we do from our Cementitious business to our roads business to our water infrastructure platform. Here, our position is unrivaled with 230 million tonnes of annual production and 20 billion tonnes of reserves. We own more stone on the ground than anyone else in the industry. Building on that foundation, we are also a leader in cementitious materials with around 25 million tonnes of annual production capacity. Together, Aggregates and Cementitious products are the essential building blocks of modern infrastructure, enabling us to build, maintain and improve the networks that communities and economies rely on every single day. Through our connected portfolio, we are also the largest road paver in the United States. This is a business supported by recurring revenue and robust public funding. We produce more than 50 million tonnes of asphalt annually, equivalent to the next 5 largest players combined. And importantly, our paving operations are almost entirely self-supplied by our own high-value aggregates and asphalt. Finally, we are also the leader in water infrastructure, where we provide customers with engineered systems that collect, protect and transport this vital resource. Our Water business has national coverage and over 80% of the products we produce consume aggregates and cementitious materials. And since over 85% of roads require water management systems, the strength of our water platform further reinforces the benefits of our connected portfolio and shared customer base. Taken together, these 4 platforms, Aggregates, Cementitious, Roads and Water form the foundation of our unique position as the #1 infrastructure play in North America, and we are focused on continuing to invest across these platforms to deliver further growth and value for our shareholders. Let's take a look at some examples of our recent investments, starting with 2 bolt-on acquisitions on Slide 16. First, American Industries, a provider of aggregates, asphalt and road paving services in Connecticut. This acquisition increases our aggregates reserves and expands our presence in an attractive market in the Northeast region of the United States. We also acquired Terracon Precast, a newly constructed concrete pipe plant with 70,000 tons of annual production capacity in North Carolina. This is highly complementary to our existing water infrastructure business and significantly strengthens our ability to serve customers in Raleigh and Greensboro markets. These are just 2 examples out of the 26 bolt-on acquisitions that we have completed year-to-date, fully aligned with our strategy to invest across our 4 connected growth platforms with exposure to growing infrastructure megatrends. Now at this point, I will hand you over to Randy to update you on our recent acquisition of Eco Material Technologies and growth CapEx investments. Randy Lake: Thanks, Jim. First, to our $2.1 billion acquisition of Eco Material, which completed in September. This acquisition strengthens our position as a leading cementitious player in North America with approximately 25 million tons of combined annual production. And I'm pleased to report that early integration is progressing well, and we've already identified significant commercial, operational and logistical opportunities to enhance performance and create long-term value for our shareholders. As you can see on the map on the right-hand side of the slide, it's an excellent strategic fit and highly complementary to our existing platform. It creates a unique national distribution network, enhances our innovation capabilities and positions us to better serve our enlarged customer base. Overall, we expect to unlock strong future growth and synergy realization with Eco Material under our ownership, representing an exciting opportunity to accelerate our cementitious growth strategy and deliver a tremendous amount of value for our shareholders. Turning to Slide 18 and some examples of the types of growth CapEx investments that we're making to support future growth in our existing business. First, we recently completed the construction of a precast pipe and box culvert plant just outside Austin, Texas, which will enable us to meet growing demand for our water infrastructure products. The location is not only very attractive from a market growth perspective, it will also enable us to self-supply our own aggregates and cement from our existing operations in the area. And in Utah, we're modernizing our cement plant in Leamington, which will increase annual production capacity by 240,000 tons to meet strong demand throughout the inland West market. These are just two examples of how we're deploying capital efficiently, low-risk, high-returning investments that are an excellent use of our shareholders' capital. Jim Mintern: Thanks, Randy. Great examples there of how we are deploying capital in high-growth areas. Finally, to outlook on Slide 20, and I'm pleased to say that we are raising the midpoint of our adjusted EBITDA guidance for 2025, reflecting our continued strong performance and a partial year contribution from the Eco Material acquisition. Assuming normal seasonal weather patterns for the remainder of the year and no major dislocations in the political or macroeconomic environment, we expect full year adjusted EBITDA to be between $7.6 billion and $7.7 billion, a 10% increase at the midpoint. Net income between $3.8 billion and $3.9 billion and diluted earnings per share between $5.49 and $5.72. As Nancy mentioned earlier, we also expect to deliver our 12th consecutive year of margin expansion in 2025, demonstrating the consistency of our delivery and relentless focus on continuous performance improvement. Taking all of this into account represents yet another record year of growth and value creation for CRH. Now before I hand over to Q&A and as we look ahead to 2026, I'd like to take a moment to share our thoughts on some of the trends we are seeing across our key infrastructure megatrends in North America. First, to transportation, where the demand backdrop is robust, supported by the continued rollout of federal funding through the IIJA. Approximately 60% of the IIJA funds are yet to be deployed, highlighting the significant runway we still have ahead of us. State level funding is also strong with the 2026 DOT budgets up 6% on the prior year. Through our unmatched scale and uniquely connected portfolio, we are well positioned to benefit. In fact, if you look at the DOT capital spending authority across our top 10 states, it's expected to increase by 13% -- it is also encouraging to see continued support for increased infrastructure investment. For example, we saw Michigan recently approving $1.85 billion in new transportation funding over the next 4 years. Transportation infrastructure remains one of the most recurring and predictable revenue streams of our business. And as the largest road paver in the United States and the #1 infrastructure play in North America, we are well placed to benefit. We also expect to see continued investment in the whole area of water infrastructure, a large and growing market for our business with high single-digit growth projected in the areas of water quality and flow control for 2026. In reindustrialization, we expect continued strong demand for large-scale manufacturing and data center investment. With approximately $690 billion of data center projects either announced or under construction and with each of these projects located within 50 miles of a CRH location, we are very well positioned to benefit in this area going forward. In the residential sector, we expect repair and remodel demand in the U.S. to remain resilient, while new build activity remains subdued as a result of the ongoing affordability challenges with the benefit of recent interest rate cuts unlikely to be felt until late 2026 at the earliest. As we've said in the past, this is not a demand issue, and we believe the long-term fundamentals in this market remain very attractive, supported by favorable demographics and significant levels of underbuild. In our international business, we expect robust demand in infrastructure to continue, supported by significant investment from government and EU funding programs. nonresidential activity to remain stable across our key markets and a continued recovery in the residential sector as a result of lower interest rates. Regarding the pricing environment, we expect positive momentum to continue across our markets, supported by disciplined commercial management as well as the benefits of our connected portfolio. In summary, the overall trend is positive for our business with our strategic focus on growing infrastructure megatrends and the benefits of the CRH Winning Way, leaving us uniquely positioned to capitalize on the strong growth opportunities that lie ahead. So that concludes our prepared remarks today. I will now hand you back to the moderator to coordinate the Q&A session of our call. Operator: [Operator Instructions] We'll take our first question from Anthony Pettinari with Citi. Anthony Pettinari: I'm wondering if you have any further color on expectations for 2026 and maybe specifically how you're thinking about volume, price and contribution from M&A? Jim Mintern: Anthony Yes, listen, I might ask Randy to come in a minute just on some of the detail on volume and prices and Nancy, maybe just on some of the scope impacts on '26. But overall, the outlook for '26 is positive, Anthony. And really the key growth areas we see for ourselves around infrastructure. And for us, that's around transportation and water, but also reindustrialization. Maybe first on transportation. With roads, still 60% of the IIJA is yet to be spent. And indeed, the local state budgets are also strong into 2026. This kind of strong funding backdrop for us leaves us really well positioned given our unmatched scale and connected portfolio in our roads portfolio. And as you know, it's probably our most consistent and recurring revenue streams that we have in CRH. Also on the water infrastructure side. It's a very strong funding backdrop and that ongoing investment, which is really needed and required to address the aging network -- aging water network across the U.S. On reindustrialization into '26, we see data center activity continue to be strong. And really for us, given our connected portfolio, it's not just about delivering aggregates on sites. We're often the very first person on site there with our energy, our water and our communications subterranean infrastructure going in early. So it's a really kind of holistic pull-through of the connected product offering we have. Maybe just touching on residential for 2026. We think it's going to remain subdued, right? It's not a demand issue, but affordability with a 30-year fixed still at 6.2%, it's still too high. And we need continued interest rate cuts before we see any recovery on the U.S. res side. So our kind of assumption is that there's no real benefit for us in 2026. If it is, it's going to be really at the very back end. And -- maybe just in international briefly, again, infrastructure is strong, both strong levels of EU and local government funding as well across our state government funding across Europe. Reindustrialization, we kind of see a stable outlook for 2026. And on residential in Europe, slightly different because Europe and the euro are more advanced on interest rate reductions, and we're beginning already to see the benefit of that coming through in terms of a continued recovery in residential. But maybe, Randy, just on maybe the specific volume and prices. Randy Lake: Yes. Maybe just to build out just a quick comment before I do that, just on maybe an example of a couple of projects we're working on. For example, in the northwestern part of the U.S. and around Boise, working on a chip manufacturing plant and a data center. I think what Jim called out is important that critical infrastructure that focus on the needs of energy and water management allow us early access on these projects. They're highly specified. -- gains us the opportunity then to pull through a variety of other products as part of that connected portfolio, the aggregate, the cement, the ready-mix and ultimately, the paving around those sites. So in the end, that strategy is certainly delivering higher returns and as we gain larger share of wallet of some of those key customers. And I guess that is a lead in to say, hey, Q3 was encouraging. Ag and cement volumes up kind of mid- to high single digits coming out of the Q2 that was a little more weather impacted. So good to see underlying demand coming through. And again, a positive pricing environment. Ag, in particular, up 6% on a mix-adjusted basis. So that's good to see. In cement, another year of progress in terms of low single-digit pricing. And as we look forward, we talk about this all the time, the backlog, whether that's for our roads business, the critical infrastructure business, we have good visibility kind of 6 to 9 months out. The bidding environment remains positive. So we're bidding more than we had at this point last year, and our backlogs would reflect an increase in revenues in quantums as we look into next year. In terms of what that means for an outlook in regards to demand, we're looking at our aggs volume in that low single-digit improvement from '25 and mid-single digits in regards to pricing. And cement, very similar, again, low single-digit volumes and pricing, another year of advancement there. So it's building off of a good '25. But again, the backlogs would be encouraging in regards to what our expectations are as we get into next year. Nancy Buese: Yes. And circling back to the question about the M&A contributions. It has been a really active year for us, 27 deals so far. Eco was the largest, and that was completed in September. So if you think about the contributions from all of this M&A thus far in 2025, I would roughly estimate about $200 million of EBITDA net incremental in 2026. And we'll talk a lot more about 2026 at our year-end results in February. We'll give you full guidance at that point in time. Operator: Your next question comes from the line of Adrian Huerta with JPMorgan. Adrian Huerta: Pretty impressive what the company has done in terms of margins in the last in the prior 2 years and also even in this year where it's heading to be more than another 1 percentage point. Can you share with us more color on how this trend should evolve? How do you see the price to cost spread, especially across the 3 different divisions? I mean the margin improvement in this quarter, mainly coming from the Building Solutions in the U.S. and from International Solutions. How do you see this evolving and the opportunities for 2026? Jim Mintern: Adrian, Jim here. Yes, listen, really pleased again with the margin improvement in the quarter, up 100 basis points. And based on the guidance we've given this morning for the full year, that's -- this will be our 12th consecutive year, which is really reflecting that proven track record of and consistency of delivery year in, year out. As we said actually recently, I mean, we don't see any structural ceiling to where we can take the margins, and it really is embedded as part of our performance mindset and deeply embedded in the culture of the company. And at the recent Investor Day, the fact is we raised our ambition on the margins, and we're forecasting margins and targets out of 22% to 24% by 2030. And there's a number of reasons which have given us confidence that we're going to achieve these margin increases. Firstly, it's around the CRH Winning Way, that continued consistent execution of our superior strategy, the relentless quarter-on-quarter, year-after-year focus on driving performance, whether that's operational, commercial or even procurement. And secondly, you would have noticed that we did communicate, we did step up our growth CapEx expenditure, about 18 months ago, and we're beginning to see now the benefits of that coming through in terms of margin expansion, and we've got reasonably good visibility on that as we look forward. Maybe, Randy, do you want to comment specifically on some other aspects maybe on actually maybe what's happening in the cost inflation side of things? Randy Lake: Yes, absolutely. Maybe just to build on the growth CapEx. We have a really good backlog of projects, high-returning projects that certainly drive underlying improvement in the business. Everything from kind of capacity expansion to automation, in a variety of different ways. If we look at our Critical Infrastructure business, kind of enhancing our pipe manufacturing process through the use of automation, just another means by which to drive those efficiencies and meet growing demand in that segment. When we look at the environment in terms of cost inflation, we certainly are still in an inflationary environment. So labor, raw materials, parts, maintenance, subcontractors, those costs continue to move forward. I think it certainly highlights the need for that further pricing momentum that I talked about as we go into next year. But all in all, as Jim called out, in terms of that structural -- no structural ceiling to our margins, I think we should expect another year of margin expansion as we go into next year. Operator: Your next question comes from the line of Trey Grooms with Stephens. Trey Grooms: So you guys are raising the midpoint of the EBITDA guide, which you pointed out that it now includes Eco Materials, and there's definitely several moving pieces here. But could you dive a little bit more into -- and maybe walk us through some of the key drivers here of the updated 2025 guidance? Jim Mintern: Yes, absolutely, Trey. Yes, listen, very firstly, very pleased to be announcing this morning the tightening and the raising of the full year EBITDA guidance by about $50 million at the midpoint. And maybe I'll ask Nancy to come back on maybe some of the puts and takes at the end of this. But with the increase of $50 million, that gives us a midpoint of $7.65 billion, which is 10% growth, which is off a very strong 2024, in fact, a record year for CRH in 2024, which highlights the kind of durable growth nature of the connected portfolio of local brands that we have. The increase in guidance reflects really a strong quarter 3 again with EBITDA up 10%, margins up 100 basis points and contributions from recent acquisitions as well. And again, I guess we should remember that Q3 2024 was a record quarter for us as well. So we're stepping off kind of like-for-like a very strong quarter 3 in 2024. The quarter -- Q3 did benefit from some land sales, but actually, year-to-date land sales are down year-on-year, right, over 2024. And maybe ask Randy, maybe, Randy, would you want to comment on how we think about and how we manage land sales across CRH. Randy Lake: Yes. I think we look at kind of optimizing that portfolio of assets as we do of any other part of kind of driving underlying performance. So it's about optimizing performance plus the portfolio. You call out the CRH Winning Way. This is an expectation we would have of our teams on the ground. So that relentless focus on operational excellence, maximizing shareholder value, and that includes the management of the assets. We take advantage of the scale that we have, 4,000 locations, the ability for us to recycle and optimize that asset base. That's an important part of how we compound earnings for our shareholders. And as you call out, year-to-date, those dollars are lower than prior year. Nancy Buese: And then just to follow on, our updated guide does really reflect our strong year-to-date performance across all of our key metrics. And as we've talked, it has been an active year for M&A, and that does include Eco having closed in September. And just as one reminder, while the adjusted guidance does include our partial year EBITDA contribution from Eco and other M&A. Also remember, though, the size and timing of the Eco transaction in Q4 and also some transaction and financing costs, you can expect that to be EPS dilutive into Q4 of 2025. Operator: Your next question comes from the line of Michael Feniger with Bank of America. Michael Feniger: I'm just curious if we could unpack the drivers of the performance and the margin expansion in Americas Building Solutions. There's been a lot more data points pointing to weakness in repair and remodeling, incremental weakness in residential. And we saw the performance in Americas Building Solutions this quarter. Hoping you can kind of unpack what you're seeing there, what you feel is sustainable going forward and into 2026? Jim Mintern: Yes. Mike, yes, as you know, firstly, maybe America Building Solutions, it comprises both our Infrastructure business in the Americas, but also the Outdoor Living. And maybe I might ask Randy to come back on Outdoor Living. But firstly, on overall, right, a very strong Q3 performance. Adjusted EBITDA up 22% and margin well ahead of last year. What's driving that is overall good underlying demand, good commercial management and as we just mentioned, also the benefit of some asset disposals in the quarter. But what's really driving on the infrastructure, firstly, is what is really the real strength, the underlying strength across the Americas of the whole reindustrialization activity, primarily around data centers. And as you know, given our scale, our national footprint, we're very well positioned for most projects, nearly all projects within 50 miles of CRH location. And in fact, right now, we're working on, in total, about 98 different data center projects. Now they're all at different stages of completion, but it gives you some feel for the kind of scale of activity there. And really what plays into our kind of sweet spot on this is the connected nature of the portfolio. That's a real advantage, right, that we're often, as I said earlier, first on site with our infrastructure products, then we're supporting that with our aggregates and cement. And if you're a contractor building data centers, what really matters right now, it's around quality and speed of delivery, certainty and speed of delivery, and we have a real advantage, competitive advantage there. And that comes through when we get to talk about margins and pricing as well on those jobs. Maybe, Randy, on Outdoor Living. Randy Lake: Yes. Outdoor Living, certainly, I think, performing very, very well when you look at underlying hardscapes, mainstream, packaged products, all really moving forward this year. You have to remember, coming from a very strong performance and growth over recent years coming out of COVID, the team has done a really terrific job in kind of sustaining that momentum, engaging with our customers the right way. And again, this is where we play here has been the most resilient in terms of repair and remodel. That's been a very purposeful effort. But the team has delivered well. It takes a lot of areas of focus, in particular, to call out kind of our category-leading brands. That's really what draws kind of the connected nature with our customers and as well as the logistics network that we've built to be able to service on time on a consistent basis. So I think fundamentally, and Jim has called it out, that business is very deeply connected to the underlying ag and cementitious business. So that combination of delivery certainly has been impressive this year, and we look for more positive momentum even as we get into '26. Operator: Your next question comes from the line of Kathryn Thompson with Thompson Research Group. Kathryn Thompson: I know a lot of focus on data centers and reindustrialization, which is certainly driving demand. And after having gone to a data center construction site, it is pretty staggering the demand that is driving a wide variety of projects. But that said, infrastructure is still a very important part of your business overall. And there's been a little bit of lack of visibility with kind of U.S. in terms of government funding right now with the government shutdown. But it still looks like that infrastructure funding is still chugging along just fine. But we want to make sure that, that is the correct interpretation. More importantly, what is your level of visibility on your roads business and the prospects for the highway bill reauthorization in 2026? Jim Mintern: Yes, maybe just -- you're right, infrastructure for us is our biggest segment. It's a segment which really drives CRH across both the Americas and international. And maybe just to put it in some context and particularly our roads business. As you know, we're the largest road paver in the U.S. with producing in excess of 50 million tonnes of asphalt per annum across 43 states. And as I said earlier, it's actually our most predictable and recurring revenue stream that we have, and it's a highly attractive business. Now there's still very significant runway for growth in the business as we look into '26 with still 60% of the IIJA funds yet to be spent. And as I said earlier, the very healthy local state budgets -- it's a key part of our connected portfolio in the Americas. And a typical year, to give you a bit of scale, we do about 4,000 paving jobs per year. They typically last about 90 to 120 days. And with the connected nature of the portfolio, that paving activity really pulls through the highest quality and the highest value and the highest margin aggregates through our connected portfolio. We called it out recently actually on the Investor Day by actually not just producing ags, we have that ability to take what is kind of an indicative $10 per cash profit per ton and turn that into $60 by turning it into asphalt, adding liquid asphalt and indeed paving it. And it's a real multiplier for profits, cash and returns for us. It's also less capital intensive with higher returns. And ultimately, in terms of the growth and the inorganic side, gives us real optionality for where we deploy capital. Now we're kind of what, 5, 6 weeks out from the year-end. We've got pretty good visibility into 2026 in terms of our bidding on the activity levels, and that's what gives us that confidence in terms of guiding on infrastructure in '26. But maybe, Randy, on specifically what we're thinking around maybe the new highway bill as well. Can you give some color on that? Randy Lake: Yes. I guess, first, just to build on Jim's point, the IIJA, as you know, Kathryn, right about 60% of that funding has yet to really hit the street. So -- and we called that out. I think we said early on, it was a 5-year piece of legislation. It was going to take 7 years to deploy. That's kind of how it is rolling out currently, which is really no different than any other legislation prior to that, just kind of how things have worked from a federal to the state level. So our bidding activity is up, so we're encouraged by that. I think the other thing is it's also encouraging to see the size and the complexity of projects. So to me, that speaks to long-term confidence at the state level about deploying capital in those type of projects. So I guess -- but to your point about what's next, I guess, early conversations are positive. So it's great to hear from the Chairman of the House T&I Committee, from Secretary Duffy from both sides of the aisle in terms of underlying commitment to a new piece of legislation. So the conversations are beginning and so far positive. I think probably the most encouraging thing would be this mindset of moving more dollars to roads, highways and bridges. What that quantum looks like, I'm not sure, but it's encouraging to hear those kind of conversations on both sides of the aisles. And so we're actively participating with those conversations, and we'll see where it ends up, but certainly encouraged by early discussions. Operator: Your next question comes from the line of Michael Dudas with Vertical Research Partners. Michael Dudas: Okay. So Jim, I just want to get your thoughts on the M&A pipeline as you're accelerating on your 4 connected platforms, where now or are you seeing some of the focus on the capital allocation towards M&A over the next 6 to 12 months? Jim Mintern: Yes. Sure, Mike. Yes, listen, really pleased with the execution to date, right, $3.5 billion on 27 deals, the largest, which is Eco Material and maybe come back at that at the end and maybe get Randy to talk about how that's going from an integration perspective and how it started. But great start to the year, 27 deals and really reflects the continued successful execution of our growth strategy and our ability to deploy capital in growth markets across our key platforms. And you said it in the question, actually, we -- at this stage, we've built 4 growth platforms of scale coast-to-coast across the U.S. in aggregate, cementitious, roads and water. It also reflects our ability to integrate. I mean 27 deals year-to-date to be able to integrate those at pace and get early execution and deliver on synergies as well reflects kind of just that growth capability that we have. The pipeline at this stage into 2026 is good. And that, again, is really coming from a lot of the local relationships that we have across the 300 operating businesses across CRH. And it's really, again, when you layer that kind of scale, the connected nature of the portfolio, it really gives us optionality as to where we choose to deploy capital going forward. And at the recent Investor Day, we would have called out that on the medium term out to 2030, we estimate that we're going to generate $40 billion of financial capacity. And we're going to allocate that approximately 70% to the growth side, so growth CapEx and M&A and then 30% in terms of shareholder returns. So the consistent year in, year out ability to deploy capital in value-accretive acquisitions really highlights us as the kind of leading compounder of capital in the industry. But a great start to the year and good activity level across the full business, both the Americas and international into '26. But Randy, maybe on Eco? Randy Lake: On Eco. Yes, early days so far, but the integration is going really well. I think maybe when you stand back, we were excited about the opportunity before and even more so as we've got an opportunity to bring them into the CRH fold. I think I'd call out a couple of things. Obviously, it's a fantastic team, terrific leaders and organization from an operational standpoint and a great brand, and we're going to continue to build off that brand. I think from a cultural standpoint, a great deal of alignment. They're focused on ensuring their teams are safe. That's our #1 value within CRH, great to see. It's the ownership of those relationships, really deep local relationships, the importance of that, and that's in direct alignment with how we look at our local brands and how we go to market. But as we got inside, certainly, we're seeing things that we would continue to build off of. One, they have a terrific offering with current customers, the ability for us to integrate that to our cementitious business with Ash Grove is going to give us plenty of opportunities from a commercial standpoint. And remember, the SCMs are the fastest segment of the cementitious space. And so it was important for us to play there, and they deliver a lot of optionality for customers. I think that's that -- I think I called it out in the opening remarks, the network that they've built. It gives us an additional 55 terminals across the U.S., close to 8,000 railcars to really extend our reach to our customer base, which is very important to provide high-quality product in a timely manner. And I think lastly, what they have done really well is drive innovation in this space. The customers that we're engaged with, whether it's on high-spec manufacturing or data centers, a focus on sustainability, they've done an incredible job of really advancing that in their overall offering. It's going to be a terrific combination with our scale. So overall, excited as to where we are at this point in time. I think there's a tremendous amount of value for our business and overall shareholders and a great opportunity for us to continue to drive margins forward. Operator: We have time for one last question, and that question comes from the line of Colin Sheridan with Davy. Colin Sheridan: My question is on the International Solutions business. And clearly, it's had an excellent Q3 in terms of the profit growth and good margin progress. But looking forward, I just wonder if there's any areas of that business you might think will provide opportunities for some further upside as we go into 2026. Jim Mintern: Yes, listen, as you called out, a really good quarter, actually a really good year-to-date and building off a really strong 2024 as well with year-to-date adjusted EBITDA and margin growth across the International Solutions business. It's an encouraging outlook, Colin, into 2026. And in fact, beyond that, I'd say, for the next 3 to 5 years across the international portfolio. And it's really recovering from what has been a challenging period. It has had numerous headwinds, whether it started out originally with Brexit, then we went into the pandemic, then the energy crisis and the war in Ukraine. And -- but what we're seeing is that Europe is more advanced in the kind of interest rate cycle, the cutting of interest rates. And that's coming through in terms of being more supportive of continued residential recovery. That, together with good EU level and individual state level funding for infrastructure in our key markets is providing a very significant underpin in terms of base activity levels coming from infrastructure. We're also this year in our eighth consecutive year of price increases across the European business, and we're expecting further momentum on that into 2026 also. And in our case also, we would have taken on a lot of portfolio and self-help measures over the last number of years across the -- particularly the European portfolio. And as activity levels are beginning to recover, we're beginning to see really good leverage on the margin drop-through on that business and you see that coming through on the quarter-on-quarter and year-on-year performance as well. And maybe finally, just in terms of Australia. Really, it's a little over 12 months at this stage. Good news, really good delivery on synergies ahead of our expectations and good positive momentum into 2026. Well, I think that brings us to the end of questions today, but thank you all for your attention. And as always, if any of you have any follow-up questions, please feel free to contact our Investor Relations team. We look forward to talking to you all again in February next year when we will report our full year results for 2025. Thank you all, and have a good and safe day. Operator: Thank you. Your conference call has now ended. You may now disconnect.