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Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Wingstop Inc.'s Fiscal Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded today, Tuesday, November 4, 2025. On the call today are Michael Skipworth, President and Chief Executive Officer; Alex Kaleida, Senior Vice President and Chief Financial Officer; and Sarah Niehaus, Senior Director of Investor Relations. I would now like to turn the conference over to Sarah. Please go ahead. Sarah Niehaus: Thank you, and welcome to the Fiscal Third Quarter 2025 Earnings Conference Call for Wingstop. Our results were published earlier this morning and are available on our Investor Relations website at ir.wingstop.com. Our discussion today includes forward-looking statements. These statements are not guarantees of future performance and are subject to numerous risks and uncertainties that could cause our actual results to differ materially from what we currently expect. Our SEC filings describe various risks that could affect our future operating results and financial condition. We use certain non-GAAP financial measures that we believe can be useful in evaluating our performance. Presentation of such information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. Reconciliations to comparable GAAP measures are contained in our earnings release. Lastly, for the Q&A session, we ask that each of you please keep to one question and a followup to allow us as many participants as possible to ask a question. With that, I would like to turn the call over to Michael. Michael Skipworth: Good morning, everyone. We appreciate you joining our call. Coming into 2025, our priorities were clear: accelerate our global footprint as we scale towards our goal of over 10,000 Wingstop restaurants, execute the national rollout of our new kitchen operating platform across our 2,500 domestic restaurants and delivered average unit volume growth as we scale towards our target of $3 million, following 2 industry-leading years of same-store sales growth, stacking comps of roughly 40%. Through the first 3 quarters of 2025, we have opened 369 net new restaurants, representing a 19% unit growth rate, well surpassing our expectations. And we are quickly approaching 3,000 restaurants globally, not even 1/3 of our potential. System-wide sales have grown by 13%. And on a trailing 12-month basis, system-wide sales exceeds well over $5 billion. The strength of our highly franchised asset-light model has delivered 17% adjusted EBITDA growth in the same time frame. And as of this past week, we have implemented our new kitchen operating platform in over 2,000 restaurants, keeping us on track to have the national rollout completed by prior to year-end. We shared earlier this year that certain regional pockets, which over-indexed to Hispanic and low-income consumers were experiencing some softness in sales as we lap 2 consecutive years of industry-leading same-store sales growth. During the third quarter, we saw this dynamic broaden across the industry and within our business to more geographies as well as to the middle-income consumer in some areas, resulting in a 5.6% decline in same-store sales in Q3 that was below our expectations. We believe this is only temporary and the current consumer environment will prove to be cyclical. While none of us can predict the duration, where I am focused is on the strategies we are executing that position Wingstop to return to same-store sales growth and further strengthen our already best-in-class unit economics. What gives me confidence is the underlying fundamentals and health of the brand that remains strong and the early results we're seeing from our strategies being implemented in 2025. Let me touch on each of these strategies we are investing in that we believe will scale AUVs towards our target of $3 million. First, our new kitchen operating platform, Wingstop's Smart Kitchen is truly a game changer. As I mentioned earlier, we are live in over 2,000 restaurants. We are seeing more and more restaurants that have been on the new kitchen operating platform start to consistently deliver a 10-minute speed of service, truly incredible to think about. That's over a 50% reduction from our prior speed of service levels. Our consumer research and early results in markets with the Wingstop Smart Kitchen show that speed and consistency are sizable opportunities for us to become more of the consumers' consideration set. Our brand partners are fully bought in, motivated to execute our new operating standards and maximize the investment they are making. Our Southwest region, which has the highest concentration and longest tenure with the new kitchen operating platform is consistently delivering these 10-minute speed of service levels with 100% of restaurants seeing improvements in guest satisfaction scores, particularly in areas such as accuracy and consistency. Additionally, during the last quarter, same-store sales growth in the Southwest region had a mid-single-digit delta versus the U.S. average. What we're learning is restaurants begin seeing measurable improvements in guest scores following 8 weeks of go-live and sustaining performance into a 3- to 6-month window from implementation where new guest retention rates and frequency strengthen, reinforcing that the benefits are consistent, repeatable and scalable across the system. As we enter 2026 and begin supporting this game-changing improvement in our speed of service levels with marketing, we anticipate this curve will start to accelerate and position us to win more share of occasions in our demand space. Second is our new marketing campaign. Let me first help explain our core demand space where Wingstop is best positioned to win and who we need to target to fully appreciate the significance of this new campaign. It starts -- it's a party size of 2 or more adults who prioritize a high-quality restaurant experience and access brands through off-premise occasions. These guests aren't anchored to a specific demographic, they are equally representative across ethnicity, income level or age. The fact is, today, we are only winning roughly 2% of this demand space, and we believe we have a runway to gain our fair share at 20% over the long term. It starts with filling the top of the funnel and attracting new guests into the brand. Our gap in awareness to larger, more mature national brands is more than 20%. And as consumers become aware of your brand, consideration becomes an unlock where we have an even larger gap to these same brands. This is where our new ad campaign comes into play. The tagline is Wingstop Is Here. Our new campaign will showcase how Wingstop fits into everyday life moments, a friend hosting dinner for game night, streaming a show with your plus one, a quick lunch with coworkers or that late-night indulgent craving only Wingstop can fulfill, insights and moments informed by our more frequent guests. It is equally centered on reminding our core fans of that indulgent Wingstop occasion they know and love and educating new guests on how Wingstop fits into everyday life. Our new campaign is centered around broadening the top of the funnel and bringing in guests and occasions we are best positioned to win. I am extremely excited to see the interplay of this new marketing campaign and our new kitchen operating platform, the Wingstop Smart Kitchen, come to life, and I believe it will be a powerful unlock for our business. The third strategic investment is loyalty. We have a best-in-class digital platform, representing over 70% of sales. And we have a master database of over 60 million users, all without a loyalty program. Our technology platform, which we refer to as My Wingstop has positioned us for that next natural extension of our digital journey with the launch of a loyalty program that we are branding as Club Wingstop. The addition of our loyalty program is just another tool in our digital flywheel that would allow us to drive behavior and win more of those occasions we are best positioned for. It will connect our rich first-party data with personalized offers and experiences to increase frequency and lifetime value. Club Wingstop will bring a hyper-personalized digital experience to life in a way that only Wingstop can, not through discounting, but through curated one-of-a-kind access to content, flavors, merchandise and experiences. We are currently in the pilot phase. Sign-up rates and guest engagement are ahead of our expectations. Based on early results, it's validating the extensive research and insights from our existing personalization strategies that informed the design of our program. It will truly be a differentiated loyalty program that we can bring to guests. We're on track for a national launch of our loyalty program by the end of the second quarter in 2026. As we look to 2026 and consider our Wingstop Smart Kitchen, our new ad campaign and loyalty all coming together, there is a lot to be excited about, and I believe positions Wingstop well for this next phase of growth. Just last month, we hosted our brand partners at our annual franchisee conference. You could really feel the energy and enthusiasm in the brand. And it was clear they share my excitement around these investments we are making to support this next phase of growth for Wingstop. The opportunity to scale Wingstop to over 10,000 restaurants globally remains significant. We are now opening more than 1 Wingstop per day. The demand from our brand partners is as strong as it's ever been. It holds true for a 5-restaurant brand partner or a 100-plus restaurant brand partner. We are executing our development strategy through our market-level playbooks that allow us to grow in the most sustainable way and maintain our industry-leading unit growth. In our most recent quarter, over 70 unique brand partners opened a Wingstop in over 100 different markets across the U.S., which really showcases the breadth and depth of demand for unit growth across our brand partners. Based on the strength of our pipeline, we now have line of sight into delivering a unit growth rate in the mid-teens range for 2026, well above our long-term algorithm of 10% plus unit growth. Outside of the U.S., we are making tremendous progress with new market openings, and our growth rate continues to accelerate. We've opened in several countries throughout the GCC, launched a brand-building site in the Netherlands, expanded in France with multiple flagships and are preparing to launch in Ireland, Thailand and Italy. We're proving that the world needs our flavor and brand partners need our best-in-class unit economics. And we're just getting started in bringing Wingstop to guests around the world. Most recently, we finalized a landmark agreement for Wingstop in India, a market with an opportunity of over 1,000 restaurants. Our international success shows the strength of the brand and the significant global runway still ahead. As of the end of Q3, our development pipeline yet again sits at a record level and just continues to build, a powerful signal that our brand partners see what we see, a runway for sustained profitable growth supported by industry-leading returns. As our business continues to scale, we believe our obligation to give back grows as well. About a year ago, we announced our partnership with St. Jude's Children's Research Hospital. The work that is happening at St. Jude's is remarkable, and our brand partners, team members and fans have embraced the opportunity to contribute to St. Jude's life-saving mission, finding a cure for childhood cancer. Since this partnership started a year ago, I'm thrilled to share that we have raised nearly $3.5 million as a system, and we're not going to stop there. We believe in St. Jude's cause and see this as a lasting partnership opportunity for our brand. There's a lot to be excited about at Wingstop. We are focused on executing against strategies that we believe will position Wingstop well for the next phase of growth, providing line of sight for continued AUV expansion and maintaining industry-leading unit economics as we continue to expand our global restaurant count towards our goal of over 10,000 restaurants. The progress we've made in rolling out the new Wingstop Smart Kitchen platform, building our loyalty program and opening over 350 net new restaurants globally in just 9 months is a testament to the people who are relentlessly focused on scaling Wingstop into a top 10 global restaurant brand. Our strategy is only as good as those executing, and I want to take a moment and thank our brand partners, supplier partners and team members across the globe for their efforts. With that, I'd like to turn the call over to Alex. Alex Kaleida: Thank you, Michael. Our third quarter performance is a testament to the continued strength and resiliency of our highly franchised asset-light model, delivering 10% system-wide sales growth, 19% unit growth and nearly 19% adjusted EBITDA growth. This performance reflects our disciplined focus on the long term, not reacting impulsively to the short term, but rather executing against our proven playbook. Our success in the last 3 years has been fueled by this playbook. And while we're navigating an evolving consumer backdrop, our unit economics continue to hold strong, driving an industry-leading unit growth outlook. By staying committed to our strategies, investing behind initiatives such as the Wingstop Smart Kitchen and our loyalty program, we believe this is positioning us to be able to win our fair share of our core demand space and continue driving sustainable best-in-class returns for our brand partners and shareholders alike. Our highly franchised model continues to generate durable capital-efficient growth. System-wide sales grew in the third quarter to $1.4 billion, fueled by 114 net new restaurant openings, marking our fifth consecutive quarter of adding more than 100 net new restaurants. Through the first 9 months of the year, we've opened 369 net new restaurants at a unit growth rate of 19%. The appetite for expansion across our brand partner base has never been stronger. We're experiencing record demand for new development with brand partners reinvesting behind the strength of our unit economics and returns. We expect to maintain this elevated pace of development into 2026 in the range of a mid-teens unit growth, well above our long-term algorithm of 10% plus unit growth. Total revenue increased 8.1% to $175.7 million versus the prior year. Royalty revenue, franchise fees and other increased $6.8 million, of which $10.6 million was due to net new franchise development, partially offset by a domestic same-store sales decline of 5.6%. When stacking 30.6% same-store sales growth over the last 3 years, this has translated to more than $500,000 in AUV growth. Domestic AUVs are now at $2.1 million with industry-leading unlevered cash-on-cash returns of 70% plus on an average upfront investment of $500,000. That's why our brand partners continue to lean in, which showcases the attractiveness of our unit economic model. Our company-owned restaurants continue to perform very well, delivering same-store sales growth of 3.8% in the quarter, outpacing the broader system. These restaurants serve as an early indicator of the impact we're seeing from the Wingstop Smart Kitchen that's translated into a meaningful operational and financial impact. The Wingstop Smart Kitchen continues to validate the long-term opportunity to drive both transaction growth and margin expansion. Our company-owned margins also continue to expand with company-owned restaurant cost of sales declining by 300 basis points versus the prior year in Q3 to 74.8% of sales, primarily due to lower bone-in wing costs and sales leverage on labor and operating expenses. Our supply chain strategy continues to serve us well, providing stability in food costs and visibility that allows our brand partners to plan with confidence, a key advantage in this environment. We have line of sight into food and packaging costs throughout 2026 at our targeted range in the mid-30%, which was shared recently at our brand partner conference, further generating their excitement in our unit economics. SG&A decreased $1.6 million to $30.7 million, driven by lower headcount-related expenses, primarily associated with lower short-term and stock-based incentive compensation, partially offset by system implementation costs associated with our new ERP, human capital and global development platform. Adjusted EBITDA, a non-GAAP measure, was $63.6 million in the third quarter, an increase of about 19% year-over-year. Adjusted EBITDA for Q3 was our highest single quarter on record. Adjusted earnings per diluted share was $1.09, a 15.6% increase compared to the prior year. This includes a $0.24 impact from the additional interest expense associated with our $500 million securitization transaction completed at the end of 2024. Both metrics reflect the strength and profitability of our asset-light operating model. It's this operating model that fuels our return of capital strategies centered upon enhancing shareholder returns. In recognition of our strong free cash flow generation and our commitment to returning capital to shareholders, on November 3, 2025, our Board of Directors authorized and declared a quarterly dividend of $0.30 per share of common stock, resulting in a total dividend of approximately $8.3 million. This dividend will be paid on December 12, 2025, to stockholders of record as of November 21, 2025. In addition, during the third quarter, we repurchased and retired 140,103 shares of common stock at an average price of $285.26. At the end of the quarter, $151.3 million remained available under our existing share repurchase authorization. Since the inception of our share repurchase program in August of 2023, we have repurchased and retired over 2.3 million shares of common stock at an average price of $260.45 per share. Turning to guidance for 2025. We are updating our full year outlook for domestic same-store sales to a decline of 3% to 4%. We believe our updated outlook is reflective of new data points on the consumer over the last couple of months and the broader softening of the macro environment. Importantly, however, the fundamentals of our brand remain strong. The combination of expansion at the top of the funnel to capture more of our demand space, execution of our new operating standards with the Wingstop Smart Kitchen and the late Q2 launch of Club Wingstop positions us for a return to same-store sales growth during 2026. And we believe our industry-leading momentum and unit growth will continue. As a result of the visibility we have into our development pipeline, we are increasing our global unit growth guidance to a range of 475 to 485 net new restaurants for 2025, a testament to the ongoing confidence our brand partners have in the model and the compelling returns they are realizing. Additionally, we are updating our SG&A guidance to a range of $131 million to $132 million, which includes approximately $26 million of stock-based compensation expense and $4.5 million for nonrecurring system implementation costs, both of which will be an add-back to adjusted EBITDA. As we look ahead, our focus remains on executing the long-term strategies that have driven Wingstop's success since becoming a public company 10 years ago. In this time frame, our AUVs have scaled from $1 million to $2 million. We have opened more than 2,100 restaurants globally. System-wide sales have grown from $800 million to north of $5 billion. We've enhanced unit economics and unlevered cash-on-cash returns increased from an industry-leading 50% to 70% plus. And we've returned over $1 billion of capital to shareholders alongside a TSR of over 1,200%. Yet when we reflect on our strategies and the opportunity in front of Wingstop, it feels like we're just getting started. We're continuing to execute with discipline, and we believe we're entering the next phase of growth that is centered on scaling AUVs to our $3 million target, maintaining best-in-class returns and expanding our footprint globally to more than 10,000 restaurants. Coming off our annual Brand Partner Conference last month, conviction in our long-term growth has never been stronger. Our brand partners believe deeply in this brand and are signing up to open more Wingstop. The energy and optimism across the system are powerful proof points of the health of the business. I, too, share that excitement and couldn't be more energized by this next phase of growth for Wingstop. With that, I'd like to now turn to Q&A. Operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from David Tarantino from Baird. David Tarantino: My question is on the comp outlook. I think if I look at your full year guidance, it would imply a pretty low number for Q4, maybe worse than what you reported for Q3. So I guess first question is, is that how you're running quarter-to-date? Or are you trying to leave yourself a little bit of room given the uncertainty in the environment? Any way to frame up how you're thinking about Q4? And then I have a follow-up on that. Michael Skipworth: David, thank you for the question. I think we obviously acknowledge that there's some near-term choppiness in the business and in the overall industry. I think as we take a step back and look at how the business trended during the third quarter, which we did, in fact, expect the third quarter to be negative, but the industry saw a consumer -- a change in the consumer trend, and we're not immune to that. And the reality is we over-index to this consumer that's under the most pressure. But I think similar to the trend that we saw as we exited Q3, we expect that trend to somewhat continue into Q4 just based on the current data that we have. I will tell you, we have seen that trend stabilize within the fourth quarter. But then I think most importantly, David, we take a look at kind of the data that we have and the visibility that we have into the business, and we're actually pretty encouraged by what we see despite the overall comp number for Q3. We see growth in our largest daypart as dinner as an example. The fastest-growing cohort within our database is that $75,000 household income and above. And so there's some really encouraging data points that we think put us in a unique position to really not feel like we have to solve for the near term, but really stay focused on the investments we're making to position the brand for this next phase of growth. David Tarantino: Great. And my follow-up is, Alex, I think you mentioned that you're confident or you expect comps to be positive in 2026. I guess maybe what would be helpful is just to kind of lay out the path you think the comps take as you move into next year and what some of the key drivers of returning to positive might be, whether it's easier comparisons or whether the Smart Kitchen rollout or the loyalty program, I guess, what is the catalyst that's going to get it positive? And then how are you thinking about the timing of that? Is it later in the year? Or is it earlier in the year? Anything you could offer would be helpful. Alex Kaleida: Yes, David, thanks for the question. Obviously, there's, as Michael mentioned, some near-term choppiness the industry is navigating right now. But I think for Wingstop specifically, there's unique drivers in our business. And as we commented on our outlook for '26, what we're seeing in early signs from the Wingstop Smart Kitchen, one of our largest regions is seeing -- saw a positive comp last quarter, a very large mid-single-digit delta versus the system average and performance. That region has the highest concentration, longest tenure on the Wingstop Smart Kitchen. Then we think about loyalty, which we're targeting to launch by the end of Q2, that coming together to complement our hyper-personalization strategies, really unlock this database of 60 million users that we have access to. We'll be rolling that out. And then this new advertising campaign that we're seeing that's really going to open up the top of the funnel. So we as we open the top of the funnel, we're bringing new guests into the brand, and we're now delivering on those opportunity areas that we've talked about over the last year plus on delivering against speed and consistency. And so as that comes together into 2026, we're confident in our ability to deliver that sustained same-store sales growth that we've guided to over the long term. Operator: Our next question comes from Danilo Gargiulo from Bernstein. Danilo Gargiulo: Michael, I have a question on the Smart Kitchen incrementality. You're mentioning that you're still seeing a mid-single-digit incrementality in the areas where you have the highest concentration of Smart Kitchen. And I was wondering if you can give an estimate of how long do you think the change management will take to see the benefits across the franchise stores? And perhaps also if you can comment on the biggest delta or what are some of the challenges that franchise stores might be seeing in delaying the implementation and following the change management that you're suggesting? Michael Skipworth: Thanks, Danilo, for the question. I think one of the things that I'm most excited about as it relates to the Wingstop Smart Kitchen is the fact that we're introducing a new operating standard for Wingstop. This is a transformational change for our business, and we unveiled that new operating standard to our brand partners at our business meeting we had with them last month, and they're bought in. And we think this new operating standard is going to position us to win more occasions that Alex talked about earlier, position us to deliver on quality, that indulge Wingstop occasion on a consistent basis. And as more and more restaurants are executing Wingstop Smart Kitchen and delivering on our new operating standard, we are actually seeing that show up in guest satisfaction scores. And as we mentioned in our prepared remarks, take a region like the Southwest region beyond the DFW market, where we're seeing a consistent delivery of that 10-minute speed of service, and we're seeing that market or that whole region actually deliver a mid-single-digit spread in comps to the overall country. And that's because that is the region that has the longest tenure and are demonstrating that consistent delivery of speed and consistency for our guests. And so as more and more restaurants deliver on these new standards, I think we're going to see that gap close over time. Danilo Gargiulo: Great. And then I wanted to ask a question on the net unit growth because you have a very strong pipeline. You've been accelerating for 2025. I was wondering if you can provide any context on the amount of cannibalization that you're seeing today and how that relates to the past. Obviously, the cash-on-cash returns have been very strong. I just want to understand also what it means from a same-store sales drag potentially going forward. Alex Kaleida: Dan, this is Alex. I can jump in here. The cannibalization we've seen, as we've talked about over the years, has really been concentrated on restaurants, as higher-volume restaurants that really kind of max out capacity in the box itself from a store standpoint. We operate out of this very small footprint, 1,400 to 1,700 square foot location typically. So that hasn't changed too much. It's typically been about a point in the comp that we've seen. What's been a little different, I think, as it relates to development in the last -- in the most recent quarter, specifically has been around lapping some openings that we had in a single market, a brand-new market where there was one restaurant. And last year, we saw some openings that the restaurants touched 6 figures in the first week of sales or in the first several weeks of sales. And so as we open more restaurants this year as part of our market playbooks to surround that restaurant, we're lapping a little bit of that honeymoon. So I'd say that part has come into play a little more recently. It is more of a near-term dynamic. The restaurants are settling in very well above, in fact, our system average on AUVs, but that's probably the most recent dynamic associated with development. Operator: Our next question comes from Andrew Charles from TD Cowen. Andrew Charles: I was hoping you can unpack the mid-single-digit outperformance from Smart Kitchens in the Southwest with the gap between company-operated same-store sales and franchise -- or I should say, system, excuse me, that widened to a 940 [indiscernible] outperformance in the Southwest is perhaps underrepresented just given the outsized Hispanic consumer penetration in this market? Or is it perhaps that we're seeing some other benefit to company-operated same-store sales in the third quarter? Michael Skipworth: Andrew, our comment as it relates to the overall Southwest region, I think it's important to appreciate that, that includes over 600 restaurants. And I think really demonstrates the progress we're making around operationalizing this new kitchen operating platform, this new operating standard for Wingstop as a brand that I just talked about. But I think if you look at the DFW market, specifically where the majority of our company-owned restaurants do operate, it's a really interesting business case, if you will. Obviously, that market is benefiting from the longest tenure on the Wingstop Smart Kitchen. But in addition to that, when you take a look at the DFW market, it is our most mature market, our first market. Brand awareness for Wingstop is a lot closer to that national brand awareness level of more mature national brands. If we look at the demographics within DFW, it actually looks a little bit different than we do nationally. We over-index a little bit higher income. We're a little bit less ethnically diverse. And quite frankly, it's a really good representation of that demand space we've been talking about and the opportunity we have. And so what you're seeing is the interplay of Wingstop Smart Kitchen, Wingstop's new operating standard, delivering on those guest expectations and then obviously leaning into that demand space that we're best positioned to win. So I think it's a really nice indication of the strategy we're executing and the opportunity that's in front of us. Andrew Charles: That's helpful. And then my follow-up question is just, obviously, the industry is trying to figure out ways to better emphasize value. And obviously, Wingstop has been very reticent in pricing, only taking about 1% to 2% per year in recent years. But I guess as you think about how to better pulse value to help traffic in this more challenging time for the industry, what place does the 20 for 20 promotion that you successfully ran in the May and June time frame have as we look forward? Michael Skipworth: Andrew, I think Wingstop is in a pretty unique position. Unlike most other brands in the industry, we've experienced some pretty incredible industry-leading years of growth over the past 2 years, putting us in a spot where we don't really feel like we have to get overly promotional or lean into discounting or solve for the near term. We're really focused on what's central to our strategy, which is protecting those unit economics, which today remain as strong as they have ever been. And you're seeing that show up in the pace of development that we're delivering, which 2025 is shaping up to be a record year of opening what we estimate to be between 475 and 485 units, a pretty remarkable number for the brand and for any brand out there, quite frankly. And so we're focused on that and then investing in these strategies that are going to position the brand for the long term and for this next phase of growth. Operator: Our next question comes from Christine Cho from Goldman Sachs. Hyun Jin Cho: So Michael, I think you mentioned earlier the importance of unlocking that under 30 minutes or fastest near new mechanism in 3PD and getting into kind of the guest consideration set. So I was wondering if you're tracking kind of the changes in the percentage of the stores that are now falling into this bucket along with the progress of the Smart Kitchen rollout and whether you're seeing any shifts in sales trends in this channel. Additionally, are you contemplating on any ways to better communicate that faster speed of service to your guests? Michael Skipworth: Christine, great question. We are relentlessly focused on most importantly and first, delivering on that 10-minute speed of service, but then a fast follow is ensuring that our restaurants are showing up in those categories on the DSP platforms. And what we're really learning is not only does it put Wingstop into the consideration set where we weren't previously considered or there before, but we're actually seeing and learning as we watch these consumers and we talk to our partners, the delivery providers that it actually drives repeat and drives behavior. And so as we look to 2026 and operationalize and complete the national rollout of Wingstop Smart Kitchen, this is going to be an area where we're definitely going to lean in and an area that we see an opportunity to drive growth. Hyun Jin Cho: Great. And also excited about the new Wingstop Is Here campaign. But you also have several very important messages to deliver to customers, including your value proposition, improved speed of service, all of that. So what are kind of the key messages that you will prioritize? And how do you plan to kind of allocate media spending to achieve these goals while kind of maximizing leverage on your NFL and NBA partnership? Michael Skipworth: Yes, Christine, that's what I love about Wingstop is here, is actually a campaign that can accomplish all of that. It's allowing us to showcase moments, moments that each and every person can find and relate with and showcase how Wingstop can play a role in their life and their dining occasions. In addition to that, we can showcase moments around speed. We can showcase occasions that hit on when the consumer is in a hurry, when they are in a rush. And we can do it under this broader umbrella and at the same time, showcasing quality, showcasing abundance, some of those tenants that really separate Wingstop from other brands that are out there. And we're excited to have a 30-second spot really for the first time that story tells to that new consumer about Wingstop, who we are, how they can engage with our brand and how we deliver on quality and abundance. And so while there is definitely an opportunity to impact the occasions that our current guests consider us for, the bigger opportunity and the huge prize out there, and it really shows up in that demand space where we're only winning 2% today, when benchmarking suggests we should be winning 20% to be at our fair share. The huge opportunity is really around all those guests who don't know of Wingstop or maybe Wingstop is just not in their consideration set. And so that's what we're going to be going after with this campaign as we operationalize Wingstop Smart Kitchen. And then just to think about in 2026, layering on something like loyalty in the second quarter to be able to add that to our digital flywheel. It gives us a ton of confidence in our ability to continue to scale AUVs towards our target of $3 million over time. Operator: The next question comes from Jeffrey Bernstein from Barclays. Jeffrey Bernstein: Great. Just looking at the near-term comps. It looks like you're assuming down 5% or more in the fourth quarter. That would be similar to or actually a little bit of easing from the third quarter. But as we've talked about all year long, the compares are easing. I know in the fourth quarter, they're easing 1,100 basis points from the third quarter. Therefore, I guess, that 2-year stack still seems to be slowing materially. I'm just wondering whether you're surprised the compares are not driving the inflection -- or said another way, it does seem like the business is slowing further from here. So just wondering whether or not the compares in and of itself are not enough or how you go about directly bringing back, like you said, you over-indexed to perhaps a little bit lower income or more minority consumers, how you go about more aggressively bringing them back to slow that decline? And then I had one follow-up. Michael Skipworth: Jeff, I appreciate the question. I think as we said earlier, we acknowledge that there's definitely some near-term choppiness. And while we have seen trends stabilize as we've entered the fourth quarter, obviously, we're not one, and I'm not sure who is to predict kind of the duration of this current environment and when it evolves. But what we're focused on, again, is not solving for the near term, but really focused on leaning into and ensuring that we operationalize this game-changing kitchen operating platform of Wingstop Smart Kitchen and ensure we're ready to really lean in and win our fair share as we look out into 2026 of that demand space and then doing loyalty right and launching it in a big way in 2026. Then obviously supporting all that with this ad campaign, while we opened a lot of restaurants at the same time and continue to expand on that opportunity. And we're going to remain focused on protecting the unit economics because that's really what it's about here at Wingstop and what's central to our strategy. When you think about it, yes, we've opened a lot of restaurants this year. We're almost at 3,000 restaurants as a brand, but yet it's not even 1/3 of our potential. So the white space we have in front of us, the growth in front of us is what we're really focused on. Jeffrey Bernstein: Understood. And then just following up on that. As you look back over the past few months, how much do you think of the deceleration with industry or consumer versus maybe anything that would be self-inflicted. I mean, obviously, this is hindsight, but what could have been done better to mitigate the choppiness that you could perhaps use as you think about potential risks of this type of choppiness in the future? Michael Skipworth: Yes, Jeff, I think that's a great question. And I think more than anything, it really just has to do about how we over-index to this consumer that's under the most pressure right now, more than anything else. But to the second part of your question, it really feeds into the strategy we're executing around winning our fair share of our core demand space. And as we look at who comprises this occasion that we're going after, and we look at the DFW, as I mentioned earlier, as a great example of that it is a little bit of an equal distribution as you cut the data, whether it's income level, ethnicity, ages. And so it's about continuing to win our fair share of that demand space. And we think this new creative is going to be an unlock to position our brand to start to win that. And so as you fast forward and think about any other future cycles similar to this one, we would expect our business to be in a different position than it is today. Operator: The next question comes from Andy Barish from Jefferies. Andrew Barish: Just following up on that. It kind of reminds me of '22 when you had a negative comp and obviously, the ad budget was going up, chicken sandwich in the Uber were rolled out. Are you kind of thinking about this in a similar way? It's just maybe going to take a little bit longer until all 3 of the current sort of drivers you laid out layer on top of one another? Michael Skipworth: Yes, Andy, I think that's a great point, and I think it's a good analogy to kind of compare to. I would say maybe what's different is, and we'll acknowledge that a lot of our success during that time was focused on our core, and we won a lot of share with that core. And as we look forward, it's really about broadening the top of the funnel, bringing in more new guests, new guests that maybe look a little bit different than our core and diversifying the business a bit. Operator: The next question comes from Sara Senatore from Bank of America. Sara Senatore: I wanted to go back to the comment, I think Alex made about a honeymoon period for restaurants. I don't think we've heard you talk about that in the past. And I was just curious, I guess, a couple of things. One is, do you see that across different types of markets? And do you think it signals anything about where brand awareness is? I guess, when I think of a big awareness gap, which has been a long-term opportunity, typically, I would not associate that with a honeymoon. Alex Kaleida: Yes, Sarah, I can jump in here. I think it really is a little more unique to the last 12-month dynamic for 2024 because we've attacked these white space opportunities. We're executing market-level playbooks. And we couldn't have predicted the strength of some of these openings in these, what we call kind of flavor deserts in a small town in Kentucky or Georgia or other parts of the country where we had no Wingstop available. So I think it was a little bit unique to something in the last year. I don't think it's playing out the exact same way -- it's not playing out the exact same way this year on how the pace of restaurant openings are and what we're seeing. I think they're kind of complementing well among each other as we execute these playbooks. Sara Senatore: And then the awareness piece, I guess that was the second part. Do you think that awareness kind of has reached a critical mass? Or do you still see a lot of opportunity there? Alex Kaleida: Yes. We still have a more than 20% gap in awareness to those larger, more mature QSR brands. And Michael talked about the opportunity in consideration is even larger. So as we're delivering against these expectations or opportunity areas on speed and consistency, I think we think the combination is just going to further strengthen our AUVs on our path to that $3 million target. Operator: Our next question comes from Chris O'Cull from Stifel. Christopher O'Cull: Michael, my question is about the new ad campaign. Have you conducted any testing to confirm how the message resonates with consumers, particularly new consumers? I would just like to understand what gives you confidence that it's going to be successful. Michael Skipworth: Yes, Chris, we are super encouraged by early feedback and results on the new campaign. We think it works hard for us and accomplishes really what we set out to accomplish, which is to showcase moments that really speak to a wide range of different consumers, different cohorts, but yet still showcase quality and abundance and tell a story. This is one of our first ads with a voice over. And so it's actually informing that new guest that doesn't know about Wingstop, a little bit about who we are. The fact that we are the #1 wing company in the U.S. and taking that bold claim and sharing that on national TV. And so early feedback, early testing, very positive, and we think it's working hard for us. Christopher O'Cull: Okay. And then my follow-up is you mentioned finalizing an agreement in India. Can you talk about the partner you selected, maybe the structure of the agreement for that market and why you believe this operator you've chosen is the right one for the market? Michael Skipworth: Yes, Chris, we're pretty excited about the opportunity in India, a market that we see over 1,000 Wingstop restaurants over time. And so obviously, a really big deal for our global growth story. And this partner is a proven operator, a multinational operator of brands that has a lot of experience in India. And so we'll have a lot more details to share as this comes together and as our plans finalize on exactly what our market entry will look like. But we're really excited to share that with you as we continue to progress towards that long-term opportunity of over 1,000 restaurants in India. Operator: Our next question comes from Jeff Farmer from Gordon Haskett. Jeffrey Farmer: Just wanted to drill down further on the lower income and Hispanic consumer cohorts. I know you guys don't share a lot, but anything that you can share as it relates to exposure to these cohorts even if it's just broad strokes? Michael Skipworth: Yes, Jeff, I would say broad strokes would maybe just be the overall comp trend you saw play out as you saw that dynamic broaden a little bit across the industry. But we're not overly focused or really overly thinking about that overall trend. And as I said earlier in our comments, as we look at the data we have and we look at the underlying health of our business, we're continuing to measure improvements in brand health metrics which is really encouraging for us to see and showcases that the overall underlying strength and health of the brand are strong. And again, this is a little bit of near-term choppiness. And again, our business clearly over-indexes to that consumer that's under the most pressure right now. Jeffrey Farmer: Okay. And then unrelated follow-up. The development guidance has been pretty crazy. It's jumped 100 units, I think, almost 30% over the last 9 months. I can't remember ever seeing anything of this magnitude for as many restaurants as you guys have. So really, the question is, how did that happen? And I know you talked about 2026 development, but in terms of just really sort of overperforming on your initial development guidance, what drove that? And why theoretically wouldn't that outperformance continue in coming years? Alex Kaleida: Jeff, it's a great point. It's really exciting to see how our unit growth played out for this year. And I think there's a couple of things that we've talked about in the past. One is given executing these market-level playbooks. And alongside of that, we're having conversations with our brand partners about scaling the infrastructure, building their teams or organizations to execute at an even greater number of openings than what they've had in the past. International is playing a bigger role. We've started -- we've talked about how we see that opportunity in front of us as we've opened as many as 5 new markets this year, and we have line of sight to 3 more in the horizon -- or 4 more on the horizon going into 2026. So it's -- international is starting to play a bigger role and their pace of openings is moving a little faster than maybe what we saw at the front end of the year. And then the last part is we thought about the guidance at the start of the year was related to our Smart Kitchen rollout. We have not undertaken that size of a technology rollout in our footprint for this year, and we knew that was something brand partners going to -- we're going to need to allocate capital to. And frankly, they've done a tremendous job with executing both the Smart Kitchen rollout and building their infrastructure and organization. And so we felt the need to kind of allow that just continued growth and pace that we're heading into for 2026. But it's a great point. It's incredibly exciting about what we have in front of us. And that's why it's so central to us is maintaining those best-in-class returns for our brand partners, so we continue to see this growth opportunity from a development standpoint. Operator: Our next question comes from Jim Salera from Stephens Inc. James Salera: I was hoping that you might help us deconstruct some of the frequency trends that you've talked about. You guys have highlighted between rewards and the Smart Kitchen uplift and some of the new marketing, those are all opportunities to drive better frequency. But maybe in kind of here and now, are you seeing any particular daypart or kind of specific consumer cohort that's seen a step down in frequency? And particularly maybe around some of your restaurants that are closer to the border, maybe there's just less cross-border trade. And so it's not even so much that a guest is choosing not to come to Wingstop, but just there is not that restaurant occasion available anymore because there's fewer people trading in that area. Just any color on that dynamic would be helpful. Michael Skipworth: Yes, Jim, it's a great question. And what I would say is we talked about a little bit of a change in the consumer trend as we progress through the third quarter. And I think where we really saw from a daypart perspective, maybe that show up a little bit in snack daypart. And with that could come a little bit of ticket management. But generally speaking, and I mentioned it earlier, our biggest daypart dinner, we actually saw growth during the third quarter, which I think really speaks to when you combine that with the strength in our brand health metrics, just speaks to the overall health -- underlying health of the brand. James Salera: Kind of keeping that in mind, are you able to disaggregate what we would think about as group occasion, which I would assume leans heavily dinner versus somebody going by themselves. Is that really where the frequency pressure is concentrated is in those occasions where the guest is buying food just for themselves versus kind of group occasion? Alex Kaleida: Jim, this is Alex. What I'd point to in the last quarter was really around where we saw a little bit more of a difference from our targeted group occasion was on tenders. We did continue to see more individual occasions come through on tenders as they're trying -- that's that nice entry point for the brand coming in for the first time, that high-quality tender experience. And specifically from a cohort standpoint, one of our highest acquisitions last quarter was in that 18 to 25 age demographic, which also associates with a higher propensity for tender purchases. Operator: Our next question comes from Dennis Geiger from UBS. Dennis Geiger: You touched on it some, but I wanted to ask a little bit more on Smart Kitchen, the franchisee feedback. And as it relates to sort of the rollout and if you'd say that the rollout so far across similar stores at various stages of the rollout process, if that's been largely consistent or if there's some variability there. If anything more there, obviously, the Southwest data is super helpful. But anything more just kind of on how that rollout has gone and sort of performance along the various stages, a couple of months in, 2 months in, 3 months in, et cetera, if you could get that granular. Michael Skipworth: Yes, Dennis, it's a great question. And I would say, just generally speaking, we're really encouraged by where we are today in over 2,000 restaurants with the Wingstop Smart Kitchen operating platform. It was a big step in our brand partner conference last month for us to unveil and be super clear around these new Wingstop operating standards. And obviously, as we transition into 2026 and get the entire platform launched across the system nationally, it will be really about driving those standards and holding our brand partners accountable because of the upside and opportunity we see associated with Wingstop Smart Kitchen. But we mentioned it in our prepared remarks. We are seeing times -- speed of service times experience a pretty significant reduction call it, in that 6- to 8-week time period in. And then as you think about our frequency, you're starting to see a little bit of traction as it relates to the consumer and how they engage with our brand showing up in that 3- to 6-month window. And this is all without any sort of marketing support, all happening organically. And so as you sit here and look at these early results we're seeing, the opportunity that's in front of us. And then again, when we look out into 2026 and think about this new ad campaign opening the top of the funnel and then our new Wingstop operating standards, delivering on those guest expectations in a consistent way, we get pretty excited about what's in front of us. Operator: Due to time constraints, this concludes our question-and-answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Black Rifle Coffee Company Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Matt McGinley, Vice President of Investor Relations. Thank you. You may begin. Matthew McGinley: Good morning, everyone, and thank you for joining Black Rifle Coffee Company's Third Quarter 2025 Financial Results Conference Call. We released our results yesterday, and the press release and related materials are available on our Investor Relations website at ir.blackriflecoffee.com. Before we begin, I would like to remind you of the company's safe harbor statement regarding forward-looking statements. During today's call, management may make forward-looking statements, including guidance and the underlying assumptions. These statements are based on expectations that involve risks and uncertainties, which could cause actual results to differ materially. For a further discussion of these risks, please refer to our previous filings with the SEC. Additionally, this call will include non-GAAP financial measures such as adjusted EBITDA. Whenever we refer to EBITDA, we mean adjusted EBITDA unless otherwise noted. Reconciliation of non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release, which was furnished to the SEC and is available on our Investor Relations website. Now please refer to the presentation on our Investor Relations website and turn to Slide 4. I would now like to turn the call over to Chris Mondzelewski, CEO of Black Rifle Coffee Company. Mondz? Chris Mondzelewski: Thanks, Matt. Good morning, everyone. Joining me today are Evan Hafer, our Executive Chairman; Matt Amigh, our Chief Financial Officer; and Matt McGinley, our Head of Investor Relations. The third quarter was another solid step forward for Black Rifle. Our team did an outstanding job executing against our priorities, driving strong commercial performance, maintaining cost discipline and positioning the business for sustainable profitable growth. We continue to see encouraging momentum across both the wholesale and direct-to-consumer channels as our brand gains traction with new customers and deepens its connections with existing ones. As we move to the fourth quarter and into 2026, our focus remains clear; driving strong on-shelf execution as we expand our physical presence, maintaining costs effectively to enable reinvestment in growth initiatives and continuing to build a scalable platform for long-term success. We're broadening distribution, driving stronger velocities with key retail partners and advancing our product lineup to keep the brand fresh and relevant. The team's execution this quarter reflects a company that's more agile, more focused and more confident in its ability to perform even in a challenging cost environment. We're proud of the progress we've made and optimistic about the opportunities ahead. Move to Slide 6, please. In the third quarter, Nielsen data showed continued strength in the U.S. coffee category within Food, Drug, Mass, growing 13.2% as higher shelf pricing to offset commodity inflation flowed through. Black Rifle once again outperformed the market with sales up 36.7% year-over-year, nearly triple the category's growth rate. Our land-and-expand strategy continues to prove effective. We start with a focused set of SKUs to demonstrate performance and earn additional shelf space as we build retailer confidence. In grocery, ACV increased 6 points year-over-year to 48% and total ACV across all tracked channels increased 9 points to 54%. Even with a 70% increase in average items carried, velocity in grocery improved more than 7%, highlighting the brand's strength with consumers. This combination of faster turns and expanding distribution is translating into stronger partnerships and continued shelf gains. Move to Slide 7. Across the category, most of the dollar growth is being driven by price increases. In contrast, Black Rifle's growth is coming from almost entirely unit gains, which are up more than 20% year-to-date. This reflects real consumer demand, not price inflation. The brand continues to win new households, drive repeat purchases and gain share at retail. As we expand distribution and sustain velocity, we're driving durable volume-led growth that supports long-term brand health. Slide 8. Our Direct-to-Consumer business remains an important part of our omnichannel strategy, deepening customer relationships, strengthening brand loyalty and providing valuable insights that guide how we engage with consumers across every channel. It also allows us to test new offerings, refine messaging and stay closely connected to our most engaged fans. Through both our own site and digital retail partners, Black Rifle products remain easily accessible to customers who prefer the convenience of home delivery. While most of our recent top line growth has come from retail distribution and velocity gains, we're encouraged by the continued stabilization of our digital channels this quarter. Sales in our Direct-to-Consumer segment declined 4% year-over-year in the third quarter. However, after adjusting for the prior year benefit related to our loyalty reserve and the timing shift of promotion, results were slightly positive compared to last year. We also saw meaningful gains through leading third-party marketplaces, where awareness of the brand and repeat rates continue to build. Beyond top line growth, we've made steady progress improving the overall customer experience. Website and mobile updates have enhanced navigation and checkout speed, while back-end improvements support smarter merchandising and more efficient SKU management. Within our subscription platform, we're adding new functionality and greater flexibility for members, including prepaid options, exclusive offers and a refreshed brand portal that highlights partner benefits and members-only gear. These ongoing upgrades reflect our focus on building a digital ecosystem that not only drives sales but deepens brand loyalty and supports the broader omnichannel strategy. Slide 9. The Ready-to-Drink coffee category continued to face headwinds in the third quarter. particularly within the convenience channel. While category sales declined 3.1%, our performance remained resilient, down just 0.6% overall, reflecting solid execution and strong brand loyalty. In grocery, sales grew 18%, partially offsetting the softness seen in C-stores. Even in a challenging environment, we're gaining ground. Black Rifle remains the third largest RTD coffee brand in the U.S., and we expanded our ACV by 7 points year-over-year to 53%. That growth underscores the confidence our retail partners have in the brand and our proven ability to perform on shelf. We're still in the early stages of unlocking the full RTD opportunity with roughly half the category yet to be reached. Slide 10. Black Rifle Energy continues to expand its footprint, now available in nearly 20,000 retail locations and reaching approximately 22% ACV. Distribution growth has been disciplined and targeted, guided by learnings from early markets. The energy drink category remains one of the largest and fastest-moving segments in beverages and roughly 2/3 of the category sales come from convenience stores. That channel remains a primary focus for expansion as Black Rifle Energy currently has its lowest penetration there and meaningful white space ahead. Our approach remains deliberate, focused on building awareness, driving new consumer trial and earning shelf space through performance rather than overextension. We're encouraged by the early traction and see meaningful opportunity for the brand to expand reach and contribution within our broader beverage portfolio in 2026. Before I hand it off to Matt, I want to pause and reflect on what makes this company special. I'm incredibly proud of the progress we're making across the business and just as proud of the way our team continues to live out our mission every day. As we approach Veterans Day, it's a time to honor the men and women who have served our country and to recognize the many ways our team continues to serve them in return. This year, we're working with Born Primitive and ForgiveCo to help forgive up to $25 million in medical debt for more than 10,000 veterans. 1 in 5 veterans carries medical debt in collections compared to about 13% of the general population. That burden often leads to financial stress in housing and security, and this effort is about lifting that weight and giving back to those who have served. Whether it's helping rebuild communities after a flood, supporting warriors in crisis or rallying around causes like suicide prevention, Black Rifle is driven by our mission to veterans. I'm proud of what this team has achieved and excited about the road ahead. Matthew Amigh: Thank you, Mondz. I'll begin my remarks on the quarter with Slide 12. Third quarter net revenue increased 3% year-over-year, driven primarily by growth in our Wholesale segment. We are cycling a $2.4 million net benefit recognized in the prior year related to barter transactions and a change in loyalty reward accruals. Excluding these items, revenue increased 5%. Our Wholesale segment, which primarily sells packaged coffee and ready-to-drink beverages to retailers grew 5% year-over-year. Adjusting for the net $2.1 million in nonrecurring revenue recognized in the prior year, sales in this segment increased 9% in the third quarter. Growth was driven by gains in velocity and distribution, including increases in the number of doors and items carried as well as continued growth in sales from Black Rifle Energy. Revenue in our Direct-to-Consumer segment was 4% lower in the third quarter. A high-volume promotional event occurred later in the quarter compared to prior year, which we estimate shifted approximately $1 million in revenue from the third quarter into the fourth. Excluding this timing impact and the prior year benefit from the loyalty reserve change, revenue would have been slightly positive year-over-year. Fans of the Black Rifle brand now have more ways to find our products as brick-and-mortar retail distribution expands and online sales through platforms such as Amazon and walmart.com continue to grow. This increased availability is critical to the brand's long-term growth and health, and we will continue investing in wholesale and other channels that we expect will drive the most sustainable long-term growth. Outpost segment revenue grew 6%, benefiting from higher franchise fees and continued progress in merchandising. Better bundling and in-store presentation helped drive the average order value. Turning to Slide 13. Gross margin was 36.9% in the third quarter, a decrease of 520 basis points compared to prior year. The decline was primarily driven by a 390 basis point impact from increased trade investment and a 300 basis point impact from green coffee inflation and tariffs, partially offset by pricing actions. These pressures were further mitigated by approximately 170 basis points of benefits, including productivity gains and more favorable product mix. Slide 14. Operating expenses declined by $3.6 million or 9% compared to the third quarter of last year. Marketing expenses decreased 14% on a dollar basis and improved 165 basis points as a percentage of sales, reflecting lower nonworking advertising spend and a reallocation of dollars towards programs more directly tied to revenue growth. Salaries, wages and benefits declined 13% on a dollar basis and improved by 255 basis points year-over-year. The quarter included approximately $800,000 of severance expense and total headcount was down 19% compared to the third quarter last year. General and administrative expenses increased 5%, primarily due to costs related to settled legal matters, partially offset by efficiency gained in our corporate infrastructure. Despite the gross margin pressure we faced, scale benefits from revenue growth and efficiency gains drove a 19% increase in adjusted EBITDA to 8.4% of sales, representing a 115 basis point improvement compared to the same quarter last year. Turning to capital and cash flow. We raised $40.25 million in gross proceeds through an equity offering in July, which enabled us to pay off the outstanding balance of our revolving credit facility and strengthen our cash position. We also generated $5.6 million of free cash flow in the quarter, further improving liquidity. Moving to the outlook on Slide 16. On last quarter's call, we discussed our expectations that results would be toward the lower end of the full year guidance range we provided at the start of the year. We expect to finish the year with at least $395 million in revenue and at least 35% gross margin and at least $20 million in adjusted EBITDA, each of which remain within the previously communicated ranges. We continue to expect a sequential step-up in revenue throughout the year, driven by ongoing distribution gains across both packaged coffee and ready-to-drink product lines. In the fourth quarter, this step-up should be slightly larger than the roughly $5 million quarterly increases seen earlier in the year, reflecting normal seasonality and a greater benefit from pricing actions. As a reminder, we are cycling $30.4 million of prior year revenue related to onetime items that are not expected to recur in 2025. This represents a $9.1 million headwind in the fourth quarter, which we expect will be the final quarter impacted by these prior year items. Turning to gross margin. While commodity pressures and tariffs have been a meaningful headwind to the gross margins this year, we delivered a solid sequential improvement in the third quarter, reaching 36.9% compared to 35% in the first half of the year. We expect to see additional pricing benefit in the fourth quarter. However, that period is typically more promotional, and we'll also see a slightly greater impact from tariffs as higher cost inventory flows through the P&L. As such, we expect the fourth quarter gross margins to be closer to the 35% level we saw in the first half of the year rather than the nearly 37% achieved in the third quarter. Our assumptions regarding the key drivers of the margin outlook compared to the prior year remain unchanged and include at least a 300 basis point headwind from green coffee inflation, net of pricing actions; a 250 basis point impact from increased trade investment behind the energy line and a more normalized promotional cadence; at least 100 basis point margin impact from recently implemented import duties with the full effect building through the second half of the year. These pressures are expected to be partially offset by at least 200 basis point benefit from productivity initiatives and a more favorable product mix. Green coffee prices have been volatile and remain elevated relative to historical levels. While movements in coffee and tariff costs are largely outside our control, we are not assuming any relief as we plan for 2026. Our focus remains on the elements we can control; executing productivity initiatives across the supply chain and refining our pricing architecture as needed. As part of our operational improvement plan launched in the second quarter, we continue to expect to deliver $8 million to $10 million in annualized cost savings in the second half of 2025. We remain disciplined in managing expenses while continuing to invest selectively in capabilities to support growth and margin expansion. Looking ahead, our priorities are clear; sharpen execution, drive efficiency and build a stronger, more resilient business. The opportunities ahead are substantial, and we're focused on converting that potential into measurable progress. I'm confident in our plan, our team and the momentum we're carrying into 2026. Operator, we are now ready for the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Michael Baker with D.A. Davidson. Michael Baker: Two-parter as it relates to the guidance. So there is a change in the language on that guidance. It feels to me as if it's a little bit more cautious than what you thought 3 months ago. Is that the correct interpretation? And then my second guidance-related question is, in the presentation, you're sticking with the 3-year targets using 2024 as the base, and I think growing out to 2027 requires a pretty big ramp in '26 and '27 versus 2025. Can you remind us why you have confidence in that? Matthew Amigh: Michael, this is Matt Amigh here. Yes, let me explain the language a little bit more about our guidance change. We didn't change guidance overall, but we're guiding to the lower end of the range for sure. And as we mentioned on the last call, we want to go towards the lower end of the range, but the underlying puts and takes haven't changed. We're still seeing coffee inflation, trade investment will be higher in the fourth quarter than it was in the third. We still see tariffs, and they'll be offset by the operational improvement plan that we spoke about. When it comes to the range, we use the words, at least, in that framework so that we don't -- so that the analysts don't anchor on like a midpoint. We want to be clear about the floor of our expectations. Now we're confident that we'll hit $395 million for the year. We're confident that we'll hit 35% gross margins for the year and at least $20 million in adjusted EBITDA. So Michael, what that means, though, that means we'll deliver about $110 million in revenue in Q4. Gross margins will be relatively the same as what we saw in the first half of the year, and we'll have about $8.4 million in EBITDA, which is about what we did in Q3. Now just as a reminder, that $110 million in net revenue, if you compare that against the Q4 from prior year and you exclude the onetime nonrecurring revenue related to the barter transaction, that will be a comparable base of $97 million in last year or about a 13% growth. Switching to the second part of your question, we are confident in our long-term guidance. And again, that's 10% to 15% CAGR on the top line, approaching 40% margins by 2027. And then on the bottom line, a little bit more aggressive at 15% to 25% CAGR over that time period. We will see growth, obviously, when we get into '26, but we'll see even more growth moving into '27 as we start to really get the distribution points that we gained in '26 and they pay out on a full year benefit. When it comes to margin, we do have a ways to go on margin. We've executed 2 rounds of pricing in 2025. One in Q3, we have another one that is being executed right now in Q4. That will pay dividends when it comes to 2026, but we're also seeing more inflation when it comes to green coffee. Green coffee, right now, is at all-time highs at $4 a pound in the nearby and the forward curve is roughly about $3.30 for the year. So we'll continue to see the tariffs and the green coffee inflation, but we will see that margin pick up as we exit 2026 and into 2027. Chris Mondzelewski: Let me just build a little bit on that, Michael. As we think about the second part of your question, the 3-year guidance that we gave for the business, we're feeling more confident than ever on that guidance. If you think about the fundamentals that we talked about in the opening remarks, we're growing share in every segment of the business. We are the strongest unit growth player right now in the U.S. in coffee and we still have significant distribution room. So on top of the unit growth we're driving and the velocity that we're driving, we still have significant room to continue to expand distribution on every segment of our business. So again, as we think about the 10% to 15% guidance range that we put out there through '27, we feel highly confident in that. Michael Baker: Okay, great. Very complete answer. If I could ask one more, just more -- I presume this will be more qualitative, but any color on the energy drink, how consumers are accepting it? I think it's still in 12 markets, correct me if I'm wrong, but yes, any color on how that's progressing relative to your expectations? Chris Mondzelewski: Yes. I'll start off, Michael. I think we're pleased with the overall performance. So to remind everyone, we had a very limited launch this year. We went into 12, what are called up and down the street markets in partnership with our distribution partners, KDP. And on top of that, we had 2 national customers, mass customer and C-store customer. That was all we wanted to bite off in the first year, and we're pleased with the results. We've seen improvements in those customers through the year as we've been able to track them. And as we think about '26, it's going to continue to be careful steps forward with that business. We have an incredible coffee business right now. We are growing every segment, as I just mentioned, and we want to be very careful that we continue to put as much investment as is necessary in continuing the momentum in coffee. We're excited about energy, and we're going to continue to take strategic steps to expand that on a more regional basis. So while I'm not in a position to talk specifically about our plan in '26, it will be a step forward from where we were, but still really managing that in a targeted way where we can build that business the right way. Operator: Our next question comes from the line of Sarang Vora with Telsey Advisory Group. Sarang Vora: So one of the words you used on the transcript was expansion of portfolio. I think it related to the energy category. So can you help us understand how the category is expanding as you look at stronger growth out here along with distribution on the energy side? Chris Mondzelewski: Yes. Sarang, let me start that one. So as far as energy specifically, we had some information, I think, in the pre-read around that. We are continuing to evolve our portfolio to what we believe are the most relevant flavor segments of the market. So we're launching grape. We're very excited about that. We're seeing great initial response from the customers who we have presented that with in concert with KDP. And then we're also going to have a limited item, the Tiger Strike, which we’re taking advantage of the 250th anniversary of America next year, and we're very excited about this item on a limited basis as we think about the summer season. So yes, it's an important category to evolve yourself and make sure you're staying relevant with your flavor profiles. So we'll continue to double down and use that as a way to be able to increase distribution with some of our existing customers and as a way to go get new distribution. We're driving innovation in the rest of our business as well. So we're very excited about the items we have going into coffee, pods, bags. And then we actually have a couple of our RTD items in the presentation as well, our cold brew items. These are 25 calorie, low sugar, exceptionally developed items that we, again, are already seeing a strong response from retailers on. And we look forward to -- we believe that we're at the point, as Black Rifle, where, yes, we participate in these categories. We need to be leaders in these categories. So you're going to continue to see us driving innovation into each of the segments that we compete in, in partnership with our retailers. And in the case with energy in partnership with KDP, and we're going to be doing things that we believe will drive leading growth in these categories, not just participating, but allowing us to continue to lead the growth and continue to drive share. Sarang Vora: That's great. We can't wait to drive new products. I had a follow-up question on marketing. Dollars were down in the quarter. You are very focused on marketing. There's new brands coming and these flavor profiles coming in. How should we think about marketing spend as you look out for like next year and just the broader role of marketing in leveraging the cost part of the business? Matthew Amigh: Sarang, this is Matt. Yes, the way we're thinking about marketing as we go into 2026 is maintaining a relative marketing as a percentage of net sales as we go forward. But what we'll see is we'll shift -- we'll see more of a shift that you're seeing now, which is a shift away from nonworking into working. So we'll continue on with that shift, reducing contractors, reducing agency fees and things of that nature and putting it towards tactics and strategies that have more of an immediate impact on sales. So you'll see that. And one of the key things that the months will talk about is how we're improving our activations against some of our key partnerships that we have. So it's really driving more with what we already have and converting that to sales quicker. Chris Mondzelewski: Just building on what Matt said, we're going to continue to do what we're doing at a higher level as we build the business and make the business bigger. As we generate more margin dollars in the business, we want to be able to reinvest those dollars into the marketing that already works so well for us. We're very fortunate. We have an exceptionally strong brand team. We have an exceptionally strong brand. We focus very heavily on top line -- or I should say, top of funnel brand awareness, and it works. We have grown awareness every quarter over the last 3 years. Nearly half the country is aware of Black Rifle at this point, and we're going to continue to drive that number through very strong owned media executions. As Matt said, partnerships, we have strong partnerships with the UFC, with the Dallas Cowboys. We will have some additional major partnerships that we'll announce as we get into the year. And then the part that we actually got very good at this year that we're going to continue to expand on is that execution in store. So we'll drive that money into our retailer partners, and we'll ensure that we are available at that point of purchase on display at the right price points. So again, we feel confident that we've got the right level of marketing in play as we go into '26. Evan Hafer: And Sarang, just one more point on that is we have a maniacal focus on returns. So when it comes to the digital spending, we are looking at the right metrics to make sure that the activities are working out and paying out and breakeven or better. So we're focused on that. Operator: Our next question comes from the line of Joseph Altobello with Raymond James. Martin Mitela: This is Martin on for Joe. I want to quickly touch on the energy distribution. You've previously given a goal of an ACV about 70%, 80% by end of next year. Is that still something you're targeting? Chris Mondzelewski: So in the case of energy, I'll just double down on what I said before. We're going to expand off of the existing targeted plan that we have this year. We've not given guidance at this point on what we think '26 is going to look like as we get deeper into our '26 overall guidance, we can consider doing that. But yes, I mean, it's going to be -- again, we've had success in many of the markets that we've gone into. Others, we have learned some valuable lessons as is true of any new brand launch. And then as I said, most importantly, with the 2 national customers we were in, 1 C-store, 1 mass, we've actually had very good results. We've seen expansion of items on shelf. And so, we're going to build off of those learnings, and we're going to take it into an expanded geography. But again, I don't, at this point, want to give guidance on specifically what that looks like. Martin Mitela: No, I understand. That's helpful. Would you just mind reminding us how much of your green coffee needs are already locked in for 2026? Matthew Amigh: Yes. Right now, we have approximately 50% of our coverage locked in '26. Operator: Our next question comes from the line of Daniel Biolsi with Hedgeye. Daniel Biolsi: Are you seeing a different demographic with your energy drinks versus the RTDs? And then do you envision the distribution to be the same between the RTDs and energy drinks when they mature? Chris Mondzelewski: As far as the demographics, it's similar. There are some differences as we look at it. It does tend to skew younger on the energy drinks. Our coffee portfolio is actually quite broad. So when you look at the total coffee portfolio as a whole, we actually hit a very, very wide range of demographics with that portfolio. When you start to talk about the cold canned beverages, the RTD coffee and the energy, the demographics are quite similar. It does tend to be a younger customer that skews towards that behavior. As far as energy ultimate distribution, we'll see. Ultimately, they're very different categories. And so we're going to build those categories very differently. It's important to us that when we take on a market with energy, we can be concentrated in that market and that we can really go and invest the right way to win there. In the case of RTD coffee, we're already the #3 player in America, and we are the fastest growing of all of the major brands in America. So we're in a different position scale-wise. It allows us to play that differently from a national basis at this point with different forms of national marketing versus on energy in '26, you're going to see us marketing very heavily against that business, but it's going to be targeted within the geographies that we choose to go and compete with them. Daniel Biolsi: Okay. And if you can sort of bracket how much of your distribution gains for RTDs and energy is between the coolers versus the center of store. How would you think about it in '25 versus '26? Are you sort of pursuing the same sort of goal to be in the coolers or is there more of an opportunity to maybe the center store or at some point, the club channel? Chris Mondzelewski: Well, it's a great point you're making. I'm not going to give specific numbers on cooler versus center store. We do track that, right? Our sales team, we're very fortunate to have a lot of deep RTD experience in our sales team. And one of their favorite sayings is cold is sold. So when you can get canned beverages into cold distribution, you see your sales increase dramatically. So that's a big part of the game. We have a lot of tactics that we operate down in our sales organization to ensure that we're not just getting distribution, but that we're getting that cold distribution, and that's a constant negotiation between us and our retailers. Some retail partners are exclusively in cold distribution, that's particularly true of the C-stores. A lot of times in grocery, you may have dual distribution, you may have center store ambient as well as the cold distribution. It can be harder to get that cold distribution in a grocery store simply because it's more limited, the amount of space they have available. But that is absolutely right, what you're saying. As we drive into '26, we will have internal goals to increase those percentages, in some cases, pretty dramatically, right, in areas where we've already had success with the brand, it allows us to go in and say, let's increase that percentage of cold distribution. So what you're describing is a very fundamental part of how we're going to build and drive that business. Matthew Amigh: And also keep in mind, like the growth in the business is going to be coming from our coffee business, our packaged coffee business. And when you look at our distribution we have right now, it's roughly 50%. So we have a lot of headroom in terms of growing that business out, great margins on that business. The business is not just growing in terms of distribution, but average number of items is increasing, velocities are increasing, and it's a real powerhouse for us. So that's a business that we'll be very, very much focused on as we exit the year and move into '26. Operator: And there are no further questions at this time. Therefore, I'd like to turn the floor back over to management for any additional or closing comments. Chris Mondzelewski: Yes. No, thanks very much. To close, I'll just say we're delivering disciplined profitable growth. We have a clear path forward. Our teams are executing well. We feel we have incredible brand momentum. We're going to continue to stay very focused on our customers, and we're going to balance that with our mission, as I talked about in the opening remarks. And we believe that, that combination will continue to drive stronger and stronger results for us. So we're grateful for your continued support, and we look forward to updating you over the next couple of quarters here as we continue to build on this momentum. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, everyone. Thank you for joining us today for the Yum! Brands 2025 Third Quarter Earnings Call. My name is Sammy, and I'll be coordinating your call today. [Operator Instructions] I would now like to hand over to your host, Matt Morris, Head of Investor Relations, to begin. Please go ahead, Matt. Matthew Morris: Good morning, everyone, and thank you for joining us today. On our call are Chris Turner, our CEO; Ranjith Roy, our CFO; and Dave Russell, our Senior Vice President and Corporate Controller. Following remarks from Chris and Roy, we'll open the call to questions. Please note that this call includes forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. All forward-looking statements are made only as of the date of this call and should be considered in conjunction with the cautionary statements in our earnings release and the risk factors discussed in our SEC filings. Please refer to today's release and filings with the SEC to find disclosures, definitions and reconciliations of non-GAAP financial measures. Please note that during today's call, system sales and operating profit growth will exclude the impact of foreign currency. For more information on our reporting calendar for each market, please visit the Financial Reports section of the IR website. We are broadcasting this conference call via our website. This call is also being recorded and will be available for playback. We would like to make you aware that our fourth quarter earnings will be released on February 4 with the conference call on the same day. Finally, I want to express my appreciation to those investors who have willingly shared their perspectives on our strategy and communication. Your thoughts are important to us. I will make myself available to listen to your views as well as share those with our management teams. Now I'll turn the call over to our CEO, Chris Turner. Christopher Turner: Thank you, Matt, and good morning, everyone. With this being our first call since David's retirement, I want to recognize his exceptional leadership over the past 5 years as CEO and his many strategic contributions throughout his remarkable 36-year career at Yum!. David will continue to serve as a trusted adviser through next year. On behalf of our team members, employees and franchise partners, I want to sincerely thank David for the lasting impact and strong foundation he's built as we carry Yum! into the future. As I take on the role of CEO, I've spent the last few months meeting many of Yum! stakeholders, including many of our leaders, Board members and largest franchise partners to better understand where Yum! is leading the industry and where Yum! has even greater potential. I've spent time in our restaurants, serving our consumers and listening to team members and general managers. Finally, I've met with many of our top shareholders to hear how Yum! can unlock even more value. Speaking with our incredible team has reinforced how important a strong culture and performance mindset are to driving robust results. Yum! invests meaningfully in our talent and gives employees opportunities to work across functions and brands providing Yum! with the most experienced and tested leaders in the industry. Combining the best leaders with the world's most loved, trusted and connected restaurant brands is a winning formula. It's no surprise that few companies are executing at our level with Taco Bell delivering industry-leading 7% same-store sales growth and KFC on track to add nearly 3,000 new restaurants on a gross basis around the world, which would set a new record for annual gross development for the brand. It is also clear there is a consistent theme that success in our industry depends on anticipating and adapting to changing consumer needs. That's a tremendous opportunity for a company like Yum! that already benefits from scale, talent and the ability to innovate. With this in mind, I see 3 areas where I'll focus additional energy to raise the bar on our growth. First, we are a consumer-first business, and we must stay as relevant to the next generation of consumers as we are to our core. Second, franchisees are the lifeblood of our system, and we can do more to leverage our global scale to strengthen their store-level economics. Third, Yum! has pursued a differentiated technology strategy that gives us unmatched operational agility and control. I want to extend those advantages across more restaurants to benefit consumers, franchise partners and team members alike. To this end, I recently announced a series of leadership changes. These included expanding the role of Taco Bell's CEO, Sean Tresvant, to include that of Yum! Chief Consumer Officer, with responsibilities that will include oversight of Collider, Yum!'s in-house consumer insights agency. Jim Dausch, Global Chief Digital and Technology Officer of Pizza Hut, was promoted to Yum! Brands' Chief Digital and Technology Officer and President of Byte by Yum!. Ranjith Roy, who goes by Roy, Yum!'s Chief Strategy Officer and Treasurer, was promoted to Chief Financial Officer. Roy had previously spent more than 15 years with Goldman Sachs, leading investment banking relationships for restaurants, food and tech businesses. We also intend to add a Chief Scale Officer to Yum!'s leadership team, who will focus on leveraging Yum!'s scale to maximize franchise returns and drive stronger restaurant profitability. We also announced this morning that we have commenced a process to explore strategic options for the Pizza Hut brand. Our objective is to maximize value for Yum! and position Pizza Hut and its franchise partners for greater success. Pizza Hut holds key structural advantages, strong brand equity, experienced franchise partners and meaningful scale, which give it a unique opportunity to reclaim the leading position in the highly fragmented pizza market. We believe a different approach, including but not limited to, a sale of the business would allow Pizza Hut to realize its full potential. More broadly, I'm encouraging the brand teams to play more offense through bold actions, particularly when we see opportunities to accelerate development. In that spirit, we announced our plans to complete the acquisition of 128 Taco Bell restaurants located across the Southeast U.S. in the fourth quarter. Buyout opportunities of this scale are unusual to come by in the Taco Bell system. This acquisition provides our team with an opportunity to improve and accelerate Taco Bell profitability, expand strategic leadership within the Taco Bell system and unlock significant unit development in the region. Of course, this acquisition provides immediate and significant EBITDA growth at an attractive multiple in the context of the Taco Bell system. I want to reiterate that there is no change in strategy regarding our asset-light model. Now let me turn to our third quarter results. Yum! delivered another strong quarter with system sales up 5% and core operating profit up 7%. Between KFC and Taco Bell, we've delivered 5% unit growth, 7% system sales growth and 11% segment operating income growth. At KFC, which represents 53% of our divisional operating profit, we delivered 14% core operating profit growth, driven by 6% unit growth and 3% same-store sales growth. Several KFC international markets are delivering exceptional results, including the U.K. market with same-store sales up 9% on 6% transaction growth and South Africa delivering 7% same-store sales growth on record youth engagement. Several markets like South Korea and Brazil posted double-digit transaction growth within the quarter. Turning to the U.S., which represents 12% of our KFC Global system sales, we have taken bold steps over the last 18 months to reengineer our strategy, bolster our talent and pilot new approaches. The new President of KFC U.S., Catherine Tan-Gillespie, has been driving KFC's comeback plan with new marketing tactics and products focused on increasing consumer relevance, which have led to a 2% growth in same-store sales this quarter. There is still a long journey ahead, but we're pleased with Q3's momentum. As a separate plank in the strategy, we're excited about the continued progress to refine and thoughtfully expand the Saucy pilot in the Southeast region. Let me briefly touch on KFC's unit development, which remained broad-based and energized by strong franchise engagement. I recently made a trip to Italy to visit our new franchisee, where I saw firsthand how critical having the right 3C partner is in driving powerful change. Since joining our system in 2023, our franchisee, COB, has doubled the number of stores and improved AUVs to $2 million. I was pleased to be there when the team unveiled its Italian flagship restaurant featuring 2 floors in Rome with prime real estate between the Spanish steps and the Trevi Fountain. Similarly, our new franchise partner in South Korea is delivering unbelievable results. That team reported their third consecutive quarter of double-digit sales and traffic growth and is set to have 5x the net new unit growth they had in 2024. Our strongest partners are expanding into new and adjacent markets, as is the case in Brazil, one of KFC's largest underpenetrated growth markets. Our highly capable 850-unit Latin American partner, Juan Carlos Serrano, is building commissaries and piloting more efficient asset formats, laying the foundation for sustainable, scaled growth ahead. Finally, I recently returned from China, where our largest partner, Yum! China, runs the most efficient and advanced restaurant operation in the world, leading to significant market share wins over the competition. Overall, KFC's development pipeline remains robust. White space remains abundant and our well-capitalized, capable and committed franchise partners remain growth hungry. At Taco Bell, which represents 36% of our divisional operating profit, same-store sales grew 7%, reflecting continued progress on the journey laid out at the Taco Bell Consumer Day to drive $3 million U.S. average unit volumes by 2030. Innovation, distinctive value offerings and digital engagement drove this remarkable performance. In the U.S., Taco Bell introduced innovation-led buzz like the Tony Hawk and Bad Birdie collaborations, compelling value like the $3 Grilled Steak Burrito and expanded its beverage platform with the launch of Refrescas and Baja Blast Midnight. Digital mix hit another record and digital sales grew 28% year-over-year. Next year, the U.S. team will add more weeks of crispy chicken, fries and beverages to expand everyday occasions, balanced with a refreshed cravings value menu and elevated guest experience. Turning to Taco Bell International. Same-store sales growth accelerated again with momentum building as the team executes against its magic formula and strategic priorities laid out at the Taco Bell Consumer Day in March. This quarter, the team expanded to 2 new markets, Greece and Ireland. During my trip to Europe, I stopped to visit our largest international Taco Bell franchise partner, Ignacio Mora-Figueroa and his amazing Taco Bell Spain team. I saw firsthand how the team keeps building relevance and scale. Shifting now to our goal of building the world's most trusted brands, stepping into the role of CEO has been both humbling and energizing. I couldn't be more excited to start this next chapter of Yum!'s growth with a renewed focus on what makes us extraordinary, led by our people and our culture. Our commitment to trust and connection extends beyond our restaurants. It's reflected in how we show up in our communities. In September, we celebrated Community Impact Month. Employees at all 3 of our U.S. campuses volunteered to help more than 15,000 people in communities across the United States. Our teams fought childhood hunger, packing more than 6,000 weekend meals for kids who need the most, donated blood with the American Red Cross, prepared food with local food banks and packed hygiene and laundry kits for those in need. Hundreds of volunteers touch thousands of lives. That's the power of Yum!, serving up good everywhere there's a KFC, Pizza Hut, Taco Bell and a Habit Burger & Grill. One month in as CEO, and I'm inspired by the commitment to excellence across our system from our franchise partners to our restaurant teams and leaders. Together, we are building on Yum!'s solid foundation to continue delivering strong, sustainable growth. And going forward, we will be laser-focused on accelerating growth around the world, backed by our 2 biggest brands, KFC and Taco Bell. With the dedication of our people, power of our brands and a clear strategic vision, I am confident that we are entering an exciting new chapter of growth and long-term value creation for Yum! and our stakeholders around the world. With that, Roy, over to you. Ranjith Roy: Thanks, Chris, and good morning, everyone. I'm excited to share our results today and to connect with many of you in the months ahead. It is an honor to transition to the CFO role, having served as Yum!'s Chief Strategy Officer and Treasurer. My connection with Yum! goes back more than 15 years. I partnered with Chris during my time at Goldman Sachs, where I was Yum!'s strategic adviser. And prior to Chris, I partnered with David Gibbs, Greg Creed and David Novak during their tenures, giving me a deep appreciation for Yum!'s enduring brands, franchise partners and talent. Prior to joining Yum!, during my time as CFO at Goldbelly, I guided the company from being a tech start-up to being a capital-efficient high-growth retailer, reinforcing my belief in the power of evolution. It's an energizing time to step into this role as Yum! strengthens its position as the global franchisor of choice. The QSR industry is evolving rapidly. Scale and technology are defining success around the world, and these shifts play directly into Yum!'s strengths. I look forward to continue working with Chris to advance our strategic priorities and drive sustainable growth for our franchisees and shareholders. I'll start with third quarter results before discussing Yum!'s balance sheet and liquidity position, the Taco Bell store acquisition and guidance for the year. During the third quarter, we grew system sales 5% with 3% unit growth and 3% same-store sales growth. Digital sales are growing quickly across our markets with Yum! reaching $10 billion in digital sales and digital mix of approximately 60%. On restaurant level margins, Taco Bell U.S. delivered 23.9% margins, 50 basis points higher year-over-year despite a 1 percentage point headwind from double-digit beef inflation. Taco Bell's restaurant margins benefited from strong top line growth fueled by, among many factors, the expansion of Taco Bell's category entry points like Crispy Chicken and Refrescas. Beef inflation will remain a headwind through year-end, though we take some comfort in beef prices declining 10% since exiting the third quarter. For KFC, the team delivered 13.7% restaurant-level margins, 120 basis points higher year-over-year, driven by significant improvements in both KFC U.K. and KFC U.S. margins. Moving on to expenses. Ex special G&A was $268 million, up 7% year-over-year as we lapped lower incentive compensation accruals in the third quarter of last year. Reported G&A of $282 million included $14 million of special expenses. And finally, third quarter core operating profit grew 7%, leading to ex special EPS of $1.58, up 15% year-over-year. Moving to development. we opened 1,131 gross new units globally, a Q3 record with KFC opening 760 units or a store every 3 hours. KFC's momentum remained broad-based and energized by strong franchise engagement. China, India, Thailand, South Korea and Mexico led the way, each demonstrating the strength of our playbook and the scalability of our brand. Overall, KFC's development pipeline remains robust. White space remains abundant and our well-capitalized, capable and committed franchise partners remain growth hungry. At Taco Bell, development accelerated this quarter with 74 gross unit openings, well above Q3 levels of last year. Taco Bell International continued to build momentum, adding 27 gross new units and successfully launching 2 new markets, Greece and Ireland. On the back of accelerating sales, we remain on track to deliver 100 international net new units this year, reflecting energized franchise partners, compelling brand marketing and improving unit level economics around the world. Early development plans for next year offer promising signs of further unit growth. At Pizza Hut, we built 289 gross units this quarter. We delivered gross builds across 31 countries with strength in China, the U.S. and India. We've been pleased with Pizza Hut's gross unit openings as the brand is a leader in new builds within the pizza category globally in all but 1 quarter over the last 4 years. However, gross builds have been partially offset by elevated closures through Q3, largely isolated to a reduction in footprint in a small number of markets, including Turkey. These closures were largely tied to specific franchisee matters impacting operational execution. Turning to technology. As we continue to work on making our restaurants more connected to drive growth and operational excellence across the Yum! system, Jim Dausch, our new Chief Digital and Technology Officer, will help accelerate the next phase of our transformation, but our focus remains the same, building the industry's leading restaurant technology platform that enhances guest experience, simplifies operations and strengthens franchisee economics built around easy experiences, easy operations and easy insights. I'll provide a brief update on the progress across these 3 pillars. Within easy experiences, we're creating more frictionless, engaging consumer journeys across our brands. At KFC, global digital sales mix reached 63%, supported by kiosk adoption and aggregator partnerships. Byte Commerce, our scalable and global web and mobile app ordering platform, continued to unlock the creativity of our digital marketing teams by enabling viral promotions or daily drops that drive high transaction velocity, such as Pizza Hut's $2 Personal Pan, Tuesday offer this quarter. Byte Commerce expanded to Pizza Hut Canada, Kuwait and France this quarter, building on earlier launches in Pizza Hut U.K., Mexico and Peru. Finally, Byte Connect, a product that streamlines order and menu integration with third-party delivery partners has expanded to KFC U.S., Taco Bell U.S. will add this service next year. Under easy operations, we are simplifying restaurant operations and giving teams better tools to deliver fast, accurate and friendly service. Byte Coach, which delivers AI recommendations to our store managers, was deployed to an additional 4,000 KFC restaurants internationally this quarter, bringing the total to more than 28,000 restaurants across the Yum! system. Beginning next year, we'll add further AI capabilities to Byte Coach to provide restaurant general managers individualized guidance to help improve store-level performance based on inputs from a combination of operations, consumer feedback and store audit data. Within easy insights, our data and analytics capabilities are providing better visibility and faster, more actionable insights across brands. In addition to building more AI capabilities into the Byte ecosystem for our franchisees, consumers and restaurant general managers, we are also excited about using AI at the enterprise level to build Byte in a more efficient manner. Currently, 1/3 of our developers are regularly using AI developer tools and realizing significant productivity gains. By early 2026, substantially all of our Byte software developers will be using AI tools to write better, safer and more efficient code for the Byte platform. Next, I'll provide an update on our balance sheet and liquidity position. Our capital priorities remain unchanged: maximize shareholder value through strategic investments in our business, maintain a strong and flexible balance sheet, offer a competitive dividend and return excess cash to shareholders. Net capital expenditures for the quarter totaled $73 million, reflecting $21 million in refranchising proceeds and $94 million in gross capital expenditures. We expect our net leverage ratio to end the year at approximately 4x, consistent with our commitment to hold leverage at approximately 4x. As announced in September, we completed successfully a $1.5 billion issuance of Taco Bell senior secured notes with a weighted average coupon of just under 5%. Proceeds were used to repay 2026 debt maturities and to prefund our Taco Bell acquisition. During the quarter, we repurchased approximately 244,000 shares for a total of $36 million, bringing our year-to-date repurchases to $372 million. As Chris shared, similar to the successful KFC U.K. acquisition last year, we saw an exciting opportunity to invest in the business and acquire 128 Taco Bell U.S. stores in the fourth quarter. The total cash outlay is expected to be approximately $670 million, largely financed with cash on hand. In 2026, we expect the stores we're acquiring to contribute approximately $70 million in incremental EBITDA and add 1 point to Yum!'s operating profit growth after the impact of depreciation and amortization, including reacquired franchise rights. Due to timing and modest transition costs, we don't expect this deal to contribute to core operating profit in 2025. Additionally, the Taco Bell team can step up U.S. equity development in this market beginning in 2027. Over the long term, we anticipate profit growth for this estate to exceed Yum!'s long-term growth algorithm. As Chris mentioned, while retaining our asset-light strategy, we are investing where we see outsized strategic benefits and financial returns. Now let me share our latest outlook for the balance of the year. As you heard from Chris, both KFC and Taco Bell are taking share from our competition. We expect KFC to achieve record gross unit openings on a full year basis and Taco Bell to deliver strong international development. At Taco Bell U.S., despite the impact of beef inflation, we expect our full year restaurant level margins to fall within our guidance at 24%, with global reported margins landing slightly below the U.S. level. We expect Q4 ex special G&A to grow by a mid-single-digit percentage rate year-over-year, finishing the year in line with our full year guidance. To summarize, KFC and Taco Bell, which make up roughly 90% of our divisional operating profit, continue to perform exceptionally well with sales momentum that has continued into Q4. Together, we expect these brands to be on track or ahead of our original full year plan for unit growth, sales growth and core operating profit growth. This performance is further backed by a strong execution of Byte and disciplined G&A management across the enterprise. Below the line, we expect full year interest expense to land in the range of $505 million to $515 million, incorporating the impact of our recent debt issuance. Lastly, at current rates, we expect FX to represent approximately a $15 million tailwind to reported operating profit in Q4. Finally, turning to our Pizza Hut division. We remain focused on strengthening business performance. That said, as we prepare the business for a potential transaction, our Q4 results may see some impact from actions involving isolated franchisee situations. Taking this and Pizza Hut's year-to-date performance into account, full year 2025 Yum! performance may land slightly below our algorithm. We will record expenses tied to the strategic options review as a special item. Since this is an active process, we will not be providing further comments on the status of our review. In closing, we remain focused on continuing to deliver relevant value, distinctive innovation and rapid digital transformation, the combination that keeps us resilient regardless of macro conditions. We are confident in the strength of our strategies, the agility of our franchisees and the power of our business model to drive sustainable growth over the long term. With that, operator, we are ready to take questions. Operator: [Operator Instructions] Our first question comes from David Palmer from Evercore ISI. David Palmer: Great. Congrats to everybody on their promotions and appointments. It's cool to see Sean getting more responsibility in a way you're bringing back the band together with Sean and Scott, probably touching base more on the global KFC brand. I wonder how you're thinking about the opportunities and must get rights for KFC now that perhaps Pizza Hut may not, after this review, be the focus area or the problem area that it was for the company. KFC might be a focus area for Sean by default. And so I just wonder, maybe it's worth giving a little bit of a review of what he will be and Scott will be thinking about for that brand. The U.S. chicken market is competitive, but KFC's begin -- it looks like a bit of a turnaround. What can solidify that turnaround? And it looks like the U.K. is doing great. Canada slowed a bit. Any sort of review of KFC would be helpful. Christopher Turner: Yes. Thanks, David. Obviously, KFC, our largest global brand and an incredible powerhouse, in particular, outside of the U.S., where we've seen tremendous growth over many years, modern, vibrant, relevant QSR brand in so many markets, opening a new restaurant every 3 hours. That's the surest sign of health in a restaurant brand. And you talk about the leaders there. Scott was the President of Taco Bell U.S. working closely with Sean, right before our Taco Bell Investor Day earlier this year, Sean -- Scott made the move over to take the CEO position in KFC Global. So you can be assured that he is bringing many of the big ideas around brand relevance from Taco Bell, digital growth and relevance to consumers, food innovation. He is bringing many of those ideas over. Of course, that Taco Bell Investor Day highlighted how Taco Bell was focused on driving AUV growth. They laid out a plan from $2.2 million to $3 million in 2030, and Scott was part and parcel of building that plan. So you can imagine he's going to be thinking the same way in KFC globally, sustaining the unit development momentum and continually ensuring our brand is relevant to consumers. You saw the numbers in KFC U.K. this quarter, plus 9 same-store sales, really incredible results there. Turning to the U.S. We did a lot of work over the last couple of years. The KFC brand, we want to be on a better trajectory in the U.S. We really assess what it would take. We did a lot of testing and investigation. We think it starts with brand relevance. And that's why we put Catherine Tan, one of our biggest marketing thinkers, previously the Global Chief Marketing Officer for KFC into that role. Early days on the turnaround, but we're pleased with the green shoots. You saw them take a different approach to social marketing with the launch of Spicy Wings and Wedges. We got great engagement, brought a lot of new consumers who hadn't engaged with the brand in more than a year to KFC. So a long journey ahead, but we're pleased with the progress in KFC U.S. Operator: Our next question comes from Dennis Geiger from UBS. Dennis Geiger: Great. Congrats, Roy and to the others on well-deserved promotions. I wanted to ask a bit more about the sizable outperformance at Taco Bell, in particular, relative to the industry. And perhaps maybe sort of any early look into how you're thinking about how that momentum rolls into next year, given, I think, Chris, some of the comments you made about what sounds like more weeks of crispy chicken, fries, beverages. It seems like some news on the Cravings menu, maybe the guest experience. Any additional insights as we kind of look to next year at that momentum continuing? Christopher Turner: Yes. Look, the Taco Bell business continues to take share in the U.S. A lot has been written about the consumer. We're not seeing consumer pullback in the Taco Bell business. We do think the consumer in the U.S. is cautious, but incredibly resilient. And the consumer is telling us that in Taco Bell, they are looking for 3 things: First, craveable food; second, a convenient and easy experience; third, unbeatable value. And Taco Bell provides the combination of those 3 in a way that no other brand can. So if you look across Q3, you saw Crispy Chicken, you saw Nacho Fries, you saw beverages with Baja Blast Midnight. So you add those to the tremendous core that we have, the craveability is clear. Convenience, fastest drive-thru experience in QSR. Voice AI stores were up 14% from the previous quarter, continue to drive the digital journey at Taco Bell, which supports a convenient experience. And then, of course, Taco Bell has always provided the best value in QSR. Go to the Cravings value menu, you can find plenty of items below $2, $3, tremendous items or go to the Luxe Cravings Boxes, $9, it's the only value meal in QSR where you'll find strong innovation. So it's that combination, coupled with the Taco Bell buzzy brand that is resonating with consumers and delivering what they need. And as a result, we saw growth across all income bands, and we saw more younger consumers and more families coming into the brand during Q3. Looking forward to Q4 and beyond, it is really that broad-based set of strengths, all of those drivers and those factors that give us confidence as we look to 2026 for the brand. Again, we are on track or ahead of our plan that Sean laid out to get to $3 million AUVs by 2030, and you'll continue to see those layers come to life in 2026. Operator: Our next question comes from Danilo Gargiulo from Bernstein. Danilo Gargiulo: Chris, thank you so much for supporting the Italian economy. I wanted to ask you a question on your strategic priority. I mean you mentioned strengthening the franchisee store level economics. And in a moment, we were seeing the deterioration of 4-wall EBITDA in the restaurant space and potentially even more labor headwinds coming in with the tighter labor migration policies. I mean, it could be quite meaningful to see stabilization and improvement into the 4-wall economics for your own franchisees. Now usually, the best results are coming when incentives are aligned and responsibilities are shared. So I was wondering if you can share, first of all, what goals you have in mind in terms of like the hurdle EBITDA growth for your own franchisees, the time line for that and how you're planning to incentivize your teams along that? And then finally, what kind of levers do you see to strengthen the franchisee P&L? Christopher Turner: Yes. Thanks, Danilo. The lifeblood of our system and our unit development growth is franchisees and strong unit economics. We have a large number of markets where we have incredible paybacks. You'll hear our franchisees talk about 2- to 3-year paybacks in our biggest development markets. So we want to sustain the incredible returns that we see in those markets. But we've got other markets where there is white space, opportunity for unit growth that we can unlock by getting stronger unit economics. And we think the keys to doing that are leveraging Yum!'s global scale. Now look, we do a good job leveraging our scale in many places today. Our RSCS partners in the U.S. leverage our purchasing scale across all 4 of our brands in the U.S. But globally, we can do more to leverage our supply chain scale. That's why you see our Yum! global supply chain team coming together using that scale to help drop dollars to the bottom line for our franchise partners. Our Byte acceleration can be a part of this. We know we've got to get Byte into more international markets faster, that helps to drive both top line and bottom line growth for franchise partners through the productivity that Byte enables. And so those would be the kind of levers. And this is also in part why we announced the creation of the Chief Scale Officer role to give us a focused leader who is helping to make it easier for our franchisees to plug into that scale around the globe. So that's our focus, and the outcome should be strengthening or accelerating unit growth over the long term by unlocking those white space opportunities. Operator: Our next question comes from David Tarantino from Baird. David Tarantino: Chris, my question is about your strategic outlook. And I was curious to get your thoughts on how you envision the growth profile for Yum! if you were to sell the Pizza Hut business. Do you think this leads to a faster ongoing growth profile for the company? I know we can do the math on that looking backward, but just wanted to get your thoughts on how you think about it looking forward. And if you could also, as part of the answer, comment on whether you would be interested in making any other portfolio moves longer term, such as maybe adding another growth asset to the portfolio? Christopher Turner: Yes. Thanks, David. Look, Yum! is going to remain laser-focused on growth in all of our markets around the globe. Our 2 biggest brands, KFC and Taco Bell, nearly 90% of our global divisional operating profit. They are the ones that drive the bulk of our growth, and they will continue on the trajectory that they're on now. KFC will remain a strong unit developer. We think all of the scale initiatives that we just talked about will help us to unlock additional growth there. And then, of course, we talked earlier about Scott and his focus on driving AUVs and same-store sales growth using many of the levers that were employed at Taco Bell day in and day out in the U.S. Taco Bell U.S., we just talked about the drivers of its strength in Q3 and beyond. Taco Bell International, plus 6% same-store sales growth in Q3, you dig into some of those markets, we're seeing tremendous same-store sales strength in a number of Taco Bell international markets. And of course, I was on the ground in Spain just a few weeks ago, our largest Taco Bell international market, where we see the continued evolution and building scale in that brand outside of the U.S. So I think all of those things lead to that journey toward accelerating Taco Bell international unit growth. So those are all the factors underpinned by Byte that should allow us to continue to sustain or accelerate growth in those 2 big brands. From a portfolio standpoint, it's our job to constantly think about the portfolio. Obviously, we announced the strategic review today. No other changes at this time. We're going to be focused on completing that strategic review. Operator: Our next question comes from Andrew Charles from TD Cowen. Andrew Charles: Taco Bell obviously continues to be stellar performance this quarter. Just love an update on Live Más Café now you've integrated this into one of your stores. And in particular, what needs to happen for that to be rolled out more broadly? Christopher Turner: Yes. We're excited about the bold bets that we made across brands last year. A couple of those focused on the growing beverage space. Quench across 3 markets in KFC. We'll continue to add new markets there. But on Live Más Café, we think there's a big opportunity for Taco Bell to both strengthen its attachment on beverages, but through Live Más Café, add a new consumer use case, which is the destination beverage visit. we started with Live Más Café in San Diego. As of now, we have 13 that are open. We are headed toward about 30. That's our pilot group. We are seeing good consumer response in these stores. We're very pleased with how Live Más Café is performing. Of course, we want to see it at scale with those 30 units. But assuming we get the kind of results that we expect to see in that pilot, you could expect us to lean into Live Más Café growth around the system. That's one of the drivers of the long-term growth plan for Taco Bell. We are already getting benefit for the entire system from Live Más Café. So the Refrescas that we talked about in Q3 across the system, that was a lift and shift from the piloting that we did in the first Live Más Café. So we will also be working to bring benefit from the Live Más Café effort to the entire system even before the rollout of the cafe. Operator: Our next question comes from Christine Cho from Goldman Sachs. Hyun Jin Cho: Chris and Roy, congrats on your new roles. You did reiterate your long-term goals, but is 5% kind of still the right anchor as you think about the underlying unit growth ahead? What are some of the major factors that you're watching for that could impact the pace of expansion going forward? And where do you see kind of the most notable white space opportunities globally, both in a market and a brand perspective? Christopher Turner: Yes. From a development perspective, our development trajectory remains strong. So far this year, we've had 95 countries with development versus 90 at this point last year. KFC gross is ahead of where it was at Q3 last year. So gross development, I think, is the top sign of health in a franchise system, and we said we're on track for a record year this year in KFC gross development. Taco Bell net new units are up almost 30% versus last year. So it reflects the trajectory that we have in Taco Bell, both in the U.S. and internationally. Of course, we want to sustain and accelerate on both fronts. The lifeblood of this is strong unit economics. And as we shared earlier, we think through stronger unit economics in markets with white space, we can sustain and/or accelerate that path. We shared a couple of examples of where unlocks have occurred in KFC. We talked about Italy. This demonstrates when you get focused on having the right partner and focused on AUVs and unit economics, you can get an unlock. In that market, we got a couple of competitors that have significantly more locations than we do. But in the 2 years since we changed the partner, we've doubled the unit growth, on a great trajectory. We're now opening the flagship location, which will further sustain. Korea is another example. We shared the example in South Korea, where a change in partner has dramatically changed the pace of unit growth. When you step back, we shared, for example, at KFC, we think there can be at least 75,000 KFCs around the globe. Honestly, there's white space opportunity in just about every market for KFC. Ranjith Roy: I'll also add, Christine, on the -- we make a lot -- we talk a lot about KFC development. But on the Taco Bell side as well, if you look at what happened in the most recent quarter, acceleration in same-store sales growth globally which gives us a lot of faith in the pipeline that we see for Taco Bell International in 2026 and beyond. And you look at the acquisition we're making in the Southeast United States because we actually see opportunity for white space for Taco Bell in the U.S., and this is a step that we're making in that direction. Operator: Our next question comes from Brian Bittner from Oppenheimer & Co. Brian Bittner: Chris, I'd just like to go back to the announcement of Yum! initiating that the review of strategic options for Pizza Hut. I know you can't obviously speculate on the potential outcomes. But can you maybe walk us through the catalysts that culminated in the company making this announcement today? Is it as simple as you stepping into the CEO role and this being a part of your vision to unlock value? Or was this something in the works for a while? Just additional thoughts on the steps that got us to today's announcement on the formal review would be helpful. Christopher Turner: Yes, Brett. We are always evaluating what is best for each part of our business. Let me start by reiterating a few things about Pizza Hut. It is an iconic global brand that has incredible strength. It's got the best tasting pizza in QSR. It's got a global footprint, well north of 100 countries. It has an amazing set of franchise partners in markets around the globe. It's got meaningful scale. And that's translating to strong performance in a number of our Pizza Hut markets. In fact, if you look at gross development, if you go back over the last 4 years, Pizza Hut has had the highest gross unit development in the pizza QSR space in every quarter for the last 4 years, except for one. There's a lot of amazing strengths that Pizza Hut has. That said, we're always focused on what is best for the brand and what is best for our franchise partners. And in that spirit, we do think the business can be positioned for even greater success in the future. And in some markets, there may be a multiyear effort that is required to reposition it as the leading pizza brand in those markets. And it's possible that those efforts may best be done under a different structure, potentially under outside ownership. And so that's what we'll be testing as we go through the review of strategic options. And that's why we're initiating that now. It's obviously been a very thoughtful process that has led us to this announcement. We can't speculate on the exact timing of how this plays out. We'll evaluate all of the options and all of the paths, and we will share more as we have something definitive to share. I know there's going to be lots of questions about that process. But at this time, we just can't provide further comments. Operator: Our next question comes from John Ivankoe from JPMorgan. John Ivankoe: The purpose of the large Taco Bell franchisee in the Southeast and your specific mention of them being mature and having growth opportunity in the market, got me thinking about some of the large refranchising that happened 20, 25, even 30 years ago when you guys came out of PepsiCo way back when. And just a question of -- it's one thing to kind of have the best growing current franchisees over 20 to 30 years, but maybe thinking about some generational steps that could potentially happen for the next 5, 10, 20 years in terms of really restarting growth. We're driving growth in a number of your different businesses, not just around the U.S., but also around the world. So the question really is what kind of opportunity that we may have, maybe taking some of these very successful legacy businesses that have just been in business for so long, 20, 30 years, maybe finding some other partners that are committed not just to running a great business, but growing a great business from a unit perspective. Do we have opportunity to optimize? Christopher Turner: Yes. John, let me start. We remain an asset-light business that grows through franchise partners. Our franchisees are the lifeblood. They do an incredible job operating around the globe, 1,500 franchisees, the vast majority who are well capitalized, capable and committed to our brands. Let me just start with that context. What you've seen here is an opportunity in a geography where we thought -- our data would say there's an opportunity for a lot more Taco Bell stores. And so we thought this was an opportunity to make this acquisition. We can help to unlock unit development in the region. Of course, it comes with the immediate EBITDA lift as we look to 2026 and immediate operating profit growth as we go to 2026, and it solidifies our operational capability, which already is very strong in Taco Bell U.S. And of course, that's an important part of how the overall business operates. We do -- I'll just give one example, innovation testing in our equity estate is really, really strong and a really important part of our food innovation process at Taco Bell. So I think this is a unique opportunity. There are other instances where we are initiating some bold actions through our equity stores. In Saucy, we took on the first store, we'll be moving to a little over 10 units in Florida. We're making those investments because we think that's the right thing to do to understand and pilot that concept. And then, of course, as part of the Live Más Café journey, we're -- we've invested in a few of the Live Más Café expansion stores. So it's a very strategic use of that capability. But at the broadest level, we remain asset-light, and we will grow through our franchise partner. Matthew Morris: Operator, we have time for one more question. Operator: Our last question today will come from Jeffrey Bernstein from Barclays. Jeffrey Bernstein: Great. Roy, I just had a question for you. In a franchise model like this, a lot of the focus comes down to the G&A spend. I'm just wondering how you think about that line item. It's currently, I think, 1.7% of system sales, I think you're among the leaders in terms of managing it at a very low level. But I'm just wondering your thoughts on the biggest opportunity to either double down on certain investments, maybe spend a little bit more versus perhaps curtailing elsewhere. Just wondering how you think about that G&A line item. And I ask that just obviously, you're new to the role, but as we think about 2026, is there any reason why the long-term core operating profit growth target of 8% would not be reasonable as we think about it today? So just love to get your broader thoughts. Ranjith Roy: Jeff, that's a great question. 4 weeks into the role, I will admit that I don't know exactly where all the G&A is buried, but I will tell you my observations on how we've managed G&A in the past and the limited amount of change that we see from our strategy going forward on G&A. First of all, I'd observe our G&A growth overall in the past 2 years has been minimal and very disciplined. Second thing I'd observe is we're on track for mid-single-digit G&A growth this year, including incentive comp resets. So we've been very disciplined this year on G&A. Third, I think we'll continue to be disciplined as we navigate through the strategic review process. And as that process plays out, we'll come back with more guidance. But at this point, you should expect no change to our discipline on G&A, which we've been managing while making investments into the business in terms of growth. Christopher Turner: Great. Okay. Well, I think we're at the end of the call. So thanks, everyone, for joining. I'll just close with a couple of thoughts. I want to reinforce Yum! remains laser-focused on growth powered by our iconic global brand. Yum! provides our investors with exposure to KFC, the leading growth brand across international markets, which delivered 14% divisional operating profit growth this quarter, combined with Taco Bell, one of the most exceptional brands in the U.S., which is providing durable, defensive long-term growth via sustainable market share gains. We will continuously raise the bar. We want to keep our brands relevant. We want to elevate franchisee unit economics to unlock even more development, and we'll continue to deploy Byte. And all of that is underpinned by the best talent, the best franchise partners in the industry. In short, we're tremendously excited about our future. Thanks, everyone. Operator: This concludes today's call. We thank everyone for joining. You may now disconnect your lines.
Operator: Good morning, and welcome to Apollo Global Management's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference call is being recorded. This call may include forward-looking statements and projections, which do not guarantee future events or performance. Please refer to Apollo's most recent SEC filings for risk factors related to these statements. Apollo will be discussing certain non-GAAP measures on this call, which management believes are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to GAAP figures in Apollo's earnings presentation, which is available on the company's website. Also note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Apollo Fund. I will now turn the call over to Noah Gunn, Global Head of Investor Relations. Noah Gunn: Thanks, operator, and welcome again, everyone, to our call. Joining me to discuss our results and the momentum we're seeing across the business are Marc Rowan, CEO; Jim Zelter, President; and Martin Kelly, CFO. Earlier this morning, we published our earnings release and financial supplement on the Investor Relations portion of our website. As you can see, very strong third quarter results demonstrate the exceptional strength that we are seeing. We generated record combined fee and spread related earnings which drove adjusted net income of $1.4 billion or $2.17 per share, up 17% year-over-year. In addition to the rich commentary, we prepared for you on this morning's call, we'd like to announce that we will be hosting an extended fixed income call session for Athene this quarter on November 24. And with that, I'll hand it over to Marc. Marc Rowan: Thanks, Noah, and good morning. It's a pleasure to be here today and delivering good news is especially fun for me. Results in the third quarter were exceptionally strong. FRE of $652 million was up 23% year-over-year, management fee growth of 22% year-over-year, ACS fees of $212 million, our second straight quarter in excess of $200 million. SRE ex notables $846 million. And for those of you who are focused on SRE and like estimates, we estimate that SRE in Q4 will be approximately $880 million, which will drive estimated full year SRE on a comparable basis to $3.475 billion, approximately 8% year-over-year growth, which will be above the mid-single-digit target we provided earlier. Financial results are the product of underlying good fundamentals. The most interesting and most important fundamental for us is origination. We believe origination is the lifeblood of our business. Origination for this quarter was very strong. $75 billion of origination led by platforms. It's our second strongest quarter following a record Q2. Average spread on our origination, 350 basis points over treasuries, which was stable quarter-over-quarter, average rating of BBB. The reward for good origination is people want to invest with us. Robust inflows of $82 billion for the quarter, led by asset management of $59 billion, retirement services of $23 billion. In the asset management number is $34 billion from Bridge. So inflows ex Bridge, $26 billion. Record AUM at the end of the quarter, $908 billion, up 24% year-over-year. In short, the growth flywheel is spinning. Jim and I have a lot of opportunities to discuss why the growth flywheel is spinning. We like and we often say it's a result of good management. And I think this quarter, not by Jim and I necessarily, but by the team, team worked very hard and produced the results you've seen. But we are fortunate to be in an industry that is experiencing very strong demand. Companies like ours and others in our industry do not get to be big unless we are attached to fundamentals in the economy and essentially are a source of secular growth for our country and for the world. We are fortunate to be driven by 3 incredibly strong fundamentals. Our business is financing the global industrial renaissance, whether it's infrastructure, energy, energy transition, data centers, defense, new manufacturing or robotics. The demand for capital has never been stronger, and it is not a U.S. phenomenon, it is a worldwide phenomenon. These facilities, these investments are long duration in nature and are perfectly appropriate for what we do. And I expect that this will continue for a reasonably long period of time. The second, we are facing a retirement crisis, a gap in retirement income almost everywhere in the Western world. We, through Athene, Athora and the other investments we've made as well as our third-party insurance business are helping to close that gap. This is among the fastest-growing sectors of our business, as I'm sure both Jim and Martin will touch on. And third, we provide an alternative to increasingly concentrated, correlated and indexed public markets. If you want to escape the Mag 7, but still want to be invested, it is very difficult to do efficiently in public markets. These 3 fundamental goods are really the drivers of our business, and we are fortunate to participate in an industry that benefits from this. We are not the only ones to recognize this. If you think about the history of our industry, the entirety of our industry up until the last few years was essentially powered by the smallest bucket of our institutional clients called alternatives. The first 35 years of this industry were funded out of this little bucket. More recently, we've been given a second market called individuals. That second market, we expect to be the size of the first market, and I don't think it will take 35 years to get there. We've now been given a third market called insurance. The industry watching what we've done at Athene now understands that insurance company balance sheets are the perfect place to take liquidity risk rather than credit or equity risk. And insurance companies are increasingly large buyers of private assets as they seek to earn safe returns consistent with matching their liabilities. We've also been given a fourth market, and that fourth market comes from our institutional clients who are now considering and actively investing in private assets out of their debt and equity buckets. As we watch total portfolio approach take hold in the asset management industry, we expect this to grow pretty significantly over the years. If that were not enough, I believe we've been given a fifth market. And that fifth market is traditional asset managers, and I think this has the potential to be among the largest sleeves of investors in private assets. I expect that we will see significant private asset exposure inside of mutual funds, inside of ETFs and inside of products of all types offered by traditional asset managers as there is a rethinking of what active management is. Perhaps active management is not the buying and selling of individual stocks and bonds, but it is the addition of private assets to public portfolios. This will allow our industry to reach clients we would never on our own reach and who want exposure to private assets but will not get exposure to private assets directly. And as all of you on this call know, more recently, a potential sixth market has opened for us in the form of 401(k) and related retirement plans. In short, for an industry that has grown pretty large over the years, we are now anchored by 3 really powerful secular trends that serve a fundamental good, not just in our economy, but in the world. And we don't recognize this by ourselves. Private assets are becoming more and more acceptable and more and more in demand. What do we worry about? Well, we worry about the things that we've always worried about. I believe our industry will find that it is limited in its growth by its capacity to find good investments rather than by its capacity to raise capital. It is incumbent on us to focus on origination to make sure that we grow origination quarter-over-quarter and that we really do respect the fundamental principle of our industry, which is excess return per unit of risk. This is ultimately why private assets are in demand and why we, as a firm are in. I also worry about culture. We -- our industry and our firm, we have been preferred employers for the last 35 years. We work very hard day and night to make sure we do not lose the preferred employer status. What do I have the luxury of not worrying about? Well, I have the luxury of not worrying about credit. I thought yesterday's call by one of our competitors did, I thought, an adequate job describing the current credit regime. From my point of view, credit is credit, whether it's originated by a bank or an asset manager. It makes almost no difference to me. There are fundamentally good underwriters of credit and there are less good underwriters of credit. The observed outcome of the number of articles and the focus on a couple of isolated incidents in the marketplace is nil. 10 basis points of spread widening is essentially nothing. Jim, I'm sure, will spend some time on this, but I've encouraged him not to given this, what I thought was a very successful discussion yesterday by one of our peers. Let me delve in a little bit to asset management. The quarter in asset management and the momentum we're seeing starts with performance. All buckets across our firm performed very well. In credit, up 8% to 12% over LTM, 3% to 5% in the quarter. Performance was achieved without reaching. We are at a really interesting juncture of time in asset management and one that we frame really simply for our clients. We have them ask 3 questions. Are things cheap? Resoundingly no. Do we think rates that matter, long rates are going to plummet? We do not. We think most of what we're doing in the world is actually inflationary rather than contributing to lower rates. And finally, do we see enhanced sources of geopolitical risk? We do. The answer to those 3 questions is yes. The logical thing to do is to take risk down. That is what we are doing as a firm. That is what we are doing for our clients, and we have been able to do this without reducing our need for return. ADS is a shining example of this. 9% annual return since inception, 2.1% for the quarter, 100% first lien, lower leverage, less PIK, less concentrated, 40% less exposed to software. In our asset-backed retail vehicle, we're now at $1.2 billion, up $425 million in the quarter. 70% of the portfolio is IG, 95% we originate on a proprietary basis. In debt, it's always been clear how one takes risk down. You move higher up in the capital structure. In equity, it is also possible to take risk down. Our hybrid franchise, which is now some $90 billion with nearly $12 billion raised year-to-date, 19% LTM return. The flagship vehicle within hybrid value is AAA, Apollo Aligned Alternatives, which is now approaching $25 billion and no doubt will be our largest fund, although there's a healthy competition amongst the various fund managers. Ultimately, that competition is not fundraising, it's based on performance. AAA now has 42 of 43 positive quarters with a fraction of the volatility of the S&P, roughly an 11% LTM rate of return and 12% inception-to-date return on the strategy. This is the kind of performance that attracts assets and that is consistent with our ethos in this sort of environment of getting returns without reaching. In our private equity business, the focus on cash flow and rational underwriting and avoiding fads and trends has served us very well over the long term. Our most recent fund, Fund X, 22% net IRR, already 0.2% DPI. Fund IX, the one before that, 15% net IRR, 50% higher DPI than the industry average. The franchise over our history, 39 gross and 24 net. We're excited for Fund XI, which will come beginning of next year. And we will continue to do what we have always done, which is try and produce excess return per unit of risk and be responsive to the environment and be good stewards of capital. One of the things that we are increasingly hearing in our business is a divide in our industry between agents and principals. The notion of being a principal is that you underwrite a risk that you are prepared to hold. The notion of being an agent is that you underwrite a risk that you think you can distribute. Sometimes it doesn't matter. But when things are priced for perfection, we believe it matters more than ever. The thing that we have done as a firm is to align ourselves with our clients. The amount of comfort that they take with us as the largest owner side by side in almost everything we do is unparalleled and has really set us apart amongst our peer group. So what does the future hold? The future in asset management is all about innovation. You're seeing plenty of innovation. And on our next call, I would expect that we will focus probably in an outsized way on innovation, whether it is what we're doing in market making, whether it is the new addition of leveraged share classes to many of our evergreen funds and leverage against private assets on a much more permanent and much more attractive basis or it is our reinvention of the CLO market. And I expect innovation to take place broadly across the asset management franchise. The outlook for asset management is indeed very bright. And as you will hear from Martin, we expect FRE growth of 20% plus in '26. On the retirement services side of our business, we're seeing the same sort of robust demand. It's very clear that we have a retirement crisis, not just in our country but across the world. The annuity market is a multiple of size versus a few years ago. And while rates are always important, secular demographics or demographics themselves are a driver of growth and everywhere we look, there is a need for guaranteed income. The inflows are literally off the charts. Through Q3 -- first, Q3, $23 billion, year-to-date, $69 billion. We're pacing toward a record year with the [ PGA ] market essentially closed for the entirety of the industry. New business remains in line with our mid-teens ROE target, and we deployed $22 billion in the quarter at 220 basis points over treasuries, almost all IG, very little non-IG exposure on the totality of Athene. There's no secret that the market that spreads for the kinds of assets that are appropriate for insurance companies are tight. And without the access to proprietary origination, this would not be the business that it is. Thankfully, the team at Athene has done an unbelievable job, not just on the origination, but also on the sourcing of liabilities and the discipline to turn off various spigots when pricing does not make sense. And at the end of the day, running an efficient business from an overhead point of view and employing the latest technology allows you to keep ROEs up in periods of time when others are suffering. As I'm sure Martin will touch on and we will discuss on the 24th, the result of running this business over a really long period of time and not being a current period profit maximizer has given us tremendous amounts of flexibility. When rates are down, massive gains appear in our portfolio, which allow us to recycle securities, which does not produce SRE but frees up capital for investment. And if we are successful in creating origination, allows us to pick up spread. We have lots of tools at our disposal to achieve our SRE and ROE targets that others in our industry do not have. While the slope of the forward curve can change and as you will hear from Martin, we have significantly reduced our sensitivity to rates to the lowest in a decade. We are just a very tough competitor. And for those who, again, who are interested in SRE, we expect SRE growth year-over-year for next year at 10%, and we expect average growth over the 5-year plan to also be 10%. We become over time at Athene since the rate of change in our volume is just not as significant going forward as it has been historically, we become a massive capital generator. One of 2 things will happen with that pile of capital that we either we have been conservative on how much new business we will add at Athene, which is the challenge to the management team on the new product side or we will be able to redeploy that capital elsewhere in our business or to our shareholders. In short, Q3 was an exceptional quarter. We're seeing signs not just for the current year of very positive things happening, but the seeds being planted for not just Q4, but also for next year. It's just a fascinating time in asset management and retirement. And with that, I want to turn it over to Jim Zelter. James Zelter: Thanks, Marc. Having navigated credit cycles for more than 4 decades, I can tell you we've seen this one before. Isolated incidents are nothing new, and they're rarely a signal of broader stress. As we remain vigilant in our underwriting and risk management efforts, what we're seeing is idiosyncratic, not systematic. Over the years, there has been a propensity to overemphasize short-term technical headlines and overlook the broader direction of travel within our industry. Broad secular forces such as the increasing economic activity generated by private companies, the global industrial renaissance as well as massive capital fueling the global industrial renaissance are driving increased demand for global private credit, in particular, investment grade. At the same time, demographics and the expanding needs of retirees globally are driving the secular demand. This is the foundation of our business. We've leaned into senior secured top of the capital structure investments to serve a market that we believe exceeds $40 trillion. As you can see from our growth, that has served us well, and we are just beginning to scratch the surface. Recent events give us a moment to step back and reflect on the marketplace, and I believe there is an important point to be made here, whether a particular transaction is public or private is simply the manner in which the risk is originated. Ultimately, it is not the litmus test for credit quality. Our disciplined underwriting as an origination principle, not an agent or a tourist across both public and private markets has allowed us to be trusted stewards of our investors' capital through various market cycles and position us for continued success. We look forward to leading and performing in a marketplace with a dispersion of returns. On origination, let me put the quarter and the origination engine in perspective. As Marc mentioned, we generated $75 billion in the quarter, a remarkable number and second only to last quarter's record. This brings origination volume to over $270 billion for the last 12 months, up more than 40% versus the prior period and effectively achieves our multiyear target about 3 to 4 years early. We're encouraged by the early momentum and the capacity we have to scale. Results like this can only be driven by the full breadth and diversity across our business, platforms, core credit, high-grade capital solutions, equity and hybrid. Within core credit, volumes were led by large-cap direct lending, commercial mortgage lending and residential mortgage lending. Across our 16 platforms, origination volume increased more than 20% year-over-year, and MidCap was a standout, which continued to perform very well and generated more than 30% growth year-to-date. These are companies who we are providing real solutions at scale. This highlights and connects to our broader sponsor solutions ecosystem, which has more than tripled in recent years, growing from $20 billion in volume in 2022 to nearly $70 billion over the last 12 months. We believe our offering is unmatched in its scale, speed and ability to deliver full firm solutions with a toolkit that includes not only direct lending, both large and MidCap, which is where many of our peers end, but also fund finance, asset-based finance as well as other capabilities. Taken together, our sponsor ecosystem is unmatched in scale and speed and the breadth of the solutions we deliver. Let me bring this to life with 2 recent examples of our origination leadership. First, in support of Keurig Dr Pepper's strategic objectives, we called a financing solution totaling $7 billion that was announced last week. This was yet another example of our leading position in the high-grade capital solutions and hybrid marketplace by providing flexible capital solutions. The second transaction I'd like to highlight is yesterday's announcement with Ørsted where our funds will acquire a 50% stake in Hornsea 3, a 3-gigawatt scale offshore wind project for $6.5 billion. Alongside transactions we announced this year for ED&F, RWE and BP, this is the latest large-scale transaction in Europe, where we are investing behind energy, critical infrastructure and transition assets in the region. Our activity in providing IG capital solutions to large-scale companies in Europe is unmatched. Looking across all of our origination in the quarter, $69 billion was debt comprised of approximately 70% investment grade with an average rating of A- and approximately 30% sub-investment grade with an average rating of B. On the investment-grade origination, we generated excess spread of over 285 basis points over treasuries or approximately 200 over comparable rated corporate indexes. And in our sub-IG origination, we generated excess of 400 basis points over treasuries or approximately 220 basis points over comparably rated high-yield corporates. Importantly, we observed stable spreads on our origination quarter-over-quarter, and that's particularly notable in a period where public market spreads are near generational tights. Producing excess spreads at scale is a clear testament to the solutions we deliver. While our existing origination engine continues to scale and has driven incredible results, we're not standing still. In the past few months, we have added several new resources that will augment, grow and diversify these origination capabilities. Number one with Olympus Housing Capital is a new homebuilder finance strategy sitting at the nexus of multiple secular tailwinds between structural undersupply of single-family homes and demographics. Stream Data Centers strengthens our presence in digital infrastructure. TenFifty is our new European CRE lending platform focused on structurally underserved small- and medium-sized CRE markets. And finally, we announced the launch of Apollo Sports Capital focused on the sports and live events ecosystem in a market that continues to exhibit strong uncorrelated growth and faces significant capital demands. This will be a permanent capital vehicle primarily focused on credit and hybrid opportunity, and ASC is designed to be a long-term value-added marketplace player, leveraging our infrastructure in credit and media and physical assets. In capital formation, momentum remains exceptionally strong this quarter. We brought in $82 billion, including $49 billion of organic inflows, nearly matching last quarter's record as well as $34 billion from our closing of the Bridge acquisition. By channel, the institutional channel remains strong, and Global Wealth had another excellent quarter with Athene continuing its remarkable trajectory. Across institutional and Global Wealth within the $26 billion of organic inflows during the quarter, 80% were focused on credit-oriented strategies and 20% to equity-oriented strategies coming from a broad array of investor classes. The $5 billion we raised in the wealth channel was the second best quarter on record, bringing year-to-date total over $14 billion, up 60% over the prior year period. And strength in this quarter was broad-based with 6 strategies raising more than $200 million and 10 strategies raising greater than $100 million. With that success, one strategy stood out, as Marc mentioned, ABC, which had its strongest quarter since launch, raising nearly $400 million. The asset-based focused corporation has all the makings of our next flagship, deep expertise, strong performance and accelerating demand. Again, this trajectory reminds us of ADS since ABC is a similar point, but with a major focus on investment-grade counterparty risk. Across wealth, our distribution continued to expand. We launched 3 new LTIPs during the quarter, expanding our lineup and broadening access to Apollo private market strategies across EMEA, Asia and Lat Am. It's clear our offering continues to resonate with investors around the globe, and our partners are not simply looking for a good product, they are increasingly looking for a comprehensive holistic solutions provider in constructing portfolios. Turning to Athene. They had an excellent quarter with $23 billion of organic inflows. Inflows were driven by $10 billion from retail, $10 billion from funding agreements and $3 billion in flow reinsurance. Retail flows saw particularly strength in fixed index annuities and MYGAs. Funding agreement issuance was the third strongest quarter on record as we continue to capitalize on the favorable issuance backdrop. While Athene's core products have been the foundation of its impressive growth trajectory, we expect emerging products to widen the funnel. Products like RILA with over $1 billion of inflows year-to-date and the successful launch of stable value and structured settlements as well as tax advantage and guaranteed income will augment the growth and expand the opportunity set. Globally, the growing retiree population continues to drive significant demand for long-term income solution. And this is a durable secular trend that we're fortunate to have a significant leadership position with meaningful advantage will allow us to continue to grow. The opportunity ahead is massive, and our platform has never been stronger in execution. With that, I'll turn it over to Martin. Martin Kelly: Thanks, Jim. Good morning, everyone. Our third quarter results highlight clearly the accelerating momentum across our platform, reaffirming our ability to execute consistently on our long-term plan. I'll take a few minutes to walk through the quarter's financial performance and discuss the key factors supporting our progress as we close out the year. I'll then share more details on the outlook for 2026 to supplement Marc's comments. In asset management, we generated an increase in both assets under management and fee-generating assets under management of 24% year-over-year to $908 billion and $685 billion, respectively. We generated fee-related earnings of $652 million in the quarter and $1.8 billion year-to-date, up 20% year-over-year in each quarter this year versus the comparable period, evidence of the momentum across the platform and keeping us firmly on pace for a full year growth rate of 20%. In the quarter, we delivered 22% year-over-year growth in management fees, driven by third-party asset management inflows and record gross capital deployment, particularly across our credit platform as well as strong growth from retirement services. Capital Solutions fees of $212 million, as highlighted, represent our second strongest quarter on record. The breadth of origination capabilities was very clear this quarter, with 50% of ACS fees generated by our hybrid value, opportunistic equity, climate transition and real estate businesses, complementing the other 50% from our high-grade and global credit businesses, including Atlas. We generated 28% year-over-year growth in fee-related performance fees, reflecting sustained growth in spread-based income across a variety of our perpetual capital vehicles, led by ADS and complemented by Redding Ridge and MidCap among other platforms. Growth in fee-related expenses reflects continued investment in hiring and infrastructure to support the firm's global strategic growth initiatives, compensation growth reflecting our performance this year and the inclusion of Bridge into our financial results. We closed the acquisition of Bridge on September 2, which significantly enhances our existing real estate business, bringing to scale some of the most attractive areas in the market, including multifamily and industrial. Bridge also adds origination capabilities that are highly synergistic with existing asset demand from Apollo's ecosystem, in particular, Athene. Bridge will initially contribute approximately $300 million of annual fee-related revenues across management fees and ACS fees and approximately $100 million of pretax FRE with expenses principally compensation based. Bridge will also contribute to SRE growth as an originator of investment-grade spread products as well as principal investing income over time. Excluding Bridge, our FRE margin was stable quarter-over-quarter and expanded approximately 120 basis points year-to-date, demonstrating continued scaling of our business. Including Bridge, we expect our full year 2025 margin to be consistent with 2024. Moving to retirement services. Q3 delivered another strong organic growth quarter, supported by $23 billion of gross inflows. Athene's net invested assets grew by 18% year-over-year to $286 billion. We generated $846 million of SRE ex notables for the quarter with an additional $37 million or 5 basis points at our long-term 11% return expectation on the alternatives portfolio. The blended net spread ex notables in Q3 was 121 basis points versus 122 basis points in the prior quarter, reflecting the effect of roll-off of existing assets and liabilities, offset by new business growth. Athene's core earnings power is very strong and clearly evident in the third quarter. In a tighter spread environment, we continue to originate new business that meets our long-term ROE targets and that is in line with historical averages. Athene's competitive positioning is unmatched. Over the last 12 months, Athene has sourced new business volumes on par with the entire size of some of its competitors with a capital profile that is self-sustaining, includes the largest sidecar in the industry and has managed to achieving a AA ratings level. During the third quarter, we took hedging actions to further reduce the size of Athene's floating rate portfolio. Net floating rate assets totaled $6 billion or 2% of total net invested assets at quarter end. Adjusting for these actions, Athene's SRE sensitivity on net floaters from a 25 basis point move in short-term interest rates is now approximately $10 million to $15 million versus $30 million to $40 million previously. In the context of the year, Q3 was a very strong quarter with earnings trending higher than our first half average, reflecting the impact of higher new business volumes and our ability to originate attractive investment-grade investment opportunities. Importantly, we believe our spread-related earnings troughed in the first half of 2025. Looking across the asset and liability profile of the portfolio, we see asset prepayment headwinds peaking through Q1 of '26 and the spread drag from profitable COVID era business dissipating in 2026 relative to 2025. For the fourth quarter, as Marc suggested, we anticipate SRE ex notables to be approximately stable to Q3 at an 11% alt return or approximately $880 million with an equivalent SRE spread of 125 basis points. Combined with year-to-date performance behind us, this result would drive full year growth of approximately 8%, ahead of our mid-single-digit target. Importantly, with the business executing at a high level, expectations that headwinds experienced in 2024 and 2025 are starting to dissipate and exposure to floating rates largely immunized, the exit velocity into 2026 is strong. Turning to our 2026 outlook. We expect 20% plus growth in FRE in addition to the earnings from Bridge. Momentum across our core business is building with management fees showing increasing growth each quarter on an LTM basis. Recent growth initiatives, including across wealth, credit and origination are translating into tangible results, evident in our strong quarterly and year-to-date performance. We expect that roughly 75% of our top line growth in fee-related revenue in 2026 will be attributable to fundraising and deployment from existing well-established businesses as well as the annualization of growth already in the ground coming out of 2025. The remaining 25% of top line growth is expected to come from new initiatives already underway from Apollo Sports Capital to Athora's pending acquisition of PIC as well as a variety of other new strategies in the pipeline. And to clarify, we expect this 20% plus FRE growth next year is without any contribution from our next flagship private equity fund, Fund XI, which we currently estimate will turn on sometime in the first half of 2027, subject to our pace of PE deployment. For SRE, we anticipate 10% growth in 2026, assuming 11% alts returns and including notables year-over-year. This outlook is underpinned by strong organic growth and our origination capabilities, which generate high-quality assets with spread. We expect prepayment headwinds to diminish as a result, both of our reduced purchases of CLO assets and the already high prepayment levels we are experiencing at today's very tight AAA CLO spreads. We further expect the headwind from the roll-off of profitable post-COVID business to have already peaked in 2025. As Marc alluded to, we have various choices and management actions to help us navigate the path forward such as managing our floating rate position, optimizing our back book of assets, utilizing sidecar capital and prudently managing crediting rates. Our 2026 outlook embeds the current forward rate curve, which contemplates 3 total cuts by year-end '26 and 9.5 total cuts over the cycle and assumes the current tight market spread environment persists. Acknowledging these growth expectations, we expect and caution that there will be normal quarterly deviation around the growth trend line, reflecting the scale of an approximately $400 billion balance sheet. Looking beyond 2026, we remain confident in our long-term FRE and SRE average annual growth targets of 20% and 10%, respectively, through 2029. We expect the earnings mix shift towards FRE will result in FRE equaling SRE sometime in 2028, a year ahead of our expectation and exceeding SRE thereafter. Lastly, on capital, we executed over $350 million in share repurchases during the quarter, the majority being opportunistic. The sequential growth in our share count reflects this activity as well as the shares issued in connection with closing the Bridge transaction. And with that, I'll hand the call back to the operator. We appreciate your time and welcome your questions. Operator: [Operator Instructions] Today's first question is coming from Steve Chubak of Wolfe Research. Steven Chubak: So I wanted to start with a discussion just around the origination targets that you unveiled at Investor Day. Annual origination volume of $275 billion, you just reported origination activity at an annualized clip of more than $300 billion. Last quarter's volumes were even better. So taking a step back, as we think about the year-to-date origination strength, which is running ahead of plan, ongoing expansion of origination capabilities with both you, Marc and Jim had discussed in your prepared remarks, has your thinking changed as to whether this is still an appropriate target? And just what informs your outlook over the next few years? James Zelter: Listen, it's an appropriate question to answer or to ask because we've gotten off to such a strong start. I think taking the view that Marc and management have put forth about origination being the key, I think it really ties into our conversation about how the end universe of buyers has expanded from the alternatives bucket to the other 5 that Marc mentioned. And I think it allows us in terms of broader product creation and broader solutions to investors and retirees. But it would be premature while we're very happy with the accelerated success. And while we see tremendous wins to our back in terms of the solutions we're providing, it'd be a mistake to change our 5-year estimates 9 to 12 months into the plan. So great momentum. We feel this is by no means are we having early wins that are going to take away from future gains. So it is a trajectory. But on this call, we're not prepared to put a new estimate for a 5-year number. But I do think -- and Martin tied into it, I think it's all about the flywheel. 75% of our growth next year is from existing vehicles, existing funds, existing strategies, which is the flywheel of origination. So it gives us greater confidence in our ability about the excess of 20% FRE growth in the coming years. Operator: The next question is coming from Alex Blostein of Goldman Sachs. Alexander Blostein: I wanted to start with a question around the wealth market for Apollo broadly. A couple of really strong quarters, $5 billion of flows in the third quarter. You talked about the new product pipeline. And Marc, I was intrigued by your comments around the asset management partnerships broadly. So maybe you could expand a little bit on how you view this $5 billion trajectory from here? How much is likely to come from new products or the existing lineup? And when it comes to the sort of asset management partnerships, maybe expand on what that could look like for Apollo over the next couple of years. James Zelter: Alex, let me just start out by saying, as you point out, so when we did our Investor Day last fall, we talked about $150 billion within the 5 years in aggregate. So we're still on that pace. But -- and I'll pass along to Marc. But certainly, what we see is the product suite that we've created over the last 24 to 36 months in terms of breadth of products, evergreen, non-traded BDCs, ABC, not only is expanding product set and geographically, but you will see more solutions oriented, but also as we talked about, the 6 channels. And with that, I'll really toss it over to Marc to talk about those 6 channels. Marc Rowan: So Alex, think about the following. In the Global Wealth business, at the top end of the Global Wealth business is our family offices. We, Apollo and we as an industry have elected to cover these accounts directly and interact with them directly. The next tier down, if you will, in Global Wealth are high net worth. And this -- the definition of high net worth varies from firm to firm. For us, think of a client that is worth a financial intermediary, an RIA, a wealth manager advising well. We cover these accounts indirectly by covering the RIA and by covering the wealth manager, but do not cover for the most part, the individual account. We've just talked about a fraction of a fraction of the marketplace because the vast majority of clients are neither high net worth nor are they family offices. Our industry and ourselves, we do not cover these accounts. And it is my belief and the strategy we're pursuing is not to try and cover these accounts. They are already well covered by their traditional asset management managers. They already have a relationship. In many instances, they are not likely to buy 100% private products, either from lack of knowledge, lack of suitability or lack of available liquidity. I believe that they are going to get exposure to private assets through their traditional asset manager. You watched what we've done with State Street, what we're doing with Lord Abbett, what others in our industry have done. I believe that you will see a significant uptick in the partnerships, which will not just be new products, you will start to see private assets added to in-place exposures. That will be the fastest uptick in the wealth market as far as we're concerned. And I think it's going to come billions at a time rather than by fundraising quarter-over-quarter. And so what do we as an industry have to learn, and this gets to innovation. We have to learn that we are living in a public ecosystem. You will find that we are on our fixed income suite of replacement products, daily NAV by year-end. The ability to provide a daily NAV is table stakes to be able to work with traditional asset managers. The work we're doing around transparency and liquidity, which some in our industry oppose because we're shining a light on the assets, the quality, the ratings and the pricing, this is what gives you entry to traditional asset managers. The more we do that makes private accessible, the more I believe those with origination and those with the capacity to produce it win, I think that's where we are. I'm excited for what's happening. I come back to, I think we have, over time, lots of demand for private assets. I believe increasingly, our dialogue will be focused on the quality and ability to originate. And then have we, as an industry and as a firm, made the choices and operating techniques required to interact in these other environments. Operator: The next question is coming from Patrick Davitt of Autonomous Research. Patrick Davitt: I'm sure you've seen, but Colm Kelleher is on the tape this morning warning on private letter ratings arbitrage in U.S. insurance being "looming systemic risk." Firstly, what are your thoughts on that view? And then perhaps more specifically to Athene, can you remind us to what extent Athene is using similar private letter ratings in its own portfolio? Marc Rowan: First, Colm is one of the most respected people in the banking industry. I'm sorry, I'm not in Hong Kong this year because normally, I up here right after him, and we like to mix it up in front of the crowd. In my -- this is the background, and I'll speak for Athene and not for the industry. Colm is just wrong. If you look at -- like I'll give you Athene stats. First, Athene does not use Egan-Jones, let's start with that. Less than 8% of our assets have a rating from Kroll or DBRS. 70% of our assets have 2-plus ratings. S&P, Moody's and Fitch each rate 50% of our fixed income assets. Kroll, 18%; DBRS, 15%. By the way, DBRS and Kroll have most of the expertise right now in structured products, and they are doing a good job competitively with Moody's, S&P and Fitch close on their heels. So I don't mean to contrast them from the big 3 that they are any less qualified. But Colm -- I compare the insurance industry to the banking industry. 100% of what is on a bank balance sheet is private credit. Almost nothing has a rating. And so when we talk about private letter ratings, at least it has a rating. Now in our industry, not everyone has done what we've done. And Colm is not wrong to think about and to talk about systemic risk because like the banking industry, you have really strong players and you have really weak players. In the insurance industry, you have really strong players and really weak players. I do not believe that private letter ratings are where the focus should be. I continue to believe, as I've said previously, that we have offshore jurisdictions of significant size that have not produced the kind of regime that is consistent with U.S. ratings and U.S. state-based regulatory reform. And we continue to highlight Cayman because it is the largest, but there are others. So Colm is not wrong at this point in the credit cycle to say that there are systemic risks piling up. I think the deflection from banking to insurance is an easy deflection and something one says at a conference. But if you look at the recent blowups, and we all know the various names, almost all those blowups have taken place in credits underwritten by the banking system. So it is not, as I said, that we have public credit and private credit, we have CRS. The difference between public credit and private credit and bank credit is literally whether it is syndicated or not. There are good banks, there are bad banks. There are good asset managers, there are bad asset managers. There are good insurance companies, there are bad insurance companies. I don't think we're talking about systemic risk. I think we're talking about late cycle behavior and bad actors, I believe, are going to get called out. One of the things that we do and just like a banking system that has contagion risk from the SVBs and the First Republics of the world, we, in our industry, asset managers, have contagion risk. We need to make sure that we provide the information to our investors and to all of you of how we think about the philosophy of credit underwriting, how we run our vehicles, how we run our insurance company and remind people of what it is we do. So on our largest balance sheet, Athene, less than 0.75% of direct lending. 90-plus percent investment grade. It's a different environment than the banking system, which is 60% investment grade. Operator: The next question is coming from Bill Katz of TD Cowen. William Katz: I just want to circle back on the wealth management opportunity. One of the pushbacks we get for Apollo and the industry at large is just as rates come down, the demand for yield or income will come down and the industry will suffer from rotation risk. I was wondering if you could address what you're sort of seeing and how you think about that. And then as you look out to 2026, I wonder if you could just lay out a little bit more detail the road map in terms of what drives the incremental growth from here. Marc Rowan: So -- it's Marc. I'm going to start with a bit of a philosophical and then I'm going to hand it to Jim, who really will delve into a little bit more specific. Private lending was a better business 4 years ago and 3 years ago and 2 years ago and last year. By the way, I wish I owned Nvidia 4 years ago and 3 years ago and 2 years ago and last year. This is fundamentally what people fail to understand. The rotation into private credit is a rotation out of equity. That is what investors are doing. That is what we observe. They are making a decision to take risk off because they perceive the ability to earn long-run equity returns in first lien debt top of the capital structure as an attractive opportunity, but I think we cannot, as an industry, deny that there was more value just like there was more value in the equity market. We're now talking about where we sit in the valuation cycle and the alternatives that we provide. As I suggested, we believe that prices are high, that rates -- long rates are not likely to plummet and that we have enhanced geopolitical risk. And so as a firm, we are in risk reduction mode. We preach risk reduction. Our balance sheet is in risk reduction mode. And what we see in terms of flows into private credit in a traditional sense, private credit in the form of levered lending reflects investors who are reducing risk and moving money out of equity and into private credit vehicles. James Zelter: Yes. And I'll add, Bill. Obviously, I agree with Marc's comments. But again, I think a lot of those are to the narrow definition of direct lending with sponsors, which while compressed still versus the safe public markets is still a very wide spread. You're doing -- getting SOFR 450, 500 versus the classic high-yield index inside of 250 over, you're still getting a fair return. And again, I think the mistake that people are making is the tactical or technicals in the recent market versus the secular change. I just got back from a 2.5-week 9-country tour. Everywhere I went, there was massive need for evergreen compounding retirement income. And that is such a large number. It overwhelms the $1.6 trillion direct lending market. And again, we just find country after country, region after region, the ability to generate high-quality compounding robust yield is a secular trend. And especially as the rates have gone up over the last 5 to 7 years, as more pensions are fully funded, they're going through a variety of immunization strategies. So yes, on the margin, not as attractive as it might have been 24, 36 months ago. That's why we've been preaching top of the capital structure, no PIK, less software, et cetera, et cetera, but do not confuse that with the secular tailwinds. Operator: The next question is coming from Craig Siegenthaler of Bank of America. Craig Siegenthaler: We wanted to come back to Marc's comments on the 6 markets, including several newish markets like the traditional asset management and the $12 trillion U.S. 40(k) channel. What type of share do you think the alts will eventually take on both the traditional and the 40(k) markets? And also, what investments does not just Apollo, but the entire industry need to make in order to prepare the origination platforms to address this much larger TAM? Marc Rowan: So I start with traditional asset managers because I think there is a natural limit. Right now, inside of a number of vehicles, you have a 15% limit. And most of the investors do not bump up against this 15% limit. And so back of the envelope, we think that there is potential, which is different than a forecast of roughly 10% of traditional asset managers. If you look at what some of the traditional asset managers who have been large investors in privates before, they own SpaceX. They own OpenAI. They own a number of the other Stripe. They own a number of the other large-cap growth companies. We have, for a long time, just thought that this applied to this unique network. It doesn't. It will not surprise me to see 20 large industrial companies that stay private for a longer period of time, in addition to all of the credit and other vehicles. And so I think you will get a good sense of this in the first quarter next year as some of the partnerships that are under discussion begin to get announced and begin to get rolled out. And again, the prize for the industry is not just the creation of new products. And we will create new products as we have and as others have. I think it is getting a share of in-place assets as traditional asset managers compete for rate of return and through performance for clients. Almost no one else in the traditional asset management industry has the $35 billion that BlackRock has. If you're watching what BlackRock is doing and you're in a traditional asset management mode, you're looking to figure out how you get private market exposure. I believe they will get private market exposure through partnerships, through relationships. And what we need to do is not just invest in origination. We need to invest in infrastructure. We need to invest in business processes. We need to embrace transparency and disclosure because traditional asset managers will not move in size into the private marketplace unless we can do things like daily NAV, unless we can provide price, unless we can provide liquidity. A whole new set of skills is going to be -- need to be learned by our industry. And I believe that we have a leadership position in this and have embraced this as a methodology of how do we do business going forward. James Zelter: Yes, Craig, and I would just add that I think many of us in the industry 2, 3 years ago thought that the promise land was just getting our products on their platform, which they would deliver and distribute. And that's worked for some. It's not worked for many. And as Marc mentioned, when BlackRock made their variety of purchases, there's many income funds, there's many total income funds, total return funds that have a basket and I think servicing them in partnership. It's very similar to the bank alternative credit provider. There's a view that it's a black and white war. It's actually much more open architecture. It's much more problem solving together. And this is just one of the many distribution channels that we believe you'll be able to service going forward, just like in a place like a variety of firms that are using models and OCIOs, the ability to cover those folks with actual product solutions as well, not just funds. So it's really a much more open architecture view of how you partner with your origination, which is the scarce attribute. Operator: Our next question is coming from Glenn Schorr of Evercore ISI. Glenn Schorr: Sorry, one more on this topic because I think it's so interesting. So I'm a believer. I think you infusing some of your private market origination can produce better returns, better diversification, even maybe turn their outflows into inflows for some of these products. My question is, how do you get a traditional manager to give up some of the assets and therefore, some of the fees in order to make this investment and turning around their products or making them more appealing to their investor base? Marc Rowan: So Glenn, it's Marc. I'll speak to it. But first, just to -- we were apparently exceptionally long-winded, all 3 of us. So we are going to cut the call at 9:45. Noah tells me. Anyone we miss, we will make it up to you as we go. But I start this way, Glenn. When we cover a client, we cover wealth, we have a massive infrastructure, hundreds of people, lots of expense in doing it. When we cover a traditional, we're essentially leveraging their distribution. The ability of us to provide a portion of our fee, and you heard me say this on this call, is actually margin accretive for us, and it's margin accretive for them. If we can give them good performance and we can turn outflows into inflows or if we can give them a unique client solution, we can give the client another reason to stay with the asset manager. That's a win. And for us, I think we're going to be in a situation where over time, we have excess demand for private assets versus the supply of private assets. And we should be looking at balancing and protecting and diversifying our distribution, but also for distributors who can remove cost on a net basis from our system. We should embrace them and pay them accordingly. Operator: The next question is coming from Ben Budish of Barclays. Benjamin Budish: Just wondering if you could unpack a few more of the details around the 2026 SRE guide. And how should we be thinking about gross flows, outflows, the level of spread? It sounds like versus at least prior expectations, the decline in spread over the next couple of quarters should be much lower than expected. So any other details you can share a utilization just as we're kind of fine-tuning models after the results? Marc Rowan: I'll hit top of the waves, and then I'll turn it to Martin. Recall that this beginning -- the end of last year, beginning of this year, we had 3 unique issues. We were facing rates headwind, a prepay headwind and the roll-off of massively profitable business as a result of business that we put on at COVID. And as Martin suggested, having now dug in and really understood on a much more granular basis where we stand on prepays and where we stand on the roll-off of business and having immunized rates, we just have a much more predictable and much better understanding of where we're going to be on an SRE basis, subject, again, as Martin said, to the vagaries of having a $400 billion balance sheet. What we intend to do is on the 24th is to spend more time on this so that you can help build a model. But just to give you top of the waves again, I don't think much is going to change in terms of ADIP II utilization and gross flows, inflows or outflows. Martin Kelly: Yes. I won't say much more given the 24th, but base assumptions remain unchanged. The one other point I think, which is relevant is we're clearly outperforming in '25 relative to the prior guide that we indicated, and that also has a run rate benefit jumping off into 2026. And so we've written this year-to-date almost in 9 months, almost the entire volume that we wrote last year. We will be likely close to but not quite at the 5-year average on top line growth in year 1. And when you pair that with a very strong sort of robust origination environment with the spreads that we've been able to achieve and the rate actions we've taken, that all sort of gets to a more healthy jump-off point into '26 with a sort of similar baseline set of assumptions, and we'll unpack that more. Operator: The next question is coming from John Barnidge of Piper Sandler. John Barnidge: With the capital markets world opening up more and OpenAI moving towards an IPO in '26, do you think this open capital markets environment and those companies moving from the private bucket to the public market will cause a natural inflow of public dollars back into those private assets from those asset managers you mentioned? James Zelter: It's interesting. The last 6, 8 weeks, Amazon, Google, Meta, Oracle and several others have issued jumbo IG issuance. At the same time, we had a record quarter. These needs are so vast and so great and global that temporary flows into the public IG market, which is a necessary portion of the overall multitrillion funding, it's going to be funded by all markets. When you look at the capital structure in the future, you'll have a company that will have a broadly syndicated facility, they'll have public IG, they'll have private IG. That is the way of the world. And so when a company can and scale issue in the public IG market, they should. But as we've talked about, a company like we announced, whether the 2 that I mentioned on the call, Keurig Dr Pepper or Ørsted, very unique financing needs that the public market solution is not going to check the box. So it's not a black and white winner take all. It's open architecture like you've seen in other financing markets. Operator: The next question is coming from Michael Cyprys of Morgan Stanley. Michael Cyprys: I wanted to ask about the partnerships with the traditional asset managers that you were alluding to earlier. I was hoping you could elaborate a bit on how you anticipate these partnerships evolving, what the different flavors might look like and what scenario might it make sense to maybe even acquire in some of those types of firms as opposed to partnering? And then if you could just speak to market making around your aspirations and steps you're taking there as you look to support the development of the marketplace. James Zelter: Mike, I'm just going to mention a few things we've talked about in the past. I mean you know about how we partner with State Street on the ETFs. You know how we've announced our dialogue with Lord Abbett in terms of the short duration vehicle. I think what Marc and I are describing, what our partners are describing is the evolution. It was really like the idea of private direct lending 10 years ago was an augment to how the high yield and loan markets work. It was a third tool. And I think that a lot of questions today about sizing the TAM, sizing. It's too early to be doing that. But what we're really trying to do is to really have folks recognize that the only path to Rome is not only just distributing our ADS and ABC, but there's a variety of open architecture solutions that are going to take place and that are going to be evolving as those PMs and those -- there's a lot of trusted investors in some of those traditional strategies. And so again, I think we're still early days. It's our view that we want to be the leading voice of this. We want to be part of the broader dialogue. And I do think it's going to be about brand and scale. And the commentary about market making, in our experience, our collective 80 years between the 2 of us, every time there's been more transparency, information, price discovery and really putting information at the investors' footsteps, asset classes have grown. I was there in the early days of the high-yield market, the old jump bond market now is the high-yield market. And every asset class that we have seen in the development of that information and dialogue. So I believe that as we think about stablecoins, as we think about tokenization, there's an ecosystem that will evolve, and we intend to be the leading voice and the leading player in that evolution. Operator: The next question is coming from Brennan Hawken of Bank of Montreal. Brennan Hawken: I just wanted to ask, I know we're going to get into all the components of SRE on the 24th. But on the alt return, you guys restructured the portfolio about a year ago, laid it out at the Investor Day. The returns have gotten better, but they still have run below that 11% level. I know you guys are assuming a return to the 11% for next year and it's part of the outlook. So what has constrained it even despite the restructuring from getting to that 11% and maybe even seeing a few quarters above it, which you would think with an average would happen? And what's the confidence of the progression continuing to eliminate that gap? Marc Rowan: So big picture, and we will spend more time on this on the 24th. We have 2 components of the alts portfolio at Athene. By far, the largest component is AAA. AAA is, my recollection, 10.9% LTM. And we're -- in AAA, the returns have been just fine. We do suffer a little bit from cash drag, and we have a relatively healthy pipeline, and we expect the cash drag to come down. And we are optimistic and confident subject to market conditions that we will exceed the bogey there. The other portion of Athene's portfolio of alts, which is outside of AAA, relates to its holdings of other insurance assets, one of which is Venerable, which has, quite frankly, more than exceeded by a wide margin, the 11%. And the second is Athora, where Athora has dragged a little bit because, again, we've been holding a decent amount of excess capital. The deployment of the excess capital into PIC should we be granted regulatory approval, which we expect is highly accretive to the Athora investment, and we would expect to see both categories, insurance and AAA be more in line or exceed target levels of return. Operator: We're showing time for one final question today. The final question will be coming from Brian Bedell of Deutsche Bank. Brian Bedell: Maybe just back on the 401(k) theme. I guess, Marc, are you seeing any near-term traction from plan sponsors in thinking about adding privates to their portfolios? I know it's a long-term theme, but just trying to get a sense of if we might see some progress actually this year in the industry. And then also on the deaccumulation side, you've talked about the importance of -- or the opportunity for Athene to make its way into the deaccumulation strategies for retirement plans. Is that something that you might see traction in the next couple of years and begin to generate even some upside to that $85 billion run rate that you're running at now for retirement service inflows? Marc Rowan: That's the hope. Look, on the -- we are -- maybe taking them in reverse order, we are very focused on the notion of guaranteed lifetime income. Guaranteed lifetime income is the simple decumulation strategy. It's a journey that, quite frankly, retirees have been on. If you go back in history, they love their defined benefit plan. They knew exactly what they were going to get. The corporations, not so much. And so we kind of put them in a 401(k) self-directed marketplace, and it turns out very few of them actually make a decision. Almost all of them end up in the default option selected by their employer. The ability to offer to them guaranteed lifetime income, but this time not provided by the plan, but provided on a commercial basis by third parties is the holy grail for us. It is what we're focused on. I think we will do this a little bit on the 24th, but probably more likely guaranteed income strategy. Again, not in our 5-year plan, but certainly something we're working on and we believe upside to where we are. The second in 401(k), we continue to see progress in 401(k). As I've mentioned previously on these calls, we've crossed over a couple of billion in the various managed account platforms and others by people looking to do this. Is it in any way like a groundswell? No. Everyone is in the information gathering phase right now. The guidance that the administration has put out in terms of their desire is actually quite helpful. But I don't think we're going to see massive take-up until we end up with either guidance, which would be something that would be able to happen in the relatively short term or a ruling of some sort, which might take a longer period of time. But this is a time for us to be out educating. And Jim and I get all of these call reports. It is among the most important things that we watch and follow. Operator: We actually are showing time for one additional question. Our next question is coming from Wilma Burdis of Raymond James. Wilma Jackson Burdis: How do you think about the trade-off between higher volumes versus higher spreads in this ultra-tight credit spread environment? And how does that change Athene's capital efficiency or ROE? Marc Rowan: So I don't know that it's just an Athene issue. I think it's across the board. We are in the excess return per unit of risk. And so it's not just spread absolute. It's spread in various marketplaces. And so to the extent we can earn excess spread at the A level or at the AA level, we have different requirements than we do having it at the BBB or BB level. So we see this across the board. For Athene, where we are the capital at the end of the day that supports this, we do not think it is fundamentally intelligent to grow the business without adequate spread. If you do this, you will be the only one who supports it. The reason we have been trusted with the industry's largest sidecar is because investors know that we will not take volume unless we are earning adequate spread. And you bring back one of the theme that I think Jim and I live with, at the end of the day, we and our entire industry are origination constrained. Now the good news is we're doing any number of things to massively scale origination, and there are a number of very positive trends in the world in that regard. But we should not ignore that we are essentially hostage to origination and our capacity to create excess return per unit of risk. That is the promise of private markets. James Zelter: And I would just add, I think if you look at the last 5 to 7 years, how we've navigated our securitized product CLO holdings, we've constantly upgraded, and it's with a view of where we are in a credit cycle. Even though we probably would have on a pencil, we'd have a higher ROE owning more BBB and BBs, but we've owned a lot more AAs and As because of the overriding view on credit. So let our actions speak louder than our statements. Thank you all. Look forward to next quarter, and thanks for all your support on the call. Operator: Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Operator: Good morning, and welcome to Otter Tail Corporation's Third Quarter 2025 Earnings Conference Call. Today's call is being recorded. [Operator Instructions] I will now turn this call over to the company for their opening comments. Beth Eiken: Good morning, and welcome to our third quarter 2025 earnings conference call. My name is Beth Eiken, and I'm Otter Tail Corporation's Manager of Investor Relations. Last night, we announced our third quarter financial results. Our complete earnings release and slides accompanying this call are available on our website at ottertail.com. A recording of this call will be available on our website later today. With me on the call are Chuck MacFarlane, Otter Tail Corporation's President and CEO; and Todd Wahlund, Otter Tail Corporation's Vice President and CFO. Before we begin, I want to remind you that we will be making forward-looking statements during the course of this call. As noted on Slide 2, these statements represent our current views and expectations of future events. They are subject to risks and uncertainties, which may cause actual results to differ from those presented here. So please be advised against placing undue reliance on any of these statements. Our forward-looking statements are described in more detail in our filings with the Securities and Exchange Commission, which we encourage you to review. Otter Tail Corporation disclaims any duty to update or revise our forward-looking statements due to new information, future events, developments or otherwise. I will now turn the call over to Otter Tail Corporation's President and CEO, Mr. Chuck MacFarlane. Chuck MacFarlane: Thank you, Beth. Good morning, and welcome to our third quarter earnings call. Please refer to Slide 4 as I begin my remarks with a summary of quarterly highlights. . We are pleased with our Q3 financial results as they outpaced our expectations. Our team members continue to execute well on our growth plan despite dynamic market conditions. Otter Tail Power continues to deliver on its regulatory priorities. Our South Dakota rate case, previously filed in June of this year, continues to progress; and in late October, we filed a rate case with the Minnesota Public Utilities Commission. The second phase of Vinyltech's expansion project is progressing well. We continue to target early next year for adding another 26 million pounds of capacity. Once complete, we will have increased our Plastics segment total production capacity by 15% through our multiyear investment plan. We are also introducing our updated 5-year capital spending plan today. Otter Tail Power's new capital investment plan totals $1.9 billion and is expected to produce a rate base compounded annual growth rate of 10%. With our updated capital investment plan, we are increasing our targeted long-term earnings per share growth rate to 9% to 7% from 6% to 8% of a 2028 base year. This results in a targeted total shareholder return of 10% to 12%. Slide 5 provides a summary of our quarter-to-date and year-to-date earnings. We generated $1.86 of diluted earnings per share in the third quarter, a decrease of 8% from the same time last year. This expected decline in earnings was driven by the continued decline in Plastics segment sales prices and earnings. Despite the year-over-year decrease, our results outpaced our expectations. We are increasing the midpoint of our 2025 earnings guidance to $6.47 from $6.26 per share. The increase in guidance is primarily due to better-than-expected Plastics segment financial results in Q3 and our revised expectations for the remainder of the year. In a moment, Todd will provide a more detailed discussion of our quarterly financial results and our updated 2025 outlook. Transitioning now to an operational update for Otter Tail Power. As noted on Slide 7, we filed a request with the Minnesota Public Utilities Commission for a net revenue increase of $44.8 million. This is based on a requested ROE of 10.65% and an equity layer of 53.5%. The increase is driven by investments in infrastructure and grid resilience, the impact of inflation since our last rate case filed 5 years ago and accelerated recovery of the Minnesota portion of Coyote Station. We requested accelerated recovery of Coyote Station as the Minnesota Public Utilities Commission directed us to no longer serve our Minnesota customers with power from Coyote beyond 2031, as part of our integrated resource plan. Even with the proposed increase, Otter Tail Power is expected to continue to have some of the lowest electric rates in the region and country. Affordability remains a priority for us, and we are committed to selecting cost-effective investments to serve our customers with reliable energy while prudently managing our operating costs. Our updated 5-year capital spending plan is expected to have limited impact on our customer rates due to lower fuel costs associated with renewable generation as well as the favorable impact of renewable tax credits. Additionally, a significant portion of our capital spending plan relates to regional transmission projects. The cost of these projects will be allocated to either new generation interconnection customers or across the entire MISO footprint, of which our customers comprise only a small portion. We continue to partner with our customers to identify ways to save, whether through energy efficiency programs or innovative pricing solutions. Turning to Slide 8. Our South Dakota rate case is progressing. The procedural schedule has been established, and we expect a decision in the first half of 2026 unless a settlement is reached in advance of that date. Interim rates, which amount to $5.7 million on an annual basis, will commence on December 1, 2025. Turning to Slide 9, Otter Tail Power updated its 5-year rate base CAGR to 10%. We continue to expect Otter Tail Power to convert its rate base growth into earnings per share growth near a 1:1 ratio over the long term. This is made possible by identifying high-quality customer-focused projects, effective project execution, efficient financing and reducing regulatory lag. We currently expect approximately 90% of our updated 5-year capital spending plan to be recovered through existing rates or riders allowing for timely recovery of our capital investments. Slide 10 and 11 provide an overview of ongoing future capital projects. Our Wind Repowering project is nearly complete. We finished upgrading the wind towers at our Luverne Wind Energy Center in Q3 and expect to complete the remaining 2 repower sites later this year. Once finished, we expect the increased energy production from these facilities to total approximately 40 megawatts of new generation, which equates to over a 20% output increase. Our 2 solar development projects also continue to progress. During the quarter, we transitioned Solway Solar from a project development to start of construction and look forward to adding additional cost-effective solar generation to our portfolio. Development work continues on our MISO Tranche 1 and 2.1 portfolio projects as well as our JTIQ project. We are working through landowner and local government resistance associated with citing and certain permits for one of the Tranche 1 projects. Additionally, in July, a complaint was filed at FERC against MISO's Tranche 2.1 projects, citing a concern with benefit calculations. North Dakota, in one of the jurisdictions in which we operate, joined the complaint. We are closely monitoring developments around the FERC complaint docket, and at this time, continue to expect these projects to move forward due to their reliability-related benefits, but some delays are possible. Turning to Slide 12. Otter Tail Power remains well positioned to attract and support large load. Our team continues to engage with companies looking to add new large loads to our system. In the coming weeks, we look forward to bringing online the 155-megawatt load secured earlier this year. The 155-megawatt load is comprised of 3 megawatts of firm load and approximately 152 megawatts of nonfirm loan. We expect this load to positively contribute to earnings starting next year. We have and will continue to be thoughtful in our negotiations to ensure we are appropriately mitigating potential adverse implications of adding new large loads to our existing customer base. Adding new loads, if appropriately managed, would not only benefit us, but also our current customers as it enables us to spread out existing fixed costs. In what is a challenging economic environment for many, affordability has become increasingly important. As shown on Slide 13, Otter Tail Power's electric rates have remained well below the national and regional average for many years, and we expect Otter Tail power rates to remain among the lowest in the nation. However, we know that our customers still feel the impact of rate increases. We're deeply focused on identifying cost-effective investment projects and are committed to prudently managing costs. We aim to partner with our customers to continue to identify ways for them to save. Transitioning to our manufacturing platform. Slide 15 provides an overview of industry conditions impacting our Manufacturing segment. BTD continues to face end market demand related headwinds. Sales volumes remain below historic levels after sharply declining in the third quarter of last year. The lawn and garden and agricultural end markets continue to be most heavily impacted. Recreational vehicle and construction have shown signs of improvement and the industrial end market remains strong as our products are ultimately used to support the growing data center energy demand. While the down cycle impacting BTD's volume continues, we saw some month-over-month stabilization in volumes during the third quarter. This could indicate reaching the bottom of the business cycle. At this time, we expect our current low demand environment to continue through most of 2026 and we'll give a fulsome update regarding 2026 expectations during our Q4 call. We have seen some improvement at T.O. Plastics horticulture end market, but low-cost import competition remains a challenge for our team. We continue to monitor the tariff environment to determine what impact, if any, it will have. However, in the meantime, we remain focused on aligning costs with current demand across our Manufacturing segment. I want to take a moment to recognize and thank our Manufacturing team members for their commitment and efforts during challenging market conditions. Slide 16 provides an overview of our Plastics segment's pricing and volume trends. Our sales prices of PVC pipe continue to steadily decline, decreasing 17% from the same time last year. Sales volumes increased 4% due in part to capacity added to Vinyltech late last year. We also continue to benefit from lower material input costs, including resin. The cost of PVC resin has decreased from the same time last year due to global supply and demand dynamics resulting in elevated domestic supply. Turning to Slide 17. Our manufacturing platform remains well positioned for future growth opportunities. Our BTD Georgia facility is ready to support our customers in the Southeast once market conditions improve. Phase 2 of our Vinyltech expansion is progressing well. Once complete, we will have increased our total production capacity for the Plastics segment by approximately 50 million pounds over the past 2 years. I'll now turn it over to Todd to provide his financial update. Todd Wahlund: Thank you, Chuck, and good morning, everyone. Turning to Slide 19. Our quarterly financial results exceeded expectations. We generated $1.86 of diluted earnings per share compared to $2.03 during the same time last year. Please follow along on Slides 20 and 21 as I provide an overview of quarterly financial segment results by segment. Electric segment earnings decreased $0.03 per share in the third quarter. The decrease in earnings was primarily driven by unfavorable weather and the impact of seasonal rate differences between interim and final rates in North Dakota. This timing effect does not impact our revenue on an annual basis. These drivers were partially offset by higher quarterly sales volumes, excluding the impact of weather, as well as lower operating and maintenance expenses. Manufacturing segment earnings increased $0.04 per share. The increase in earnings was primarily driven by a lower cost structure following our efforts over the last year to align the costs in our business with the current demand environment. We also benefited from enhanced production efficiencies with a smaller but more skilled workforce. The timing of pass-through steel cost fluctuations and the selling of lower cost inventory also contributed to improved profit margins. These drivers were partially offset by the impact of lower sales volumes and higher SG&A expense. Turning to Slide 21. Plastics segment earnings decreased $0.26 per share compared to the same time last year. Plastics segment earnings exceeded our expectation for the third quarter, even as we continue to progress towards a more normalized earnings level. The decrease in earnings was driven by lower average sales prices, partially offset by lower input material costs and higher sales volumes. The average sales price of PVC pipe declined 17% compared to the third quarter of 2024. This continues the downward trend experienced in the sales prices of our PVC pipe since it reached its peak in mid-2022. Partially offsetting the decline in pricing are lower material input costs, which decreased 16% from the same time last year. Our Plastics segment earnings also benefited from a 4% increase in sales volumes, largely driven by the incremental volume from the capacity added at Vinyltech. Finally, our corporate costs improved $0.08 per share in the third quarter from the same time last year. This improvement was driven by an increase in income tax benefits, lower workers' compensation expenses and lower employee health insurance claims. Turning to Slide 22. Our balance sheet remains very strong, and we are positioned well to fund the utilities updated customer-focused growth plan without the need for external equity through at least 2030. We have $325 million of cash on hand and continue to produce a utility sector leading return on equity of 16% on an equity layer of nearly 64%. On Slide 23, we are increasing and narrowing our 2025 diluted earnings per share guidance to a range of $6.32 to $6.62. We are increasing our 2025 earnings guidance primarily due to a better-than-expected Plastics segment financial results in the third quarter as well as our revised margin expectations for the remainder of the year. We are increasing our margin expectations as we expect raw material costs to be lower than previously projected for the remainder of the year. We are also increasing the midpoint of our Electric segment earnings guidance and narrowed the range. Our updated guidance is primarily based on better-than-expected financial results in the third quarter of 2025, which was largely driven by higher-than-anticipated sales volumes. We are maintaining the midpoint of our 2025 earnings guidance for our Manufacturing segment, but are narrowing the range. We are also narrowing the guidance range for our corporate cost center. With the increase to our 2025 earnings guidance, we are forecasting our consolidated 5-year compounded annual growth rate to be approximately 23%. As shown on Slide 24, we have a proven track record of delivering outstanding earnings per share growth with and without the impact of Plastics segment earnings. Our updated capital investment plan for 2026 through 2030 is included on Slide 25. Our Electric segment's revised 5-year capital spending plan increased by approximately 35% and now totals $1.9 billion. The increase is primarily driven by moving into the construction phase of our previously discussed regional transmission projects. It is important to highlight that our updated capital plan does not include any investment to serve new large loads. Additionally, we project approximately $350 million of potential incremental utility capital investments to our base plan. The incremental opportunity includes the wind generation and battery storage projects previously approved in our Minnesota integrated resource plan as well as delivery-related investments for any new large loads added to our system. We estimate that for every $100 million of incremental capital investment, our rate base compound annual growth rate would increase by approximately 65 basis points. Slide 26 summarizes our updated 5-year financing plan. Even with our updated utility capital spending plan, we expect to finance our growth without any equity issuances. We plan to issue debt at Otter Tail Power on an annual basis to help fund the investment plan and maintain the authorized capital structure. We have $80 million in parent level debt that matures in late 2026 and expect to retire this debt. We will have no outstanding parent level debt upon retirement. As included on Slide 27, our long-term expectations of normalized Plastics segment earnings remains unchanged. We believe Plastics segment earnings will continue to decline through the end of 2027 such that 2028 is our first full year of normalized earnings. This assumption is based on the average sales price of our PVC pipe falling at a rate similar to what we have experienced since late 2022, increased sales volumes due to our expansion projects at Vinyltech and cost changes generally in line with the rate of inflation. Due to seasonality and other factors, the rate of margin compression could vary from period to period. Additionally, it continues to be difficult to predict with certainty long-term Plastics segment earnings and the timing or level of earnings could vary materially from this projection. However, the Plastics segment remains an important component to our overall strategy due to the enhanced returns and earnings it generates. Even as earnings normalize over the coming years, we expect the segment to produce an accretive return and incremental cash to help fund our electric utilities rate base growth plan. Slide 28 summarizes our uplifted investment targets. We increased our long-term earnings per share growth rate to 7% to 9% and also increased our targeted total shareholder return to 10% to 12%. We anticipate delivering on these targets once Plastics segment earnings normalize in 2028. Our long-term earnings mix target has also been updated. We now expect 70% of our earnings to be driven by our Electric platform and 30% from our Manufacturing platform. We anticipate reaching this earnings mix in 2028, as Electric segment earnings continue to grow in line with its rate base growth rate of 10%, Plastics segment earnings have normalized, and the Manufacturing segment has rebounded from the current down cycle. As we continue to execute on our customer-focused growth plan, we are well positioned to deliver on our revised investment targets over the long term. Otter Tail Power continues to be a high-performing electric utility, converting its rate base growth and earnings per share growth at an approximate 1:1 ratio. Our manufacturing and plastic pipe businesses consistently produce accretive returns and incremental cash, which will be used to help fund our rate base growth plan without any equity needs. It is this combination of companies and performance that has and we project continuing to provide excellent benefits for our customers and our investors. We look forward to what the future holds and are grateful for your interest and investment in Otter Tail Corporation. We are now ready to take your questions. Operator: [Operator Instructions] Our first call comes from Michael Pelletier from KeyBanc Capital Markets. Michael Pelletier: Congrats on the updates this morning. Chuck MacFarlane: Thanks, Michael. Todd Wahlund: Good morning, Michael. Michael Pelletier: Just curious on the updated EPS long-term growth rate there, just on the shaping of it and kind of expect that to grow linearly or any movement on a year-to-year basis? Todd Wahlund: Yes. Over the long term, we do expect our utility earnings to grow in line with our rate base. There will be year-to-year fluctuations depending upon timing of recovery. But over the long term, we do expect our earnings for the utility to be in line with the rate base growth plan, and we do provide the rate base projections by year. And certainly, as we're going through the manufacturing and on the Plastics side, we're seeing that normalize and on then the Manufacturing segment, we're in a down cycle right now. So we will have some fluctuations year-to-year, but beyond 2028 when we reach that normal level of Plastics earnings and are through the Manufacturing down cycle, we expect to achieve the 7% to 9% long term. Michael Pelletier: And then just a quick modeling question, but what are you currently assuming for your 2025 tax rate? And how are you tracking towards that? And has there been any change in your assumption since your initial guidance this year? Todd Wahlund: Just to make sure I understood that, Michael, our tax rate, is that what you're asking about? Michael Pelletier: Yes. Todd Wahlund: I don't know that I have that specific information in front of me. Michael Pelletier: Okay. And then just on the antitrust case, and just curious if you could provide any update there? And then how does the Department of Justice's involvement affect the proceedings or time line? Chuck MacFarlane: Michael, this is Chuck. During the quarter, the -- there were amended complaints filed in the class action lawsuits in the U.S. in. As you mentioned, in October, the DOJ intervened to stay the discovery in the civil litigation, which is not uncommon when there's a parallel investigation going on. There is also a class action complaint filed in British Columbia, Canada, with similar allegations to the civil complaint in the United States. And then finally, last week, defendants filed a motion to dismiss in the civil litigation case. We argue that the complaint should be dismissed in their entirety. There's no deadline for the court to make a decision, but we anticipate that in calendar year '26. Michael Pelletier: Got it. And look forward to seeing you in Florida in a few days. Chuck MacFarlane: Thank you. Operator: Our next call comes from Tim Winter of Gabelli Funds. Timothy Winter: Congrats on the quarter. I know you guys talked a little bit about the 64% equity ratio and the [ $8 ] of cash on the balance sheet with some near-term need to take out that $80 million in debt. But I was just wondering if you could talk a little more how you're thinking about using that cash long term? I know you have plenty to use utility over the long term, but over the near term, just wondering if there's -- if that's the best way to maximize the cash or what your thinking is regarding that? Todd Wahlund: Yes. So in terms of our capital allocation priorities. Certainly, our priority is investing in our businesses and with the significant rate base growth we have with Otter Tail Power, we do expect that cash balance will decline over the 5-year period as we invest and provide equity for that. We don't have any external equity needs. We'll be able to fund that with our cash that we have on hand. Beyond that, certainly looking at the dividend payout ratio, we did increase our dividend payout ratio or our dividend by 12% earlier this year. Beyond that, we would look at are there opportunistic M&A opportunities or opportunistic returns to shareholders. But our primary focus is on the first 2 with funding the utility growth plan as well as providing capital back to our shareholders through the dividend. Timothy Winter: Okay. Great. And on the M&A opportunities, what sorts of things are priorities of yours as you look at the environment out there? Chuck MacFarlane: We would -- look, on the utility side, some potential assets. From M&A, we've not put a specific -- a lot of focus on that right now due to our internal growth opportunities available at the utility. In the Manufacturing or Plastics segments, we would review bolt-on opportunities, but we are not currently looking to add in any additional platforms or new companies that way. They would be smaller add-ons like we have done with BTD over time. Todd Wahlund: And I'd just add, Tim, that we're positioned very well to execute on our growth plan without M&A for scale. We're positioned well to attract large loads. We've got the cash to fund our growth plan that's very significant. Timothy Winter: Okay. And if I could just ask one more. Can you talk just a little bit about the large load customer and maybe how the electric service agreement is structured, that 155-megawatt customer? Chuck MacFarlane: Yes. Tim, this is Chuck. It's a customer that is an interruptible type load. And so we have very minimal capacity needs. In the site location, the customer had limited interconnection costs, primarily distribution at that point. So it's a customer that will use low-cost energy in a storage function. And we don't see a large capacity need or a large investment need right at this point, so it's not driving significant earnings in the 2026 time frame, but it is reducing fixed costs across a big amount with that type of load. Timothy Winter: Okay. All right, and we'll see you in sunny Florida. Chuck MacFarlane: Thanks, Tim. Good to talk to you. Operator: As there are no remaining questions in the queue, I will turn the call back over to Chuck for his closing remarks. Chuck MacFarlane: Thank you for joining our call and your interest in Otter Tail Corporation. If you have any questions, please reach out to our Investor Relations team, and we look forward to speaking with you next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, and welcome to the Voyager Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Adi Padva, Senior Vice President, Corporate Development and Investor Relations. Please proceed. Adi Padva: Thank you, and good morning, everyone. Welcome to Voyager Third Quarter 2025 Earnings Call. I'm joined today by: Dylan Taylor, our Chairman and Chief Executive Officer; and Phil de Sousa, our Chief Financial Officer. Today's call include forward-looking statements, which involve risks and uncertainties detailed in our earnings material and SEC filings, including the Risk Factors section of our IPO prospectus. We undertake no obligation to update these statements. We will also discuss non-GAAP financial measures. Reconciliation of these measures is available in our earnings material on our website. I will now turn the call over to Dylan. Dylan Taylor: Thank you, Adi, and good morning, everyone. I'm pleased to kick off Voyager's third quarter earnings call recapping a very successful quarter. Our third quarter results reflect continued strength in our core business; an acceleration of our innovation road map; strategic expansion of our technology stack through targeted acquisitions; and steady advancement of Starlab milestones. This translated into strong revenue growth, solid earnings performance and robust growth in backlog. Building on this momentum and despite the impact of the government shutdown, we expect our revenue for the full year to be at the upper end of the previously communicated range, which we'll talk through in more detail later in the call. We built Voyager to lead the next era of defense, national security and space innovation, and we continue to execute on this vision. Missile defense modernization is front and center. The Golden Dome initiative and Space Force budget expansion are driving demand for advanced tracking and interceptor systems. Voyager's next-generation interceptor, known as NGI, propulsion and intelligence, surveillance and reconnaissance, known as ISR capabilities are directly aligned with these national priorities, and we've actively engaged across key programs supporting the next generation of missile defense architecture. At the same time, the space industry is ongoing a structural transformation. Launch costs are falling, satellite architectures are shifting to LEO constellations and both public and private priorities are accelerating investment. This is unlocking new opportunities for agile, vertically integrated players like Voyager. We're also seeing the commercialization of space infrastructure take hold. Voyager's leadership in developing Starlab, a commercial successor to the ISS and a generational investment opportunity positions us at the forefront of the evolution of space infrastructure, research platforms and national security. We are designed to scale, adapt and win these attractive and growing markets that demand speed, innovation and mission-critical capabilities. From propulsion and signal intelligence to secure communications and orbital infrastructure, we are executing with precision and accelerating momentum. Voyager's success is anchored in 3 strategic pillars: first, high growth and profitable and growing national security and defense segments; second, a relentless commitment to leading with innovation; and third, the transformational opportunity of Starlab Space stations. Voyager is a high-growth platform expected to deliver an organic CAGR of over 25% with additional upside through disciplined and accretive M&A that presents additional opportunities for growth. We operate within a $179 billion addressable market spanning missile defense, space-based systems and advanced deterrent capabilities. Our robust pipeline of $3.6 billion in qualified opportunities underscores our ability to convert visible opportunities into long-term revenue and generate meaningful returns for shareholders. We've built a company that can operate with the scale and discipline of a prime contractor, but with the agility and innovation engine of a high-growth technology company where product development, IP creation and accretive capital allocation are core to our business model. Over 18% of revenue is invested in innovation and developing proprietary mission-critical capabilities with much of that funded by our customers. This foundation makes Voyager fundamentally different from traditional defense and space contractors. As a commercial platform, we are CapEx-light, IP-focused and operationally efficient. Furthermore, we maintain a fortress balance sheet with $413 million in cash, $200 million in available credit and no debt, which is highly differentiated amongst our competitors. And additionally, we offer a once-in-a-generation opportunity through our Starlab joint venture, where Voyager is the majority shareholder and lead developer. Turning to Slide 4. For the third quarter, total revenue was up 15% when adjusting for planned wind down of the NASA services contract within the Space Solutions segment. Defense and National Security revenue increased very significantly at 31% year-over-year, driven by continued execution on key propulsion and sensing programs. As a reminder, in Q2, we completed critical design review for our NGI second stage roll control system, a major technical milestone that positions Voyager to deliver a flight-qualified subsystem for one of the most strategic missile defense programs in the U.S. portfolio. Golden Dome is emerging as an exciting new opportunity. Voyager is actively engaged across multiple mission threads with the Golden Dome architecture with opportunities spanning the space layer, propulsion, guidance and navigation, sensors, communications and mission-critical electronics. We have submitted multiple Golden Dome-related proposals in partnership with several major primes and neoprimes, further strengthening our position as a trusted technology partner across the defense and space industry. The Defense and National Security segment remains our largest and fastest growing, supported by multiyear visibility and expanding demand across missile defense and advanced surveillance. We remain very active in pursuing strategic M&A opportunities. During the quarter, we acquired BridgeComm's optical communications technology, fast tracking our ability to deliver secure, high-speed connectivity for defense and commercial customers. The deal shortens development time lines and strengthens our position in the rapidly growing market for advanced communications. For defense, it supports DoD missions with resilient low latency links in contested environments. For commercial use, it boosts data capacity for global networks like aircraft to satellite connections. This acquisition expands our tech stack and reinforces Voyager's leadership in next-generation space and defense communications. During the quarter, we also made a minority investment in an AI platform, Latent AI, which specializes in optimizing AI for contested and constrained environments. By embedding advanced models directly at the Edge, they enable faster targeting, sharper situational awareness and resiliency, real-time decision-making, and these capabilities are mission-critical in environments where every second counts and traditional cloud-based AI is impractical. This investment underscores Voyager's commitment to staying at the forefront of innovation, bringing the decisive advantage of Edge AI to missions where outcome depends on speed, precision and resilience. I will discuss our additional acquisitions of EMSI and recently of ExoTerra in more detail on the next slide. Lastly, Starlab continues to advance as a transformational growth engine. We completed 2 additional development milestones during the quarter, resulting in $4 million in milestone-based cash receipts from NASA. To date, we've completed 27 milestones under our $218 million funded Space Act Agreement, marking steady progress towards launching the commercial successor to the ISS. This quarter, Starlab selected Vivace Corporation to manufacture the primary structure for its next-generation commercial space station. We are excited about this important development and partnership with Vivace, a company with advanced aerospace engineering expertise, high technology readiness level or TRL, deep capabilities and world-class facilities. The aluminum-based structure will be one of the largest single space-flight structures ever developed for launch and will be built at Vivace's Engineering and Manufacturing Center located within NASA's assembly facility in Louisiana. As the majority owner and lead developer of Starlab, Voyager is building a scalable multi-decade infrastructure platform with significant recurring revenue potential. Once operational, we expect Starlab to generate over $4 billion in annual revenue and more than $1.5 billion in free cash flow, anchored by long-term demand from government, commercial and international customers. This program not only reinforces our leadership in commercial space infrastructure, but also complements our broader platform strategy, leveraging shared technologies across propulsion, sensing and mission systems to drive innovation and value creation. Turning to Slide 5 and focusing on our M&A engine. We continue to execute against our strategic growth priorities, combining organic momentum with disciplined capital deployment. Our M&A strategy is focused on acquiring high-impact technologies that diversify and deepen our platform, solidifying our role as a key enabler in defense and space innovation. Recent acquisitions underscore our strategic focus, enhancing capabilities in radar-based analytics, electric propulsion and vertically-integrated subsystems. During the quarter, we completed the acquisition of ElectroMagnetic Systems, known as EMSI, a radar AI software company serving high-priority U.S. defense and intelligence missions. EMSI specializes in synthetic aperture radar exploitation using proprietary AI-machine learning models and synthetic training data pipelines. With prime positions on NGA's Luno program and DARPA's Midnight Earthquake initiative, EMSI brings differentiated IP, a cleared technical team and a commercial SaaS model with strong margin potential. Following the quarter, we closed on the acquisition of ExoTerra, a market-leading manufacturer of electric propulsion systems for advanced satellites. Their turnkey propulsion modules, Hall-effect thrusters and domestic manufacturing capabilities align with our road map across LEO, GEO and cis-lunar missions. ExoTerra expands our ability to deliver integrated propulsion solutions and supports our strategic shift towards hardware-enabled space infrastructure. Together, these acquisitions reinforce Voyager's differentiated strategy and strengthen our vertical technology stack, bringing together propulsion sensing and software into a unified platform. They enhance our ability to compete for higher-value programs, accelerate the innovation curve and expand our relevance. Most importantly, they support our long-term growth strategy by deepening alignment with national security priorities, unlocking new market opportunities and creating durable accretive value for shareholders. And with that, I will turn it over to Phil to walk through the financials in more detail. Phil, over to you. Filipe de Sousa: Thanks, Dylan. Turning to Slide 6. For the third quarter, we delivered revenue of $40 million, flat year-over-year or up 15%, excluding the planned wind down of a legacy NASA services contract, thus reflecting strong demand and growth in our Defense and National Security segment. Bookings this quarter totaled $49 million, reflecting a 1.25 book-to-bill ratio as we continue to see momentum across missile defense and space platforms, thus reinforcing our alignment with national defense priorities and the relevance of our technology stack. Importantly, backlog expanded 10% sequentially to $189 million. We generally see backlog levels decrease in the early part of the year and increase later in the year, driven by the timing of budget releases, OEM order cycles and the exercise of options under existing contracts. Given the strength of our current pipeline, we are tracking well to end the year with backlog that exceeds the level at which we entered the year. Adjusted EBITDA for the third quarter was a loss of $17.7 million compared to a loss of $8.8 million last year. The year-over-year change reflects planned investments in innovation, talent acquisition and our corporate infrastructure. These investments are intentional and placed ahead of growth, establishing the operational foundation to ensure we scale efficiently. On the bottom line, adjusted EPS was a loss of $0.22 compared to a loss of $1.56 in the prior year, with the per share improvement reflecting IPO-related dilution. Turning to Slide 7. I'll cover our operating performance by segment. Defense and National Security, our largest and fastest-growing segment, continued to perform well in the third quarter. Revenue increased 31% year-over-year, driven primarily by higher volumes across key programs, including the ramp-up of our NGI and other undisclosed programs. Segment adjusted EBITDA was a loss of $2 million, reflecting increased research and development investment and continued talent acquisition. Switching over to our Space Solutions segment. Revenue was $11.7 million, down year-over-year as expected and primarily due to the planned phase down of the multiyear NASA services contract and a tougher year-over-year comparable. The segment continues to reflect the inherently lumpy nature of space-related awards and revenue recognition, which can vary quarter-to-quarter based on program timing and funding. Segment adjusted EBITDA was a loss of $0.6 million, primarily reflecting lower volumes. Starlab continues to make measurable progress. During the third quarter, we accomplished 2 additional development milestones and received $4 million in milestone-based cash receipts from NASA, part of our $218 million funded Space Act Agreement. To date, we've completed 27 milestones totaling $174 million in NASA funding and materially offsetting our investment in the program. Starlab's next major milestone is our critical design review scheduled in December 2025. Wrapping up here, we're encouraged by the momentum across our businesses and are increasingly confident in our ability to execute on backlog, scale and deliver long-term value through disciplined growth and strategic investment. Let's turn to Slide 8, and I'll cover our financial position. We continue to operate from a position of financial strength that enables both focused execution today and strategic growth over the long term. As of September 30, we ended the quarter with $413 million in cash, no debt and access to a $200 million undrawn credit facility, resulting in total liquidity of $613 million. This fortress balance sheet provides flexibility to scale production, invest in innovation and execute our targeted priorities within M&A. During the quarter, we deployed capital to expand our technology stack and enhanced capabilities through the targeted acquisition of EMSI. Following the close of the quarter, we also deployed capital to complete the strategic acquisition of ExoTerra as outlined in Dylan's remarks. Turning to Slide 9. I'll cover off our outlook for fiscal year 2025. We now expect revenue to come near the upper end of the guidance range of $165 million to $170 million, reflecting year-over-year growth of approximately 18%. Excluding the impact of the NASA services contract within Space Solutions that is winding down, year-over-year growth in fiscal 2025 would be in the mid-30s percent range. This growth reflects both organic expansion and contributions from acquired businesses while also factoring in uncertainty related to the government shutdown. For the full year, we reiterate adjusted EBITDA between negative $60 million and $63 million. In summary, we are scaling rapidly and focused on delivering high growth, executing effectively across high-priority programs, investing in mission-critical innovation and driving improved financial performance. Our CapEx-light operating model, combined with disciplined execution continues to support margin expansion and strong cash flow conversion potential over time, especially when layering in Starlab. With that, I'll hand it back to Dylan for his concluding comments. Dylan Taylor: Thank you, Phil. In summary, everyone, we are executing with focus and momentum, supported by a platform purpose-built for this dynamic market. The opportunities ahead for both Defense and National Security as well as commercial space are significant and measurable, and I'm confident in our team, strategy and technology to capitalize on them. Before we open it up to Q&A, I also want to highlight our upcoming Investor Day, which will be held November 20 and 21 in Houston. We look forward to spending time with many of you as we take a deeper dive into each of our business segments, walk through our long-term strategic opportunities and showcase how recent acquisitions are enhancing our technology stack and further accelerating our road map. Given limited capacity, participation is by invitation-only and does require an RSVP, please reach out to us with any questions. So with that, over to you, operator, to take any questions we may have. Operator: [Operator Instructions] Your first question comes from the line of Sheila Kahyaoglu with Jefferies. Sheila Kahyaoglu: Maybe if we could just start off one question and one follow-up. If we could dig into the 2 acquisitions and the partnership you announced, the investment you announced, maybe focusing on ExoTerra, it seems to have a nice overlap with content areas such as SDA, PWSA. How can we think about the benefits from these acquisitions to your portfolio? And the follow-up would be, how do we think about it impacting the financials for 2026? Dylan Taylor: Sheila, thanks for the question. Dylan speaking. Yes, so ExoTerra, why don't we start there? Super exciting acquisition, does a few things for us on our technology and strategic road map. First and foremost, as we've talked about previously, we're really focused on power and propulsion as a key capability. And of course, with the Hall-effect thruster technology, which ExoTerra brings to the table, it allows us to have a capability for in-orbit movement of mass that's going to be very relevant, not only to things like Golden Dome and those capabilities, complementing our existing power and propulsion capability on NGI, but it also allows us to be relevant to constellations that being built in LEO as well. So we're very excited about that capability. The other thing which I want to note is it really enhances our U.S.-based manufacturing capability as well. And as you and others know, there's a huge push to ensuring, making sure that the entire supply chain is derisked and is U.S.-sourced. And that's another key vertical capability that ExoTerra brings to the table as well. I think you also referenced BridgeComm and perhaps the Latent AI investment. I'll just touch on those briefly. BridgeComm, again, as I mentioned in my remarks, really enhances our comms technology portfolio. As you know, we're very relevant in laser communication. This further enhances that technology stack. So we're very bullish on that IP portfolio acquisition. And then on Latent AI, our grand vision here in partnership with Palantir and others is to really build that entire technology stack for Edge computing. And where Latent AI comes in is really at the firmware level, so that as you're collecting data and you're passing it off to, call it, the operating system level, that's [ semi-processed ] data happening literally at the ASIC level. And so we're very excited about what Latent AI brings to that technology stack. So just kind of to wrap that up into a broader theme here, these are acquisitions that are on our technology road map that are strategically relevant to our capabilities going forward. These are very accretive transactions. I'll ask Phil to chime in on that, proprietarily-sourced and really thematically very consistent with kind of what we talked about in our roadshow that we would execute our capital deployment on. So over to Phil. Filipe de Sousa: Sheila, as Dylan mentioned, both acquisitions are extremely attractive, enhance our portfolio, not just from a technology capability perspective. But from my financial lens, I see these acquisitions as driving our overall growth up significantly in 2026. More to come on that front at our Investor Day. We'll provide the analyst and investment community with a framework about how to think for '26. It's still a bit premature to provide overly specifics there. That said, given the profile of these acquisitions, I'm excited because they're both accretive from a gross profit margin perspective to our overall portfolio today, in some cases, significantly more accretive than our existing portfolio today, and both businesses bring positive EBITDA to us immediately. And so extremely excited to get both businesses integrated into our overall portfolio. I think over the longer term, revenue and -- revenue synergies that these businesses bring to enhance our overall portfolio are quite significant. So in addition to the 2026 contribution that you'll see is quite significant, over the coming 3, 4, 5 years, I think that these businesses will be real standout performers. Dylan Taylor: Yes. And just maybe one final point, Sheila, just to emphasize, our growth prospects for 2026 look very solid, and we're super confident as we look into next year. And these acquisitions are a big part of that theme. So thanks for the question. Operator: Your next question comes from the line of Kristine Liwag with Morgan Stanley. Kristine Liwag: I just wanted to dive a little bit deeper on Starlab and the opportunity set there. It looks like the government shut down, they're laying off some employees related to the ISS in preparation for the deorbiting. So I was wondering how does this government shutdown and changes in employees affect priorities and potentially the timing of award for ISS replacement in 2026. Do you anticipate that the government shutdown kind of delays some of that time line? And then also my follow-up would be just generally related to the government shutdown. How does that affect your expectations for strong orders for 4Q to get your backlog higher than last year? Dylan Taylor: So starting with Starlab, right now, the current time line remains intact so far as we know. And that time line, just to remind everybody, we have a critical design review on Starlab with NASA scheduled -- currently scheduled for December. So yet this year is the plan for that. We still anticipate an RFP for Phase 2 award sometime late this year or early next year. And then we anticipate a contract award for Phase 2, where they're going to pick who effectively wins Phase 2 sometime in early 2026. So obviously, if the government shutdown continues longer than anticipated, let's say, past Thanksgiving into December and even into early next year, that could impact, obviously, the timing that I just communicated. But as of right now, based upon what we know, we think that timing will hold. Also, I think you're referencing some of the job cuts, I think, at Marshall Space Flight Center. A lot of that has to do with ISS payloads. So that doesn't necessarily impact the CLD Phase II contract awards. But to your point, I think NASA is obviously looking at the budget with a lens towards the commercialization of the ISS long term. But I wouldn't read too much into those specific cuts. I don't think that's a change in strategy or anything like that. I think that's just a little bit of reorg consistent with some of the other budget pressures that NASA has. But in general, we feel very good about the Starlab program. As we indicated, we completed another 2 milestones in the quarter. The program is on track. So we're very bullish and optimistic about where the program is. And again, it's anyone's guess on when the government is going to reopen. But as of right now, we would expect it would be open sometime before Thanksgiving, but we'll have to wait and see. But right now, I would say the timing is on track. Phil, would you add anything? Filipe de Sousa: Just Kristine, I appreciate the question. I think your second part of your question is more tied to our expectations around orders and confidence around orders and how that builds over the course of the fourth quarter heading into next year. And so I'll just reiterate what I mentioned in my prepared remarks. Extremely confident we'll enter the year next year with total backlog well in excess of the $200 million that we entered the year 2025 with. As you see, we already built backlog here in the third quarter. We were up to $180 million, up $18 million or 10% coming off of Q2. From a pipeline perspective, I don't believe the government shutdown will impact our ability to not just capitalize and convert our pipeline into orders, whether it's here in the fourth quarter or early first quarter, we're terribly excited by the pipeline that we have, particularly supporting our Defense and National Security business. It's not just, as you guys know, NGI that we've been executing on. There's quite a number of Golden Dome opportunities that we've been actively pursuing and I'm -- have me excited about the prospects for 2026 and our ability to build backlog. Dylan Taylor: And one other final point, Kristine, I'm not sure schedule-wise, you'll be able to be at the investor event, but one kind of cool thing that's happening right now, I'll just mention is a full-scale mockup of Starlab is being constructed on the floor of Building 9 at NASA's Johnson Center. And so as part of that Investor Day, you'll actually see the full scale of the Starlab 7-plus meter design. And that's literally on the floor next to the ISS mockup, the Dragon capsule mockup and others. So cool that we received kind of this coveted position, if you will, on the floor of Building 9, I think really showcases our partnership with NASA and the progress that the program has made. So we're excited to show that to investors in November. Operator: Your next question comes from the line of Greg Dahlberg with Wolfe Research. Gregory Dahlberg: I just wanted to ask on capitalization for the build-out of Starlab. You talked before about the use of third-party equity raises. And I think most recently, you brought in space applications based in Belgium. So I was just curious if you could give an update on the timing and sizing of what to expect for future capital raises. Dylan Taylor: Yes. Thanks, Greg. Great question. So we are actively raising a Series A for the Starlab joint venture. That raise is actually going quite well. We look forward to making some announcements related to that, again, not to put too much pressure on Investor Day, but we anticipate being able to talk about that raise and some of the other marquee investors coming into that capital stack at Investor Day. But these are quite notable investors, name brand investors. So we're very confident that the capitalization of Starlab is on track. And again, we're coupling that with continuing to achieve milestones and triggering payments there. And then, of course, the Phase 2 award early next year. So capitalization for Starlab looks extremely solid at this point. We're very confident in where that stands. Operator: Your next question comes from the line of Alex Preston of Bank of America. Alexander Christian Preston: Maybe just to get back to M&A strategy a bit broader. It seems like you're building capabilities around various high-value subsystems on satellites, payloads. I know you've highlighted staying CapEx-light as a key part of the business. Are you approaching this from sort of high-value merchant supply only? Or is there an appetite towards potentially even doing your own satellite development at some point? Dylan Taylor: Great question, Alex. CapEx-light, capital efficient for sure, is really our ethos, and that's what we're leaning into. That being said, as I mentioned earlier, having an integrated U.S.-based supply chain is actually relevant, especially in the National Security community. So we're going to continue to find ways to make sure that we're as vertically integrated as we can be. But to your point, let's take, for example, missile defense. We're on the optical navigation and control system. That's a great part of the technology stack to be on. We're on the Proprietary Propulsion and Roll Control System. That's a great part of the technology stack to be on. Would we make the missile body? No, we wouldn't do that, right? So I think similar to that on -- if you look at power and propulsion as a subsystem on a satellite system, that's an area we want to play. Would we actually build the satellite and assemble the satellite? Never say never, but I don't think that's leaning into our strengths necessarily. As we look forward in our M&A pipeline, which, by the way, is quite robust, we might do some additional, what I would call, vertical integration on, let's say, the energetics side of propulsion. I think that's an important strategic objective that the government has identified is something that's important to the national security and national interest. So I think that's something we would consider. And again, we're -- as I say, we return all phone calls, and we look at a wide swath of opportunities in the market. But we definitely want to lean into advanced technology, lean into innovation and make the model as CapEx efficient with generating strong operating cash flow as possible. That's really has been our success, and that's what you can anticipate from us going forward. Alexander Christian Preston: Got it. And then I think just there, you covered my follow-up what it would have been. So I'll keep it at one. I appreciate it. Operator: Your next question comes from the line of Michael Leshock with KeyBanc Capital Markets. Michael Leshock: I wanted to ask on the NGI program and the visibility you have there. Could you provide some color on the next milestones or key watch points for NGI in order for that program to ramp to its target for LRIP in late '26. Are there any additional capacity expansions to hit your targets? Or anything else we should be aware of there for NGI? Filipe de Sousa: Mike, it's Phil here. I'll take this one and let Dylan chime in. But from an NGI specifically perspective, just as a reminder, we have the capital infrastructure, if you would, that's necessary and required to deliver on this program. That said, and yes, a great question there, I would look and turn towards our success in passing CDR back during the second quarter and how that leads and has led to significant activity, significant discussions around other programs. As we continue to cultivate that and convert that pipeline into our backlog, there may be a time where we're required to invest further into CapEx. I think just to dovetail off of the previous question around M&A, we're quite thoughtful. We've actually used the M&A lever to acquire intellectual property to advance our innovation growth and opportunity. I think as we look ahead in our pipeline, there's also opportunities there for us to add other capabilities, both manufacturing as well as engineering. And so I just keep the door open there. Coming back to NGI specifically, a fantastic quarter. Just as a reminder, NGI, that program is up over 130% year-to-date year-over-year. And we had significant growth again in the third quarter. It drove a significant composition of our overall Defense and National Security revenue. As we look out to fourth quarter, I anticipate sequentially, NGI will continue to grow. As we move into 2026, we'll continue to work closely with Lockheed as we start to move into our low-rate production and high-rate production in the years ahead. Dylan Taylor: Yes. And just one other thing to chime in on, Mike. We're seeing a lot of interest and traction on our technology for these other missile defense programs as we have previously communicated. And then on Golden Dome, some really exciting things happening there, especially as it relates to space-based interceptors. So we're on several teams of both primes and neoprimes. I think those so-called SBI awards will be made in the near term here. And I'm confident that if there are multiple awards, I think we have multiple paths to the glory, as I would say, because our technology is extremely relevant to the SBI, space-based interceptor component of Golden Done. So more to come, but we really like what we see, as Phil said, and we've talked about previously, now that we've passed critical design review on NGI, that's really opened up the aperture for us to sell this technology into other programs of record in emerging programs of record like SBI. So we're super bullish on that. Michael Leshock: Great. And then a follow-up on Space Solutions. Should we expect the Space segment to return to growth in 1Q '26 as that NASA services contract lapses? And any way to frame what the sales growth could be there for the segment in '26 and beyond? Filipe de Sousa: Yes, Mike, it's Phil again. I'll take this one. Well, again, we'll cover off our 2026 framework at Investor Day. But as a reminder, everybody, that legacy contract rolls off -- has rolled off effectively here in the second half of 2025. So the full lapping of that will happen in the second half of next year. So we'll continue to see some pressure in the first half, not suggesting that Space Solutions won't return to growth. We do anticipate we're excited about Space Solutions as it also if it dovetails and leads and feeds our Starlab opportunities there. So really exciting times for Voyager in the space sector. As for that specific contract, anticipate those headwinds to be over by the end of the first half of next year. Dylan Taylor: Yes. The only other thing I would say, Mike, is there are other things we're working on in Space Solutions that we're very optimistic will significantly build that backlog in 2026. So stay tuned on that. We've got -- we're competing for some things that are very interesting in that regard. So we still see growth in Space Solutions. I want to really emphasize that. It's just a matter of timing on when that hits. So I just want to -- rest assured that it's still a growth business for us. It's just a matter of getting the timing right in terms of when some of this stuff hits. Operator: Thank you. I will now hand it back to Adi Padva for more questions. Adi Padva: Thank you. Before we conclude today's Q&A, we'd like to take a moment to address a few questions that were submitted by members of our retail investor community. First one for you, Dylan, about M&A. How does ExoTerra acquisition positions Voyager to compete on Golden Dome? Dylan Taylor: Yes. So we covered that a little bit with some of the questions asked by the analyst community. But the short story is the way to think about Golden Dome is layers of a defense shield, if you will. At the outer most, we're very relevant to that, that's next-generation interceptor. So that's literally hypersonic missile interception for nuclear tip warheads from adversaries. But if you think about in-space capability, not only tracking and defending against threats, but also intercepting in space. There are lots of technologies that are relevant there. Electric propulsion is specific hall-effect thrusters are very relevant there, especially if you can integrate both the propulsion and the power into a single integrated unit, which is what ExoTerra is known for. So long story short, it enhances our ability to compete for different architectures and different designs of Golden Dome. And it's just another piece of the puzzle that makes us more relevant to the entire missile defense capability. Adi Padva: The next question about power generation and space. Is Voyager planning to integrate nuclear power for space-based platforms? Dylan Taylor: Yes. In fact, we are bullish on nuclear as a technology. Something that we haven't previously talked about is we actually made an investment in a nuclear power company called Helicity. We did that a couple of years back, and we did that really as a strategic investment to monitor that technology, and further enhanced our ability to use that technology in the future. So the short story is, yes, it is part of our long-term road map, and it is something that we're actively monitoring. And again, we made that strategic investment in Helicity, which is one of the leaders in nuclear propulsion. Adi Padva: And lastly, on Starlab, what are the key milestones [ toward ] including the launch date? Dylan Taylor: Yes. So reinforcing some of what I've said previously, we have critical design review coming up with NASA, currently scheduled for December. The RFP for Phase II award is due out late this year or early next year. And then we anticipate a CLD Phase II award sometime in early 2026, probably late Q1, early Q2. And then in terms of the launch date, we are currently on time and on target for a 2029 launch date, which would be well ahead of the ISS decommission date in 2030 and the orbit date in 2031. Adi Padva: Thank you, Dylan. This concludes the Q&A, and I'll pass it back to you for closing remarks. Dylan Taylor: Wonderful. Well, thank you all for joining us today. We really appreciate your interest in Voyager Technologies. We're super excited about the significant momentum the company has going into the fourth quarter and 2026. And we're looking forward to speaking with you again next quarter, and we hope to see many of you at the Investor Day in a few weeks in Houston. So thank you, everybody. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, greetings, and welcome to Capri Holdings Limited Second Quarter Fiscal 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jennifer Davis, Vice President of Investor Relations. Please go ahead. Jennifer Davis: Good morning, everyone, and thank you for joining us on Capri Holdings Limited Second Quarter Fiscal '26 Conference Call. With me this morning are Chairman and Chief Executive Officer, John Idol; and Interim Chief Financial Officer, Raj Mehta. Before we begin, let me remind you that certain statements made on today's call may constitute forward-looking statements, which are subject to risks and uncertainties that could cause actual results to differ from those we expect. Those risks and uncertainties are described in today's press release and in the company's SEC filings, which are available on the company's website. Investors should not assume that statements made during this call will remain operative at a later time, and the company undertakes no obligation to update any information discussed on today's call. Unless otherwise noted, all financial information on today's call will be presented on a non-GAAP basis. These non-GAAP measures exclude certain costs associated with impairment charges, Capri transformation costs, restructuring and other charges, store renovation program costs and transaction-related costs. To view the corresponding GAAP measures and related reconciliation, please review our latest earnings release posted to our website earlier today at capriholdings.com. Additionally, the company has classified the results of operations and cash flows of its Versace business as discontinued operations. Unless otherwise noted, all information on today's call relates only to continuing operation. Now I would like to turn the call over to Mr. John Idol, Chairman and Chief Executive Officer. John? John Idol: Thank you, Jennifer, and good morning, everyone. With the Versace sale expected to close in our fiscal third quarter, we are now fully focused on the growth of our 2 iconic brands, Michael Kors and Jimmy Choo. We plan to use the proceeds of the sale to repay the majority of our debt, substantially strengthening our balance sheet and providing greater financial flexibility to both invest in growth as well as return capital to our shareholders in the future. As we stated in our press release earlier today, given our planned reduction in debt levels, and the signs of stabilization across our business, our Board of Directors has authorized a new $1 billion share repurchase program, which the company expects to begin implementing in fiscal '27. Now turning to our fashion luxury houses. We continue to advance our strategic initiatives across Michael Kors and Jimmy Choo to unlock their full potential. We are encouraged by the early signs of recovery at our fashion luxury houses and remain optimistic about the direction of the business. However, we recognize that it will take more time for the full effect to be reflected in our results. Despite the dynamic global macroeconomic environment, we are on track to stabilize our business this year while establishing a solid foundation for a return to growth in fiscal '27. Now turning to second quarter results. We are encouraged with the continued sequential improvement in trends, which resulted in revenue, gross margin and operating income exceeding our expectations. However, our results were negatively impacted by $0.20 per share versus our original guidance due to a higher-than-anticipated effective tax rate related to our valuation allowance position. Looking at results in more detail. Total company revenue decreased 2.5% versus last year to $856 million on a reported basis. At Michael Kors, second quarter revenue decreased 2% on a reported basis compared to prior year. In our own retail channel, year-over-year trends were consistent with the first quarter, while wholesale trends improved sequentially, turning positive primarily due to shipment timing. In our retail channel, we continue to see signs of momentum with a sequential improvement in trends in our full price channel across all regions. In fact, comps in our full price channel turned positive in the second quarter, demonstrating that our strategies are beginning to take hold. Consumers are responding to our modern jet-set lifestyle marketing, standout styles and updated pricing architecture. In the outlet channel, revenue was impacted by our strategy to improve our quality of sales through reduced promotional activity. Additionally, the outlet channel assortment continues to reflect the previous product strategies, which emphasized core and basic styles. More modern on-trend styles will be introduced in our third quarter with a more substantial update planned for the fourth quarter. Now looking at total Michael Kors retail sales by region. In the Americas, revenue was negatively impacted by our quality of sales initiative in our outlet channel, which we believe is an important step to strengthen brand health and increase AURs over time. In Europe, trends remained strong with year-over-year increases consistent with the first quarter. In Asia, trends were also similar to the first quarter, though we saw a modest sequential improvement in China. Now looking at wholesale. Revenue at point of sale, while still negative, saw a meaningful sequential improvement in trends. Turning to brand awareness and consumer engagement. We continue to reinforce Michael Kors modern jet set lifestyle positioning with our brand vision of traveling the world in style. Through our Hotel Stories franchise, we are bringing the joy of travel and the discovery of new destinations to our consumers each season. For fall, we traveled to Rome with English actress and singer, Suki Waterhouse; actor, Logan Lerman and our new global brand ambassador, Chinese actor and singer, JC-T. The campaign highlights falls must-have looks, including new interpretations of our iconic Nolita, Leila and Hamilton groups set against the timeless backdrop of Rome's historical landmarks. During the second quarter, we amplified our storytelling through local activation and immersive experiences. We also continue to enhance our social media strategy by broadening our presence across a wider range of platforms and deepening partnerships with influencers. This is enabling us to connect with consumers through authentic relevant voices in fashion and is reigniting brand desirability. According to our consumer insights, we have continued to see a further increase in brand affinity. Additionally, Michael Kors iconic runway shows cast a powerful halo over the brand, reinforcing our leadership in fashion luxury. The Spring/Summer 2026 Runway Show in September drew a notable audience of celebrities and a powerful network of global influencers. Supported by a strong social media amplification, Michael Kors generated 5.5 billion impressions globally and was the second most engaged fashion brand during New York Fashion Week. These activities contributed to a 9% year-over-year increase in Michael Kors global consumer database. With our advanced data analytics capabilities, we are leveraging the strength of our extensive consumer database, which now exceeds 90 million to create deeper, more personal connections with consumers. Now turning to product. Guided by Michael's creative vision and enhanced by data analytics, we are delivering exciting on-trend fashion with standout style. Additionally, we have refined our pricing architecture to better align with historical levels and are seeing encouraging results from this strategy. In accessories, consumers continue to respond positively to new introductions that celebrate our iconic brand codes and aligned with our new strategic pricing architecture. For Fall 2025, we introduced new accessories groups, including the Hamilton Moderne, a reinterpretation of the brand's iconic 2009 "it bag", along with exciting updates to our successful Leila and Nolita styles. These groups are experiencing strong full price sell-throughs, driving growth in accessories in the full price channel. In footwear, trends improved sequentially in our full price channel. We saw strong performance in new fashion boots, while casual footwear gained momentum. Consumers responded positively to new sneaker styles that represent modern trend-right evolutions of proven historical bestsellers as we blend timeless appeal with modern style. Looking at ready-to-wear. Revenue in our own retail channel increased driven by the strong consumer response to seasonal styles that captured Michael's effortless glamor. The fall assortment balanced trend-right designs and tideless wardrobe staples with dresses and outerwear performing exceptionally well. Turning to men's. Revenue in our own retail channel was approximately flat. Men's sportswear styles performed well as we continue to focus on timeless essentials with a modern edge. Next, I'd like to review our store renovation plan, where we are redefining our luxury retail experience with a warm residential design. Our stores remain a cornerstone of our brand and a key driver of our sales recovery, playing a pivotal role in enhancing the client experience and revitalizing growth. Over the next 3 years, we plan to renovate approximately 50% of our store fleet and key department store locations as part of our ongoing investment in brand elevation and retail excellence. We recently reopened our London and New York flagship locations. Michael Kors signature jet set lifestyle is evident throughout these stores, transporting consumers to the featured destination of the season and further enhancing the immersive shopping experience. At the heart of our New York flagship store is our new Jet Set Lounge, the brand's first in-store cafe. The lounge embodies a new dimension of the brand's lifestyle experience and is the first of a planned rollout to flagship stores around the world, including Paris, Beijing, Tokyo and Las Vegas. We believe that our store renovation plan will further strengthen the brand's desirability and drive higher sales productivity. Early results are encouraging with locations showing significant increases in traffic and sales versus last year. We look forward to sharing our progress and results with you in the future. Looking ahead, Michael Kors is a powerful fashion luxury brand with a 44-year heritage that continues to resonate with consumers. We are building on this foundation by delivering exciting on-trend fashion with standout style. Combined with advanced data analytics and consumer insights, we believe we have the right strategies underway to return the brand to growth. Now moving to Jimmy Choo. Second quarter revenue decreased 6% on a reported basis compared to prior year. Retail sales improved sequentially, declining low single digits. Wholesale revenue declined mid-teens due to shipment timing that negatively impacted the second quarter. Looking at trends in our own retail channel. While still negative, second quarter improved sequentially, driven by comp growth in our full price channel. We saw a sequential improvement in Jimmy Choo revenue year-over-year across all regions. In the wholesale channel, revenue at point of sale once again improved sequentially, increasing low single digits in North American department stores. Turning to brand awareness and consumer engagement. Our storytelling continued to highlight the playful daring spirit of the house, combined with a relaxed modern sense of glamor. For autumn, we welcome back Sydney Sweeney, who embodies the modern glamor that defines Jimmy Choo. She perfectly encapsulated the brand's playful daring spirit while showcasing new fall fashion styles, including our newest Bar Hobo handbag and Tylor loafer. In Asia Pacific, brand ambassador, Bai Lu unveiled the Bar Hobo handbag, further amplifying its launch across the region. We also continued to extend our reach and deepen consumer engagement through localized immersive brand experiences. These were amplified with high-impact influencer partnerships that authentically express our modern glamor and daring spirit. These initiatives helped expand our reach. Enhanced by our data analytics capabilities, these efforts contributed to a 9% year-over-year increase in Jimmy Choo's global consumer database. Turning to product. Jimmy Choo's product strategy remains focused on further developing accessories and expanding our casual footwear offering. In accessories, revenue increased in our full price channel, driven by the continued strength of the Bon Bon and Cinch groups. Our recently introduced Curve group launched last quarter also continued to perform well with prices designed to appeal to a broader segment of luxury consumers. Additionally, during the second quarter, we introduced the Bar Hobo Group, which also features price points under $1,500. While still early, we are encouraged by the strong initial consumer response to the modern yet timeless styles and the new strategic pricing architecture. Over time, we expect this initiative to drive significant growth in our accessories business. Turning to footwear. Our autumn collection has performed well with versatile styling fusing timeless silhouettes with cultural forms and opulent textures. Key styles, including our iconic Drop Heel families, Scarlett and Ixia performed exceptionally well, underscoring our ability to deliver both innovation and timeless design. Jimmy Choo's strategy to expand day and casual footwear continued to gain traction in the second quarter with an increase in full price sales. Flats and low heels grew in our full price channel, driven by the strong response to new styles, including our Scarlett kitten heels and Jelly ballerina flats. The Diamond Flex sneaker also continued to perform well. We see significant opportunity to further scale casual footwear, not only to deepen engagement with existing consumers, but also to attract new clients. Looking forward, we believe we are on the right path to unlock Jimmy Choo's unique potential to expand its position within the world of fashion luxury. In conclusion, we are pleased to see early indications that our strategic initiatives are beginning to work. Looking ahead, we continue to expect retail trends to improve in the back half of fiscal '26, positioning us to return to growth in fiscal '27. Long term, we remain optimistic about the sustainable growth potential of both Michael Kors and Jimmy Choo. Now Raj will review our second quarter results and guidance in more detail. Rajal Mehta: Thank you, John, and good morning, everyone. Before we begin, I would like to remind you that today's financial results exclude Versace, which was reclassified as a discontinued operation. My discussion today will reflect results from continuing operations, and our financial statements have been adjusted for prior periods to exclude Versace. Now looking at our second quarter results. Revenue, gross margin and operating income exceeded our expectations, driven by better-than-anticipated performance at Michael Kors as our strategic initiatives begin to take hold as well as a wholesale timing shift. However, a higher-than-anticipated effective tax rate versus our original guidance due to our valuation allowance position impacted net income by $24 million and earnings per share by $0.20. Turning to our second quarter results in more detail. Total company revenue of $856 million decreased 2.5% versus prior year on a reported basis and 4.2% in constant currency, representing a sequential year-over-year improvement relative to the first quarter. Looking at revenue by channel. Total company retail sales declined mid-single digits. In the wholesale channel, revenue increased high single digits, primarily due to shipment timing. Turning to revenue performance by geography. In the Americas, revenue decreased 7%. Revenue in EMEA increased 1% and revenue in Asia increased 12%. Looking at revenue performance by brand. At Michael Kors, revenue decreased 1.8% compared to prior year on a reported basis and 3.3% in constant currency. Global retail sales declined at a similar rate to the first quarter. Similar to prior quarters, store closures negatively impacted retail sales in the low single-digit range. Wholesale sales increased low double digits due primarily to shipment timing. By geography, sales in the Americas decreased 7%, revenue in EMEA increased 4% and revenue in Asia increased 25% due to higher wholesale shipments. At Jimmy Choo, revenue decreased 6.4% compared to prior year on a reported basis and 9.3% in constant currency. Global retail sales trends improved sequentially, declining low single digits. Wholesale revenue decreased mid-teens, negatively impacted by the timing of shipments out of the second quarter and into the third quarter. By geography, total Jimmy Choo revenue in the Americas decreased 3%. Revenue in EMEA declined 6% and revenue in Asia decreased 12%. Now looking at total company margin performance. Gross margin of 61% declined 130 basis points. Higher tariff rates negatively impacted gross margin by approximately 120 basis points. By brand, Michael Kors gross margin of 59.3% compared to 61.1% last year. The decline versus prior year was predominantly driven by the impact of tariffs. Jimmy Choo gross margin of 70.2% compared to 68.6% last year. The increase versus prior year was primarily driven by channel mix and higher full price sell-throughs. Operating expense decreased $8 million. The decline versus prior year was primarily attributable to our cost reduction program. As a percentage of revenue, operating expense was 58.6% compared to 58.1% last year, primarily reflecting expense deleverage on lower revenue. Total company operating margin was 2.3% compared to 4.2% last year. By brand, Michael Kors operating margin of 10.1% compared to 11.8% last year and Jimmy Choo operating margin of negative 6.9% compared to negative 3.6% last year. Our tax rate for the quarter was 112%. As a result of being in a valuation allowance position, we are revising our global tax structure. The implementation of this change took longer than anticipated, resulting in a higher-than-expected tax rate during the second quarter. Importantly, we continue to forecast a full year tax rate in the mid-teens range. Now turning to our balance sheet. Looking at inventory. At quarter end, inventory totaled $766 million, a 2.8% decline versus prior year. Looking ahead, we continue to expect year-end inventory levels to be up slightly, primarily due to higher tariff rates and foreign currency exchange rates. We ended the quarter with cash of $120 million and debt of $1.8 billion, resulting in net debt of approximately $1.6 billion. Now turning to guidance. We are reiterating our prior full year guidance of revenue between $3.375 billion and $3.45 billion, with Michael Kors revenue between $2.8 billion and $2.875 billion and Jimmy Choo revenue between $565 million and $575 million. We continue to anticipate full year gross margin of approximately 60.5% to 61%. Excluding the impact of tariffs, full year gross margins would have expanded, driven by the benefits of our strategic initiatives. We expect year-over-year gross margin declines to moderate through the remainder of the year, reflecting continued traction from our strategic initiatives, ongoing sourcing cost efficiencies and targeted price increases. We continue to expect full year operating expense of approximately $2 billion and operating income of approximately $100 million, with Michael Kors operating margin in the high single-digit range and Jimmy Choo operating margin in the negative mid-single-digit range. In terms of nonoperating items, we anticipate full year net interest income between $85 million and $95 million, an effective tax rate in the mid-teens range and weighted average shares outstanding of approximately 120 million, resulting in diluted earnings per share between $1.20 and $1.40. Turning to capital allocation. Our priorities remain the same. Our first priority is to invest in our brands through store renovations, technology and digital enhancements as well as other brand-building initiatives. As previously stated, we plan to invest approximately $350 million over the next 3 years to execute our store renovation plan. Our second priority is to strengthen our balance sheet. Upon the anticipated completion of the Versace sale, we plan to use the proceeds to significantly reduce debt. And our third priority is to return cash to shareholders via a share repurchase program in the future. Given the encouraging signs of stabilization across our business and our planned reduction in debt levels, our Board of Directors has authorized a new $1 billion share repurchase program, which the company expects to begin implementing in fiscal '27. Now turning to third quarter guidance. We expect total company revenue to be between $975 million and $1 billion, with Michael Kors revenue between $825 million and $845 million, impacted by an approximate $20 million shift in wholesale shipments out of the third quarter and into the second quarter, and Jimmy Choo revenue between $150 million and $155 million. Looking at gross margin, we expect the third quarter gross margin rate to decline approximately 200 to 250 basis points versus 63.2% last year, impacted by greater tariff headwinds. In terms of operating margin, we expect third quarter operating margin to be approximately 7% to 8%. By brand, we anticipate Michael Kors operating margin in the low teens range and Jimmy Choo operating margin in the negative low to mid-single-digit range. Turning to our expectations around certain nonoperating items. We anticipate third quarter net interest income of approximately $20 million. We forecast an effective tax rate in the low to mid-single-digit range in the third quarter due to the expected shifts in the geographic mix of earnings and the related valuation allowance impacts. We anticipate weighted average shares outstanding of approximately 120 million. As a result, we expect to generate diluted earnings per share of approximately $0.70 to $0.80. In closing, we are encouraged by the early signs that our strategic initiatives are working. We anticipate retail trends will improve in the back half of fiscal 2026 as our strategic initiatives gain traction. Looking ahead to fiscal '27, we expect to return to revenue and earnings growth. We anticipate gross margin expansion as we mitigate the majority of the impact from higher tariffs, and we continue to benefit from our strategic initiatives. Additionally, we anticipate operating expense leverage on higher revenue as we diligently manage expenses. Longer term, we remain confident that Capri Holdings is well positioned to deliver sustainable growth while increasing shareholder value. Now we will open up the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Matthew Boss with JPMorgan Chase. Matthew Boss: So John, could you speak to global reception that you're seeing to the Michael Kors full price retail repositioning, elaborate on drivers of full price channel comps turning positive in the second quarter? And then just any change in momentum in October or opportunity you see for the brand versus a year ago during holiday? John Idol: Thank you, Matt. Number one, I think we are pleased with the fact that the business -- we're starting to see stabilization in the Michael Kors business. As you know, our full price comps turned positive during the quarter and we believe that's a response, the consumer response to our strategic initiatives. That starts first with our branding. And we think that the way the consumer is seeing the modern jet set marketing based around the traveling the world and styles and really, we're doing that from a storytelling point of view through our Hotel Stories delivered with a large group of influencers is really helping consumers engage with the brand and the storytelling of the brand. So that's the first very positive sign. And as I said in my prepared remarks, we're seeing consumer sentiment really increase very nicely and brand awareness. The second area is our product. And as our real kind of focus is on standout style. We want to make sure that when we're delivering product, it's first on trend. But secondly, Michael has a very, very strong point of view on style and styling. And as we've reinterpreted that for a more modern point of view, the consumer is really engaging with us on that. And so again, we're very pleased. And as we've said in our previous calls, we've spent the majority of our initiative around the full price initiatives in the company because we think that's where the consumer will first see us, lean into us. And we saw that really globally in terms of the increases in comp. And what was also very exciting for us, really, when you said the drivers, the biggest driver was actually our accessories business, which turned positive during the quarter. And that's being driven from 3 iconic groups that we have today. First, Leila, which we introduced in the spring of last year -- over this past year, sorry. Then we have Nolita, which was actually introduced the tail end of last year. And we've brought modern interpretations to both of those. They're also arriving in the stores as we speak for the holiday season as well, fall and holiday. And then we're really excited about our new Hamilton Moderne introduction, which is far exceeding our expectations to take on our original 2009 "it bag". And the consumer is giving us very positive reception to all 3 of those very strong full price sell-throughs. Some of those bags are actually not even included in our 4 times a year sale inside the full price stores. We've removed those styles from that. And the sell-throughs are not being impacted. So customers responding to product. They're also responding to our strategic price architecture, which is really helping our full price sell-throughs across the group. And what's also happening is we are seeing stronger engagement with millennials and Zs, both on styling and on the strategic pricing architecture. We're seeing things like watches also start to really see sequential improvement inside the stores. Our ready-to-wear business is also very strong inside the stores. So when I look across the landscape and how the consumer is responding to the marketing initiatives, the storytelling, the product and then lastly, we talked about how -- while it's only a handful of stores we've renovated so far, and I hope many of you on this call will get a chance to see our New York flagship, which is located at Rockefeller Center or our London store on Regent Street. We've got some other stores around the world that are opening. I think the new store design really speaks to where the brand is going forward and how we're really communicating with the consumer. And inside of that, we're really excited about our new Jet Set Lounge. Again, it's very early days. where you'll be able to have coffee and tea and select small bites of food. But it's really increasing dwell time inside the stores. So we feel like we've got a very solid strategy in place in full price. And of course, we have a lot of work to do on the outlet side, but we wanted to really put all of our efforts behind the full price. The outlet side of things really in Q3, we'll start to see some new product roll into the stores. We'll actually start to see some -- some of our -- at least one of our new store renovations take place during the quarter, and that's going to happen at Jersey Gardens. And we've got more coming behind that, a similar concept to our full price store and really more in our fourth quarter where the product will be more significantly impacted by some of the initiatives that we're putting in place. So from a trend standpoint, we feel good about where we're going to be for the holiday season and Q3. Product is flowing. Consumers are responding. The only, I would say, if those are all the puts, the take would be that we are reducing our promotional activity, in particular, in the outlet stores. We've had significant pullbacks as we talked about last quarter, we're doing more of that this quarter. That will have an impact, but we are focused on the quality of sale. We're focused on increasing AURs. We saw sequential improvement in AURs in the outlet stores. And so again, we have to go through this work to be able to put ourselves in a position to return to revenue and what we think will be some pretty positive operating income growth for next year as well. So again, we don't want to be overly confident, but we're feeling very positive about these last 2 quarters and most importantly, how the consumer is responding to us. So thank you very much for that question, Matt. Operator: Our next question comes from Brooke Roach with Goldman Sachs. Brooke Roach: John, I wanted to dive a little bit deeper into the outlet business as you reposition promotionality and product. What's the profile of the consumer that's engaging with you in North America today? Are you seeing any signs of price sensitivity or stronger or weaker engagement in any particular income or age cohort as you execute the outlet repositioning? And how should we be thinking about the time line and path to improvement for total North America given the green shoots that you're seeing in the full price channel today? John Idol: Thank you, Brooke. I would first say that we anticipate sequential improvement in the retail -- in our retail channel for both Michael Kors and Jimmy Choo in the back half of the year. As I said, in the full price, we're feeling very good about what we see happening. We feel the same way about Jimmy Choo. We had a very nice performance in our full price in Jimmy Choo as well. And I think we're going to see the same type of sequential improvement. In terms of the outlet, let me first answer the other part of your question. There's no question that the Gen Z customer and consumer, in particular, is more price sensitive, and we've seen that. And actually, some of our strategic pricing architecture, we didn't really understand this in the beginning, but it's really leaning into and helping us get more Gen Z consumers. They are more price sensitive than Millennials and [X’s] and Boomers. So we think that our strategy of making sure that we're at really focused strategic price points across all products, not just accessories, but in footwear and ready-to-wear -- remember, we significantly reduced our prices in ready-to-wear even much more than we did in our handbag business, and that's working really well for us. And in fact, our wholesale partners are starting to roll out our ready-to-wear again, after we kind of repositioned the pricing without touching any of the quality or anything in the product. So that's really working well for us. We are -- as I said to you before, two things or three things are happening in the outlets. Number one, we are actually strategically raising prices in the outlet business, and that's both from actual price increases and from the reduction in our promotional activity. And so it's -- we have seen a rise in AUR. I think we're going to have some bumps as we go along with that because the consumer has got to become reeducated that Michael Kors is a brand that will sell at a slightly higher price than what they've seen today. And we're doing that for AUR purposes. We're also doing that to offset some of the tariff implications. The second thing, as I've said, is we are going to be introducing a significant amount of new product into the outlet stores that comes a little bit in Q3, a lot more in Q4 and then throughout fiscal '27. We had been too focused on core product inside of our outlet stores and consumers want fashion. It doesn't matter what channel they're shopping in, whether it's our e-commerce, our full price or our outlet channel, they want fashion. And we were not in a strong enough position in that in our outlet. So as I said, we really feel like that's going to be coming more in the back half of the year through next year. And then lastly, we had a daigou business, which was a product that was being purchased in our outlet stores, shipped to multiple places around the world, sold predominantly on online channels, and we're really shrinking that business significantly. So over 60% of the decline that we're having in our outlet business is coming from that real shutdown of a business for us that we think will provide a much healthier company for the long term and actually improve AURs as well. So that's a long-winded way for me to say that really we won't see North America return to positive growth in our retail channel in Michael Kors until next year and probably more in the second quarter of next year. And then we should be in a pretty good trajectory after that point in time. Thank you for that question, Brooke. Operator: Our next question comes from Ike Boruchow with Wells Fargo. Irwin Boruchow: Two from me. Just first on the tariffs. So I think you said 120 basis points headwind in the second quarter. Could you just let us know what's baked in on tariffs for both 3Q and 4Q? And then the follow-up is for John. Maybe just on the wholesale, up low double digits, but you mentioned there's a $20 million shift in there. Could you just comment roughly what's the growth rate for MK wholesale ex shift? I mean my math is flattish, but I'd love to get that clarified. And then, John, how are you viewing that channel just organically ex shifts into 3Q and 4Q from a revenue standpoint? Rajal Mehta: Thanks, Ike. Our expectations around the tariff headwinds for the full year remain largely unchanged. We still expect the unmitigated tariff impact to be approximately $85 million for the full year. And as you said, in the second quarter, our gross margin was down 130 basis points and 120 of that was related to the tariffs. We saw the tariff headwinds a little bit less than anticipated, and that's really due to the timing of sell-throughs of tariff impacted inventory. As we look at Q3, we're expecting gross margins to be down 200 to 250 basis points, and there's a greater weight of inventory that has the full amount of tariffs. So you're going to see a larger impact of that build in Q3 and then further into Q4. But more importantly, as we look forward, we expect to see continued benefits from our strategic initiatives and tariff mitigation efforts. So looking to fiscal '27, we anticipate to offset a majority of tariff impact. And that, coupled with our strategic initiatives around driving higher full price sell-throughs and higher AURs will lead to gross margin expansion next year. John Idol: Wholesale offset shipment-wise, and I'll take the retail part of it. Rajal Mehta: Yes. So we did see in the second quarter, there were $20 million of Michael Kors wholesale shipments that ended up going out in Q2 where we were forecasting them to go out in Q3, so that's really just a timing shift between the quarters. What we're really proud of, and John spoke to earlier, is the retail sequential improvement that we'll see in Q3 as well as Q4 coming out. John Idol: Yes. And I think I said in my prepared remarks that we actually saw quite a step change in the wholesale point-of-sale sales. We're starting to get that business turned around. So it's no longer double digits. It's single-digit decline. Again, we're not calling a victory at this point in time, but there's no question, things are starting to get better. We have -- our partners, as I said on the last call, are very excited about doing shop renovations with us, so that's -- we've got a pretty significant program rollout going on there. I've been out visiting with our teams to all the major -- all of our major partners, and we'll conclude some more actually next week in Europe. And there's absolutely positive sentiment for our strategic initiatives and for the brand in general. And as you know, the -- I think there's been obviously a very, very significant move by many stores to the higher side of the luxury business. That business has definitely seen a slowdown. And so the more entry levels of luxury, where Michael Kors plays in particular, and some other competitors, I think there's a very strong renewed interest in that category as customers are more choiceful. There's no question that they're looking at price value relationship. And what's so interesting is in all 3 of our companies in Michael Kors and Jimmy Choo and Versace, all 3 of our full price businesses are actually significantly better than they were a year and even 2 years ago. And it's a bit more in the off-price channels where the customer is -- they're really, really being selective on pricing. So we think that we're seeing our wholesale partners look and want to lean into this strategy with ourselves and other people who are in this same category of more opening price point luxury. So I think for next year, I wouldn't say there's going to be an improvement in the wholesale revenues because, again, we're going to do some cleanup work around off-price where we are not only cleaning up our daigou business in the outlet channel, but we're also doing some pretty significant cleanup work around some other areas of off-price inside the company. And again, this all translates back to quality of sale. We're focused on that. We want to raise AURs. We want to raise full price sell-throughs. And as Raj said, we're excited about the gross margin expansion we will finally get to next year after we kind of lapse where we are in the tariffs. Again, we're working with inventory that does not have tariffs on it, and we're working with inventories that has tariffs on it. We'll probably feel the hardest effect of those in fourth quarter and probably first quarter of next year, and then we'll start to lap that and our strategic initiatives will take hold. And I think you'll see some very positive results in that. One other thing just to note, when you look at our gross margins today, and as Raj pointed out, the majority of the impact came from tariffs, we also are without those tariffs, more or less holding our gross margins with, if you recall, lowering our prices in our full price channel and clearing some other product, as we talked about in our prepared remarks, in the outlet channel. So I'm really happy about that because it shows you what our sell-throughs are starting to look like. They're looking good. Our inventories are really tight inside the company. So we're in a good position now to move forward on both our retail channel and our wholesale channel. Operator: Our next question comes from Aneesha Sherman with Bernstein. Aneesha Sherman: John, last quarter, you commented that in the full price channel, you've kind of stabilized the assortment in terms of price points and selection. Are you still seeing AUR increases in full price? Can you comment a little bit on volume versus AUR that's driving that positive full price comp? And then in the guidance for the back half of kind of minus high single digits for Michael Kors, what's embedded in that? You said earlier that about 2% of it is from the timing shift. For the remainder, are you assuming continued positive full price comps with wholesale and outlet being negative? A little bit more color on that would be helpful. John Idol: Okay. I'll take the full price part. I think there might be a misunderstanding on the guidance for the back half, which Raj will walk you through. On the full price AURs, they're actually down slightly. And again, remember, that's because we lowered our price points. So full price sell-throughs are up significantly. Price points are down -- our AUR is down slightly. We knew that would be the case given the fact that we took some fairly significant price adjustments in our strategic pricing architecture. I would also point out to you that when we end the year, our inventories, while they will be up slightly in dollars, that's an impact of the foreign exchange rates and the tariffs. Our units are going to be down very significantly. So again, quality of sale, we feel super good about that and think that will continue on. I'll let Raj speak to you about the guidance. Rajal Mehta: Yes. And as far as the guidance in the back half of the year, I think we were referring to it sequentially improving, not turning positive. So I think we're pleased with what we're currently seeing in the business and the trends. And as John mentioned, it's going to take time to inflect to positive in the retail channel and be positive, and we won't see that until next year in our overall retail channel. So we'll see sequential improvement continue into Q3 and Q4. Aneesha Sherman: Sorry, just a clarification, Raj. My question was specifically on full price. So you're seeing positive comps in the full price business. Are you assuming continued positive comps in full price for the second half with wholesale and outlet then driving the total into negative territory? Rajal Mehta: Yes, that's correct. That is correct. Operator: Our next question comes from Rick Patel with Raymond James. Rakesh Patel: Congrats on the progress. Can you help us with your expectations for revenue by geography as we think about the back half? What's the right way to think about the progress being made in the Americas and EMEA? And Asia did quite well in Q2 for Michael Kors. What would you attribute that to? And how sustainable do you think that growth is? John Idol: Rick, so we kind of don't guide by geography on a go-forward basis. What I will comment to is the following. Number one, in Michael Kors, Europe is clearly the best performing part of our business, and we anticipate that to continue. And again, Europe never had the kind of declines that we had in North America. And it's interesting, even without store renovations, et cetera, the product and the consumer reception to the new product introductions has been very, very strong, very quickly. And so we're super pleased with that. Also, the outlet business over there is actually relatively stable versus the North American outlet business. And we definitely are seeing -- let me break out Asia into 2 parts. Japan remains flattish, but still has been positive coming out of last year. And that's -- there's some currency issues going on there. So we still feel very good about our business in Japan. China is definitely seeing an improvement. It's modest, moderate, but we are seeing some very significant consumer engagement. Our storytelling is resonating. There is no question that the consumer is now -- our best-selling products in the United States and in Europe are now the best-selling products in Asia. That wasn't always the case over the last couple of years. And some of that was self-inflicted. And so we're definitely feeling like we're going to get some momentum -- continued momentum in our business in China and in Southeast Asia. In Jimmy Choo, I would say that North America is very, very strong for us and getting stronger. And it's interesting in Jimmy Choo also our retail partners are really leaning into us. Our -- the -- again, the higher -- some of the luxury competitors have raised prices very, very significantly. And while we have raised prices as well, we represent an area where I think that our very core partners, not only in North America but around the world, want to protect. And then our new handbag strategy is also off to a great start, both in our own retail stores and at the wholesale level. So North America for Jimmy Choo represents a very exciting opportunity for the company. Europe has been stable and kind of growing. We've got some work to do in both Japan and in China. And that is more of an issue for us than I'd say the trend that we see happening in the regions. Operator: Our next question comes from Bob Drbul with BTIG. Robert Drbul: Just two questions for me. The first one, John, in terms of your team, what team do you need in place as you continue to move the company forward from where we are? I know that Raj is still interim. And I guess the second question is for Raj, which is, can you expand a bit on sort of the net interest income, the currency hedging as you look into the future and how the company is positioned from that. Sometimes those numbers are a little confusing to us? John Idol: We have a great team in place. We'll start out with -- at Michael Kors, we have a man called Michael Kors. He's been here for 44 years. He's been here since the start, and he continues to be our kind of visionary for the brand. And I think the product that he and our design tech teams are putting out now is some of the best that I've ever been associated with company. So I'm really proud and happy with what's happening there. We've got strong teams around the world who are helping us implement our strategies. And then we've got great teams in place for everything from our worldwide logistics to our production, to our finance teams. And yes, Raj is the interim CFO, but we got great people who are here working with Raj. And so I'm really proud and our teams are, I think, doing a great job. And to also say to you, our previous situation was quite disruptive for the company when we went through an 18-plus month period of time, where people weren't exactly clear about what was happening and now they are. And I think they're resolute in getting our company back in a positive direction. And so we're excited about finishing up fiscal '26 on a -- while it will be down. I'll call that a positive note because we're going to stabilize this business. And really, we're looking forward to fiscal '27 when we think we're returning to revenue growth and some very strong operating income growth, which I think will be very important for our shareholders, but also important for our teams inside the company. Rajal Mehta: Thanks, Bob. So we continue to receive income from our net investment hedges, as you mentioned and the hedges really related to intercompany investments in our European subsidiaries. We pay out interest rates in euros, and we received interest payments in USD. So that's sort of the pickup that you're seeing. And then on the other side, when we receive the proceeds from the sale of Versace, we expect to substantially reduce our debt levels, which will result in lower interest expense, and we'll have minimal debt on our balance sheet. So you'll see a lot of the interest expense go away and really the interest income continue with our net investment hedges. John Idol: I'd like to thank everyone for joining us today, and we look forward to continued exciting news about Capri and how we are moving forward. And we thank you for your opportunity to spend time with us today and look forward to updating you more in the future. Thank you all. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings, and welcome to the Crescent Energy Q3 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Reid Gallagher, Investor Relations. Thank you. You may begin. Reid Gallagher: Good morning, and thank you for joining Crescent's Third Quarter 2025 Conference Call. Today's prepared remarks will come from our CEO, David Rockecharlie; and our CFO, Brandi Kendall, the Chief Operating Officer and Executive Vice President of Investment will also be available during the Q&A. Today's call may contain projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties, including commodity price volatility, global geopolitical conflict, our business strategies and other factors that may cause actual results to differ from those expressed or implied in these statements and our other disclosures. We have no obligation to update any forward-looking statements after today's call. In addition, today's discussion may include disclosure regarding non-GAAP financial measures. For a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings press release available under the Investors section on our website. With that, I'll hand it over to David. David Rockecharlie: Good morning, and thank you for joining us. Yesterday, Crescent posted financial and operating results for the third quarter. In short, it was another impressive quarter of execution for our business. Our investing and operating performance highlights that we continue to do what we say we will do. As always, I want to begin with a few key points that I hope you take away from this call. First, our business continues to deliver strong results. This quarter, we once again generated significant free cash flow with excellent operating performance. Our results exceeded expectations on all key metrics and we are enhancing our full year outlook for the second consecutive quarter. Second, we announced our transformative acquisition of Vital Energy, marking our accretive and scaled entry into the Permian Basin and establishing Crescent as a top 10 U.S. independent oil and gas producer. And finally, we are pleased to announce over $700 million of noncore divestitures signed this quarter, bringing our noncore divestiture program to more than $800 million year-to-date. With these asset sales, we are streamlining our portfolio at very attractive value, and the proceeds will go toward maintaining our strong balance sheet through significant debt reduction. With our successful divestitures and acquisition of Vital, we have enhanced and simplified Crescent's value proposition with more scale, more focus and more opportunity. Following those key highlights, I will now discuss the quarter in more detail. We produced 253,000 barrels of oil equivalent per day, including 103,000 barrels of oil per day and generated approximately $204 million of levered free cash flow for the quarter, demonstrating once again the strength of our operating model and our consistent focus on free cash flow generation. Our talented team continues to find ways to win, increasing well productivity alongside continued capital savings, driving even stronger returns for our investors. With these impressive capital efficiencies, we have again enhanced our outlook for the year, increasing free cash flow with flat production from less capital. In the Eagle Ford, where our activity was focused this quarter, we have achieved 15% savings per foot on our capital versus last year's program, along with an impressive rate of change on well productivity with our 2024 and 2025 wells outperforming prior activity by 20-plus percent. In line with our guidance at the outset of this year, our capital for the remainder of the year is focused on our gassier acreage in the Southern and Western Eagle Ford as we capitalize on the relative strength in the natural gas curve. On top of our outstanding business performance this quarter, we also made a significant step forward on our growth trajectory with our announced acquisition of Vital Energy creating a top 10 independent U.S. oil and gas producer with line of sight to an investment-grade rating. As we progress towards closing, which we expect to occur before year-end, we continue to see significant value in the Vital assets under our operator show. We expect the Vital acquisition to generate immediate accretion across all key metrics and deliver attractive cash-on-cash investment returns exceeding 2x multiple of invested capital with the valuation covered by Vital's existing production base. As always, and in line with our initial announcement, we will apply Crescent's consistent strategy to this acquisition. We plan to high-grade capital allocation on Vital's assets by taking activity down to 1 to 2 rigs at closing, which will deliver higher free cash flow and returns for investors. This is only a small part of the synergies we outlined in our original announcement and we now see upside beyond the $90 million to $100 million of base case synergies we announced. We have proven our ability to integrate and execute and we believe there is an opportunity for significant value creation through improved operations on the Vital assets that was not included in our underwriting. The Vital acquisition is a scaled entry into the Permian Basin and significantly expands Crescent's opportunity for future growth with more than $60 billion of asset acquisition potential surrounding our pro forma footprint. We have demonstrated our playbook for accretive growth through acquisition in the Eagle Ford, and we are confident in our ability to continue to scale profitably across our Eagle Ford and Permian positions. Alongside our Vital announcement, we also announced a sizable pipeline of noncore divestitures to accelerate value, streamline our business and further strengthen our pro forma balance sheet. We are one of the most consistently active operators in the A&D market, and we are pleased to report that we have successfully signed more than $700 million of accretive divestitures this quarter bringing our year-to-date sales to over $800 million. But the sales announced this quarter, encompassing the entirety of our legacy Barnett, Conventional Rockies and Mid-Continent positions, we've exceeded our expectations in regards to timing as well as valuation with the total sale value representing more than 5.5x EBITDA and a significant premium to the year-end proved PV-10. The sales also meaningfully enhance the Crescent value proposition as we emerge with a more focused asset portfolio, increased margins, improved breakevens, longer reserve life and an even stronger balance sheet. Going forward, the combination of our continued strong operational performance, the Vital acquisition and our successful divestiture program positions Crescent with more scale, more focus and an even greater opportunity than ever before. Upon closing of our announced transactions, we will operate across 3 core regions: the Eagle Ford, the Permian and the Uinta. With scaled positions in each of these premier regions, we will continue to pursue long-term value for shareholders through strong free cash flow, operational excellence and profitable growth. With that, I'll turn the call over to Brandi to provide more detail on the quarter. Brandi Kendall: Thanks, David. Crescent delivered another quarter of strong financial performance, generating approximately $487 million of adjusted EBITDA and $205 million of capital expenditures and approximately $204 million of levered free cash flow. These results build on our consistent track record of impressive free cash flow generation supported by our lower capital-intensive operating model, returns-focused reinvestment approach and consistent hedge strategy. Over the last 5 years, we have generated cumulative free cash flow in excess of our current market cap. With our significant free cash flow, we maintain a consistent approach to capital allocation. Priorities 1A and 1B are our attractive fixed dividend and maintaining a strong balance -- to that end, we announced another dividend of $0.12 per share for the quarter, which equates to an attractive 6% annualized yield, and we returned significant capital to our investors with more than $150 million of debt repayment during the quarter. In addition to the debt repayment from our existing operations, we also expect to significantly reduce our debt outstanding upon the closing of the noncore divestitures that David covered earlier. We plan to use 100% of the proceeds to pay down our existing credit facility and Vital credit facility upon close of the acquisition. During the quarter, we also successfully increased our borrowing base by 50% to $3.9 billion, extended the tenor to 5 years and improved our pricing grid. This redetermination reflects the strong support from our bank group and enabled us to capture approximately $12 million or more than 10% of our announced Vital synergies ahead of closing. With that, I'll turn the call back over to David for closing remarks. David Rockecharlie: Thanks, Brandi. Before we wrap up, I want to reiterate our key messages for investors. First, our business continues to deliver impressive results. This quarter, we once again posted strong free cash flow and operating performance. Our results exceeded expectations on all key metrics, and we are enhancing our outlook again for the remainder of the year. Second, we announced our transformative acquisition of Vital Energy, marking our accretive entry into the Permian and establishing Crescent as the top 10 U.S. independent oil and gas producer. And finally, we have successfully executed significant noncore divestitures at very attractive value. With more than $800 million of accretive asset sales announced year-to-date, we have streamlined our asset portfolio and maintained our strong balance sheet. This quarter's execution is a testament to our consistent strategy as we continue to enhance and simplify our value proposition. Crescent is a compelling investment opportunity in our consolidating sector, combining significant free cash flow generation, a differentiated track record of prudent and accretive growth and premier integration and operations expertise. We are investors and operators, and we believe our sector demands both to be successful. We have a massive opportunity ahead of us, and Crescent is extremely well positioned to generate significant long-term value for investors, as we build a leading investment-grade energy company. With that, we'll open it up for Q&A. Operator? Operator: [Operator Instructions] The first question is from Neal Dingmann from William Blair. Neal Dingmann: David, Brandi, nice to be back, and congrats on the solid free cash flow. David, just jump in. My first question is really on your development plan, specifically, given now the expanded footprint that you have in the Eagle Ford and your upcoming Permian footprint, I'm just wondering, are you thinking about changing how you all target the development, albeit larger pads or maybe even some larger projects? Or will the expected operational efficiencies you continue to talk about from the D&C improvement continue to be the key drivers. David Rockecharlie: Yes, Neal, thanks for the question. The short answer is no fundamental changes in our approach. We're continuing to execute on more efficient operations in particular, drilling and completion than prior operators of assets we've acquired. And so I think you'll just continue to see us have more efficiency and more effectiveness over time, but no fundamental change in strategy there. But obviously, having a bigger and more scaled portfolio in those 2 areas is going to continue to allow us to do that. Neal Dingmann: Yes, it will be nice to see that development. And then secondly, just on M&A. Specifically, could you speak to kind of what you all continue to look at is your, I guess, I'd call it your current parameters when considering additional assets. Is there a scenario where you'd go to another basin, if it fits this or what are those sort of key requirements? David Rockecharlie: Yes, great question. I think to keep it simple, no changes in our underwriting standards, so still looking for great multiple money and quicker payouts. And then we're really excited about the opportunity that we've been going after in the Eagle Ford. So that's all still there and then the addition of the Permian from our perspective, also is great. So I think if you just assume more of the same, looking for great value and asset opportunity in those 2 areas. That's what we're looking at. Operator: The next question is from John Freeman from Raymond James. John Freeman: Following the very successful divestitures you had during the quarter and now would leverage kind of pro forma with Vital back to a more comfortable level. It definitely seems like you have got more flexibility on kind of next steps here. But maybe if you all could kind of just walk us through kind of the way you are thinking about those next steps toward kind of continuing to work that leverage down toward that sort of longer-term target of 1x. Brandi Kendall: John, it's Brandi. So I think overall, balance sheet is in a great spot. As you stated, right, we're continuing to operate the business within our leverage targets. We've been successful pushing out maturities. We're well hedged and we generate significant free cash flow, which allows us to continue to delever. As we look at the Crescent stand-alone business, we'll have our RBL repaid before the end of the year. We would expect to use the divestiture proceeds to pay down the entirety of the Vital RBL balance. So we'll have roughly $2 billion of liquidity. And then I think just as we think about using that excess free cash flow, I think we'll continue to think through how do we start attacking some of the outstanding notes that we have. So just continue to look for us to reduce absolute debt repayment from here and also our leverage metric. John Freeman: That's great. And then can you also speak to what changes the divestitures may have on sort of how you all sort of previously talked about sort of stand-alone Crescent in terms of kind of how you all were thinking about maintenance CapEx, et cetera. Obviously, that was the assets you sold were obviously lower margin, higher OpEx, but did have a lower base decline rates. So just sort of how to think about the moving parts there. David Rockecharlie: John, it's David. I'll start. Short answer is, while the divestiture assets are a smaller part of the company, they do have a great impact on improving our margins, improving reserve life, so some really key important things to us. The other thing we would highlight is with the divestitures and the Vital acquisition, we'll continue to pursue the same type of plan where we've got a lower reinvestment rate and a lower decline rate target than the rest of the industry. And so we think the divestitures just help us stay more focused on the assets we've got and we'll continue to focus on the core tenets of the company, including leverage metrics and decline rate. In terms of the maintenance impact, I'll let Brandi just cover that quickly. Brandi Kendall: Yes. So quickly, and again, I won't get overly specific on 2026, just given we're currently in our planning cycle and haven't yet closed the Vital transaction. But what I would say is that the go-forward plan should look very similar to how we've historically operated our business. So that's lower capital intensity. That's a reinvestment rate of roughly 50% and significant free cash flow generation. David hit on this earlier, we do plan to significantly reduce the capital on the Vital, Permian assets. So taking that down to a 1- to 2-rig program, which is roughly a 60% to 70% reduction in both rig activity and capital spend to bring those assets in line with how Crescent has historically run the business. So again, we'll provide more details when we get to closing. But again, I think the key attributes that we focus on over the last 10 years of lower capital-intensive business, a lower reinvestment business and a business that generates a lot of free cash flow will shine through in the plan that we put forward. Operator: The next question is from Tim Rezvan from KeyBanc Capital Markets. Timothy Rezvan: Brandi, I appreciate the broad strokes on 2026. I was hoping you could help us on the fourth quarter of 2025. There's a very large moving parts with Vital, looking like maybe 19 days of contribution. I'm trying to understand in the slide deck, it mentions a 4,000 a day impact from the recent divestitures. Should we assume that's a 16,000 a day impact in the fourth quarter? Can you help us kind of understand what 4Q '25 production could look like as we look ahead to the Vital closing? Brandi Kendall: Tim, good question. So we did reaffirm our production guidance from a legacy Crescent standpoint. But as you know, the 4,000 a day impact from the divestitures will equate to roughly 16,000 Mboe per day impact to Q4. And then as you mentioned, I think depending on when the Vital transaction ultimately goes, there will be a little bit of production but relatively immaterial. I'd focus on the 16,000 a day that would come out of Q4 as part of the sales transactions. Timothy Rezvan: Okay. And would we expect a change in the oil SKU as a result this quarter from these sales? Brandi Kendall: Nothing materially. I think we would guide to roughly 39% oil in Q4. Timothy Rezvan: Okay. I appreciate that. And then just as a follow-up, excited to learn about how the dry gas drilling in South Texas and know what's happening in this quarter. As you think about 2026 activity, how do you think about allocation between gas and oil? I know the legacy operator was extremely nimble on sort of a pad-by-pad basis. How do you think about allocating capital there next year? David Rockecharlie: Tim, it's David. I would say 2 things. If you think about how we manage through this year and the discussions we had at the end of '24 and early '25, we would describe ourselves as 100% returns focused with significant flexibility. We love the portfolio we have because we can go from oil all the way to dry gas. So I think given where commodity prices are, we would also highlight we're generating strong returns right now. And so I think 2026 in the grand scheme of things looks very similar to 2025 from an allocation and commodity perspective. Operator: The next question is from Michael Scialla from Stephens Inc. Michael Scialla: I wanted to ask on the divestiture program, where that stands now? Are you pretty much done? Or are there more opportunities? And any of those that you would consider within your 3 main core areas at this point? David Rockecharlie: Yes. It's David, the short answer is we would start by saying divestiture program, highly successful. We exceeded expectations on timing and valuation. So we feel great about it. We do, to your question, still have a number of smaller assets in the portfolio. today. But our view now is we can decide to sell those at the right time and the right value, and we would just say really successful program. Michael Scialla: Okay. And I wanted to ask on Slide 11, your well performance seems to be bucking the trend of degradation in the Eagle Ford. Can you talk about some of the reasons for that? Is it spacing, wellbore design? Or where do you see that going next year? Do you expect that to start to revert back towards the industry trend anytime soon? David Rockecharlie: Yes, great observation. I think your perspectives on the macro in the industry are exactly right, but a great reminder, our acquisition program starts with finding great value in assets that we think we can significantly improve. So what you're seeing is that strategy in action and we're able to take our practices, which, to your point, includes sometimes optimizing spacing, increasing completion intensity, changing landing zones. But overall, we're getting better performance than the prior operator. So I think you should expect that, that is our game plan and we'll continue to execute there, but that's how in the context of an industry that is seeing overall declining performance as the core gets drilled up, why we continue to outperform. Operator: The next question is from John Abbott from Wolfe Research. John Abbott: So David, you just mentioned that the divestiture program was very successful from your point of view. Does that mean as regards to your minerals doing something with that part of your business is off the table for the foreseeable future? Are there plans to sort of go out there and look for greater value from that business? How do you think about the minerals at this point? David Rockecharlie: Yes, great question. And John, we'd just highlight as I think we've said to others on previous calls, the minerals is a core business for us today. It was never part of the divestiture program. But it is an area that we believe we can continue to grow. And certainly, over time, we'll continue to evaluate all of our assets. But yes, strong core part of the business today, no plans to sell that. John Abbott: Appreciate it. And the next question is for Brandi. So Brandi, with the $700 million plus of divestitures, does that impact your future cash tax situation at all? How you think about cash taxes post the sale? Brandi Kendall: John, I would say I still expect both the Vital transaction and divestitures to be broadly tax neutral. So don't expect to be a significant cash tax payer based on today's commodity prices, based on today's expected development plan over the next handful of years. I will say that with respect to the divestitures and then closing in the fourth quarter, we do expect to pay roughly a $30 million to $40 million tax gain. So just think about that as coming out of the gross proceeds. Operator: The next question is from Michael Furrow from Pickering Energy Partners. Michael Furrow: All realizations were quite strong in the quarter, both relative to guidance as well as the historical differential versus the benchmark and really help drive the EBITDA beat. So just trying to get an idea on some of the drivers of the pricing. Was there anything sort of structural here, such as maybe new marketing contracts? Or was the third quarter maybe just a one-off high mark for the year? Brandi Kendall: Michael, it's Brandi. So I would say a similar theme of just buying assets and making them better. Our marketing has done a great job of just when there's opportunities to renegotiate contracts of just continuing to improve where we can. And sometimes that's we're collecting nickels and dimes, but those add up over time. And you can see that reflected in our financial statements this quarter. Michael Furrow: All right. Just as a follow-up, I noticed that the Eagle Ford turn-in-lines were a bit higher than we were expecting. The company is obviously planning some dry gas turn-in-lines later this year. So I was just curious if there was any maybe overlap dry gas turn-in-lines that maybe were included in the 31 turn-in-line count or late in the quarter? And if so, could you maybe be willing to quantify the amount? Brandi Kendall: Yes. There were a handful of dry gas turn-in-lines that came online really towards the very end of the quarter. So minimal contribution from a gas volume standpoint, but did technically come online in the third quarter. Operator: The next question is from Oliver Huang from TPH & Co. Hsu-Lei Huang: For my first question, I just wanted to ask on capital allocation. I know there isn't an official 2026 outlook out there just yet. But when we're thinking about the 6 rigs on a combined basis with Vital initially outlined in late August, just wanted to walk through the thought process in terms of if this is still a good level to think about at the current strip, also what might be grounds for a step down towards maybe, say, 5 rigs? David Rockecharlie: Yes, happy to take it. I think 2 things as I said a little bit earlier, at current prices, the development program that we have for this year and call it similar commodity allocations to next year looks great. And then when we think about just our business strategy and the integration of Vital, we think the company is really well positioned, both from a financial perspective with a very significant reduction on what I'll call the oil-weighted drilling that comes with the Vital assets, but also is going to give us a chance to integrate those assets in a much less operationally intensive way with lower activity. So long story short, I think, in this current environment with the way we see things and the returns that we're currently seeing no change, but we're certainly able to be really flexible and in terms of moving rigs down or allocating differently, we'll look at it the same way we did last year. So as of now, feeling great, but also ready to respond if anything, requires that from a returns perspective. Hsu-Lei Huang: Okay. Perfect. That's helpful color. And for my second question, just on adjusted cash OpEx with the divestitures getting rid of some of the higher OpEx assets in the portfolio, could you all talk about what the opportunity set looks like to continue further working that down over the next couple of years beyond that $11.50 per BOE figure referenced on a pro forma basis. And when we're thinking about that pro forma figure, does that account for blending the Vital side in at today's base level of production or at the, I guess, lower level of production that we'd see in 2026 just given the resting of declines? Brandi Kendall: Albert, I'll start. As you mentioned, pro forma, the divestitures will realize a roughly 10% improvement on adjusted operating costs. So I would expect to be roughly $11.50 when you pro forma in Vital, I think, will be plus or minus in a similar range. So I think that's a good way to think about it on a go-forward basis. And then we just -- as we think about broader opportunities to outperform back to the commentary that we said before of buying assets and making them better. I don't think we have a quantifiable percentage amount to give you today, but we do think that there are opportunities over time to improve operating costs. Operator: There are no further questions at this time. I would like to turn the floor back over to David Rockecharlie for closing comments. David Rockecharlie: Great. Thank you all again for your support and joining the call, and we're really pleased with this quarter and the business performance, and we're hard at work and look forward to catching up on our next call. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Greetings. Welcome to the Vitesse Energy Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to the Director, Investor Relations and Business Development at Vitesse, Ben Messier. Thank you. You may begin. Ben Messier: Good morning, everyone, and thanks for joining. Today, we will be discussing our financial and operating results for the third quarter of 2025 and increased production and capital expenditures guidance. Our 10-Q and earnings were released yesterday after market close and an updated investor presentation can be found on the Vitesse website. I'm joined this morning by our Chairman and CEO, Bob Gerrity; our President, Brian Cree; and our CFO, Jimmy Henderson. Before we begin, please be reminded that this call may contain estimates, projections and other forward-looking statements within the meaning of the federal securities laws. Forward-looking statements are subject to several risks and uncertainties, many of which are beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations. Please review our earnings release and risk factors discussed in our filings with the SEC for additional information. In addition, today's discussion may reference non-GAAP financial measures. For a reconciliation of historical non-GAAP financial measures to the most directly comparable GAAP measure, please reference our 10-Q and earnings release. Now I will turn the call over to Vitesse's Chairman and CEO, Bob Gerrity. Robert Gerrity: Thank you, Ben, and good morning, everybody. Thanks for joining. In the third quarter, we stuck to our strategy of disciplined capital allocation. We participated in an increasing number of 3- and 4-mile laterals drilled by our operating partners. And significantly, we successfully completed 2 Vitesse operated wells, as Brian will discuss. As a result, we increased our production and capital expenditure guidance for 2025. Advancements in technology continue to enhance the value of our assets. Extended laterals are delivering strong economic results through lower drilling and completion cost per lateral foot. Drilling activity continues to progress further into the areas where Vitesse holds concentrated positions. Our original strategy of acquiring acreage outside the core of the Bakken is paying off as activity now moves into these areas, generating returns comparable to historically those seen in the core. We estimate that we have over 2 million net lateral feet of development remaining on our asset, which translates to more than 200 net 2-mile equivalent wells. The oil industry is highly cyclical. Our long-duration asset, low leverage and disciplined hedging positions us not only to withstand but to be opportunistic during market disruptions. We are your capital allocators and we'll continue to make the best decisions with our capital each quarter based on the opportunity set available. As a testament to our allocation decisions, last week, our Board declared our fourth quarter dividend at an annual rate of $2.25 per share. I will now hand the call over to our President, Brian Cree, to provide more detail on our operations. Brian Cree: Thanks, Bob. Good morning, everyone, and thanks for joining today's call. In late September, Vitesse's operating team turned to production 2 gross, 1.9 net drilled but uncompleted wells acquired through the Lucero acquisition earlier this year. The wells are exceeding our initial oil and natural gas production expectations and were completed approximately $2 million or 15% under budget. We continue to contemplate the best time to advance a broader operated drilling plan, but we will only implement a development plan at a cadence and return thresholds that strengthen our dividend. Production for the quarter averaged 18,163 barrels of oil equivalent per day. This brings our year-to-date production to 17,373 barrels of oil equivalent per day. As of September 30, 2025, we had 20.8 net wells in our development pipeline, including 5.6 net wells that were either drilling or completing and another 15.2 net locations that have been permitted for development. For 2025, we have approximately 60% of our remaining oil production hedged at nearly $70 per barrel and just under half of remaining 2025 natural gas production hedged with attractively priced collars at a weighted average floor of $3.73 and ceiling of $5.85 per MMBtu, both percentages based on the midpoint of our revised guidance. Additionally, we have over 3,300 barrels per day and 12,700 MMBtu per day of our 2026 oil and natural gas production hedged at $66.43 per barrel and through a costless collar of $3.72 by $4.99 per MMBtu. Thanks for your time. Now I'll turn the call over to our CFO, Jimmy Henderson. James Henderson: Good morning, everyone. Just wanted to highlight a few items from our financial results for the third quarter of 2025. Please refer to our earnings release and 10-Q, which were filed last night for any further details. Production for the quarter was 18,163 Boe per day with a 65% oil cut. For the quarter, adjusted EBITDA was $41.6 million, and adjusted net income was $3.8 million. GAAP net income was a loss of $1.3 million, and you can see that reconciliation in our press release. Cash CapEx, including acquisition costs for the quarter were $31.8 million. These costs were funded within our operating cash flows. At the end of the third quarter, we had total debt of $114 million and net debt of $108 million, giving us net debt to adjusted annualized EBITDA of 0.65x. We increased our annual guidance for 2025 due to the completion of our 2 DUCs, as Brian discussed, and incremental organic well proposals primarily focused on 3- and 4-mile development. We now anticipate production in the range of 17,000 to 17,500 Boe per day for the full year of 2025 with an anticipated oil cut of 65% to 67%. Cash CapEx for the year is now anticipated to be between $110 million and $125 million. With that, let me turn the call over to the operator and open for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Jeff Grampp with Northland Capital Markets. Jeffrey Grampp: I was curious to start off on these longer laterals. I know that's something that you guys have kind of talked is directionally happening a bit more for a bit, but it seems like maybe a bit of a step change in terms of the proportion there. So I was just hoping to dive into that a bit more. Do you guys have any numbers on, I don't know, what percent of the program are these 3 and 4-mile laterals now? And can you remind us how that maybe compares to, I don't know, earlier this year or this time last year? Ben Messier: Jeff, it's Ben. I would say approximately over the course of the year, about half of our AFEs that we have received have been extended laterals. We don't see 1-mile laterals anymore, at least we haven't this year. So the remaining half has been 2-mile laterals. Jeffrey Grampp: Got it. Perfect. On the acquisition side, it looked like you guys were a bit more active there. It looked like perhaps maybe even the most active quarter since maybe a year or so ago. Is that -- can you guys just refresh us what are you seeing on the acquisition market? Was this expected? Was this surprising? And what's kind of the outlook on the acquisition side? Is this a sign of more things to come? Brian Cree: Yes, Jeff, this is Brian. Obviously, as you know, we are always looking at near-term development opportunities, buying AFEs from those that they're looking to divest. And over the course of about the last year, it's just been a very competitive market. We've continued to be very disciplined with our rate of return approach on how we look at those. And you just keep banging away, and we've looked at hundreds and hundreds of opportunities. We continue to bid them as we have in the past, and we are fortunate to able to close a couple of deals in the third quarter. And we'll continue to look at deals. The market is very strong. We're seeing lots of AFE opportunities. But again, we're being very disciplined with our approach in terms of how we're looking at making those acquisitions. Jeffrey Grampp: Just to clarify, I guess, there's nothing, I guess, dramatically different that you guys saw either from a competitiveness standpoint or your underwriting practices. It's just a function of some days you win the lottery, some days you don't kind of thing? Brian Cree: Yes. I think there's -- I think we are seeing more activity out there in terms of -- at least on our acreage, which is helpful because as we look at -- as we analyze those AFEs that are coming into our acreage position, it gives us an opportunity to be a little more, I don't want to use the word aggressive, but it gives us a little bit of a leg up when we're looking at buying in AFE opportunities on our existing acreage from others that are looking to sell them because we've done a ton of work on that, and it just gives us a little bit of a leg up. Operator: Our next question comes from the line of Poe Fratt with Alliance Global Partners. Charles Fratt: Yes. Just a follow-up on CapEx. Can you just highlight what acquisitions might be built into the fourth quarter CapEx range? Ben Messier: Poe, it's Ben here. We tend to budget conservatively on acquisitions. We don't know exactly when -- as Jeff said, we're going to hit the lottery and win acquisitions in any given quarter. Currently, we have a few hundred grand budgeted for acquisitions in the fourth. We hope that we come across economic opportunities that allow us to deploy more capital there, which is part of the reason you see a $15 million range for the fourth quarter, which is a pretty wide range, but we leave some wiggle room to make attractive acquisitions if they present themselves. Charles Fratt: Sounds good. And then on the operated inventory, you've finished the 2 DUCs that were -- that you talked about previously. What's sort of the line of sight on any of the operated inventory opportunities that you have looking out into 2026? Brian Cree: Well, as we've said previously, we've got somewhere around 15 net undeveloped locations that we picked up through the acquisition of Lucero. We continue to look at those, look at the best ways to drill those, look at the ability to make trades with other partners to improve the economics in those. And that's -- as Bob stated, and we've said we're definitely looking at 2026 plan. But a lot of that's going to depend on where oil prices are and what else we're seeing in terms of CapEx from our partners. So it's something that we're continuing to evaluate. We're kind of planning out a 2026 and 2027 operated program, but a lot of that will depend as we finalize our models and budgets for 2026. Charles Fratt: That's helpful. And then when I look at the cost structure for the third quarter, the second quarter had a lot of noise, just positive noise because of the settlement. Can you look at the third quarter cost structure run rate? And is that normal? Is that more normalized compared to the second quarter? James Henderson: Yes, definitely. Ben, this is Jimmy. Definitely, exactly as you constructed that third quarter is a much better indicator of run rate for G&A, particularly LOE, slightly higher than we expected, but we're -- we've had some workovers as we've talked before, and I think that's kind of coming to an end. So it should be slightly lower there. And on, say, gas prices, we're probably in the range that we expect. Hopefully, we'll see a little bit better results going forward as oil prices and our NGL prices have some a little bit of life in the future. So hopefully, that helps you in your modeling. Brian Cree: Yes. Let me just add, this is Brian. Let me add to that. I mean, the LOE in the third quarter, look, I mean, we continue to look at all of the new wells that we acquired from Lucero, and I think we're making the right decisions in terms of when to spend money on those wells. And as Jimmy said, I think we've seen a lot less activity in the fourth quarter than we did in the third quarter. So I agree with Jimmy's comment there. And then obviously, with the gas price differential, when you've got oil at $60 and NGLs where they are, that third quarter looks pretty tough from a gas price standpoint, but we typically see that improve quite a bit in the fourth quarter and first quarters as we're in those winter months. Operator: Our next question comes from the line of Noel Parks with Tuohy Brothers. Noel Parks: Just a couple. One thing I was thinking about is we're still seeing a fair amount of uncertainty in the credit environment just as far as sort of yield curve and so forth. I just wonder, do you sort of see any signs of that being on producers minds as they look at their, say, 2026 budgets as far as just how inclined they are to be sort of either aggressive or hold back kind of, again, because of the funding environment? James Henderson: Noel, this is Jimmy. There are a lot of factors play into what operators' plans are. Most notably, of course, is oil prices and consolidation is a big part of that as many of our operators have continued to consolidate the basin and they're working on their plans to how they're going to allocate capital and move rigs in or out. We're still -- we feel like things are going our way. As Bob mentioned before, we're starting to see much more of our acreage get developed. We have a more concentrated position. So that probably plays more into the plans for next year than the interest rate environment that we're in. But it certainly helps that that's a positive move. But we're still hopeful to see operators put their budgets together for next year, and then we can have a better idea, better more line of sight to what our plans are going to be. Noel Parks: Great. And just wondering if you had any updated thoughts as far as you look at different opportunities and potentially different basins about the gas opportunities out there these days. Robert Gerrity: Yes, Noel, this is Bob. We're looking a lot. So I can't speak to any specific asset that we're looking for other than our lens is pretty wide at this point, and we would love to buy gas assets at the right price. Look, the M&A market now is pretty frenetic. But if you take a look at the Bakken, it's pretty quiet. So we're going to be looking at the Bakken first. And the fun part about the operators in the Bakken, they are very well funded. They're not stressed. And other than the Hess Chevron transaction, which we think is certainly a net positive. And the Chord Enerplus, which is also a net positive. There's -- we're looking at the Bakken first. Of the $1 billion of deals that we have in our deal shop right now, probably 1/3 of them are gas-oriented. But it's a very frenetic market, Noel, and I can't handicap what's going to be the next deal we do. Operator: We have reached the end of the question-and-answer session. I would like to turn the floor back to Bob Gerrity for closing remarks. Robert Gerrity: Thanks, and thanks for everybody for joining in. If you've got any follow-up questions, Ben Messier does a great job in answering those. So thanks, everybody. See you in a couple of months. Bye-bye. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Carlos Almagro: Good morning, everyone. I'm Carlos Almagro, Head of Investor Relations. I would like to welcome everyone to TGS' Third Quarter 2025 Earnings Video Conference. TGS issued its earnings release yesterday. If you did not receive a copy of the release, please contact us at investor.tgs.com.ar. Before we begin the call, I would like to inform you that this event is being recorded. [Operator Instructions] I would also like to remind you that forward-looking statements made during today's video conference do not account for future economic circumstances, industry conditions or company performance and financial results. These statements are subject to a number of risks and uncertainties. All figures included herein were prepared in accordance with International Accounting Reporting Standards, IFRS, and are stated in constant Argentine pesos as of September 30, 2025, unless otherwise noted. Joining us today from TGS in Buenos Aires is Alejandro Basso, Chief Financial Officer. I will now turn the video conference over to Mr. Basso. Alejandro, please begin. Alejandro Basso: Thank you, Carlos. Good morning, everyone, and thank you for joining us today to discuss TGS' 2025 third quarter earnings and highlights. To begin the call today, I will start by sharing some of the most recent news about the company. As you remember, back in June '24, a private initiative was submitted to the government to expand the transportation capacity of the Perito Moreno pipeline by 14 million of cubic meters per day. As a result, ENARSA launched a tender offer in May. By the closing of the tender on July 28, only TGS had presented a bid. The project was finally awarded to TGS on October 17. The expected CapEx amount is $560 million, and it involves the construction of 3 compressor plants as well as the expansion of the Tratayén compressor plant, totaling an additional 90,000 horsepower. By April 2027, we must commission the incremental capacity while operating and maintaining the Perito Moreno pipeline for a 15-year period. We are also entitled to commercialize the incremental capacity and collect a dollar-denominated unregulated tariff during the period, after which the facilities will be reverted to ENARSA. Last week, we filed this project with the RIGI authorities in order to obtain the approval soon and get the tax benefits this regime provides. In addition to that project, TGS will invest another $220 million to expand the capacity by 12 million of cubic meters per day for its regulated pipelines between Salliqueló and Great Buenos Aires by adding 20 kilometers of pipeline and increasing compression capacity by 15,000 horsepower in one of the compressor plants. Moving to Slide 4. I will briefly highlight the key financial results for the third quarter of '25. Please keep in mind that all figures presented for this quarter and comparisons made with the previous quarters are expressed in constant Argentine pesos as of September 30, '25, following the provisions established by the IFRS for financial reporting in hyperinflationary economies. As seen in the slide, we reported a total net income of ARS 112 billion during the third quarter of '25 compared to ARS 68.8 billion reported in the same quarter of '24. These higher earnings were mostly explained by the better performance of the liquids business, which contributed with a higher EBITDA of ARS 37 billion and the continuous EBITDA growth in the midstream business segment, which rose by ARS 14.5 billion. In the quarter, we also recorded lower negative financial results amounting to ARS 31 billion, which boosted our third quarter earnings, but were partially offset by the natural gas transportation EBITDA decline of ARS 10.5 billion. Moving on to Slide 5. EBITDA for natural gas transportation business in the third quarter of '25 totaled ARS 102.4 billion, which is slightly below the almost ARS 113 billion recorded in the third quarter of '24. The ARS 10.5 billion EBITDA reduction in the regulated business segment was mainly due to that the tariff adjustment from August 24 to August '25, which resulted in a ARS 29.2 billion revenues nominal increase were insufficient to offset the inflation adjustment effect of ARS 42.2 billion. In addition, operating expenses rose by ARS 2.4 billion, while revenues also increased by ARS 4 billion, mainly due to incremental interruptible transportation services provided during the third quarter of '25. On Slide 6, you can see how EBITDA for the liquids segment tripled amounting to ARS 55.2 billion during the third quarter of '25 compared to ARS 18.2 billion reported in the same quarter of '24. Most of the EBITDA increase was explained by the higher volume exported of 61,000 metric tons, rising for 43,000 to 104,000 metric tons, which contributed to a higher EBITDA by ARS 18 billion. In addition, higher ethane volumes of 38,000 metric tons were sold, rising from 53,000 to 91,000 metric tons and adding ARS 11.7 billion to the third quarter EBITDA of '25. This higher volume is mainly related to a higher production, which increased from 173,000 tons to 315,000 metric tons as a result of the higher richness of the natural gas process in this quarter and the 3-week program plant shutdown for maintenance works implemented during the third quarter of '24. In addition, EBITDA increased by ARS 13.2 billion due to higher butane prices in the domestic market following the deregulation of the butane price under the Program Hogar starting January '25, which allow us to sell at export parity price. To a lesser extent, operating expenses decreased by ARS 5.4 billion and monetary effects were positive by ARS 1.1 billion. The positive effects on EBITDA were partially offset by ARS 8.9 billion extraordinary expenses incurred as a result of the March 7 flood, which we expect to recover from the insurance company in the coming months. Additionally, natural gas price increased from $3.1 to $3.4 per million BTU, which impacted negatively the EBITDA in ARS 4.3 billion. Turning to Slide 7. EBITDA from midstream and other services rose to ARS 61.2 billion compared to ARS 46.7 billion in the third quarter of '24. This increase was mainly driven by higher sales derived from the incremental billed volume of natural gas transported and conditioned in Vaca Muerta, totaling almost ARS 21 billion. Transported natural gas billed volume rose from an average of 29 million cubic meters per day in the third quarter of '24 to 32 million cubic meters per day during this quarter. The natural gas conditioning volume also increased from an average of 16 million cubic meters per day to 29 million cubic meters per day. In addition, the monetary effect increased EBITDA by ARS 3.2 billion. These effects were partially offset by ARS 10.4 billion in higher operating expenses. As seen on Slide 8, we recorded a positive variation in the financial results amounting ARS 31.1 billion. This was mainly due to a ARS 43.4 billion increase in income from financial assets given the much higher yields achieved in the domestic financial investments. Additionally, inflation exposure loss decreased by ARS 10.7 billion. These positive effects were partially offset by a higher foreign exchange loss amounting to ARS 21.8 billion during the third quarter of '25, following the Central Bank's decision to make the U.S. dollar exchange rate float starting early April and the consequent depreciation of 15% compared to the 16% rate in the same quarter of '24 under the previous regime of 2% monthly crawling peg. Finally, turning to the cash flow on Slide 9. Our cash position in real terms increased by 22% or ARS 160 billion during the third quarter of '25 to ARS 875 billion, equivalent to approximately $638 million at the official exchange rate. EBITDA generation during the third quarter amounted to almost ARS 219 billion, of which 47% was generated by the regulated transportation business and 53% by the nonregulated businesses. CapEx for the period amounting to 87 billion. Working capital decreased by ARS 36.4 billion, and we paid interest amounting to ARS 29 billion and income tax payment totaled ARS 61 billion. In addition, we obtained short-term loans by ARS 28.6 billion. We finally recorded higher yields from our financial investment by ARS 53 billion in real terms, resulted mainly due to the higher increase of the foreign exchange rate over inflation of this quarter. This concludes our presentation. I will now turn it over to Carlos, who will open the floor for questions. Thank you. Carlos Almagro: [Operator Instructions] The first question is from Santiago from Allaria. The question is regarding the CapEx to be made in the expansion of the transportation system and our final tranches. How is the breakdown of the deployment of the new $780 million? So this is the first question. Alejandro Basso: Well, regarding the deployment of the $780 million from the expansion project, for this year, we have some advances to suppliers amounting and some part of the works amounting up to $150 million. Then for the following year '26, we are expecting to spend $450 million and the remaining $27 million in the first 5 months of '27. The financing of the project, we already have almost 70 million bank loans to fund the imports, which is a regulatory requirement under [indiscernible]. And we are currently considering other source of financing for the remainder. Carlos Almagro: Second question is regarding the insurance claim status for the [indiscernible] event. If you can share what is the total expected recovery amount from the insurance and the time line for collecting the payment? Alejandro Basso: Regarding the recovery amount, we are estimating this amount could be more than $50 million. And the expectation for the collection maybe $10 million this year and the remainder in the following year, I don't know, maybe in the second quarter. Carlos Almagro: We have a question from [indiscernible] regarding the strong recovery of the liquids in this quarter. If we can comment on whether the current levels of production and margins are sustainable into fourth quarter of this year? And how do we see prices in 2026? Alejandro Basso: Okay. Well, regarding the level of production at [indiscernible] level, which was driven by the very -- the richness of the gas stream coming from Vaca Muerta. You know that nonconventional gas is replacing the conventional and also the increase in oil production with associated rich gas, the level of the richness of the gas is higher. And I could say that this level of richness could be substantial for the next years, okay? Regarding the fourth quarter in special, well, it's a different time of the year. So the gas production is lower in the fourth quarter as compared with the third quarter. So the richness could be there, but the gas production should be lower. In spite of that fact, the gas stream coming in our plant is higher than the total capacity of the plant. So it's going to be a sort of arbitration between these 2 variables. Regarding prices for '26, well, current level of international prices are lower than we used to have a couple of months ago. So maybe liquids prices could be lower than the average of this year, but you can know it's very hard to anticipate that. Carlos Almagro: Next question is from [indiscernible]. Well, this is her first question is regarding what you just explained regarding the liquid business in the future. And her second question is if we expect an acceleration in cash CapEx deployment until year-end. Alejandro Basso: Regarding our CapEx, our cash CapEx is going to be higher than previous levels as we have already started out with the private initiative project, okay, in the Perito Moreno expansion. As I previously mentioned, we are expecting to spend $150 million this year, mostly in the last quarter. Carlos Almagro: Next question is from [indiscernible] regarding the Perito Moreno pipeline that we provide all the explanation that we can share. And his second question if we are interested in participating in the project to build a brand new gas pipeline to [indiscernible] provide gas to LNG facilities that is planning [indiscernible] by 2027 and 2028. Alejandro Basso: Well, regarding the new gas pipeline, currently, we are evaluating our participation in this project. I cannot anticipate any news on that by now. Carlos Almagro: Next question is from George [indiscernible] Securities. He was expecting to pay significant cash income taxes against -- again next quarter? Alejandro Basso: George, well, regarding income tax payments, the payments could be quite similar in the fourth -- in the fourth quarter as compared with the third one, okay? The bulk of the income tax payment was paid in May this year. And then you have advances that are quite similar from June to April next year or March next year. So as compared fourth quarter with third quarter, the payments should be in pesos quite similar. Carlos Almagro: Next question from Daniel Guardiola. When do we expect to reach FID for the Tratayén facility? Alejandro Basso: Well, we are working very, very hard on the project. The FID could be in the first quarter of next year, hopefully. Carlos Almagro: Next question from [indiscernible] well, his question was answered because it was regarding initial project that was answered. Next question from [indiscernible] well, his question regarding the initial project was answered and both questions are regarding the initial project, so it was answered. [indiscernible] with partners or perhaps how many companies engaged with both of this -- from the balance sheet perspective of the participation on the in the project and joining with partners or perhaps tapping equity markets? Alejandro Basso: Well, we are working on that. The idea is to have partners especially in the part of the liquids project that comprise of the transportation and fractioning and dispatching facilities. Our idea is to go with partners in that part of the project, and we are working on that. Up in equity markets, I think that's not -- we are not analyzing that at this moment. Carlos Almagro: Next question from [indiscernible] regarding the financing of the CPM project that Alejandro explained. Another one, [indiscernible] asking the same question regarding the financing of the Perito Moreno pipeline project [indiscernible] capacity of the CPM? Alejandro Basso: Well, the answer is yes with additional [indiscernible] expansion of the CPM, our extreme business is going to benefit from that with higher volume also, okay, to the limit of the capacity of our pipeline, of our gas treatment facilities, okay? In the pipeline, we have plenty of space in the [indiscernible] pipeline. Carlos Almagro: [indiscernible] first 9 months of 2025 [indiscernible] the beginning of September that impacted on the 9-month period. Another question from Guido from Allaria regarding the Perito Moreno [indiscernible] project and we provided all the information that we can share. [indiscernible] same question regarding the financing of the Perito Moreno that we explained. Another question from [indiscernible]. For the time being, we have no other question. This concludes the question-and-answer section. Now we will turn to Alejandro for final remarks. Alejandro Basso: Well, thank you all for participating in this year's third quarter '25 conference call. We look forward to speaking with you again when we release our '25 fourth quarter results. If you have any questions in the meantime, please do not hesitate to contact our Investor Relations department. Have a good day.
Operator: Good day and thank you for standing by. Welcome to the Q4 FY 2025 Cabot earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Steve Delahunt, Vice President, Investor Relations and Treasurer. Please go ahead, sir. Steven Delahunt: Thanks, Michelle, and good morning. I would like to welcome you to the Cabot Corporation earnings teleconference. With me today are Sean Keohane, CEO and President; and Erica McLaughlin, Executive Vice President and CFO. Last night, we released results for our fourth quarter of fiscal 2025, copies of which are posted in the Investor Relations section of our website. The slide deck that accompanies this call is also available on the Investor Relations portion of our website and will be available in conjunction with the replay of the call. During this conference call, we will make forward-looking statements about our expected future operational and financial performance. Each forward-looking statement is subject to risks and uncertainties that could cause actual results to differ materially from those projected in such statements. Additional information regarding these factors appears under the heading Forward-Looking Statements in the press release we issued last night and in our annual report on Form 10-K for the fiscal year ended September 30, 2024, and in subsequent filings we make with the SEC, all of which are also available on the Company's website. In order to provide greater transparency regarding our operating performance, we refer to certain non-GAAP financial measures that involve adjustments to GAAP results. Any non-GAAP financial measures presented should not be considered to be an alternative to financial measures required by GAAP. Any non-GAAP financial measures referenced on this call are reconciled to the most directly comparable GAAP financial measure in the table at the end of our earnings release issued last night and available in the Investors section of our website. Also, as we do typically each year, I would like to remind you that over the next several weeks, in connection with the vesting of restricted stock awards issued under our long-term incentive equity program, officers of the company will be selling shares to pay tax and other obligations related to their rewards. I will now turn the call over to Sean, who will discuss the fiscal 2025 highlights, our cash flow results and our strategic highlights for the year. Erica will review the corporate financial details and business segment results for the fourth quarter and fiscal year. Following this, Sean will provide a 2026 outlook and some closing comments and then open the floor to questions. Sean? Sean Keohane: Thank you, Steve. Good morning, ladies and gentlemen, and welcome to our call. Before we move into year-end highlights, I'd like to take a moment to share an important update regarding our Investor Relations leadership. As a [Technical Difficulty] Operator: Ladies and gentlemen, please stand by. Your conference call will resume momentarily. Ladies and gentlemen, please stand by. We are having technical difficulties and your conference will resume momentarily. Ladies and gentlemen, thank you for standing by. I would now like to hand the conference back over to your speaker, Sean Keohane. Please go ahead, sir. Sean Keohane: Thank you, Michelle, and apologies everyone. We seem to have a challenge with our connection there. So let me pick up where we left off. I want to first begin by taking a moment to share an update regarding our Investor Relations leadership. As announced earlier, Robert Rist will be stepping into the role of Vice President of Investor Relations and Corporate Planning. He'll be transitioning into the role over the course of the first quarter of fiscal year 2026, succeeding Steve Delahunt, who will continue with Cabot as Vice President and Treasurer. Rob has been with Cabot since 2007 and has held a number of key leadership roles across the company in corporate strategy, corporate planning and within our Reinforcement Materials segment and finance organization. He brings a strong understanding of our business and financial priorities, and his strategic insight and financial acumen will be instrumental as he helps lead our engagement with the investor community. I want to sincerely thank Steve for his many contributions to our Investor Relations function over the past 9 years. His leadership has built a strong foundation for our investor engagement, and we are grateful for his continued service and treasury. Steve and I have worked together in this capacity for my entire tenure as CEO, and I've always been impressed with his intellect, teamwork and most of all, how he lives our Cabot values of integrity, respect, excellence and responsibility. I'm confident that this transition will be seamless, and we look forward to continued momentum in our IR efforts. Fiscal year 2025 was characterized by a turbulent macroeconomic, geopolitical and global trade environment, but it was a year in which the enduring strengths of Cabot were exhibited. We executed well and delivered strong results. In fiscal year 2025, we delivered a record adjusted earnings per share of $7.25, which represents an increase of 3% year-over-year. I'm very pleased with our performance, particularly in light of the fact that volumes across both segments were down year-over-year and substantially below our expectations at the beginning of the fiscal year. Total consolidated EBIT increased year-over-year with Reinforcement Materials EBIT down 5% and Performance Chemicals EBIT up 18%. We continue to generate strong cash flow, which supported our capital priorities and a significant return of cash to shareholders. I'm immensely proud of the Cabot team for the resilience they demonstrated and the countermeasure mindset that they brought to their daily work to support our customers and deliver earnings growth in a very difficult and dynamic environment. Looking a bit deeper at our financial metrics, fiscal year 2025 marked another year of strong overall performance in terms of profitability, cash flow generation and balance sheet strength. For the year, we generated adjusted EBITDA of $804 million, which was up 3% year-over-year and represents a 22% margin. While our end market volumes were down, we were able to more than offset this weakness by optimizing across our global footprint of assets, reducing costs and driving disciplined execution across our operating platform of commercial and operational excellence. The quality of our returns remained strong with an adjusted ROIC of 18%, and we delivered these results while maintaining our strong balance sheet. In dynamic and turbulent times, balance sheet strength and liquidity are essential, and Cabot continues to exhibit these distinguishing features. We finished fiscal 2025 with net debt-to-EBITDA of 1.2x and liquidity of $1.5 billion, which gives us tremendous flexibility to invest in strategic organic and inorganic projects to grow the long-term earnings of the company while returning a significant amount of cash to shareholders. Overall, I am very pleased with our performance across our financial metrics, and this puts us in a good position to navigate these uncertain times and remain committed to our long-term strategic growth priorities. The Cabot portfolio has robust cash flow characteristics and fiscal 2025 marked another year of strong performance, where we generated operating cash flow of $665 million and free cash flow of $391 million. The cash generation power of our portfolio is a central element of our shareholder value creation strategy. With these strong cash flows, we seek to allocate capital inside a balanced framework focused on 3 priorities: first, ensuring our asset base is well maintained to provide a reliable and sustainable offering to our customers; second, underwriting high confidence organic and inorganic growth investments to deliver long-term earnings growth; and third, returning capital to shareholders through dividends and share repurchases. The strength of our cash flows allows us to execute against these priorities while maintaining our strong investment-grade balance sheet. In fiscal year 2025, we paid $96 million in dividends, including a 5% increase announced in May, reflecting our confidence in the long-term cash flow outlook of the company. We've maintained a continuous and growing dividend since 1968, and we would expect to continue raising the dividend over time as our earnings and cash flows grow. We also repurchased $168 million of shares in fiscal year 2025, which reduced our outstanding share count by 3% and when combined with dividends, totaled $264 million of capital returned to shareholders. Overall, we feel very good about our long-term cash generation power and balance sheet strength, which provides us with great strategic flexibility. During our fiscal year, we also made important progress on key elements of our Creating for Tomorrow strategy. I'll spend a few minutes now highlighting some important accomplishments that are part of our strategy to deliver long-term shareholder value creation. In July, we announced that Cabot has entered into a definitive agreement to acquire Bridgestone's reinforcing carbon plant in Mexico. This manufacturing facility is located in close proximity to Cabot's current reinforcing carbons facility in Altamira, Mexico and strengthens our partnership with Bridgestone through the long-term supply of reinforcing carbon products from this plant. The facility also has the capacity to manufacture additional reinforcing carbons, providing flexibility to support broader customer needs and future growth opportunities for Cabot. The transaction is expected to close in the second fiscal quarter, subject to regulatory approvals and to be accretive in the first year. This is an example of how we are deploying our strong cash flow to fund an attractive acquisition that strengthens our portfolio, drives incremental growth and is accretive to earnings. We are pleased with the earnings progression and strategic developments in our Performance Chemicals segment despite persistent end market weakness in certain important sectors such as automotive and construction. While we believe the end markets of automotive and construction will improve over time from their current cyclical lows, we are focused on targeted applications where the macro trends are favorable. Specific sectors include infrastructure and alternative energy, digitalization and consumer-driven applications. Success across these sectors was an important contributor to the earnings -- increased earnings in the segment in fiscal '25. The demand for conductive carbons for power distribution cables is supported by growth in power generation and distribution, and this application is expected to grow in the 8% range through the end of the decade. Fumed silica for the CMP application is one where we saw a strong double-digit growth in 2025 as broad digitalization and automation trends drive a greater need for semiconductor chips. And finally, consumer spending has been a pretty resilient driver of economic growth globally and our specialty carbons, specialty compounds, fumed silicas and aerogel materials are all benefiting from this strength. Sustainability is central to who we are at Cabot, and we continue to be recognized for excellence. As we discussed last quarter, we are proud to have received a Platinum rating from EcoVadis for the fifth consecutive year. EcoVadis is the world's largest and most trusted provider of business sustainability ratings with more than 150,000 rated companies. A Platinum rating is the highest level of achievement and places Cabot among the top 1% of companies in the manufacturing of basic chemicals. This prestigious recognition underscores Cabot's commitment to transparency and provides our customers with visibility into our sustainability performance. In the fourth quarter, we also published our 2025 sustainability report, outlining our progress to date and our direction for the future. In this publication, we reported our strong progress against our calendar year 2025 goals and also unveiled our 2030 sustainability targets, which reflect our ambition to continuously drive measurable impact for our stakeholders. And finally, we continue to make strong progress in building a leading Battery Materials business that we believe can become a material contributor to Cabot over the long-term. Our strategic development approach is based on a mix of organic technology development efforts that build on our core conductive carbons and thermos management technologies, coupled with strategic M&A to broaden our product lines and access new technologies. In fiscal 2025, we executed well against our strategy, growing total contribution margin by 20% year-over-year. We continue to pursue what we call a bifurcation strategy with tailored approaches to China, coupled with a focus on building incumbency in the western geographies, where local supply and service is of strategic value. Product development is essential in this fast cycle industry, and we made important progress on this front in 2025. We recently launched a new conductive carbon product developed for use in lithium-ion batteries for energy storage systems, or ESS. This high-performance conductive additive delivers enhanced conductivity, longer cycle life and improved processability for ESS cells used in residential, commercial and industrial applications. The global ESS market is growing rapidly, driven by the rising demand for grid flexibility, the transition to renewable energy and the need for storage solutions that support the rapid build-out of data centers. Our LITX 95F solution addresses these challenges by delivering key performance and efficiency advantages that are vital for accelerating ESS adoption. In addition to our segmented efforts to capture the ESS opportunity, we continue to realize strong volume growth in our high-performance conductive additive blends. This was a core thesis of our decision to acquire Shenzhen Shanshan Nano Materials (sic ) [ Shenzhen Sanshun Nano New Materials ], and I'm very pleased with the strong growth in sales of these products to leading global battery producers in 2025. As we look ahead in this business, our outlook remains positive, supported by the expectation that the lithium-ion battery market will grow at a compound annual rate of approximately 20% over the next 3 years. We believe we are well positioned to capitalize on this growth opportunity and build a global leadership position that creates significant long-term value for our shareholders. I'll now turn the call over to Erica to discuss the financial and performance results of the quarter in more detail. Erica McLaughlin: Thanks, Sean. Adjusted EPS in the fourth quarter was $1.70. This performance was 6% below the same quarter last year, driven by lower EBIT in both our Reinforcement Materials and Performance Chemicals segments. Cash flow from operations was strong at $219 million in the quarter, which included a working capital decrease of $69 million. Free cash flow was $155 million in the quarter. We ended the quarter with a cash balance of $258 million, and our liquidity position remains strong at approximately $1.5 billion. Capital expenditures for the fourth quarter of fiscal 2025 were $64 million, and we expect capital expenditures in fiscal 2026 to be between $200 million to $250 million. Additional uses of cash during the fourth quarter were $25 million for dividends and $39 million for share repurchases. Our debt balance was $1.1 billion, and our net debt-to-EBITDA remained at 1.2x. The operating tax rate for fiscal year 2025 was 27% as compared to 26% in fiscal 2024. The higher tax rate was driven by the geographic mix of earnings and the new OECD global minimum tax implementation, which increased our tax rate in certain lower tax jurisdictions. We anticipate our operating tax rate for fiscal 2026 to be in the range of 27% to 29%. Now moving to Reinforcement Materials. EBIT decreased by $4 million in the fourth quarter compared to the same period last year, primarily due to lower volumes, which were down 5% year-over-year. The decline in volumes was due to weaker customer demand driven by the uncertainty from tariffs and a weaker global macroeconomic environment. In the Americas, the lower volumes were also driven by the continuation of elevated level of Asian tire imports. Regionally, volumes were down 7% in the Americas and 6% in Asia Pacific, while volumes in Europe were up 5%. The lower volumes were partially offset by continued optimization and cost reduction efforts in the segment. EBIT for fiscal 2025 was $29 million below the prior year, driven by 5% lower volumes. Volumes declined in both the Americas and Asia, and the decline in volumes was partially offset by lower costs and favorable foreign currency impacts. Looking to the first quarter of fiscal 2026, we expect a sequential decrease in EBIT of approximately $15 million to $20 million, driven by lower volumes in the Americas and Europe and increased competitive intensity in Asia. Seasonally lower volumes in the Americas and Europe are also expected to negatively impact regional mix. Volumes are also expected to be sequentially lower as customers manage their year-end inventory levels. Now turning to Performance Chemicals. During the fourth quarter of fiscal 2025, EBIT for the segment decreased by $2 million as compared to the same period in the prior year. The decrease in the fourth quarter was due to lower volumes. Volumes were lower by 5% year-over-year, primarily due to lower volumes in the European region, particularly in construction-related applications. EBIT in fiscal 2025 was $30 million higher than the prior year. The increase was driven by higher volumes in the fumed metal oxides and battery materials product lines. The segment also benefited from continued optimization and cost reduction efforts throughout the year. Looking ahead to the first quarter of fiscal 2026, we expect EBIT to remain relatively consistent with the fourth quarter, as modest sequential volume improvement is expected to be largely offset by the timing of higher costs. I'll now turn it back to Sean to discuss the 2026 outlook. Sean? Sean Keohane: Thanks, Erica. Fiscal year 2025 certainly developed differently than we expected just 1 year ago. Automotive production in the Western economies contracted in 2025 and elevated Asian tire imports into Western geographies continue to persist. Additionally, global manufacturing PMI was in or near contraction territory for most of 2025, and the expected interest rate cut cycle was slower than expected, leaving the housing and construction sector in a trough. In addition, 2025 was characterized by global trade turbulence, which is making it very difficult to determine long-term durable demand levels. As we look to 2026, we don't yet see signs of improvement across these dimensions. While trade policy is trending toward regionalization, and this aligns well with our model of make in region, sell in region, it will likely take some time for end markets and supply chains to find their new normal. In 2026, we now expect light vehicle auto production in North America and Europe to decline for a third year in a row. In terms of the tire sector, the persistent elevated level of tire imports from Asia has reduced domestic tire production in the Americas and Europe, thereby creating a more challenging competitive environment for tire manufacturers and their suppliers, including carbon black producers. Furthermore, global manufacturing PMI continues to straddle 50 with no clear catalyst to move firmly above 50 and into expansionary territory. With this as a market backdrop, we expect adjusted earnings per share in fiscal year 2026 to take a step back from our strong performance in 2025. Acknowledging there is significant uncertainty in both end market demand and the range of outcomes in our annual tire contract negotiations, we expect fiscal year 2026 adjusted earnings per share to be between $6 and $7. Our range includes various scenarios related to volumes and pricing outcomes across our businesses. The lower end of the range would reflect a weak demand environment and pricing pressures in 2026. The higher end of the range would reflect the ability to largely offset pricing pressures with volumes, optimization, cost savings and benefits from our growth investments. As we think about the segment outlook for fiscal 2026, in Reinforcement Materials, we are currently negotiating our calendar year contracts. While we expect outcomes to be varied across customers, our expectation is that overall contract outcomes will be lower than the prior year. Our customers are facing challenges in the Western regions from Asian tire imports along with macroeconomic uncertainty and are pushing hard on suppliers given these dynamics. This is causing challenging contract discussions with our customers that are taking longer to close. In addition, I would say the utilization situation in the Western regions is similar or slightly worse than the prior year. Tire imports from Asia have increased modestly year-to-date into the U.S. They've decreased modestly into South America, and they have risen more materially into Europe in 2025. Therefore, it is a challenging picture for local production of tires in the Americas and Europe, which in turn impacts our business in those regions. Our capacity in Asia enables participation in demand in Asia, but it is a competitive market at this time, requiring us to balance volumes and margins. Regarding Performance Chemicals, in 2025, we have seen rather strong demand in Asia, muted levels of demand in the Americas and challenging demand patterns in Europe. We anticipate these trends will continue in 2026. The challenges in Europe are also related to end product imports from Asia into Europe, which is impacting demand pull-through from our customers in the region. We are seeing positive demand in Asia as our customers benefit from strong export levels, and we're utilizing our capacity there quite well. While end market demand in construction and auto remains in a cyclical trough, we are seeing strong and improving demand in attractive end markets like battery materials as well as specific sectors, including infrastructure and alternative energy, digitalization and consumer-driven applications. We expect these growth areas, along with continued optimization across the segment to enable year-over-year growth in segment EBIT. We expect cash flow from operations to remain strong and our net debt to EBITDA to remain in a similar range to 2025. We expect the cash flows from operations will fund our capital expenditures, a strong dividend and share repurchases in the range of $100 million to $200 million. As we think about our longer-term outlook and the targets we set for 2027 at our Investor Day last year, it is clear that the assumptions we had 1 year ago are not playing out as planned. The targets were established based on a certain set of assumptions for our key end markets. Specifically, automotive production was forecasted to grow at a higher rate than we now see, and the Western markets were projected to be positive, which has not been the case in 2025 or the 2026 forecast. We expected tire production to grow globally, including in the Western markets, but the persistent level of Asian tire imports has impacted demand for our product in the Americas and Europe, resulting in a negative regional mix. With the change in the U.S. administration's policy towards electric vehicles, the outlook for batteries in the U.S. has also been reduced. And finally, the interest rate cut cycle that was projected at that time has been slower to develop, resulting in a delayed pick up in housing and construction sector. In addition to these end market factors, the global trade negotiations are creating significant uncertainty, and we have not yet seen a stable period to interpret a new normal for our key end markets. Given where we are today and our expectation for 2026, the implied recovery needed to achieve these targets by 2027 is not expected. We will, of course, monitor the external environment and its impacts on our business and continue to update you as our visibility improves. Certain of our end markets are suffering from cyclical headwinds, particularly the automotive and the building and construction sector, but we expect volumes in these applications will improve over time as interest rates are cut and strengthen the consumer. The biggest dynamic that is yet unclear is the impact of Asian tire imports on tire production volumes in the Western markets. At this point, we are observing mixed signs. In the U.S., there is a range of tariff levels that impact tires and antidumping duties have been levied on certain producers. We have not seen a decrease in imports into the U.S. based on the most recent data, which is year-to-date July, and it remains too early to determine if these actions will have a material impact on the flow of tires. In South America, we are seeing some evidence that trade actions are having a positive impact on the level of tire imports into Brazil. Currently, there are tariffs on passenger car and truck tires as well as antidumping duties on tires from certain countries, including China and Thailand. On a year-to-date basis through August, we have seen a decline in tire imports into Brazil. So that sign is encouraging. In Europe, there are very modest tariffs in place at this time on passenger car and truck tires. The EU is currently investigating allegations of dumping of passenger car tires from China and potential provisional measures may be introduced as early as December 2025. On truck tires, there are currently antidumping duties in place. Whether these levels are sufficient to change trade flows remains unclear. In addition to trade policy by different countries, we are also observing that the global tire majors appear to be taking steps to improve competitiveness and defend their Tier 2 brands. Both trade policy and actions by the global tire majors to defend their brands could have a favorable effect on tire production in the Western regions, but the magnitude and timing remain uncertain at this time. While there is uncertainty from the global trade dynamics and its impact on our end market demand, we are focused on leveraging our strengths to navigate the situation and position Cabot for long-term success. It starts with our capability as a strong operator. Over the past decade, we have created significant value through disciplined execution of our operating platform of commercial and operational excellence. In this turbulent time, our efforts on operational excellence will skew more towards yield and cost rather than asset availability. On the commercial excellence front, our strategy will seek to balance pricing and volume, and we will remain laser-focused on executing in key end markets where there are favorable tailwinds. As a global leader in our respective product lines, we have a large network of competitive assets and leading technologies that enable optimization to best serve our customers and maximize returns. In the current environment, our focus will be on global asset optimization, efficiency programs and cost reductions. Despite the more challenging environment, we expect cash flow and liquidity to remain strong, and our investment-grade balance sheet offers great strategic flexibility to execute our Creating for Tomorrow strategy. And finally, we will continue to be disciplined in our allocation of capital. We expect to deploy capital against high confidence strategic growth areas such as battery materials while maintaining a meaningful return of capital to shareholders. Cabot is well positioned to navigate the current uncertainty, and this management team brings a track record of experience and disciplined execution, both of which are important in these dynamic times. Thank you, and I will now turn the call back over for our question-and-answer session. Operator: [Operator Instructions] Our first question will come from the line of John Roberts with Mizuho. John Ezekiel Roberts: Are you seeing any volatility in your rubber black operating rates regionally? Or is it relatively stable? I know it's shifted, but I don't know if it's shifted and it's stabilized or it's still volatile. Sean Keohane: Yes, John, I would say it's largely stable, but stable in the context of the elevated tire imports and how those have had an impact on demand in any given region. But if you look, for example, in North America, you'll see that tire imports were up modestly on a year-to-date basis. So that translated into largely stable operating levels in North America. So that's really the factor that's at play here, but we've been largely stable. John Ezekiel Roberts: And then are you being impacted at all by Dow's silicone rationalization efforts in Europe? Sean Keohane: So as you know, Dow has announced the closure of their siloxanes plant in Barry Wales, and we have a fumed silica plant next door to them where we exchange some feedstock and materials as part of a long-term agreement that goes out through the end of 2028. And we're currently in discussions with Dow on exactly how they'll perform against that contract. Operator: Our next question comes from the line of David Begleiter with Deutsche Bank. Emily Fusco: This is Emily Fusco on for Dave Begleiter. Maybe a question on tire contract prices. How much do you expect 2026 prices to be down or expectations by region? And maybe if you could give some color on what percentage of negotiations have been settled. Sean Keohane: Sure. So what I can tell you is that we have completed roughly 25% of our contracts at this point, which is behind where we were at this time last year, where we were closer to 45% of the negotiations complete. And I think it's taking a little longer this year in part because everyone is having a difficult time trying to project exactly where their demand expectations should be for 2026, given all of the turbulence. I can't comment on final outcomes here as we're obviously far from done, and this is competitive information. Operator: Our next question comes from the line of Joshua Spector with UBS. Christopher Perrella: It's Chris Perrella on for Josh. Could you elaborate on the -- for the Performance Chemicals, the underlying assumptions that you have baked into the guidance for this year in terms of volume and growth -- volume and price expectations or mix expectations? Sean Keohane: Sure. So in Performance Chemicals, if you think about the basket of applications that we sell into, it typically over a longer period of time, will grow at sort of 1.5x to 2x GDP. Now what we are seeing in this segment is certain applications, particularly those in automotive and construction related are currently in what I would say is a cyclical trough. And so over time, we certainly expect those to improve, but the expectation of any material improvement into 2026, I think, is fairly limited. Now where we do have very positive expectations is in our targeted growth areas that I commented on in my prepared remarks, areas, including battery materials, the infrastructure applications, the broad trends around digitalization and how that's driving increased demand for our fumed silica for the CMP application for chip manufacturing. Those types of applications continue to exhibit strong growth, and we are performing well there. So when we look at the overall expectation for volumes, we certainly expect volumes to be up in 2026. But again, a mix of some headwinds that are more than being offset by these targeted applications with strong tailwinds. Christopher Perrella: And is there -- with -- depending on the application mix and your expectations, is there a mix uplift? Or is this -- I know the battery materials is kind of higher value, but is there a mix uplift expected this year? Sean Keohane: Yes. I would say the mix is probably pretty balanced. These applications that are growing well have good strong margins. But as you might recall, volumes that get pulled through from the automotive sector typically have pretty high margins as well because that business tends to be specified. So I would say the margin uplift from mix would be fairly, I would say, fairly balanced. The trade-offs would be fairly balanced there. Operator: [Operator Instructions] And our next question will come from the line of Kevin Estok with Jefferies. Kevin Estok: I'm asking on behalf of Laurence. I was wondering if you could share a little bit about how maybe the regional utilization rates kind of shook out during the quarter, maybe by region, if you have that sort of data? Sean Keohane: Sure, sure. So the regional picture has not really changed much from our prior comments. Certainly, in the Western regions, the impact from tire imports from Asia has reduced domestic production from our customers. I think if you go around the world, what you'll see in North America is that utilizations are somewhere between 75% and 80%. They're higher in Europe, I would say, somewhere in the 85-ish percent range, in part because Europe is a region that is net short of carbon black capacity and there's value that's placed on local supply. And we also had some contract volume pick up in last year's agreements. So overall, the utilizations are running in a higher place there. South America, they are lower and South America is a region that has been impacted by tire imports. But as I commented, we're starting to see trade policy and tariff policy begin to impact the level of tire imports. They're reducing the level of tire imports in the most recent data. So that's encouraging and hopefully will shift things back a bit in the region there to improve utilizations. But right now, those remain in the 70s at this point. And then if you look at Asia Pacific, we're running at quite high utilizations across our Asia assets as we typically do. And here, we're really choosing carefully the customers and products that we are supplying to maximize the value out of our Asian assets and to align our capacity with customers that really value our value proposition of product performance and quality and supply reliability. So that's a bit of a walk around the world in terms of utilization. I would say that's largely been the story throughout 2025. So no recent shift in that. And again, the question as we move forward is how do regional volumes develop in large part, given how tire imports are likely to play out. Operator: And I would like to hand the conference back over to Sean Keohane for closing remarks. Sean Keohane: Great. Thank you very much for joining us today. Apologies for the technical difficulty at the very beginning there, but glad we were able to get back connected here. Thank you for joining. Appreciate your support of Cabot, and we look forward to talking to you again throughout the next quarter. Thank you. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Hello, and welcome to Exelon's Third Quarter Earnings Call. My name is Gigi, and I'll be your event specialist today. [Operator Instructions] Please note that today's webcast is being recorded. [Operator Instructions] It is now my pleasure to turn today's program over to Andrew Plenge, Vice President of Investor Relations. The floor is yours. Andrew Plenge: Thank you, Gigi, and good morning, everyone. Thank you for joining us for our 2025 third quarter earnings call. Leading the call today are Calvin Butler, Exelon's President and Chief Executive Officer; and Jeanne Jones, Exelon's Chief Financial Officer. Other members of Exelon's senior management team are also with us today, and they will be available to answer your questions following our prepared remarks. Today's presentation, along with our earnings release and other financial information can be found in the Investor Relations section of Exelon's website. We would also like to remind you that today's presentation and the associated earnings release materials contain forward-looking statements, which are subject to risks and uncertainties. You can find the cautionary statements on these risks on Slide 2 of today's presentation or in our SEC filings. In addition, today's presentation includes references to adjusted operating earnings and other non-GAAP measures. Reconciliations between these measures and the nearest equivalent GAAP measures can be found in the appendix of our presentation and in our earnings release. It is now my pleasure to turn the call over to Calvin Butler, Exelon's President and CEO. Calvin Butler: Thank you, Andrew, and good morning, everyone. We are happy to have you with us today for our third quarter earnings call. As we reach the last months of 2025, the 25th year since Exelon's founding, our employees continue to execute with excellence, serving our customers, communities and shareholders. We reported earnings of $0.86, which was stronger than anticipated due to slightly warmer weather and a mild storm season, along with timing-related drivers. We continue to reaffirm our operating earnings guidance for 2025 of $2.64 to $2.74 per share, and we look forward to closing out the year strong. We also continue to deliver some of the best operational performance in the industry. In fact, we now have the final results of our reliability benchmarking for last year, and our 4 utility operating companies are ranked 1, 2, 4 and 7 out of our peer set, improving upon last year's already stellar 1, 3, 5 and 8 rankings. I could not be prouder of the way our employees show up every day, whether it's selecting, planning and operationalizing the right investments to avoid outages or being the fastest to get customers back online if the power does go out. This performance has real value, particularly when you consider that a typical major storm can cost hundreds of thousands of dollars for the average customer, depending on its size. Our operational North Star is to continuously improve upon this performance, offering above-average performance at below average rates to the communities we have the privilege and honor of serving. Results like that show we're living up to that standard. As it pertains to rate cases, we remain on track for our gas distribution rate case at Delmarva Power and our Atlantic City Electric rate case. We also filed a rate case at Pepco, Maryland with a decision required per statute by August of 2026. The filing supports the company's commitment to delivering safe, reliable and resilient service while further preparing the local grid for future clean energy demands. Our filing also demonstrates true focus on customer value, reflecting strong O&M cost containment and robust projected benefits from specified reliability investments that significantly exceed their cost. Outside of rate cases, we have seen more progress in our states and at PJM when it comes to advancing solutions to meet the growing need for reliable and resilient power. Last week, Illinois passed the Clean and Reliable Grid Affordability Act, which directly supports resource adequacy by expanding the annual budget for energy efficiency, broadens the types of assets eligible for the distributed generation rebate and creates an energy storage procurement plan. It also requires the commission and other state agencies to develop 4-year integrated resource plans and gives the ICC discretion to facilitate transmission projects that support state goals. This marks the next chapter in Illinois energy transition, and we look forward to working with policymakers on implementing this next set of programs. In Maryland, the commission initiated a request for merchant generator proposals for up to 3 gigawatts of new energy supply. The process attracted several submissions, though the disclosed capacity levels have fallen short of their target, and we will learn in December which of those projects the Maryland Department of Natural Resource Power Plant Research program might recommend. And PJM is working through its Critical Issue Fast Path process for options to better accommodate new large loads, assisting our states as they navigate unprecedented levels of growth. We are encouraged by the breadth and amount of engagement in that process, and we look forward to finding solutions that ensure customers can rely on cost-effective power supply. And as we have stated, these efforts are welcomed and necessary, but they are not enough. There is a significant anticipated shortfall in supply and hoping that markets alone will fill it puts too much risk on customers that increasingly depend on affordable supply to power their lives. All states need to leverage all available options to bring control, certainty and customer benefits to securing power. These options help ensure that all customers continue to have reliable access to energy and that the states can participate more fully in the economic development opportunities from artificial intelligence and onshoring. The supply challenge is real, and we know utilities can be a key partner in helping the state solve it, whether it's supporting investments in the demand side like energy efficiency, distributed and community solar and storage or even owning more traditional generation plants. We stand ready to work with our states as they seek opportunities to address growing energy security needs in a manner that fits their goals. The demand for power is not slowing down. Our large load pipeline now stands at over 19 gigawatts as we have finalized our cluster study approach and now account for our first transmission security agreement at PECO. The innovative TSA approach ensures we strike the right balance in prioritizing large loads, while ensuring our existing customers are protected. Furthermore, we now have at least 27 gigawatts either waiting signed TSAs or in active cluster studies with many more behind those. Additional details on our large load outlook can be found in the appendix. Connecting new business is expected to be just one of the drivers of the anticipated growth in transmission investment in our next 4-year plan. This new business will also drive broader needs for the grid, which get identified in reliability assessments like PJM's open windows, and it helps drive inter RTO opportunities like MISO Tranche 2.1 segment running through ComEd's territory. We will be monitoring the recommendations coming out of PJM's latest open window over the next 3 months to determine if any of the solutions we have proposed either individually or with partners are selected. With no project greater than 3% of our 4-year plan, we are focused on bringing all of our customers along at the appropriate pace while also ensuring we can earn a fair return of 9% to 10% on the equity capital provided by our investors. With rate base growth of 7.4% through 2028 and a balanced financing plan, we expect to grow our earnings at an annualized rate of 5% to 7% with the expectation of always delivering at the midpoint or better of that range. I will now ask Jeanne to cover more details on our regulatory updates and financial performance. Jeanne? Jeanne Jones: Thank you, Calvin, and good morning, everyone. Today, I will cover our third quarter financial update, along with our financial and regulatory outlook for the remainder of 2025. Starting on Slide 5, we present our quarter-over-quarter adjusted operating earnings walk. Exelon earned $0.86 per share in the third quarter compared to $0.71 per share in the third quarter of 2024, reflecting higher results of $0.15 over the same period. Earnings are higher in the third quarter relative to the same period last year, driven primarily by $0.12 of higher distribution and transmission rates, net of associated depreciation and $0.06 associated with the ability to seek deferral treatment of the PECO extraordinary storms earlier this year and favorable storm conditions at BGE. This favorability is slightly offset primarily by interest expense. These results are ahead of the expectations noted in our prior quarter call, primarily due to better-than-normal storm conditions, timing of O&M spend and tax timing at PECO. As we close out the year in the fourth quarter, we remain on track to achieve operating earnings of $2.64 to $2.74 per share with the goal of delivering at midpoint or better. Our fourth quarter guidance assumes a reversal of timing, including O&M, distribution earnings at ComEd and PECO taxes; fair and reasonable outcomes for open rate case proceedings, including reconciliations at BGE, Pepco, Maryland and ComEd; and normal weather and storm activity. Finally, we reaffirm our annualized operating earnings growth rate of 5% to 7% through 2028 with the expectation to be at the midpoint or better of that range. Turning to Slide 6. I will now review the regulatory activity across our platform. Starting with the base rate case activity, we continue to make progress on the Delmarva Power gas distribution rate case filed last September with the final settlement conferences held in October. As a reminder, the filing seeks to recover reliability investments such as aging pipe replacements, and it also seeks recovery of LNG plant upgrades, which would protect customers from price volatility during peak periods. We anticipate an order in the first quarter of '26. At Atlantic City Electric, settlement discussions continue as we seek recovery for grid improvements and modernization investments in line with New Jersey's Energy Master Plan and the Clean Energy Act. We continue to anticipate an order by the end of the year. Finally, on October 14, Pepco filed an electric base rate case in Maryland, requesting a net revenue increase of $133 million, utilizing a fully forecasted test year. The request supports key infrastructure investments to modernize aging infrastructure and improve reliability while also supporting Maryland's clean energy goals. As part of the filing, Pepco through an independent firm found that $38 million of investments generate nearly $262 million in benefits to customers through avoided outage and restoration costs as well as avoided O&M expenses over the next 20 years. The filing also offers a suite of programs and resources that help manage rising energy costs, increase awareness of energy usage and provide direct assistance to those who need it most. Per Statute, an order is expected from the Maryland Public Service Commission in August of 2026. Beyond base rate cases at ComEd, we remain on track for our first reconciliation under the new multiyear plan framework, where we continue to robustly support the spend submitted for reconciliation throughout the final briefing process. An ALJ-proposed order is expected later today, and the ICC will issue a final order by December 20. In Maryland, we continue to await decisions on our final reconciliations from the first PGE and Pepco Maryland multiyear plans, along with the commission's order on the lessons learned proceeding to support future filings. We look forward to moving forward with an approach that best aligns stakeholders' interest in balancing affordability, reliability and the state's economic development and energy policy goals. Finally, turning to Slide 7. I will conclude with updates on our balance sheet activity, where we've continued to derisk our financing plan and ensure cost-effective capital to invest for the benefit of our customers. In September, PECO issued $1 billion in debt, completing all of our planned long-term debt issuances for the year. The strong investor demand and attractive pricing we've achieved in our debt offerings is supported by the strength of our balance sheet and by the low-risk attributes of our platform. We continue to seek opportunities to take advantage of current market dynamics to derisk our plan. This includes utilizing our pre-issuance hedging strategy and pricing future equity needs to settle through forward agreements under the ATM, reducing interest rate and share price exposure. Through the third quarter, we have priced nearly half of our equity needs through 2028, including all of our annualized equity needs in 2025 and $663 million or 95% of our 2026 annualized equity needs, which we expect to settle next year. In line with our last earnings call, we continue to project 100 to 200 basis points of financial flexibility on average over the Moody's downgrade threshold of 12%, approaching 14% at the end of our guidance period. We also continue to advocate for language that incorporates all tax repairs for calculating the corporate alternative minimum tax. As a reminder, favorably addressing all repairs in the minimum tax calculation will result in an increase of approximately 50 basis points in our consolidated credit metrics on average over the plan. Thank you, and I'll now turn the call back to Calvin for his closing remarks. Calvin Butler: Thank you, Jeanne. As we approach the end of our 25th year as Exelon, we are working to add to our legacy of excellence, delivering on our commitments to our customers, our communities and our investors. Many of you may have seen us ring the opening bell at NASDAQ last month, and I was honored to represent our company alongside some of our longest tenured employees. Standing next to me were just a few of our more than 2,500 employees who have been with us and our local energy companies for 25 years or more. Our operating companies have over 800 years of collective experience, delivering energy to customers provided by dedicated employees who keep the lights on and the gas flowing day in and day out, no matter the conditions. And they are the reason our utilities are ranked as the best or among the best in the business for reliability. They also can't do it without smart, targeted investments in our grid. It's why 98% of the net profit earned at our utilities generated with fair returns on the shareholder dollars entrusted with us have been reinvested back into the system over the last 5 years. Those investments not only deliver top-notch service, they also boost local economies with every $1 million creating 8 jobs or $1.6 million of economic output. So we don't take this performance or the responsibility of supporting our communities for granted, and we know it will take continued discipline to ensure that we can provide high levels of service at below average prices for another 25 years and beyond. We will continue to advocate that our jurisdictions provide fair recovery for our investments with the expectation that service remains high, that we treat all users of the grid fairly and equitably and that we put our customers first. Our priorities this year do just that, ensure we earn that right to provide our customers top-notch value every day. For example, we continue to focus a dedicated team on pulling cost out of our business to keep cost growth below inflation. We push our business lines to work smarter and leverage technology, providing better service at lower cost. We advocate for rate-making constructs that ensure we can plan, invest and operate as efficiently as possible, benefiting from alignment and forward-looking planning. We continue to support and leverage customer assistance programs like LIHEAP and to advance rate designs that support the customers who need it most. And we advocate for fair policies that can equitably serve growing load while instilling greater confidence in resource adequacy. That includes developing our innovative TSA approach, which we have filed for our first customer with FERC and are proposing as part of tariff adjustments at ComEd. And it's why we're increasingly advocating that our jurisdictions take more control over their power supply. They can complement supply induced by better designed markets with solutions like utility-owned generation that regulators oversee, giving them control, certainty and cost benefits for customers that markets alone don't offer. We look forward to closing out 2025 strong, earning an ROE aligned with allowed levels in the 9% to 10% range and delivering against our guidance of $2.64 to $2.74 per share, always with the goal of midpoint or better while maintaining a strong balance sheet. There would be no better way to celebrate our 25th year as Exelon and further cement our foundation to deliver consistent growth and long-term value for another 25 years. Gigi, we are now ready for questions on the line. Operator: [Operator Instructions] Our first question comes from the line of Shar Pourreza from Wells Fargo. Shahriar Pourreza: Appreciate it. Luckily, there's no news flow in the space, and it's been kind of relaxed. Calvin Butler: That's just our way of saying we missed you. Shahriar Pourreza: Yes, I missed you, too. So Kevin, just obviously, resource adequacy was very topical in your prepared remarks. Maybe just starting with Maryland. Just your broad thoughts around the RFP. I mean you've been out there talking about regulated solutions to solve the needs there and now Constellation just came out with their own solutions ironically this morning. Can we just get a sense on how you're thinking about the process, the timing and then your views on sort of these competing options that were proposed this morning. Calvin Butler: Yes, thank you, Shar, and I appreciate the question. Let me first begin by saying that we commend the state of Maryland for initiating the process. And while we appreciate that they received some responses, our view is that they fall short of what's needed for the state and for PJM more broadly. Having said that, we're happy to see the several parties stepped up and actually talked about adding supply. Let's be clear, this is all about solving the problem and bringing energy costs under control for our customers. And that's what we're focused on, affordability and reliability each and every day. Customers have voiced very strongly that they're frustrated with high energy costs, and we are frustrated, too. But overall, we are encouraged to see a reply to the RFP. And like I said, the disclosed need fell short of the goal, and we'll have to see what the Maryland Department of Natural Resources and other stakeholders recommend to the PSC, but we are more than willing to step up. And as we've said before, Shar, if the competitive market is willing to step up and fill this need to meet us where we are at this time and not relying on the old rules of the past, we're okay, but it's time to move forward and continue to be progressive and aggressive in what we're trying to do for the state. Shahriar Pourreza: Got it. That's perfect. That's actually consistent with what you've been saying. And then maybe just, Calvin, shifting to Pennsylvania. There's obviously 2 bills sitting at the House and Senate around resource adequacy. I think they reconvened in November. I guess thoughts there. And more importantly, can the wires companies kind of strike a middle ground with the IPPs maybe around a long-term resource adequacy agreement structure that is also being proposed in the legislation versus this kind of push-pull around rate basing generation or doing nothing and letting the market dictate new [ bills ]. So I guess how are the discussions in Pennsylvania going? Do you think you could strike a deal there? Calvin Butler: First off, we are committed to working with all the parties. from the governor's office to the IPPs and of course, with our peers in the state. Mike Innocenzo, our Chief Operating Officer, is here, and I know he's been as former CEO of PECO, he's been very engaged in that discussion as well. Mike, anything to add? Michael Innocenzo: Yes, sure. Thanks, Calvin, and thanks, Shar, for the question. Discussions in Pennsylvania continue to go very well. As you're aware, Pennsylvania is a little different space in that they continue to be an exporter, continue to see the value of being an exporter, leveraging our natural resources in Pennsylvania and continue to see the advantage of being an exporter in terms of economic development and look as that as an opportunity to solve that. There are 2 active bills, one in the Senate, one in the House that are being discussed. At the same time, we're talking with the governor's offices about on all of the above solutions, including longer-term PPAs, contracts. So I think you'll start to see more activity, probably more likely in the spring. Candidly, they're in the middle of budget discussions in Pennsylvania right now, which is taking most of the legislative space. But we've seen some active discussions with the governor's office. In addition, I don't know if you saw that the PUC hired a party to do a third-party study on that. And I think that will also inform where we go in the spring. Operator: Our next question comes from the line of Paul Zimbardo from Jefferies. Paul Zimbardo: I was hoping you could unpack the new Illinois legislation a little bit just in terms of what you see the investment opportunities, energy efficiency, transmission for some of these distributed resources. If you could just kind of unpack that a little bit, that would be helpful. Calvin Butler: Sure, Paul. I will start, and I will lean to my colleague, Jeanne, to help with that discussion as well. But as you know, on the last night of the Fall Veto session, Illinois passed what is called Senate Bill 25, the Clean and Reliable Grid Affordability Act, and it really focused on 2 things, Paul, around state -- new customer programs as well as state policy and resource adequacy. It enhanced the energy efficiency program, which is one of the quickest and most efficient ways to improve resource adequacy, and it laid out a target of 3 gigawatts of storage by 2030. That is significant. And it also expanded the opportunities for consumers to leverage distributed generation rebate programs and also advancing virtual power plan approaches and mandating time-of-use rate offerings, which, by the way, ComEd already offers some time of use rate offerings. So this is in furtherance of that and telling people, if you're going to come into the market, we're going to evolve into that area. And finally, it also focuses on the broader role that the state can play in developing that integrated resource plan that I mentioned in my opening comments. So we think this gives the state further opportunity, and this is how they're looking at it to demonstrate leadership in energy policy while also supporting economic development. And let me tell you from ComEd's point of view and Exelon's point of view, any opportunity we can to invest in the grid to keep that #1 spot in reliability and resiliency and to create jobs and economic development in the state, we're leaning in with them. And I know our CEO, Gil Quiniones at ComEd has been in discussions with not only the commission, but the governor on what's next, but we're very actively engaged in that process. Paul Zimbardo: Excellent. And as we all start to think about fourth quarter and maybe a little bit of a sneak peek, I like that transmission slide where you showed the large step-up in rate base in 2028. And obviously, that doesn't all add earnings in '28. As we think about 2029 and that roll forward, is it fair to think about the stronger growth year than 2020, you say below the midpoint of the range. Is it fair to think 2029 is stronger within the range? Jeanne Jones: Yes. We'll give formal guidance on the Q4 call, Paul. But I think you're thinking about it right. We've got a lot of transmission opportunities to drive the solutions necessary as we see all this demand come in. We're very excited about transmission on the competitive side as well. You probably saw that we were active in the open window, both with partners, but also solutions just from an Exelon perspective. And we think we'll have clarity there by the end of the year on some of that, roll that into the Q4 update. None of that is contemplated in our guidance nor is it in the $10 billion to $15 billion of transmission that we talk about outside the window. But what I would also say is a lot of those solutions -- all of those solutions are 2030, 2032. So the spend is sort of around the corner outside of the planning period. But what it does is it speaks to sort of the strength and the length of the continued growth in our rate base. We always aim to be at that 7% to 8% to drive the 5% to 7%. And I think this just positions us well to execute in the upper portion of that 7% to 8%. Operator: Our next question comes from the line of Nicholas Campanella from Barclays. Nicholas Campanella: Maybe just -- you kind of mentioned it in the prepared remarks around repairs and the CAMT. But just -- is this something that you think you kind of get clarity on by year-end and potentially consideration for the financing outlook as we kind of prepare for the disclosures out to '29? Or just what's the kind of time line there to get that clarification? Jeanne Jones: Yes, we're hopeful [indiscernible] end of the year. We know the IRS is working on additional sort of guidance for CAMT. And so hopeful we get that clarity by the end of the year. We do know some guidance was put out. The way it was written, didn't achieve sort of the full intent. And so we're still working on that. But what I would say, though, is that, as we've talked about, that would be incremental cushion into the balance sheet and would be factored into the full update for our financing plan on Q4. But pleased to see progress there. I just want to hopefully close it out here in this year. Nicholas Campanella: And I guess like if you had the opportunity to use that cushion, is it less equity needs or accelerate CapEx further, just cognizant of the different pushes and pulls there? Jeanne Jones: Yes. We want to stay on that path to 14%, as we mentioned. So this would be good momentum towards that 14% by the end of the planning period. And I think we would -- we've got equity in there. We've got hybrids. We've got additional capital coming in. So we'll put all that together and make sure that we deliver kind of the most efficient plan while we maintain that 14% or better, but also driving the 5% to 7% midpoint or better. So we'll factor that all in, but I would say that, that's just helpful as we think about the cushion towards that 14%. Nicholas Campanella: That's great. And then just if I could really quick. I know it's small, but just the ACE rate case has been going on for a long time. And you're still saying that you're on track to settle this case. And maybe you can kind of talk a little bit about what's kind of informing the view that settlement is still on the table and why this wouldn't just go to a final order in the coming months here. Calvin Butler: Thank you, Nick. To your point, that case was filed in November of 2024. And I need to give the Atlantic City Electric team and Tyler Anthony, the CEO of Pepco Holdings, a lot of credit because they've been working with the commission and all stakeholders, including our governor and just making sure that we're being transparent, talking about each and every investment where it's needed and what the goals -- the shared goals of the parties are. And that's why we're encouraged that we can get to settlement, but it is a process. And we do anticipate that, that will happen by the end of the year. But at the same time, they do have the right to implement the interim rates subject to refund. So I believe that keeps all of the discussions moving forward and the settlement on the table because under law, you -- once you implement it, then it's subject. So they're saying, let's get it right, right out the gate. And that's what they've been working on from day 1. And I know we've been talking to both gubernatorial candidates on where we're going and what we're trying to do in that partnership. So that's why we're encouraged. Operator: Our next question comes from the line of Jeremy Tonet from JPMorgan Securities LLC. Jeremy Tonet: Just want to pivot a little bit here, if we could, towards the Amazon TSA. It seems like there's been some developments there. Just wondering if you could provide us, I guess, your most updated thoughts on this part of the business. Jeanne Jones: Yes. So what we've started to do for our large load is implement what we're calling a transmission services agreement. And so with that -- the first one that we did was the one that you mentioned with the PECO data center -- the data center in PECO's territory. We like this because it does a couple of things. One, it helps really kind of solidify projects, right, and kind of maybe weed out any speculative projects, but it also protects the rest of our customer base. So it's similar to what we've had historically on the distribution side where you have deposits and letters of credit and other things that sort of -- that help protect the other customers should the demand that we build for not show up. And so we executed our first one there with -- in the PECO territory, but we've now also filed in the ComEd service territory a large load tariff, which would ask that all large loads greater than 50 megawatts sign these agreements. And so that, we think, help does the 2 things that I mentioned, right, kind of really firm up the commitments, but also protect other customers should the demand not rise. And I think what we also tried to do on Slide 13 of the deck is to show you kind of how that pipeline of large load is kind of filtering into the high probability column. You can see in the column of the 47 gigawatts of the ones that we're studying, which ones are still being studied, which ones have already been studied and are awaiting a TSA. Once we get that TSA signed, we would move it into the high probability. So that's a way to kind of keep track of how different load and different megawatts are moving from one category to the next. Jeremy Tonet: Got it. That's helpful. And just wondering, I guess, any thoughts, I guess, on the $10 billion to $15 billion of transmission CapEx and thinking about probability weighting all this and everything as you outlined there, we've seen a number of your peers across the space lift their growth outlooks. And just wondering, I guess, what opportunities Exelon sees to stay kind of competitive with those type of growth rates? Jeanne Jones: Yes. I think we are like running our -- I think we are running our core business really, really well, right? Transmission and distribution operations, first quartile for all operations, delivering above-average performance with below average rates, continue to have met or actually exceeded all of the guidance, upgraded S&P. So I think the core business is running really, really well. And as we think about additional growth, that comes to your point, in the form of transmission and energy security solutions. But you also know us at Exelon, we're not going to put anything in the plan that isn't certain and bankable. And so as we look for transmission, for example, I mentioned earlier, we do have some proposals in front of PJM in the current window. We'll know more about those proposals by the end of the year. And once we have certainty on those, those will come in, and we'll put them in the plan so that you don't have to speculate or probability weight some of them that once they're in, you know that we feel very certain about them. But as I mentioned before, we're focused on delivering really in the high end of what we've committed to. And as we see some of these opportunities materialize, in the back end of our plan, then we can start to think about that. But let's focus on the execution first and getting them in. And of course, we'd always love to be talking to you about more, but we're going to focus on what's executable and build it in and put it into the plan once we know it's certain. Operator: Our next question comes from the line of David Arcaro from Morgan Stanley. David Arcaro: Let's see, I had a quick question on that large load pipeline that you've laid out on Slide 13. I was just wondering if you could just maybe characterize how you probability weight that 47 gigawatt pipeline. I appreciate the extra detail you provided there. But like in aggregate, are those still less likely to move forward? Or for some of those, is it just more of a matter of timing where eventually those could become more advanced stage projects? Jeanne Jones: I think it's more a matter of timing. But what we're really trying to do is before we move it to that column, do 2 things. One, complete the cluster study. So all of the load is now studied in a cluster approach so that we can give more certainty to the customers on time and time to connect and other associated questions, location, et cetera. We want to go through that first. And then from there, once we provide that information to customers, have them sign the TSA agreement. So those -- that's kind of a 2-step process, which once it goes through that, you can have -- you and us and our states and our customers can have much more certainty around this is highly probable, and it will go into that 18-plus column. So that's how we're thinking about it. But I would tell you, it's all real. It continues to grow. If you look at the chart, right, you've got 6 that have already been studied and just awaiting TSA signing. You've got 20 across the Mid-Atlantic and Illinois that is actively being studied and then another 20 that is ready to be in the next cluster study. So we've seen this grow over the last couple of years that we've been talking about this from 6 gigawatts to 18 highly probable and 47 studied or waiting to be studied. And so I think that speaks to -- there's a lot of certainty around this. But until we tell you -- until we go through those 2 steps, we don't count it highly probable. That's the process we're following now. Calvin Butler: And David, I would just add, that is what's significant about that, you've probably heard the discussion around a lot of double counting that may be taking place across the country and the industry. This -- our process helps eliminate that and really focus on who's real and who's not. David Arcaro: Yes, absolutely. That makes sense. And I guess on that time to connect, I guess, what is the time to connect that you're seeing for new data center projects that are kind of getting into that 47 gigawatt, getting into the cluster study process? What is the maybe wait time or when are you able to offer power in your service territory for new data centers? Calvin Butler: I'll start with that general it depends, it depends on size, location, the ramp-up period, but Mike Innocenzo and his CEOs have been involved in this process from day 1, and I'll look to Mike to give any further clarity. Michael Innocenzo: Yes. I mean I would just say -- I would expand on it. It depends. I would say the things that we do to try to shorten that, we understand the speed is really important. First thing we start with is where do we have capacity on the grid. So our first discussion with any data center would be where is existing capacity, where is existing infrastructure. You've seen that in -- so for example, the NorthPoint one in PECO's territory where we've used the site of a former facility and by -- they signed the TSA agreement just a couple of months ago. And by the spring, it will be PECO's largest customer on their site. So where we can use existing infrastructure, existing capacity, we're doing everything we can to connect them. We're working with our customers on the ramp-up time so that we can connect them quickly within a year or 2 or even less than that as an example of NorthPoint with existing facilities and ramp that up and then working with PJM in terms of expediting the process for any of the long-term investments that are needed for updating the grid for some of the larger loads. Calvin Butler: And if I can, David, let me share with you, you've got the back end of what operations takes over. Over 1.5 years ago, we centralized all of our large accounts, our data center accounts to really work with the customers in the strategic planning process. Just last month, we had our 25 largest customers in Chicago and really started talking to them about what you need, where you're going and what is your ramp-up time on certain things across our jurisdictions. So it's not just one state. We're working with them about what we have across our footprint, which once again elevates the size and scale of Exelon because we're in multiple jurisdictions, and we can help meet that need. So we started this process a long time ago, and we get up in the strategic planning process before we even start talking about shoveling ground. Operator: At this time, I would now like to turn the conference back over to Calvin Butler for closing remarks. Calvin Butler: Well, first off, let me just say thank you. Thank you for taking the time today and for being part of our 25-year journey at Exelon. We appreciate your support, and we look forward to seeing many of you next week at EEI. We're looking forward to the discussion and just the constant dialogue means a lot to us, and I know for our employees to be engaged in. And so with that, Gigi, this concludes the call. Operator: Thanks to all our participants for joining us today. This concludes our presentation. You may now disconnect. Have a good day.
Operator: Good day, everyone, and welcome to JBT Marel's Earnings Conference Call for the Third Quarter of 2025. My name is Jim, and I will be your conference operator today. And as a reminder, today's call is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to JBT Marel's, Senior Director of Investor Relations, Marlee Spangler, to begin today's conference. Marlee Spangler: Thank you, Jim. Good morning, everyone, and thank you for joining our third quarter conference call. With me on the call is our Chief Executive Officer, Brian Deck; President, Arni Sigurdsson; and Chief Financial Officer, Matt Meister. In today's call, we will use forward-looking statements that are subject to the safe harbor language in yesterday's press release and 8-K filing. JBT Marel's periodic SEC filings also contain information regarding risk factors that may have an impact on our results. These documents are available in the IR section of our website. Also, our discussion today includes references to certain non-GAAP measures. A reconciliation of these measures to the most comparable GAAP measure can be found in the IR section of our website. With that, I will turn the call over to Brian. Brian Deck: Thanks, Marlee, and good morning. As you saw in our earnings release, we significantly exceeded our expectations for revenue and earnings in the third quarter of 2025. Primary drivers of our outperformance were excellent manufacturing and supply chain productivity, which enabled higher backlog to revenue conversion, a favorable equipment mix and an acceleration of synergy savings. In light of our strong third quarter performance, we have raised our guidance for full year 2025. At the same time, demand remained healthy with combined JBT Marel orders of $946 million, an increase of 7% from the prior year period. In particular, we experienced continued equipment investment from the poultry industry, our largest end market, and our pipeline for poultry-related projects is expected to provide support well into next year. Beyond poultry, orders from pet food and pharma were robust in the quarter. In the ultimate display of the benefits of diversification, we took 2 large orders in support of a major pharmaceutical firm's investments in GLP-1 production capacity. Geographically speaking, demand was strong in North America. While Europe and Asia were softer sequentially, we enjoyed a good quarter in Latin America with some large pet food, poultry and juice orders. We ended the quarter with a backlog of $1.3 billion. That, coupled with our resilient recurring revenue, provides visibility for the remainder of the year and support as we enter 2026. Additionally, as Matt will discuss, we made further progress on deleveraging our balance sheet. And as Arni will highlight, the integration of JBT and Marel's remains on track as we take actions to capture synergy savings and enhance our value proposition to customers. I will come back at the end and talk about a few ongoing initiatives that will make JBT Marel an even stronger partner to our customers over the long-term. Let me turn the call over to Matt to discuss our third quarter performance and revised outlook for the year. Matthew Meister: Thanks, Brian. For the third quarter of 2025, total revenue was approximately $1 billion, an increase of 7% sequentially. We exceeded our revenue expectations by approximately $65 million as we benefited from excellent manufacturing and supply chain productivity, which allowed us to convert approximately $45 million more backlog to revenue than originally expected. Additionally, we had about $20 million in higher book and ship revenue in the quarter compared to our expectations. Revenue in the quarter included approximately $26 million in favorable year-over-year foreign exchange translation impact, which was in line with expectations. Our third quarter adjusted EBITDA margin of 17.1% exceeded our expectations by about 140 basis points. Beyond volume flow-through, margins were better than we forecasted due to favorable mix of poultry equipment and shorter-cycle products, coupled with better-than-expected synergy savings. For the quarter, we realized year-over-year synergy savings of $14 million. Third quarter GAAP EPS was $1.28, and adjusted EPS was $1.94. Adjusted EPS excludes certain onetime items and acquisition-related costs, which were outlined in yesterday's press release and investor presentation. As it relates to the tariffs, based on what is currently understood, we still believe in the quarterly impact of JBT Marel's material costs. Before any mitigation efforts would be in the range of $22 million to $25 million. Because of our cost mitigation efforts, the net tariff impact before any pricing actions was approximately $15 million in the quarter, slightly less than anticipated. We expect the net cost impact before pricing actions to increase to about $20 million in the fourth quarter, with the increase primarily due to recently enacted additions to Section 232 tariffs. In the immediate term -- in the intermediate term, we will look to increase the utilization of our domestic facilities for production and assembly and further localize JBT Marel's supply chain. In terms of the additional proposed Section 232 tariffs related to the import of robotics and industrial equipment under consideration. As we currently understand the scope, we do not include equipment associated with food production. Therefore, while we may see some modest component cost increases, we do not expect a material impact on JBT Marel. As we progress further into the integration of JBT and Marel and are successfully operating as one combined entity, the allocation of revenue and expenses between the legacy companies is becoming less meaningful. As such, during the fourth quarter of 2025, we plan to introduce our new segment reporting, which reflects the way we will operate the business. The new segments will be Protein Solutions and Prepared Food and Beverage Solutions. Protein Solutions will include the JBT Marel businesses that focus on initial stages of processing and harvesting of animal proteins. The Prepared Food and Beverage Solutions segment predominantly focuses on the downstream value-added preparation, preservation and packaging of foods and beverages into ready-to-eat or drink products. In order to provide comparability, we will recast historical annual results for 2023 and 2024, and quarterly results for 2025. We plan to make those historical financials available prior to the release of our fourth quarter and full year earnings. In terms of our third quarter segment results, JBT segment revenue of $465 million increased approximately 2%, both year-over-year and sequentially. JBT segment adjusted EBITDA of $71 million decreased 13%, both year-over-year and sequentially, with an adjusted EBITDA margin of 15.3%. The decrease in margins is the result of unfavorable mix of equipment, one-off project variances and a higher share of corporate-related costs carried in the JBT segment. Marel segment revenue in the third quarter was $537 million, an increase of 12%, sequentially. Marel segment adjusted EBITDA was $100 million, representing a margin of 18.6%. Marel's strong profitability in the quarter was a result of favorable mix from higher-margin poultry equipment, integration synergies and volume leverage as well as continued improvement in the fish and meat businesses. Through the first 9 months of 2025, we generated operating cash flow of $224 million and free cash flow of $163 million. For the third quarter, we achieved record quarterly operating cash flow of $88 million for the combined company. We continue to make significant progress on deleveraging our balance sheet. From an initial leverage ratio of 4x at the close of the combination. At the end of the third quarter, our financial leverage decreased to 3.1x. And by year-end, we expect that our leverage will be below 3x. Previously announced in the quarter, we completed the issuance of $575 million of senior convertible notes with a coupon of [ 37.5 ] basis points due in 2030. The notes enable us to prefund the upcoming May 2026 convertible notes maturity at a lower interest expense relative to high-yield debt. And with the call spread, we have effectively mitigated shareholder dilution until the share price reaches approximately $283. As Brian mentioned, we have increased our guidance for full year 2025 to reflect the strength of our third quarter results. We are expecting revenue between $3.76 billion to $3.79 billion, including approximately $70 million to $85 million in favorable year-over-year foreign exchange translation effect. We are forecasting full year adjusted EBITDA margin to be 15.75% to 16% and adjusted EPS of $6.10 to $6.40. For full year 2025, we now anticipate in-year synergy savings of $40 million to $45 million, slightly above our previous target and run rate savings of $80 million to $90 million as we exit the year. We remain on track to achieve annual run rate savings of $150 million within 3 years of the combination. Let me now turn the call over to Arni, who will discuss the progress and specific benefits we are realizing as a result of the business combination and integration. Arni Sigurdsson: Thanks, Matt. It is clear that our results demonstrate the benefits of JBT models complementary solutions, diverse end market participation, increased scale and continuous improvement efforts. As Matt said, we have increased our estimates for in-year realized synergy savings, a testament to the disciplined execution of our integration plan and the dedication of our team. For example, on the supply chain side, we are actively realizing synergies by rightsizing our supplier base and optimizing our procurement strategies as JBT model. That is with the goal of improving terms, quality, delivery and pricing. We recently renegotiated our air and ocean freight contracts, reducing the number of suppliers from more than 150 to 5. Given these efforts, we expect to capture more than $5 million in annualized cost savings, a very meaningful number. Following the implementation of our new organization in the second quarter, we have also continued to capture operating expense savings. This includes consolidating contracts, the sales and service office footprint and third-party spend across our finance, legal and IT departments. During the quarter, we inaugurated a new global production center in Pune, India, with a full new JBT model branding. The location positions India as key expert hub and brings JBT Marel's application expertise to the broader Asia Pacific region. Our global scale provides the flexibility to produce products in the region where our customers are located, adding optionality as tariffs continue to evolve. We now have dedicated low-cost manufacturing platforms in Asia, Latin America and Eastern Europe to support in-region profitable growth. As we outlined in our last call together, JBT and Marel are an even more valuable partner to our customers. We achieved that with our customer-centric approach, which features account managers representing the entire portfolio, our expanded service network and full-line solutions and process know-how across the value chain. We can simplify the buying process, installation and service for our customers and provide a one accountable vendor. In our conversations with customers at trade shows and on specific projects, it is clear that they recognize the value of our expanded capabilities. A good example is a recently secured hamburger line order, which includes meat preparation, forming, weighing, lean measurement, freezing and software from the JBT and model portfolio. Sustainability also remains top of mind for the food and beverage industry. At JBT Marel, sustainability is embedded in who we are as an organization. During the third quarter, we published JBT Marel's first joint sustainability report. In it, we discussed how we deliver sustainable and efficient outcomes for our customers through application expertise and leading technology. And that focuses on minimizing food and package waste, lowering energy and water usage and improving food traceability and safety. I am proud of JBT Marel's role in advancing sustainability as we transform the future of food. With that, let me turn the call back to Brian. Brian Deck: As you heard from Arni's remarks, we are making excellent progress on the integration and have delivered quantifiable benefits in terms of supply chain and operating expense savings. And there is more to come as we enhance our holistic solution offerings with an emphasis on service and digital capabilities. For example, as we have discussed over the past several years, our software and digital platform further enhance JBT Marel's value proposition, providing control and connectivity that improved performance across the system and optimizes machine yield, throughput and uptime for our customers. Similar to our equipment portfolios, JBT and Marel's digital ecosystems are complementary. We have now combined our digital teams and have aligned our technology infrastructure platform. We continue to work on how to integrate the customer software interface, feature content as well as the development of the intermediate-term technology roadmap. Our goal is to provide a path forward that offers the best technology specifically designed for the needs of the food and beverage industry without disruption to our customers. We are also engaged in the process of integrating our service resources and capabilities. And in addition to leveraging our expanded reach, core to our strategy is continually enhancing the quality of our service offering and as such, are instituting a rigorous customer-facing performance measurement system. We recognize that essential part of the JBT Marel value proposition is the reliability, responsiveness and quality of our service and parts offering and strive to provide customers with best-in-class performance. This development of our software solutions and the performance of our service and parts franchise go hand-in-hand as we further our integrated value proposition with our customers. As we approach the end of our first full year as JBT Marel, I believe our commercial success and financial performance have reinforced our conviction that we are better together. Our complementary portfolio of solutions, enhanced service capabilities and global footprint are making us an even more valuable partner to our customers. Internally, we have continued to optimize our operating efficiency and productivity. And our strong cash flow has enabled us to quickly delever our balance sheet and provides the liquidity to support our growth strategy. My heartfelt thank you to our teams around the globe who have enabled JBT Marel to bring greater value as we transform the future of food. Now let's open the call to questions. Operator? Operator: [Operator Instructions] We'll take our first question today from the line of Mig Dobre at Baird. Joseph Grabowski: Joe Grabowski on for Mig this morning. So I wanted to start with the Marel EBITDA margin in the quarter, really impressive, actually 330 basis points over the core JBT EBITDA margin. And even if we back out all of the $14 million in synergies from Marel, it's still above core JBT. I know you mentioned in the prepared remarks, favorable mix and some improvement in meat and fish, but maybe drill down a little further as to what's driving that EBITDA margins much higher than where they were pre-acquisition. Brian Deck: Sure. Yes, we're really, really proud of the performance of the legacy Marel business in the third quarter. Specifically, as we mentioned, we got a lot of volume through the system in the quarter, and you get a lot of operating leverage out of that. That was, first and foremost, the benefit that we saw. And moreover, the higher share synergies, as you mentioned, the reduction of the corporate overhead has benefited the Marel segment and meat, and fish just continued to improve. And just further to the topic, one of the things we've talked about over the years -- over the last 2 years as we've considered this opportunity is the strength of the Marel technology. And that really starts to come through as you build your volume and get -- and as the market improves. So that's really just starting to come through really strongly in the quarter. So there was a lot of opportunity with the Marel margins, and we just saw that really good execution on both the commercial side and on the factory side. Joseph Grabowski: Got it. Okay. Great. That's very helpful. And then my second question, I guess, you raised your full year EBITDA guidance at the midpoint by $20 million. It seems like Q3 maybe came in at least $20 million above where you were expecting. So maybe talk about some of the moving pieces in 4Q, you had some additional revenue out of backlog in Q3. Did that -- is that going to impact Q4, tariffs, synergies, just kind of moving pieces for 4Q versus your expectations 90 days ago? Brian Deck: Sure. I'll talk a little bit about the commercial side and have Matt talk about the cost side. So we do expect lower revenue in the fourth quarter relative to the third quarter. So some of the cadence and the flow-through of that operating leverage and the profits on that lesser revenue flows through. The primary reason for that is we did have a bit of a pickup in the third quarter just as it relates to -- as I mentioned, some productivity and supply chain improvements. So there were some things in, I'll say, in our backlog that were stuck on the port because of some of the issues with tariffs and whatnot. We cleared a lot of that up. So that allowed us to get a little bit extra volume in the third quarter that we don't expect in the fourth quarter. And on the cost side? Matthew Meister: Yes. I think on the cost side; we do expect to see a bit of a ramp on the tariff expense impacting margins in Q4 with additional 232 tariffs that should have an unfavorable impact on margins sequentially. In addition to that, as Brian said, we did see some supply chain benefits that impacted Q3. We don't expect that to recur in Q4. So there's a little bit of sort of a onetime impact from those supply chain benefits that doesn't recur sequentially in Q4. Brian Deck: And then just lastly, as we think about 2026 and thinking about our growth trajectory for there, we will make a little bit of investments in preparation and in commensurate with that expected growth. Joseph Grabowski: Got it. Okay. And if I could maybe just sneak in one more. If you could talk about just how automation is trending through the business as we progress through the year? Brian Deck: Yes. Automation remains a key theme for us, particularly on the proteins side as we see pressures on the labor environment for the food factories, the area that we see the biggest opportunity and seeing a good -- we saw a good amount of orders in the third quarter and expect that trend to continue in the fourth quarter is what we would call the secondary side. So that is where you typically would see slicing and dicing and removing meat from the bone, so to speak. That is the biggest opportunity clearly on the protein side. We see similar challenges of labor availability on cutting up things like fruits and vegetables, anywhere where there's humans involved in things that are typically well suited for dexterity and precision. But as the technology continues to evolve and with the combination of our portfolios together, we have a great offering on that secondary space. So that does continue to play out as we had hoped. Operator: Next question today comes from the line of Ross Sparenblek at William Blair. Ross Sparenblek: Maybe just starting with the order book. Can you give us a sense of any cross-selling orders to call out and maybe help us size that as we think about the revenue synergy capture? Arni Sigurdsson: Yes. I mean -- this is Arni here. I mean what I would say is we continue to see improvement in our pipeline on the cross-selling opportunities. And we feel kind of very, very good where we are. I mean I did highlight one particular order in the prepared remarks, for example, where we had a hamburger line. And what kind of -- as we look to some of the pipeline and the opportunities that we have there, we're very pleased with the mix that we're seeing. We're seeing kind of all the way from kind of current JBT customer, not a Marel customer, we're selling there and having opportunities there, vice versa. And kind of the main themes that I would kind of maybe give you a little bit of color on kind of the freezers are being bundled a lot into some of the convenience lines that we have. And then we also see a lot of like the fryers with the [ mass ] oven kind of on the Marel side. So I would just say, overall, we're pretty pleased with where we are considering the pipeline. Ross Sparenblek: Okay. So I mean do you get the sense -- I mean, it sounds like it's expanded in scope here just outside of the obvious moats around the poultry side? Arni Sigurdsson: Yes. I would say it is general. I would not say it's kind of very different from expectation. We do -- we've obviously been quite focused on the poultry side just due to kind of the strength of that market and also kind of our position in that market. So for example, we're seeing kind of the combination of the DSI water cutter and the SensorX bone detector, that's a very good combination. But we're also seeing it kind of more broader. And then we see kind of some things that we didn't expect. We've sold kind of some FTNON equipment into the fish industry and so on. And these happen as well, kind of something you don't plan for. But overall, I would say it's broadly in line with expectation, but we're very pleased with how we're kind of consistently building up a stronger pipeline. Brian Deck: And just to add to that a little bit, as we mentioned in previous quarters that as we move to this account management model, which allows our sales force to sell the entire portfolio, over the last 2 quarters, there's been a tremendous amount of discovery of the legacy Marel salesmen, understanding the depth and the breadth of the JBT portfolio and vice versa. So as that discovery occurs and you start to experiment and realize that there's application that we can apply that we hadn't even thought of, that is starting to come through. So we're feeling really good about the cross-selling and the synergistic sales as we go into 2026. Ross Sparenblek: Maybe one more in here. Brian, when we last spoke last quarter, it sounded like you had 12 months of visibility in poultry and we -- you take the share gains out of it and just think about end market demand. where is your visibility today? And what are you hearing from your customers as it pertains to pork, fish and the other protein markets as well? Brian Deck: Right. So I would say that strength we still see continuing well into 2026. It's hard to precisely say how long that's going to last. But for sure, the market is strong. And really, what we're seeing is, I think we've talked about quite a bit is, again, and it's not just poultry, we're seeing some improvements in pork and fish, but poultry does continue to lead the market. But again, as we see the cash flow and the strength in our customers, they do have a fair amount of, I'll say, longer-term plans to get the benefits of greenfields and line expansions, et cetera. There are some -- there was many -- a couple of years of deferred investments. So we do see that coming through here in 2026. And frankly, we're already quoting into 2027. Operator: Our next question today will come from Saree Boroditsky from Jefferies. Saree Boroditsky: Starting off, building on the Marel margin question. One of the items you highlighted was improvement in meat and fish. I believe those product lines had lower margins at the time of acquisition. So just curious if you could provide some color on the improvement there and some of the actions, you're doing to raise the margins. Arni Sigurdsson: Yes. So I mean, like we've talked about previously, I mean, one of the areas that we've been focusing on is one of the tools that we have is 80/20 analysis. So basically, looking at kind of what are your -- what are the top 20 products that you have that represent 80% of the volume. And you can look at that through different lenses, kind of whether it's geography, customers, products and so on. So it's really looking at and trying to understand kind of where are you kind of well positioned, where you kind of have the right resources, the right margin, so you can actually take the appropriate actions and resource the different value streams appropriately. And so what we have found out through that is really kind of figuring out what is the right resource level. And we're also looking at kind of where are the projects where we're more challenged in terms of variances or kind of differences between kind of what we expected to achieve and what we actually achieved. And then we are taking appropriate actions there as well. So we're actually really focused on improving profitability and less so on driving top line growth because we want to build the foundation there and then be ready to build on that profitable foundation to grow the business instead of continuously growing an underperforming business. And that's really kind of where the focus has been. And I think it's nice that we're kind of reaching that kind of foundation as the market is starting to kind of stabilize and gradually improve. And I would say you saw -- we saw some improvement in Q3 and we're very confident on our journey to reach mid-teens margins for those businesses in 2027. Saree Boroditsky: I appreciate on the color on those. I think you've mentioned a couple of times 2026, you mentioned investing ahead of growth along with the support of backlog. So could you just talk through any early thoughts on the growth outlook for 2026 and your visibility into this? Brian Deck: Right. It's a little early to be giving revenue color for -- and growth color for 2026, but I will say this, and I'll have Matt talk a little bit about the backlog. We do have fairly decent visibility given the strength of our backlog. As we just mentioned a moment ago, the markets are supportive. Certain markets are very supportive and certain markets less so. But overall, it's a healthy demand environment. So we do expect 2026 to be a growth year, and we'll provide more specifics on that. Matthew Meister: Yes. Just to build on that. I mean, where we're at with our backlog as we exit Q3, that coupled with where we see our order pipeline and the strength and resiliency of our recurring revenue. As we exit Q4, we're expecting to have visibility above 70% to the 2026 revenue. And that, as Brian said, is inclusive of growth in 2026. So we feel very good about sort of where our pipeline and backlog sits to support a growth year in 2026. Saree Boroditsky: And I could squeeze one more in. Obviously, you're going to be reporting in 2 different segments. Just curious how those 2 categories differ from a growth and margin perspective or just any differences in how they go-to-market? Brian Deck: Right. So they will actually be relatively similarly sized and relatively similar margins. We'll get -- we're working through all those details as we speak. So I don't think you're going to see huge differences. I think that the general outlay is that the Protein Solutions will be more, I'll say, legacy Marel weighted, and the Prepared Food and Beverage Solutions will be a little bit more, I'll say, legacy JBT weighted. But both should be decent margins and overall growth profile. So we'll give more color on that. As Matt said in the prepared remarks, before we issue our 10-K and our Q4 earnings, we'll provide all that detail so you can get all the history and be well prepared as we go into that earnings call. Operator: Our next question today will come from the line of Walt Liptak at Seaport Research. Walter Liptak: I wanted to ask about selling prices and just kind of the tariffs. I wonder if you could talk first about third quarter and if you could parse out kind of the volume versus price that you got for JBT and Marel. And how are you guys doing like the fourth quarter headwind with tariffs? Is that surcharges? Or is that special tariff pricing? How does that work? Brian Deck: Sure. So I would -- first of all, let me tell you that the revenue in Q3 was overwhelmingly on the volume side. There was some pricing benefit because as we mentioned earlier, we enacted price increases in the second quarter in anticipation of some of the flow-through from the tariffs. So there are some pricing benefit. And then obviously, year-over-year, there's some FX benefit, which we have outlined, but really was a volume play in the third quarter here. As we go into the fourth quarter, as Matt mentioned, we'll see an extra $5 million or so on the cost side in connection with the 232 -- Section 232 incremental tariffs that are out there. Things are starting to stabilize, it seems, absent any new news. But -- so we continue to price into our projects themselves, everything that we know about tariffs today. As it relates to the parts, we'll just keep an eye on it. If we see incremental issues or outsized issues as it relates to the cost side, we'll consider it. But we did do a price increase. We think we're in decent shape, and that's all reflected in the guidance for the fourth quarter. Walter Liptak: Okay. Great. And it sounds like you're making some -- some more permanent shifts, if I heard that right, with the manufacturing footprint? Have you started those? What's the timing of that? And what's the timing of unexpected benefits? Brian Deck: Yes, we have started. That does take -- that will take some time overall. However, where we have what I would call sister plants. So for example, on the poultry side, we have a facility in Boxmeer, Netherlands, and they have a sister plant in Gainesville, Georgia. So we have, I'll say, already a supply chain established. So it allows us to move more volume than we otherwise might absent tariffs into Gainesville. So that's happening, and that's relatively in the grand scheme of things, easier to do. Longer term, we're looking at where we can, again, utilize and further develop that supply chain for some of our other facilities. So that will take 2, 3, maybe 4 quarters as we consider that. So it's a -- obviously, it's a mix of things we can do quickly and other things that will take a few quarters. Operator: And next, we'll hear from the line of Justin Ages at CJS Securities. Justin Ages: Shifting topic slightly. I know it's smaller, but any update on the AGV business? How is it doing? How you guys are thinking about that business? Brian Deck: Sure. Yes. So as you know, the AGV business is in a tremendous market in terms of all the trends as we see on factory automation, warehouse automation is their big end markets. So longer term, very, very strong. The third quarter wasn't their best quarter. That was one of the businesses that was more affected by some of the tariffs and some handful of delayed orders and revenue. However, we're expecting a strong fourth quarter here in terms of demand and into 2026. Justin Ages: I appreciate the color. And then one more on the tariff mitigation. I know you've had some price increases out there for a bit. Are you seeing any pushback on repricing, any order cancellations or anything along those lines? Brian Deck: Yes. We've been very balanced as it relates to really looking through the eyes of our customers where it's fair. As you know, we're -- as you could see from our remarks that we are eating some of the tariff impact. So I think we're being fair with our customers. And so -- and as you can see from the order side, our orders remain strong. So we feel we've done a nice job in that balance of, I'll say, sharing some of the pain. And then as we go into 2026, we feel really good about our position with our customers. Operator: And that was our final question from the audience today. Mr. Deck, I will turn it back to you, sir, for any additional or closing remarks that you have. Brian Deck: Great. Thanks, everyone, for joining us today. As always, if there's any questions, please direct them to Marlee Spangler. Have a great day. Operator: Thank you, ladies and gentlemen, for joining today's session. You may now disconnect your lines. Have a great day.
Operator: Ladies and gentlemen, welcome to Martin Marietta's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Jacklyn Rooker, Martin Marietta's Vice President of Investor Relations. Jacklyn, you may begin. Jacklyn Rooker: Good morning. And thank you for joining Martin Marietta's Third Quarter 2025 Earnings Call. With me today are Ward Nye, Chair and Chief Executive Officer; and Michael Petro, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion may include forward-looking statements as defined by United States securities laws. These statements relate to future events, operating results or financial performance and are subject to risks and uncertainties that could cause actual results to differ materially. Martin Marietta undertakes no obligation to publicly update or revise any forward-looking statements, except as legally required, whether due to new information, future developments or otherwise. For additional details, please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our own and the Securities and Exchange Commission's websites. Supplemental information is available both during this webcast and in the Investors section of our website. It includes a summary of our financial results and trends with third quarter and year-to-date bridges from continuing operations to consolidated results on Slides 4 and 5, respectively. As a reminder, the company's Midlothian cement plant, related cement terminals and Texas ready-mixed concrete plants are classified as assets held for sale as of September 30, 2025. Their associated financial results are reported as discontinued operations for all periods presented. Our full year 2025 guidance summary on Slide 8 reflects continuing operations unless otherwise noted. Definitions and reconciliations of non-GAAP measures to the most directly comparable GAAP measure are provided in the appendix to the supplemental information in our SEC filings and on our website. Today's earnings call will begin with Ward Nye, who will discuss our third quarter operating performance and our preliminary view for 2026, supported by key market trends. Michael Petro will then review our financial results and capital allocation. Ward will return with closing remarks. Please note that all comparisons are to the prior year's corresponding period. A question-and-answer session will follow. Please limit your Q&A participation to one question. I will now turn the call over to Ward. C. Nye: Thank you, Jacklyn. Good morning, and thank you for joining today's teleconference. Martin Marietta delivered an exceptional third quarter, achieving record performance across both our aggregates and specialties businesses. These accomplishments reflect the enduring strength of our aggregates-led business model, the disciplined execution of our strategic priorities and our steadfast commitment to safety. As detailed in this morning's release, third quarter highlights include several all-time quarterly records in our core aggregates product line, reflecting strong year-over-year improvement. Aggregates revenues of $1.5 billion, a 17% increase. Aggregates gross profit of $531 million, a 21% increase. Aggregates gross profit per ton of $9.17, a 12% increase. And aggregates gross margin of 36%, an increase of 142 basis points. Our Specialties business also delivered outstanding performance, achieving record quarterly revenues of $131 million, a 60% increase and third quarter record gross profit of $34 million, a 20% increase. As announced at our Capital Markets Day, we've rebranded the former Magnesia Specialties business to Specialties, a name that better reflects the broader portfolio of specialty products we provide within that segment, all of which are rooted in our core competencies, mining, crushing and processing rock. These strong results reflect robust organic growth complemented by contributions from Premier Magnesia acquired at the end of July. Importantly, and I'm extremely proud to report, this outstanding financial performance coincided with our teams delivering the best year-to-date safety performance in our company's history as measured by both total and lost time incident rates, a testament to our culture of world-class safety and operational excellence. Looking at the quarter holistically compared with the prior year, revenues from continuing operations were $1.8 billion, a 12% increase. Revenues, inclusive of discontinued operations, were $2.1 billion, a 10% increase. Adjusted EBITDA from continuing operations was up 22% to $667 million. Consolidated adjusted EBITDA, inclusive of discontinued operations, was up 15% to $743 million. Our earnings per diluted share from continuing operations were $5.97, an increase of 23%, and total earnings per diluted share inclusive of discontinued operations were $6.85, an increase of 16%. Building on this momentum, we're raising our full year 2025 consolidated adjusted EBITDA guidance to $2.32 billion at the midpoint, driven by strong performance in our core aggregates product line and October daily shipment trends. As outlined in today's earnings release, the revised consolidated adjusted EBITDA guidance includes results from both continuing operations and discontinued operations. On August 3, we entered into a definitive agreement with Quikrete Holdings, Inc. or QUIKRETE, for the exchange of certain assets. As part of the transaction, which is expected to close in the fourth quarter of 2025, Martin Marietta would receive aggregate operations producing approximately 20 million tons annually in Virginia, Missouri, Kansas and Vancouver, British Columbia and cash proceeds. In exchange, QUIKRETE would receive the company's Midlothian cement plant, related cement terminals and certain Texas ready-mixed concrete assets. Following the close of this portfolio-shaping transaction, we will be optimally positioned to accelerate into our next phase of growth under SOAR 2030. Looking ahead to 2026, we expect continued resilience in our aggregates business, supported by sustained infrastructure investment, solid heavy nonresidential demand, particularly from accelerating data center development and an eventual recovery in residential construction. Our preliminary 2026 outlook reflects low single-digit aggregates volume growth and mid-single-digit pricing gains. As always, Martin Marietta's industry-leading teams remain focused on what we can control, executing our strategic plan, which includes upholding world-class safety standards and delivering attractive price/cost spread economics regardless of underlying demand trends. Turning to end market trends. Infrastructure continues to benefit from sustained federal and state investment. According to the American Road and Transportation Builders Association, or ARTBA, the value of state and local government highway, bridge and tunnel contract awards, a leading indicator of future product demand, increased 10% year-over-year, reaching $128 billion for the 12-month period ended September 30, 2025. While the Infrastructure Investment and Jobs Act, or IIJA, is scheduled to expire in September 2026, over 50% of highway and bridge funding is still to be invested, providing meaningful tailwinds as reauthorization discussions begin. Moreover, at July's Infrastructure Conference, U.S. Transportation Secretary, Sean Duffy, reaffirmed the administration's commitment to long-term planning, funding stability and accelerated project delivery. These priorities, combined with the bipartisan legislative support and healthy Department of Transportation budgets across our top states, reinforce our confidence in the durability of product demand within our most aggregates-intensive countercyclical end market. While intermittent government shutdowns or their immediate aftermath may delay certain administrative functions, core highway, street, bridge and road construction activities typically proceed uninterrupted, supported by stable funding from the Highway Trust Fund and advanced appropriations. Heavy nonresidential construction demand remains steady across our key geographies, underpinned by sector-specific dynamics ranging from rapid expansion in data centers to a recovery in warehousing and distribution and early-stage momentum in energy and advanced manufacturing. Data center development continues to accelerate with Texas emerging as a national leader in hyperscaler activity, highlighted by more than 100 data centers currently under construction. Meanwhile, warehouse and distribution activity is rebounding from a cyclical bottom as vacancy rates normalize. Investment in the energy sector is gaining traction, particularly along the Gulf Coast, where aggregates-intensive liquefied natural gas or LNG projects that were previously paused are advancing following the resumption of federal permitting. Additionally, the reshoring of pharmaceutical manufacturing is another emerging bright spot bolstered by the reconciliation bill's enhanced investment and R&D tax credits. A few notable examples within Martin Marietta's footprint include Eli Lilly's $6.5 billion facility in Houston and 2 large projects in Raleigh, including Novo Nordisk's $4.1 billion expansion and Johnson & Johnson's $2 billion expansion. Land availability, proximity highways, ports and rail infrastructure and business-friendly regulatory environments remain key factors influencing the location of large-scale, well-funded heavy nonresidential construction projects. As shown on Slide 12 of our supplemental information, Martin Marietta's leading presence along major transportation corridors in high-growth markets positions us to deliver the right products at the right time in the right places. While affordability constraints continue to hinder near-term residential construction activity, moderating mortgage rates suggest a gradual path toward normalization. Encouragingly, in October, the National Association of Homebuilders, Wells Fargo Housing Market Index, or HMI, a key indicator of homebuilder confidence and overall health of the housing market, rose to its highest level since April, driven by a 9-point increase in the index's measure of expected single-family home sales over the next 6 months, the strongest reading since January. Historically, light nonresidential construction demands tend to follow residential development and although more sensitive to interest rates, this activity has demonstrated relative resilience during this most recent housing cycle due to significant population inflows into our key Sunbelt markets. That said, we fully expect light nonresidential activity to accelerate as single-family housing recovers. I'll now turn the call over to Michael Petro to discuss our third quarter financial results. Michael? Michael Petro: Thank you, Ward, and good morning, everyone. The continuing operations Building Materials business, which is now comprised of aggregates, asphalt and paving and our Arizona ready-mix product lines, posted revenues of $1.7 billion, a 10% increase, while gross profit increased 16% to $585 million. Gross margins improved 191 basis points to 34% as strong outperformance in aggregates more than offset weakness in downstream products, which are now classified as other Building Materials. As Ward noted, our core aggregates business achieved records across most financial metrics in the third quarter. Revenues increased 17% to $1.5 billion, driven by a balanced mix of 8% price and 8% volume growth. Gross profit increased 21% to $531 million, while gross margins expanded 142 basis points to 36% as strong pricing and a normalized weather shipment cadence in the Southeast and Texas more than offset higher freight, depreciation and general inflationary impacts. As implied in our revised full year aggregates gross profit guidance, we expect cost per ton growth to moderate in the fourth quarter, a trend that we expect to continue in 2026 as cost flexing measures implemented earlier this year take effect. Other Building Materials revenues decreased 10% to $351 million and gross profit decreased 17% to $54 million, primarily the result of reduced asphalt and paving revenues. Our Specialties business delivered all-time quarterly record revenues of $131 million and gross profit increased 20% to $34 million, inclusive of a nonrecurring $5 million purchase accounting headwind. This strong performance was driven by higher pricing, increased shipments across all product lines and effective cost management. Additionally, the results benefited from approximately 2 months of contributions from the Premier Magnesia acquisition. Turning now to capital allocation. At our September Capital Markets Day, we reaffirmed our disciplined approach to M&A, emphasizing efficient synergy delivery and the importance of maintaining a strong balance sheet with an investment-grade credit rating. The QUIKRETE asset exchange would serve as a compelling example. By leveraging Section 1031 of the Internal Revenue Code and capitalizing on recently enacted bonus depreciation provisions, we thoughtfully structured this transaction to minimize cash tax leakage. Importantly, our $1.1 billion in total liquidity as of September 30 provides enhanced balance sheet flexibility to pursue M&A opportunities within what remains an active pipeline. Our commitment to financial discipline extends to capital spending, where we remain focused on balancing growth investments with free cash flow conversion. Following several years of elevated capital expenditures, we expect an approximate 30% reduction in 2026 capital investments as compared to the 2025 guidance midpoint, which reflects a sustainable level aligned with the ongoing needs of the business. Lastly, and consistent with our capital allocation priorities, we remain committed to returning capital to shareholders. During the third quarter, our Board of Directors approved a 5% increase to our quarterly cash dividend paid in September, demonstrating confidence in the durability and sustainability of our company's future growth and free cash flow generation. We have now returned $597 million year-to-date and $3.9 billion since the announcement of our share repurchase program in 2015 through both dividends and share repurchases. With that, I will turn the call back over to Ward. C. Nye: Thank you, Michael. We're extremely proud of the company's exceptional safety, operational and financial performance through the first 9 months of 2025. This momentum, combined with portfolio enhancements throughout SOAR 2025 and the launch of SOAR 2030 at our Capital Markets Day, reflects our unwavering commitment to disciplined growth, operational excellence and sustainable value creation. With a streamlined portfolio, a resilient aggregates-led platform, a complementary specialties business and a strong financial foundation, we're well positioned to deliver our updated full year 2025 consolidated adjusted EBITDA guidance. More importantly, we remain focused on building a business that consistently outperforms across cycles and delivers compounding value for our shareholders over the near, medium and long term. If the operator will now provide the required instructions, we'll turn our attention to addressing your questions. Operator: [Operator Instructions] And our first question comes from the line of Kathryn Thompson with Thompson Research Group. Kathryn Thompson: I wanted to focus on the balance of your aggregate pricing and volumes. Your ASP was up solid. You're able to maintain for the year. Could you sort -- and also for volumes also had an optimistic end to the year. Could you -- could you sort out the difference between total and organic pricing for the quarter? And could you do the same for volumes, and how we should think about both going forward with the balance of organic versus total? C. Nye: Kathryn, thanks for the question. Nice to hear your voice, and thank you for being with us today. Yes, I can break that down for you. I mean, look, I was really pleased with the overall pricing and volume. I mean it's one of those quarters where it's kind of a square mill, right? It's 8 and 8. So those are easy numbers to remember. Look, here's what I'm enthusiastic about. Pricing, as reported, was up 8%. Organic was up 7.9%. And I think what a lot of people would have thought looking at it was, look, the 8% had to be helped a lot by the acquisition activity. The fact is we're seeing very good solid organic activity as well. And if I break it down and look at the East Group and the West Group, both of those performed extraordinarily well. So it wasn't as if it was being captured just in one part of our geography. The other thing that I'll share with you is if we look also at the mix of product going out, this was actually a pretty heavy base quarter. So if you think about it, that really should have been a product mix headwind to what we were doing. I've long said when I see base going out, it gives me a lot of confidence in the future because what I know is if we're putting base rock down, at some point, somebody is putting clean stone on top of it in the form of either ready-mixed concrete or asphalt and paving. Now relative to the shipments themselves, again, they were up 8% for the quarter. Organic was up 5.5%. So again, I think broadly in the realm that we would have thought. The fact is we had -- I wouldn't say favorable weather, I would just think we had more normalized weather in the quarter, and the business did exactly what we thought it would. But Kathryn, thank you for the question. I hope that was responsive. Operator: And our next question comes from the line of Trey Grooms with Stephens. Trey Grooms: So looking at -- if we could maybe look at the cost side of things, you mentioned a few things that were going on in 3Q, but it looks like you're expecting an improvement in price cost in the fourth quarter. If maybe you could talk about some of the drivers there here in the fourth quarter. And then Michael, you mentioned that you expect this trend to continue going forward. Is there any early thoughts on how you're thinking about the price/cost side of the equation as we look into next year? C. Nye: Let me take the first part of that, Trey, and Michael will come back and talk a little bit about the spread notion for next year. So if we look at the overall cost performance for the quarter, what I would say is the pricing performance is really good. I would say the cost performance was okay. I mean I'm not disappointed in cost performance. The fact is it can get better. And if you look at what we're implying for the rest of the year, what you're going to see is really an implied Q4 cost performance of around 2% versus what you saw this quarter. Now the fact is if we take a look at this quarter and start breaking it down on what the drivers were, the drivers were largely threefold -- what was happening with personnel. Obviously, what's happening to agree with DD&A simply due to the investments we've made. And then a component that we have that's going to be different than many is the freight portion of it because, as you know, we've got more long haul in our profile than anybody else does. In fact, we're shipping by rail probably 2x our largest competitor in that dimension. So again, if we just pull the rail piece out of it all by itself, it would probably take that cost profile down to about 4%. But again, the Q4 implied gives you a sense of have we put in some cost containment measures? Yes. Do we intend to see that come through for the balance of the year? Yes. And do we think that's going to dribble over into next year in a meaningful way? The answer again is, yes. And with that, let me go back to Michael for the portion of your question relative to price/cost spread. Michael Petro: Yes. Thanks, Ward. And Trey, thanks for the question. I think the best way to get your arms around 2026 and really over the next 5 years is consistent with what we said at our Capital Markets Day, where we expect to be able to deliver a price/cost spread in excess of 250 basis points. We certainly believe that, that would be the case next year. We don't see anything either on the price or the cost side that would give us concern there. In fact, what I would say is that deceleration in Q4 in the kind of 2.5% cost per ton growth range, that's probably a good number to pencil in for next year as a starting point. And we have our mid-single-digit pricing guide out there. So that should put you in that 250 basis point ZIP code coming out of the gate and to 2030. Operator: And our next question comes from the line of Anthony Pettinari with Citigroup. Anthony Pettinari: I was wondering if you could talk a little bit more about maybe the volume cadence for the 3 months of the quarter and then maybe into October, November, if you've seen any impact from government shutdown or anticipating any impact if it keeps going. And I'll leave it there. C. Nye: Anthony, sure. I'll give you some broad strokes on it, and Michael can come back and give you a little bit more detail. But what I would say to you overall is we saw just a good, steady, solid performance as we went all the way through the quarter. What's worth remembering, and I think this is really important, last year was a monster October for us, and it was a monster October because as you will recall, we had a lot of weather in Q3 last year. And in particular, we had 4 hurricanes, and we simply didn't have that this year. And what I would have thought was given what October was last year, that was a big mountain decline in October this year. And obviously, we'll talk more about October with specificity when we report Q4, but I'll put it this way. We were not at all disappointed in October this year. So again, if you want to get a sense of what the overall quarter looked like, Michael can give you a little bit more detail as we look at month by month. Michael Petro: Yes. So as we said, I believe, last quarter, we expected it to be the tale of weather comps as we march through the month. We thought July was an easy weather comp. We thought August was going to be a little bit more difficult given some of the carryover work in '24 from that July weather-impacted month, provided a pretty difficult comp in August. And then we said September was an even easier weather comp than July. We saw that play out fairly consistent with our expectations. That being said, I think what's important is the highest daily shipment trend of all 3 months was in September. So that gives you a little bit of a sense of the momentum that we saw carrying over into October. Anthony Pettinari: Great. And any impact from shutdown? C. Nye: I'm sorry. Yes, you did ask that. Yes, the fact is, this portion of our business from a shutdown perspective performs hugely resiliently. So if you think about Federal DOT, how they're going to work, highways, bridges, roads and streets because of the way funding flows through on that, typically, it is not impacted by shutdowns. And of course, the states continue to be in a really attractive place, at least in the geographies in which we're operating. So while I do ache for the different businesses that are struggling mightily as they go through the shutdown, it's one more factor of the resilience that we tend to have in this business. Operator: And our next question comes from the line of Phil Ng with Jefferies. Philip Ng: Congrats on another strong quarter. Ward, I'm curious about what you're seeing on the bookings and backlog, how that has progressed over the course of the year? I'm particularly interested on nonres as we look out to 2026. Heavy has been really strong, light has been a little weaker, but you sound a little more constructive on commercial. So do -- I'm sorry, warehouse. Is that enough to kind of flip things positive? And how has momentum on the infrastructure side progressed as well? C. Nye: Phil, thanks for the question. I would say several things. One, the infrastructure piece of it that you mentioned last should continue to be really constructive going into next year. I mean, if we think about the notion that we still got 66% of total highway and bridges, cumulative obligations to go, half of the dollars is still are yet to be invested on the public side. That should be really constructive for a while. The other piece of it that I think is worth noting, if we're looking at our top 10 states and you're looking at state DOTs year-over-year as we go into 2026, they're up between 6% and 7%. So if we look at California, that's up 6%. Texas is up double digits. Minnesota, which is an important state for us, is nicely up double digits. Georgia, up 7%. So again, what we're seeing on public is attractive. But I would draw your attention to Slide 12 today in the supplemental slides because I think that really gives you a good visceral take of what we see going on relative to nonres activity, particularly on the heavy side. And we listed out in there across geographies what we're seeing relative to data centers, what we're seeing relative to warehouses and distribution, and what we're seeing relative to manufacturing. I will tell you this. I've always asked my team, "Hey, do me a favor, call me with good news." Because typically, I hear from people when things are more challenging that occur. I'm getting more text and more e-mails than I ever would have thought at this time of year on the type of bidding activity that they're seeing right now in geographies that matter a lot to us and on projects that I think can be very impactful going to next year. So I'm trying to give you anecdotally and factually, Phil, what you're talking about relative to what's going on with public, what's going on with heavy nonres. And again, part of what I've been taken by is actually how well light nonres has held up through the cycle despite the fact that housing has not been in a particularly good place. Look, if we continue to see constructive activity relative to interest rates, et cetera, on housing, I think when we get into half 2 next year, it's not that I think housing is going to be on fire, it's going to start to recover. And as we see that combined with what I think is a very attractive public sector, a good, healthy, heavy nonres, I think that's going to be awfully constructive, number one, the single-family housing; and number two, even bolster up what has been a more resilient light non-res than I would have thought. Operator: And our next question comes from the line of Angel Castillo with Morgan Stanley. Esther Osinaiya: This is Esther Osinaiya, on for Angel. My question is, what's driving the stronger seasonal norm quarter? And given that, does that should suggest that the exit rate into next year is stronger than the preliminary guide implies? Michael Petro: Are you talking about the exit rate in aggregates pricing or gross profit? Esther Osinaiya: We're talking about pricing or both. You can... Michael Petro: Yes. So I think a few things. On the cost side and gross profit, in particular, we are seeing a nice sequential change that's better than the sequential change we saw last year from Q3 to Q4. And a lot of that is driven by those cost measures that we've said in the prepared remarks that we implemented in Q2 and Q3. We're going to see those start to bear fruit really in Q4 in earnest. So you see that flowing through. So that's number one. And then on the pricing side, that's just consistent with remaining disciplined in that regard. So the exit rate that you see there, we feel pretty confident about that. We still think as far as pricing guide for next year, the mid-single digits is the right way to think about it. So some of that will be a little bit of carryover. But by and large, that's going to be a lot of what we do relative to January 1 increases. Operator: And our next question comes from the line of Adam Thalhimer with Thompson, Davis. Adam Thalhimer: Great quarter, particularly on the pricing growth. Ward, I wanted to ask you -- sorry if it's been covered, but I was hoping you could comment more on what you're seeing in the public sector and specifically DOT work, how confident you are in 2026? And curious if the DOTs are relatively consistent and growing next year or if there's some variability? C. Nye: Adam, thanks for the question. No, it's relatively consistent across our DOTs. So keep in mind, when we began our SOAR process back in 2009 and 2010, one of the areas in which we are most focused is building our businesses in states that were in a really good fiscal condition because we felt like that was going to be vital for them to be able to match what the federal government is putting out. Another big driver for us was population trends in places where we could have leading positions. And so if you think about that as being the architecture, around which we try to build the business. Again, if we go back and take a look at these top 10 states, I think I've indicated top 10 total are up about 6.8% year-over-year. That's a really attractive number. There's nothing that we're seeing in our leading states right now that gives us any concerns about where they're going to be. Equally, as I mentioned, the highway, bridge and tunnel contract awards basic increased to $128 billion for the 12-month period ending September 30, 2025. So the work continues on the projects supported by the federal investment and the state funding increases. If we take a look at equally what's happened in a number of our states, North Carolina is a good example, over the last several years, they've come up with additional funding programs as well. So if we go back and look at what the NC FIRST Commission did several years ago, basically saying, look, to get our roads from mediocre to good, which doesn't sound like it was a stretch. We recognized that there was a multibillion-dollar investment that needed to be made over time. And part of what our general assembly did in this state, and by the way, other states have done the same thing, is started dedicating portions of sales tax to transportation because the notion was nothing ends up on a store shelf by -- if it's not using infrastructure in that state. So Adam, as we look at what I think is happening federally, clearly, IIJA is going to be strong going into next year. But I equally think -- and I think this is important, I believe, we will continue to see a nice successor bill come behind IIJA before it expires by its own terms next September. And again, I mentioned the dialogue that Secretary Duffy had shared a couple of months ago relative to what their continuing priorities are going to be. So if you look at this quarter, part of what you'll see is infrastructure was around 37% of the product that went out of our gates. And if you look over time, that's continuing to build up to that, let's call it, 40% number that I think feels like a pretty good percentage for infrastructure to be. Now that said, we also saw growth in heavy nonres. So that went up to 35%. But again, if we're looking for what literally is going to be the ballast in the boat, Adam, I think it's going to continue to be public. I think that's going to be a constructive show federally. I think it's going to be a compelling show relative to Martin Marietta states. Operator: And our next question comes from the line of Garik Shmois with Loop Capital. Garik Shmois: I had a follow-up question on pricing. Can you speak to if you're seeing any mix impact on pricing, either product or geographic? And also, we heard from a competitor recently saying that the pricing in their backlog is accelerating. I was wondering if you're seeing something similar. C. Nye: Garik, thanks for the question. Yes, I would not say that we had any tailwinds relative to product mix, for example, I did mention earlier that if we're looking at the single largest growth of the products, it was going to be in base stone. And as you know, it's not unusual for base stone to be 20%, 25%, 30% lower in ASP than a clean stone. And the reason that I called that out is that bay stone is going down. Two things are happening, Garik. Number one, it's relatively new construction, which we're excited by. It also means that at some point, the clean stone will come on top of that because you're going to have either asphalt or concrete going on top of the base stone. So I think if anything, we would have had a headwind relative to what was going out. Relative to geographic mix, really, there was not a significant headwind on that either. I mentioned that overall pricing was 8%, organic was still 7.9%. The East Group had healthy pricing. Actually, the West Group had healthier pricing than the East, which makes some sense to me because historically, West Group pricing has been lower, at least overall. So there's some catch-up that needs to come from that. But I think those are the primary moving parts that we've seen, Garik. But did that answer your question specifically? Garik Shmois: No, it did. And just anything to call out on the backlog and how pricing looks there? C. Nye: You know what -- again, we'll talk more about next year when we get into it. But as I mentioned before, I'm seeing much more activity right now than I've seen for a while in energy. I'm seeing continued attractive activity relative to data centers. And much of those are going to be location driven. And the fact is we built our business along these major corridors, whether it's road, rail or port. And I think if you think about the momentum that should give us going into next year, more to come, but I think it should be -- I don't think you'll be disappointed, Garik. Operator: And our next question comes from the line of Keith Hughes with Truist. Keith Hughes: A specific question. But once you complete the deal with QUIKRETE, will that change in SG&A spending? Do any of the SG&A costs go with the business? Michael Petro: Yes. No, it's almost a pretty clean carve-out in that regard. So there will be some retained SG&A that used to support that business. But the EBITDA that we're showing in discontinued operations, that assumes we're retaining the corporate SG&A that supported that business. Keith Hughes: And will there be any mix impact within aggregates next year just based on what you're getting? C. Nye: The fact is there probably will be some mix impacts. You'll have a couple of things if you think about it, Keith. There'll be some geographic mix because we're picking up some businesses in the Central. And that tends to be, for example, a little bit lower than businesses are in the East. We're picking up some businesses in Virginia. But overall, it will be an optical headwind, but we also think that provides organizational opportunity. Keith Hughes: Okay. And the guidance you gave for the preliminary guidance for '26, I assume those organic numbers, excluding mix and volume? C. Nye: That's correct. Operator: And our next question comes from the line of Brian Brophy with Stifel. Andrew Maser: This is Andrew, on for Brian. I'm wondering if you could provide an update on how you're thinking about the timing of the rollout of the [ Precision IQ ] pricing tool next year? And to what extent benefits from that may be captured in the mid-single-digit pricing guidance or if that's more of a 2027 story? Michael Petro: Yes. No. So we should have [ Precise IQ ], the quoting tool in all of our sales team's hands by midyear next year. It's already effectively rolled out here in the East. But underlying the Precise IQ is really the pricing algorithm, and that engine has been built. That supports both fixed based and quoted pricing. So we are in our mid-single-digit guide incorporating that for what we ultimately go out with January 1 relative to fixed base. We expect more upside from Precise IQ really on the quoting side to flow through more in 2027. Operator: And our next question comes from the line of David MacGregor with Longbow Research. David S. MacGregor: Congratulations, Ward, on a great quarter. C. Nye: David, thanks so much. Good to hear your voice. David S. MacGregor: Yes. I guess I wanted to just get your thoughts around midyear aggregates pricing. And what did you take away from this year that was maybe a little bit different from the midyear experience last year or in prior years? And also, just given all the pressures in downstream markets right now, is there any sort of pushback on pricing that -- I mean, are these downstream problems constraining your pricing at all? C. Nye: David, thanks for the question. I would say several things. I'm not sure I was terribly surprised by midyear pricing this year. But we're putting up really good results, but we're not really in a robust volume environment. We saw pretty reasonable volume growth, but it was on a pretty weather challenged quarter last year. So what I would tell you is this is what we're able to do in a relatively static volume environment that I think is, number one, going to improve. So did that surprise me on what we saw in midyear this year? Not really because what I anticipated was we would see it primarily, and by the way, we did, in areas where we had new M&A, where we were trying to bring businesses at least on a trajectory basis up to what we would have expected in our heritage business. Now as we look into the new year, and again, I think going back to some of the dialogue we've had earlier in the call, I think public is going to continue to grow into next year. What I'm seeing on heavy nonres is actually pretty attractive right now, David. And if we're right that we start seeing more activity in single-family in the second half of next year, I think that actually portends pretty well for what midyears could look like next year. Obviously, we will talk more about that when we get into the year. And of course, part of what we're getting ready for will be the price increases that we'll put out in January. But if you just look at foundationally what happened this year and what I anticipate broadly happening next year, I think from a midyear perspective, it's going to be pretty constructive. Keep in mind, if we really think about most of our customers in these respects, they're most focused on making sure that everybody is treated fundamentally fairly on what's going on. And we assure ourselves that that's exactly where they are. So I don't think we're going to have undue pressure in that dimension. David S. MacGregor: And on the downstream markets, any pressure there that you're feeling? C. Nye: Not particular markets. I mean, this has been an interesting year. Minnesota had a much more constrained budget this year, and they had an extended winter. So really, if I'm looking at our asphalt business this year, and Minnesota is odd for us because part of it -- that's an FOB business for us, really, David. We're not doing lay down in that state. And if you look at their budget next year compared to this year, it's a fundamentally different budget. And if you think about the downstream business for us, they're really pretty narrow. I mean it's going to be what are we doing with FOB, asphalt in Minnesota? What are we doing with lay down really in Colorado? And what are we doing with degrees of ready-mix in Arizona? In many respects, that's the show. And of course, we had sold some asphalt businesses in California earlier in the year. And if you're just looking year-over-year, that's a big swing in the delta. So if you didn't take that into account, you would have a sense that the downstream businesses are actually suffering more than they are. So that actually buffers it pretty nicely. Operator: And our next question comes from the line of Mike Dudas with Vertical Research Partners. Michael Dudas: Michael mentioned in his prepared remarks, CapEx trending next year. Maybe if you could shed a little bit more light on that. How -- you talked a lot at your Investor Day about automation and the investment there, how that drives with that type of spending comment. And then just as you -- and to follow up on the balance sheet, when you -- on a pro forma basis, if this transaction closes in Q4, what -- any meaningful changes to the balance sheet we should be thinking about? Michael Petro: Yes. I guess, first on CapEx, what we said is the last 2 years for various reasons have been at elevated levels. So really, we just believe in 2026, we're returning to what we would say is more normalized levels, which is roughly 25% of EBITDA for next year or maybe modestly below that. This year had some opportunistic land purchases and the prior year had the acquisition that was treated as CapEx for accounting purposes. So really no fundamental change in how we're investing in the business. It's just coming off of 2 years of a relatively elevated comp. We don't think we do any harm to the business in terms of pulling it back to that level. In fact, if we needed to, we could flex CapEx further, if necessary. Relative to the balance sheet, the transaction is relatively balance sheet neutral. So no real change in leverage or otherwise once it closes. Operator: And our next question comes from the line of Ivan Yi with Wolfe Research. Ivan Yi: Just wanted to go back to aggregate pricing, which was up double digits in '22, '23 and '24. Can you return to those levels? I guess what needs to happen for you to raise your mid-single-digit pricing increase guidance for 2026? C. Nye: Ivan, thank you for the question. I guess, I would say several things. Obviously, there was a lot of inflation and a very price-sensitive world that we were in for a period of time when we were seeing double digits. Part of what we anticipated is we would be exactly where we are now when we returned to what we think was a more normalized time relative to inflation and otherwise. I think to your point, look, if volumes really start taking off in notable ways, at least based on history, pricing tends to follow that. So that's how I would think about that. But again, we tried to lay a lot of that out with degrees of clarity at our Capital Markets Day, talking about what we thought the drivers had been over the last several years, what they thought -- what we believe they are today and what we think they can be going into the future. We obviously do believe that the overall commercial aspects of the business have changed pretty considerably over time. And that really is taken up into what we gave as the guide for this year and the preliminary guide for next year. I think your swing factor is going to be what happens with volume. And if volume is moving, if you've got products that tend to be tight in geographies, that's traditional economics at play. So that's how I would think through it, Ivan. Operator: And our final question comes from the line of Judah Aronovitz with UBS. Judah Aronovitz: As you sit here today, thinking about '26, I guess what are the biggest uncertainties you have? And how do those questions or uncertainties compared to last year at this time? And then what's your confidence in sustained growth in gross profit per ton on aggregate? Is double-digit growth, I guess, reasonable at this point? C. Nye: So I would say several things. One, I think as I'm thinking about '26 versus '25, I actually feel better going into '26 than I did '25. And I would say that for several reasons. One, we're seeing the work continue to pull through on IIJA, number one. So that should continue to be very attractive. Number two, we're seeing where the state DOT budgets are coming in. And again, they're coming in at very attractive levels in most instances, up nicely. And again, that's going to be high 30% of our volume right there by itself. If we're also looking at what I continue to think is a constructive and growing segment that we talked about in nonresidential, particularly on the heavy side. One piece of it we haven't spoken of on today's call that I think is really important will be what we will watch on the emerging energy plays that we think are almost destined to come through. If I'm looking at what Texas is saying they're going to have to do to meet this incredible AI explosion that's occurring in that state, and Michael talked about that really becoming a landing spot for so many hyperscalers today. In fact, as we look in our backyard in North Carolina, there are 91 data centers in the state. Duke Energy is already talking about on a percentage basis, what they're going to see have to change in North Carolina. But the fact is North Carolina and Texas are not alone in that respect. So again, if I think about public, very constructive. If I think about nonres, on the heavy side, it continues to grow. And again, I take you back to that Slide 12 in the supplemental slides. And then what we're doing today in this business is doing it on the back of a non -- excuse me, on a residential market that is very, very muted. And if you go back over time and you really want to track volumes and if there's one single thing that you can tend to track it with, it's what's happening relative to single-family housing. Not that, that's a huge consumer of stone, but it's everything else that brings along with it, including the light nonres. So we came into this year with very low expectations of housing. And by the way, those low expectations were fully met this year. I think we're going to go into next year and have a much more constructive housing market in half 2, probably building into 2027. So again, Ivan, what you're asking is coming into the year, how did it feel exiting the year? How does it feel? And what does that look like on a comparative basis on what we think '26 is going to be, I feel better about '26 than I did '25 coming into the year. So I hope that's responsive. Judah Aronovitz: Okay. And just on the gross profit per ton on aggregate. I guess, how do you -- double-digit growth, reasonable to expect at this point? Michael Petro: Yes. I would encourage you to think about the price/cost spread that we talked about at 250 basis points. That kind of almost gets you there, but that's more how I would encourage you to model it. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the conference back over to Mr. Ward Nye for closing remarks. C. Nye: Abby, thank you so much, and thank you all for joining today's earnings conference call. Martin Marietta's resilient aggregates-led platform, bolstered by our high-performing specialties business and portfolio enhancements positions us to drive sustainable earnings growth and respond with agility to evolving market dynamics. Through the disciplined execution of SOAR 2025, we've strengthened our presence in economically vibrant markets with compelling long-term demand drivers, while enhancing our product mix, earnings profile and growth trajectory. As we embark on SOAR 2030, the next phase of our 5-year strategic plan, our strong financial foundation and enduring commitment to long-term value creation reinforce our confidence in delivering superior results for our shareholders now and into the future. As always, we're available for any follow-up questions, and thank you again for your time and continued support of Martin Marietta. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to InspireMD Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Web Campbell from Gilmartin Group for introductory disclosures. Please go ahead. Webb Campbell: Thank you for joining us for the InspireMD Third Quarter 2025 Conference Call. Joining us today from InspireMD are Marvin Slosman, Chief Executive Officer; Mike Lawless, Chief Financial Officer; and Shane Gleason, Chief Commercial Officer. During this call, management will make forward-looking statements, which are based upon management's current expectations, beliefs and projections, many of which, by their nature, are inherently uncertain. These forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed in such forward-looking statements. For more information about these risks, please refer to the risk factors described in InspireMD's most recently filed periodic report on Form 10-K and Form 10-Q or any updates in its current reports on Form 8-K filed with the U.S. Securities and Exchange Commission and InspireMD's press release that accompanies this call, particularly the cautionary statements made in it. This call contains time-sensitive information that is accurate only as of today, November 4, 2025. Except as required by law, InspireMD disclaims any obligation to publicly update or revise any information to reflect events or circumstances that occur after this call. It is now my pleasure to turn the call over to Marvin Slosman, Chief Executive Officer. Marvin, please go ahead. Marvin Slosman: Thank you, and good morning, everyone. I'm pleased to welcome you to today's call. Joining me on the line is Mike Lawless, our Chief Financial Officer; and Shane Gleason, our Chief Commercial Officer. We are dialed in live from VIVA, the Vascular InterVentional Advances Conference in Las Vegas, where we're hosting many conversations on the introduction of CGuard Prime following our approval in June. I will share more on our market traction shortly, but I want to start with a detailed overview of the results of the third quarter. I'm happy to share that our business is advancing with velocity and intention. In the third quarter, we reached $2.5 million in total revenue, representing year-over-year growth of 39% and sequential growth of over 40% since the last quarter. Our growth was driven by strong early momentum in the U.S. and continued demand for our CGuard stent platform internationally. Our strong performance was a result of months of significant internal preparation, which positioned us to hit the ground running upon the FDA approval. Following approval, which we received in late June, our team immediately activated our planned commercial efforts in the United States in July. When we say commercial activation, we mean a focused and deliberate effort to make sure that our device is accessible to U.S. providers and their patients who are at risk of stroke. Our team has been engaged with many physicians and hospital systems and are working through value analysis committee approvals, contract completions and case initiation. We are building traction methodically with the goal to drive sustainable penetration and growth in the market. Demand for CGuard Prime has been strong. As of today, we've completed more than 100 cases in the U.S., and many of these procedures were performed within some of the largest IDNs in the country. The demand and excitement for our technology reflects the foundational work we've done over the years, establishing value and awareness for our best-in-class clinical results. Globally, we are now approaching 70,000 stents sold to date as the carotid interventional market shifts to a stent-first approach. We believe the established CMS reimbursement, combined with our innovative protective mesh stent design, evidence and real-world experience provide a pathway for us to lead the carotid market. We are equipped with high-caliber sales leadership and clinical support, reflected in the remarkable progress our group has made in just a few months post FDA approval. Their deep experience in vascular market and established relationships with physicians and administrators combined with a best-in-class implant forms the backbone of our early and progressive success. The team is tasked with our commitment to expanding treatment to the vast patient population who could benefit from our technology. As a reminder, over 3 million people globally are diagnosed with carotid artery disease, yet only approximately 400,000 are treated annually. This massive gap in treatment leaves patients vulnerable to catastrophic stroke events. CGuard Prime aims to redefine success for these patients and their providers by lowering the risk of strokes and other major adverse events to levels never achieved with first-generation stenting or surgery, validated with rigorous evidence, proven clinical results, reimbursement and real-world outcomes. As I mentioned earlier, we are living the excitement of our technology firsthand here at VIVA. Today, we are here in Las Vegas with many members of our team and Board of Directors, engaging with our physician partners and champions as we continue to launch CGuard Prime in the U.S. The energy of our commercial-facing teams and the unmistakable momentum around endovascular intervention gives me incredible optimism for the future of our company. Before I provide a detailed update on our clinical trial work, I wanted to take a moment to welcome our new Chief Medical Officer, Dr. Peter Soukas. Dr. Soukas will oversee clinical and medical topics, further building on our best-in-class data as well as advancing awareness of our technology stent platform to the physician community. This transformational time for carotid intervention requires continually building a world-class team and support, and Dr. Soukas will be a tremendous contributor to our work ahead. We're thrilled to have Dr. Soukas join as our CMO. Now to the clinical pipeline, a critical piece of our long-term growth strategy. We continue to advance multiple programs in clinical studies as we work to expand our reach of our technology by building clinical evidence, potentially unlocking additional market opportunities. Starting in TCAR with C-GUARDIANS II, which evaluates a short TCAR-indicated version of CGuard Prime designed to be compatible with neuroprotection systems that are already in use in the field today. I'm pleased to report that we are on track to complete enrollment by the end of the year and potential approval anticipated in mid-2026. Simultaneously, we're advancing C-GUARDIANS III, the next phase of our TCAR strategy, evaluating our fully integrated TCAR solution, combining the CGuard Prime 80 stent with our proprietary SwitchGuard neuroprotection system. This study is designed to showcase the full potential of our purpose-built solution for TCAR, offering physicians a comprehensive streamlined option that we believe can set a new standard in the field. We currently expect FDA clearance and launch in mid-2027. The impact of these 2 studies highlights the versatility and clinical value of our platform and are expected to give us extremely competitive position in TCAR, a U.S. market that already exceeds 30,000 procedures annually. We also continue to make progress on our tandem lesion early feasibility study to expand the potential use of our technology in acute stroke care. The study is being conducted in partnership with Dr. Adnan Siddiqui and the Jacobs Institute in Buffalo, New York. This study evaluates the use of CGuard Prime in acute stroke patients with tandem lesions in conjunction with thrombectomy. I'm happy to share that enrollment is over 50% complete. It is inspiring to hear physicians' excitement for having an option to treat this critical need with our technology in a challenging patient population. Let me also mention our awareness of the upcoming CREST-2 data that's scheduled to be presented at the VIIF and SVIN meetings in the coming weeks. We believe the culmination and sharing of this data is another reminder of the advancement of awareness of carotid intervention and the importance of decoupling categories of therapy with specific implant-based performance to demonstrate the specificity and granularity of results. Clinical outcomes have been redefined with best-in-class evidence with CGuard implant across a large population sample of both symptomatic and asymptomatic patient cohorts measured in both short- and long-term outcomes. The baseline of nearly 70,000 implants sold and 2,000 patients studied and peer reviewed to date speaks volumes to the validation of our exceptional results. Our strong performance in the third quarter, combined with the establishment of a robust commercial foundation gives me tremendous confidence in our ability to deliver meaningful growth and value over the coming quarters and years. Now I'll turn the call over to Mike to walk us through the financials. Mike? Michael Lawless: Thanks, Marvin. For the third quarter of 2025, total revenue increased by 39% to $2.5 million. This increase was predominantly driven by the launch of CGuard Prime in the U.S., increased penetration of international markets with CGuard and the favorable impact of foreign exchange. U.S. revenue for the third quarter was $497,000, driven by the launch of CGuard Prime. This is the first quarter we recorded U.S. commercial revenue following the FDA approval in late June. International revenue for the third quarter was $2.0 million, an increase of $223,000 or 12% compared to $1.8 million for the third quarter of 2024, driven by increased usage in over 30 markets and the favorable impact of foreign exchange. Gross profit for the third quarter of 2025 increased by $450,000 or over 100% to $864,000 compared to gross profit of $414,000 for the third quarter of 2024. This increase in gross profit resulted from higher revenue and a favorable shift in sales mix towards higher-margin revenue from our commercial launch in the U.S., partially offset by higher production variances and training costs. Gross margin increased to 34.2% of revenue during the third quarter of 2025, up from 22.9% of revenue during the third quarter of 2024, driven primarily by the previously discussed favorable revenue mix and volume leverage of fixed operating costs. We expect continued expansion of gross margins in future quarters as our commercial sales ramp in the U.S. drives continued favorable mix and volume leverage. Total operating expenses for the third quarter of 2025 were $13.9 million, an increase of $5.0 million or 57% compared to $8.9 million for the third quarter of 2024. This increase was primarily due to higher headcount-related expenses as we continue to expand our U.S. personnel, particularly our commercial team to drive the U.S. commercial launch of CGuard Prime. A second driver of the increase in operating expenses was occupancy and infrastructure expense related to the establishment of our U.S. headquarters. Financial income decreased by $229,000 to $343,000 from $572,000 in the third quarter of 2024. This decrease was primarily due to $118,000 decrease in financial income from investments in marketable securities and money market funds and a $104,000 increase in financial expenses related to changes in exchange rates. Net loss for the third quarter of 2025 was $12.7 million or $0.17 per basic and diluted share compared to a net loss of $7.9 million or $0.16 per basic and diluted share for the same period in 2024. As of September 30, 2025, cash and cash equivalents and marketable securities were $63.4 million compared to $19.4 million as of June 30, 2025. The increase in cash resources is a result of 2 financing events with significant impact during Q3. First, we raised gross proceeds of $40.1 million through a PIPE offering with existing and new investors. Second, we raised gross proceeds of $17.9 million from the exercise of the second of 4 milestone-based financing tranches pursuant to our May 2023 equity private placement. The exercise of the warrants was triggered by the receipt of premarket approval from FDA for our CGuard Prime carotid stent. The 2 remaining tranches are triggered by future milestone events, including: first, the completion of 4 quarters of commercial sales of CGuard Prime in the U.S., which we anticipate in the back half of 2026; and second, receipt of FDA clearance for the SwitchGuard TCAR neuroprotection system, along with TCAR indicated CGuard Prime stent, which we expect during 2027. So turning to our financial outlook. We're encouraged by the initial traction for sales of CGuard Prime in the U.S. and the continuing solid performance of CGuard internationally. For the fourth quarter, we expect sequential growth in U.S. sales and steady demand trends internationally, resulting in revenue of approximately $2.5 million to $3.0 million in the fourth quarter. When we report our fourth quarter 2025 results, we will share our 2026 growth expectations informed by insights from an additional quarter of U.S. launch progress. This concludes our prepared remarks. We will now open the call for questions. For the Q&A segment, we will be joined by Shane Gleason, InspireMD's Chief Commercial Officer. Operator? Operator: [Operator Instructions] And we'll take our first question from Adam Maeder with Piper Sandler. Adam Maeder: Congrats on the progress. Can you hear me okay? Marvin Slosman: We can, Adam. Adam Maeder: Okay. Perfect. I was getting a little bit of feedback there. Maybe just to start, would love to hear a little bit more about the initial physician feedback that you're getting from U.S. customers that have started to use CGuard Prime? And then the second part of that is maybe it's a little bit early, but curious how CGuard is being used in the doctor's armamentarium. Is this kind of being used as kind of the workhorse carotid stent for customers? And then I had a couple of follow-ups. Marvin Slosman: Adam, thanks for the question. We're really enthusiastic in the response from physicians. I think that there has been a buildup to anticipating CGuard Prime's launch in the U.S. because of our baseline of experience outside of the U.S. And we purposefully launched this product over the many years outside the U.S. to build a very solid foundation of best-in-class clinical data and real-world experience. As you know, this world operates globally, and it was no secret anticipating this coming launch. So we're very enthusiastic about it. Frankly, we're trying to make sure that we follow a very deliberate controlled approach to things to get on top of all the opportunity that we see in front of us, but to do it the right way and deliver deliberately. We're following our playbook that was designed for a long view and leadership in this space with durability over time. But I think the early days, even though it's 1 quarter of data really give us a lot of enthusiasm and encouragement. I'm going to ask Shane to kind of jump into the second part of your question in terms of where this fits in the armamentarium of our customers across a pretty broad base of carotid users. Shane Gleason: Yes. Thanks for the question, Adam. The excitement has been really strong. And as we mentioned earlier, we're at the VIVA meeting. We're at the TCT conference last week. There are a number of other ones upcoming. And the team is in the field every day having these conversations. So the product has been very well received. And a lot of the discussion at the meeting has been exactly that. Where does this fit in to people's carotid toolkit. And up until now, there tended to be trade-offs between different stent platforms, a lot of advocacy for being comfortable with both an open cell stent and a closed cell stent for various anatomies. And one of the great things about CGuard Prime is that it really meets both of those. So we envision this to be a workhorse product. That's what the folks at the podium are saying as well. So that's our expectation going forward. Adam Maeder: Okay. Perfect. I appreciate all the color there, guys. And for the next question, I was hoping to just go a little bit deeper into U.S. launch and wanted to see if you could share some metrics, I guess, more specifically, device ASP versus volume in the quarter, number of accounts that have implanted CGuard at this point and visibility around that process for how we should think about onboarding accounts in Q4? Marvin Slosman: Thanks, Adam. I'm going to let Shane jump in on those topics. Again, early days and early data points, but I think thus far, the expectations across that spectrum that you just mentioned have been really encouraging and sort of above expectations. But Shane, do you want to add something on those. Shane Gleason: Yes. I'll say in terms of pricing, our approach has been that we are coming in at a premium to the market, but not a prohibitive one. The conversations that we have frequently are that our major adverse event rates are half or 1/3 of what the first-generation stents have. So we could have taken the approach that we're 2 or 3x as good, so we're going to charge you 2 or 3x as much. Price it like a drug-coated balloon or drug-coated stent newly into the market. But we know that while that may eventually get us on the shelf in some places, it would likely limit adoption certainly to being a workhorse product. So our communication is that we're requesting a, I'll call it, a modest premium, something versus the CAS and TCAR stents, something in the hundreds of dollars, not thousands of dollars. and saying that we want it to be a workhorse stent. We don't want it to be priced to the point where you only use it in case of emergency, you only use it in the worst of your worst cases, but we want to be used in all of their cases. So I'd say a more modest premium to the market, which has been well received by physicians and administrators as well. Adam Maeder: And just any color on accounts -- yes, sorry, go ahead, please. Shane Gleason: Yes. I was just going to clarify the other question. So we mentioned that we've done over 100 cases since launch. Obviously, that number is growing every day. And in terms of accounts open, are we -- yes. We've had about a dozen reps in the field until very recently. And I'll say that we on average opened several accounts per rep even in the first quarter, which we've outpaced expectations where you kind of think VACs and product committees tend to be measured in quarters to years, not weeks or months, but we've actually had a lot of approvals in months and not quarters. And we've done cases in a lot of the key IDNs around the U.S. So we've made a lot of traction there in terms of opening accounts. Marvin Slosman: Yes. Adam, I would just add that this is a foundational build for us. When we talk about activation, it's all of those things. But the benefit of having a team on the field at approval, thanks to our capital strategy was really important for us so that we could get into that activation mode quickly, and we'll obviously benefit as that continues to mature. Adam Maeder: Sure. Totally makes sense, and I appreciate the color. And just one last one, if I may sneak one more in. Just I think you just mentioned, Shane, 12 reps in the field in the U.S. until recently. Can you just remind us kind of how we should think about the sales force expansion plan as we get into this quarter, Q4 as well as 2026? I'll leave it there, guys. congrats again. Shane Gleason: Yes, absolutely. So what we communicated last time that we have a U.S. commercial organization that was north of 20 people with most of them in the field. I mentioned the number of reps just a minute ago, but then you add in the sales directors and clinical specialists. We were exiting this year with more than 30, again, with most of them in the field. And the additions that have all been territory manager, customer-facing sales roles. And then in terms of going forward, our plan has been to get to that point here as we exit the year, let them start to throw down some routes in their accounts and then scale accordingly as we get into and through 2026. Operator: [Operator Instructions] And we'll take our next question from Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Congrats on the solid initial launch. I was hoping to follow up on, I think there was a guide right at the end of $2.5 million to $3 million. I think I heard that was for total business. Can you maybe help us parse out OUS versus U.S. in that $2.5 million to $3 million? Apologies if I missed it. Michael Lawless: Yes, sure. Frank, this is Mike. Yes, the breakdown of the guidance really consists of stable international sales relative to Q3 with expectations for some growth in the U.S. market in Q4. Frank Takkinen: Perfect. Okay. That's helpful. And then maybe one, I know it's probably early days here, but any comments around those who have started to use it, how they are ordering product initially? Are they starting with a few units and then reordering? Are they putting half dozen units on the shelf? How are they, generally speaking, ordering product to start. Marvin Slosman: Yes. Frank, I'll jump in there and hand it off to Shane for the back half of that question. So far, patient outcomes are great. The stent performance is great. We're thrilled by the fact that expectations are certainly being met in those 2 parameters, which is what's most important and consistent with how we've done this globally and how the stent has performed globally. I'll let Shane kind of answer the general theme that we're following in terms of how we're stocking shelves, doing cases and most importantly, how the matrix of our products fits well into the size expectations that are on the shelves. Shane Gleason: Yes, our goal is to -- we want our team in the cases as we launch this product. One of the nice things about this space is that eventually, that won't be the requirement. We know that's a question of do you build a model where you need to be present in every single one of your cases. I'd say in the short term, as we launch the product, we want to be present in those cases. And then as we open things up going forward, we won't need to be. So what that tells is that we're not stocking shelves and running away and hoping they use it when we're not there, but primarily running the cases out of reps stock with reps present in the cases as we get started and we make sure that the users and the accounts that could use it are trained and familiar with it before we leave a bunch of products on customer shelves. Marvin Slosman: Yes, Frank, I think it's all about utilization at this point. We want to make sure that this is the go-to product and it's utilized effectively as such. Frank Takkinen: Got it. That's helpful. And then maybe if I can just sneak one last one in, gross margin commentary. How should we think about where gross margins can go with scale? Michael Lawless: Yes. Well, I think as I mentioned on the call, the clear driver of that is the increasing mix of U.S. sales as we go forward into the future. As our volumes grow, we'll get some scale leverage just from the higher revenue, but we'll also get the benefit of the much higher margin mix of sales in the U.S. market. And so I mean, I think at this point, I don't want to start giving forward guidance on margins, but suffice it to say that as U.S. becomes a larger and larger percentage of our revenue, we would expect that our margins would approach typical medical device type margins. Operator: At this time, we've reached our allotted time for questions. I will now turn the call back over to Marvin Slosman. Please go ahead. Marvin Slosman: I'd like to thank everyone for joining today's call and the continued support for our mission to lead and transform the carotid intervention market. We're really proud of the strong performance the team delivered globally in the third quarter and especially here in the U.S. and our first commercial quarter as we advance our activation efforts and accelerate momentum. If you happen to be here in Las Vegas at VIVA, stop by the booth, we'd be happy to see you and look forward to great progress on our business. Thank you.
Operator: Good day, everyone, and welcome to the Third Quarter 2025 Eastman Conference Call. Today's conference is being recorded, and this call is being broadcasted live on the Eastman website at www.eastman.com. I will now turn the call over to Mr. Greg Riddle, Eastman Investor Relations. Please go ahead, sir. Greg Riddle: Thank you, Becky. Good morning, everyone, and thanks for joining us. On the call with me today are Mark Costa, Board Chair and CEO; Willie McLain, Executive Vice President and CFO; and Jake LaRoe and Emily Alexander from the Investor Relations team. Yesterday, after market close, we posted our third quarter 2025 financial results news release and SEC 8-K filing, our slides and the related prepared remarks, and this is in the Investors section of our website, eastman.com. Before we begin, I'll cover 2 items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to future expectations are or will be detailed in our third quarter 2025 financial results news release during this call, in the preceding slides and prepared remarks and in our filings with the SEC, including the Form 10-K filed for full year 2024 and the Form 10-Q to be filed for third quarter 2025. Second, earnings referenced in this presentation excludes certain noncore items. Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the third quarter 2025 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we'll go straight into Q&A. Becky, please let's start with our first question. Operator: We will now take our first question from Vincent Andrews from Morgan Stanley. Vincent Andrews: Mark, could you help us with the bridge to 2026? And in particular, is it just as simple as taking your full year EBIT from this year, adding the $100 million of cost savings and the $50 million to $75 million of asset utilization reversal. But then I'm wondering, you're talking about recycling being a good news story next year, but you kind of just mentioned that there'll be a revenue lift. So I'm not clear whether that revenue lift is being offset by weakness somewhere else in the portfolio or if there are other puts and takes that we need to put in that bridge to get to sort of what you're expecting at this point for 2026? Mark Costa: Vincent, thank you for the question. Obviously, it's an extremely important question for us as we think about working through the back half of this year and building earnings growth for next year. And I think you named a lot of the components. The way I'd start this conversation first is what you said, you got to look at a full year number. When you look at the back half of this year, you can't annualize the back half for 3 reasons. One is there's always normal seasonality in the back half of the year, especially in AFP through the back half and Advanced Materials having a normal material drop from Q3 to Q4. Second reason, obviously, as we've discussed in the prepared remarks, the trade disputes have exaggerated this dynamic with all the pull forward of material that happened in the first half of the year to get ahead of tariff risk. And now with consumer demand being sort of weaker than that was expected in the first half -- for the back half, it's taking them a lot longer to unwind that inventory. So that's exaggerating the sequential decline. And the third, of course, is we started the year believing we'd have volume and growth and stability in the first quarter, which we did have and then a lot changed, obviously, through the second quarter. So we had volume that was sort of built for that scenario that was no longer needed as demand was softening more than expected than we had that $100 million asset utilization headwind in the back half of the year relative to the first half. So those 3 things really distort the back half of this year. So you're right, the best way to think about and build a base case scenario for next year is you have to look at the full year volume numbers, especially in Advanced Materials and AFP, which would be AM being down around 4% and AFP being down around 2% on a full year basis. And you sort of start there. When we then look underneath of that, we think about the stable markets, which is about 1/3 in AM and 2/3 in AFP, you're going to have sort of low single-digit growth that is just normal from these kind of stable markets. And it's coming from a bit of a soft year. So I think it's even more credible that there'll be some recovery in growth in those products. The discretionary markets are where the sensitivity and the impact of the trade war is really felt. And for now, we're just going to assume, let's just say, the baseline volume is stable. Now with lower interest rates and tax legislation, et cetera, you could believe there will be upside to that, and that's for every investor to make their decision. On CI, I would say we'll have more volume, that's really due to less shutdown time that we expect next year versus this year. So we'll have more volume to sell. And then Fibers, we intend to try and keep that volume stable to this year. So you've got a baseline that's stable, some sort of modest growth throughout the portfolio. And then it gets to, okay, that's the underlying assumptions. What can we do with that scenario and how do we create earnings growth above that? It starts with the cost reduction, right? So we've done $75 million of cost reduction this year. A lot of that's in the back half. So that annualizes and helps with the $100 million cost reduction target we've told you we have for next year on top of this year. So we're very focused on that, a lot of action going on with that. With the volume scenario I gave you, the utilization tailwind for next year relative to this year is somewhere in the $50 million to $75 million range, depending on what happens in the volumes, right? So volumes are flat or more towards the $50 million, volumes have the modest growth that we're talking about more towards the $75 million. And then you've got innovation. That is the center of our strategy, and it couldn't be more valuable than it is in this market environment. We actually expect a meaningful increase in revenue in the circular polyester methanolysis plant, as we've discussed in the prepared remarks, and we'll have a tailwind with better utilization and costs. So you'll have a meaningful impact in EBITDA from this year. There will be the normal innovation that we always have in HUD growing in cars as well as EVs in the interlayers business. Our event is gaining traction, Naia textiles recovering, EastaPure semiconductor solvents, a lot of places where there's innovation growing. And then we're going to be focusing on how we can win share in a number of markets. There's some where we're already regaining some share that we lost in architectural and coalescence in architectural markets and interlayers. And then there's also some places in tariffs helping us like in specialty polyesters and rPET in the U.S. The tariff is significant for our competitors to compete in the U.S. And we're following our customers around the world as they're moving out of China. Underneath all this is our commercial excellence to defend and keep price steady and stable, only slight declines probably expected and that it preserves a lot of cash flow. So we continue to be focused on cash. We continue to be focused on innovation. We're adding on aggressive cost management at the same time. All that comes together for a meaningful earnings increase under this scenario. Operator: We will move on to our next question from David Begleiter from Deutsche Bank. David Begleiter: Mark, a lot of good things happening at Kingsport. Can you discuss 2 things, the conversion to the rPET capacity, how much is being converted? What does it mean for next year, be the debottlenecking, how much will it cost, when will it be on stream? And your plans for this -- the second plant. You mentioned 3 locations. Where do we stand on that? Is Longview now off the table? Mark Costa: Those are all great questions. I'm a little limited on how I can answer some of them. But to start with Kingsport, first, the plant continues to run well. We're still on track to hit our production target. We've had great confidence built about our ability to debottleneck the plant as well as our yields are turning out to be better than expected. We've hit 90% yields, which is extraordinary when you're taking garbage and turning it into first quality, perfectly clear, high-quality polymer. So we're really, really excited about what we're learning, what we're doing on that project, and we believe that, that 30% expansion of the capacity is very feasible. The capital to do that, which would be done over a series of our normal shutdowns is relatively modest capital. So we're not disclosing that number at this stage, but it's not significant. So excited about stretching that plant, getting a lot more value out of it and that giving us more continuous earnings growth while we work on the second project. When it comes to revenue for the project, obviously, in this market environment, especially in consumer durables, where a lot of the renewed content goes in our specialty Tritan products. It hasn't been growing as fast as we wanted in the end market, which means product launches aren't that fast. But as we look towards next year, 2 things, we continue to get more wins on the specialty side and continue to build confidence there where customers are committing and buying and paying premiums. But the rPET is a significant step-up. So we told you last year that we were -- with adding 80,000 tons of new Tritan capacity, we could take an existing Tritan line and switch it back over to making rPET along with a couple of other lines that we have that are able to do that. So it gave us a decent amount of capacity to make rPET. And we've been really encouraged by several customers very interested and committed to growing their rPET in different applications. And the commitment and the strength of their interest is really driven by the challenges they're having in mechanical recycled content where the color is not great, the appearance on the shelf is not what they want for their high-end products on the shelf that need to look pristine. And so our product sense is identical basically through the chemical recycling and the purification allows us to provide virgin quality product on the shelf. So we expect a very significant step-up in volume to go a good distance in filling up that capacity. And that revenue, which is also at attractive margins, combined with specialty will give us a big step-up in revenue versus where we are this year. And those commitments are close to complete. So we feel very good about where we are on that. And then when it comes to building the second plant, the great thing about the debottleneck is it gives us time to work on a much more capital-efficient way of building that plant. And it also allows us to do a step-up in capital right now in this economic environment. But we are making great progress on 3 different options of where we could leverage existing assets very effectively in combination with our methanolysis technology to build the plant in a much more affordable manner. We know the value of vertical integration, which we do in Kingsport with everything we do, and that applies when you're building something new, too. So we're excited about that. We're not going to give much more in the details on that. Hopefully, we'll have more to say in January. David Begleiter: Perfect. And Mark, just on Q1, looking to next year, how should earnings ramp from Q4 to Q1? I assume most of the asset utilization headwinds should be gone by then. Is that fair? Mark Costa: Yes. The asset utilization headwind turns into a tailwind as you look at Q1. That's one of several factors. You have the normal seasonality of Q4 where demand is just always low, especially in Advanced Materials and AFP. So that snaps back seasonal paint, lots of things being made for holiday season, just you don't get orders for that in the fourth quarter, but they start doing that in the first quarter. In fact, in our Specialty Plastics business, we have a number of our customers are already talking to us about their plans on buying more volume relative to where they are today. So that's encouraging. So I think you have that. You also have this exaggeration of this demand -- this inventory that was built in the first half of the year being used up in the second half of the year, which is also artificially pushing demand down in the fourth quarter beyond normal seasonality. And our belief is that there's a good probability that will be fully depleted hopefully, by the end of the year. It's very hard to know. We've learned a lesson about guessing on what happens with inventory depletions back in 2023. But there's a big difference this time, which is in '21, '22, there was a huge amount of inventory built on the expectation of a lot of growth. This year, no one expected a lot of growth. And you can see in the retailer data or the consumer brand data, they didn't build that much inventory. They moved around the planet a lot to get it in the right places to avoid tariff risk including our products into China and Europe, but they didn't build a lot of inventory. So they don't have that much actually to unwind. So we should get some relief on that as well, we hope. And then, of course, the revenue we just talked about in methanolysis starting to kick in, in the rPET that really ramps up in Q1. We have our normal innovation that's always driving some growth. And then the cost actions is the last part that should also help. As you have ramped up the cost actions through this year, that should annualize into an advantage for Q1. Operator: Our next question comes from Aleksey Yefremov from KeyCorp (sic) [ KeyBanc ]. Aleksey Yefremov: Mark, can you just discuss this dynamic with Renew? Your customers seem to be interested in the specialty applications for the polymer, but they're not actually buying the volumes. So how do you gauge their real interest and sort of ability to pay for the price that you're charging for Renew? Mark Costa: It's a great question. It's come up a number of times. The value of Renew is to put it in a product as a way to differentiate that product and being different on the shelf, right? And they do that to get a better price point to get some volume growth. So that's how any of these, especially on the consumer durable side of things, think about the value of this content. So there was extreme strong interest in this in '21 and into '24 as they saw this opportunity. But the economic determinant of seeing the value and realizing the value depends on the end market and consumer actually being there to buy it. And when you have consumer durable markets being soft and not growing very much, last year, they were a little hesitant on how much they wanted to try and launch new products in that soft environment. You have to remember that building construction demand -- I mean, sorry, consumer durable demand in '24 is probably 5% to 15% below 2019, depending on the product. And it's connected to home sales. You remember, home sales, all home sales are triggering event for durables, right? And that's down 20% in '24 versus '19 in the U.S. and Europe, and China is even worse. So the underlying market of trigger events to buy new products is weak. So in that context, while it's great to see we still have over 100 customers, we only have one cancel their commitment to renew, the rate at which they're launching that renew into new products and getting volume from the consumers is just limited by the end market constraints. The good news is the pent-up demand is accumulating. These appliances are all getting really old from ones bought in COVID. And so you expect that at some point with some stability in the economy, you're going to see a pretty significant resurgence in demand because it's adding up under the curve from '22 to now. And the trade war, of course, just made the challenge even worse this year, as I described earlier. So it doesn't change our confidence. I mean the brands, if they're really not interested, they cut the orders and they're not doing that. Aleksey Yefremov: Makes sense. And second question on Fibers. Why are volumes just stable next year in terms of your expectations? I thought we had some weaker textiles this year and also you had some customer destock. Could you just talk about these dynamics, how you see them evolving next year? Mark Costa: Yes, there's a lot of moving parts inside the Fibers business. And as I mentioned in the second quarter call, about 40% of the challenges in Fibers is not associated with the tow business, right? So to your point, textiles, which was a source of growth to offset tow market decline up through '24 and have done it nicely, suddenly flipped this whole tariff issue that we've run into where we had modest growth year-over-year in the first quarter that then flips to a mid-single-digit headwind, whether it's housewares or textiles for appliances in May after the sort of tariff announced in April created a headwind there. So -- and it's turning out to be a bit more than we thought. So we told you $20 million headwind. We think it's more closer to $30 million headwind for the back half of this year as we sort of go through the back half. So that is a real headwind in textiles. Now the good news about textiles, this is a cyclical demand change. It's not structural. So when we think about recovery, we already can see some places where we're gaining some share. We're trying to move outside of China where the reciprocal tariffs are hurting us into China with our product to other markets. And so we're confident we can rebuild that business, and we'll start doing some of that next year. The whole stream had less demand. So we had a $20 million headwind out of asset utilization across the stream in the back half of the year that's impacting -- that's the part that's impacting Fibers. We had some higher energy costs that probably doesn't become a tailwind. But the textiles and the asset utilization can reverse and become a tailwind as we go into next year and the following years. So that takes you to the remainder, which is tow. Obviously, there was a pretty significant step down in tow volume this year that was driven by the destocking. The more we dig into it and the more we learn the amount of inventory, our customers built in tow is pretty significant due to all the concerns they had about reliability of supply when the market was so tight. And now that the market is a bit looser, they're feeling because of the capacity out in China, they're feeling they can take that inventory down. And that's the vast majority of what the drop is. We don't expect it to get worse next year, but we do expect it to continue into next year and to some degree, lessen, but a little hard to call. It's a bit like what we've been going through with the medical destocking. It's not a single year destock. And then there was some share that was lost by the industry to the new entrant. And so we're adjusting to that dynamic from China. And so as we look at that, we think that the share situation is stabilizing, destocking will continue, but not get worse. And when you put that together, if we manage our positions correctly in the marketplace, we should have stable volume. Operator: Our next question comes from Patrick Cunningham from Citigroup. Patrick Cunningham: Apologies if I missed this, but on the Pepsi contract, can you remind us in rough terms what the initial agreement looked like? And what is prompting restructuring of that agreement? Mark Costa: So the Pepsi contract was a very important foundational baseload contract to give us confidence in building the second plant. So the volumes, which we've not disclosed due to confidentiality with Pepsi is sufficient to baseload a second plant at 100,000 tons of scale, which is similar to the one we currently have built here, which will now be 30% greater than that with our debottlenecking capability. So that contract provided provisions to give us confidence in the revenue that would come from it, both in price stability that would move with the changes in our key variable costs on feedstock and energy, and it would give us committed volume in that contract. And that contract was obviously designed around when that second plant would start, which is obviously even back then a couple of years out. The change when we say restructuring is we've been very successfully working with them on how to move that volume into next year -- start the volume next year. So they're one of the companies that certainly see a lot of value in rPET and recycling content, want to have high-quality products on the shelf. And so they're interested in volume next year. And that's the restructuring is pulling forward the start of that contract. Patrick Cunningham: Great. And then just at a high level, how should we think about CI earnings next year? You have some asset utilization tailwinds, cost reduction. And is there anything encouraging you're seeing from either trade regulations or perhaps planned asset rationalization that maybe help pull forward an inflection point there? Mark Costa: Yes, it's a good question. I mean -- so first of all, obviously, we're in a manufacturing recession across the entire business that started in '22, and we're now in our third -- actually going into our fourth year of being in a recession. And there's no precedent history of this, right? In '09 or 2020, you have a sharp drop and then a sharp recovery and everyone sort of goes and moves on. So it's hard to look at the current situation for a present and you also have a lot more capacity out of China being sort of dumped on the planet at very low prices. So the CI dynamic in the whole commodity industry and in large is going through a fairly unique situation. To answer your question, I do think there is a lot of rationalization of capacity going on in Europe, and it's expected that will continue. I think the Chinese government is trying to make some impact on rationalization, but it's unclear how much and how far they will go on that. But without a doubt, capacity is coming out of the marketplace. But the markets lose. So it's a little hard to know exactly when that's going to tighten the markets up and get back to some more stable conditions. So that's one dynamic, and it's a little hard to call. I can definitely tell you the back half of this year is definitely at the bottom from a competitive cash cost point of view with how the Chinese are pricing into these markets from outside the U.S., the tariffs are providing a bit of protection to the margins to us in North America. So the second challenge we have is that the North American market, which is where we predominantly want to sell everything we make if we can, always has higher margins and is an attractive market. So when the trade war impacted demand in building construction in consumer durables or we didn't get a lift in recovery in housing that everyone expected at the beginning of this year, the demand of those products in this market came down, and that's a mix hit because margins here a lot better than the export markets, which have become very challenged with the Chinese capacity being sort of put on the global market. So recovery in demand on housing, interest rates causing housing recover and durables recover will immediately start improving the mix and earnings value of CI. So that, I believe, will help next year because I think odds are that some of that demand will get better than where we are right now. We also, as I mentioned, just have a lot more volume to sell next year. So we'll have that benefit. And then we have a lot of aggressive cost structure, as you know, going on and reducing the costs here in this year as well as next year and CI picks up a good portion of that cost. So there are a number of reasons CI earnings can get better. But at this stage, I think you would be cautious on just how much spreads would improve until we see more insight on the sort of broader market dynamics. Operator: Our next question comes from Salvator Tiano from Bank of America. Salvator Tiano: So firstly, I wanted to ask, you brought up Fibers as a business that has -- that's facing cyclical and not structural headwinds. And I'm just wondering, in the past few quarters, we've been hearing whether it's from you that you lost some share in China in coating additives or from other players about interlayers, et cetera, that there has been competitive pressure in China. And I'm wondering, are there any chemical chains where you are actually seeing more structural supply coming in China and where earnings and volumes could go lower in the next few years? And in the case of films or coating additives, is the issue you've been having this year more cyclical or structural? Mark Costa: There's a lot of questions buried in that question. So I'm going to try and hit them. First, I just want to clarify, when we talked about what's going on in fibers, the cyclical part is textiles, where that demand and a lot of it is sold into China has come off. We don't really have much competition in that product in a direct like product that we make in our Naia yarn. But obviously, there's constant substitution going on across different chemistries of textiles, which is where we're winning all of our share because our product is so much more sustainable than the other markets that we sell into, and that's why we're confident long term in that product. I mean when you have a 60% biopolymer with recycled plastic as the other feedstock and it's -- the microfibers are entirely biodegradable environment, you have a lot of growth opportunities. So we're feeling great about that market and our ability to grow in it. When you asked the question around where we're losing some share, there is the lower value part of interlayers is the architectural business, and we lost a bit of share more than we expected this year, which we are regaining back in contracts for next year. And then coalescence is a competitive product where the Chinese have equal coalescence. And so competition within China is pretty intense. And so we've walked away from some share there. They're now starting to pick up some share in some other parts of the world. So those dynamics exist. But for the vast majority of what's in AM and AFP, we are fortunate where our innovation is strong and our competitive positions are strong. We don't really face that much direct competition from China capacity at this point. And the dynamics by far in what's going on from '22 through '25 is more about in market volume demand that's associated first with out-of-control inflation that led to out of control interest rate hikes to then a trade war just to make things more interesting. So those are the key things that are driving the situation up to this point. And we don't have any signs of significant capacity being built in our specialties that would be coming online that we can see at this stage. Salvator Tiano: Perfect. And one quick one on buybacks. I think the -- I may have missed it, but I think last quarter, there was a comment about committing to more buybacks next year than this year. Is this still the case? William McLain: So what I would say is, obviously, we're always disciplined when it comes to capital allocation. We bought another $50 million in addition to our dividend in Q3. We've completed the buybacks that we expect to do this year with keeping our net debt flat on a year-over-year basis. And what I would say is, as we think about the scenarios that Mark described, obviously, we're confident in our dividend in '26 and going forward. And obviously, we don't bet cash sit on the balance sheet, but making sure net debt is aligned with and moving back towards our 2.5x goal, we'll put the rest of the cash to use. But we'll update you in January on what the range of buybacks could look like. Operator: Our next question comes from Josh Spector from UBS. Joshua Spector: I want to go back to the initial questions around the bridge to '26 and just really clarify the basis for when you're thinking about what we should be bridging off of? Because I think in your comments, you were adding back inventory actions in the second half, but we know you overproduced in the first half. So should we be thinking about that additive to the full year? Or is that additive to the second half? I think that's kind of the difference between getting to $5.50 versus something like $6.50 in EPS as a base expectation for 2026. So hoping you can clarify that. William McLain: Yes, Josh, this is Willie. So on the utilization front, obviously, we've been talking about a first half, second half. But as you also look at the volume and the demand outlook that Mark described, we've more than offset the inventory build that we had in the first half and expect to do that by the end of the year. And that should give us utilization benefits as we're going through a more normalized year of stable demand that's growing on a year-over-year basis. So as we think about utilization, you had a minimum $50 million due to the absence of inventory depletion on a year-over-year basis. And ultimately, upside comes from there to the $75 million depending on how much other demand drops to the bottom line. Mark Costa: Yes. And I think that just on the underlying volume scenario just for volumes, what I tried to be clear about is don't use the first half or don't use the second half, but put them together, and that's a better assumption about what the volume decline for this year is because of all these dynamics going on. It would be around a 4% decline in AM and as I said, around a [ 2% ] decline in AFP. And so you're -- from a volume point of view, you're building off of that volume base into next year. And then you have the overlay of all the things the first question on where things might grow. Joshua Spector: Yes. No, I appreciate that. That makes sense. And I guess, I mean, a related point, I guess, on combining the volumes, I mean, your first half volumes were down low single. Your second half is maybe down high single. I guess when you look at customer order patterns and what they're talking about, do you expect that to grow over the first half basis? Or because of the exit rate, are volumes actually down in first half in terms of your base thinking and then it's easy comps in the second half? Mark Costa: Well, for sure, the back half is going to be easy comps, so we can answer that question. On the front half, I think it's a little complicated to know exactly how we entered the front half of this year and how that plays out, especially Q1, right? Because remember, in Q1, our view of the economy, along with everyone else in the industry and our customers was pretty positive, right? They thought demand was going to be relatively stable. They thought it would be some modest growth here and there. Fed will be lowering interest rates at some point. And so our volume -- the underlying market volume was up about low single digits when we look at some of the places that we sell into, especially in Advanced Materials. And our whole strategy and volume build and manufacturing is built around that will continue for the rest of the year. That's why things flipped so much on destocking -- so -- in the back half. So when you think about that change and how -- exactly how much of all the inventory is depleted from all this prebuy in the first half and some of that drag into the first quarter? We just don't know. We're confident Q1 will be better than Q4. It's a little hard to say exactly how it will compare to Q1 of last year. We have to just wait until we get to January to answer that question. Operator: Our next question comes from Kevin McCarthy from Vertical Research Partners. Kevin McCarthy: Mark, with regard to your Pepsi contract, is there any downside financial risk to Eastman now that you're rethinking the second plant? Or is it the case that there's really no downside risk because you're either protected contractually or you can perform against the contract through supply from Kingsport? Mark Costa: Well, first of all, we feel great about having them as a partner. We feel great about them seeing the value of recycled content, the importance of recycling their packaging in the market and creating a closed loop. And they've been a true leader in the industry on this front, and we're proud to have them as our base load. When it comes to the contract, we believe the way the contract is structured, we can reliably supply them from Kingsport and the debottleneck that we're willing to get that extra 30% and the different ways we can configure polymer lines to support what they need. So clearly, we want that baseload contract to support our second plant. But with the actions that we've taken, we're in a position to support them from the different existing lines and how they can be configured and the margins are attractive and give us a good return on investment around Renew. So we're happy to support them. Kevin McCarthy: Great. And then as a second question, I think you've raised your dividend every year since 2010. And with the actions you've taken, it looks like you've really supported the cash flow. I think you said approaching $1 billion. So given that's the case, would it be reasonable to expect that streak of annual dividend increases to perpetuate? I realize it's a Board decision, but it does seem like you're generating enough cash to do that. Any thoughts along those lines, Mark? William McLain: Well, first, thanks for the question and bringing up how solid and attractive our dividend is, which is well covered by our cash flow, as you also recognized. To your point, it is a Board decision, and we're not going to get in front of that process. But we do have a record of 15 consecutive years, and I think that speaks for itself. Also, as you've seen our most recent dividend, they haven't really significantly impacted the cash flows that are required to ultimately fund the dividend going forward and we do have a strong cash flow that we would expect in 2026. Operator: Our next question comes from Frank Mitsch from Fermium Research. Frank Mitsch: And if I could get a little more granular on the outlook question. Going back beginning of August, the expectation was 4Q would be in line, if not better than 3Q. And then in September, Willie indicated that 4Q might be a little bit weaker than 3Q. And then obviously, with last night's guide, things got even weaker. So I'm wondering if you can speak to the pace of activity that you've seen in the past couple of months? And what are your order books suggesting here for November? And how confident can you be that this is the bottom? Mark Costa: That's a good question, Frank. And as you may adjust, we spent a lot of time trying to understand all the market dynamics that we're in right now, and it is a very chaotic time. It's hard to even get high-quality data to know what's going on in the marketplace. And so we're doing everything we can to understand it. The dynamic, whether from the Q2 call to September to now and what's changed is demand. Nothing else has changed. Our cost plans are on track. In fact, we're probably being a bit more aggressive on cost management with the challenges that we face. The price/cost relationships on spreads and everything else are holding up as we expected. So it really is just a question of end market demand and how it's trending. And it really connects back to this question, which is just where exactly is consumer demand right now and how it's changed after April as well as just how much inventory is out there that was built in warehouses all over the country in the U.S. or warehouses with our Tritan and other cellulosics, et cetera, in China that was bought ahead of potential risk on those retaliatory tariffs getting worse or et cetera. So we don't know exactly how long that's going to take. Clearly, with the way the order patterns have evolved, where we thought it was going to be relatively short back in July is dragging out through the back half of the year. But it's -- the thing that gives us comfort is we just haven't built that much inventory, as I said earlier, in total from what we can see from all the public companies that we sell to or the retailers. So there's a limit on just how much they can do this, but it depends on where consumer demand goes. So all those dynamics are in play. And the fourth quarter is always a wildcard, especially as you go through the quarter. October revenue even as expected. So we feel good about that. And we're just going to have to see how things trend. We are encouraged, for example, in Specialty Plastics with these customers that are in very long supply chain to make consumer durables talking to us already about planning for higher orders in Q1. So that's encouraging. But way too early to sort of call exactly how this is going to play out from a precise timing point of view. Frank Mitsch: Okay. Understood. And you did mention that you're becoming a little bit more aggressive on the cost reduction front. You announced the 7% headcount reduction. Can you talk to the locations, the geographies? And how much of that is embedded in that $175 million in cost cuts that you're expecting between '25 and '26? William McLain: So Frank, on the cost discipline, it's fundamental part of who Eastman is and our strategy. I would also say that the cost reductions that we set out and at a very aggressive level of cost reductions for both '25 and '26, both offset some of the declines in Fibers and our Chemical Intermediates that may not be recovered. And it's also been foundational to our ability to basically support our growth and our growth spend for innovation. As I think about this year, our net savings is going to exceed the $75 million target that we set out at the beginning of the year. And the momentum that we've gained in the back half gives us confidence now that we can raise next year's net number to $100 million on top of that. As you think about gross numbers, that's in excess of $300 million of cost reduction actions. It's really driven by 3 core areas. It's effectively productivity. It's also being competitive on both the manufacturing and functional standpoint. And now with the acceleration of AI, how do we bring that to scale within Eastman, both in our commercial as well as our manufacturing areas. As you talked about the 7%, the 7% is our headcount that we started at the beginning of the year, where we expect to be at the end of the year. So we've been doing that effectively across our enterprise, both in response to the environment that we're in, but also as we think about how do we compete in a world that's only going to continue to raise the bar as we think about excellence. So as we think about reclaiming productivity, I think there's been studies post-COVID that have demonstrated a loss of productivity of at least 8%. And that also was compounded with the impacts of retirements that both happened at Eastman as well as across the chemical sector of a lot of knowledge. So this is not just normal productivity and offsetting labor, it's going above and beyond to recapture productivity more broadly. And the only way that you get that, we've been investing in capability, training, structure and how we get work done. As you think about areas beyond just productivity, part of this, we just announced optimizing our footprint. We've continued, like we have in the past, to look at how we should manage these supply chains. Supply chains have, I'll call it, put an inordinate amount of cost, both through tariffs, through logistics over the past several years. And the example that we optimized here in Q3 was the announcement around how we're going to run our films business, basically from a regional asset footprint, which is resulting in some restructuring here in the U.S. of our assets. So we will continue to transform how we do maintenance, also how we think about reliability and you've got to have the right partners. So we've gone through transformations this year of changing out partners across a couple of our large assets, both here in Tennessee and Texas. And as you think about, we're getting that benefit run rate here in the back half, that gives me confidence that we're going to deliver the $100 million as well as we go into next year. And from there, it's AI. This is where it gets really exciting. As you think about in our technology space, right, this is where we can ultimately reduce the cost of innovation, the speed to market as we look at predicting what formulations are going to be the right formulations to take to market and also as we think about the capacity that we need and where we need that. Finally, I would just give the example on the commercial front, right? We're -- ultimately, as we think about commercial, commercial excellence that Mark has highlighted on pricing, we're using AI when it comes to setting up compelling offers, how we generate returns off of those offers and also how we build off of that and win new business. So those are a spectrum. We're rightsizing the cost so that we can invest in innovation for the long term, and we're on track to deliver both here in '25 and in '26. Operator: Our next question comes from Mike Sison from Wells Fargo. Michael Sison: Mark, when you think about the portfolio that you have now, I think the hope over the last decade was to move it to more specialty type areas. Your multiples compressed a lot. When you think about what to do for the next 5 years or so, do you think you need to make any changes? The results granted unprecedented times, has been difficult. So when you think about things to do to improve the portfolio, any thoughts there? Mark Costa: Mike, thanks for the question. So we're always thinking about our portfolio, and we're always thinking about where we want to go in the future. I want to emphasize that the core strategy we put in place that really goes back over a decade to be an innovation-centric company is absolutely the correct strategy, especially as one to get through all this chaos. You defend value and market share because you have differentiated products in the market that customers need, right? You find a way to launch new products, you create your own growth. So we fundamentally believe that strategy is the correct strategy. And we've now added on a much more aggressive cost management program to go with it, right? So it used to be pre-COVID, we had productivity that offset inflation. We're clearly going way beyond that now because we realize that we have to be more competitive in these market situations. So that concept, that strategy allows us to get our normalized EBITDA back towards what we talked about in the deep dive in November, and we're still operating on that strategy. But -- and portfolio has been important for us, right? We've shown a lot of discipline to sell parts of our portfolio when they didn't make sense like tires, adhesives, the Texas acetic acid plant. But if you go back even further, we demonstrated a willing to really convert our portfolio to be specialty. So we sold off a huge amount of commodities, about $3.5 billion leading up to 2012. We then did a series of acquisitions that were quite large like Solutia, Taminco and some bolt-ons to really change the quality of our portfolio in a pretty dramatic fashion. So we know how to do M&A. We know how to do integrations. We know how to buy assets at a rational price. So we're always thinking about these kind of opportunities. Without a doubt, the industry is going to be going through a lot of significant change right now with all that you see going on across the peer set. So of course, we are thinking about how our portfolio should evolve in this context. But I mean, we're not going to see more than that. Michael Sison: Yes. And then in terms of a quick follow-up, when you think about the normalized EBITDA, you talked about a year ago, a little over $2 billion or so. Is it less volume to get there now given your cost savings? Is there any major changes to the walk? Or is it still fairly similar? I mean we need some volume to get there? Mark Costa: Well, I think that without a doubt, volume is the story and the challenge that we've had since 2022. And we need volumes to stabilize. We just need economy stabilize and volume to get a bit better. In that context, innovation accelerates when customers are confident and think there's a stable environment. They want to launch new products to try and gain share and win. So volume, not just from the market, but from innovation accelerates. The cost reductions that we're doing that Willie discussed are significant and lower our cost structure in a material way. A lot of that is being masked this year because of the [ $10 ] million sequential headwind of utilization that we've encountered in managing our inventory because the world didn't grow as expected. And so you can't really see the cost benefits this year. But as you move into next year with the volumes, if we're in a scenario where volumes are stable to this year, economy is stable, you get the acceleration of all that cost cutting as well as that utilization tailwind kicking in. So you do get a benefit from volume, but you also get a benefit from leveraging a much more competitive cost structure. And it's important to keep in mind that a lot of that headwind that we've encountered with volume this year because we are -- have these large sites like Tennessee that has a lot of vertical integration and fixed cost. It's painful when the volume goes down like you've seen. It's also extremely attractive when the volume comes back, the incremental margins will be very attractive. Operator: Our next question comes from Aaron Viswanathan from RBC Capital Markets. Arun Viswanathan: Most of my questions have been answered. I guess just wanted to know maybe you could elaborate on some of the choices you're making between giving up some maybe lower value business and the market share losses and what that kind of means for the future as you look into 2026. Does that set you up for maybe some improved margin performance? Or how should we think about that? Mark Costa: So we're always optimizing our asset base. This has been a core part of our strategy since we started on this, right? If you think about just the simple idea that Eastman made PET that got competitive, we moved into a whole set of copolyesters that we made with some proprietary monomers that upgraded that value. Then we came out with Tritan, which really upgraded the value in a very proprietary product and how it's been so successful. On the same PET assets that we started with, in fact, the Tritan line we're adding right now, that 80,000 [indiscernible] line is the first PET line we've added in decades because we're constantly valuing up the asset bases we have. Same is true in interlayers, where there's a standard interlayer to one that had acoustic to the one that has HUD, et cetera. So this idea of optimizing our asset base to drive returns and move to higher ground is embedded in our strategy forever. So there's always choices you're making where you look at some of the lower-value products and replacing them with higher-value products and upgrading the mix. We have lots of charts we've shown you in past Investor Days on how that's worked. And we're always doing that. But right now, with the market being soft, the other value of some low-value applications is asset utilization and running the assets full. So you want to make sure you're always keeping that balance in place. And with all the drama we've been through in the end markets, we freed up some capacity just because demand is off. And so we're trying to reassert and add some of the lower-value applications back into the mix to drive asset utilization. Then as the economy recovers, we'll value up that mix again like we always do. Operator: Our next question comes from John Roberts from Mizuho. John Ezekiel Roberts: In PET bottles, do you expect Renew to be used in a consistent way? Or is it going to be maybe blended at different levels? And do you expect any differentiated marketing around Renew and bottles? Mark Costa: We do, John. I think different brands, both on the specialty side, by the way, as well as on our PET packaging are making different choices about what percentage of recycled content they want to put in the bottle and it will be 50% recycled content in some places, it can be 100% in another place. It ties to what they want to do on marketing on the label, and it ties to what they want to do in achieving corporate goals of recycled content for the company overall versus what they put on a package. So it's a full spectrum out there on how companies are doing that. We provide -- because of the way we can flex our assets, we can put whatever level of recycled content they want into the product very seamlessly. So we flex to whatever is most valuable to the consumers, and we have good prices for different levels of value. John Ezekiel Roberts: Is there an average level in your plan? Mark Costa: I would say that at the moment, our expectation is when you look at the specialties and the rPET combined together, it's probably going to be around 50% for a while. You'll have products that are going 100%. You'll have some that are 50%. And then you have products that, in some cases, might be lower. But somewhere on average, I'd say, when you look at it somewhere in the 50% to 75% range is sort of where the recycled content will land. But it's really evolving. What I expect to see happen is people go with a lower level of recycled content when the economy is as stressed as it is because there's a premium they're paying for it, but they want to make progress on their goals. They want to demonstrate commitment to the consumers. And then as the economy stabilizes, they'll start ramping up to a higher level of recycled content when they have better economics to afford it. Operator: Our next question comes from Duffy Fischer from Goldman Sachs. Patrick Fischer: We've had a number of announcements from your ag chem customers about difficulties they're having in the market. A number of consultants are talking about pretty big structural changes there with the Chinese pushing harder into those markets. When you look through the view of your intermediates chemicals into the ag chem industry, do you think you have the right position? Or do you see changes which can affect you and cause you to have to change your business model there? Mark Costa: Yes. We're very fortunate to have a very strong relationship with a lot of the top ag companies. And the vast majority of our business is in North America where we make these intermediates and they're sold here. We're also very fortunate to be aligned with winners in the marketplace like Corteva when we're providing the sort of key ingredients of the Enlist product. So we're in a better position because we're just not as exposed to all the competition and battle that's going on in South America, which I think is what you're probably getting at. And the tariffs, of course, again in the U.S. are sort of helping manage some of the pressure here. So I think we feel relatively good. We're not having any conversations with our customers at this point, at least, where they're concerned about their position in North America. Patrick Fischer: Great. And then as you've seen some weakness in your downstream tow business and the textiles business, does that mean you're going to run your kind of acetyls chain at lower operating rates? Or will you have to push into more acetyls derivatives upstream from those markets? Mark Costa: That is the beauty of having an innovation-driven company. So a long time ago, we knew that demand would not be forever there for tow. We've been lucky that it's declined at a relatively slow rate. But we've been building a whole innovation portfolio, as we discussed at the deep dive last November around how to take cellulosic polymer into a wide range of new applications, right? So textiles was one of those applications, which was doing its job to sort of offset that to, as I said earlier. But the Aventa program is still having great progress going forward. This is the foamed cellulose polymer that can replace expanded polystyrene food trays, go into straws, et cetera, and all the food service areas where you can't really do recycling because of the way the product is contaminated and they completely biodegrade. So we have a lot of growth opportunity, huge markets in Aventa that we can serve, and we've got some great IP positions around some of those products. And we also have some specialties that are very high-value microbeads that are made out of nylon acrylic being replaced by a biodegradable cellulosic for cosmetic formulations that we can replace polyethylene coating on paper cups and paper wrappers around candy bars, whatever, the biodegradable polymer. So our whole portfolio is in action. Obviously, the volumes are still relatively low and building, but we have great traction with our customers. So that's how you drive overall company stream utilization because the stream has always gone into specialties in AM and AFP as well as tow and generate a lot of value in those segments. And we're going to keep growing and expanding through those to keep the whole stream vital. Greg Riddle: Let's make the next question the last one, please. Operator: The last question comes from Laurence Alexander from Jefferies. Laurence Alexander: Just very quickly, can you give a sense for how much of a shift is happening in terms of reshoring of appliance capacity in the U.S. maybe as a possible catalyst for '27 and '28? I'm just thinking about like the GE Louisville announcement and things like that. And secondly, with the Chinese 5-year plan, is your initial read on the kind of first drafts being circulated that it's a net positive because they need -- they're emphasizing innovation in more formulated products? Or is it a negative in the sense that they're emphasizing profit sharing to encourage and incentivize consumption, so lower return on capital for the chemical industry there and everything that entails? Mark Costa: So on the reshoring question, I think that you will see people reshoring to the U.S., and we'll see the benefit of that. There are companies that have been leaders in doing that like Whirlpool and Newell. And I think after all this pre-bought inventory that happened in the first half gets exhausted, they'll see benefits to their position in the U.S., and we'll see more of that if USMCA gets preserved. I think you'll see it not just in the U.S., but also in places like Mexico, where that will continue to be built as well as people still moving to other places like Southeast Asia, where the tariffs are still quite a bit lower than doing it in China these days. So we're following our customers wherever they go. But it takes a while to build plants. It doesn't happen overnight. So we'll see how that plays out over time. Regarding the latest Chinese 5-year plan, I have to admit I'm not an expert on that plan. So I don't want to get into territory of details. I don't really know. What I would say is from what we see in the China market is uniquely challenged as part of the global challenge where they don't have consumer demand growing very much there because of the stress of the collapse of the housing market and they're adding a lot of manufacturing capacity and aggressively exporting it, and that's creating strain in the country, and it's also creating strain around the world, which is leading to these tariffs that you start seeing happen, not just here, but you're going to see them in other countries. So I think the China government has got a lot of complexity to manage there and their excess capacity is not helping their local economy or the world's economy. And hopefully, some of the actions they're talking about to sort of rationalize capacity to be more appropriate that they actually do. But we're just going to have to wait and see what they do on that front. And hopefully, they stimulate some consumer demand in China, which would certainly help their economy a lot. Greg Riddle: Thanks again, everyone, for joining us. We appreciate you taking time with us, and I hope that you have a great day and great rest of your week. Thanks again. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good morning. My name is Sergio, and I will be your conference operator today. At this time, I would like to welcome everyone to the Topaz Energy Corp. Third Quarter 2025 Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Scott Kirker. You may begin your conference. W. Kirker: Thank you, Sergio, and welcome, everyone, to our discussion of Topaz Energy Corp.'s results as at September 30, 2025, which the 3 and 9 months ended September 30, 2025 and 2024. My name is Scott Kirker, and I'm the General Counsel for Topaz. Before we get started, I refer you to the advisories on forward-looking statements contained in the news release as well as the advisories contained in the Topaz annual information form and the MD&A available on SEDAR and on the Topaz website. I also draw your attention to the material factors and assumptions in those advisories. I'm here with Marty Staples, Topaz President and Chief Executive Officer; and Cheree Stephenson, Vice President, Finance, and Chief Financial Officer. They will start by speaking to some of the highlights of the last quarter and of the year so far. After their remarks, they will be open for questions. Marty, Cheree, please go ahead. Marty Staples: Thanks, Scott. Good morning, everyone. Topaz had a strong third quarter, marked by royalty production growth, infrastructure processing revenue growth and record Clearwater royalty production volumes. Topaz's third quarter royalty production was 21,600 BOE per day and increased 15% from the prior year. Q3 2025 royalty production included record heavy oil production of 3,400 barrels per day, 17% higher natural gas royalty production and an 11% increase in total oil and liquids royalty production over the prior year. Topaz generated total third quarter revenue of $76.4 million, 49% from crude and heavy oil royalties, 20% from natural gas and NGL royalties and 31% from our infrastructure portfolio with full processing revenue and other income of $24.2 million, which increased 16% over the prior year. Topaz's infrastructure assets generated a 99% average daily utilization in the quarter. We estimate that operators invested between $500 million and $600 million of development capital across our acreage in Q3, with total operator spending across our royalty lands year-to-date between $2 billion to $2.1 billion. During the quarter, drilling activity on our acreage remains strong at a 161 gross wells, 6.3 net were drilled and 12 gross wells were reactivated with 52% of the drilling activity coming from the Montney and Clearwater operating areas. During Q3, 184 total gross wells were brought on production. And as at September 30, 94 gross wells were drilled but not yet completed, which represents approximately 58% of the Q3 2025 new wells drilled. Based on operator drilling plans, we expect that the current 27 to 31 active drilling rigs on our royalty acreage will be maintained through the fourth quarter of 2025. Topaz generated third quarter total revenue of $76.4 million and cash flow of $74.8 million or $0.49 per share and free cash flow of $73 million or $0.47 per share, both of which increased 7% per share over the prior year. Our Q3 2025 free cash flow margin of 95% also increased from 88% last year due to lower operating costs, a 24% reduction to our effective borrowing rate under the company's credit facility and an $8.7 million hedging gain realized during the quarter. Topaz's third quarter realized a hedging gain of $8.7 million includes a $7.1 million gain on natural gas-based financial derivative contracts, which represents a 144% premium to Topaz's third quarter realized gas price. For the fourth quarter of 2025, approximately 30% of Topaz's natural gas growth production is hedged at a weighted average fixed price of CAD 3.06 per Mcf and approximately 30% of oil and total liquids royalty production is hedged at a weighted average floor price of CAD 97.64 per barrel. Topaz distributed net $52.3 million in quarterly dividends, $0.34 per share during Q3, which represents a 5.4% trailing annualized dividend yield to the third quarter average share price. During the quarter, Topaz completed its previously announced Northeast BC Montney tuck-in royalty acquisition from Tourmaline for $71.7 million. This acquisition provides a new royalty interest on approximately 134,000 gross acres, of which over 65% is undeveloped and includes 410 future Tier 1 Montney drilling locations. This acquisition fully aligns Topaz to each of Tourmaline's future growth projects under their multiyear Northeast BC Montney build out plan. We have reconfirmed our 2025 guidance estimate ranges and expect to exit 2025 with net debt between $500 million and $510 million or net debt to EBITDA of 1.5x, while generating a payout ratio at the lower end of the 60% to 90% long-term targeted range, which provides financial flexibility for acquisition growth. At this time, we're pleased to answer any questions. Back to you, Sergio. Operator: [Operator Instructions] Your first question comes from Josef Schachter from Schachter Energy Research. Josef Schachter: My normal question, can you talk about what the M&A landscape looks like right now, especially with E&P companies being stretched with these low commodity prices. Is there more opportunity now in the infrastructure area, either for facilities that are in great shape and then you could be a partner there or in projects that are in the pipeline that once they're completed, then you can be in the deals at that point? Marty Staples: Josef, we continue to see a lot of opportunity inside the M&A landscape. In Western Canada right now, there's a significant amount of assets for sale. We just saw a couple of those close over the last month that have been publicly announced. And we always continue to look for ways to participate, but don't feel like we need to participate in every single opportunity that's available. And so we'll be interested to see where we fit in some of these potential acquisitions. We have kept our payout at the lower end of the ratio, and that's by design. We want to use our excess free cash flow if it's available first. And as you saw us do kind of in the latter part of the quarter, we did use some debt to facilitate a deal with Tourmaline for $71.7 million. So we'll continue to be interested. And if there's something that fits, we'll try to be reactive to that. And then from a royalty infrastructure weighted opportunity set, I think there's opportunities on both sides. And we've proven that over the year. At the start of the year, we did a deal with Logan Energy, where it was a royalty infrastructure hybrid deal, and we completed a deal just recently that was a pure royalty deal. So we'll look to be kind of opportunistic on both sides of that. Josef Schachter: Okay. Some of my clients have asked me if you're going to -- how does the royalty structure work with an NCIB? Is that something that if you saw the stock was trading below what you consider your fair value, would that be somewhere where you could allocate capital? Cheree Stephenson: Josef, yes. So we've definitely looked at an NCIB, and we definitely like the thought of it. There's definitely a good reason and a rationale to reinvest back into our own portfolio as per se. But with liquidity and Tourmaline shareholdings, we have sort of pinpointed that as something we do once Tourmaline sold down a bit further. So at this time, we've decided to stick with the dividend strategy and not confuse that messaging, but it's definitely something that we continue to evaluate for future as liquidity continues to improve. Operator: [Operator Instructions] There are no further questions at this time. You can proceed. Marty Staples: Thanks, everyone. Look forward to talking to you in Q4. Have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.
Operator: Welcome to the MPLX Third Quarter 2025 Earnings Call. My name is Shirley, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin. Kristina Kazarian: Thank you, Shirley. Welcome to MPLX's Third Quarter 2025 Earnings Conference Call. The slides that accompany this call can be found on our website at mplx.com under the Investor tab. Joining me on the call today are Maryann Mannen, President and CEO; Kris Hagedorn, CFO; and other members of the executive team. We invite you to read the safe harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as our filings with the SEC. With that, I'll turn the call over to Maryann. Maryann Mannen: Thanks, Kristina. Good morning, and thank you for joining our call. I'd like to take a moment to recognize Mike Hennigan. At the end of the year, Mike will be stepping down as our Executive Chairman. Mike's guidance has been tremendously valuable to our Board, to me and our entire leadership team. We thank him for his service as well as all of his contributions. He will be missed. Delivering on our commitment to return capital, MPLX increased its quarterly distribution by 12.5% for the second consecutive year. The increase is supported by our multiyear track record of mid-single-digit growth and reflects conviction in our growth outlook from recent capital deployment. Our growing portfolio is expected to support this level of annual distribution increases over the next couple of years. In the third quarter, MPLX generated adjusted EBITDA of $1.8 billion. Strong performance through the first 9 months has contributed to year-to-date adjusted EBITDA of $5.2 billion, reflecting growth of 4% over the same time frame in the prior year. Distributable cash flows of $1.5 billion, which supported the return of $1.1 billion to unitholders. We are committed to returning capital to unitholders, primarily through a secure and growing distribution, but also through unit repurchases as we believe our equity remains undervalued. MPLX is optimizing the competitive position of its portfolio as we pursue mid-single-digit adjusted EBITDA growth anchored in the Marcellus and Permian Basins, advancing our strategic commitments. During the third quarter, MPLX closed on 2 strategic acquisitions. First, the remaining 55% interest in the BANGL NGL pipeline system. Full ownership of BANGL and its expansion opportunities enhance our Permian platform as we connect growing NGL production from the wellhead to MPLX's Gulf Coast fractionation facilities and export terminal joint venture currently under construction. We are progressing the expansion of BANGL from 250,000 to 300,000 barrels per day, which we expect to enter service in the second half of 2026. Second, MPLX closed on the acquisition of a Delaware Basin sour gas treating business. Integrating our newly acquired sour gas treating assets with MPLX operations is ongoing. Additionally, we are completing construction of the second amine treating plant at the Titan complex. This will increase sour gas treating capacity from 150 million cubic feet per day to over 400 million cubic feet per day expected by the end of 2026, driving the returns we expect from the acquisition and expansion. The sour gas treating capabilities will allow us to capitalize on additional growth opportunities. These sour gas treating assets are adjacent and complementary to our existing natural gas system in the Delaware Basin. They expand MPLX's treating and blending operations, attracted to our current and new customers who are increasing crude drilling activity in the lower-cost sour gas window on the eastern edge of the Northern Delaware Basin and the assets increase access to natural gas and NGL volumes. We are advancing our strategic growth objectives in the Permian. Secretariat, our seventh processing plant is expected to be online at the end of 2025, bringing total regional capacity to 1.4 billion cubic feet per day. And we fully own the BANGL pipeline system integral to MPLX's Permian NGL chain, which is expected to add incremental EBITDA in 2026. Construction is progressing on schedule and on budget for the first Gulf Coast fractionation facility and LPG export terminal. The location of our LPG dock is advantaged as it will allow vessels to avoid congestion and reduce fuel consumption, lowering cost for shippers. MPLX will not have direct commodity price exposure as MPC will purchase the LPG production from the fracs and market globally through its marketing business across the new export terminal, demonstrating the strength of our strategic relationship with MPC. The first frac export terminal and purity pipeline are expected to enter service in 2028 with full run rate in late 2029. Within natural gas, MPLX and its partners announced they will construct the Eiger Express pipeline, having secured firm transportation agreements with investment-grade shippers. Upon completion, expected in mid-2028, the pipeline will transport natural gas from the Permian Basin to the Katy area of Texas. Eiger will have connectivity to the Traverse natural gas pipeline, which connects supply between Agua Dulce and the Houston area and will provide shippers optionality and access to multiple premium markets on the Gulf Coast, driven by demand pull for LNG exports. The continued build-out of our Permian to Gulf Coast natural gas system enhances that value chain with additional growth opportunities. Favorable market outlook supports our operations in the Marcellus, Utica and Permian Basins. MPLX is positioned for long-term natural gas volume growth in these key operating regions, and we expand our integrated value chains and execute our wellhead-to-water strategy. This year, over 90% of MPLX's total investments are being allocated to opportunities within our natural gas and NGL Services segment. The progress and execution of our strategic commitments give us conviction in the sustainability of our mid-single-digit adjusted EBITDA growth outlook for 2025 and beyond. Our approach to growth is structured to deliver mid-teens returns on our investments and mid-single-digit adjusted EBITDA growth. We do this by constructing processing facilities on a just-in-time basis, maximizing the utilization of existing assets, optimizing value chains and strengthening our strategic partnership with MPC. In the Marcellus, our largest operating region, construction of our Harmon Creek III processing plant and fractionation facility aligns with producer drilling plans. This new complex will feature a 300 million cubic feet per day gas processing plant and a 40,000 barrel per day de-ethanizer supported by producer commitments. In the second half of 2026, we anticipate our gas processing capacity in the Northeast will reach 8.1 billion cubic feet per day and fractionation capacity will reach 800,000 barrels per day, positioning MPLX to handle growing production from the Utica and Marcellus. As demand for natural gas-powered electricity rises, MPLX is well positioned to support the development plans of its producer customers. In our Crude Oil and Product Logistics segment, we are focused on expanding gathering infrastructure, enhancing butane blending at terminals, growing volumes organically and pursuing high-return projects to maximize asset utilization. With a strong pipeline of organic opportunities, we are well positioned to generate resilient cash flows that underpins our commitment to deliver long-term value and return capital to unitholders. Now let me turn the call over to Kris to discuss our operational and financial results for the quarter. Carl Hagedorn: Thanks, Maryann. Slide 12 outlines the third quarter operational and financial performance highlights for our Crude Oil and Products Logistics segment. Segment adjusted EBITDA increased $43 million when compared to the third quarter of 2024. The increase was driven by higher rates, partially offset by higher operating expenses. Pipeline volumes were flat, while terminal volumes were down 3% year-over-year. Moving to our natural gas and NGL Services segment on Slide 13. Segment adjusted EBITDA increased $9 million compared to the third quarter of 2024 as contributions from recently acquired assets and higher volumes were partially offset by higher operating expenses. Gathered volumes increased 3% year-over-year, primarily due to production growth in the Utica. Processing volumes increased 3% year-over-year, primarily from increased production in the Utica and Marcellus. Permian processing volumes increased 9% compared to the second quarter of this year. Processing volumes in the Utica have increased 24% year-over-year, showing the value of the liquids-rich acreage. Marcellus processing utilization was 95% for the quarter, reflecting robust producer activity in the region. Total fractionation volumes increased 7% year-over-year, primarily due to higher ethane recoveries in the Marcellus and Utica. Moving to our third quarter financial highlights on Slide 14. Adjusted EBITDA of $1.8 billion increased 3% from the prior year, while distributable cash flow of $1.5 billion increased 2% over the same time frame. MPLX returned nearly $1 billion to unitholders in distributions and $100 million in unit repurchases. During the quarter, MPLX issued $4.5 billion in senior notes, the proceeds of which were primarily used to fund our acquisition of the Delaware Basin sour gas treating business and to increase cash from the BANGL acquisition and associated debt repayment. MPLX ended the quarter with a cash balance of $1.8 billion and plans to utilize this cash in alignment with our capital allocation framework. MPLX maintains a solid balance sheet with leverage below our comfort level of 4x. Now let me hand it back to Maryann for some concluding thoughts. Maryann Mannen: Thanks, Kris. Our distribution increase of 12.5% announced last week marks the fourth consecutive year of double-digit increases, resulting in annualized base distribution growth of greater than 50% over the past 4 years. Through prudent capital allocation, cost control and operational optimization, MPLX has achieved a 7% compound annual growth rate in both adjusted EBITDA and distributable cash flow over the past 4 years. Year-to-date, we've returned $3.2 billion to unitholders. As we've stated before, adjusted EBITDA growth at MPLX will not be linear. We anticipate growth in 2026 will exceed that of 2025, supported by throughput growth on existing assets and new assets being placed in service. Our growing portfolio is well positioned to sustain this level of annual distribution increases over the next couple of years, and we do not expect MPLX's coverage ratio to fall below 1.3x. In summary, MPLX is well positioned to capitalize on opportunities that fit our strategic road map as we execute our plan targeting mid-single-digit adjusted EBITDA growth. As a strategic asset for Marathon and with the distribution increase, MPLX is expected to provide $2.8 billion annually to MPC through its growing distribution. Our unwavering focus on safety and operational excellence, strategic growth opportunities and strong financial flexibility enable us to consistently drive cash flow growth. This, in turn, supports our commitment to delivering peer-leading capital returns to unitholders. Now let me turn the call over to Kristina. Kristina Kazarian: Thanks, Maryann. As we open the call for your questions, as a courtesy to all participants, we ask that you limit yourself to a question and a follow-up. If time permits, we'll reprompt for additional questions. [ Shirley ], we're ready for questions, please. Operator: [Operator Instructions] Our first question comes from John Mackay with Goldman Sachs. John Mackay: I wanted to start on the EBITDA growth outlook. You guys have done a bunch of projects, M&A this year. Maryann, I was wondering if you could kind of walk us through how you're thinking about the go-forward growth outlook now for EBITDA, both kind of level and duration relative to how you were framing up kind of the similar target of mid-single-digit EBITDA growth at the beginning of the year before we had some of these announcements. Maryann Mannen: Yes. Thanks, John. Thanks for your question. So as I mentioned in my prepared remarks, when we look at our growth rate '24 to '25 and then we look at it also from '25 to '26, we believe '25 to '26 will actually deliver stronger growth than we did '24 to '25. As you know, we've also been talking about our EBITDA growth over a 3-year period. And when we look at that, it's been roughly 7% for the last few years. We see the ability to continue that as we look into 2026 for right now for those acquisitions and other projects that we put into place. So maybe let me take a minute and talk about how we see that unfolding to address your question of how do we think about it in the beginning of the year, certainly versus how we're looking at it now. When we look at 2026, as an example, a couple of things really begin to come online and increase that growth that I was referring to. So as you know, we mentioned BANGL, the incremental 55% ownership will now be additive to 2026 EBITDA targets. As I mentioned, Secretariat will come online at the end of this year, and that ramp-up into 2026 will again deliver incremental EBITDA throughout 2026. We'll also have the full rate of Preakness II that comes -- came online in the third quarter of '24. And so we'll have full ramp-up as we head into 2026. And then the sour gas investment that we made, as you know, will reach full run rate by the end of 2026 as Titan -- the next phase of the Titan treatment plant comes online. So we'll see that incremental EBITDA coming from Titan as well. And then there's a few other projects, as you know. And then heading into '27, we obviously have full rate for Titan, consistent with the way that we've shared with you as we talked about the EBITDA potential on that transaction. And then also Agua Pipeline, as an example, another project that we just announced that will bring EBITDA into 2027. I'll take you actually to '28 and '29 just for a moment. But in '28, we'll have the first frac in the LPG export dock come online and then obviously heading into full run rate as the second one comes online in '29 as well. So those projects, either organic or those acquisitions, I think, supports our ability to continue to grow that mid-single-digit growth. Let me pause there, John, and see if I've answered your question. John Mackay: That was great. I appreciate the color. Maybe just as a second question from my side, I would love to hear a little bit more about the power LOI, maybe just steps to converting that, how we think about the opportunity set for you, returns, et cetera. Maryann Mannen: Yes. Thank you for that. As you saw, we issued that, excuse me, a press release this morning and appreciate it. It is an LOI in this early stage. One, we think the opportunity with MARA is important, critically important for us as we evaluate the opportunity set around data centers and AI. We think for MPC, this obviously creates in-basin demand. And then ultimately, at what we would consider to be a very low cost or no-cost transaction here in its early evaluation, we will provide -- we will provide gas. And then in return, we receive lower cost, reliable power, which, in fact, will get passed on to our producer customers. But time-wise, this is certainly not a 2026 project. It will be beyond 2026, John. Operator: Our next question comes from Manav Gupta with UBS. Manav Gupta: I would like to start by saying I'm the big fan of Mike Hennigan, but he's left the company in very good hands. So congratulations, Maryann. My first question to you is, can you elaborate a little more on the Permian sour gas opportunity? And it's my understanding you do not need to permit more AGI wells to run this asset at full capacity because that's where the gating factor is. If you could talk a little bit about those things. Maryann Mannen: Thank you for your question, and we agree with you as it relates to Mike Hennigan. So on the Permian sour gas opportunity, as we shared, we've got about $0.5 billion of incremental capital that gets us to all of the investment economics that we shared. That includes getting the treatment -- the amine treating Titan facility as we call it, from 150 to 400 and the next AGI well. There is no other incremental asset gas injection well necessary to meet the economics on the project as we have outlined for you so far. Manav Gupta: Perfect. My quick follow-up here is, as you evaluate all these data center opportunities, would there be more letter of intent of similar nature? And how you're seeing that pipeline? And then the bigger question is, some of your peers have said this opportunity set is so big that we are even open to generating and selling electricity using our natural gas. Is that something which MPLX could be open to if the right opportunity arises or you're more comfortable being the supplier of natural gas but not the generator of electricity, if you could talk about that? Maryann Mannen: Yes, of course. Thanks for the question. As you know, when we look at the Northeast, we are handling, touching 10% of U.S. natural gas consumption every day. So our ability to continue to evaluate where in this opportunity set that we can best support our producer customers is a place that we are spending time evaluating, et cetera. Again, this MARA is the first step for us as we continue to evaluate those opportunities. I'm going to pass it to Greg who's been spending quite a bit of time looking at how and where MPLX can continue to pursue opportunities. Gregory Floerke: Manav, it's a great question. The first, obviously, as Maryann said, being a large player in the midstream business and touching a lot of gas, we aggregate gas at our processing plants, similar to interstate pipelines and some of the other projects you've seen. So we certainly have the ability to co-locate similar to the MARA project, where we have a co-located facility and we can sell gas and buy power and increase reliability. The -- in terms of generating the power, the solar turbines and the Caterpillar reciprocating engines that constitute most of the prime movers for generation behind the meter are assets that we deploy by the hundreds across our system. So we know how to install, operate and maintain these units, running all of our gas compression. And so we have that capability. On the refining side of Marathon, we actually self-generate power at some of the refineries. So we have the capability, but it's a separate business case in terms of moving from providing gas and processing to move into the power generation business. So that's something that we'll keep all options open and continue to look at, talk to a lot of people and see where that goes, if anywhere. Operator: Your next question comes from Theresa Chen with Barclays. Theresa Chen: Going back to the Titan complex and the early days of integration after the recent close. As you continue your investment here in the build-out, has there been any shift in commercial activity with your customers? Any incremental interest in your services now that you have the set of assets within your portfolio? Maryann Mannen: Theresa, thanks for the question. I would tell you, integration with our sour gas acquisition, which we refer to as North Wind has gone very well as we exited the quarter roughly processing at 150. You may have also heard and will echo some of the comments that those producer customers who we are working for in the region have commented on. I think they're pleased with the fact that MPLX now owns this asset. We're working diligently. They were customers of ours in that basin prior, and this adds more opportunity for us to continue to work closely with those key customers. One of the other things that we talked about when we were together the last time was the potential for processing. Some of our contracts are about 2 to 3 years, they're third party. And as we look at the ability to accelerate growth in that region, being able to take on incremental processing would be a place that we would look to grow beyond that integration. The other thing that I would mention is we continue to look at the project, and as I shared with John earlier, passing the look at how EBITDA will grow, we expect to be complete so that by the end of 2026, as we head into EBITDA generation, those projects will be completed, and we'll be able to see the full benefit supporting our customers in the basin. I'll look to Greg to see if there's anything else that he wants to add because he's been overseeing the strength of that integration. Gregory Floerke: Thanks, Maryann. We've been spending most of the time towards the last few weeks of the quarter and then into the early first quarter, integrating the assets and working with producers to ramp up volume. We've had -- we're integrating people into our existing team in West Texas, and that's going very well. And we're also integrating systems, accounting systems, operating systems and trying to integrate the systems together. And -- we've got great feedback from our customers. We're meeting with our customers. I think they're excited about our ownership and operation of the system and moving to the next level as we continue to deploy the assets. Titan 1 train in the commissioning process late in the quarter and into the prior month and the third train of Titan 1 and then Titan 2 Civil and [indiscernible] underway for that plant to come into service latter part of '26. Theresa Chen: And then related to the LOI with MARA, Maryann, going back to your comments about how low or no cost is going to be, can you just frame that up in terms of what would be the nature of any potential CapEx related to this? And if there's not so much of like a CapEx or economic moat, what positions you to win this agreement? And what would position MPLX in your regions of service given the competition out there to win incremental agreements? And with this transaction specifically, what are the next steps? Maryann Mannen: Yes. Thanks, Theresa. Look, I think one of the benefits that we see from this transaction is the potential for in-basin demand, right, the growth on that in-basin demand. So essentially, the way that this LOI will continue to be structured is we will provide gas, I'd like to say, at the tailpipe of our plants. And then in return, so to speak, right, we will have the ability to have lower cost, more reliable power to provide to our producer customers. So again, when I say low or no cost, there really isn't anything that we need to do in order to facilitate that transaction. In terms of the opportunities there, we're continuing to evaluate how that might go forward. But as we stand right now, this LOI, we think, has the potential to increase in-basin demand. Operator: Our next question comes from Burke Sansiviero with Wolfe Research. Burke Sansiviero: Just looking at Slide 9, can you please walk through some of your assumptions for in-basin demand growth and incremental takeaway capacity to underwrite the 10% Marcellus and Utica gas growth through 2030? Mainly curious if you expect new greenfield pipelines to be built out of Appalachia. Gregory Floerke: This is Greg. I'll speak to that. The -- we continue to grow in the Marcellus and the Utica, primarily the Marcellus through incremental plant construction. You see our Harmon Creek III plant in Washington County, PA is in construction and supported by customer contracts. We also have seen growth over the last 12 to 18 months in the Utica as we fill existing capacity in that system that was built years ago and as rigs moved away, capacity freed up, but we're filling that capacity. We're at over 70% utilization in the Utica now, at 95% a new high in Marcellus in spite of being our largest area and processing over 7 Bcf a day of gas -- of rich gas and liquids that come with that. So we are -- our customers -- producer customers who own the residue gas at the back of our plants have commitments and are finding the capacity to exit the basin. There's also in-basin demand growth both for power generation, both coal-to-gas power plant -- coal to gas switching at existing plants and then new plants as well as behind the meter, whether data center or other power generation. So I think there's in-basin demand growth. Obviously, MVP coming online was a big adder to takeaway capacity, and we continue to see increases in capacity announced on that system, particularly as the downstream pipeline system is debottlenecked. So we feel that our producers with the positions they have, both in firm capacity and capacity that opens up that maybe other producers don't use, have growth, the ability to continue to grow even in the Marcellus where the volumes are high and utilization is high. Burke Sansiviero: Just [indiscernible] as you continue to build out the Permian position, do you have visibility on filling the full 300,000 barrels per day on BANGL with NGLs from your own plants? Gregory Floerke: Yes. We have visibility to -- with the seventh -- we'll have 6 plants with the seventh plant with Secretariat coming online and other production from third parties connected to BANGL. We're confident in filling that -- the capacity on that pipeline. Operator: [Operator Instructions] Our next question comes from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just as I think about, I guess, the long-term EBITDA growth, [Technical Difficulty] going to be in the mid-single-digit growth on a multiyear basis, would organic [Technical Difficulty] to underpin that? Or would there need to be a certain amount of inorganic initiatives as well to complement that to get to mid-single digits or higher? Maryann Mannen: Jeremy, you were cutting out a little bit, but I think your question was, do we need M&A and organic growth opportunities to meet mid-single digit over the longer period of time. I think that's what your question was. So let me try to address that. As you've seen over the next couple of years, tried to lay out how we see that EBITDA coming to fruition. But certainly, when we look at organic opportunities, we -- those that fit our strategic lens, et cetera, we're executing on those. I gave you a few examples. But we also see the opportunity, again, assuming that those M&A opportunities would meet our strategic rationale, provide us that mid-single-digit growth and give us the mid-teens returns, we do see opportunities for incremental M&A to continue to build out mid-single-digit growth. I hope that was your question, Jeremy. Jeremy Tonet: So it sounds like organic alone wouldn't get to mid-single digit, there would need to be acquisitions to get there over a multiyear period. Maryann Mannen: Yes. I think that's fair. When you look at the size of our EBITDA, look at if I can do rough math for you, just a $7 billion EBITDA, we're approaching $0.5 billion worth of growth. We've shared with you the opportunity set in nat gas and NGL and we'll continue to focus our resources in the Permian. We will also concentrate on the base business. We never lose focus on the base business and including JVs and opportunities there as well. But given the size of that EBITDA growth, likely that we will see inorganic opportunities as well. Carl Hagedorn: Jeremy, this is Kris. I might just add to that as well, though. One thing I do want to note is you've heard about all of these acquisitions we've recently done. This also provides additional growth opportunities of new organic projects for optimization and growth. So that backlog of what I would call capital projects is going to continue to grow. So we have backlog looking into '26, '27 as we sit today, '28. As Greg and Shawn continue to see these assets come online, they're also going to identify more opportunities for more organic projects as we progress. Jeremy Tonet: That's helpful. And if I could get one last one in, just as far as the distribution growth policy, how should we think about that over time post the two 12.5% raises recently here? Maryann Mannen: Yes. Thanks, Jeremy. So as I mentioned, we look at a couple of years and see a path to 12.5% distribution growth for the next couple of years. That's how we're seeing it today. And beyond that, we'll continue to evaluate. But for the next couple of years, in addition to '24 and '25, that's how we see 12.5% distribution growth. Operator: Our final question comes from Michael Blum with Wells Fargo. Michael Blum: Just wanted to go back to a prior comment made about evaluating potentially bringing power to a data center project since you do operate a lot of -- you have a lot of experience operating those anyway. Is that something that you're actively evaluating and in discussions with potential customers or just more something that's sort of a longer-term potential item? Gregory Floerke: Yes. We're not -- no intent to mention that we're actively evaluating it really is that we have capability and optionality if it made sense in the future. Michael Blum: Okay. Perfect. And then I just wanted to ask like high level, if you could refresh us a little bit. I think there's a view out there that crude oil prices are going to be lower for some period of time here. So can you just discuss how that could impact your Logistics segment either positively or negatively? Shawn Lyon: This is Shawn. Just on the crude oil and project logistics side of the business, if you look at our volumes continue to be strong really in all areas. And really, that is anchored and really part of our partnership with Marathon Petroleum. And that's where the 2 together and that partnership continues to give us a really strong foundation. But I think as we look out, it's strong -- we continue to see strong demand or strong throughput. Carl Hagedorn: Yes. And Michael, this is Kris. What I might add to that, you'll remember that on the crude oil and project logistics side of the business, those contracts with Marathon have significant minimum volume commitments, and they're also capacity type arrangements. So if you go back all the way to kind of the COVID year, you'll remember, they didn't really see that big of a dip in what would be probably the most extreme, hopefully, we ever see when it comes to EBITDA from that segment. So that segment is very well protected. Gregory Floerke: I would add -- this is Greg. I would add that from a producer standpoint, we're still seeing strong demand for -- whether it be gas, NGLs or crude oil, we're not seeing changes in plans in terms of producer activity. Kristina Kazarian: All right. Operator, do we have any other questions today? Operator: At this time, I'm showing no further questions. Kristina Kazarian: Great. With that, should you have more questions or would you like clarifications on the topics discussed this morning, please feel free to reach out. Members of our Investor Relations team will be available to take your calls. Thank you so much for joining us today. Operator: Thank you. That does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.
Operator: Good day, everyone, and welcome to the Thomson Reuters Third Quarter Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the call over to Gary Bisbee, Head of Investor Relations. Please go ahead. Gary Bisbee: Thanks, Jenny. Good morning, and thank you for joining us today for our third quarter 2025 earnings call. I'm joined today by our CEO, Steve Hasker; and our CFO, Mike Eastwood, each of whom will discuss our results and take your questions following their remarks. [Operator Instructions]. Throughout today's presentation, when we compare performance period-on-period, we discuss revenue growth rates before currency as well as on an organic basis. We believe this provides the best basis to measure the underlying performance of the business. Today's presentation contains forward-looking statements and non-IFRS and other supplemental financial measures, which are discussed on this special note slide. Actual results may differ materially due to a number of risks and uncertainties discussed in reports and filings that we provide to regulatory agencies. You may access these documents on our website or by contacting our Investor Relations department. Let me now turn it over to Steve Hasker. Stephen Hasker: Thank you, Gary, and thanks to all of you for joining us today. Momentum continued in the third quarter with revenue in line and margins modestly ahead of our expectations. Total company organic revenues rose 7% with the Big 3 segments growing by 9%. In addition, healthy revenue flow-through, beneficial revenue mix and good cost discipline boosted margins, driving profit ahead of expectations. We are reaffirming our full year 2025 revenue and profit outlook, including our expectation for approximately 9% organic revenue growth for the Big 3 segments. For the full year, our total and organic revenue growth is trending closer to 3% and 7%, respectively, rather than the higher end of the ranges at 3.5% and 7.5% for 3 reasons that are unrelated to our AI innovation momentum. First, a slower ramp of commercial print volumes; secondly, several recent U.S. federal government cancellations and downgrades; and third, slightly softer bookings trends at corporates following internal sales organizational changes aimed at improving future cross-selling. We see these as temporary factors not related to our growing innovation and AI-driven momentum, which continues to build. This is best illustrated by our Legal Professionals segment accelerating to 9% organic revenue growth in the quarter, up from 8% in the first half of 2025 and 7% last year. And this is driven by continued Westlaw momentum and strong double-digit growth from both CoCounsel and Cocounsel drafting. Outside of legal, we continue to see double-digit growth from a number of key franchises, including SafeSend, Confirmation, Pagero, Indirect Tax and our international businesses to name a few. Looking to next year, we're updating our 2026 financial framework. We continue to expect organic revenue of 7.5% to 8%, including approximately 9.5% for the Big 3. And we now see larger year-over-year margin expansion and higher free cash flow than in our prior outlook. On the product front, customer feedback on the Agentic AI launches over the summer has been very positive and initial sales trends are encouraging, especially for the CoCounsel legal integrated offer, Westlaw advantage and CoCounsel for tax, audit and accounting. The competitive dynamics for our core content-enabled technology offerings for Westlaw, Practical Law and our tax engines remains stable. We see incremental competition in the AI assistant space, which is an exciting white space growth opportunity in which CoCounsel remains a clear market leader. Our capital capacity and liquidity remain an asset that we are focused on deploying to create shareholder value. We recently completed the $1 billion share repurchase program announced in mid-August, and we remain extremely well capitalized with a net leverage of only 0.6x at quarter end. We remain committed to a balanced capital allocation approach, and we continue to assess additional inorganic opportunities. With our estimated $9 billion of capital capacity through 2027 after the completion of the buyback, we are positioned to be both aggressive and opportunistic. Now to the results for the quarter. Third quarter organic revenues grew 7%, in line with our expectations. Organic recurring and transactional revenue grew at 9% and 4%, respectively, while print revenue declined 4%. Adjusted EBITDA increased 10% to $672 million, reflecting a 240 basis point margin increase to 37.7%, higher than anticipated due to healthy operating leverage and good cost discipline. Turning to the third quarter results by segment. The Big 3 segments delivered 9% organic revenue growth. Legal organic revenue grew 9%, improving from 8% in the first half of 2025 and 7% for all of last year. Continued momentum from Westlaw and CoCounsel were key drivers. Organic revenues in corporates grew 7%, driven by offerings in our legal, tax and risk portfolios and the segment's international businesses. Tax & Accounting organic revenues grew 10%, driven by our Latin American and U.S. businesses. Reuters News organic revenues rose 3%, driven by growth in the agency business and our contract with LSEG. And lastly, Global Print organic revenues declined 4% year-on-year. In summary, we're pleased with our Q3 results. I'll now comment briefly on questions that we've heard in recent months about the value of our content, specifically Westlaw in an AI environment and whether it could be replicated by large language models or newer AI competitors. We remain very confident in Westlaw's differentiation, which we believe has increased significantly with the development of Deep Research and Agentic AI and the recent launch of Westlaw Advantage. It is very important to understand that litigation is high stakes work with no room for error and significant consequences for being wrong. As a result, professional-grade legal research and workforce tools -- workflow tools need to deliver comprehensive, accurate and up-to-date outputs through trusted solutions with robust data privacy commitments. This is a very high bar, particularly given the scale, complexity and constant change of the legal ecosystem. In the United States, there are hundreds of court systems and tens of millions of annual rulings. We collect content from more than 3,500 sources in multiple formats, and it is completely unstructured. On an annual basis, we process more than 300 million documents into Westlaw. In addition, we have valuable and proprietary second source content, including practical law. Collection of source content is just step 1. Our more than 1,500 attorney editors armed with cutting-edge technologies turn the massive volume of unstructured data into structured proprietary content and intelligence. This includes linking cases, codifying statutes and regulations, authoring head notes and increasingly creating new content for our AI offerings. In total, our team delivers more than 1.6 million editorial enhancements per year. Primary law content, including case law, statutes and regulations is a significant majority of what users search in Westlaw and 85%, I repeat, 85% of this content has been editorially enhanced. So 85% is editorially enhanced. These enhancements are proprietary to Westlaw and make the source content far more valuable. Let me provide a few brief examples. First, the West Key Number System is our proprietary taxonomy or subject classification of the law. It covers more than 140,000 precise legal topic categories, capturing the law at an extremely granular level. The organization of case law, statutes and regulations against this taxonomy is key to the delivery of comprehensive and accurate results, allowing Westlaw users to zero in on very specific points of law. Second, KeyCite, our proprietary citation network has more than 1.4 billion connections linking legal matter with the taxonomy. KeyCite verifies whether a case, statute or regulation is still good law and finds accurate citing references to support legal arguments. And lastly, Headnotes are summaries of the important issues of law within a case and are indexed against the key number system. This allows users to efficiently and accurately pinpoint the cases that best match their facts and desired outcome. To illustrate how the Westlaw content and editorial capabilities deliver value in an AI world, this slide outlines the key steps in our Agentic approach for Westlaw Advantage. As you can see, our AI agents leverage Westlaw's breadth and depth of content. And critically, the extensive expertise of our editorial teams and the significant editorial enhancements that we create differentiates our agents, the output of which is delivered as professional-grade research that lawyers can trust. This graphic highlights another important differentiator for Westlaw. When doing legal research, validating research results is a key final step in the process. This is doubly important with any AI outputs, which need to be checked for inaccuracies and hallucinations. In Westlaw, we have the leading tool set to deliver these validations, bringing confidence to our users that their citations are accurate and their legal arguments are correctly characterizing the law. The validation process leverages several tools I've already mentioned, including Key Number System, KeyCite and Headnotes. In addition, litigation document analyzer reviews legal briefs before they are submitted to the court, identifying inaccurate citations and misstatements of law. Combined with the industry's most robust editorial curated content set, the Westlaw tools provide lawyers with assurance that their legal arguments are on point, and they have done all that they can to prepare for court. While general purpose models can find cases to potentially make a legal argument, delivering against the industry's need for comprehensive, accurate and current research is an extremely high bar. Our market-leading content, our editorial enhancement and our sophisticated tool set have been built over decades to consistently deliver this standard while meeting the industry's data privacy and security needs. Looking forward, we see the evolution of AI from information retrieval and summarization to more complex Agentic workflows as an opportunity for Thomson Reuters that reinforces the value and critical importance of our content and editorial expertise. In complex multistep work, quality content to ground the outputs and subject matter expertise to train and fine-tune the AI are critical to delivering professional-grade results. Our innovation focus is squarely on leveraging these assets leading content and the deepest bench of domain experts in our end markets to deliver agentic solutions that are difficult, if not impossible, to replicate. I'll now turn it over to Mike to review our financial performance. Michael Eastwood: Thanks, Steve. Thanks again for joining us today. As a reminder, I will talk through revenue growth before currency and on an organic basis. Let me start by discussing the third quarter revenue performance for our Big 3 segments. Organic revenue grew 9% in the third quarter, continuing the strong trend from recent periods. Legal Professionals organic revenue grew 9%, improving from 8% in the first half, driven primarily by Westlaw, CoCounsel, CoCounsel Drafting and our international businesses. Government grew 9% in the quarter. In our Corporate segment, organic revenues grew 9%. Recurring revenue grew 9%, while transactional rose 5%. Direct and Indirect Tax, Pagero, Practical Law and our international businesses were key contributors. Looking forward, the Corporate segment growth rate is likely to moderate in the fourth quarter due to the softer-than-planned bookings growth Steve mentioned. Tax & Accounting delivered another strong quarter with organic growth of 10%. Recurring and transactional revenues grew 9% and 12%, respectively. Our Latin America business, SafeSend, UltraTax and the Cloud Audit family of products were key drivers. Moving to Reuters News. Organic revenue rose 3% for the quarter, driven primarily by growth at the agency business and from the news agreement with the data and analytics business of LSEG. Reuters revenue included approximately $7 million of transactional generative AI content licensing revenue in the quarter compared to $8 million in the prior year quarter. Finally, Global Print revenues decreased 4% on an organic basis. On a consolidated basis, third quarter organic revenues increased 7%. At the end of Q3, the percent of our annualized contract value or ACV from products that are Gen AI-enabled was 24%, up from 22% last quarter. Turning to our profitability. Adjusted EBITDA for the Big 3 segments was $606 million, up 9% from the prior year period, with the margin rising 220 basis points to 41.7%. Moving to Reuters News. Adjusted EBITDA was $42 million with a margin of 19.9%. Global Print's adjusted EBITDA was $46 million with a margin of 37.1%. In aggregate, total company adjusted EBITDA was $672 million, a 10% increase versus Q3 2024, reflecting a 240 basis point margin increase to 37.7%. Turning to earnings per share. Adjusted EPS was $0.85 for the quarter versus $0.80 in the prior year period. Currency had a $0.01 positive impact on adjusted EPS in the quarter. Let me now turn to our free cash flow. For the first 9 months of 2025, our free cash flow was approximately $1.4 billion, down 3% from the prior year. Changes in working capital, which are largely timing related, were the largest driver of the decrease. I will also provide a quick update on our capital allocation. In late October, we completed the $1 billion NCIB or share repurchase program we announced in mid-August, acquiring approximately 6 million of our shares. I will conclude with a discussion of our 2025 outlook and 2026 financial framework. As Steve outlined, we are reaffirming our 2025 outlook across all metrics. Our total and organic revenue growth is trending closer to 3% and 7%, respectively, rather than the higher end of the ranges at 3.5% and 7.5% for 3 reasons unrelated to our AI innovation momentum, as Steve mentioned. I will provide a bit more color. First, our Global Print segment has seen a slower-than-expected ramp in commercial print volumes thus far in 2025, which we believe will impact total organic revenue growth by approximately 25 basis points for the year. As a reminder, 10% of our print revenues from commercial where we print books for third-party publishers. Second, our government business, while holding up well overall, has faced a handful of recent downgrades and losses related to the federal efficiency programs that we believe will be an approximate 20 basis point drag to full year organic revenue growth. Third, as I mentioned earlier, we have seen softer bookings trends at our Corporate segment, reflecting the impact of internal sales organizational changes aimed at supporting an increasingly integrated product proposition and driving improved future cross-selling. While these changes have contributed to a slower sales build in 2025 versus our initial expectations, we remain confident in our corporate product portfolio and the segment's growth potential. Note, these organizational changes were only made at our Corporate segment and do not impact our Legal Professionals or Tax & Accounting segments, which have separate sales organizations. Despite these headwinds, we remain confident in achieving our 9% Big 3 organic revenue growth outlook for the year with strong innovation-led momentum continuing in our Legal Professionals and Tax & Accounting Professionals businesses and from our international markets. Turning to the fourth quarter. We expect organic revenue growth of approximately 7%, including approximately 9% for the Big 3. Legal Professionals is likely to again deliver 9% organic revenue growth, assuming no incremental government headwinds materialize. We expect the Q4 adjusted EBITDA margin to be approximately 39%, which includes select onetime investments we are making to transform and increasingly automate how we work. Looking beyond 2025, we are updating our 2026 financial framework to incorporate a more positive margin expansion and free cash flow outlook. We reiterate our outlook for 7.5% to 8% organic revenue growth, driven by approximately 9.5% growth at the Big 3 segments. We are confident in delivering the revenue acceleration this implies driven by positive underlying momentum, the execution of our innovation road maps and to a lesser extent, easier comparisons in several areas, including at Reuters News and Corporates. We now expect to deliver approximately 100 basis points of adjusted EBITDA margin expansion, up from our prior view of 50 or more basis points. Healthy operating leverage, combined with early benefits from using AI and technology to reengineer how we work, provide confidence in this outlook. We are also raising our free cash flow outlook for 2026 to approximately $2.1 billion, which is the upper end of the prior range of $2 billion to $2.1 billion. Our expectations for capital intensity and tax rate remain unchanged. We are currently in our 2026 planning cycle, and we'll provide more detailed 2026 guidance on our Q4 conference call in February. I will now turn it back to Gary for any questions. Gary Bisbee: Thanks. Jenny, we're ready to start the Q&A. Operator: [Operator Instructions] And our first question is going to come from Drew McReynolds from RBC. Drew McReynolds: Appreciate all the detail as usual. Two questions for me. I guess, first on the government and corporate headwinds. I guess the question is ultimately, what's kind of recurring into next year? And for corporates, I believe the organic revenue growth target is 9% to 11%. Just wondering how comfortable you still are with that? And then secondly, Steve, great kind of rundown essentially of the moat within Westlaw. I know it's early days on Agentic AI. Can you comment on the customer kind of reaction to what Agentic is doing from their perspective? And are they able in these first iterations to notice the difference between what you're offering and maybe some others that don't have the deep content access? Stephen Hasker: Yes. Drew, great questions. Let me start with Corporates, and then I'll ask Mike to supplement that. Then I'll go to government, then I'll go to Westlaw. So please be patient, but we'll work our way through these questions. So look, the Corporates sales softness is a bit frustrating because it's temporary and it's self-inflicted. So 2 points. One, we remain even more confident in the end market opportunity. We've said for a while that the TAM is the biggest opportunity for us in Corporates relative to the other segments. And it's the area in which we have the lowest penetration of our legal, tax and risk products. So we think it's our biggest opportunity. And our product set is, we think, pristine and well received by customers. And so we started to see glimpses of this promise last year, as you'll remember, with 10% growth. And underpinning that, we've seen a really nice escalation in our NPS scores across the segments and including in Corporates. But what we haven't seen is an uptick in cross-sell. So at the start of this year, we expanded our global account footprint, and we asked our salespeople to sell more than one product grouping. And I think in retrospect, we got a little ahead of our sort of commercial systems and our infrastructure in doing that. So we've left some of our salespeople, I think, a little disorganized relative to the opportunities and relative to where they were last year. So not up to our high standards. We're through this. We'll learn from it, and we'll be better for it. We've got no more changes in the pipeline and very confident in the 9% to 11% for next year. So that's on the Corporates side. Mike, what would you add to that before we go to government? Michael Eastwood: Terrific summary, Steve. Stephen Hasker: Okay. All right. So government -- so I'd say a couple of things. Our solutions in government, whether they be related to the legal side or the sort of law enforcement and risk side are very well aligned with the administration's agenda around efficiency and law enforcement. And we've seen good growth in state and local. And on a federal level, I think the teams have done a very good job this year in asserting the must-have status of our solutions. And so I think up until the end of the third quarter was so far so good. We had a couple of downgrades and cancellations at the end of the third quarter, which I think has us watching this one vigilantly. In the medium to long term, Drew, we are very confident in the value proposition, both the federal, state and local because tools like Westlaw Advantage and CoCounsel and our various tax solutions drive efficiencies for the government agencies. And of course, our law enforcement work through CLEAR and TRSS is very well aligned with the agenda of this administration, as I said. So medium to long term, we're confident about government, but it is a turbulent environment, and we just wanted to signal that. Unclear as to what it will look like for the next 12 months. But medium to longer term, we're very confident. So let me turn to Westlaw. So as you know, we put in the marketplace Westlaw Advantage, which is the first Deep Research and Agentic research product. The reaction has been very, very strong from customers as it has been to CoCounsel legal and the integration of those products. I'll give you the example of one customer that I've spent some time with that I think is emblematic of the broader environment. He is the managing partner of a major firm in New York City. He spent his career as a litigator and is well known as such. And he was describing how his career has been spent in conference rooms going back and forth with his colleagues and his partners, refining his arguments. Since he's had access to Westlaw Advantage, he is doing much more of that back and forth with our tool than he is with his partners. And so in the early going, there is a change to his behavior in terms of getting to the best, most refined arguments, anticipating the opponent's rebuttals and arguments and anticipating the likely judge's reaction. So we're very excited by the work that Mike Dane and Omar and others have done in developing this product, and we're going to keep investing behind it so that the verification and validation tools that I alluded to get better and better and the product itself gets richer and deeper. Mike, would you add anything there? Michael Eastwood: Nothing to add, Steve. Stephen Hasker: All right. Thanks, Drew. I hope that addresses the questions. . Operator: And our next question is going to come from Vince Valentini from TD Cowen. Vince Valentini: Can I just go back to the government for a second? I just want to make sure I'm clear on what the driver is. Is the government shutdown having an impact or these cancellations happened before that? And can you clarify, do you do work for ICE? Michael Eastwood: Vince, in regards to the first question, the downgrades, cancellations occurred prior to the shutdown. The shutdown has very minimal impact on our monthly -- quarterly revenue based on what we know today. So this occurred prior to the government shutdown. Steve, do you want to address the ICE question? Stephen Hasker: Yes. I mean we -- Vince, I won't go into the specifics of the work we do with various government agencies because it's subject to confidentiality clauses. But we do work with a number of departments on a range of law enforcement matters, and we do that consistent with our trust principles at all time. Vince Valentini: Can I maybe rephrase it? Maybe I shouldn't have been so specific. Is there any chance that the government spending is being temporarily redirected and that's impacting some of the contracts with you and that will ebb and flow over time, but should come back? . Stephen Hasker: It's a little -- I mean, I definitely think that this administration is putting much more emphasis on some things rather than others. And there is a sort of a process of adjustment to that, Vince. But as I said, in response to Drew's question, our tools achieve 2 things for government agencies. One is efficiency and the other is they are essential tools for law enforcement. So we're confident that our must-have status will be maintained and enhanced over time. But there is a level of turbulence as some programs get cut in this adjustment. Michael Eastwood: Yes, Vince, we're continuing -- we'll continue to work with our federal customers on kind of 3 big areas: Efficiency, national security and fraud prevention. We are confident our tools and offerings will be able to support them midterm, long term. Vince Valentini: I'm going to count that as one, Gary, I apologize, but it was 1a and 1b. Just the second question, you got a nice call out on the Amazon call last week on being one of their key customers for their transform product, they call it, they say Thomson Reuters has been able to manipulate 1.5 million lines of code per month 4x faster than they could with previous systems. I'm wondering, is this part of an initial effort to automate more of your internal cost structure and processes? And is there more of this to come over the next couple of years? And what could that potentially mean for future margins? Stephen Hasker: Yes. Thanks, Vince. So we're determined to be on the forefront of this AI transformation in 2 ways. One, in terms of our product development, particularly in and around Agentic AI and Deep Research. And that's an example in the -- first example in the legal space with the launches back at ILTACON in August. Second example, ready to review and then in December, January, ready to advise in our Tax & Accounting, and we're excited about those. We were pleased to see the reference from Amazon. This relates to the internal application of AI and automation tools. So we are applying our own tools, so CoCounsel Legal and CoCounsel for Tax, Accounting and Audit to Norie Campbell's General Counsel team and also to Mike's finance, audit and accounting teams, and we're seeing really promising results from the application of our own tools. We're also, as Amazon alluded to, working with the best tools available to drive automation. I'll defer to Mike as to the sort of financial implications of this, Vince. But rest assured, we're going to be at the forefront in terms of automating everything we do with a singular goal of being able to scale faster and more efficiently and deliver better products and services to our customers. Michael Eastwood: Yes, Vince, a few thoughts. As noted in my prepared remarks, we do anticipate some onetime investment in Q4 2025 to help us transform and increasingly automate how we work. To Steve's point, as we look into 2026, certainly, we view the example that you questioned and Steve addressed as opportunities to help us expand our EBITDA margin. It's one of the reasons why we were able today to expand our EBITDA margin expectations for 2026 by 100 basis points. We're not discussing guidance today beyond 2026, but I think these developments certainly are encouraging for the long term. Vince, while we have the mic, it might be helpful for everyone if I just clarify, when we say for 2026, increasing margin by 100 basis points, that will be 100 basis points off the actual result for fiscal year 2025. Just wanted to clarify that point. Operator: And our next question is going to come from Jason Haas from Wells Fargo. Jason Haas: In the prepared remarks, you made a comment about seeing some incremental competition in AI assistant space. So I was curious if you could just unpack that comment a little bit more. What was meant by that exactly? Stephen Hasker: Yes. Jason, thanks for the question. So the point that I'm trying to make is that we are not seeing any additional competition in our core franchises. So that's legal research and legal know-how and the tax calculation engines, whether that's UltraTax, GoSystem tax or ONESOURCE. So those core franchises have the same competitive dynamics today as they did 12 months ago or 3 years ago. Where we have seen the entrance of new players is in the AI assistant space. Now that is a greenfield sort of white space opportunity for us. And it was the reason that we went out and acquired Casetext and then added Materia and the fantastic team from Materia on the top of that. So that's a white space opportunity for us around CoCounsel, and that's where we see the entry of new players. We're happy with where we sit in that marketplace. We've got some very aggressive product development plans. And I think most importantly, customers are responding well to CoCounsel and its various offerings. So I hope that clarifies. Jason Haas: That's very helpful. And then I wanted to follow up on the Tax & Accounting business. It looks like the organic constant currency growth decels from 11% to 10%. I know these are rounded numbers. But I was curious if you could comment on that. And then can you just talk about your confidence in that accelerating to the 11% to 13% organic growth that you expect in 2026. Michael Eastwood: Yes, Jason, we do have some fluctuations quarter-by-quarter within the Tax & Accounting professional business. We remain confident in delivering 11% for calendar year 2025. And then for 2026, as a reminder, our guidance is 11% to 13%. We work very closely with Elizabeth Beastrom and her team there. We have very strong confidence in delivering 11% to 13% for 2026. We referenced SafeSend in our prepared remarks, which was the acquisition in January of this year, which is performing incredibly well. We expect that to continue into 2026. Steve mentioned Materia, they're additive, which is the recent acquisitions that we did. So we remain quite confident, Jason, with Tax & Accounting professionals. Stephen Hasker: Yes. I would just supplement that the end market is a very healthy one. We start our synergy customer conferences down in Florida tomorrow. We're very much looking forward to that and getting excited about getting together with thousands of our customers in person. The Tax & Accounting and Audit spaces remain a very robust end market with a critical need, and that's shortages of talent. And so Jason, as we develop Ready to Review and Ready to Advise and continue to refine those propositions, we think that, that is going to meet or even exceed the needs of our customers, and that gives us confidence around the 11% to 13% going forward. Operator: And our next question is going to come from Manav Patnaik from Barclays. Manav Patnaik: Steve, I appreciate the slide with the data and the moats there because I think we've heard that as well. But to your earlier answer on the competition is more on the workflow side, and that's why you acquired Casetext, et cetera. Can you help us with any sense of sizing of workflow for you guys and the growth rates there? Because obviously, a lot of these legal tech companies are raising a lot of money at high valuations, citing higher growth rates. So just trying to get a sense of your business there. Stephen Hasker: Yes. Manav, I mean, it's all a bit squishy at the moment, right? We sort of probably monitor the same source as you in terms of how competitors are performing and what sort of growth rates they're seeing, what their ARR levels are at the moment. And what I would tell you is that CoCounsel is at least on par or outpacing everybody else in terms of its size and its growth rate. So it is a competitive landscape insofar as there are lots of promises being made by lots of different new entrants. Where we differentiate ourselves is in the integration of our content and our expertise. So it's not only the content Westlaw, Practical Law and so forth, Checkpoint on the Tax & Accounting side. It's the expertise that 1,500 reference attorneys bring that are able to train the behaviors of an agent to produce a more accurate, more reliable outcome that is supported by pristine data privacy and protection. So a long way of saying, in the early going, we're at or outpacing the newer competitors. And we're very confident -- I hope not arrogant, but we're very confident about the sort of medium- to longer-term prospects given the assets that we bring to this competition. Mike, what would you add? Michael Eastwood: That's a good summary. Stephen Hasker: Okay. All right. I hope that helps. Manav Patnaik: Yes, that was helpful. And I guess just on -- I just had one question on M&A. So I think we all get a sense of all the tuck-in type of deals that you guys are doing and probably that continues. But in the past, Steve, you've talked about potentially larger ones. So just trying to get an update on where the market is at. Is it valuation, timing, like just some more thoughts there. Stephen Hasker: Yes. We're sort of happy -- we're very happy with the tuck-ins that we've done over the last couple of years. Each and every one of them in different ways has performed and been additive to the experience that we're providing in the Big 3. So we'll continue to look for those opportunities centered around our Big 3 segments. If we were to do something larger, it would be in the areas where we really see great promise. So areas like risk, fraud and compliance, building on CLEAR, the CLEAR data set and areas like IDT, Indirect Tax, and e-invoicing where Pagero is showing really good growth and growth that looks to be pretty considerably above some of the market comparables. And so those are the areas where we'd be prepared to go a bit bigger. I think at the moment, the assets that are of interest are still fully valued in the sort of portfolios in which they sit. So the question is, do we see a bit of an adjustment and some price that would allow us to create value for our shareholders, not just the exiting shareholders. And that's what we'll just continue to monitor and stay rigorous and disciplined around. Michael Eastwood: Steve, in addition to indirect tax, risk, fraud and compliance, I would just add international. Certainly, we'll be very selective there as we've discussed in the past. But Adrian Fognini, who leads our international business, we are looking at a few potential assets internationally. Operator: Our next question is going to come from George Tong from Goldman Sachs. Keen Fai Tong: You're continuing to target 9% to 11% organic growth in Corporates next year. Can you elaborate on how achievable that growth is without any additional changes to the sales organization or the pace of cross-selling? Michael Eastwood: Sure, George. Happy to start there. I think we've discussed with you and others in the past that Q4 is our largest quota period for a given year. That applies to Q4 2025 for Corporates. October net sales and bookings were quite encouraging, George. And if we look at our sales pipeline, coverage ratio for both the remainder of Q4 and also Q1 2026, once again, encouraging. Given that those changes have now been solidified and the focus is on execution, the way I think about it, George, a very simple formula. If you have great products and you have strong customer demand and you have a growing TAM, the likelihood of success is pretty damn good if you execute and have the right talent. I think you can check the boxes on each of those variables in the formula that I just mentioned there. So that gives me quite confidence. But if you look very tangibly, the October net sales and bookings, secondly, again, the November, December pipeline coverage and then also the Q1 pipeline coverage gives us confidence in achieving that 9% to 11% as we go into 2026, George. Keen Fai Tong: Got it. Very helpful. And then can you talk a bit about your pricing strategy in light of the increasing value that you're providing with your AI products? So do you have plans for accelerated pricing increases, for example, in your multiyear contracts? And how overall do you expect pricing to evolve going forward? Stephen Hasker: Yes, George, look, it's a great question, and it's one that we are very focused on, and we have some fairly vigorous debates amongst ourselves, particularly between the product folks and the commercial excellence folks and our salespeople. Our principle is price to value. So the extent to which we're driving significant efficiencies in the practice of law or in the practice of audit, tax & accounting, we want to make sure that our products and services are aligned to that. Just a reminder, we do not price on a per seat basis. So to the extent to which work is able to be done by fewer people, we will be a beneficiary of that, not a victim of that, if you like. And so it's a work in progress. I think in the early going, our pricing has proven to be competitive and is driving growth for us. It is profitable growth. I would say so far, so good. But this is one of those ones where we're just constantly looking for signals from the market and refining our approaches. Michael Eastwood: Yes, George, I would just supplement. As we go into '26, I'm somewhat optimistic that we could have some additional opportunity over the spectrum. Operator: Our next question is going to come from Aravinda Galappatthige from Canaccord Genuity. Aravinda Galappatthige: I wanted to discuss sort of the -- where we are in terms of the rate of innovation and product intensity. Obviously, we've seen a lot of activity from Thomson and even the industry in general. Is it fair to sort of characterize the present sort of position as sort of getting close to peak in terms of new product launches and so forth and sort of the next phase will be more about penetration. I mean, I'm trying to sort of connect that with sort of the underlying tone of margin expansion you're talking about. I know that you've been -- I think last disclosed number was about $200 million in incremental investments to sort of drive these growth opportunities. I'm trying to sort of assess whether we may be at sort of the crest of that. Any thoughts that you care to share on that front? Stephen Hasker: Yes, Aravinda. I'll start, and Mike may want to add. I obviously stay very close to David Wong and Joel Hron's product innovation plans and also our TR Ventures fund, who are looking across the landscape at different start-ups and also the sort of everything that our partners are doing. I would say -- you're going to see our rate of innovation accelerate and improve over the next few quarters and well into '26 and '27 based on that which we've previously invested in and that which is coming through the pipeline. What I think, though, will happen in the broader landscape, and it's hard to tell. So this is looking at a crystal ball, is that the rate of innovation for the highly specialized tools like ours that are trained on reservoirs of content and thousands of expertise will continue to improve. I think where things might flatten out is in the sort of general purpose horizontal tools. And certainly, our customers are starting to understand the difference. And so that, I think, will be one change in the sort of landscape. But again, I think anyone who will tell you they know exactly what's going to happen in this environment is probably slightly deluded. Michael Eastwood: Yes. Aravinda, a couple of points there. Please, please do not correlate our confidence in expanding our margin in 2026 with us investing less. We will invest over $200 million this calendar year '25 in AI, Gen AI. That will continue into 2026. We're able to expand our margins in 2026. One, you're aware of our operating leverage, but we have opportunity back to the prior questions to automate how we work. I think it was Vince who asked the question illustratively about the AWS reference. So we will continue to invest. And to Steve's point, the rate of innovation and intensity will continue. That $200 million plus will continue into 2026. Aravinda Galappatthige: And maybe my follow-up for Mike. I mean, on the last call, Mike, I think you talked about sort of your framework for capital allocation and how that potentially leaves $400 million to $500 million for buybacks. Obviously, given the movement in the stock, you've sort of shown the flexibility to step up beyond that. Should we sort of take that forward even in the -- going into '26 that notwithstanding that framework, you have the ability and the willingness to sort of step up in terms of your repurchase program? Michael Eastwood: Yes. I think, Aravinda, I would maintain the framework when you think about mid- to long term. But I think the key there is when we see the opportunity to step up, we will, which I think -- that was very tangible with our decision in mid-August to announce the $1 billion NCIB share buyback, which we completed at the end of October. We constantly discuss capital strategy, capital allocation with our Board. In our next Board meeting, we'll have the next discussion in regards to capital strategy, capital allocation. Could we step up? Again, possibly, no decision has been made there. So I would maintain the framework of the $400 million to $500 million. But also, I would kind of supplement that framework with our ability and willingness to step up when we deem appropriate. On the topic of capital allocation, I would just remind you, Aravinda, and others that as we go into the January board meeting, we will propose another 10% increase in our common dividend, which would be the fifth year consecutively on that. Operator: And our next question is going to come from Maher Yaghi from Scotiabank. Maher Yaghi: Great. Steve, you have very well articulated why Westlaw has a strong standing to benefit from AI. But can you tackle maybe how you see AI advances affecting your tax business? Do you believe that business has similar defensive capabilities to continue to gain market share as well as you're doing in legal? And the second question is the revenue acceleration you're expecting in 2026 versus 2025. I know it's maybe too early, but can you maybe just let us know which segment of the Big 3 you're expecting to see most of the acceleration coming from? Stephen Hasker: I'll defer the second question to Mike. On the first one, yes, we're sort of equally excited about the application of AI, Agentic AI, Deep Research to our tax business as we are legal for a couple of reasons. So in terms of the end market, the tax & accounting profession does not need to undertake the same sort of magnitude of change management. So for example, many tax & accounting and audit engagements are not priced on a per hour basis and not on a billable hour. They are value-based. And so there's not that same business model hurdle to overcome that the legal profession is currently working its way through, firstly. Secondly, there is, as I said before, a pretty acute talent shortage that technology needs to address. So we actually think our tax & accounting customers are even more receptive to AI and technology in terms of improving their outputs and work and enabling, for example, tax professionals to automate the tax return process and move to more value-added advisory services for their clients and the technology enables that. So that's the first part. As we think about applying AI, particularly Agentic AI to our product set, the sort of narrative up until now is that generative AI doesn't do math. Well, our tax calculation engines do the math. And what the agents enable us to do is automate all of the shoulder activities. So the document ingestion, all of the preparation and then they work with the tax calculation engine, whether it's UltraTax, GoSystem Tax on ONESOURCE. And then they're able to do the follow-up, all of the calculation checks and the e-filing. And so that's really what Ready to Advise is. It's the addition of agents to our pre-existing tax calculation engine. And then Ready to Advise is the use of agents to find all of the opportunities for a tax & accounting professional to provide advisory services on more efficient tax strategies for their clients. And so we think that the AI will enable us to expand the role that we play in the success of the tax & accounting profession, enable them to get into more advisory services and achieve growth on that basis, while at the same time, overcoming this talent shortage. Mike, the question on revenue. Michael Eastwood: Sure. In regards to 2026, just to remind everyone, we do have ranges for 2026 for each of our Big 3 segments. Legal for 2026 is 8% to 9%. Corporates is 9% to 11%. Tax & Accounting, 11% to 13%. Part of your question, Maher, is in regards to which segment would have the largest absolute growth. Tax & Accounting Professional, I believe, will have the largest absolute increase in organic growth rate for 2026 versus 2025. Just to reiterate those reasons; number one, the recent acquisitions of SafeSend, Additive and Materia will continue to scale for us. Next, Steve has mentioned Ready to Advise and Ready to Review, which are new launches for us. We consistently talk about our Latin America business, Domínio, which we remain quite optimistic about. Over the last 11 years, it's grown 20% CAGR over that time horizon. We expect that to continue. And then lastly, kind of underpinning UltraTax continues to perform well. Operator: Our next question is going to come from Kevin McVeigh from UBS. Kevin McVeigh: Great. I think in the slide deck, you talked about AI-driven innovation, the momentum continuing. On the legal side, I guess, just the timing, like the Agentic launches you did over the summer of '25, are they already starting to kind of permeate the base? Or is that something that continues to scale over the back half of '25 and into '26. I guess I'm just trying to understand the sequencing of maybe things that have already been launched as opposed to things that were launched over the summer. Michael Eastwood: Yes, Kevin, really good question. Great timing there. For everyone's benefit, we launched those in mid-late August as part of ILTACON. We're already seeing the benefit, and we'll just see more penetration, Kevin, in Q4 and throughout 2026. I would call out each of our general managers within legal professionals that are really driving hard, which is indicative of the 9%. Aaron Rademacher, who is driving the small law firm; Liz Zimick in Mid-Law, Steve [indiscernible] with our largest firms. And then we have John Shatwell in Europe, which I think each of these segments, we're seeing progression already with the launches. And with the momentum we have with the launches of CoCounsel Legal, Westlaw Advantage, that will continue. October, we had another great month of sales. With these new product launches, we expect that to continue for the remainder of Q4 and then throughout 2026. So we're already reaping the benefits, Kevin. Kevin McVeigh: That's super helpful. And then just the comments on the Tax & Accounting. Is there any way to think about the experiences of maybe the Big 4 as opposed to maybe the top 10 and maybe mid-market as you think about the go-to-market motion with the enhanced product from a Gen AI perspective? Michael Eastwood: Yes. Kevin, just to remind everyone, the Big 4 and the next 3 largest firms, we call it the Global 7, they are included within our Corporates segment, not Tax & Accounting Professionals. But Steve, you may want to comment in regards to the different motion as you think about those G7 versus the remainder of Elizabeth's Tax & Accounting. Stephen Hasker: Yes. I mean what I would say is there's increasing similarity across the G7, as we call them, relative to the big 4. In other words, firms 5, 6 and 7 are very sophisticated, increasingly global and investing heavily in technology, and we think we'll be a beneficiary of that going forward. I think though the mix does change a little bit as you get to the sort of top of the ladder there in that they're more likely to take an API from us and build on the top of it versus take the sort of full end-to-end product. So the kinds of work we do in the go-to-market motion is slightly different, Kevin. But the opportunity, I think, is equally weighted across that customer base. And if you go all the way into the smaller firms, which Brian Wilson serves from a go-to-market perspective, he and his teams. They're ready for turnkey solutions that work, that are reliable and that build upon their existing tax calculation engine. And so there's a lot of receptivity at that end as well. Operator: And our next question is going to come from Andrew Steinerman from JPMorgan. Unknown Analyst: This is [indiscernible] on for Andrew. Most of my questions have been answered. So maybe I'll circle back on the government headwinds just to clarify. Am I correct in saying your updated guidance only contemplates cancellations that you saw at the end of the third quarter? And I guess maybe just to give us a little bit more comfort on the go forward. Could you maybe talk a little bit more about if those cancellations were driven by reductions in spending at certain departments you serve? Or was it layoffs? Just any color there would be great. Michael Eastwood: Certainly, in regards to our forecast, we always contemplate what has occurred, plus we always look at the upcoming pipeline. So we have contemplated within our forecast any other activity that might transpire in Q4. So we believe that has been reflected already. And then in regards to the reasons for it, there's been a reduction in the actual spending levels in these agencies, which was the main driver. Operator: And our next question is going to come from Stephanie Price from CIBC. Stephanie Price: Just a few quick clarifications for me. Mike, I think you've kind of alluded to it for a few times in the call, but can you talk about the drivers that are causing the increase to the fiscal '26 EBITDA guide to 100 basis points versus 50 basis points prior. I think you mentioned some efficiencies, but anything else you wanted to add on there? Michael Eastwood: I would say 2 -- Stephanie, 2 primary drivers. One is the operating leverage at roughly 7%, 7.5%. We generate about 110 basis points of natural operating leverage, which is sustained in our business. The second key factor is our focus on transforming and automate how we work. So if you take those 2, that would be more than 100 basis points, but leads to a third key factor, which relates to a question earlier, is we're continuing to make investments, and we'll continue to make investments wherever we see the returns are sufficient there. But the 2 key drivers of margin expansion, operating leverage and then our internal initiative to transform and automate how we work. Stephanie Price: Perfect. And then for the Legal segment, organic growth accelerating quarter-over-quarter to 9%. I think in the prior question, you mentioned some new product launches. Just curious if there was anything else you wanted to call out there in terms of shifts in demand or adoption rates within Legal. Michael Eastwood: I think the new product launches certainly help us significantly there. Retention rates continue to be very good within that business. Pricing is relatively stable there. Certainly, Stephanie, we always add talent as part of our operating mechanism. So I think those are the key drivers for us. Steve, you may want to add... Stephen Hasker: The only thing I'd add is way back at our Investor Day a couple of years ago, where we started to talk about this AI journey, we did, at that time, speculate that the TAM in Legal would grow, and it would grow on a sustained basis. I think we're starting to see that. What we're starting to see is law firms wrestle with the idea of spending more on technology and potentially less on real estate and still trying to sort of work their way through the headcount implications. I think it's too early to sort of call that one way or another. But we're starting to see that TAM expand. And we think that, that's going to be a multiyear phenomenon and one that we plan to have the products and the propositions to fully benefit from. Operator: Our next question is going to come from Doug Arthur from Huber Research. Douglas Arthur: Yes. I think most things have been covered. Steve, you mentioned the acute talent shortage issues in some of the big accounting firms. Is there a similar narrative in legal or not so much? Stephen Hasker: Not so much, Doug. It's -- as someone who started my career at PW as it was called then, Mike did the same. Kids are just not as enamored of the profession as they were in our day. And so whether it's the big accounting firms or the midsize or even the smaller shops, they're just having a really hard time getting talent in the door at the entry level and then going through the apprenticeship that's required. And it's an acute problem, and it's been growing for a number of years. If you look at the number of people who are getting qualified as CPAs, it has fallen dramatically in recent years. And all the while, the number of audits goes up, the complexity of audits goes up, the number of tax returns goes up, the complexity of those returns go up. And the advice that, that small, medium and large businesses need from their tax & accounting professionals intensifies. So the demand characteristics are really healthy. It's the supply of talent that's the problem. And that's where the technology has a really, I think, exciting and important role to play. And that's why we're investing heavily to meet or exceed those demands. Operator: And our next question is going to come from Toni Kaplan from Morgan Stanley. Toni Kaplan: Your large competitor in legal has talked about one of the benefits of its partnership with Harvey is increasing distribution. I was hoping you could talk about, Steve, how you're thinking about partnerships right now. You have the content, you have the AI capabilities. So it doesn't seem like you need to partner with others. But is there an advantage to doing that because of increasing distribution? Or is there a disadvantage of going that route? Stephen Hasker: Toni, I won't comment on their approach. But what I will say is that we're very confident in our position of having CoCounsel for Legal, which is now fully integrated with our content and editorial expertise. So we don't see the need for partnerships, the likes of which one of our competitors has entered into or 2 of our competitors have entered into together. Where we are partnering is where there are point solutions, AI-driven point solutions, for example, in sort of the debt capital markets and its application to legal profession or in very, very specific area of the law, where we think an innovative team has developed a solution that can work in with CoCounsel. So we're keen to explore that ecosystem. But in terms of distribution, we obviously have the leading distribution in the industry at the moment. So we don't see a need there. But thanks for the question, Toni. Gary Bisbee: All right. I think that brings us to the end of our time. So thanks, everybody. Have a good day. Stephen Hasker: Thank you. Michael Eastwood: Thank you. Operator: And this concludes today's call. We appreciate your participation. You may now disconnect.
Michael George McLintock: Okay. Good morning, everyone. Thank you all for coming today. For those of you who don't know me, I'm Michael McLintock, Chairman of ABF. Before we get into the detail of the results, I just wanted to make a few remarks in relation to our announcement today that we are undertaking a review of the group structure. As a Board, we do, as a matter of course, regularly assess the appropriateness of the group structure. However, the current review is more substantive and has been running for a while and has reached the point where there are 2 options, to stay as we are, or to split into the separate businesses of retail and food. Above of our consideration is whether our retail and food businesses have now reached a point in their development where they would each benefit from greater independence and a clearer line of sight into their respective activities. We believe both businesses have exciting opportunities ahead of them, but separation might lead to better understanding, which is something that should benefit our food businesses, especially. I emphasize that no decision has yet been made. Splitting the group into 2 freestanding businesses is a complex proposition, and we need more time to confirm feasibility. Nevertheless, the fact that we're saying something today reflects the fact that there is a fair chance of the separation occurring, and making the announcement gives us the opportunity to consult with all our stakeholders without fear of leading potentially sensitive information. I'm leading the review and has been carried out in consultation with our largest shareholder, Wittington, who have indicated that in the event of the split, they intend to maintain majority ownership of both parts of the group. So no decision has yet been taken. You will appreciate that there is a limit to what more I can say at the moment. But we look forward to discussing with all our stakeholders, and we will, of course, provide an update as soon as it is practicable. And with that, I'll hand over to George to take you through. George Weston: Thank you, Michael. Good morning, and thank you all for joining us. We are here, of course, this morning to review ABF's annual results for the 52 weeks ending the 13th of September 2025. Before I go into the results, I wanted to say and make clear that I fully support the Board's review, and I have been and will continue to be closely involved and working with the Board throughout. I'm delighted to be joined by Joana Edwards ABF's Interim Finance Director. Joana will give a detailed review of our financials shortly. And I've also invited Eoin Tonge to join us this morning in his role as Interim Chief Executive of Primark. A lot of good work has been happening in Primark over the last few months and lots more to come. And so I've asked Eoin to give you an update on that this morning. Our financial results for the group this year show sales down 1% and adjusted operating profit down 12%. This was due almost entirely to sugar's profits going from close to GBP 200 million in 2024, down to only breakeven in 2025. That's the result of the sharp drop-off in European sugar prices in the summer of 2024. Prices sadly have remained persistently low since then. The rest of our businesses delivered robust financial results against the challenging external backdrop sanctioned as of the tariffs and all. We've kept though our interim and final dividends in line with last year, and we've announced today a new buyback program of GBP 250 million, which will be completed in 2026. We're really quite confident about the future. 2025 was a year of intense activity in ABF. As you know, we're about building brands and businesses that will deliver growth, cash generation and strong return generations. And to that end, we invested GBP 1.2 billion of capital to hear across Primark and our food businesses. We're now well through about wave of investment in our food businesses. A number of large multiyear projects were either completed recently or will be completed in the next few months. These are exciting growth projects that will still be delivering value, I think, in 50 years' time. Another thing we've been doing is fixing businesses. I said in April that we had 3 loss main business that we would take action to address and we have. Firstly, and sadly, we closed our Vivergo bioethanol plant in the U.K. The regulations in any other country in the world would have meant this business was profitable, but it was the right thing, therefore, to do, to fight for its survival. However, the U.K. government decided not to make the intervention we needed, and we couldn't tolerate continued losses and so it's gone. Secondly, we substantially restructured our beet manufacturing footprints in Northern Spain, reducing the number of facilities from 3 down to 1. This follows recent action to exit our sugar businesses in Mozambique and in Northern China, and I'll talk more about sugar later. Thirdly, we reached an agreement to acquire Hovis Group. Combining their production and distribution with ours will deliver significant cost synergies and will enable innovation. This will create a U.K. bakeries business that's sustainably profitable. The transaction is subject to CMA approval, and we're working closely with them through their review. Alongside reinvestment in our business, we've delivered strong capital returns to shareholders in 2025. This included just under GBP 600 million through buybacks in the year. And over the last 3 years, we've returned GBP 3.2 billion to shareholders through dividends and share buybacks. Before Joana goes through the financial results in detail, I'll share some color. In Primark, we've reviewed our focus on a number of initiatives to drive like-for-like sales growth. And the business is in mid-flight on a lot of very good work. This includes improving price perception and improving our product offer. Progress in the U.K. has been really encouraging. The business is back on a stronger footing and there's more to come. We still got work to do in Europe, but we know what's required and there are plans in place. The consumer environment though, was weak, particularly in the U.K. but also in Europe. And Primark's like-for-likes declined in the year. Space growth was well executed and profit delivery was good. Grocery performance was as we had expected. Our international brands are growing, but that is being masked by declines in U.S. oil and U.K. bread. Ingredients performed well. In both grocery and ingredients, we're benefiting from sustained investment in those businesses. Sugar profit was breakeven this year, excluding the loss in our Vivergo bioethanol plant. We've made progress, but there's still more work to be done, which I'll cover later. Agricultural profit was lower this year due to one-offs and less contribution to our joint venture. With that, I'll hand over to Joana. Joana Edwards: Thank you, George, and good morning, everyone. So let me take you through the results in more detail. Group revenue was GBP 19.5 billion, which at constant currency was 1% below last year. Of note, this year, there was a negative impact of foreign exchange translation of approximately GBP 450 million. Group adjusted operating profit was GBP 1.7 billion, a decrease of 12% at constant currency due to the reduction in sugar profits. At actual rates, the decline was 13% again, an adverse translation impact of around GBP 50 million, mainly from sterling strengthening against the U.S. dollar but also from some of our African currencies. So let me take you through the performance by segment. Starting with retail, and I've got a couple of slides on Primark. Looking first at sales, which grew 1% to GBP 9.5 billion. Like-for-like sales declined 2.3% and the dynamics in this were very different between the 2 halves of the year and also different in the U.K. and Ireland compared to Continental Europe. In the U.K. and Ireland, like-for-like sales declined 6% in the first half. The clothing market declined in a weak consumer environment, particularly within elements of our Primark's shopper space. In the second half, Primark's U.K. trading showed a good sequential improvement. Like-for-like sales were broadly flat, and Primark gained market share. This was a result of a number of initiatives to strengthen our value proposition and product offer. In Europe, the shape was the opposite. A strong first half was followed by weaker trading in the second half. As George said, we have more to do in some of our European markets. Eoin will talk this morning about the actions we've been taking in the U.K. and our plans for similar initiatives in Europe. Our store rollout program contributed 4% to growth with good execution across our key markets in Europe and the U.S. Primark's adjusted operating profit grew 2% to GBP 1.1 billion, and adjusted operating profit margin was 11.9%. Excluding a nonrecurring benefit in the year of around GBP 20 million, the underlying margin was broadly in line with last year's margin. Gross margin improved in 2025 due to favorable foreign exchange, supplier efficiencies and effective markdown management. And our focus on cost optimization and efficiencies broadly offset wage inflation, and a significant step-up in investment across product, brand and digital initiatives. Part of those efficiency savings come from the investments we've made in technology and automation in recent years. Moving to grocery. Sales of GBP 4.1 billion were in line with 2024 and adjusted operating profit decreased 4% at constant currency. Our 2 largest international brands, Twinings and Ovaltine, delivered good sales growth, supported by investment in marketing, strong commercial execution and product innovation. These figures also benefit from consolidating our acquisition of the Artisanal Group in Australia. As expected, lower sales and profit in both U.S. oils and Allied Bakeries led to an overall decline of 4% in grocery adjusted operating profit. Ingredient sales of GBP 2 billion were in line with last year at constant currency. Our yeast and bakery ingredients businesses, AB Mauri, delivered good underlying growth. This was offset by the impact of hyperinflation accounting treatment in Argentina. In specialty ingredients, most of our portfolio performed well. Our enzymes and Health & Nutrition businesses had particularly strong growth, offset by lower sales in one of our pharmaceutical businesses. Prior year acquisition in specialty use and bakery ingredients contributed to growth. Adjusted operating profit for Ingredients grew 16% at constant currency. This was supported by a continued focus on productivity savings across our supply chain and good management of input costs. As expected, sugar sales declined 10% and the segment had an adjusted operating loss of GBP 2 million. The operating loss in our Vivergo bioethanol plant of GBP 36 million is included here and separately captured within disposed and closed operations. In the U.K. and Spain, low European sugar prices and high beet costs drove significant operating losses. As we said back at the interim results in April, our cost base in Spain is structurally too high. Since then, we have completed restructuring in our northern beet operations to reduce our footprint from 3 facilities to 1. We will continue to reduce costs and improve efficiency in our operations. In Africa, performance was mixed. We had good growth in Malawi and Eswatini, whereas droughts impacted production costs and profitability in Zambia and South Africa. In Tanzania, there was an impact from sugar imports that were higher than usual. Our new sugar mill began production last week and will significantly increase domestic supply. George will talk in more detail shortly about the building blocks to improve profitability going forward. Agriculture sales decreased 1%, and adjusted operating profit decreased from GBP 41 million in 2024 to GBP 25 million in 2025. This reflects two things: a reduced profit contribution from our joint venture, Frontier, as a result of exceptional weather conditions; and secondly, one-off costs in the year. Our specialty feed and additives business performed well, and we had good growth in our dairy business. Sales in our compound feed business remained soft. I showed this slide at the interims in April. In a year where there was a significant focus of the implications of U.S. tariffs, this is a reminder that ABF's exposure to the U.S. is modest at around 9% of group revenue, and at least around half is domestically sourced. Moving to adjusted earnings and adjusted earnings per share. Two things I want to highlight here. Firstly, on tax. The adjusted effective tax rate was 24.2% this year, similar to the tax rate at the half and up from 23.1% last year. This was mainly due to the introduction of Pillar 2 tax rules, which increased our tax rate in Ireland. We expect the group's effective tax rate in 2026 to remain broadly in line with 2025. Secondly, you can see that the adjusted earnings per share have benefited from the share buyback. We estimate the accretion to EPS on a cumulative basis since the start of the buyback to be about 7%. Note, basic earnings per share includes exceptional charges of GBP 188 million compared to GBP 35 million in 2024 as well as losses on closure of business of GBP 32 million. Free cash flow was GBP 648 million compared to GBP 1.4 billion last year. There are 2 reasons for the reduction. On one hand, the lower operating profit, and on the other hand, the year-on-year movement in working capital. In 2024, as I explained at the interims, there was a working capital inflow of GBP 305 million, which was mainly due to Primark's inventories reducing to more normal levels after all the supply chain disruptions the year before. In 2025, there was a working capital outflow of GBP 95 million, mainly due to slightly higher Primark inventories. You can see capital expenditure at GBP 1.2 billion, which was in line with last year, and I'll come on to the details of that spend shortly. One point to note on cash tax. In 2025, it was lower than last year due to a one-off EU state aid refund of GBP 25 million. Without this benefit, we expect tax cash in 2026 to be moderately higher. Our balance sheet remains strong and continues to support investment and shareholder returns. A few things to highlight on this slide. Firstly, you can see that working capital was broadly in line with last year. Secondly, the lower cash balance of GBP 0.4 billion reflects the shareholder returns we made in the year, both in dividends and share buyback. Finally, the pension surplus. This continues to grow and is very significant at GBP 1.6 billion, underlining the strength of our financial position. Turning now to cash and liquidity. Our year-end net debt position, including lease liabilities, was GBP 2.6 billion compared to GBP 2 billion last year. This is due to the cash reduction I just explained. Our leverage ratio was 1x and is an increase on last year, but well within our capital allocation policy. Total liquidity was GBP 2.2 billion, and this robust position underpins our ability to continue investing in growth, while maintaining resilience and flexibility. Our capital allocation policy prioritized disciplined investment to drive long-term growth. In 2025, we invested GBP 1.2 billion across the group, around 40% in Primark where we continue to roll out stores, invest in our depot network and add new technology. The remaining 60% was in our food businesses. A large amount of the spend was on multiyear projects that have either completed in 2025 or will complete in 2026. It is worth noting that across ABF, around GBP 100 million of this year's CapEx investment was in technology, including automation to drive efficiency in our supply chain and new ERP systems to strengthen efficiency and decision-making in the businesses. We expect CapEx to remain at a similar level in 2026. Part of our capital allocation approach is to return excess capital to shareholders, both through dividends and share buybacks. Starting with dividends. We are proposing a total dividend of 63p, which includes an interim dividend and a proposed final dividend in line with 2024. That's a reduced level of dividend cover, but reflects our confidence in the outlook for the group. In terms of share buybacks, during 2025, we completed GBP 594 million of buybacks. And looking at our total shareholder returns in the last 3 years, we have returned GBP 1.6 billion in paid and proposed dividends and GBP 1.6 billion in share buyback. And today, we have announced an additional share buyback program of GBP 250 million, which we expect to complete in the 2026 financial year. These shareholder returns, alongside our continued capital investment in the business, demonstrates our disciplined approach to capital allocation and our commitment to delivering long-term value for shareholders. I'll finish on the outlook for 2026. For the group overall this year, we expect to deliver growth in adjusted operating profit and adjusted EPS. I won't read out the segmental guidance in detail as you have it both on the slide and also in the RNS. In Primark, we continue to expect the consumer environment to remain subdued. We are focused on a number of initiatives to strengthen our value proposition with a view to driving like-for-like sales growth. And we expect new space to contribute around 4% to sales. Next year's margin will reflect investments in growth. We expect overall profit in grocery and ingredients will be broadly at this year's level. In sugar, we expect some improvement in profit. And with that, let me hand you back to George. George Weston: So the biggest change in Primark this year has been the leadership. You all want to know who the permanent CEO will be. I can tell you that we're well underway with the selection process, and I'll update you once the decision has been made. I would hope that we can do that early in the new year. But I'm extremely pleased with what Eoin has achieved in the interim role over the past 7 months. He successfully brought together and empowered the leadership team in Primark. He's driven forward a number of critical trading and operational initiatives across product, technology, route-to-market, supply chain and marketing, and these are progressing at pace and will better position Primark for future growth and expansion. A key priority for Eoin and the team has been how best to unlock the growth potential of Primark's proposition, both in like-for-like sales growth and space expansion. We recognize the competitive challenges in our marketplace and the customers today take a more complex route to purchase in our stores. However, two things are clear. One is the continued differentiation of Primark's value proposition, offering unbeatable prices for great quality clothing; and two, is the strength of our brand. Two weeks ago, I was in Kuwait with Eoin and others for the opening of our first store in the region. No shopping center in the Middle East has seen a store opening like it. The queue was 300 meters long at its opening and 4 hours later, it was still 200 meters long. The average basket size was 27 items. Our ambition on new space continues and was well executed this year. However, we're also rebalancing our focus on to driving sustainable like-for-like growth across our markets and putting a renewed emphasis on strengthening our proposition, including on price perception and our product offer. Clearly, the last 12 months of trading have been very challenging. Consumer sentiment in both the U.K. and Europe has been weak and particularly so for core customer base -- for Primark's core customer base. In that environment, though, we need to execute better. And with that, I'll hand over to Eoin to share his thoughts. Eoin Tonge: Thank you, George, and good morning, everyone. It's nice to be here with you all. So it's been a busy 7 months on the key areas of focus that George just mentioned, I think there was already a lot of work going on in Primark. I think what we've done is really just challenge ourselves to take a hard look at our operating environment, and then be very precise about what we're going after. The consumer backdrop is challenging. Our customers have more and, in some cases, newer choices in the value space. We also recognize our world has evolved, as George has said. The customer journey to our stores is more fragmented and more complex than it used to be. We fundamentally believe that our core proposition has never been more relevant to consumers, but we know we have some work to do to enable our customers to rediscover our value disruptor edge. Primark is the original value disruptor, and we remain that today. We need to make sure that it is always front of mind for our customers. So let me tell you what we're doing in approaching this. Our priority in all markets is like-for-like sales growth. This is about sharpening our value proposition, starting with price and specifically price perception while at the same time, strengthening our product, starting with womenswear, better integrating our customer engagement and, of course, continuing to develop our digital capabilities to enable all of this, all the while thinking hard as to how we attack the significant white space available to us. And driving cost optimization to enable further investment in the proposition. So let me give you color on all of those items, starting with value and price perception. Look, we still have the lowest prices in all the markets we operate in. As always, we've continued to reduce our prices whenever we've seen our competitor prices below ours to maintain our price leadership in every market. As a reminder, around 85% of our products are priced at GBP 10 or equivalent or less. But in today's environment, we need to keep reminding customers of this unbelievable value, especially as we broadened our product offering. There is actually more to do here, but we've made some progress in the year. We started off with a campaign in April called Never Basic. It was to remind customers of the extraordinary entry price prices that we have in our essentials. We also refreshed our in-store communication, so our prices are now much more visible to customers, top basic stuff, but retail is all basic stuff. In some markets where the need is greater, we will increase this further. But we want to do more to get more assertive on communicating our value credentials to customers. We recently launched Major Find, which simply put is wow product at wow prices. Limited edition fashion items at low price points to create a standout must-have deal. We started that in the U.K. and Ireland, and we'll be rolling that out into Europe in the coming month or so. Early days, but we've seen that this type of initiative is resonating with customers hungry for value and will drive both footfall and attachment sales. This is just the first example and going forward, you'll see us really doubling down on communicating our value proposition to customers and getting a lot more disruptive to remind them what Primark is all about. Low prices are, of course, only one part of our value equation. You need to have a differentiated quality product offering to go with them, which brings me on to what we're doing on product. Primark continues to offer a great quality essential clothing and fashion, and we've been developing our ranges nicely throughout the year. About half of our range is womenswear, which includes fashion, accessories, underwear, nightwear and footwear. It's the engine of our like-for-like growth, so no surprise that when we started to focus on our product evolving, we focused here in womenswear first. We've been building and promoting talent in our team, including some leadership changes, and we've developed a much more targeted womenswear strategy overall. I'll give you a flavor of elements of that. Primark has always been about making fashion trends more accessible to every consumer. The best example last year was our investment in performancewear and the very strong results at delivered. Our product is high-quality, stylish with strong innovation and fabric, all at affordable and accessible prices, really Primark at its best. Another big initiative is coordination. We've seen last year that as we've done a better job of curating ranges for customers, we get a strong like-for-like benefit. Our Paula Echevarría collection is the best example of this, which has continued to grow. And the sales in our last campaign were up 7% on the same launch last year. We'll be doing more of this coordination approach for ranges this year. Primark is famous for everyday essentials, and I'd call out our success in nightwear in particular, where we're leveraging our strength to respond to newer trends. If anyone has seen the recent viral moments and store sellouts in a number of our pajama prints, it really feels like the old Primark again. Overall, these actions we've taken in womenswear are delivering results. We've seen a strong sequential improvement in womenswear sales in the second half of 2025 compared to H1 particularly in the U.K. where the initiatives were combined with increased marketing support. Progress hasn't just been in Womenswear. Kidswear also progressed well last year. A key driver there has been newness, both in own label and through the successful expansion of our licensed offer. As an aside, I feel there is much more we can do to leverage the benefit of our strong relationships with key brands in culture, including Disney and Netflix. I'm not going to talk much about menswear today, but we're making many of the same developments that I've spoken about in womenswear. Growth in performancewear is a great example of that. Our lifestyle categories, however, such as Health & Beauty and Home, which account for about 10% of our sales, really had a tough year and contributed significantly to our like-for-like challenge last year. We've got more work to do in those categories, but I believe there is still a lot of opportunity as we sharpen our proposition. On to customer engagement. We're really at the foothills of integrated customer engagement around our compelling value proposition. That said, we made some progress this year, which I think is setting us up well. We've been using paid social marketing for a number of years now, which has driven good conversion with strong ROIs that discontinued last year, particularly in the U.K., and, again, with good uplifts delivered. For example, increased revenue from paid media was up 30%. Increased efficiency of paid media was up 5%. We've also continued with our brand affinity campaign in Germany and our brand awareness campaign in the U.S. The impact we've seen on our brand metrics has been positive, but more to do to optimize our marketing approach. Towards the end of the year, we had our first truly integrated performance marketing campaign in the U.K., which focused on denim, which has been a tough category for us for a few years now. The In Denim We Can campaign was a multichannel campaign, including out-of-home, paid social media, TV advertising and visual merchandising. The response has been good, not just because our denim sales have been up 12% in the U.K. following the campaign. It has also had a positive impact on our brand metrics, including consideration and brand reappraisal. There's so much to go after as we continue to integrate and optimize our brand and marketing approach. The initial focus, as George has mentioned, has been in the U.K., but we'll expand this to other markets in the coming year. What's underpinning our more integrated customer touch points is continued investment in our digital assets. We've continued to invest in the customer experience on our website, including better functionality. We've had 177 million visits to our primark.com website last year, an increase of 24%. Customers are spending more time on our website and are viewing more of our products. Critically, 20% of the website visits this year have -- customers have used the stock checker, which is the best measure of intent to convert. Plus, our CRM database continues to grow. It's reaching 4 million customers, and our survey data shows that e-mails have been a strong driver of store visits. And finally, we launched our Primark app in the year. It's only in Ireland and Italy so far, but the results have been good, and we're going to roll that out into other markets this year, including the U.K. Our Click & Collect service now has been available from all British stores since the end of May. It's contributing nicely to growth, and the metrics have remained very strong. The average basket size was around 25% higher than the U.K. average. And we've had at least a 40% attachment rate when people come into stores to pick up their Click & Collect, again, with higher average basket size. Our data shows that 1 in 4 Click & Collect customers have not shopped with Primark for at least 2 years prior to the first Click & Collect purchase. Importantly, there's plenty more to do to optimize the range and drive customer awareness. Over 1/3 of our U.K. customer base are still not aware we offer the service. Given our comfort level on the customer and the financial metrics of the service in the U.K., we're exploring the potential to offer Click & Collect service in other markets over the coming years as part of more integrated market growth plan. New space contributed 4% of sales growth in 2025. We opened 23 stores in Europe and the U.S. In the U.S., it included our first stores in Texas and Tennessee. There is, of course, a lot going on in the U.S. at the moment with tariffs and the consumer reaction to increased pricing across the market. But we have an exciting year ahead. The number of store openings will be our largest yet in this current year and includes a flagship in Manhattan, which is obviously significant from a brand awareness perspective. We also opened the first stores with our new design concept in Europe last year. This enables us to expand our footprint across different store sizes, while still maintaining strong sales entities. It will be a key enabler for smaller store openings outside of key cities. As George talked about, we had a great time opening our first franchise store in Kuwait a couple of weeks ago, which had an amazing initial reaction. And we're getting ready for 3 openings in Dubai early in the calendar year 2026. Franchising is an important new capability for Primark and has the potential to open up significant new market opportunities in the future. We're confident that our store rollout program, which now includes franchise, will continue to contribute 4% to 5% of sales growth for the foreseeable future. To continue investing in the customer value proposition, we have to drive continued cost optimization. As with any retailer, cost optimization is focused within stores, in our supply chain and in central operations. There's still a lot of opportunity to go after, and we made decent progress last year. We now have self-checkout in 195 stores. Self-checkouts have the potential to reduce labor hours in a typical store by about 10%. They also help the customer experience if executed well, and they have not driven increased stock loss. LED lighting is now in over 320 stores and, on average, has reduced our energy consumption by 35%. We are making some progress with a number of ongoing projects in our warehouses to either fully or partially introduce labor-saving automation. And we've also identified opportunities to drive savings in our central costs. For example, we announced this year that we're moving to a global business service arrangement for certain central functions. Of course, cost optimization will, of course, be a multiyear project. And finally, on sustainability, although it is lost focus in some circles, it hasn't at Primark. You can see from the metrics we are making good progress. Given our scale and volumes, I'd particularly like to call out what Primark is doing to drive circularity and fashion. This is all about keeping products and materials in use for longer, for making them more durable as well as aiming to reduce waste over time. This includes embedding circular design principles into how products are created. We've made really good progress here. 20% of all Jersey and 8% of all denim products are now circular by design as defined by our standard, which, again, considering our scale, really brings to life how we are really making a difference. 74% of our clothes are now made from recycled or more sustainable materials. We are reviewing our approach to sustainability. We believe there is an opportunity to make more progress if we focus on a smaller number of more impactful activities. We'll update more on this review through the year. So that's Primark. Hopefully, you'll see we have a clear plan of focus, and let me hand you back to George, and I'll come back to your questions. George Weston: Thank you, Eoin. Now let me take you through our food businesses and starting with grocery. We're building grocery brands and businesses to drive long-term profitable growth and strong cash generation. We're investing more in marketing to both drive volume growth and underpin strong brand equity, and we're growing our portfolios through product innovation as we respond to global consumer trends like premiumization, convenience and health and wellness. You can see our current footprint on this chart. We focus on geographies with attractive long-term demographics and market fundamentals. Typically, these are English-speaking and with growing populations, either naturally or from immigration. And we're investing in the capacity and the capability to be able to grow in new and existing market channels as well. Given the breadth of ABF's portfolio, I'll focus today on just 3 of our key brands. And I start with Twinings, which is one of our largest and our fastest-growing brand. Twinings has had consistently good volume-led growth in recent years, something like 3%, 4% compound. This has delivered meaningful growth in market share in three of its largest markets, the U.S., France and Australia. And in the U.K., Twinings has had very meaningful growth in market share in fruit and herbal infusions and in benefit plans. Twining's growth reflects disciplined and patient execution. It's included a focused program of product innovation supported by clear consumer insights and testing and we've increased the effectiveness and sufficiency of our advertising to deliver strong returns, that somewhat sits behind the volume growth. And as you know, our strategy is to maintain the strong position that Twinings hold in black tea and leverage that to grow in wellness teas. Consumers are looking for great tasting and naturally caffeine-free beverages that are good for you. In 2025, our growth rate for both green teas and herbal infusions was in the high single digits, and benefits blends grew double digits. Twinings has an exciting and very long runway for continued growth. This includes expansion in our smaller markets as we start to deploy our now proven blueprint for growth. Markets such as Italy, the Nordics and the Middle East, which I saw the other day, all grew well this year. Ovaltine is the other large-scale growth engine within our international brands. We've made some progress in recent years, but we've also had to navigate some headwinds. In 2025, we had to manage through a steep increase in cocoa raw material costs. Inevitably, the need for price increases led to some tough negotiations with retailers and that impacted volumes. It also led to consumers in less affluent countries walking away from the category. But we're now through that. Ovaltine is a brand with a unique taste. It has very strong brand awareness and equity in the markets where we sell. This means we can leverage our strong base and market share in powder products to grow through innovation, including expansion into both ready-to-drink and importantly, ready-to-eat products. Sales growth in our ready-to-eat portfolio was in the high single digits this year. This included strong volume level growth in our Crunchy Cream chocolate spread, think Nutella but better and the launch of successful innovations in Thailand, China and Switzerland, often based on that Crunchy Cream starting point. Moving then across the United States and to Mazola. We're delighted to have become the #1 branded cooking oil in the U.S. We took that position 3 years ago, and we've held it for the last 3 consecutive years. Our market share now excludes that of #2 and £3 branded players combined. We've remained well invested in advertising and store activation for Mazola, while others have pulled back long-term investment in our brand. Mazola share of voice in the cooking oils category increased from around 50% last year to around 80% in 2025. It's hardly a surprise that we should be piling on market share as we are. This year, we've launched our new 2-gallon format, which targets consumers looking for value, and we made good operational progress with reliability and efficiency following heavy investment in our packing plant in Argo in Chicago. There is a headwind, however. Mazola's core consumers are the Hispanic population in the U.S., particularly first-generation immigrants. And we've seen those consumers come under pressure and significantly pull back on expenditure. Expenditure amongst Hispanics is well down in the States. We believe and really hope that this effect will be transitory, but it will impact volumes in 2026. So I focused on just 3 of our brands this morning. However, this slide is a reminder that we have a large and diverse set of grocery businesses across a breadth of markets and there continues to be a lot of activity across the portfolio in 2025. This shows a small number of examples. We're activating our brands through marketing and in stores. We're growing through different channels, including Amazon, which I think we've really got a grip on now. And we're launching new products to meet consumer needs, including convenience and wellness. And we're adding new capacity to drive growth and efficiency. Also to note that our grocery portfolio includes our U.K. bread business, Allied Bakeries, and the operating loss this year was a significant drag on overall profitability in the grocery sector. Clearly, the acquisition of Hovis, subject, of course, to CMA approval and the associated cost synergies would be very accretive to the profit of our grocery sector. Moving then to Ingredients. Our yeast and bakery ingredients business, Mauri, delivered very good underlying growth this year. This reflects the breadth of our global reach with sales in more than 100 countries. We remain well positioned in the Americas and Europe, in particular, while growing our presence in fast-growing markets in Asia. Our new yeast plant in the north of China should be commissioning in this year. We're leveraging our well-established routes to market for yeast as we expand our portfolio of other products and technologies associated with baking. And we're growing our global network also, food scientists and technology centers to develop products to meet changing consumer trends. This includes demand for healthier, more flavorful bakery options. To share an example of that. In the U.K. this year, we've just about commissioned a new production line to make sourdough ingredients through fermentation to supply into the U.K. bakery market. That's Mauri. Turning now to our portfolio of specialty ingredients businesses, which overall performed well in 2025, particularly in enzymes and in Health & Nutrition. We know there's more that we need to tell you about all these businesses. They've been growing well. They're now quite sizable part of our total ingredients business. However, to do that, any justice would take a lot more time than we have available this morning. I look forward to doing it on another occasion. We're increasingly clear on our strategic priorities for specialty ingredients. We know the technologies we want to focus on, the capabilities we want to build on in the markets we want to service. We know we can't go everywhere, and we can't do everything. More to share with you going forward as we grow in these areas and as we continue to invest in some exciting opportunities. I expect growth will continue to be both organic and through acquisitions in our specialty ingredients portfolio. Sugar. Let me start with Africa, which accounts to close to half of ABF's sugar revenue. As you all know, in our African markets, the fundamentals are extremely attractive in terms of population and GDP growth. Sugar consumption traditionally grows faster than GDP. Our businesses are well positioned for the long-term market growth opportunities. We have really good cane estates and factories, and they're both getting better. And we have strong market positions and leading retail brands, well-established routes to market for those brands as well. The brand metrics we possess for all our major European sugar brands are ones that any leading FMCG company would absolutely die to have. Tanzania, Zambia and Malawi are our key growth markets. And I'll note here that Zambia, which this year has been our best of our sugar business, is listed on the Lusaka Stock Exchange. The most recent market capitalization for Zambia, Sugar was just over $900 million. We own 75% of that business. In Tanzania, we'll accelerate growth with our new sugar mill. It will double our capacity in that market, which is just as well because the population is forecast to double by 2050. Tanzania is already a deficit market and it's going to remain so. But we have a strong market position with industrial customers, and we have the leading market -- leading retail brand, Bwana Sukari. Our new factory, ABF Food's largest single investment over the last couple of years, that factory started up last week. And in the medium term, we'll expect the return on that investment to be something around 20%. This is a plant which will still be there in 50 years' time. In Malawi, our business entered into a partnership with part of the World Bank this year to enable investment in infrastructure for water irrigation. Our businesses in a number of parts of our African sugar businesses are the partner of choice for international and local organizations on development opportunities to drive positive change for local communities and economies where we operate and we benefit from those partnerships significantly. That's Africa. The other half of our sugar business is in Europe. And in 2025, these businesses were loss making. We need to see a recovery in European sugar prices to get them back into profitability, and I'll talk about those dynamics in a moment. But just first, as a reminder of our market positioning, our businesses are in the U.K. and Spain. They're both deficit markets and, therefore, they should in times of European sugar deficit trade at a premium to other markets. And the U.K. The U.K. has some additional protection from both the English channel and from Brexit. British Sugar has built its customer relationships on its product quality, its reliability and security of supply. And these factors support a price premium. Our market share is well over 50% of the U.K. sugar market. Beet prices, though, have been -- sorry, British Sugar is also a very low cost and highly efficient producer. It's at the bottom end of the cost curve among European sugar producers. Beet prices, though, have been too high in the U.K. We negotiated a significantly lower price in this year's campaign that sugar that's coming out of the ground now, and that has given us a cost saving of about GBP 50 million. And we've negotiated already a further reduction in next year's beet price. So that is for crop that will go into the ground in March, April of '26. In our Spanish business, Azucarera, the deterioration in market conditions demonstrated to us what we already know, which was new, which was that the cost base in our beet factories was too high. So we've significantly reduced our beet manufacturing footprint in Northern Spain. We couldn't address that cost inefficiency. We've removed about GBP 20 million of cost and will create other efficiencies as well, 3 beet facilities down to 1. It's pivoted, and this is the most important point. Our Spanish business to cane refining rather than beet processing. In fact, refining has increased from 20% of the business to about 80%. The business becomes a much more back-to-back trading business, which will help reduce the risk and the volatility in Azucarera. We'll look at other opportunities to further reduce costs in Spain. We believe they are available to us. We're still confident that in time, supply and demand will rebalance in Europe. Price tends to fix price. Beet acreage should continue to come down as beet prices come down and sugar prices will then improve. We also think that there will be some removal of manufacturing capacity beyond our reduction of capacity in Spain. The market recovery will be slow pace. It won't happen in '26. Our European operations are well placed for when it does. So to bring all this together on sugar, the actions we've taken in the last couple of years have fundamentally reshaped ABF sugar businesses. We've restructured our business in Spain. We've exited weak businesses in Mozambique and China. We took the decision to close our Vivergo bioethanol plant. We now have a clear strategic focus within our remaining businesses. In Africa, the growth potential is extremely exciting. In the U.K., British Sugar can compete toe to toe on cost with any European competitor. Because this wasn't the case in Spain, we've changed the game there and shifted our focus to refining. Recent and future capital investment in sugar is aimed at unlocking the growth opportunities in Africa and also aimed at reducing our energy costs in U.K. We expect these investments in both parts -- in both Africa and Europe to deliver strong returns. To reinforce the point, this slide shows the pro forma operating profit and return on average capital employed for our remaining sugar businesses over the 5-year period to 2024. This is what we've had through that period. These would have been the returns. It shows that the sugar businesses generate a sensible profit and a sensible return on investment through the period, and we're confident we'll get back to these sorts of levels when the European market recovers. Briefly then on agriculture, where I have sympathy for the teams within agri. Some of the very good work done in parts of the business were masked by one-off costs and our joint venture, Frontier, performed very poorly, really due to a combination of exceptional weather impacts. For our agricultural business, the focus in recent years has been to grow our portfolio of value-added specialty products and services. And these continue to grow well in 2025, in particular, Premier Nutrition, another extremely good year, and our enzymes business, AB Vista, performed well as well. We also saw good growth in dairy where we're making progress with the integration of our full service offer for U.K. dairy farmers. In summary then, I come back to what I said at the outset. ABF is focused on building brands and businesses that would deliver profitable growth and cash generation over the long term. For Primark, our focus is on driving sustainable like-for-like growth. Profit is holding up well and the white space opportunities are exciting. Three things I'd say on food. The first is our international grocery brands have good momentum and are returning to profit growth after a period of elevated reinvestment. Ingredients performance is good, and we believe there's much more to come, especially in specialty, where we have real clarity of focus. And in sugar, the fundamentals are strong in Africa, and we're well placed when sugar prices recover in Europe. Our balance sheet remains strong. On capital expenditure, we're well through the major capital investment cycle for food. We've been able to make the right investments in long-term growth while also though delivering strong returns to shareholders through dividends and buybacks. So I'm confident in the group outlook for 2026, although much depends on the consumer environment, which is particularly unpredictable or miserable at moment. But looking further ahead, I feel very positive about the group's medium- and long-term prospects for growth. So thank you for listening so patiently through what has been quite a long presentation. Before we go on to Q&A, I'd just like to make a couple of points about the review that Michael announced earlier. I'd like to make it clear that what we're currently looking at in this review is either the separation of Primark and food businesses by way of a demerger or the maintenance of the status quo. If we do proceed to demerge, I would hope to continue as CEO of the food businesses. And as you know, we're conducting a selection process for a permanent CEO for Primark. Whatever the outcome, the culture, the long-term values, the stewardship of ABF will remain fundamental to the success of our businesses. I want to finish with 2 important points. Firstly, that we have a fantastic food business with a highly attractive portfolio huge potential and deep global expertise across our people, all of which I look forward to talking about more in the future as it's less well understood than retail. Secondly, Primark is flourished with the ABS structure, and over 60 years, we've created an incredibly strong international brand with a powerful customer proposition. What we're reviewing now in more depth is whether there's a better structure available going forward, for these 2 brilliant businesses. You'll appreciate, as Michael mentioned, that we can't give you all that much more detail at this stage other than what we've said today. I hope you will, therefore, please focus your questions on the results. And we look forward to discussing this more in the future when we're in a position to do so. And with that hope in mind, may I have the first question. Warren Ackerman: It's Warren here at Barclays. I know you're going to want us to talk about the financials for inevitably by grabber. So can you say a little bit more, if possible, just in terms of the motivation and kind of timing, I guess, on this. Is it a governance issue? Is it a valuation concern? And is there anything at this stage you can say on tax liabilities, legal dissynergies? I know it's early stages, but any kind of like framing on this because I think it's so long as I covered the stock, I never really thought it's on the table, so kind of what's changed in your mind as the first one. Then I will get on to the actual financial. Look Eoin, are you able to say anything about the kind of investment you're expecting for Primark in 2026 above the line in terms of digital because it seems like your margin guidance is slightly lower? I think it was flat and now it is slightly below flat. Is that because the investment is a bit higher? And if so, where is that investment kind of targeted? And finally, just on sugar. We've been in a big downgrade cycle in sugar. Do you think we've now troughed on sugar? And beyond '26, is there any kind of reason to think there's any long-term erosion in the sugar profitability? George Weston: On the review briefly, it's about governance. It's about long-term governance. And within that governance line, I think there are 2 different issues. The first one is food where I think we couldn't quite frankly, been getting the scrutiny from the investment community that would serve us well because most of the scrutiny has been about retail, and perhaps we want to put that right. And then on Primark, it's really about oversight of what is now a very big and very complicated business. And just maybe there's a better oversight model available to us than the brilliant model that we've been running with for 60 years. So you go -- well, that was 60 years, that worked absolutely fabulously. And now looking into the future, maybe it's time to do something different. It's a big call. In terms of timing, I would imagine that we would have come to a conclusion about whether to stay together or pull ourselves apart by the interims and the process of actually getting there will take 18 months or so. I don't think we've got anything to say about tax because we haven't been able to investigate. This is the purpose of the review is to dig deeply into those sorts of things. So we have a prima facie case to separate, but we don't have all that detail. Shall I just do the sugar kind of has anything changed? Whenever you get into these downturns, there's always that kind of bare case that said that the world will never go back to where it was. You see the same thing when you get into boom times. And really, in the end, supply and demand seldom sells out. There are a couple of areas of, they're not so much watch-outs, but they are sort of changes going on. The first one, I think, I think we have to accept that GLP-1s are going to take a couple of percent off sugar -- off food production in Europe and sugar included in that mix. The second one, I used to think that the money that we -- the good returns we made through selling power -- we had 2 big combined heat and power stations attached to the sugar factories, and we've always done very well selling electricity. I thought that with the growth of renewables, that would erode, with the growth of demand for electricity with AI installations, maybe that demand won't go away. But I think GLP-1s, I think you've got to kind of model maybe we'll lose a couple of percent of volume across Europe. Eoin Tonge: Maybe I'll also let Joana square the circle as to what you've been saying in terms of guidance. But just in terms of how we're thinking about the investment, I mean some of the things I've already spoken about in the presentation. So we're probably -- I'd say we're nudging up our digital marketing spend, not a huge amount year-on-year, I would say. Most of the kind of, I would say, investment is coming from a combination of investing in price through initiatives like major find and also marketing support around those initiatives and other sort of trade initiatives like, for example, rolling out more performance and so on. So that's where the investment in margin is coming from. Some of that is funded by well -- actually, I'll let you square the circle on guidance. But that's how we're thinking about the step-up on investment. Joana Edwards: Just to really square that circle. So margin, 11.9% for FY '25, as we know, anyway, we had there a one-off of GBP 20 million. So what we said is we'll be slightly below. It's not the margin that is the leading point. It is the creation of demand. So it is all those efficiencies we talked about, foreign exchange being a tailwind, particularly in the first half. We've got some efficiencies certainly from the work that we've been doing on supply chain. Eoin mentioned what we're doing on the central costs. But yes, the point is those will be used to fuel the drive of top line growth, which is what we want to focus on, first and foremost. So guidance, slightly below the 11.7%, which would be the underlying margin for FY '25. Adam Cochrane: Adam Cochrane at Deutsche Bank. A couple of questions on Primark. And just one little one on the separation, if I may. I'll get that one out of the way. Can we just confirm that both the food business and Primark on a cash flow basis are cash flow profitable and can fund their own investments? That's the only one on the separation. In terms of Primark itself, the marketing spend something we've been waiting for, for a while to reinvigorate the brand. You've done it in a few different markets. Can you just talk a little bit more about what success you've had with the marketing spend? And most importantly, how are you managing the message between fashionability and price? Because some of your advertising campaigns, I thought they look very trendy fashion led rather than price-led. Is that something that you're going to rebalance going forward. And then the franchise opportunity in the Gulf. Can you just talk a little bit more about what that looks like? Is it a model that can be expanded beyond the Gulf? Or is it something quite specific to the Gulf? Eoin Tonge: So yes, look, I think I think it's a mixed bag, I would say, on success on marketing spend. I just have to be kind of honest with that. And I think you're probably right to say that there has been a little bit too much on the fashion side of representation of the brands, but maybe not enough on price. I was interested when I was in Germany that we're looking at our brand campaign. It was very hard to see the price, actually. And fundamentally, we're a value disruptor, and then we've got to remind people of that all the time. So I think there probably is a little bit more balance we have to get there. It's like that's the classic challenge of a value operator, say, how do you kind of project the quality of the products, but at the same time, remind people of the unbelievable price. So I think that's what we've just got to do more and more of. I think there were elements of we can which showed that a lot of the comfort you got was actually about the unbelievable prices we had. But I agree that the top line advertisement looked a little bit too fashioning. So yes, more to do. I think it's fair to say the brand metrics, as I said in the presentation, that we've seen in the States are encouraging in awareness. I mean it was only -- we only did it in the New York area. So it's only in the New York area where we've had those sort of kind benefits. So look, we've got a great brand. We've got a great set of products, we've got to sharpen our comps. I think that's the message. I think franchise is a significant opportunity beyond the Gulf actually. I think the Gulf is proving what the model can do. But look, the Gulf is probably the most tried and trusted franchise market in the world. So we just have to be -- I don't want to be naive to know that this is where a lot of people do relatively well. So our brand is definitely resonating, it's very exciting with loads of opportunities in all the Gulf states actually. So I wouldn't -- we started in Kuwait because our partner is based in Kuwait. But obviously, we've got plenty of other opportunity outside of Kuwait. That's going to be the focus for the next period of time, but it does open up the opportunity. For sure, it does open up the opportunity. It's about getting good partners. But if you can get good partners in different regions, I think there's some real opportunity in the future. Richard Chamberlain: Richard Chamberlain, RBC. Three for me, please. Just one on Primark. What are the plans now for the Click & Collect offer, now it's been fully rolled out to the U.K.? I know you're planning to take that to other markets in due course. Second, on the sugar profit guidance. I think you guys are looking now for a small profit in fiscal '26. How much of that improvement from the loss, I guess, in the last year will come from lower beet costs? I seem to remember you were saying I think GBP 50 million or something before. Is that guidance still valid? And then I guess on the proposed separation. Any early thoughts, short about sort of amount of financial leverage that the stand-alone food business could support? I mean, presumably, it could theoretically take on some significant on-balance sheet debt in future. Is that going to be the plan or too early to say? Eoin Tonge: I do collect relatively quickly. I mean I think, look, the U.K., we obviously did a lot of testing U.K., right? But in that time, we obviously developed a capability. And so that's good. And as I said in the presentation, the metrics, financial; metrics and the customer metrics, are very compelling. It's fair to say. So we will be rolling it out into other countries. But the timing might take -- it might take a bit of time. There is some supply chain fixes we need to have a more kind of sort of sustainable, repeatable click and collect and online model. So a bit more to do on that. But actually, in some ways, I don't think we are any way defensive at the time we've taken to get where we've got to on Click & Collect. We've had to work it through and get the model right and then we'll take our time in other markets as well. George Weston: On sugar, the total beet cost this year will be GBP 50 million less than the total cost last year, but the average selling price will be lower and we'll offset all of that just about. We have multiyear deals, a number across a chunk of our volume. And as the this year -- actually, year-on-year, the price has gone up slightly, but more of the high-priced contracts have rolled off. So that's what's going on in U.K. beet. Look, I'm tempted to say we can't tell you anything about kind of leverage ratios and stuff like this in a business that we haven't decided to create yet. So perhaps I'll stop there. I'd just remind you that the same majority shareholder is going to be in the same position in both. And you can look back and think about how any majority shareholder thinks about leverage. Unknown Analyst: The first one is also on the separation, but it should be quick. I think it's pretty clear, but is it the case that you are only looking at the 2 options, i.e., a demerger and maintaining the status quo? There's no other strategic review of specific segments or anything like that? The second question is on Primark margin. I just wanted to clarify, what are the moving parts? Is it mostly going into gross margin? Or is it going into OpEx? And within that, do you think there's room to move on price, whether that's price mix, the hero products that you mentioned with wow, products at wow prices, et cetera? Do you think there's movement around price? And then the final question is just on the cash return. Obviously, there's some volatility in the buyback over the last few years now. In hindsight, do you think it would have been better to stay at a GBP 450 million run rate and deliver consistent cash return? Or do you think you will follow basically earnings and the cash flow going forward? Joana Edwards: So the margin tailwinds, both the gross margin level and operational efficiencies as well, we've talked about the move on some of the central functions into our GS. But we also have got some efficiencies on the supply chain, on stores. Those stores are still driving some of those efficiencies. FX is going into the gross margin. So there are different components, both in terms of the gross margin and the operational margin. But as we said before, it is not about the margin. It is how we use those to drive the top line. Eoin Tonge: I would basically on room on price. I mean, I think, look, we're not going to invest in prices for the sake of investing in price, right? Like I think you have to be quite targeted to where you're going to invest in price. I think we will over the next 24 months invest in price, so give me 24 months, not to be a guidance point. But it needs to be targeted and needs to be focused. Joana Edwards: Sorry, just before the cash returns and the volatility in the share buyback, I think our capital allocation policy is quite clear. If we got enough cash, then we will look at distributing some of that. So having a GBP 450 million doesn't tie in with our capital allocation policy. We had less cash at the end of this year than we had at the prior year, GBP 250 million feels right, even though we were at 1x. Geoff Lowery: Geoff Lowery, Rothschild & Co Redburn. Can you just step back about Primark for a minute and help us understand what has sort of sat behind the slightly lackluster LFL? Is this items into basket? Is this footfall? Is this particular category? And you've drawn a distinction between price and price perception, which is a really interesting one. Which of those is the bigger issue in terms of what your data says about the business? And I guess that plays into the sort of ultimate question here, which is, your margin has mostly recovered the pre-COVID type levels. The sales densities nominal have been under some pressure. Is that the right shape do you think over time for a discounter and a price-led strategy with your evolving geographic mix? Eoin Tonge: That's lots in there question. I think it's a bit of at all actually in terms of what have been impacting like-for-like. Baskets have been tough, I think, pretty much across all markets. Where we've seen creeping ASP through price, it's being offset by units per transaction, which means that consumers have sort of capped at their spend level. So we've definitely seen that and some of that's been a bit more extreme in the countries where it's been tougher, right? I think footfall has also been a bit of a challenge in certain places. And again, it's been a bit -- I think there's lots of factors to that. Some of that is market, some of that is our positioning into the marketplace. And then I think we've had some headwinds on categories. Last year, particularly the lifestyle categories have been tricky. And I think womenswear up until kind of more recently has been tricky as well. So I think it's been a bit of everything. So that would kind of suggest that it's kind of market and us, right? And I'm trying to focus on what we can control and as I said before, I still believe we've got the right proposition, just how we execute and communicate against it is going to be key. I think that's a really good -- I mean, that's a tough question because the answer I think, is nuanced by market. And this is where I think we've also got to get a little bit better as sort of how we're deploying our approach by market. I mean, the U.K. is obviously our more mature, most mature markets. So you always have your frame of reference around that. But I think actually, we can be continuously more price-led, I think, in certain other markets. And we've still got quite a lot of operating leverage to go after. So I think it's -- I have to be a bit more kind of nuanced in terms of my answer and be a bit more kind of -- we have to understand exactly how the best win in each of the markets that we operate in. I still think we can. There are certain markets that are just going to be tough, like Germany. We've talked about Germany before and it's not going to be a big future for near-term future. It might be in the medium to long term, but it's not a big near future. That being said, we're opening up our first store in Germany for the first time in a couple of weeks' time. So I'm going there because we still believe in the future of the market, but it's a tough market. So anyway, it's a long answer to a very interesting question. Hopefully, that helps. Clive Black: Clive Black from Shore Capital. A couple if I may. Firstly, on food, notwithstanding the separation, is there any parts of the assortment or the portfolio that you still feel need some care and attention after the busy year you just had? And then around future CapEx. Firstly, you made a fantastic statement about plants returning in 50 years, we'd probably 6-feet under well before that. But in terms of returns on your food investments, what thresholds are you looking for in that respect? And maybe highlight some of the big projects for the current year? The reason I asked that is you said you've gone through quite a hump of food investment, but still the group is looking at GBP 1.2 billion of CapEx or thereabouts. And then lastly, just on Primark. How do you characterize the U.S.A. in terms of its maturity profile? Some years ago, this was the sex and violence of ABF. Where do you see the States today for the business? George Weston: I don't think I'm portraying too many secrets in saying that we sign off CapEx projects at a minimum of 15% year 3. That's certainly the start. We then start to ask whether we believe it. And look, I mean, we know in some of these very big projects to get to settled state output can take a while. But really what we've been looking at in all these projects is long-term competitive position, while I talk about 50 years. It's why -- we wouldn't have done Tanzania if it hadn't been for the brand metrics. We're supporting that. Similarly, Australian developments are on the back of the positions that we've already got. Where do we head our portfolio? Look, I don't want to just talk about the bad stuff. I want to talk about the good stuff, too. I really do, would love to have a longer session with a group of fellow-minded people about the potential for Primark or our enzyme business or the health and -- the position or what we think we can do with Ovaltine over the years. There's so much there that I think is underappreciated. Yes, look, there are always problems. We've lost a major account, as you all know, in our Animal Feed business, we'll get on and do something about that. But really, I think the better use of all our time is accelerating the growing bits, the attractive bits and making sure that you kind of prevent bad stuff from happening again. Yes, of course, we've had to take some action on things like Vivergo on Spanish sugar. But really the future of the food group is about growing the lovely bits, much more than it is about fixing the last few kind of headaches. It will come to fruition. We'll have the capacity expansion in yeast extracts, that's really good. We'll have the yeast plant in Northern India. The market is oversupplied at the moment, so we won't get an immediate return of that. We'll get the flour mill in Victoria complete, that will reduce our cost there and solidify our position in the Victorian market. We'll be a long way through the capacity expansion at World Foods Polish site. We'll have the sourdough plant up and running quite soon. We'll have the blending plant at enzymes done by January. What have I missed out? Was it the cross food? Ovaltine Nigeria. We have the most fantastic Ovaltine business, obviously, in Switzerland, to be Swiss is to eat Ovaltine in all its manifestations. The population of Switzerland, I think, is 11 million, which means that the Nigerian population grows by Switzerland every 15 months. And we have really good brand awareness in Nigeria. But we've never had a cost base to really access that market because we've been importing product tariff paid out of China. So that's an exciting one. Eoin Tonge: I think -- well, as I said, there's a lot going on in the U.S. I mean we are 33 stores. And I think for a maturity level in the U.S., that's pretty immature for a market the size of the U.S. Although we've been there 10 years with COVID slap bang in the middle of that. So I think this year is going to be an important year. We're going to open up more than 10 stores, including Manhattan. We're going to do a little bit more brand marketing as well, particularly in the New York area to support that. There's obviously a huge amount of noise in the marketplace going on at the moment. So we have to kind of see how that all settles that. I hope it does. But I mean, like we're still -- that's still really early days. You'd like to think in kind of a U.S. growth plan. But we're not going to do anything stupid either. We've been kind of thoughtful. We've made some mistakes. We've learned from the mistakes. We're making money but we've got -- so we've still got to be pretty kind of thoughtful as to how we expand. So it could take another 10 years to get to maturity. But I still think the proposition works well there, if we can kind of get the awareness in the right way. Monique Pollard: It's Monique Pollard from Citi. I have 3 questions, if I can, they're all on Primark. The first one, Eoin, given your focus on the price investments being very targeted and specific, I was just interested in sort of how you think about the overall price landscape and whether or not you benchmark to secondhand clothing platforms, like Vintage as well, when you're thinking about that price proposition now, given the rise of those platforms? The second question was just whether you had any views at all on the potential for the closing of the de minimis loophole in the U.K. budget and what benefit that could potentially bring to the competitive landscape in the U.K. overall? And then the final question was just on second half U.K. trading. So obviously, a massive improvement there. And you've mentioned a lot of the focus you've put into the customer value proposition driving that. Just wondered if you had any views on whether the competitive landscape, so M&S and the cyber issues that have been well understood, had, had any benefit there or weather benefits, et cetera? Just trying to understand sort of how much you think was external factors versus your own internal? Eoin Tonge: The overall pricing landscape, I mean, it is interesting, actually, we haven't changed our pricing that much this year to reduce pricing to make sure we're still at the lowest entry price point. So that's demonstrating that it's not a very competitive market from a pricing perspective. We don't benchmark to the secondhand market. Maybe we should, but I think it is quite a different market. I mean, we look at it quite a lot, but we don't benchmark to it. I mean a lot of product on vintage in the U.K. is Primark. So it's going to be hard for us to benchmark to that one. The pricing has been more competitive, I would say, in Europe. So I think that's where we see more kind of pricing pressure. In H2 in the U.K., I think I'm going to be a bit more bullish and say it's all to do with us rather than to do it -- it's always to do with the external market. But the impact of M&S and it was more a switch between M&S and Next than it was elsewhere. And I think we just executed better. George Weston: De minimis, gee, we had hoped to see some actions taken in the budget. The Europeans are well on the way to close the loophole, Americans have done it. And we've been working very hard to provide the treasury with information about the value add of High Street versus the value-add of this method of trading. Also we'd point out that given the closure of parts of the U.S. market, the rest of the world is getting a lot of pressure out of Chinese manufacturers. And we really should be taking steps to preserve our own position. So I hope so. But until we see the budget, it's likely to be one -- sorry, if it came through the one nice thing out of the budget amongst a bunch of things that perhaps weren't cyber to you. Alexander Richard Okines: Warwick Okines, BNP Paribas. Just a similar question to Monique's, but looking at Europe. Eoin in particular, I was wondering if you could just reflect on the sharp decline in like-for-likes in the second half in Europe? How much of that do you think was you versus the market? Was there a particular change in cannibalization effects or deliberate cannibalization effects in H2? And what does that mean for European like-for-like looking forward? Eoin Tonge: Look, I think most markets in Europe are feeling the pinch. I mean if you look at all the metrics about European clothing markets, they're all struggling at a market -- like high-level market level. And they're all competitive, right? It's not like there's a sort of a new competitive kind of theme in European markets, they are all competitive. I think we've had a bit of cannibalization. I think you probably would have quantified the kind of 1/4 of the impact is that like -- I thought you don't want me to say this, but there have been some weather impacts, like particularly Iberia quite struggled in the second half of the year. And I think places like France, I think have become more competitive actually. So back to my answer, I'm not more competitive. I think are very competitive, and a bit tougher, particularly in this kind of tougher environment. So it's a bit of everything, to be honest work, like I have to be -- it's a bit of everything. And it just goes back to the same thing again. We just got to execute well. The proposition is good, we've got to execute well. But I think European markets are going to just take a little bit longer to recover. Sreedhar Mahamkali: Sreedhar Mahamkali from UBS. Just to build on a couple of questions earlier, maybe on Primark again, sort of 3 questions, I guess. The U.K. is where you spent a lot of time. I think you've talked to a lot of initiatives to reinvigorate the Primark there. Does it give you confidence you can actually now see sustained positive like-for-likes in the U.K. over the coming year, 2 years sort of time period? Otherwise what should we be looking for in the U.K. as a proof of the efforts you're making continuing to deliver? That's the first one. The second one, I think you've talked about cost optimization, clearly also talking about investment for growth. I guess the question is, at Primark level sustained growth in like-for-like terms means what in terms of operating margin? Is a mid-11 sort of margin consistent with healthily growing like-for-likes in the business, how should we think about it? And again, third one also on Primark. Is the medium-term CapEx what we've just seen today, GBP 497 million, GBP 500 million, something that we've seen today, is that a good run rate to think about for Primark CapEx? Eoin Tonge: All good questions. I think U.K. like-for-like, well, I mean I think you should measure us on U.K. like-for-like. Look, I think there's a lot still to go after in the U.K. So I don't -- I'm still kind of optimistic about where we can go in the U.K. We've only just rolled out Click & Collect. All of the initiatives that I talked about here, there's more to come on all the initiatives that we talked about, performancewear, more coordination, et cetera. So I think we can -- like we shouldn't be trying to aspire to get to more sustainable like-for-likes in the U.K. We still got like -- I mean, our brand is phenomenal in the U.K., the brand awareness, the consideration, all that sort of thing. So there's still a lot to go after. I think margin, I think, we would say around these levels. I don't think it's around these levels feels, we can kind of make the model work for sustainable like-for-likes. We always have said before, which we still believe is that the margin is the outcome. But the strategy is to drive the like-for-likes. But around these levels feels right. And then CapEx, yes, I think at a similar level. I think similar levels, although there's sort of -- franchise, obviously, is quite a capital-efficient way of expanding. So there might be a bit of give from that. I think what the take might be more investment in digital. So I think that's similar levels is probably okay for now. George Weston: I think the depot spend will be similar, too, for a little while, yes. Eoin Tonge: And some of that's actually also to support digital as well. Joana Edwards: Where we'll see the decrease side is where we hit the bar. This year, still same level and then starting to go down a little. George Weston: Is there anyone online? No, there's no one online. Thank you all very much for coming. And we've got some pressies for you all by the way of thanks, little bribe. And if not before, we'll see you next year. And in the meantime, it's a bit early to say, happy Christmas, but we're getting there. Thanks a lot. Joana Edwards: Thank you.