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Operator: Ladies and gentlemen, greetings, and welcome to the American Homes 4 Rent Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Nicholas Fromm, Director, Investor Relations. Please go ahead. Nicholas Fromm: Good morning, and thank you for joining us for our third quarter 2025 earnings conference call. With me today are Bryan Smith, Chief Executive Officer; Chris Lau, Chief Financial Officer; and Lincoln Palmer, Chief Operating Officer. Please be advised that this call may include forward-looking statements. All statements other than statements of historical fact included in this conference call are forward-looking statements that are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected in these statements. These risks and other factors that could adversely affect our business and future results are described in our press releases and in our filings with the SEC. All forward-looking statements speak only as of today, October 30, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. A reconciliation of GAAP to non-GAAP financial measures is included in our earnings press release and supplemental information package. As a note, our operating and financial results, including GAAP and non-GAAP measures, are fully detailed in our earnings release and supplemental information package. You can find these documents as well as SEC reports and the audio webcast replay of this conference call on our website at www.amh.com. With that, I will turn the call over to our CEO, Bryan Smith. Bryan Smith: Welcome, everyone, and thank you for joining us today. 2025 is quickly coming to a close, and our industry-leading results continue to reinforce the benefits of the AMH strategy, which is centered around portfolio optimization, operational execution, and a prudent approach to capital management. During the third quarter, we saw solid contribution from all areas of the AMH platform, driving Core FFO per share growth of 6.2%. Due to our strong third quarter results and updated outlook on the full year, we increased our Core FFO per share guidance by $0.01 to $1.87 at the midpoint, representing growth of 5.6%. In this last stretch of 2025, our focus is on building occupancy and gaining momentum to position the portfolio for strength heading into 2026. Fundamentals in the single-family rental industry continue to benefit from favorable population demographics within the millennial cohort and a growing need for high-quality housing. The AMH portfolio continues to capture this demand given our portfolio's high-quality assets in superior locations with a focus on highly desirable single-family detached homes. Turning to the third quarter. We delivered solid Same-Home core revenue growth of 3.8%, driven by Same-Home average occupied days of 95.9% and new, renewal, and blended rental rate spreads of 2.5%, 4%, and 3.6%, respectively. On the expense front, the team's focus on controlling the controllables kept Same-Home core operating expense growth muted at 2.4%, leading to Same-Home Core NOI growth of 4.6%. As we exited the third quarter, we saw a tapering of activity that drove October Same-Home Average Occupied Days to 95.1%. Preliminary new lease spreads of 0.3% were balanced by continued strength in renewal rate growth of 4%. Given the heightened focus on monthly updates, it is important to mention that our internal dashboards indicate that we have reached an inflection point in seasonal leasing activity. Leasing velocity has improved over September levels, and this, coupled with benefits from our lease expiration management initiative positions us to close out the year with momentum. Turning to our growth programs. We remain focused on portfolio optimization and prudent capital allocation. This year, we are on track to deliver approximately 2,300 homes, of which 1,900 are wholly owned. As a reminder, development is being funded by internally generated cash, incremental debt capacity from growing EBITDA, and recycled capital from our disposition program. Despite the headlines of a slowdown in MLS activity, we continue to see great success selling nearly 1,200 homes to end-user homebuyers year-to-date. This enables us to accretively deploy disposition proceeds into development, driving residential leading earnings contribution outside of our Same-Home pool while also continuing to improve the quality of our portfolio. As we begin to shift our focus to 2026, we expect a similar number of deliveries from the development program next year, maintaining strategic sizing of the program to be funded with internally generated capital and incremental debt capacity. Outside of development, we continue to review thousands of assets each month across all of our markets, but bid-ask spreads are still too wide considering the current cost of capital. To close, our strong year-to-date performance is a direct result of the enduring AMH strategy and outstanding execution from our teams. Our industry-leading Core FFO growth guidance reflects earnings contribution from all areas of the business and maintains our position at the top of the residential sector. With that, I'll turn the call over to Chris. Christopher Lau: Thanks, Bryan, and good morning, everyone. I'll cover three areas in my comments today. First, a review of our quarterly results; second, an update on our now fully unencumbered balance sheet; and third, I'll close with commentary around our 2025 guidance, which was increased for a second time this year in yesterday's earnings press release. Starting off with our operating results. This quarter was another example of the power of the AMH strategy and our ability to create value and grow earnings across all areas of the business. For the quarter, we reported net income attributable to common shareholders of $99.7 million or $0.27 per diluted share. On an FFO share and unit basis, we generated $0.47 of Core FFO, representing 6.2% year-over-year growth and $0.42 of Adjusted FFO, representing an impressive 9.1% year-over-year growth. In addition to our strong execution this quarter, we've now received the majority of our final assessed property tax values, which landed favorably compared to our initial expectations in several states, notably Texas. Additionally, the team was highly active on the appeals front this year, filing over 24,000 individual appeals with a record level of success. All combined, we now expect full year 2025 property tax growth to be in the high 2% area, which has been positively reflected in our updated full year outlook that I'll talk about shortly. Turning to investments. For the third quarter, our AMH development program delivered a total of 651 homes to our wholly owned and joint venture portfolios. This was on track with our expectations and continues to demonstrate our unique ability to accretively redeploy capital from our disposition program. During the quarter, we sold 395 properties, generating approximately $125 million of net proceeds at an average economic disposition yield in the high 3%. Next, I'd like to turn to our balance sheet and recent capital activity. At the end of the quarter, our net debt, including preferred shares to adjusted EBITDA was down to 5.1x. Our $1.25 billion revolving credit facility had a $110 million drawn balance, and we had approximately $50 million of cash available on the balance sheet. Importantly, as we announced previously, during the quarter, we paid off our final securitization 2015-SFR2. Our balance sheet is now 100% unencumbered, marking an exciting milestone in AMH's history. Additionally, all debt other than our credit facility is fixed rate, and we have 0 maturities until 2028. And next, I'll cover our updated 2025 earnings guidance. As I mentioned earlier, we now expect full year same-home property tax growth in the high 2% area. And when combined with our team's continued execution, controlling the controllables on expenses, we have lowered our full year Same-Home Core expense growth expectations by 50 basis points to 3.25%. In turn, this translates into a 25 basis point increase to the midpoint of our full year Same-Home Core NOI growth expectations to 4%. And when further combined with our modestly improved outlook on full year net interest costs, we have increased the midpoint of our full year 2025 Core FFO per share expectations by $0.01. Our new midpoint of $1.87 per share now represents a year-over-year growth expectation of 5.6%. And before we open the call to your questions, I'd like to highlight that 2025 is on track to be a perfect demonstration of the strength of the AMH strategy. Our relentless focus on portfolio optimization and operational excellence is expected to drive an impressive 4% growth in Same-Home Core NOI this year, while notably also expanding Core NOI margins. And on top of Same-Home, this year, we expect an incremental 160 basis points of Core FFO per share growth contribution driven by our prudent approach to capital management, including the balance sheet, capital recycling, and our development program. All told, our full year expected Core FFO per share growth now leads the residential sector by hundreds of basis points and once again demonstrates the power of the AMH strategy. And with that, we'll now open the call to your questions. We're out of respect for the crowded earnings calendar. We're going to limit the initial queue to only one question. To the extent we have time, please feel free to rejoin the queue for follow-ups. Operator? Operator: [Operator Instructions] Our first question comes from Juan Sanabria with BMO Capital Markets. Unknown Analyst: This is Emily on behalf of Juan. I wanted to ask you following the shift in your lease expiration strategy to front-load the expirations in the first half of the year, how has that change impacted occupancy and new lease trends in the third quarter? And as we move through the fourth quarter, how should we think about seasonality compared to last year in terms of both the new lease and blended rate growth? Lincoln Palmer: Thanks, Emily, for your question. I appreciate it. We've done a lot of work this year on the lease expiration management program. As we mentioned in previous meetings, we spent most of the year making large shifts in expirations from the back half of the year to the first half of the year. It's playing out extremely well and about as we expected. As we moved out of third quarter and into fourth quarter, we're going to start realizing the peak of those benefits with the lowest number of expirations. That should allow us to build a little bit of occupancy into the end of the year and to set ourselves up well for 2026. Christopher Lau: And Emily, Chris here, if you want to see how it's actually translating through in a couple of other places, knock-on benefits to our numbers. You can see that turnover rate was down, comping positively 60 basis points year-over-year in the quarter. That's a function of optimizing of lease expirations. And then in turn, that enabled the team to really execute well in terms of controlling the controllables. And as you can probably see from the print, R&M in turn for the quarter grew just a touch over 2%. Operator: The next question comes from the line of Jamie Feldman with Wells Fargo. Unknown Analyst: Thi's is Connor on with Jamie. The Midwest markets continue to outperform. Do you expect that to be sustained into year-end? And could this outperformance continue into 2026? Or would you expect some reversion between the Sunbelt and Midwest regions? Lincoln Palmer: Thanks for the question, Connor. I appreciate having you on. We continue to see great strength in the Midwest. We think it's due to good underlying fundamentals. Midwest has a great quality of life, good cost of living, still relatively affordable from a housing standpoint. So we think the long-term fundamentals in the Midwest will continue to support the diversified portfolio in a positive way. It's possible that there could be some divergence between the different markets as we continue to resolve some of the issues across the different areas. But so far, we're very happy with the Midwest and it's contributed very well to the portfolio, and we don't expect that to change anytime soon. Operator: The next question comes from the line of Eric Wolfe with Citi. Nick Kerr: It's actually Nick Kerr on for Eric this morning. So a question on the same-store revenue growth. If you guys have done 4.2% year-to-date, it seems like you're implying a pretty big deceleration in 4Q. So I just wanted to understand what's kind of driving that decel, whether that's worse fee income, higher bad debt, just kind of the puts and takes there. Christopher Lau: Sure. Nick, Chris here. Look, I think a couple of different thoughts come to mind from a timing perspective. The first of which has to do with the timing of last year's leasing spreads. And in turn, how those are earning into this year. If we all recall, blended spreads in the first 9 months of last year were running well north of 5% before moderating into the low 3s in the fourth quarter of 2024, which you can then see flowing through into our run rate of revenue growth by quarter this year. That's one. Two is timing of fees like we've been talking about all year. As we know, a good portion of our fees are related to leasing volumes, which we strategically have accelerated into the earlier parts of the year given the lease expiration management initiative, which is great in terms of aligning leasing activity with leasing season, but also means that fourth quarter fees will likely comp a little bit negatively year-over-year. And then finally, look, we are very aware that it's somewhat of a choppy residential environment out there. You can see it across many of the other residential peers reporting this week. And so we also just want to make sure that we remain prudent in the guide. But if we zoom it out and think about the broader context, I'd say that we are extremely proud of our full year top line outlook in the high 3s, 3.75% at the mid, which, as we all know, is head and shoulders above the rest of the residential landscape and especially impressive when you think about our expense growth in the low 3s, which I would remind us all means that we're expecting to expand NOI margins this year. Operator: The next question comes from the line of Steve Sakwa with Evercore ISI. Steve Sakwa: Bryan, I guess I wanted to come back to the comments you made about the fourth quarter. I appreciate the early color on October. But I guess you did make a comment that said you reached the seasonal low. So I guess you're sort of suggesting that November, December trends may be better, like these might mark kind of the worst monthly trends for the quarter. A, is that kind of the case? And then just when you kind of wrap everything together, could you or Chris, just maybe remind us about the puts and takes as we think about next year, either the one-timers that helped this year or some of the one-timers that might have hurt this year that might help growth next year? Bryan Smith: Yes. Thank you, Steve. I was really trying to give commentary to put the performance into context. As we exited the Labor Day period, which is traditionally pretty slow, we normally see a pickup in September, kind of the second half of September. And that pickup was a little bit delayed. This is in terms of foot traffic and the other metrics that we're measuring from a leasing perspective. We saw that pickup in October, which gives us confidence in the momentum that we're carrying into November. And if you couple that with the strides that we've made on the lease expiration management initiative, where we're going to have our lowest number of move-outs in the month of November, it really screens well for us to pick up occupancy and position the portfolio well as we enter 2026. So I think you're right on in terms of our outlook for November and December having a really positive effect on occupancy with the objective of positioning ourselves well to take advantage of the returning pricing power that we'll see in next year's spring leasing season. Christopher Lau: Yes. And then, Steve, Chris here for the second part of your question, I would totally underscore the importance of that momentum that Bryan is talking about carrying into the new year. We joke all the time that spring basically starts now heading into the end of the year. But it's just a couple of directional thoughts as we're all beginning to kind of frame things for 2026. The building blocks, like we've talked about before, if we think about the guide this year and our expectation for blended spreads in the back half of 2025, that would imply '26 earn-in somewhere just a touch under 2%. Most likely for next year, we don't expect loss to lease to play a major role in '26 revenue growth. And then the remaining question is market rent growth for next year, where, obviously, a little bit too early for us to express a view. But if you'd like an early read from, say, some of the John Burns data as an example, he's actually expecting market rents to reaccelerate a touch going into next year. His latest data for 2025 is that he was expecting market rents to grow 75 basis points or so this year. He sees that going up into the 1.5% to 2% area next year. I just give that as kind of a directional reference point with the reminder that we typically outperform Burns's average estimates within the AMH footprint. Operator: Our next question comes from Haendel with Mizuho Securities. Haendel St. Juste: I guess I'm curious how you're thinking about stock buybacks today versus what you're yielding in the development and the funding capacity on your balance sheet. I guess I'm curious if you're positioned to perhaps do both. Christopher Lau: Sure. Appreciate it. It's a good question. It's Chris here. Look, stock buybacks are definitely something that we're watching very closely, and we look at them just like any other form of investment as we're ultimately endeavoring to maximize shareholder value over the long term. With that said, we are very mindful that stock buybacks can be a little bit of a double-edged sword as we think about them in terms of increasing leverage and then reducing future capacity to create value through incremental growth. But look, at the right levels, buybacks can definitely make sense. I would remind you that we have an active share repurchase program already in place. We have been active on it in years past at the right levels. And to your question about capacity, we have close to half a turn of opportunistic leverage capacity on the balance sheet. So again, I think the key is at the right price and appropriately sized buybacks could definitely make sense, again, at the right price as a complement to the value that's being created by our development program. Operator: The next question comes from Jeff Spector with Bank of America. Jeffrey Spector: Bryan, you talked about portfolio optimization. I know that you've had a number of initiatives underway this year, last year. Is there anything new or changing into '26 that we should be aware of that could further help whether it's grab again market share in terms of searches or AI, anything else that would be new, helpful, beneficial, I should say, next year? Bryan Smith: Yes. Thanks, Jeff. You nailed a number of our initiatives. From an asset management perspective, we've become a lot more sophisticated in the way that we're analyzing our existing assets and the type of rigor that we're putting into the areas that we're optimistic about investing into and growing into in the future. So the asset management function has been -- has done a fantastic job of taking assets out into the disposition market and repositioning those into higher yield, higher growth areas. So we got that part of the equation. And then the initiatives that we're in the midst of rolling out, some actually already have rolled out from an AI perspective are going to further help that operational advantage that we see. So we started, as I've talked about in the past, with a focus on kind of the front end of the resident life cycle, which is the leasing cycle and implemented a really effective AI tool that not only is a better -- creates a better experience for the prospects, but it's also a lot more efficient for us internally. It was something that we rolled out, customized and are starting to see the benefits of it from our leasing platform. As we continue to think of other ways that AI can contribute in the near term, we've talked about improvements to the communication platform, which is helpful from a number of different angles, probably will show up most in the way that we renew, retain our residents. But the way that we're communicating with them spans the entire spectrum of the way that they order services and submit maintenance requests and really opens up kind of the next level of communication, which is a key preference from their side. There are a lot of other smaller initiatives that are coming through. But in terms of what we're going to look into next year, we'll see the full power of the improvements we've made on the leasing side. We've improved our access solution I think we've become more precise on where we're investing. This feedback is also supporting the importance of the diversified portfolio footprint and the focus on single-family detached. So there are just a number of good things that are going to continue to play out in 2026 from that perspective. Operator: Our next question comes from Adam Kramer with Morgan Stanley. Adam Kramer: I just wanted to ask about what you guys are seeing in terms of supply. And I think there's sort of a few different buckets of it, right, BTR supply versus what's happening in the existing home side, shadow supply, maybe what's happening with new homes from homebuilders as well. So maybe just what you're seeing in sort of each of those buckets? And maybe how does that compare to 6 or 12 months ago? Lincoln Palmer: Yes. Thanks, Adam. This is Lincoln here. Look, we start with supply on a local level. I think it's easy to talk about it on a national level. But to get the real picture, we have to kind of zoom in a little bit to what's happening in each of the local markets. And we acknowledge that it's still difficult to find a lot of information that may be more available in other more developed platforms like the multifamily tools. But what we're doing is we're starting with our internal data. We're combining that with some external sources. We've got good information from publicly available stuff like Zillow and Burns and then some other proprietary sources that are flowing into our revenue optimization model. There definitely is an impact, I think, from the conversions of for sale to for rent. It's a little bit difficult to nail down exactly what that is, but you can see where that may be impacting our portfolio with a little bit of rate pressure and a little bit of occupancy. But we have a lot of markets that are still running extremely well. We talked about the Midwest a little bit earlier, some of our Western markets, Salt Lake City, Seattle, some of those are doing extremely well from a supply standpoint. It does seem that BTR and multifamily are off-peak deliveries. We'd expect those to continue to improve into 2026. The rate at which that happens probably depends a little bit on the level of demand that's in the marketplace, but we do expect it to get a little bit better. Operator: Our next question comes from David Segall with Green Street. David Segall: I was curious if you could provide any insight into the pricing for smaller portfolios in the market and maybe the opportunity set for consolidation in the space. Bryan Smith: Yes. Thanks, David. This is Bryan. The pricing for smaller portfolios is relatively consistent with what we've seen on the MLS side and on the National Builder side. I think there's still a little bit of a disconnect with owners expecting to be able to get kind of end user homeowner pricing in terms of their market value expectations. So we haven't seen a lot of change there. What we've looked at is generally characterized by high 4 caps, maybe 5 at best. But there's still a little bit of a gap between their pricing and what we would need to be able to do anything at scale. Christopher Lau: And David, Chris here. Pricing aside, like we've talked about before, looking forward, we're very optimistic on the number of those types of portfolio opportunities that are out there. And one of the things that we especially like about them is the ability to uniquely unlock value by bringing them on to the AMH platform, right, which is just what we have done and are doing, creating value in that portfolio we acquired towards the end of 2024. Operator: Our next question comes from Linda Tsai with Jefferies. Linda Yu Tsai: On the improved NOI margins in '25, how much of this is from lower churn versus operating efficiencies? Like what are you doing to improve upon controlling the controllables? And what does this trajectory look like as you move into '26? Christopher Lau: Sure. Chris here. Why don't I start? And then if there's anything else that Lincoln wants to fill in from an operational perspective, he can chime in, too. I would say it's a function of a couple of different things. One, of course, it starts with good strength in the top line, solid and full occupancy in the 96% area this year, good strength in spreads over the course of the year in the high 3s, ultimately translating into the top line growing high 3s. Beyond that, it is very much a function of just, like you said, controlling the controllables on expenses. The team is doing a great job there executing over the course of the year. And for this year, we're getting a little help from timing of property taxes as well. So as we think about looking forward, I would say last year, 2024 and this year 2025 are both good examples of the opportunity that we've been talking about in terms of longer-term ability to continue to creep and grind margins higher, right, given the opportunity to continue to maintain strength in the top line. Longer term, we view this business as inflationary plus to the top line. And via all of the investments we're making controlling expenses, holding the line on expense growth at inflationary levels, maybe even a touch below as we execute really well, translating into continued opportunity for margin expansion year-over-year going forward. And again, last year and this year are good examples of margins creeping higher by tens of basis points per year. Lincoln Palmer: Yes. Thanks, Linda. This is Lincoln. As far as the ops side of the business, one of the things we haven't talked about for quite a while is our investments in our Resident 360 program. I think what we're seeing now is some returns on those investments that are continuing to pay dividends. As part of that initiative, we realigned our maintenance functions with the local markets where there could be better decision-making more quickly, provide better service to the residents and hold vendors accountable to scope and cost. That seems to be paying some dividends. And then the other thing that seems to be working very well is we're finding some synergies between the purchasing skill sets in our new development program and our property management programs that are continuing to keep our costs under control. So overall, we have optimism that as we continue to focus on the business and improve the different areas that we'll continue to see improvements. Operator: Our next question comes from Jesse Lederman with Zelman & Associates. Jesse Lederman: I want to clarify the comments made earlier about reaching an inflection point recently. Was that for occupancy? I know you reached 95.1% in October. So are you expecting the inflection and improvement through the rest of the year exclusively for occupancy? Or do you expect that to translate through to accelerating rent growth as well, which would, of course, be counter seasonal? And then anything you're doing to spur the inflection such as increased incentives or concession on vacant units? Bryan Smith: Jesse, this is Bryan. Yes. The inflection point commentary really was centered around what we're seeing on our dashboards from leasing activity. It starts with increased inquiries into our website, into our system, migrates into showings, applications and ultimately leases. The commentary included a commentary that October leasing was better than September. We're going to see that those effects in occupancy, especially coupled with, as I mentioned earlier, the lease expiration management initiative. So I would expect to see those benefits on the occupancy side. The rent growth will return in the spring leasing season next year, especially since we're going to be well positioned at that point. I appreciate you noticing too, on the concession side, we maintain this fantastic momentum on new development communities and getting those leased without the use of concessions. And then with the scattered site same home portfolio, concessions aren't a tool that we've employed. So what you're seeing is the actual pull-through results. Operator: Our next question comes from Brad Heffern with RBC Capital Markets. Brad Heffern: For the development program, can you talk about what the go-forward yield is today? And how do you see that evolving? Bryan Smith: Yes. Thanks, Brad. This is Bryan. The yield for 2025, we talked about that at the beginning of the year, and the expectation was that it was going to accelerate from the low 5s in Q1 into the mid-5s for the year. As we got into the spring leasing season, we're really pleased with the results that we saw and hope that maybe the mid-5s maybe even a touch better. But in light of the general conditions that we saw kind of exiting September, exiting the third quarter, it looks like that mid-5s might be just a touch lower for 2025. It's a function of really just short-term changes in rents. On the input side, the team has done a fantastic job of managing costs. So we're delivering these houses at construction costs that are consistent, at least flat over 2024, which is especially impressive in this environment that includes commentary -- daily commentary on tariffs and a lot of other moving pieces. So the delivery from the cost perspective has been very successful. We're on track with our number of deliveries that we said at the beginning of the year. So the development team has done a fantastic job executing. What we're seeing on the rent side is temporary in nature. As we look forward, we have good visibility in the environment as to what we're delivering in Q4 and into Q1. And I'd expect those yields to kind of be consistent with what we're seeing now. As we get into the spring leasing season, hopefully, we'll be able to accelerate those rents. Operator: Our next question comes from Jade Rahmani with KBW. Jason Sabshon: This is Jason Sabshon on for Jade. So CapEx came in a bit lower versus expectations. So curious what drove that? Was it the level of construction activity in your markets with reduced activity from some of the builders, lower multifamily starts driving better pricing with trade partners. Any thoughts there? And if you'd expect this trend to continue, would be helpful. Lincoln Palmer: Yes. Thanks, Jason. I think what you're seeing is a little bit of timing. There are some fewer move-outs in third quarter than there are in the first part of the year. So we need to keep that in mind. But overall, I would account most of the improvement to just continued vigilance in the stabilized portfolio to cost controls, controlling those controllables, which is our mantra in the back half of the year here. As I mentioned earlier, it's those impacts from Resident 360, the intentional focus on maintenance, the cooperation between the different groups in the company and probably a little bit of continued contribution of low-cost purpose-built single-family homes for our new development program that have lower cost profiles. So overall, I would call it intentionality that's driving that CapEx improvement. Operator: We have our next question from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: Just curious if you could give us any thoughts on regulatory updates, especially as you're about to kind of go through an election cycle. Bryan Smith: Omotayo, this is Bryan. From a regulatory perspective, it's been relatively quiet as it pertains to single-family rentals of late. We've internally taken the opportunity to get out and really tell our story with the local municipalities and government officials. And I think we've done a very good job of showing them what we're delivering into the communities, showing them that we're part of the solution from a supply perspective. And then you get a little bit higher level, there's just a lot of talk about federal government shutdown, immigration policies. From a shutdown perspective, we're really hopeful that our government leaders can find a solution quickly. In the near term, it hasn't had a lot of effect -- a direct impact on AMH. But we do have a couple of cases with some residents that have been affected, and we're working very closely with them to bridge those gaps. And then from an immigration perspective, we haven't seen any effect on the cost of our development program and the way that we're delivering the vertical construction cost, as I mentioned earlier. But over the long run, it's difficult to really put a finger on whether there's going to be any issues from a demand perspective for housing. So in a nutshell, it's been relatively quiet. We've been proactive in messaging and are just paying very close attention to what's going on at a macro level. Operator: Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to the management for the closing comments. Bryan Smith: Yes. Thank you for your time today. We really appreciate the continued interest in AMH and look forward to speaking with you next quarter. Operator: Thank you. Ladies and gentlemen, the conference of American Homes 4 Rent has now concluded. Thank you for your participation. You may now disconnect your lines.
Operator: Good evening, and welcome to Universal Music Group's Third Quarter Earnings Call for the period ended September 30, 2025. My name is Alex, and I will be your conference operator today. Your speakers for today's call will be Sir Lucian Grainge, Chairman and CEO of Universal Music Group; and Matt Ellis, Chief Financial Officer. They will be joined during Q&A by Michael Nash, Chief Digital Officer; and Boyd Muir, Chief Operating Officer. [Operator Instructions] As a reminder, this call is being recorded. Please also let me remind you that management's commentary and responses to questions on today's call may include forward-looking statements which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may vary in a material way. For a discussion of some of the factors that could cause actual results to differ from expected results, please see the Risk Factors section on UMG's 2024 Annual Report, which is available on the Investor Relations page of UMG's website at universalmusic.com. Management's commentary will also refer to non-IFRS measures on today's call. Reconciliations are available in the press release on the Investor Relations page of UMG's website. Thank you. Sir Lucian, you may begin your conference. Lucian Grainge: Thank you. Hello, and welcome to all of you for joining us today. I'm very pleased to report that for our third quarter, we once again continued to post strong financial results whilst also making significant advances on the implementation of our strategic plan. For the quarter, revenue grew 10% and adjusted EBITDA grew 12%, both in constant currency. Matt will go into greater detail on the numbers later. But before he takes the mic, I will focus my remarks today on 3 strategic areas. First, how we continue to propel our new and established artists' careers to new heights, including how we extend the value of their IP by bringing our artists' music and stories into areas such as feature films. Second, our work with partners to develop commercial and creative opportunities for artists, songwriters and fans, specifically in leveraging responsible GenAI technology. And third, our ever-growing presence in established and high-potential markets around the globe. I'll begin my remarks by highlighting just a few of the stunning successes our artists continue to rack up around the world. In the U.S., UMG had 7 of the top 10 albums for the third quarter, with Morgan Wallen, I'm the Problem at #1, and our publishing company had interest in 7 of the top 10 albums. And of course, there's Taylor Swift. What Taylor has achieved with her 12th studio album is literally breathtaking. The biggest first week in music history now belongs to The Life of a Showgirl, over 4 million U.S. and 5.5 million global album equivalent sales. The album shattered a slew of other records as well. By debuting at #1 on the U.S. Billboard album chart, Taylor now has the most #1 albums, 15 by any artist in the 21st century as well as the most #1 albums ever by a solo artist. I can't tell you how proud we are of her. The soundtrack for the animated film, KPop Demon Hunters on Republic continues its historic chart success, twice hitting #1 in the U.S. The lead single Golden has spent multiple weeks at #1 around the world, including 9 weeks in Australia and 8 weeks in both the U.K. and the U.S. It is also the first soundtrack album in U.S. history to have 4 of its singles in the top 10 of the US 100, all at the same time. Sabrina Carpenter's Man's Best Friend also debuted at #1 in the U.S., spent 2 weeks at #1 in the U.K. and hit #1 in 13 other countries as well. It's her second #1 album. And KPop Group Stray Kids album Karma is their seventh #1 album in the U.S., breaking the record for the most #1 albums by a group on the Billboard 200 chart this century. I'm excited about the progress I'm seeing that's happening in the U.K. market as well. Olivia Dean secured the #1 album spot and the #1 single, a feat that made her the first British female solo artist to claim both top spots simultaneously since Adele did in 2021. And also in the U.K., we're thrilled that Sam Fender was awarded the prestigious Mercury Music Prize for his third album, People Watching. That's the kind of artist development that we like. Something which means a great deal to us as a global company is we're thrilled to see several of our Japanese artists now beginning to gain traction globally. As you know, Japan is the world's second largest music market, but there's been a misconception that opportunities for local talent outside of Japan are limited. Well, I'm extremely proud to report that UMG is shattering that misconception in several ways. For example, BABYMETAL, the group released its first album after signing with Capitol in the U.S. in August. The album debuted at #9 on the Billboard 200, making them the first Japanese group ever, ever to reach the top 10 in the U.S. in partnership with our Japanese company. Here's another example, the recent tour by superstar Ado in 33 cities across Asia, Europe, the U.S. and Latin America, attracting 0.5 million fans, was also a historic first for a Japanese artist purely outside of Japan. And here is a third example of a Japanese artist gaining global traction. Fujii Kaze, his enormous success with his third album, released in September by Republic Records and next year, he's set to perform at Coachella. This is quite a major development. I've also believed that we can break more local talent from Japan around the world. I'm really thrilled to see this progress, and it's really, I think, what sets us out and defines as a creative company. Helping our artists reach new levels of success also means extending their IP in ways that deepen connections with their existing fan base whilst introducing their music to a new generation of fans. One way we do this is through film. For example, the documentary produced by UMG's Polygram Entertainment, offering an intimate look at the life and legacy of Mexican-American artist, Selena. The film was awarded at the Sundance Film Festival earlier this year and was acquired by Netflix, who has recently announced its November release. Amazon MGM Studios has picked up Man on the Run, another Polygram Entertainment documentary, exploring Paul McCartney's creative rebirth after The Beatles break up. Man on the Run will be released in select theaters and then hit Prime Video globally in February next year. It will coincide with tour dates across North America this fall as well as the release of his book, Wings: The Story of a Band on the Run. I've seen it. And it's special, thoughtful, dramatic and emotional. The last film I'll mention is Song Sung Blue from Focus Features. It stars Hugh Jackman and Kate Hudson as the Neil Diamond tribute band Lightning & Thunder. The film features performances from Neil Diamond's iconic songwriting catalog and opens in the U.S. theaters on Christmas Day. I'm not exaggerating when I say I could go on and on about many more of our other artists' stellar achievements and projects. But I'd like to shift gears and speak a bit about our strategic advances, starting with our work with partners to develop commercial and creative opportunities for our artists as well as their fans. First, I'm pleased to report that we have successfully concluded our third major Streaming 2.0 agreement, this one with YouTube, covering both recorded music and music publishing. The agreement includes all aspects of YouTube's various music services and platforms, embodies our artist-centric principles and drives greater monetization for artists and songwriters. And as part of our new YouTube deal, we've secured really important guardrails and protection for our artists and writers around GenAI content, which brings me to my second topic. We're seeing significant creative and commercial opportunities in GenAI technology, which is why UMG is playing a pioneering role in fostering its enormous potential in music. Our foundational belief is that artists, songwriters, music companies and technology companies, all working together will create a healthy and thriving commercial AI ecosystem in which all of us, including fans, can flourish. For several years now, we've been driving initiatives with our partners to put artists at the center of the conversation around GenAI. We struck artist-centric agreements, establishing foundations and parameters for innovation, new products -- sorry, innovative new products that will unlock the power of its revolutionary technology. And both creatively and commercially, our portfolio of AI partnerships continues to expand. You will have seen, I hope, yesterday's announcement that we have reached an industry-first strategic agreement with Udio, under which the companies settle copyright infringement litigation and will collaborate on an innovative new commercial music consumption, interaction and hyper-personalization streaming product. The new platform, which is expected to launch in 2026 will be powered by cutting-edge generative AI technology that will be ethically trained on authorized and licensed music and will provide further revenue opportunities for artists and songwriters and UMG. The new subscription service will transform the user engagement experience, creating a licensed and protected environment to customize stream, share and share music responsibly on the Udio platform. We also entered into an agreement and then a strategic alliance with Stability AI to codevelop professional AI music creation tools for creators of video, images and now music. The purpose of this agreement is to provide our artists and labels with an opportunity for direct feedback into the construction of professional studio music product that uses AI to generate music ideas and demos. As we've said all along, artists should be at the center of the AI conversation, and this agreement aligns closely with the objective. These advancements are made with both global and regional partners. For example, just last month, Universal Music Japan announced an agreement with KDDI, a leading Japanese telecommunications company that will establish a collaboration to use GenAI to develop new music experiences for fans and artists in that really important market. Even as we lead the way forward on creating commercial and creating opportunities with our new partners, we're also working closely with established partners on the AI front, which includes making sure that the safeguards are put in place to protect them and their work. Spotify recently announced critical steps they are taking to advance our artist-centric initiatives as they relate AI. We look forward to the products that will be introduced through this partnership. As I said, at the time of their announcement, it's essential that we work with strategic partners such as Spotify to enable GenAI products with a thriving commercial landscape in which artists, songwriters, fans, music companies and the technology companies can all flourish, as I've said. As we strike agreements with other companies, we will only consider AI products based on models that are trained responsibly. We're in discussions with numerous other like-minded companies, whose products provide accurate attributes and tools, which empower and compensate artists' products, both that protect music and enhance its monetization and the entire experience. Ensuring safeguards is also the reason we partnered with SoundPatrol, a company led by Stanford scientists. SoundPatrol deploys groundbreaking neural fingerprinting technologies for detecting copyright infringement in music, including in AI-generated works. Based on our experience with RAI Partners, and discussions underway with possible future partners, we can confidently say that AI has the potential to deliver creative tools that will connect our artists with their fans in groundbreaking ways and on a scale that we've never encountered. Further, I strongly believe that agentic AI will dynamically employ complex reasoning and adaptation, has the power to revolutionize the manner in which fans interact with and discover music. Imagine interacting with your favorite music through a sophisticated, highly personalized chatbot. We envisage that exciting possibility on the horizon. We see the bottom line like this. As we successfully navigate the challenges and seize the opportunities presented by new AI products and others yet to come, we will be creating new and significant sources of future revenue for UMG and our entire ecosystem artists and songwriters. Now I'd like to move on to another area in which we've recently made meaningful progress, and that is the expansion of our presence in established and high-potential markets. In Japan, we recently increased the majority stake we bought earlier this year in A-Sketch, the Japanese label and artist management business by acquiring from KDDI, its minority stake in the company. In August, we entered into a strategic partnership with Maddock Films, one of India's most prolific Hindi film production studios in its newly formed music label, Maddock Music. Under this partnership, Universal Music India is now Maddock Music's global strategic partner for future film tracks and other businesses and product offerings. The partnership deepens our presence in domestic film music, which is the largest music category in India. In Vietnam, Virgin Music Group formed a partnership with The Metub Company, Vietnam's leading digital entertainment and creator company. This innovative venture will focus on signing and servicing local talent and independent labels to help them grow their music, both domestically and internationally. In Ghana, for example, Virgin Music Group took another step in its ongoing mission to invest in Africa's music and creative scene by announcing a global distribution partnership with MiPROMO, one of Ghana's longest-serving creative media platforms. I'd also like to briefly mention a significant development for our business in China, Universal Music Greater China announced the appointment of Zhang Yadong, one of the most iconic producers in the Chinese music industry to the role of Chief Music Adviser at Universal Music China. Widely recognized as a visionary whose work had defined the sound of Mandarin pop for more than 3 decades, he's going to work along with UMG's worldwide infrastructure to introduce the next generation of Chinese artists to international audiences. We're extremely excited and committed about the moves that we've made in China. And we'll be investing and are investing in next-generation local talent. I'd like to close with this. The third quarter, whilst obviously just a snapshot, marked another great quarter where we delivered strong financial growth, drove exceptional success for our artists and songwriters, shape the future direction of our company with groundbreaking announcements and continue to expand our global footprint. The consistency of our performance, combined with the continued execution of the strategic plan demonstrates that with UMG's entrepreneurial energy, we'll continue to bring artistry and creativity of the world's most brilliant and beloved music makers that we have to every corner of the globe and at the same time, leaning into distribution and business models for the future in new and innovative ways. So on that, thank you, and I'd like to hand over to Matt. Matthew Ellis: Thank you, Lucian. I'm pleased to have joined a great business and team at such an exciting and promising time. And I'm equally pleased to be presenting our results for the first time this quarter. Q3 was another quarter of solid revenue and adjusted EBITDA growth at UMG as we continue to execute the strategy the company laid out a year ago at Capital Markets Day. On top of the continued strong predictable subscription growth we saw once again this quarter, our results also display our healthy breadth with multiple drivers of long-term growth as our strong physical and merchandising revenues reflect the opportunity to directly serve superfans. All of the growth figures I will discuss today will be in constant currency. UMG's revenue for the quarter of EUR 3.02 billion, grew 10.2% year-over-year while adjusted EBITDA of EUR 664 million grew 11.6%, with margin expanding 40 basis points to 22.0%. Recorded Music revenue grew 8.3% in the quarter with strong performances from the KPop Demon Hunters soundtrack, Mrs. GREEN APPLE, Taylor Swift, Sabrina Carpenter and Morgan Wallen, among many others. Within Recorded Music, our well-diversified subscription revenue grew 8.7% for the quarter. This result was driven largely by growth in subscribers. Within the top 10 markets, there was double-digit subscription revenue growth in China, Brazil and Mexico and high single-digit growth in the U.S. and we saw a double-digit or high single-digit revenue growth from 4 of our top 5 DSP partners. With healthy subscriber growth from a range of partners across both established and high potential markets and the monetization benefits of our Streaming 2.0 initiatives soon to follow, we remain encouraged by the trajectory of the subscription business. Turning to ad-supported streaming, revenue was largely flat against the prior year quarter. Growth continues to be challenged by the shift to short form consumption, which is not yet adequately monetized. We plan to continue addressing this through our deal negotiations. Physical revenue was better than anticipated, up 23%, driven by strength in Japan led by Mrs. GREEN APPLE and Fujii Kaze as well as initial shipments of Taylor Swift's latest album, The Life of a Showgirl. While physical revenue performance may be less predictable and have more seasonality than subscription revenue, it's important to note that over a longer time horizon, this is a growing business that reflects increasing demand by fans to own physical products, connecting them with the artists they love. Moving on to Music Publishing. Revenue grew 13.6% in the quarter with digital revenue growing 17%, driven by the strength of streaming and subscription, particularly in the U.S., U.K. and China. Performance income also grew 17%. Growth in both digital and performance revenue benefited from the inclusion of Chord and a major television studio business win in this year's results. In Merchandising and Other, revenue increased 15%, driven by the strength in the U.S. and U.K. This was a result of very healthy growth in touring merch revenue which was partially offset by a decline in D2C sales due to the timing of product releases. Our touring merch revenue strength this quarter was driven by the Weeknd, Morgan Wallen, Lady Gaga and Nine Inch Nails, amongst others. Now let me turn to adjusted EBITDA. As I mentioned at the beginning of my remarks, adjusted EBITDA of EUR 664 million grew 12%, and adjusted EBITDA margin expanded by 40 basis points to 22.0%, helped by revenue growth, operating leverage and cost savings from Phase 2 of our previously announced realignment plan. This was partially offset by the negative margin impact of the revenue mix, in particular, the strong physical sales and touring merch growth. We're very pleased with our results this quarter and excited by the momentum and opportunities that lie ahead. With improved Streaming 2.0 monetization just ahead of us and fans looking to engage with their favorite artists in new immersive ways, UMG is at the center of a healthy and growing industry. Thank you. Lucian, Boyd, Michael and I will now take your questions. Operator, please open the line for Q&A. Operator: [Operator Instructions] Thank you. Our first question for today comes from Peter Supino of Wolfe Research. Peter Supino: Matt, welcome, nice to work with you again. I wanted to start by asking you for your perspective on the physical business. Your comments stood out that you see it as potentially a growth business, and certainly, that's not the consensus among the investors. So I wonder if you could share any figures or thoughts that would help us extend that concept in our models? And then the second question, if you could just talk about the investment section of the cash flow statement. It's been elevated for the last couple of years, and we have some commentary from your Capital Markets Day that it will moderate in the next couple of years. Is that a good thing or a bad thing? Do you see that investment spend as high ROI or not more maintenance-oriented? Matthew Ellis: Yes. Let me start with the second question there around the investment section. And do I think that the investments in the business are good or bad thing? They are 100% a good thing. We have the business we have today because of the investments that the company has made across many, many years now. And the investments we're making are consistent with the strategy that we laid out, whether that's continuing to support our existing roster of artists or continuing to build out where we expand. Lucian spoke about our geographic expansion. We went into detail at Capital Markets Day about those plans, and you've seen us execute against that since then. So investments will continue to be an important part of the business as we execute on the strategy going forward. And I think you'll see that continue to be an important use of cash. And as we've discussed in the past, it is the first part of our capital allocation strategy is that investment in the business. In terms of perspective on the physical business, incredibly proud of the results that we've seen from our artists this quarter with the strength there. As you look at the fourth quarter, certainly, we expect to see good results. I would remind you that very strong comps from the fourth quarter in Japan a year ago and the prior year that we'll be coming up against. But that demonstrates that this continues to be a growing part of the business. And you ask if it's a good thing or not, absolutely is a good thing. What our fans are showing us is when they have opportunities to engage in many different ways with our artists, they want to do that and they will spend money doing that. So what the team has done is find ways to meet that demand that is inherently out there. So yes, you should expect to see continued growth in the physical business. Boyd, would you like to? Boyd Muir: Yes. Thanks, Matt. Maybe just to add a little bit about the -- what you're inferring in the question, I mean there's 2 pieces to this, the old-fashioned format transformation that's going on. The reality is the CD in most of the markets in the world is very much a declining format. But we're talking about something really quite different here. This is -- this business is morphing into how we connect the fan together with the artists through a physical product, the most -- 2 most significant examples of that so far is the growth in vinyl and the collectible aspect of that. As we've said before, 50% of vinyl that is sold is sold to people who do not own record players. So this is about a collectible. And clearly, the growth in merchandise is just another aspect of all of this is connecting the fan together with the artist. So it's that aspect that is growing. It's not a format evolution of the audio format in itself. And a very significant part of this is now coming through us directly connecting the fan with the artists through, say, calling a D2C business or a [ D2Fan ] business, where around that new release of these album products, we are seeing somewhere in the region of 2/3 to 75% of the total volume actually coming through our own managed stores in relation to this product. So we're having a direct relationship with the fan. So that's much more about the evolution of this going rather than just being a tired old format transformation. Lucian Grainge: I'd also add that it's the fans telling us that the belief that we have in the superfan and how we're able to provide products and services, both physically as well as what they look like digitally in the future, they're telling us about behavior and about connection. Operator: Our next question comes from Jason Bazinet of Citigroup. Jason Bazinet: I just had one question about superfan. It seems like going back to your Capital Markets Day, you guys are maybe more optimistic about this opportunity than some of the other labels. And I didn't know if that was a function of a different vision that you have about what superfan is going to be or if it's a function of maybe different agreements that you have with your artists that may allow you to participate in sort of superfan economics in a way that might be different than other record labels. Michael Nash: Jason, thank you for your question. And if I can infer that in part what you're asking about, goes to superpremium tiers on subscription services. I think that there is a component of it that is simply about the opportunity to monetize more valuable fans. And as we've stated before, if you look at the digital download era, the top quartile of consumers were spending 3x the average. So the propensity to spend is there. And we think about this in terms of direct-to-consumer and Matt and Boyd talked about vinyl and what that means in terms of monetizing super fandom. There are different components to the equation but we have strong conviction about that we have invested directly in. With respect to superpremium tiers, we're engaged with all of our partners, talking about the opportunity. There is technology change that's going to promote opportunities, I think, around innovation to introduce more sophisticated, higher value offers to consumers over time, and we're engaged in those discussions. We're encouraged to see executives at some of the platforms like Spotify talk about their excitement, their desire to get this right. Seeing great demand for different superfan segments. So it's not just Universal Music Group seeing that. We can't speak about the perception that other music companies have regarding the opportunity. We've made our perspective clear, but I think it's important to keep pointing out that one of the world's top 5 music subscription platforms, Tencent Music in China, has, over the course of the last year plus empirically demonstrated that a super VIP product, as I characterize it, priced at 5x the average price of subscription in that market, a market regarded as a challenging market to monetize music consumption. In that market, they've gained a very, very significant traction. They recently reported 15 million SVIP subs, 12% of their subscriber base growing at 50% year-over-year. And they said that, that resulted in a doubling of their revenue growth versus the rate of increase of subscriber growth in that reporting period. So we're seeing that in a market where you've got some innovation leadership. There's clear demonstration of the opportunity. We believe industrial logic prevails here where research clearly demonstrates that at least 20% of the subscriber base is the target market for a superpremium offer and you see a focus on innovation. And as Lucian said, we think that AI will be a significant component of the focus on innovation in terms of new digital products in the future. We think this is going to play out over time. That's the viewpoint that we have. We can't account for the viewpoint of other music companies. Operator: Our next question comes from Ed Young of Morgan Stanley. Edward Young: I'd love to add a little bit more color on the AI partnerships, particularly if it's launching in '26. You sound confident that you'll be able to sort of solve the artist-centric monetization challenge where requests are generic or by genre style versus them being by artist name. So I'd love to add a little bit more on that. And then second and related, you've spoken often as a management team about developing new business models and diversifying revenue streams. Do you think or do you see agentic AI companies as likely to join the distribution landscape? Michael Nash: Thank you for your question, Ed. I'm assuming that the first question relates to recent announcements and in particular, what we've announced with Udio. In terms of artist centricity, what's significant there is that the product vision is to focus on a superfan experience for customization, deep engagement, hyper-personalization of the experience for fans interacting through AI technology with the artists that they love. So if you think about this in terms of where the marketplace is, from our perspective, the economics of the music ecosystem are really driven by fans' desire to engage with artists and by fans' desire to participate in music culture. So we're envisioning products that deepen both of those things that enables deeper engagement that is very artist-centric and that enables the fans to participate in music culture. So I hope I'm answering the thrust of your question. Yes, the vision regarding the products that will be enabled by initiatives we're supporting and specifically the one that we announced with Udio will be very artist-centric. In terms of the question regarding agentic and new music models, we're very excited about what we see in terms of the evolution of the technology and as it relates to consumer interest. So we recently did some research in the U.S. market. And in that research, the readout was 50% of music consumers are very interested in AI in relationship to the music. But that's in relationship to their music experience. The thing that ranks the lowest is artist simulation, what we would call fake artists. And you're seeing there's a lack of traction around that other than the occasional novelty phenomenon that may capture some headlines. That's not what fans are interested in. What fans say that they're interested in is AI application that makes their music service better, that improves discovery, that enables them to better organize playlist to have a better recommendation system against their express preference. So the thing with respect to agentic AI that we see as a significant potential point of innovation, imagine a perfect seamless blending of lean forward and lean back, where the interface that you have for music consumption is in a position to understand not just your music preferences, but the films and television shows that you watch, the books that you read, the countries you travel to, the conversations that you're engaged in, really, really sophisticated management of recommendation and also an understanding of listening conduct, drive time versus dinner party versus workout. We believe that the application of technology to really enhance the consumer experience in relationship to music appreciation, music discovery and contextual listening, that suggests a possibility that makes music all the more valuable that increases the connection between artists and band, all of that we see has been very virtuous. Operator: Our next question comes from Adrien de Saint Hilaire of Bank of America. Adrien de Saint Hilaire: I've got a couple of questions, if that's okay. Given the price increases that were recently announced by Spotify and presumably your new wholesale deal kicking in next year with that platform, do you have enough visibility today to see subscription growth accelerates into 2026? And second question, I'm really, sorry, if I missed this in your prepared remarks, but are there any additional details that you can provide on the timing for your U.S. listing? Matthew Ellis: Yes. So thank you, Adrien. Regarding the U.S. listing, as you know, we announced in July that we had confidentially filed with the SEC. We're in the SEC review process right now. Obviously, the U.S. government shutdown makes everything there a little bit more complicated. So we're working against that backdrop. And we'll have an update of the market when we have additional news, and it's appropriate to do so. So I look forward to doing that at the right time. In terms of the price increases on Spotify, as you mentioned, glad to see those come through. Michael, you're closer to that than anyone. Michael Nash: Yes, happy to elaborate there, Matt. So with respect to -- and looking into your question to make sure I'm covering the gist of what you're interested in, the price increase impacts and the outlook for 2026. Of course, we don't provide quarterly or even annual guidance on metrics like that. In the fourth quarter, we're going to have a tough comp against some pricing changes, but we'll also see some benefit, small benefit from the Spotify price increases that were announced earlier this year. So those things pretty much trade off. We do foresee that in 2026, we are going to start to see the pricing benefits from our Streaming 2.0 agreement. Other than that, I would simply point to the guidance that we provided on Capital Markets Day a year ago with respect to 8% to 10% CAGR in the midterm. That's the way you should really be thinking about the impact of the price increases as they play out over time. Operator: Our next question comes from Silvia Cuneo of Deutsche Bank. Silvia Cuneo: A couple of questions from my side. The first one regarding AI, you announced 2 strategic agreements today. Could you elaborate on your expectations for future similar partnerships and how meaningful this could be in terms of financial benefits compared to, for example, social apps licensing? And specifically concerning Udio, could you help us understand the mechanics of these agreements, particularly whether there are variable revenue elements tied to Udio's growth? And then secondly, quickly, regarding your cost initiatives, could you please remind us of the key cost areas that Phase 2 of your strategic design is addressing and in comparison, especially to Phase 1? Lucian Grainge: I'd just like to frame some of the conversation before maybe Michael or Matt actually add some of the detail. Sequence is critical in all of this. Search, the power of possibility of what the technology is providing all of these businesses, and you're talking about AI and Udio and all the other companies that we anticipate or we will make deals with. I've got -- I think it's important to say this. I have exactly the same feeling about this progress that I did 15 to 16 years ago when we were looking at what was the transaction business and the really early fledgling what was perceived at the time of the disruption of the album into something called ad-funded streaming. And then ad-funded streaming became premium subscription. So we are in a sequence of how the technology and how the platforms with us, as a company and as an industry, integrate and learn together how to actually create products and to provide what artists want and consumers and fans want in an organized monetized way. So we are at the front, at the vanguard of a new era. And it's one of the reasons why we're positive, we're confident and why we continue to invest right across the board in all aspects of what we anticipate will be the growth and is the growth not only in the company but in the marketplace. So on that, maybe you guys like to add some more of the actual functional details of what the question was. Michael Nash: That's a great strategic framing, Lucian. So within the question regarding the new agreements and our outlook, let me start out at a more general level and then talk specifically about the 2 new agreements that we've announced in the last 24 hours. As Lucian said, we clearly established our position in this sector as being the industry leader, developing new business models, supporting new products, numerous agreements that we previously announced to enable entrepreneurs working with established platforms, and that goes back to 2023. So the most recent set of announcements and initiatives is building on that foundation of industry leadership. And you might have noted that Lucian sounded a call to action where we started to mobilize to prepare to be able to effectively execute and implement new deals and talked about the scope of ambition being up to a dozen different conversations in which we're engaged. We're very excited about the opportunity for innovation. With respect to commercial opportunity, as Lucian said, we believe the commercial opportunity is potentially very significant. These new products and services could constitute an important source of incremental additional new future revenue for artists and songwriters. Now we're just preparing the way for market entry of these new products. Some of the things we've announced are 2026 in terms of scheduling scope on product launches. So it's too soon to provide commentary on more specific in terms of opportunities scope, but we do believe this is potentially significant. In terms of product scope, the recent announcement, I think, provide a very clear indication of what we're thinking about in terms of new AI products targeting the superfan, deepening the relationship between artists and fans, enabling fans to more deeply participate in music culture and providing tools for our artists that are being responsibly developed to enable them to narrow the gap between imagination and creation of content to broaden the palette of options they have in terms of artistic tools to be able to create content. Specific to Udio, and let me just elaborate on Lucian's comments. We entered into an industry-first strategic agreement where we've settled copyright infringement litigation and we're collaborating on this innovative new product suite, new commercial music consumption, interaction, hyper-personalization, sophisticated curation, those are the elements that are going to define this product suite. The new platform, plan is to launch in 2026. It's going to be powered by Udio's cutting-edge generative AI technology, ethically trained, responsibly trained and authorized license music content, all those things very critical and obviously to the benefit of our artists, songwriters and to rights holders. The new service we see as potentially really transforming the user engagement experience within a walled garden, enabling this deep interaction with the content. And I just want to briefly highlight, in terms of artist tools the announcement with Stability AI, this is really a groundbreaking product development collaboration that we're announcing with Stability. Stability is organizing their effort to create new tools for professionals in a category of gaming with Electronic Arts, in terms of marketing, advertising with WPP, in terms of film production with their investor and Board member, James Cameron. So UMG joins that group of significant players in their categories as the leader in the music vertical, and that puts us in a position to directly engage in a very artist-centric way the conversation with our creative community around the evolution of these tools and puts us in a position where we're going to be able to provide the best opportunity for new creative potential out of AI responsibly trained for the ranks of artists and songwriters that we work. Lucian Grainge: This is happening. It's on, and we're on. Matthew Ellis: Silvia, on the cost question you had, obviously, as you said, we're in the second phase of the program. A lot of the activity that you've seen to date has been successful in both our U.S. and U.K. platforms. Boyd, you've lived this program for the past couple of years, so you could add a little bit more detail. Boyd Muir: Yes. Well, maybe just to take a step back to level for everyone. I mean the strategic alignment, which we announced, I guess, a couple of years ago now, it's a proactive initiative. It's not reactive. It's a proactive initiative. It's designed to achieve efficiencies and targeted cost areas, but at the same time, providing our labels with capabilities to deepen -- basically to deepen artist connections with new kind of areas of commerce, experiential and the like. We're focused very much in designing the label of the future, providing our labels with enhanced access to highest-performing internal teams and access to additional resources. And Lucian mentioned in his opening comments actually about the success that we're seeing in the U.S. and the U.K. And there's little doubt that this is as a result of the strategic alignment initiatives that we're pursuing. Operator: Our next question comes from Adam Berlin of UBS. Adam Berlin: I just got one question left, really, which is, you mentioned that Q3 physical benefited from early shipments of Taylor Swift's Life of a Showgirl. Can you talk about how much of the revenue that, that album will generate has already been captured in Q3? And is there still a lot more to come in Q4? Matthew Ellis: Yes. So Adam, thanks for the question. So yes, certainly, we did see some benefit, especially with getting the initial volume out to retail stores ahead of the October 3rd launch of the album. We've never broken out results by a particular artist or a particular piece of work. Not going to do that. Obviously, the initial shipments were significant. As Boyd said in his comments around our fan business, a significant number of vinyl sales is now in our D2C business, not going through retailers that we work with. And so those would have been on a different time line. So the vast, vast majority of the benefit from the physical sales of the album will be in fourth quarter, but we certainly did see some of the uplift, the 23% growth in physical year-over-year was due to those initial shipments, combined with the strength we saw in Japan that I mentioned. So we see this benefit, not just related to one artist. Our fans want to connect with all of our artists in geographies around the world. Operator: Our next question comes from Joe Thomas of HSBC. Joe Thomas: A couple of questions, please, on my side. Firstly, you were talking about the -- I think you were talking about new deal with YouTube and you've got protections across the whole gamut of what they provide. I'm just wondering if you could tie that into your comments on streaming and the difficulty of monetizing short-form video. Have you reached some sort of solution there? And what could we expect to come in the future? And then the second question is back to the cost savings. I realize there's costs coming out. There's also costs, sounds likely, going in as you invest in the capability of the business. What is the net cost saving over the quarter, please? Michael Nash: Joe, thank you for your question. In terms of the YouTube deal and the benefits of the new deal, the scope of it and then also how it relates to disruption of short form and monetization of that supported. So yes, we were very excited that we had an opportunity to complete this agreement with an important strategic partner. As Lucian said, our third Streaming 2.0 deal, we have a long-standing, very productive partnership with YouTube. With respect to the components of the deals related to monetization, obviously, every deal-making opportunity, we consider the unique attributes of potential licensee, circumstances or category, product plans, business strategy, that certainly applies to a major and uniquely diversified platform like YouTube. In talking about the new partnership in terms of Streaming 2.0 deal, we certainly are advancing important components of our core objectives here, taking into account these unique and multifaceted components of their platform and the foundational principles that we're carrying across in all of our negotiations with our partners. And as Lucian said, we secured key protections in the agreement on AI, which is a critical achievement in promoting interest of our artists on their platform. With respect to monetization of short form, improved monetization of short-form video is certainly an objective that we're actively advancing across multiple deal renewal discussions, including this one. Beyond that, I'm not going to comment on a specific component of a deal as it relates to an individual category. But our efforts to work on better monetization of short format to address the disruption the short format has brought to the ad-supported sector is a broad-based effort across multiple different deal renewal conversations. Lucian Grainge: Yes, I'd also add that we look at the rights as an overall category, and our strategic relationship and partnership with YouTube as an overall strategic partner on the music subscription, on short form, on long-form video and obviously, all the work that we're doing on AI. So it's an entire category with one strategic partner. And as the marketplace and as our products, their products, the technology grows and develops, it all blends and all sits together to actually create value for everybody. Matthew Ellis: With respect to the cost savings question, Joe, we don't really view it from the lens of the -- how you think about the net cost savings. We continue to invest in the business, whether or not we have a cost savings plan in place at a particular point in time. When you think about the margin expansion for the quarter, up 40 basis points again this quarter, you see the benefit of those investments driving the continued revenue growth, but also the operating leverage that then delivers and that again supplemented by the cost program. So we continue to look for ways to run the business more efficiently. As Boyd discussed, setting up -- continue to evolve the business as the industry evolves and what we do evolves so that we have the resources to continue to invest and provide the support to the business that we have. And I think you've seen the success of that. Operator: Our final question for today comes from Julien Roch of Barclays. Julien Roch: Coming back on the Udio deal you just signed. Could we have some indication of the payment mechanism. Will you get a share of their revenue? Will you get micro payments every time a song is created. So some color on how the money flow will work, without giving number detail. That's the first question. And then coming back on the deal you signed with Spotify, you gave one concrete example of what those products could be, Lucian did early on. I wonder whether we could get another couple of concrete examples of what those new AI products can be. Michael Nash: Julien, thank you for your questions. With respect to detail on the business models, you will probably not be shocked to hear that I can't go into granular detail. I will say this that obviously, the advent of AI with respect to new consumer products on new service categories on platforms, obviously introduces an opportunity for us to be creative and innovative in terms of the evolution of the business model and accounting for all aspects of the value that our content and artists bring to these platforms in terms of the establishment of the model's capability and in terms of the products themselves. We're obviously looking at all the components of the consumer experience and the value created and our participation in that value. So rest assured that we're working thoughtfully with new partners and certainly with Udio and reaching the agreement with them to be able to develop a sophisticated model that is going to deliver the value to our artists and songwriters and the rights holders that it should. In terms of more specific product concepts, with respect to how we envision the future, I think Lucian provided a great general sense of our outlook. But I would just encourage you to look at the specifics of the Udio announcement and the comments that have been made by their CEO and the comments that we've made, we now have a specific product development plan that has been set in motion by a new agreement for a service that's going to be launched next year. I think that what's being described there is the attributes of this customization, hyper-personalization, engagement with the artist content in a superfan experience in a walled garden on the platform gives you a good starting point for envisioning what the product scope is going to be. I think it's a good example of the kind of thing that's possible. We talked a little bit about on the horizon, things like agentic AI and obviously, that is to be constructed and developed in new conversations. So it's premature to go beyond a statement of kind of aspiration and outlook there. Operator: Thank you. That concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
Operator: Greetings, and welcome to the CVR Energy Third Quarter 2025 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Richard Roberts, Vice President of FP&A and Investor Relations. Thank you, sir. You may begin. Richard Roberts: Thank you, Eric. Good afternoon, everyone. We very much appreciate you joining us this afternoon for our CVR Energy Third Quarter 2025 Earnings Call. With me today are Dave Lamp, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 third quarter results, let me remind you that this call may contain forward-looking statements as that term is defined under federal securities laws. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 third quarter earnings release that we filed with the SEC and Form 10-Q for the period and will be discussed during the call. That said, I'll turn the call over to Dave. David Lamp: Thank you, Richard. Yesterday, we reported third quarter consolidated net income of $401 million and earnings per share of $3.72 EBITDA was $625 million. These results include a $488 million benefit associated with the full and partial small refinery exemptions granted to the Wynnewood Refining Company for the 2019 through 2024 compliance years in addition to solid operations and improved market conditions in both our petroleum and fertilizer business. In our Petroleum segment, combined total throughput for the third quarter of 2025 was approximately 216,000 barrels per day for crude processing utilization of 97%. Light product yield was 97% on crude oil processed after working off intermediate inventories built during the Coffeyville turnaround earlier this year. We ran at full rates at both refineries in the third quarter with no significant lost opportunities. We do not currently have any additional turnarounds planned in the refining section for the duration of '25 or '26, and we currently expect the next planned turnaround to be at the Wynnewood refinery in 2027. Group III benchmark cracks averaged $25.97 per barrel for the third quarter of '25 compared to $19.40 per barrel last year. Average RIN prices for the third quarter were approximately $6.33 a barrel, nearly 25% of the Group 3 2-1-1 crack. Regarding RFS, after years of fighting for the rights of the Wynnewood refinery -- the rights that the Wynnewood Refinery Company is entitled to, EPA in August finally ruled on a backlog of 175 outstanding SRE petitions covering the past compliance period that have been pending before it for years. In addition to affirming its prior grants of the Wynnewood Refining Company's 2017 and 2018 petitions, EPA granted full waivers for 2019 and 2021 and fifty percent waivers for 2020 and 2022 to 2024. Based on these decisions, we were able to reduce our outstanding RFS obligation on our balance sheet by over 80%. While we continue to believe Wynnewood refinery deserves 100% waivers for every year, we are pleased to have these lingering issues resolved and a large obligation on our balance sheet significantly reduced. For the third quarter of 2025, we processed approximately 19 million gallons of vegetable oil feedstock at our renewable diesel unit at Wynnewood. Gross margin was negative by approximately $0.01 per gallon for the third quarter compared to a positive $1.09 per gallon for the previous year. The loss of the blenders tax credit and a significant increase in soybean prices this year continue to weigh on the profitability of the renewables business. We did not recognize any of production tax credit benefits in the quarter as we continue to wait final regulations from the IRS, but we estimate the unbooked production tax credit value would have been approximately $4 million for the third quarter and $9 million year-to-date. As a reminder, we believe that we would have the ability to retroactively claim these credits once regulations are finalized. In the Fertilizer segment, the ammonia utilization rate was 95% for the quarter compared to 97% for the third quarter of 2024. Nitrogen fertilizer prices for the third quarter of 2025 were higher for both UAN and ammonia compared to the third quarter of 2024. And fertilizer supplies remain tight around the world, which has been supportive of pricing. Now let me turn the call over to Dane to discuss our financial highlights. Dane Neumann: Thank you, Dave, and good afternoon, everyone. For the third quarter of 2025, our consolidated net income was $401 million, earnings per share was $3.72, and EBITDA was $625 million. Our third quarter results include a positive change in our RFS liability of $471 million an unfavorable inventory valuation impact of $18 million and unrealized derivative losses of $8 million. Excluding the above-mentioned items, adjusted EBITDA for the quarter was $180 million and adjusted earnings per share was $0.40. Adjusted EBITDA in the Petroleum segment was $120 million for the third quarter, with the increase from the prior year period driven by a combination of increased Group III cracks, higher throughput volumes and improved capture rates. Our third quarter realized margin adjusted for RFS liability impacts, inventory valuation and unrealized derivative losses was $12.87 per barrel, representing a 50% capture rate on the Group 3 2-1-1 benchmark. Net RINs expense for the quarter, excluding the RFS liability impact, was $88 million or $4.45 per barrel, which negatively impacted our capture rate for the quarter by approximately 17%. The estimated accrued RFS obligation on the balance sheet was $93 million at September 30, representing $90 million RINs mark-to-market at an average price of $1.03. As a reminder, our estimated outstanding RIN obligation excludes the impact of any future small refinery exemptions. Going forward, we intend to continue to recognize 100% of Wynnewood Refining Company's current period RINs expense in our financials until EPA rules on our pending petitions. For modeling purposes, Wynnewood Refining Company's annual RIN obligation based on the 2025 RVO is approximately 120 million RINs. For the third quarter of 2025, we estimate adjusted EBITDA in the Petroleum segment would have been approximately $34 million higher with the benefit of a 100% small refinery exemption for 2025 or $17 million higher with a 50% small refinery exemption. Adjusted refining margin per barrel would have been approximately $1.68 per barrel higher with a full SRE for 2025 or $0.84 higher with a 50% SRE. Direct operating expenses in the Petroleum segment were $5.69 per barrel for the third quarter compared to $5.72 per barrel in the third quarter of 2024. The decrease in direct operating expense per barrel was primarily due to higher throughput volumes. Adjusted EBITDA in the Renewables segment was a loss of $7 million for the third quarter, a decline from the third quarter of 2024 adjusted EBITDA of $8 million. The decrease in adjusted EBITDA was driven by a combination of a decline in the HOB spread due to higher soybean oil prices, along with the loss of the blenders tax credit and nothing booked for the production tax credit. Adjusted EBITDA in the Fertilizer segment was $71 million for the third quarter with higher UAN and ammonia sales pricing driving the increase relative to the prior year period. The partnership declared a distribution of $4.02 per common unit for the third quarter of 2025. As CVR Energy owns approximately 37% of CVR Partners common units, we will receive a proportionate cash distribution of approximately $16 million. Cash flow from operations for the third quarter of 2025 was $163 million and free cash flow was $121 million, of which approximately $83 million was generated by the Fertilizer segment. Significant uses of cash in the quarter included $43 million of capital and turnaround spending, $43 million for cash interest, $26 million paid for the noncontrolling interest portion of the CVR Partners' second quarter 2025 distribution and a $20 million repayment on the term loan. Total consolidated capital spending on an accrual basis was $40 million, which included $25 million in the Petroleum segment, $14 million in the Fertilizer segment and $1 million in the Renewables segment. For the full year 2025, we estimate total consolidated capital spending to be approximately $180 million to $200 million and capitalized turnaround spending to be approximately $190 million. Turning to the balance sheet. We ended the quarter with a consolidated cash balance of $670 million, which includes $156 million of cash in the Fertilizer segment. Total liquidity as of September 30, excluding CVR Partners, was approximately $830 million, which was comprised primarily of $514 million of cash and availability under the ABL facility of $316 million. During the quarter, we paid down $20 million on the term loan, leaving the current principal balance at approximately $235 million. Looking ahead to the fourth quarter of 2025 for our Petroleum segment, we estimate total throughput to be approximately 200,000 to 215,000 barrels per day, direct operating expenses to range between $105 million and $115 million and total capital spending to be between $20 million and $25 million. For the Fertilizer segment, we estimate our ammonia utilization rate to be between 80% and 85%, which will be impacted by the planned turnaround currently underway at the Coffeyville facility. We expect direct operating expenses, excluding inventory and turnaround impacts, to be between $58 million and $63 million and total capital spending to be between $30 million and $35 million. Turnaround expense is expected to be between $15 million and $20 million. For the Renewables segment, we estimate fourth quarter 2025 total throughput to be approximately 10 million to 15 million gallons with a catalyst change expected in December. We expect direct operating expenses to range between $8 million and $10 million and total capital spending to be between $1 million and $3 million. With that, Dave, I'll turn it back over to you. David Lamp: Thanks, Dane. Refining market conditions continued to improve during the third quarter with refined product demand remaining steady and inventories continue to trend near 5-year average levels. Increased geopolitical tensions have contributed to the strength in crack, particularly diesel cracks following a string of Ukrainian drone attacks on the Russian refineries over the past few months. Within the Mid-Con, where we operate, we continue to see positive supply-demand trends with gasoline and diesel inventories at or below recent historical averages and demand improving. During the quarter, we began producing jet out of the Coffeyville, and we expect to see production and sales volume of jet fuel ramp up over the next few quarters as we continue to make commercial progress. Looking out over the next few years, multiple pipeline projects have been announced that would connect refined product supply from PADD 2 into PADD 4 and 5, which could provide a constructive solution to meet consumer demand across all regions. Overall, we remain cautiously optimistic about the near- and medium-term outlook for the refining sector. As I mentioned, supply and demand balances remain favorable even with the trend of high fleet utilization continuing. There are still several refineries in the U.S. and Europe that are scheduled to shut down over the next few quarters, representing a total capacity of around 400,000 to 500,000 barrels per day and with minimal new fuels refinery capacity projected to start up over the next few years. Meanwhile, refined product demand appears stable, and we continue to believe any pro-growth initiatives from the Trump administration will -- should be positive for GDP growth and demand for transportation fuels in the U.S. This dynamic of stable and improving demand with limited new refining capacity could help cracks remain healthy. In the Renewables segment, profitability has been challenged this year after the loss of the BTC and the increase in soybean oil prices following EPA's announcement of increasing RVOs and limits on credit generation from an imported feedstock. As we've talked many times over the past few years, while we want to participate in the renewable space, we will only do so if profitable. Unfortunately, the renewable diesel business relies heavily on government mandates and subsidies to be profitable, and the government does not currently seem to be interested in supporting the renewable business it created. Given the losses that we have faced this year in our renewable business and that we have seen little government support that return it to profitability in the near term, we have made the decision to revert the renewable diesel unit at Wynnewood back to hydrocarbon processing during the next scheduled turnaround in December. We believe that we have more opportunities to create value in the full hydrocarbon processing mode, and we look forward to working on some of the alternative uses for the logistical assets built for RD service. We would also retain the option to switch back to renewable diesel service in the future if incentivized to do so. In the third quarter, we recognized $31 million of accelerated depreciation associated with the pretreatment unit as a result of our decision to revert the RD unit back to hydrocarbon processing. We also wrote off approximately $3 million of capital investment associated with the potential renewables project at the Coffeyville. We anticipate additional accelerated depreciation impacts of approximately $62 million in the fourth quarter as well. Finally, in the Fertilizer segment, we saw continued strong pricing through the summer due to tight supplies, trade and geopolitical issues. The harvest is currently on schedule and nearing completion. Current USDA estimates on corn planting and yields would imply carryout levels at or below 10-year average, although grain prices have remained low on the expectation of a large crop production in Brazil and North America. Domestic and global inventories of nitrogen fertilizers remain tight, which we believe should continue to support prices into the spring of 2026. We have a number of projects in flight to support capacity increases at both plants and infrastructure projects to target improved reliability for max utilization to capture this market into the future. Looking at the fourth quarter of 2025, quarter-to-date metrics are as follows: Group 2-1-1 cracks have averaged $25.69 per barrel with a Brent-TI spread of $3.80 per barrel and a WCS differential of $11.62 under WTI. As of yesterday, Group 3 2-1-1 cracks were $30.10 per barrel and RINs were approximately $5.91 per barrel. Prompt fertilizer prices are approximately $700 per ton for ammonia and $360 per ton for UAN. As we stated in our last earnings call, returning the balance sheet to targeted leverage is a key focus for us in the near term. With the SRE grants at the Wynnewood Refining Company received in August, our balance sheet has improved significantly through the reduction of the RFS obligation; however, EPA has not ruled on SRE petition we submitted in July. If the Wynnewood Refinery company is granted a 50% waiver for 2025, we currently estimate that we would have to purchase approximately $100 million worth of RINs by the end of March of '26 to satisfy both our obligated subsidiaries for '24 and '25 obligations. Beyond the current cash needs for RINs, we intend to continue to prioritize paying down the term loan with the excess cash flow we are able to generate. Reducing the balance on the term loan is one of the several criteria in the Board's decision around a potential return to the quarterly dividend, and that decision is evaluated every quarter. If cracks remain elevated, we would likely be able to reduce debt faster and accelerate conversations with the Board around the dividend. As always, we will always look to ways to improve capture, reduce cost and ultimately grow our business profitably. As this will be my last earnings call before retirement, I'd like to say it's been a pleasure to work for the last 45 years in an industry that makes modern life possible. I have crossed paths with a ton of people over the years, all of who I've learned something from and contributed to my success. With that, I am grateful. With that, operator, we're ready for questions. Operator: Our first question comes from the line of Matthew Blair with TPH. Matthew Blair: Dave, wishing you the best in retirement. It's really been a pleasure working with you over these past, I guess, several years. So yes, wishing you the best. I wanted to follow up on your commentary on the new product pipelines that would take Barrels West. It seems like this could be a potential positive for Mid-Con refiners like CVR. But could you talk about whether you would plan to make commitments, shipping commitments on any of these types? And if so, like is there a proposal that looks more favorable in your view? David Lamp: Well, we haven't really studied that too much yet because a lot of the details on these lines is still coming out. But I think you're right, Matt, that it will be very constructive for the Mid-Con. As I've said many times, the Mid-Con has been long on product with the high utilizations we've seen in the northern tier of the PADD 2. And any relief of where to move those barrels will be a positive to the Group 2 and then probably a positive to Group 4 or PADD 4 and PADD 5. Obviously, one of the projects goes all the way to California, the other does not. And I'll remind you that the Denver pipeline is out there also, which moves barrels to PADD 4 also. So we think it's helpful. Whether we take line space on any of them, we haven't decided yet and more to come on that in the future. Matthew Blair: Sounds good. And then I guess in regards to the decision on the renewable diesel plant, is there any opportunity to still utilize the pretreatment plant? Or would that be just completely shut down as well? David Lamp: Well, in the short term, it definitely will be shut down, and that's why we took the accelerated depreciation. It's probably -- if you look at the current spreads on basis of soybean oil and other feedstocks, they're pretty tight and doesn't give a lot of incentive for the PTU, but we will look for all those opportunities we can find. We know we have use for the rest of the logistical assets. So just look for us to find new ways to use that in the future. Operator: Your next question comes from the line of Paul Cheng with Scotiabank. Paul Cheng: Just want to extend my congratulations on your retirement, and thank you for all the help throughout the years. We appreciate. On the renewable diesel, -- so what does it take? Is it just the change of the catalyst or that there's other changes that you need to make in order for you to convert back into running hydrocarbon? And also that do you have an estimate of the cost to keep the [ PTC ] to sustain in a reasonable shape so that in the future, if you decide that to restart it? David Lamp: Yes, Paul, I think it's a pretty easy conversion for us because we considered this when we built the unit. So it's mostly a catalyst change. There's a few other pieces of pipe we need to do. But in the general case, it's just really a piping change. As far as the PTU goes, I think we'll mothball it in a way that we can bring it back in short order should something change in the renewable space. The renewable space is -- I just -- I guess the decision was largely made just because we just don't see any catalyst that can really change the projection of that thing. RINs were designed to make the marginal producer breakeven. Some people are predicting a big increase in RINs, but our unit was limited to mainly soybean oil and a little bit of corn oil. It couldn't really handle any of the real low CIs just because of metallurgy. And even with the low CIs, what's happening in most cases is the HOBO goes up and down and the RINs change, it's just going into the feedstock cost. So we just didn't see much of a chance to really -- for anything to change in that space that is going to make it a good deal. Paul Cheng: So even with the PTC or facility, we're never able to handle the low CI stuff? David Lamp: Well, any of the very low stuff like used cooking oil, we're not designed to handle it, metallurgical wise. With land use, that helped, but the PTC does not -- even with that doesn't make up for the BTC. Paul Cheng: I see. And when you're saying that you're going to move the PTC and that is there any -- or that the cost is so minimum that to maintain it going forward that it's just a drop in the bucket. So it's really just pocket change or that that's a reasonable cost associated on a going-forward basis? David Lamp: Once we mothball it, Paul, it's really pretty low cost. There'll be some costs that we started, but there won't be a lot. Paul Cheng: I see. And then a final question, I mean that with all the proposed new pipeline getting the barrel out from the Mid-Con, does it in any shape or form that change the way that how you're looking at your configuration and how you're going to run those facilities or that doesn't really matter? David Lamp: Well, depending on which of those 2 options really happen, I think we can make a reformulated gasoline. We can probably make some Arizona clean burning gasoline, but CARB would be challenging for us. So -- and I don't know that we'd ever want to make an investment for CARB. Eventually, I think that formulation may melt away or go away at some point when California wakes up to the high cost of fuel out there and what it costs to make that reformulated special blend for them. But certainly we'll have the other 2 grades that we can do. And then it's just a question of volume. If we do elect to take that business, how much volume would it be and what changes would we have to make to do that. I'll remind you that -- we have this KSAAT project that is going to make more alkylate at Wynnewood. We're going to be alkylating all our C3s that today we sell. And so that's going to increase our alkylate production, which helps us in some of these clean burning gasoline. Paul Cheng: Yes. So you're trying to make gasoline for the Arizona market, as you say, it's just a matter of the warning and how much it's going to cost. Can you give us some idea that if you want to make, say, 20,000 barrels per day, how much is that cost and what need to be done? David Lamp: We haven't looked at that yet, Paul. Just I can't give you any guidance on that. Operator: Your next question comes from the line of [ Alexa Patrick ] with Goldman Sachs. Unknown Analyst: I wanted to ask on the $100 million RIN obligation you guys talked about outstanding. How are you guys kind of thinking about the strategy of meeting that RIN obligation when we also keep in mind that we're still waiting on some incremental SRE updates for specifically '24 and '25? Dane Neumann: Yes. Thanks, Alexa. So right now, we're just thinking about the December deadline for '24 and the March deadline for 2025. The $100 million encompasses covering Coffeyville and Wynnewood at 50% through 2025 and also Wynnewood through 2024. Again, as you mentioned, we're particularly monitoring for the 2025 waiver outcome. And Wynnewood last few years gotten 50%. We expect that to be a worst-case scenario. We still believe it should be 100%. And in the event that we do get 100%, the nice thing is the RINs that we purchased for that could be used for Coffeyville compliance going forward. So it feels like a conservative thing to do to plan to buy the 100 million RINs between now and March 31. Unknown Analyst: Okay. That's very helpful. And then maybe just some early thoughts on '26, how we should be thinking about capital spend? And then any considerations there related to the RDU conversion? David Lamp: Yes, we don't -- we usually give that guidance in the fourth quarter, Alexa. So I think we'll wait until that time to fill you in on that. Operator: Your next question comes from the line of Manav Gupta with UBS. Manav Gupta: Dave, thank you for all the years that you provided us insights into the refining market. I do have to say that if you look at the last 1.5 or 2 years, this is the most bullish I've heard you on an earnings call. So it's good that you also feel that this is a much stronger refining environment that we are in. And so the question that comes back to is by when do you think you would be at the right debt levels to restart some form of dividend because that's the #1 question we get is CVR is doing much better, when can we see some form of payout for the shareholders? David Lamp: Well, that's a difficult prediction to make, Manav. I do -- I will tell you that I haven't -- I've been in the business a long, long time, and I've watched these markets for a long, long period of time. And this setup that I see coming is probably the best I've seen in a long time. Just look at the number of refineries that are shutting down and the supply of new ones, we came through a big wave of new refineries coming on, some of which are still in the start-up phase. There just is very few fuels refineries that are going to be starting even in conception right now that are going to make a difference in this balance. And demand is still growing, even though it's slower. No doubt EV penetrations hit. But the matter of fact is the -- the refinery is going to -- to me, it's going to be short in the future. And it's a great space to be in. If you consider what it takes to build a refinery these days, I don't care where you do it in the world. It's just really expensive. It's almost 4x what our -- what the market cap of what these companies are today. And that just bodes well to me for the future on what cracks will look like. Operator: Thank you. We have reached the end of the question-and-answer session. I'd now like to turn the floor back over to management for closing comments. David Lamp: Thank you. Again, I'd like to thank you all for your interest in CVR Energy. Additionally, we'd like to thank our employees for their hard work, commitment towards safe, reliable and environmentally responsible operations. With that, we'll talk to you next quarter. Thank you. Operator: Ladies and gentlemen, this concludes today's call. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good morning, and welcome to InterDigital's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to Raiford Garrabrant, Head of Investor Relations. Please go ahead. Raiford Garrabrant: Thank you, Haley, and good morning. Welcome to InterDigital's Third Quarter 2025 Earnings Conference Call. I am Raiford Garrabrant, Head of Investor Relations for InterDigital. With me on today's call are Liren Chen, our President and CEO; and Rich Brezski, our CFO. Consistent with prior calls, we will offer some highlights about the quarter and the company, and then open the call up for questions. For additional details, you can [Technical difficulty]. In this call, we will make forward-looking statements regarding our current beliefs, plans and expectations, which are not guarantees of future performance and are made only as of the date hereof. Forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially from results and events contemplated by such forward-looking statements. These risks and uncertainties include those described in the Risk Factors sections of our 2024 annual report on Form 10-K and in other such [Technical difficulty] presentation may contain references to non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the supplemental materials posted to the Investor Relations section of our website. With that taken care of, I will turn the call over to Liren. Lawrence Chen: Thank you, Raiford. Good morning, everyone. Thanks for joining us today. This was another outstanding quarter for InterDigital. We completed Samsung smartphone arbitration and signed 4 new license agreements. We increased our annualized recurring revenue by 49% year-over-year to an all-time high of almost $590 million. We appointed a new Chief Licensing Officer. One of our senior wireless engineer was reelected to a chair position to lead the development of next-generation wireless standard, including 6G. And this morning, we announced that we completed the acquisition of an AI start-up to add significant expertise to our research teams and accelerate our AI native video research. Our business success was also recognized in recent high-profile rankings from Newsweek, Fortune and Time Magazine. Revenue for the third quarter was up 28% year-over-year to $165 million. Adjusted EBITDA and non-GAAP EPS were up 62% and 56% respectively year-over-year. In the quarter, we also increased our dividend by 17% to $0.70 per share. And over the course of the year, we have returned more than $130 million in capital to shareholders. As with previous calls, Rich will dig deeper into the numbers while I recap our recent business highlights and how we are executing our long-term growth strategy. Last month, we announced the appointment of Julia Mattis as our Chief Licensing Officer. Over the last 15 years at InterDigital, Julia has served in a series of leadership roles within the licensing team, including Chief Licensing Counsel, Head of Smartphone Licensing and most recently as our Interim Chief Licensing Officer. She has played a critical role in negotiating many of our largest license, including Apple and Samsung. I'm thrilled about this appointment, and I'm confident she has the right skill set and experience to thrive in her new role. At the beginning of Q3, we announced that we have completed the Samsung smartphone arbitration valued at more than $1 billion over 8 years. Together with Apple, we have 2 largest smartphone manufacturers licensed through the end of this decade. As a reminder, after announcement of Samsung license, we raised our annual guidance by $110 million to $820 million at the midpoint. Also in the third quarter, we signed a new license with Honor, a top 10 smartphone vendor based in China. The agreement follows our recent agreement with OPPO and Vivo. We now have 8 of the top 10 smartphone vendors and around 85% of the total market under license. The license also increased our annualized recurring revenue by $26 million to a record setting of $588 million. Of the $588 million in ARR, our smartphone program now accounts for over $490 million, putting us very close to our midterm goal of $500 million in recurring revenue from smartphone by 2027. Following the conclusion of our Honor agreement, we are taking active steps to license the 2 remaining top 10 smartphone vendors. These include initiating enforcement proceeding against Tencent in court in UPC, India and Brazil. As I have said before, while we always prefer to complete licensing deal through bilateral negotiation, we will take all necessary steps to ensure we receive fair value for our foundational innovation. In the third quarter, we also closed renewal with Sharp and Seiko in our smartphone program and with an EV charging company in our consumer electronic and IoT program. The agreement with the EV charging company is another example of how our horizontal technology has broad applicability across different industry verticals. Overall, the total contract value for license that we have signed since 2021 is now well over $4 billion. In our video service program, we are making more progress in enforcing efforts with Disney. Last month, a court in Brazil granted us a preliminary injunction against Disney. After a court appointment, independent experts found that Disney infringed our 2 patent suit related to video including technology. The independent expert report contained a detailed analysis of our innovation and the role it plays in enabled Disney's various streaming platforms, validating our belief that our portfolio is a critical enabler for the video service sector. The preliminary injunction in Brazil is an important early step in our multi-jurisdictional enforcement campaign with Disney. As I mentioned before, we always prefer bilateral negotiation to get deals done and only use enforcement as a last resort. High-value litigation like this can be lengthy, but when choosing to enforce -- when we choose to enforce our right, we have a very strong track record of ultimately signing long-term agreement with the prospective licensee. So as we drive our growth strategy across devices and services on the video side, we continue to strengthen our research and innovation team. Earlier today, we announced our acquisition of AI start-up Deep Render, which specializes in the application of AI to make video compression more efficient. Let me explain why we believe the deal is such a great thing. This acquisition added our existing AI talent pool in our research and innovation team. It accelerates our AI native video research. It strengthens our position in foundational research as the next video compression standards started to take shape and build on our current leadership in HEVC and VVC CUDA, and it has depth in our IP position with Deep Render's AI and video patent portfolio. I will also add this is a great cultural match. Much like InterDigital, Deep Render is a company of researchers and inventors who are dedicated to solve some of the most complex technical challenges in video and AI. With the consumption of video booming across smartphones, consumer electronics and video services, such as streaming, we believe that our video innovation will become an even more significant driver of our growth strategy. Staying with our research teams, in the third quarter, one of our senior wireless engineers were reelected to lead a key engineering group within 3GPP, the organization, which set cellular wireless standards. This shows not only how we lead 5G, but also means that we are ideally positioned to lead the development of 6G ahead of the expected rollout of next-gen mobile network devices and services in 2030. Shortly after the end of the quarter, we also announced that we have been awarded a contract by National Spectrum Consortium in partnership with the U.S. government to lead research and conduct demonstrations on how to better manage the use of spectrum in the United States by both civil and military applications. This project reflects one of InterDigital's unique strength in solving complex technical challenges to improve connectivity for consumers and in price and enhancing national security across communication ecosystem. There are very few companies worldwide that can take on this sort of challenge, and I'm delighted that United States has turned to our engineering team for help. As we continue to execute on our growth strategy, our progress are recognized by third parties. Newsweek recently named us as one of American's greatest companies, Fortune recognized as one of American's fastest-growing companies and Time Magazine listed us among American's Growth Leader of 2025. This award reflects the dedication and strong contributions from our employees and why we believe our platform has never been stronger to deliver more growth and even more shareholder value. And with that, I'll hand you over to Rich. Richard J. Brezski: Thanks, Liren. I'm pleased to report that our strong growth momentum continued in Q3 with revenue, adjusted EBITDA and non-GAAP EPS all exceeding the high end of our guidance range. Our Q3 performance was powered by our Samsung arbitration result and new license agreements, including a license with Honor, a top smartphone manufacturer based in China. These new agreements helped drive total revenue of $165 million, an increase of 28% year-over-year. This exceeds both our initial top-end guidance for Q3 total revenue of $140 million and our updated increased top-end guidance of $159 million that we announced at the time we signed Honor. The upside we delivered compared to our increased guidance was driven by additional license agreements we signed since then. Our annualized recurring revenue, or ARR, increased 49% year-over-year to another all-time high of $588 million in Q3. This year-over-year growth was driven primarily by new agreements signed over the intervening year in our smartphone program, including license agreements with OPPO, Vivo, Lenovo and most recently, Honor. In this time, we increased our share of the smartphone market under license from about 50% to roughly 85%. These agreements, together with our excellent Samsung arbitration result, increased our smartphone ARR 65% year-over-year to $491 million in Q3, almost at the level of our smartphone midterm ARR goal of $500 million. In CE and IoT, ARR increased to $97 million in Q3, also an all-time high. Our new license with an EV charger company is another example of the growth opportunities that exist beyond the smartphone market, and we believe we can more than double ARR from CE and IoT by 2030. Our subscription-based IP-as-a-Service model offers a high level of visibility and provides a reliable source of cash flow even in the face of an uncertain economic environment. This enables us to continue to fuel our innovation engine and drive future revenue growth. Based on the strength of our intellectual property and the huge markets built upon it, we believe we are on track to grow ARR at a double-digit CAGR towards our 2030 target of $1 billion plus. And it's important to remember that while ARR is a great metric to track the growth of our business, there is economic value above ARR alone. Over the last 10 years, we have recognized $1.5 billion of catch-up revenue. This has been tremendously valuable because we have used the majority of that money to fund share repurchases over that time period. Today, we continue to have a lot of catch-up opportunity remaining, which tends to be 100% gross margin as we pursue our goal of 100 -- excuse me, $1 billion of ARR by 2030. Our adjusted EBITDA for the quarter of $105 million increased 62% year-over-year and equates to an adjusted EBITDA margin of 64%, an increase of 14 points compared to 50% a year ago. The significant increase in adjusted EBITDA margin year-over-year demonstrates the leverage inherent in our model. You might remember that on our last earnings call, I said strong free cash flow over the second half of the year would drive free cash flow for the full year of 2025 above $400 million or close to double 2024 levels. I am happy to report we did, in fact, collect large payments during the quarter, driving free cash flow to $381 million for the quarter and $425 million year-to-date. Finally, non-GAAP EPS rose 56% year-over-year to $2.55 and exceeded our increased guidance of $2.08 to $2.27 per share. Consistent with our capital allocation priorities, we continue to maintain a fortress balance sheet, invest for growth and return excess capital to shareholders. In Q3, we increased our dividend by 17% and returned $53 million to shareholders through $35 million in buybacks and $18 million through dividends. In October, we bought back another $15 million of stock, bringing total return of capital to more than $130 million year-to-date. In just the last 3-plus years, we have repurchased more than $0.5 billion of stock, and we expect to continue to buy back shares over the remainder of this year. Looking forward to Q4, we expect recurring revenue will include $144 million to $148 million of revenue from existing contracts. That means we expect full year revenue from existing contracts will be $820 million to $824 million. So before adding any potential contributions from new agreements we may sign over the next 2 months, we expect to meet or beat the midpoint of the increased full year guidance we issued last quarter. Of course, revenue from any new agreements we may sign over the balance of the quarter would be additive to these amounts. Based again only on existing contracts, in Q4 we expect an adjusted EBITDA margin of about 50% and non-GAAP diluted earnings per share of $1.38 to $1.63. For the full year, again based only on existing contracts, we expect an adjusted EBITDA margin of 70% and non-GAAP diluted earnings per share of $14.57 to $14.83 for the full year. With that, I'll turn it back to Raiford. Raiford Garrabrant: Thanks, Rich. Before we move to Q&A, I'd like to mention that we'll be attending a number of investor events in Q4, including the RBC Tech Conference and the ROTH Tech Conference, both in New York City; the Southwest IDEAS Conference in Dallas; and the NASDAQ Investor Conference in London. Please reach out to your representatives at those firms if you'd like to schedule a meeting. At this point, Haley, we are ready to take questions. Operator: [Operator Instructions] Our first question comes from the line of Kevin Garrigan from Jefferies. Unknown Analyst: Congratulations on the strong results. I just want to drill in on the consumer IoT side. So just wondering if you can walk us through your biggest prospects as we look for the rest of the year and into 2026. And your first agreement with an EV charging manufacturer, do you guys see that -- see the EV charging space being a significant contributor to ARR growth? Lawrence Chen: Kevin, this is Liren. Regarding the consumer electronic IoT space, if you look at -- this is really a class of multiple opportunities. Our largest single opportunity under the consumer electronics is smart TVs where we continue to make progress. We have licensed the largest TV maker, Samsung. We are currently working on with multiple use, the next few players, including LG, Hisense and TCL. So that's our largest opportunity. Regarding IoT opportunities here, we also have quite a different collections, including automobile, EV charging as we announced today and a few other consumer-driven IoT platforms. One more thing I also want to emphasize is in our consumer electronics also include PCs and desktops. So if you go our supplemental deck on our IR website, we have to try to break it down what the size of market where we are in each segment. Regarding your question for EV charging, we do think that it's an interesting market for us. It's growing because some of the charging market is consumer-driven, some of them is commercial driven, and they have different technology in there. Some of them is Wi-Fi enabled and some others that we have cellular connectivity, and we try to get a value that's fair towards the technology that's incorporated in those devices -- those stations. Unknown Analyst: Got it. Okay. That makes sense. And then as a follow-up, can you just explain a little bit more on how you plan to integrate Deep Render with your own video codec technology and not to give away any plans, but are there other companies out there that you're looking into to kind of complement your streaming business? Lawrence Chen: Kevin, yes, good question. This morning, we announced the closing of Deep Render. Deep Render is a start-up company. They are headquartered in London. And what they have been focusing on is this thing called native AI for video CUDA end-to-end. So it's really a more different way of solving the problem end-to-end by incorporating the AI function from bottom up. So we introduced an AI team. We have been working on video space for, frankly, many, many years. And the native AI function is one of the areas we have been working on. But by acquiring this team, we added a lot of really strong expertise, speed up our AI capability for the native AI video research. And interesting enough, it's also a critical juncture of time for next generation of video standard that's coming under discussion. So we feel we have a strong chance of integrating some of the AI feature into the next video standard. And then lastly, as part of the acquisition, we bought the different IP patent portfolio team and patent portfolio. So there are some AI patents and video patents, and we are in the process of integrating. So it's a strategic acquisition, and we feel very good about it. Regarding other opportunities, we frankly have a very robust pipeline. We are looking at all kinds of different opportunities and have a dedicated team passing through them and -- but I don't have anything else to report at this time. Operator: Our next question comes from the line of Scott Searle from ROTH Capital. Scott Searle: I apologize, Liren, if this was covered earlier, I got on the call a little bit late. But in terms of the Disney injunction, I'm wondering if you could give us an update in terms of what next steps there are that we should be looking for as you go forward. And how this is impacting conversations and discussions with other streaming vendors? Lawrence Chen: Yes. So regarding Disney injunction, in my prepared remarks, we received the injunction by the court in Brazil. The injunction was supported by third-party independent expert the court has appointed, which frankly support our position on all the important issues. The trial court issued the injunction and Disney actually appealed the injunction. And in the appeal court, we restated the injunction. So the injunction is currently in effect, but the court has given Disney until end of November to comply, November 30, if I remember right. So needless to say, we are watching monitor situation quite carefully, and I don't want to speculate on what Disney will do from there. But it's also worth noting that the Brazil PI injunction is just one step of a multi-jurisdictional enforcement we have been taking on. As we disclosed in the 10-Q filing with a lot of details, we have multiple cases coming up for trial in Germany, in UPC and in the United States, every starting this month, starting October. So there's over a dozen patent cases that are going to trial between now and mid of next year. So needless to say, we feel good about the position we are in. And -- but in the meantime, we are always open for negotiations. Scott Searle: Got you. And just to follow up on that. Has that actually improved the dialogue with Disney or impacted any other conversations you're having with other streaming vendors? Lawrence Chen: Yes, Scott, I can't get into the discussions with specific vendor. We're mostly under NDA. But I can assure you that the industry is paying attention and every progress we made with different enforcement, I do think it is giving us an even stronger position in a lot of negotiations. Scott Searle: Got you. Two more and then I'll get back in the queue. Just in terms of a deep under to dive down a little bit more, do you see this as helping with the existing streaming customers in terms of enhancing your product portfolio there and really being able to get monetization across the goal line? Or is this going to predominantly open up some other opportunities? There's a lot of Edge AI that goes on, which sounds like some of the Deep Render patent portfolio would seem to cover. So I'm wondering, is it for existing core opportunities? Or does this really expand the product breadth that you've got now within the video codec and streaming market? Lawrence Chen: Yes. Scott, for the Deep Render opportunity, they are currently in a stage of start-up. So when we acquire them, they don't really have revenue obtaining customers. However, we are super excited about the technology. The technology, as I explained earlier, was really based on this native AI end-to-end. We actually believe it's a new paradigm to solve the video delivery problem across Internet. As you are aware, video is super important for many use cases. About 80% of Internet traffic on every single day is driven by video. So be able to come up with a brand-new way of solving that problem is super exciting for us. So regarding how we plan to monetizing it, frankly, we believe we have multiple options. But as of today, we are not really trying to determine exactly how we're going to make money other than solving the most difficult problems, making sure our technology is leading the industry and obviously making sure we build a strong patent portfolio built on what we already have and the different patent portfolio they are merging with our portfolio as well as new IP we continue to do that. Scott Searle: Got you. And then maybe I'll just throw in too quickly at the end. AI in general, you guys have been investing not just with Deep Render, but organically within the organization in terms of AI capabilities, which have, I think, from a 5G and 6G standpoint, kind of facilitated your core business there. But is there an explicit opportunity to license AI as it is as a stand-alone? And then second, from an M&A standpoint, you guys have not been particularly acquisitive in recent history outside of Technicolor. Now you've added Deep Render to that. Are there -- how aggressive are you thinking about the opportunities as you go forward over the next several years? It sounds like there's a pipeline of opportunities there, but is it really a stated goal to close some things as we look out over the next 2 to 3 years? Lawrence Chen: Thanks, Scott. Yes, as you acknowledge, we have very deep depth in AI expertise. We have a dedicated team. We've been working in AI field for multiple decades. And our CTO, Rajesh Pankaj, is actually industry recognized AI leader, spans wireless AI and video space. So our current main sort of leverage of AI technology to apply AI to solve foundational problem in wireless and video systems. As you are aware, upcoming 6G standard, the native AI built in wireless is a key research area that we are leading. Regarding monetization strategy here, Scott, I really think there will be multiple opportunities for us to monetizing AI technology, but we have a very robust existing technology-driven standard-driven IP licensing model, but I believe AI could give us new opportunity as we keep on driving the technology forward. Regarding the M&A pipeline here, as I referred a little bit earlier, we have a dedicated team internally actually led by our Chief Growth Officer, Ken Kaskoun. And we process a lot of opportunities. Some are bigger ones that may be driven by IP assets. Some others are driven by technology development as we have done through the Deep Render. But our bar is very high. And with our recent business success. As Rich referred to here, we have a very strong balance sheet and we believe give us a different opportunity we can pursue them. Operator: Our next question comes from the line of Arjun Bhatia from William Blair. Unknown Analyst: [ Linda Lee ] here on for Arjun. I wanted to ask just to piggyback on the prior question regarding the acquisition. What other areas within the existing focus points of technology IPs are you looking forward to in adding additional fields through M&A? Lawrence Chen: Yes. So regarding the M&A space here, we are frankly testing fairly wide net. As you are aware, our 3 pillars of research is wireless, radio and artificial intelligence. And we continue to look at to say do we have the industry-leading team? Do we have the key research in those areas that's driving things forward? But we frankly also look at the adjacent area. We are always sort of applying those opportunities with different criteria, right? We want to make sure we have critical mass that we can move the industry. We also like to see how we can build a competitive advantage over a long period of time. And then frankly, with our increasing balance sheet and financial capability, we also try to look for bigger opportunities over time. Unknown Analyst: That's helpful. And in terms of the Transcend litigation, you announced today that you are officially going on the litigation. Can you just give us maybe any more color in terms of maybe timeline and additional kind of color in terms of that in general? Lawrence Chen: Yes. So as I said in the prepared remarks, we have frankly built a lot of momentum in the smartphone licensing program. We currently licensed 8 of the top 10 smartphone vendor already that essentially make up roughly 85% of the market. So Transcend is the largest on-licensed vendor as of today. They make roughly 100 million devices per year. And those devices tend to be lower end and selling to emerging market. So we have been negotiating with them for multiple years, and we feel we have made them multiple really fair offers. But so far, they have refused to take our offer. So we feel it's necessary for us to defend our position for IP and frankly equally important to set a level in greenfield with other customers who are paying us licensing fee, right? It's not fair that they got a free right of our IP. So we have launched a multi-jurisdictional patent litigation against them. That's in UPC, that's in India and Brazil. Those are a significant market for them. It's hard to predict precisely timeline because some of the cases are frankly still being processed by a court. We don't have definite date yet. And -- but it's always -- during litigation, we always try to negotiate a patent licensing deal with the party involved. And even though the timing precisely is hard to predict, but given our history, we frankly have a very strong track record of if we have to enforce our right, and we almost always end up with a bilateral agreement that's fair to both party. Operator: Thank you. At this time, I'm showing no further questions in the queue. I would now like to turn it back to Liren Chen for closing remarks. Lawrence Chen: Thank you, Haley. Before we close, I'd really like to thank all our employees for their dedication and contribution to InterDigital, as well as many partners and licensees for a very strong quarter. Thank you all for everyone for joining today's call, and we look forward to updating you on our progress next quarter. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Good morning, everyone, and welcome to the MYR Group Third Quarter 2025 Earnings Results Conference Call. [Operator Instructions] Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Jennifer Harper, MYR Group's Vice President of Investor Relations and Treasurer. Please go ahead, Jennifer. Jennifer Harper: Thank you, and good morning, everyone. I would like to welcome you to the MYR Group conference call to discuss the company's third quarter results for 2025, which were reported yesterday. Joining us on today's call are Rick Swartz, President and Chief Executive Officer; Kelly Huntington, Senior Vice President and Chief Financial Officer; Brian Stern, Senior Vice President and Chief Operating Officer of MYR Group's Transmission and Distribution segment; and Don Egan, Senior Vice President and Chief Operating Officer of MYR Group's Commercial and Industrial segment. A copy of yesterday's press release is available on the MYR Group website at myrgroup.com under the Investors tab. A webcast replay of today's call will be available on the website for 7 days following the call. Please note today's discussion may contain forward-looking statements. Any such statements are based upon information available to MYR Group's management as of this date, and MYR Group assumes no obligation to update any such forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Accordingly, these statements are no guarantee of future performance. For more information, please refer to the risk factors discussed in the company's most recently filed annual report on Form 10-K and quarterly report on Form 10-Q and in yesterday's press release. Certain non-GAAP financial measures will also be presented. A reconciliation of these non-GAAP measures to the most comparable GAAP measures is set forth in yesterday's press release. With that, let me turn the call over to Rick Swartz. Richard Swartz: Thanks, Jennifer. Good morning, everyone. Welcome to our third quarter 2025 conference call to discuss financial and operational results. I will begin by providing a summary of the third quarter results and then we'll turn the call over to Kelly Huntington, our Chief Financial Officer, for a more detailed financial review. Following Kelly's overview, Brian Stern and Don Egan, Chief Operating Officers for our T&D and C&I segments, will provide a summary of our segment's performance and discuss some of the MYR Group's opportunities going forward. I will then conclude today's call with some closing remarks and open the call up for your questions. The strength of our long-term customer relationships and a strong market position resulted in a solid third quarter performance. Our teams continue to execute projects with operational excellence and expand existing client relationships through master service and alliance agreements across our districts. Bidding activity remains healthy as we strategically pursue and capture new opportunities that position us for potential future growth. The Edison Electrical Institute's (sic) [ Edison Electric Institute's ] 2024 Financial Review released earlier this month, projects that U.S. investor-owned utilities will exceed $1.1 trillion in combined capital investments for 2025 through 2029. More than $123 billion of this is forecast to be spent on transmission in the first 3 years from 2025 to 2027. The report also found that electric utilities are on pace to spend nearly $208 billion on grid upgrades and expansions in 2025, the highest amount ever. Growing demand for electrification, a focus on grid monetization and hardening and technology advancements continue to be strong market drivers and could present opportunities for consistent success across our business. According to FMI's 2025 North American Engineering & Construction Outlook released in July, chosen key markets for our C&I segment are forecasted for healthy growth through 2025 and into 2026, including data centers, transportation, health care, education and wastewater construction. By expanding existing relationships with our preferred customers, and strategically bidding and expanding work in our chosen markets, we continue to experience a steady backlog of work and could see potential growth moving forward. As always, our greatest strength lies within our talented and dedicated employees. We continue to develop and empower our teams to reach their highest potential as we grow our company. Our team members strive to provide excellence in safety and project delivery, helping our customers achieve their business goals. Now Kelly will provide details on our third quarter 2025 financial results. Kelly Huntington: Thank you, Rick, and good morning, everyone. Our third quarter 2025 revenues were $950 million, which represents an increase of $62 million or 7% compared to the same period last year. Our third quarter T&D revenues were $503 million, an increase of 4% compared to the same period last year. The breakdown of T&D revenues was $293 million for transmission and $210 million for distribution with increases in revenues from both transmission and distribution projects from the prior year. Work performed under master service agreements continue to represent approximately 60% of our T&D revenue. C&I revenues were $447 million, an increase of 10% compared to the same period last year. The C&I segment revenues increased primarily due to an increase in revenue on fixed price contracts. Our gross margin was 11.8% for the third quarter of 2025, compared to 8.7% for the same period last year. The increase in gross margin was primarily due to the third quarter of 2024 being negatively impacted by certain T&D clean energy projects and a C&I project. In the third quarter of 2025, gross margin was also positively impacted by better-than-anticipated productivity, favorable change orders and favorable job closeouts. These margin increases were partially offset by an increase in costs associated with project inefficiencies, unfavorable change orders and inclement weather. T&D operating income margin was 8.2% for the third quarter of 2025 compared to 3.6% for the same period last year. The increase was primarily due to the third quarter of 2024, being negatively impacted by certain clean energy projects as well as favorable change orders and better-than-anticipated productivity on certain projects during the third quarter of 2025. These increases were partially offset by higher costs related to project inefficiencies, unfavorable change orders and inclement weather. C&I operating income margin was 6.4% for the third quarter of 2025 compared to 5.0% for the same period last year. The increase was primarily due to the third quarter of 2024, being negatively impacted by a single project as well as contingent compensation expense related to a prior acquisition that did not recur in the third quarter of 2025. Operating income margin for the third quarter of 2025 was also positively impacted by better-than-anticipated productivity and favorable job closeouts. These positive drivers were partially offset by unfavorable change orders and higher costs related to project inefficiencies. Third quarter 2025 SG&A expenses were $66 million, an increase of approximately $8 million compared to the same period last year. The increase was primarily due to an increase in employee incentive compensation costs and an increase in employee-related expenses to support future growth. These increases were partially offset by contingent compensation expense related to our prior acquisitions recognized during the third quarter of 2024 that did not recur. Our third quarter effective tax rate was 28.3% compared to 42.5% for the same period last year. The decrease was primarily due to lower permanent difference items, mostly associated with deductibility limits of contingent compensation experienced in the prior year, as well as lower U.S. taxes on Canadian income. Third quarter 2025 net income was a record $32 million, compared to net income of $11 million for the same period last year. Net income per diluted share of $2.05 increased 215% compared to $0.65 for the same period last year. Third quarter 2025 EBITDA was a record $63 million compared to $37 million for the same period last year. Total backlog as of September 30, 2025, was $2.66 billion, 2.5% higher than a year ago. Total backlog as of September 30, 2025, consisted of $929 million for our T&D segment, and $1.73 billion for our C&I segment. Third quarter 2025 operating cash flow was a record $96 million compared to operating cash flow of $36 million for the same period last year. The increase in cash provided by operating activities was primarily due to the timing of billings and payments associated with project starts and completions and higher net income. Third quarter 2025 free cash flow was $65 million, compared to free cash flow of $18 million for the same period last year, reflecting the increase in operating cash flow, partially offset by higher capital expenditures to support future growth. Moving to liquidity and our balance sheet. We had approximately $267 million of working capital, $72 million of funded debt, and $400 million in borrowing availability under our credit facility as of September 30, 2025. Funded debt-to-EBITDA leverage remained strong at 0.34x as of September 30, 2025. We believe that our credit facility, strong balance sheet and future cash flow from operations will enable us to meet our working capital needs, support the organic growth of our business, pursue acquisitions and opportunistically repurchase shares. I'll now turn the call over to Brian Stern, who will provide an overview of our Transmission and Distribution segment. Brian Stern: Thanks, Kelly, and good morning, everyone. The continued focus on strengthening and expanding existing relationships with key customers, along with executing our work to their expectations, led to solid third quarter results in our T&D segment. We continue to see steady bidding activity and are pleased with our strong backlog consisting of master service agreements and a healthy mix of various sized projects. This quarter, L.E. Myers was awarded a midsized transmission line rebuild project in North Carolina as well as substation and transmission work in Iowa. In addition, High Country Line Construction won multiple transmission line projects in the Midwest, while E.S. Boulos and Harlan Electric were awarded substation and transmission work, respectively, throughout the Northeast. Great Southwestern Construction received transmission line and substation project awards in Texas, with Sturgeon Electric winning work in Arizona, Oregon and Alaska. As Rick mentioned, we are seeing significant investments in electrical infrastructure throughout North America. Utilities continue to invest in upgrading and expanding their electric infrastructure driven by several factors, including aging infrastructure, concern over resiliency and reliability and the need to accommodate larger load growth. After roughly 2 decades of flat electricity demand, it is now growing rapidly and driving the need for electric infrastructure investments. According to Power Insights 2025 North American transmission market forecast released in September, report forecast 9.1% compound annual growth rate in transmission spending from 2024 to 2029. In summary, we believe these encouraging forecasts could generate growth opportunities for our business as we continue a firm dedication to our customers and a strict adherence to our operating principles. I'd like to thank all of our talented employees for their commitment and effort in making our success possible. I will now turn the call over to Don Egan, who will provide an overview of our Commercial and Industrial segment. Don Egan: Thanks, Brian, and good morning, everyone. Our C&I segment achieved solid results in the third quarter, thanks to the strength of our chosen core markets. We continue to strategically monitor and pursue new opportunities in a healthy bidding environment while executing projects of various sizes in close collaboration with our valued customers. Recent market outlook suggest positive indicators for the segment. The Dodge Momentum Index increased 3.4% in September and commercial planning expanded 4.7% in the same period. Year-to-date, the DMI is up 33% from the average reading over the same period in 2024. The unprecedented growth in spending on data centers is expected to continue at an elevated pace. According to the American Institute of Architects, the AIA July 2025 Consensus Construction Forecast reported that after increasing more than 50% in 2024, data center spending is expected to grow by an additional 20% in 2026. These encouraging forecasts could generate growth for our business and we continue to leverage our expertise to place us in a leading position to win opportunities in these markets while bolstering our strategy to remain diversified across our chosen core markets. In the third quarter, our teams across all subsidiaries earned multiple awards and secured new work in each of our core markets. This includes wins in data centers, health care, clean energy, warehousing, higher education and transportation. These achievements reflect our continued momentum and strong market presence across the U.S. and Canada. To conclude, our chosen core markets are healthy and the strength of our customer relationships continue to generate additional opportunities. This is thanks to our committed employees and their daily dedication to executing projects with a safety-first mindset. Thanks, everyone, for your time today. I will now turn the call back to Rick, who will provide us with some closing comments. Richard Swartz: Thank you for those updates, Kelly, Brian and Don. Due to the strength of our core markets and our ability to bolster and broaden our customer relationships to create growth opportunities. We are proud of our third quarter performance. Our focus remains on safely executing projects, strategically bidding opportunities, and meeting the needs of our customers as they adapt to dynamic market conditions and a shifting energy landscape. This is supported by our continued investment and development of our teams across the company as our people enable us to maintain our status as an industry leader by the work they perform every day. Our commitment to our employees and customers is the foundation we built from to remain a strong and agile partner for customers. I would like to extend a thank you to our employees for their invaluable contributions and to our shareholders for your continued support of MYR Group. I look forward to connecting with you in the future quarters. Operator, we are now ready to open the call up for your comments and questions. Operator: [Operator Instructions] And our first question comes from Sangita Jain of KeyBanc. Sangita Jain: So first, if I can ask on C&I margins. There were considerably stronger than they have been in the recent quarters, even though you had a negative change order. So can you talk a little bit about that and how we should think about those C&I margins going forward? Richard Swartz: Yes, I would say we did have a slight negative there. But overall, we had some positive adjustments too. So our margins were a little higher than what we projected coming into this year. I think as we look to next year, I would say our margin profile is probably -- we've always said it's going to be in that 4% to 6% in the past. And I think as we look into next year, it will kind of go to the mid-range of kind of that 5% to 7.5%. So we're upping that a little bit as we forecast out next year with probably 10-ish percent growth, both in our C&I and T&D areas. Sangita Jain: So 10% core growth -- sorry, go ahead, Kelly. Kelly Huntington: I was just going to say, to elaborate just looking at full year for C&I, given that we have been trending a little higher, we are expecting that we'll be in the upper half of the target range for this year of the 4% to 6% for full year '25. And then as Rick mentioned, looking to raise that expectation for next year to that 5% to 7.5% range. Sangita Jain: Okay. Did I just hear, like, you say, 10% for next year? No, or did I get that wrong? Richard Swartz: I would look for 10%-ish revenue growth. Sangita Jain: 10% revenue growth company-wide? Richard Swartz: Yes. Sangita Jain: Okay. Great. But 5% to 7.5% in C&I? Richard Swartz: Yes, with our margin profile remaining the same on T&D, that 7% to 10.5% and probably operate in the mid-ish range of those numbers just because we're not seeing the large projects really roll in until 2027. Sangita Jain: Okay. That's helpful. And then I appreciate the breakdown of the new awards in the quarter on the T&D side. Does -- how sizable are they in the sense that does that change your breakdown between MSA and non-MSA work in that segment? Richard Swartz: No, we really didn't speak anything about large projects coming into our backlog. So it's small and midsized. So somewhere in that same range where we've been, I would say, is kind of how we're forecasting it for this next quarter. Operator: And our next question comes from Andrew Wittmann of Baird. Andrew J. Wittmann: Everybody wants to talk about data centers. So let's talk about data centers. I mean, obviously, this is a growth end market for electricians, broadly speaking, Rick, in the past, and we've talked to you about this, you like totally see the opportunity there. You're open to it. You've always said we don't want to abandon our legacy customers everywhere else as well. But just kind of wanted to get an update on your view here. Is this market evolving faster and bigger than you maybe thought 6 months ago? And how is your company approaching the data center opportunity? Are you going to go for it directly or wait for overall demand to lift demand for the types of services you offer and still compete in the traditional end markets as well. I was just wondering if you could talk about that, maybe the simple way of asking that question, of course, is do you expect the data center as a percentage of your C&I mix to materially increase or not? Richard Swartz: I think as we go forward, data centers could increase, but our other core markets are very strong to within C&I. So when we talked about the overall market we're in, whether it's wastewater or hospitals or solar even on that side, and we see good growth opportunities there. So really not focused on just data centers. But again, a lot of good opportunities going forward, but I don't see that outpacing the other segments at this point. Andrew J. Wittmann: Got it. Okay. And then I guess I wanted to follow up on your balance sheet and your ability and desire to deploy capital. Obviously, balance sheet like normal is in a very good spot here. Historically, you've done some M&A pretty consistently over the years. But the dynamics and the growth rates behind your business have changed and have got to think the multiples like your own stock multiple are up. I was just wondering kind of, Rick, what you're seeing out there and your desire as well as your ability to deploy M&A capital in an environment like this where prices are up? What do you think? Richard Swartz: The multiples are definitely up. I mean, as you said, our multiple is up. But when we look at it, for us, it's really just focused on that right strategic fit. There's opportunities out there. But again, it's got to fit us from a cultural fit and then from a structural fit. So we continue to look at them and evaluate them. And there's quite a bit of activity out there, so that's positive. And hopefully, we can capitalize on the right opportunity, but our balance sheet enables us to really go after any acquisition. We've always said that our kind of goal is to anything within that annual revenue of $50 million to $60 million is kind of our target. We're not looking for something transformational. But again, we continue to see good activity in that market and just trying to find the right fit. Operator: And our next question comes from Jon Braatz of KA-CCA. Jon Braatz: Rick, on the margin profile for the C&I segment, you increased the range a little bit. Does that reflect market conditions or execution? Richard Swartz: I would say both. I think our -- we're always focused on execution, how we better improve our performance out there, but also seeing some market -- I guess, expansion in our margins within the market. So we push margins every chance we get, but we're also focused on our own performance. So I would say it's a mixture of the two. Jon Braatz: Okay. And then industry-wide in the T&D segment, every time you read a report from utility companies, they talk about accelerating spending plans. And I guess from an overall perspective, Rick, does -- is there enough labor out there to meet this demand that seems to be forthcoming? And if not, is there going to be some opportunity to take some additional margin? Richard Swartz: Well, we hopefully -- we definitely hope so, and that's the way we've always said it. I mean as we look out into this market, it's an elongated market, and it's going to go out for years. Not all these projects are going to be built overnight. And it's just not the labor side. It's also the material shortages or those time delays on that material coming in. So I would say those cycles on material aren't getting any shorter. So I think it's a balancing act between kind of the labor availability in the market, but also the material availability. So I would say lots of early conversations with our clients, very positive on the conversation, but really a number of customers are concerned about what they're going to build more or less in '26. They're more concerned about what they're going to build in '27, '28, '29 and beyond. So very good conversations going on. Operator: Our next question comes from Brian Brophy of Stifel. Brian Brophy: I appreciate the thoughts on 2026. I'm curious if you're expecting any change to some of the high single-digit growth, excluding solar and T&D and C&I that you've communicated for this year? Richard Swartz: As Kelly said, we're running a little ahead of that on the T&D side. C&I is right in that range for kind of that overall revenue growth. So we see that coming in maybe a little stronger on the C&I -- or on the T&D side and kind of maintaining where we're at on the C&I side this year. Kelly Huntington: So we're at up 10% so far year-to-date on C&I. Brian Brophy: Got it. That's helpful. And then just curious, the latest you're hearing from your customers on large transmission project opportunities and what that outlook would look like as we look out a couple of years? Richard Swartz: It's strong on that side. I would say lots of good conversations going on, lots of good activity. We're doing a lot of budgeting with our clients, a lot of working with our clients on longer-term projects. So again, remains a very active market. Those projects, as I said before, they are large projects that we're discussing aren't going to start in '26, but they'll start in '27, '28, '29. And we're even having conversations with clients on projects that go out past then. Operator: Our next question comes from Ati Modak of Goldman Sachs. Ati Modak: Rick, can I ask you for directional comments relative to that 10% overall revenue growth you talked about for '26. Is that a decent bogey for a run rate expectation based on everything that you're seeing in the market? Or what factors would you ask us to consider as we think about that? Richard Swartz: Well, I would say it doesn't have -- we don't forecast a dip in the economy or a dip in anything going forward with our clients as far as pulling back work when we look at the project availability and the current market. I would say that's how we're forecasting it right now with that kind of 10-ish percent overall growth and pretty equally spread between C&I and T&D as we see it today. Ati Modak: Got it. That's super helpful. And then maybe, Kelly, one for you, no buybacks this quarter. Just curious if there's anything to point out there or point out in terms of related to near-term capital allocation program? Kelly Huntington: Sure. So you're right. We did announce that program at the last earnings call for another $75 million, and we continue to look at that opportunistically. So it remains part of our capital allocation strategy. But I would say, as usual, we are prioritizing directing capital towards growth. So on the organic side, that kind of comes in the form of both our capital expenditures, which you could see this quarter did trend a little higher, part of that was timing from earlier in the year, but part of that is to support that longer-term growth that we see, particularly on the T&D side, which is, of course, the more capital-intensive side of the business. So that we could see running closer to 3% of revenue, given the growth opportunity that's out there. And then I would say, back to Rick's answer to the earlier question, we're also in a really good position to pursue acquisitions that are the right fit, so continue to be active in evaluating opportunities there. So I think just to summarize, I'd say we're in a great position to do all three. Operator: And our next question comes from Julien Dumoulin-Smith of Jefferies. Brian Russo: It's Brian Russo on for Julien. Just to follow-up on the T&D segment. How should we think about your current MSAs or new or potentially enhanced MSAs with the upward CapEx provisions that we're seeing with many of your large utility customers already this quarter? Is that part of what might be driving the 10% -- 10-ish percent growth in that segment in '26 over high single digits in '25? Richard Swartz: Yes, that's definitely a component of it. As we look at that, our -- most of our customers are forecasting some increased spend next year and as we said then, in future years beyond that, we'll see some large projects hopefully come into the mix. But I would say it's increased spend on MSA is a good component of that. Brian Russo: And with the whole labor shortage, maybe backdrop in the latter years, say, '27, '28, when you resign your MSAs, do you have more leverage in terms of the premium for skilled labor? Or should we just kind of assume similar margins as they are today? Richard Swartz: Well, I think we're always pushing on our performance to outperform where we've been. But with that being said, 90 -- over 90% of our clients are return clientele. So we're always going to treat those clients fair. We're going to look at our productivity side, and we're going to try to enhance our margins where we can. But again, always treating our customers fairly. Brian Russo: Okay. And then lastly, I appreciate the project discussions at T&D earlier. Could you kind of triangulate any of those projects that might be more significant than others? Or what was added to the September backlog or that is still to be added? Richard Swartz: I would say our backlog, we always capture it at a month end. So again, it's always going to be lumpy at any given time. I think when you're looking at -- as we said, no large project came into it, Brian talked about some of the projects, smaller and midsized projects that were captured, and we see that continuing. But again, we -- I would say we don't get down to a customer by customer, but good activity in all the markets we're in, and we pretty much have coast-to-coast coverage a little bit into Canada. So pretty excited about the opportunities that lie in front of us. Operator: I'm showing no further questions in the queue. I would now like to turn the call back over to Rick Swartz for any additional or closing remarks. Richard Swartz: To conclude, on behalf of Kelly, Brian, Don and myself, I sincerely thank you for joining us on the call today. I don't have anything further, and we look forward to working with you in the future and speaking with you again on our next conference call. Until then, stay safe. Operator: Thank you. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Good day, and welcome to the Escalade Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Wes Smith, Vice President of Financial Reporting and Investor Relations. Please go ahead. Wes Smith: Thank you, operator. On behalf of the entire team at Escalade, I'd like to welcome you to our Third Quarter 2025 Results Conference Call. Leading the call with me today is Interim President and CEO, Patrick Griffin; and Stephen Wawrin, our Chief Financial Officer. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law, we undertake no obligation to update our forward-looking statements. At the conclusion of our prepared remarks, we will open the lines for questions. With that, I would like to turn the call over to Patrick. Patrick Griffin: Thank you, Wes, and welcome to everyone joining us on today's call. Before I discuss our third quarter results, I'd like to address the leadership transition that we announced this morning. Effective October 29, I was appointed Interim President and CEO by the Board and replaced Armin Boehm, who departed the company on that same date. On behalf of the company, I want to thank Armin for his contributions over the last several months. We wish him the best in his future endeavors. I want to assure our investors, employees and customers that this transition does not reflect any disruption to our strategic direction or our operations. The Board and leadership team remain fully aligned and committed to executing our long-term vision, and we remain focused on delivering exceptional consumer experiences, building enduring brand loyalty and maintaining operational excellence. These principles have defined who we have been for more than 5 decades as a public company and they continue to guide us today. As many of you know, I've had the privilege of working at Escalade for the past 23 years and have served as a member of the Board of Directors since 2009. As a result, I will work to ensure that this leadership transition will be as seamless as possible for all the stakeholders. Finally, the Board and executive leadership team are confident in our path forward, and we remain sharply focused on creating value for our shareholders. Turning now to our third quarter results. We experienced improved results driven by solid demand across most of our portfolio of leading brands as well as cost discipline and operational efficiency. We achieved these results despite heightened consumer uncertainty and ongoing tariff-related costs. Net sales [Audio Gap] of net sales. Margin improvement was driven by lower manufacturing and logistics costs, benefits from our ongoing footprint rationalization and tariff mitigation initiatives. Importantly, we believe our third quarter margins represent a sustainable level of performance absent any unforeseen cost or tariff pressures. Top line growth was led by [Audio Gap] continued investment in innovative high-quality products positions us well in an environment where consumers are increasingly focused on both value and quality. These efforts have enabled us to gain market share in this dynamic market environment. As discussed on our prior calls, we have executed a proactive tariff mitigation and supply chain readiness strategy. This playbook not only supported margin expansion this quarter, but has also positioned us well for the holiday shopping season as we strategically manage our inventory levels and assortment. Beginning in July, we implemented a series of targeted price increases across our portfolio. Our approach was surgical, grounded in careful analysis of price elasticity and market dynamics. These price increases reflect a balanced approach to share the impact of tariffs across the supply chain while preserving competitiveness and protecting margins. Our teams continue to closely monitor trade policy developments and will recalibrate as needed. Looking ahead to the fourth quarter, we anticipate consumer spending to remain cautious, consistent with broader retail trends, which are likely to result in softer holiday sales compared to recent years. Notably, we have observed a shift in consumer spending patterns across our portfolio with strong demand for premium products, while demand for lower-priced products is softening. Persistent economic and geopolitical volatility has weighed on consumer confidence and sentiment, particularly with middle and lower-income consumers. With price sensitivity elevated, many of these consumers are delaying higher ticket purchases, trading down or waiting for promotional opportunities. In response, we are collaborating closely with our retail partners to drive value-oriented marketing and promotional strategies for certain segments of the market, highlighting products that resonate most with consumers and aligning pricing and inventory with demand trends. Our proactive supply chain management over the past 6 months ensured that we are well prepared for the holiday season. We are ahead of schedule from an inventory delivery perspective and are fully prepared to capitalize on the entire holiday shopping season. While navigating through near-term headwinds, we remain firmly focused on our long-term strategy of investing in product innovation and brand development to strengthen our market leadership and to enhance the consumer experience. Through our investments, we are positioning Escalade for above-market growth and long-term value creation, anchored by leading brands defined by quality, innovation and durability. We are focused on strengthening our brands through strategic partnerships. Recent collaborations in archery, basketball and billiards are helping elevate visibility and consumer engagement. We've seen this model succeed with our Pickleball and Cornhole brands, and we expect similar results as we expand this strategy across our brand portfolio. During the quarter, we launched our 2026 archery assortment, which included over 30 products across our Bear, Trophy Ridge and Cajun brands. Early response from consumers to these new products and cutting-edge innovations has been good. These new products include the Redeem and Alaskan Pro archery bows, offer advanced technology and performance at unparalleled price points. Within Trophy Ridge, our refreshed accessory lineup includes the #1 selling Whisker Biscuit arrow rest, continues to reinforce our market leadership in the archery category. During the third quarter, we also completed the acquisition of Gold Tip from Revelyst. This acquisition aligns closely with our long-term strategic and financial criteria and will allow us to achieve greater scale and unlock additional synergies. Gold Tip's 20-year heritage in carbon arrows, along with Bee Stinger's premium stabilizers, enhances our category leadership and broadens our product offering to archery and bowhunting customers. We are actively integrating this business into our operations and expect this acquisition will be accretive to earnings in 2026. Looking ahead, we will continue to pursue additional tuck-in acquisitions that are both financially accretive and strategically aligned. At the same time, we will maintain a disciplined focus on balance sheet strength by prioritizing debt reduction, consistent dividends and opportunistic share repurchases to support shareholder value creation. We also continue to emphasize community engagement as an organization and with our team members. We are particularly passionate about supporting initiatives that foster positive change, bring people together and encourage healthy active lifestyles. As the latest example, we partnered with Project Blackboard and the Chicago Sky WNBA team to completely transform the basketball court at the Anna R. Langford Community Academy in Chicago. We look forward to continuing our community outreach efforts. In summary, I am proud of our team's continued discipline, execution and strategic progress in the third quarter. While the consumer environment remains challenging, we are well positioned to navigate near-term uncertainty and deliver long-term value for our customers and shareholders. With that, I'll turn the call over to Stephen for a review of our third quarter financial results. Stephen Wawrin: Thank you, Patrick. For the 3 months ended September 30, 2025, Escalade reported net income of $5.6 million or $0.40 per diluted share on net sales of $67.8 million. For the third quarter, the company reported gross margins of 28.1% compared to 24.8% in the prior year period. The 344 basis point increase in gross margin was primarily the result of lower operational costs driven by our facility consolidation and cost rationalization program, a reduction in storage and handling costs, partially offset by $4.3 million in tariff-related costs. Selling, general and administrative expenses during the third quarter decreased by 4.1% or $0.5 million compared to the prior year period to $11.2 million. Earnings before interest, taxes, depreciation and amortization decreased by $1.3 million to $8.6 million in the third quarter of 2025 versus $9.9 million in the prior year period. This decline primarily reflects the absence of a onetime $3.9 million gain on the sale of assets recognized in the third quarter of last year. Total cash used from operations for the third quarter of 2025 was $1 million compared to cash provided by operations of $10.5 million in the prior year period. The year-over-year decline in operating cash flow primarily reflects increased working capital usage, driven by the timing of quarter end accounts receivable collections and our strategic inventory investments in preparation for the ramp-up to the holiday season. As of September 30, 2025, the company had total cash and equivalents of $3.5 million. At the end of the third quarter of 2025, net leverage was 0.7x. As of September 30, 2025, we had $20.2 million of total debt outstanding. With that, operator, we will open the call for questions. Operator: [Operator Instructions] We have the first question from the line of Rommel D. from Aegis Capital. Rommel Dionisio: I wonder if you could just provide a little more granularity on these really strong market gains you guys are obviously displaying here with such solid top line performance despite a somewhat sluggish overall environment. You talked about archery, some major new product launches there. I wonder if you could just maybe touch on a couple of the other categories where you're seeing market share gains despite taking the price increase in July. Patrick Griffin: Thank you, Rommel. We've had pretty good success in other categories. Just an example, our safety category. We're taking market share there. We're a domestic manufacturer, and we've taken new opportunities against competitors that we're bringing in products. So we continue to see opportunities there. And then some of our other categories, and our games have done well as well. So we're, I think, poised for success with new products are going to continue to come out looking into the first quarter as well in the fourth quarter. Rommel Dionisio: Okay. Great. And maybe just a follow-up on that. You highlight some of the stronger categories, archery, table takes, billiards, and safety. I just happen to know pickleball wasn't in that list despite the growth in that market. Can you just maybe talk about that? Was just maybe an off quarter or timing of new product launches. I wonder if you could just touch base on that category in particular. Patrick Griffin: Yes. No, Rommel, thanks. Pickleball, we've been in pickleball a long time. It's a growing overall market, and you read about it in the news. And so when they're building courts, they're converting courts, and it's also a competitive category. So we're continuing to maintain the market share that we have at retail if you go into a DICK'S and Academy, and we're continuing to invest with new products with the hype we just launched, and that was well received. So over the long term, we're going to maintain our position in pickleball and continue to invest there. We think long term, it's going to be a sport that's going to be around for a long time. It's fun. It's easy to learn, and it's enjoyable. Rommel Dionisio: Great. Maybe I could just do one last one on costs. In the first quarter, I think you highlighted $1.6 million impact from tariff and this quarter's $4.3 million. A lot of moving parts there. It seems to change on a weekly basis. But can you provide any insight on what the impact could be going into the fourth quarter? Is it roughly in that $4 million range? Or is it -- is that going to drop off from some of the recent negotiations delivering some benefits? Patrick Griffin: Yes. No, that's a great question. As you know, that's a dynamic situation right now as you read the news this morning with what's supposedly been negotiated with the meeting with Trump and GE. So we'll watch that and see how that impacts what we're purchasing, and that will maybe take some time to get implemented. But directionally, we're expecting the impact to be lower in the fourth quarter relative to the third quarter. Operator: [Operator Instructions] We have the next question from the line of David Cohen from Minerva. David Cohen: A couple of questions unrelated to one another. First of all, could you give us a little more color on the management transition, what the time line is for hiring a permanent CEO and what traits you're going to be looking for in the new CEO? Patrick Griffin: Yes. Thanks, David, for the question. So I think the main color is to refer to the press release that we announced and the Board will gather and look for the permanent CEO and the traits that they want to focus on. But I would say it's one where there's a focus on -- that's aligned with our culture as a company that has a growth mindset. And that is focused on the business. David Cohen: Okay. The second question just relates to the comment about capital allocation and the continued focus on debt paydown. The debt level at this point is the lowest it's been in a long time. We're getting to a point where there's not going to be much more debt to pay down, which is obviously a happy problem. In your mind, does that change the priority list as to what we're going to be spending free cash flow on over the next 12 months? Patrick Griffin: That's a great question. When we think about leverage, we feel like we're in a good spot, but we don't mind having cash on the balance sheet as well. So we may be in a position we're building a cash position. We continue to look for acquisitions. We've got a nice pipeline of acquisitions. We were pleased to get the Gold Tip acquisition done this past quarter. And we think that's going to be a significant addition to our archery portfolio, which will start to play out in 2026. We're continuing to pay a dividend, and we think that's important. And then we'll look for share buybacks opportunistically as well. So that's another lever that we have. And then finally, we're investing in our businesses as well in terms of domestic production here and warehousing and other things along with brand building and tooling and other things. So we're pushing all the levers from a capital allocation point of view. Operator: Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Wes Smith for any closing remarks. Wes Smith: Thank you, operator. Once again, thank you for your interest in Escalade and joining our call. Should you have any questions, please feel free to contact us at ir@escaladeinc.com, and a member of our team will follow up with you. This concludes our call today. You may now disconnect. Operator: Thank you. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.
Zach Spencer: Good morning, and thank you for joining Comstock Inc.'s Third Quarter 2025 Earnings Call and Business Update. I'm Zach Spencer, Director of External Relations. Today is Thursday, October 30, 2025. We are streaming live, and this session is being recorded. A recording will be posted shortly after we adjourn in the Investor Relations section of our website. Today, we filed our Form 10-Q for the quarter ended September 30, 2025, and issued a press release summarizing third quarter results. Both documents are available on our website. As a reminder, Comstock is listed on NYSE American with the ticker LODE, L-O-D-E. Joining me today are Corrado De Gasperis, Comstock's Executive Chairman and Chief Executive Officer; and Judd Merrill, Comstock's Chief Financial Officer. After their prepared remarks, we will take questions. We received more than 45 questions in advance of the call. If you have additional questions during the call, please use the Zoom Q&A window, and we will address as many as time allows. Today's discussion will include forward-looking statements. Actual results may differ materially due to risks and uncertainties detailed in our SEC filings. Full risk disclosures can be found in our filings on the Investor Relations page and on the SEC website. With that, it is my pleasure to introduce our Chief Financial Officer, Judd Merrill. Judd, you may begin. Judd Merrill: Thanks, Zach, and good morning, everyone. Let me just first state that this was a transformative quarter for Comstock. We strengthened the balance sheet. We funded our growth plans, and we positioned the company for the next phase of commercialization. As you can see on the company dashboard, our share count stood at 51.26 million, and this is as of both September 30 and as of today, October 30, same share count. Today, I will be covering a few financial highlights for the quarter, and then Corrado will be giving an update on each of the companies. So as we move to the next slide, I just want to show that we started the quarter with a major milestone, an oversubscribed equity raise that brought in $34.5 million in gross proceeds, including the overallotment, and we netted $31.8 million. What was especially encouraging is that this raise expanded our institutional shareholder base by more than 30 new investors, which we believe is a strong vote of confidence in our long-term strategy. So those funds will do more than just strengthen our balance sheet. They finance and accelerate the launch of our R2v3 certified zero-landfill solar panel recycling business. This means we now have the capital we need to move from development into full-scale commercial deployment. Also this quarter, we placed $5.1 million of equipment deposits on our first industry-scale solar recycling facility that's in Silver Springs, Nevada. This facility is designed to process approximately 100,000 tons per year or over 3.3 million panels annually. And then also site selection is advancing for the next two U.S. facilities and storage locations. At the time -- at the same time of all these activities, we made a deliberate move to eliminate all of our debt from our books. Every convertible note, every promissory note gone. We executed a series of transactions across AST, LINICO, Northern Comstock and Haywood to make this happen. And as of the end of September, Comstock is completely debt-free compared to $8.5 million of debt at the end of the last year. So this is a big moment for us financially. It's one of the cleanest, strongest balance sheets Comstock has had. We also closed the purchase of the Haywood industrial mineral properties, which we previously paid with $2.2 million in cash and stock. And on the related sale closing received approximately $400,000 in cash, which further adds to our liquidity. And then we ended the quarter with $31.7 million in cash and equivalents, including $12.4 million at Bioleum and our net current assets of $21.3 million. So now let me just show you a couple of other slides that kind of enhance how we are cleaning up the complexity and making things simpler. This slide just shows kind of the extinguishment of all those things that I just mentioned, starting with Kips Bay, all the way down through AST. And then the next slide shows from a financial perspective, cleanup of the balance sheet. So from my perspective as CFO, this quarter wasn't just about improving the balance sheet, it was about positioning Comstock in a place of real financial strength. And with that, I'll hand it back to Corrado to talk more about what's next for our solar recycling platform and our broader technology road map. Corrado De Gasperis: Thanks, Judd. I appreciate it greatly. It's just remarkable looking at that footnote disclosure, and it's understated. We have no debt. But as you just pointed out, so many of these other obligations we're taking care of in advance, which really positions us now to be very focused. I guess I'd just like to start off by saying that silver is a core part of our DNA. Obviously, the Comstock load was the largest silver discovery in America, producing almost 200 million ounces of silver from a remarkable, remarkable epithermal deposit. It's been in our blood. It's been in our veins since day 1. It's remarkable to see what's happening with silver now as not just a precious metal, but as an industrial metal. It's exploding. 2025 was the year that silver demand hit record levels. Because of this industrial use, it's not just the solar panels, which is a remarkably growing component of it, but all of these other electrification activities. So people do think normally about batteries. And obviously, batteries and electronic vehicles are part of that demand surge. But when you start thinking about the compute infrastructure, the GPUs, the data centers, the robotics, it's much more pervasive than people are thinking, and it's constrained the mine supply for the first time in just a few years. And this demand, which hit record levels this year is forecasted to increase dramatically over the next 5, 6, 7 years. And that demand exceeding supply equation has had a remarkable impact even on the silver pricing. My graph's outdated because I show these 3, 4 years where demand has exceeded supply and you see the correlation to the increasing silver price, but silver price isn't in the mid-30s, it's in the high 40s. And we see this demand -- this long-term demand equation just continuing to go forward. Why is that relevant? Obviously, we have mineral assets, but it's most relevant to our metal recycling because every solar panel contains at least 0.5 ounce of silver. And when you're producing and processing 3.3 million panels in just one production line, you're going to establish leadership in silver production. I made this comment a few times, I got criticized for making it. I'm not trying to be promotional. I want people to appreciate that the revenue that we're getting from aluminum is extraordinary and the revenue that we're getting from silver is about to be extraordinary, and it's going to just continue to grow in volume for sure. And when you're talking about a couple of million ounces coming just from one production line, you're going to take a leadership position. Our system, as we -- as many of you now know, has four powerful characteristics. One, it eliminates all contaminants cleanly. It also has the lowest variable and operating cost in the industry. We don't see anyone that's even close to our variable cost profile. And then with the fully automated system, it takes very, very little labor to operate that machine. It's very, very fast. High-speed processing means getting up to doing a panel every 7 seconds. And it's that singular characteristic that allows us to scale to those levels, millions of panels per year for one production line. And what we really sell to our customers, which are the largest utility companies in the country, are peace of mind. We know they know that, that liability will be fully terminated, not partially terminated, not temporarily terminated, not terminated somewhere in the future, but immediately permitted in its complete and total sense. So that peace of mind is really what makes our offering most different. We already have proven that we can produce clean materials. Our unit economics are robust, right? Everything that we've seen to-date suggests that what we've guided to is the numbers, and I'll show them to you again. But just as a reminder, clean aluminum, clean glass and then these silver-rich tailings that we're just selling as tailings. So we're not refining them today. we're getting a meaningful amount of the silver value. In the future, we would like to refine them. We'd like to get the silicon. We'd like to get all the silver. We'd like to get some of those critical and rare earth metals, tellurium, iridium, gallium, depending on the type of panels that come in. I guess the biggest news that we're reporting is that we've got great notice from the Nevada Department of Environmental Protection with a very specific timeline to the final issuances of our permit. This does not come in a vacuum. We've easily met with them every single week for the last three weeks. It's been a very productive, very clear process. We've seen the final draft forms of the permit. We've discussed the process, and they've synchronized the final issuances process with us so that by Christmas, all of the public comment notice periods will have been completed. That fits right in line with our schedule of receiving our equipment here in the fourth quarter and commissioning in the first quarter. So we could not be more thrilled, relieved probably is a better word that these permits are on their way. That big facility that you see there is what we're permitting. I think people have met me over the last two or three months when I showed them this picture, I say if you saw the parking lot today, it'd be full of panels. So I want to show it to you, right? We're receiving panels constantly. We had about $0.5 million of billings in the third quarter. The number is right in line with our guidance in terms of doing about $3.5 million of billings this year. There's a little bit of a slow burn leading up to these permits. We're ecstatic to have gotten them. We're moving forward with much, much bigger order discussions with our existing and with new customers. So this manifestation of scaling up of these panels coming in is happening, right? So we feel very, very good about the engagement of the market. The panels that you see would take a year in that tiny little demo facility to process. It'll take about two weeks, right, for the large facility to process these all out. And that facility, which you see here on the screen just to the right, sits adjacent to property that we've secured and permitted for this massive expansion of storage. So we've got about 4,000 to 5,000 tons sitting there today. We could fit depending on how we profile this thing out, 20,000 to 25,000 tons right next door. I mean literally right next door. You just come over and you're processing. Yet we have legal separation between the processing facility and the storage facility, which is prerequisite. As I mentioned, unit economics are holding strong. The variable costs are very, very low. So that is our claim to fame. We don't only have a high-speed process. We have a very, very low variable cost process. For those who like that stuff, we call it throughput, right? The speed at which cash moves through the system is very robust. It's more robust because we get paid upfront for taking this environmental liability off our customers' hands and providing them peace of mind. And then we're selling all of those materials. We haven't updated these numbers. In terms of offtake sales, but silver price, of course, is having a positive effect on that equation. We want to get two facilities in Nevada because the market today is about 3.5 million panels coming out. The market in 2030 will be 33 million panels coming out. That increase from 3 million to 33 million is what we see with our largest industrial utility customers. So when we have a customer that has the potential to give us 5,000 or 10,000 tons next year, that customer is a 50,000 to 100,000 ton customer, not always not every time, but in direction, that's what we're laying the foundation for. And this is the 1.4 billion panels that are deployed in the United States alone. 1.4 billion panels. So when you think about 3 million or 33 million, you're literally at the tip of an iceberg for a market that is exploding. And so we don't see that relenting in the speed at which we deploy our solution is one of the most critical success factors. Our customers are where you'd expect them to be. Over half of the market for end of life sits in California. You add Nevada and Arizona to that equation, and it's a robust percentage of the market. So by having two facilities in Nevada, even though the permitting regime here is very strict, even though the regulation is very diligent, we believe that's a competitive advantage for us today because we're positioned right in the middle of the largest part of the U.S. market. And we're not just taking in panels. We are still processing and we are still shipping materials out the door. So we got a lot of questions, as Zach had said. And so I've added some slides to maybe address some of the non-metals questions. So I'll give a little bit of insight on some of the mining assets, just a few, a little bit of insight on Sierra Springs, just a few and then maybe wrap up with some highlights. We got actually a relatively large number of questions on Bioleum. And then we'll go right into Q&A, Zach, after I do that, if that's okay. So for those of you that don't appreciate it as well, our namesake is the Comstock Load. This is the 12 square mile mineral district that we've consolidated. It's historic because it produced almost 200 million ounces of silver and over 8 million ounces of gold. Most of that was in this 2-mile strike right here, Virginia City. It's pretty mountainous up here. You're integrated right into the community up here. But there is tremendous gold and silver resources up there. It was never part of our plans to develop those resources. We focus much more on the central part of the district. That's where we mined and built infrastructure between 2010-2016. And then quite ecstatic about the layout of the southern part of the district where we talk about the Dayton consolidated. And recently, we acquired the Haywood Quarry. So for those who were not clear about that, maybe I got a better slide here, here it is. The Haywood Quarry -- what the Haywood Quarry did is really put us in immediate proximity of the Dayton resource should we want to have an alternative or should whoever ultimately mines this resource want an alternative for processing those assets. So in that way, it was very strategic. It was very inexpensive. We certainly haven't deployed any capital for these mining assets since before August. The other thing, too, is that Mackay Precious Metals sale, which is all of these Green properties up north that we really never had any plans to develop, and we retained a royalty on that. So we wish them the best of luck in developing them. When the deal wasn't just to get $3 million for those mineral claims, there was another almost 240 acres of land in Lyon County that they had that we got with no additional consideration as part of that deal. So when you talk about monetizing the mining assets, what you see here in blue, now better filled out with Haywood and better filled out with some of these additional properties, mineral claims and otherwise, just makes this portfolio much more attractive, much stronger, much more cohesive. So when we talk about monetizing, we sold the Green, there's a resource and an infrastructure in the middle, in the purple. There's a resource below in the blue and a lot of potential for more. So the day has a published SK-1300. It's the equivalent of an NI 43-101 in Canada. It's got incredible resources immediately at surface. And when we ran the numbers on this resource at $3,000 gold, we were looking at over $0.25 billion in free cash flow. When we ran it at $3,500 gold, the number got much, much higher, pushing $0.5 billion. Actually I'm sorry, the first number was at $2,250 gold, but at $3,500, we're pushing $0.5 billion in cash flow. If you push it up to $4,000 gold, you're adding another $100 million. It's about $20-plus-million for every $100 of increase in the gold price. So you have an extraordinary economic asset here that people now -- and I guess I can say this, we have people now that are engaged and interested in this asset. We have people now that are engaged and interested in the Lucerne and the American Flat assets. So the precious metal prices is certainly having a positive effect on all of that. If you think about -- maybe let me just jump forward. If you think about the Comstock, which I just reviewed with you, this whole property package here, you see in the bottom left-hand corner, you see our proximity to Lake Tahoe, 10 miles probably as the [indiscernible] flies as well as the California border. If you go up Highway 50, that's where the Sierra Springs properties are. That's where Comstock has two properties, about 258 acres and some water rights, and that's where the State designated this huge opportunity zone. So you're sitting in one of the hugest opportunity zones right at Lake Tahoe and the California border. It's just remarkable. The Tahoe Reno Industrial Center is absolutely exploding in terms of industrial development. It's almost surreal. For those of you who have driven through it, you know what I'm talking about, 10 million square feet of construction -- undergoing construction as we speak. People are less familiar with the notion that Nevada is one truck day away from like 70 million people, two truck days away from a massive population. And so it is central from every context. But it's business climate and it's environmental climate, the fact that it's between 69 and 72 degrees here, 80% of the days year-round makes it the ideal or one of the ideal locations for data centers. And so Tesla cracked the nut open by building their first gigafactory here. Now they announced they're going to build their first 18-wheeler semi-truck factory and they're going to announce a new industrial battery factory. They've announced all that. They're going to produce it. But then the Apples and the Googles and the switches and the Microsoft and all these companies just sort of pouring in and building these hyperscale data centers have created a tremendous industrial opportunity here. And so we did advance some money. The overallotment made it convenient for us to advance a little bit more money to Sierra Springs. There are some major transactions formulating right now around these properties. And you're talking about hyperscale data centers, you're talking about off-grid renewable energy, you're talking about land and capital. It's all congregating. It's not a Northern Nevada phenomenon, obviously. It's a global phenomenon, but we're one of the top 5 locations for this phenomenon to be hitting the ground. And again, I just want to say that there's a bigger thing happening here. Our end game is monetization, of course, but we need to take a couple of intermediate steps to unblock something that I think is just going to be extraordinarily valuable for our company and our shareholders, super enabling. As I mentioned, a lot of questions about fuel, try to wrap this up pretty quickly. As everybody knows, Marathon Petroleum came in and made a remarkable contribution to our company, our fuel subsidiary in March of 2025. A few months later in May, we got a direct Series A investment, and we formed Bioleum Corporation and separated it from Comstock. How did we do that? We took all of our investment and we restructured it into a convertible preferred security, $65 million. It's Series 1. It is at the top of the cap stack, and it converts into 32.5 million of underlying common shares. So we could not be sitting in a better position because today, that's over 75% of Bioleum. We are going to continue the Series A. I have some updates with you all on that. But the company is forging its own identity. It's building an incredible competency of management. I mean I almost feel honored, if not awed by the people that are coming into the company that are industry leaders across the entire supply chain from feedstock to aviation fuel and everything in between. They're picking us as the companies that they want to work with, and it's extraordinary what we have, right? We really have a platform here that is unblocking what we believe is the bottleneck in the renewable fuel industry, which is the feedstock for sufficiency of low-carbon fuels. The average technologies out there can do 40, 50. I mean, if they're really good, 60 gallons of equivalent fuel per ton of waste biomass. We're well over 100, pushing 120, 125, 140 depending on the mix of our technological solution and/or the feedstock. And we do it all, like from Hexas and woody biomass, all the way through to drop-in fuels. Our technology, our platform is advancing, expanding and positioning all of this to scale. This is the facility or at least a couple of photos of the facility that we now operate that we now own 100%. We, of course, being Bioleum Corp. And we're slowly but surely bringing all of this back online. So instead of going from sugars to sustainable aviation fuel, which they did, and they did sufficiently, frankly, to do the first transatlantic flight that was based on sustainable aviation fuel. So this is remarkable technology, but we're also doing it with our Bioleum to our Bioleum oil fuels, ultimately wanting to get barrels a week out of this demonstration facility and being able to feed it with some of the highest-yielding feedstocks. So we have the rights to access biomass and there's nanofibers. There nanofibers are one of the top, if not one of the top leading producers of oil from agriculture, creating a scenario where you're really going from farm to fuel. You're creating oil reserves, carbon reserves, for lack of a better description that are sustainable, meaning they don't deplete, meaning they continue and continue. And they do it at extremely low carbon impact scores. Our scores using waste materials are the lowest that we see in the industry for this kind of scalable solution. And if we're using purpose-grown biomass like Texas, they're going to be lower because it's a perennial crop that leaves most of the carbon in the ground. And Oklahoma is our second hub to Wisconsin. So Oklahoma, it's remarkable. We have committed to a site in Oklahoma, but we're having continued dialogue with the state about more incentive, more aggressive desire to have us come and be there and establish there. So we've got a $3 million incentive grant. We built the first [ 2 ] of the $3 million based on the work we've done so far. We've got an allocation of $152 million in tax-free municipal bonds. That's being extended. So that's fantastic. And they want to -- and we are engaged in a discussion about even more incentive for even more of a platform, be it feedstock, be it biorefineries, et cetera. So we couldn't be more thrilled with Wisconsin or Oklahoma. And our solutions are being solicited from many industries. The Hexas Biomass solution alone is attracting commerce because of its efficiency, because of its yield, because of its capacity and even for things other than fuels, but the ethanol industry, the pulp and paper industry, even the petroleum industry for blends can integrate portions of our solutions across their businesses and across their industries. And so I didn't want to go too far into this, but the names that are on this screen are certified partners. We're either working directly and exclusively with them or we're integrating what they do fully into our own system. And the team is deep. I mean, you see 6 people on this page. The management team is almost up to 40 people, and they're all extremely competent biofuel professionals. So with that, Zach, I would pause it, hopefully covered some of those questions that you got in advance, but pause it for any additional questions, please. Zach Spencer: Okay. Thank you, Corrado and Judd. As I mentioned at the beginning of the call, we received more than 45 questions prior to the call. And I can see we have a number of additional questions coming through Zoom. Judd, our first question is for you. Where does liquidity stand today? Judd Merrill: Yeah. So $31.7 million cash at the end of the quarter, corporate, that's $12.4 million at Bioleum and the net current assets at $21.3 million. And then, of course, we eliminated the debt, so that takes a lot of that debt service going forward away. Zach Spencer: Okay. And how long is the cash runway? Judd Merrill: So we are fully funded on our business plans to take Comstock Metals to sustain profitability and growth as we head into next year. And we're wholly dedicated to accelerating that growth with customer acquisitions and then the most efficient rollout of our metals processing and storage facilities that we're currently building right now. And then as a reminder, Bioleum is now self-funded through its own capital raises. Zach Spencer: And why the loss on debt extinguishment and what's left? Judd Merrill: So the $2.77 million Q3 loss, that reflects the payoff of the 2025 Kips Bay Note and amendments to the legacy George and Alvin Notes. But more -- what's important, we did eliminate the debt on those instruments and any future costs and dilution associated with these types of variable rate instruments. And so we're just -- we're happy all that's behind us now. Zach Spencer: And now that Comstock is funded, should we expect any dilution? Judd Merrill: So we currently have the 51.26 million shares outstanding. And we're funded through commercialization and profitability of our first industry scale solar panel recycling facility. We haven't issued any shares since our transaction and capital raise in the quarter. Bioleum is being funded directly by strategic and financial sophisticated investors. So what have we done? We've positioned the company for a profit company in two of the most dynamic energy relevant exponentially growth markets. So our job really is to execute and capitalize on those opportunities. So we'll continue to do this in the most like fiduciary, responsible, diligent, professional and transparent means possible. We're here to grow the values and hopefully in large and meaningful ways. We did guide in early January our plans to create these two high-growth companies, a Nevada-based metals company and an Oklahoma-based oil and gas company that will be separated. And so we've accomplished almost all that work so far this year. Zach Spencer: Judd, what will Comstock do with revenues once Plant 1 has funded future plants? Return excess cash to shareholders? Judd Merrill: I'm jumping on that question. Okay. So the revenues, Plant 1, we expect that in the first half of the next year. Our first priority is going to be to reinvest those cash flows into expanding the metals recycling capacity. So each industry scale facility costs roughly $12 million to $15 million. And so once we've established multiple operating plans and then stabilize our cash generation, then we can evaluate what makes sense and that's our next highest priority. Zach Spencer: Okay. And Judd, are there any plans to dilute to fund mining operations? Judd Merrill: No. No. I mean we don't anticipate issuing any equity to fund mining. So our mining assets, we looked at the slides that Corrado presented. They're stable. They're well maintained. We've got a lot of property. They're being advanced selectively. So any funding that would likely come from either a joint venture or asset level transaction, that's how we would position it, but not new Comstock share issuances. Zach Spencer: Okay. Thank you, Judd. Let's pivot to Corrado. Corrado, what is the strategic rationale for continued funding of SSOF in light of prior guidance on monetizing or divesting noncore assets? Corrado De Gasperis: Yeah. I think I would just -- I briefly did touch on this. I'll maybe expand on it a little bit. But what we're seeing with these land and energy requirements for data infrastructure, data centers, it's more complex than just the horizontal development or the vertical development of a data center, right? There's infrastructural requirements with the land, with the water rights, with the energy, especially. And it's exploding. It's exploding. I mean I don't know that I've ever seen anything this big in terms of a market, both in terms of scale and dollars. And so our properties here are just so well-positioned and -- but there does require some engagement on this, right? And so we're very engaged. And we have an opportunity here to accelerate what's happening there. And to capitalize best on that opportunity, we advanced more -- the notion of advancing some more funds there was made possible by the overallotment, but it was also opportunistic, right? We know we can't disclose everything that's happening yet. Hopefully, we will be able to do it sooner, but it's bigger, right? And so it did require some more capital, and it will ultimately result, I think, in a much, much bigger value for us and our shareholders. Now we're not distracted by it. It's very transactional at the moment but we're very engaged. So I guess we hope to share more about this in early 2026. We're excited about it. It's opportunistic, and I don't want to say that means it's lucky. I think we're in the absolute best possible place. So we're just fortifying that so that we can really execute in the best possible means. Hopefully, that's sufficient for now. Zach Spencer: Corrado, why did revenue decline in Q3? And when does it inflect? Corrado De Gasperis: Yeah. So referring to Metals, first of all, there's two answers to that question. One is we were leasing some of those mining assets that we sold to Mackay. So the sale of those mining assets resulted in lease revenue being sort of wrapped up in the second quarter. So we saw a drop in that. That was certainly expected. But the more meaningful discussion is around metals. We had a very robust Q1 and Q2. We guided to about $3.5 million of billings this year. We're almost at $3 million through Q3. Most of our activities in Q3, frankly, were around preparing the site, preparing the building, preparing the storage, facilitating the permits. That's not to suggest for a minute that we decreased our engagement in the market. We increased our engagement in the market. We haven't ever been more engaged in the market and the pipeline hasn't ever been bigger. However, there is some sensitivity around our biggest customers wanting to make sure when they deliver us their panels, we are terminating those liabilities. Some that are more intimate, who have come out, who have audited us, who have seen the larger facility, they see what's coming. They're a little bit more flexible. Some who haven't really need by either corporate policy or just by the stringent nature of the way that they operate to see those permits to see the larger scale facility, quite frankly, to see the expanded storage. So there's a little bit of a slow burn happening. It's a great backlog, but we're not -- we're on or ahead of schedule in so far as any measure that we would think about in terms of metal scaling up. Zach Spencer: What's behind the higher SG&A and R&D? Corrado De Gasperis: The growth in SG&A, I guess, is twofold, right? We're clearly scaling our businesses. So some of that -- quite a bit of that is rent for our facilities, including bringing on Madison to a smaller degree, bringing on Oklahoma, certainly increases in people. That's also true for both Metals and Bioleum. In the Bioleum case, it's research, it's development, it's scientists, it's chemists. In the Metals case, it's a lot of marketing and sales covering the domestic market. There was also some nonrecurring stuff in there. By extinguishing the Northern Comstock obligation, we had this like obligation that went out another couple of years. We extinguished that in August. And the effect of extinguishing that and getting it off -- getting all those liabilities off was accelerating some expense into our P&L. That's frankly going to result in about $1 million of savings a year relative to what we were doing in the last 9 years. So that's like a win-win. We got rid of the obligation, and we permanently reduced an ongoing expense. So we're very happy about that. Zach Spencer: We have several questions about Comstock Metals. Whatever happened to the metals recovery business and equipment? Corrado De Gasperis: That might be referring to maybe the mercury recovery or maybe the lithium-ion battery. Let me -- the quick answer to that question, I guess, is from 2017 to about 2021, we were ramping up some metal recovery and recycling businesses. I guess the most meaningful is we started in the lithium-ion batteries, but then we pivoted to solar panels. So to be crystal clear, all of our metal recycling and renewable metal businesses is the solar panel recycling business. We do not have -- we repurposed some assets from the lithium, but it's pretty much that's all gone. From the Mercury standpoint, we have some assets here at the mine site. We have some assets in the Philippines that we're exploring other people using, but we're not -- it's not -- we wouldn't call it a business. It's all about solar panel recycling and nothing else. Zach Spencer: Why not build smaller cookie-cutter plants to cut transportation costs? Corrado De Gasperis: I mean our strategy is to locate our plants in the most immediate and closest proximity of where those solar fields and solar end-of-life solar panels are sitting. That minimizes the logistics cost. Being in Northern and Southern Nevada covers about 55% to 60% of the market that we see clearly between now and the early 2030s. So we think Nevada is absolutely the best place to start and then extrapolate it across the country. I think the sizing of our facilities, the engineering of our facilities was designed to be optimal, what's the biggest, fastest facility that we could build, but they're not -- when we say smaller, it's a little bit of -- they're impressive. When you guys see these facilities, if you come to visit us, you'll see a very impressive system. But $12 million of capital fits in -- you could probably fit two or three of these production lines in one facility. So I think we do have a notion of, I don't know, cookie-cutter is the right word, but replicating that system across once we have the first one fully up and running mid next year, replicating that and deploying it across. So I think that's actually what we're doing. The notion of smaller -- I don't know, that's against our DNA, right? We want to go faster. We want to have the most scalable, highest throughput system that we can produce. Zach Spencer: How are you monetizing all recycled materials? Corrado De Gasperis: So a ton comes in the door, we lose anywhere from 6% to 8% of that in a good way, right? We eliminate all the contaminants cleanly. And then the remaining 93%, 94%, whatever it is, that material is fully sold in the form of clean aluminum, clean glass and then the silver-rich tailings. So we're monetizing it by literally selling and billing our customers for those clean materials. Ultimately, we want to refine those materials and then we'll be at another higher level of value when we're selling silver or rare earths or more precious refined metals. Zach Spencer: Can you elaborate on the current MSAs and the solar panel supply? Corrado De Gasperis: Yeah. I mean we signed three meaningful new MSAs just in the last quarter. I know we signed more than that, but I'd like to say three because remarkably, we signed a major utility, which is our bread and butter and we're targeting and what we have the most of. We signed an e-recycler, which is prominent and big volume potential. And we even signed an OEM, like an original manufacturer, not a lot of solar panel manufacturing in the United States, right, most of it's in Asia. But those businesses, it's a little counterintuitive. They're not end of life. They're beginning or unfortunately, panels that never are born because something went wrong. But it's Steady Eddie businesses. And so we signed three of those. We're very excited about that. And that's our strategy, right, to build the biggest market share in the industry through these master service agreements and the supply chain. Zach Spencer: We do have a lot of questions about Comstock Metals. This is a 2-part question. When will the Silver Springs site hit capacity followed by what about sites 2 and 3? Corrado De Gasperis: So we're commissioning in Q1. I would love it if during Q1, we had 15,000, 20,000 tons of material sitting there. So that's certainly possible. We already have almost 5,000 as you saw the pictures of. And then we'll ramp up starting in Q2 with the production plan. We don't have total clarity at 20,000, 25,000 tons, we're making money. So that's our first milestone, then it will ramp up from there. I wouldn't imagine that, that facility would be running full probably until the end or the latter part of 2027. The data points that we're getting suggest the quickening, right? But it's just still too early. When you talk about, well, oh, we got 80,000 panel order last -- the beginning of this year, we're super excited. Now you're talking about orders that are like 3x and 4x that size. It gets very exciting. So the preliminary data points tell us it's coming sooner. But we just don't -- we don't have certainty to that, but it's coming. We'd like to get Site 2 up at the beginning of '27. We'd like to get the Site 3 up at the beginning of '28 or earlier, right? So Judd mentioned, we're already doing site selection. We're in Southern Nevada. We're in the middle of the country. We're in the East Coast. We're talking even to some customers and suppliers and partners. So there's a lot going on there. That is quickening. But conservatively as first one comes up beginning of next year, beginning of '27, beginning of '28, you have three facilities with 300,000 tons of capacity by '28, that would be very good baseline. Zach Spencer: Corrado, I think you touched on this, but how much throughput do you forecast for 2026 through 2028? Corrado De Gasperis: I mean, yeah, I did just sort of touch on. I mean, conservatively, this 20,000 to 30,000 range for a partial year next year would achieve our objectives. We'd be profitable. We'd be ramped up to a scale bigger than anyone's ever seen. To-date, hopefully exiting the year at a much higher run rate, getting to that full capacity by the end of the following year. I mean, could you be doing 200,000 by the end of '28? Most certainly, you could. So that's all prospective estimates. It's not based on hard core replacement schedules of our customers, but we're getting better and better insight to the replacement schedules of our customers, and it's certainly more than possible. Zach Spencer: And what about silver refining? Corrado De Gasperis: So refining is a big topic, okay? It's a big topic because we care about it, and we're very excited about it. Fortunato has already developed his own conceptual designs of the best, most efficient ways to tackle this with our materials. Obviously, we're getting more and more educated with the varying compositions of our materials, some that have more of these rare earths, some that don't. And so he's got a conceptual design. It's exciting. So now we have to go into a TRL development process. We have to do some testing. We have to do some piloting and then ultimately get it up and running. Our desire is to start that posthaste as soon as Plant 1 is fully up and running. So middle of next year, but we're already identifying partners. We're already planning out some of the work because the government also thinks this is a very high priority. We couldn't agree more. But Department of Energy, Department of Defense, White House is saying, A, silver is a critical mineral. B, refining is a critical competency that we're missing to keep these materials here in the United States. So when people recycle batteries or solar panels and then just send all those materials to Asia for refining, it doesn't really achieve the goal of a domestic supply chain. So everybody cares about it. There may even be some funding support from the government to accelerate this stuff. Zach Spencer: Corrado, you did touch on the silver refining. When might you invest in in-house silver refining? Corrado De Gasperis: I mean, if we started at the middle of next year, the earliest would be like end of 2027, and it could very much be later than that, right? What's key is we're building the material flow, right? And the bigger that material flow, the higher the value that will come when we ultimately do refine. And that applies not just to Silver, Zach, right? We're not looking at how do we just get the silver out and get rid of all the rest of the materials. We're looking at how do we get all of the elements out, how do we do it cleanly and how do we maximize the value. Zach Spencer: Okay. When you say all of the elements, what's the status of rare earth element recovery? Corrado De Gasperis: It's the same -- it's exactly the same point, right? Like we are working on -- just to say, we're not working on how do we get the silver, right? We're working on how do we get all of the metals out. Now the question does lead me to be able to highlight another thing. We are the only people that we are aware of today that can take any single type of panel. We do not care monocrystal, polycrystal, bifacial, cylindrical, thin film, you name it, we take it, right? That means we'll have the most variation in terms of what those compositions are coming out. That means we'll have the most value in terms of what's coming out. Hence, we need a comprehensive refining solution, if that makes sense. Zach Spencer: Okay. Both you and Judd referenced Comstock Mining. So let's now pivot to a few questions on Comstock Mining. What's happening with the mining and land portfolio? Corrado De Gasperis: Yes. So I saw this question earlier. This is one of the earlier ones that came in, and I tried to demonstrate with that visual that we are very keen to have sufficiency of that portfolio. Obviously, we already have all the mineral properties. We already have the resources defined and being consolidated. But the Mackay transaction and the Haywood transaction really connected a lot of dots and made things either more efficient or more convenient in terms of anyone's prospect for mining. I mean we added almost 440 acres of industrial land, right, to that portfolio for no additional capital expended. It was remarkable. Zach Spencer: Given the high gold prices, what are you doing to enhance mining interest? Corrado De Gasperis: I think the most meaningful thing that we're doing right now is besides engaging these counterparties with our assets and what they're capable of, we're finishing off a preliminary economic assessment. This has been in our objectives for the year. We made remarkable progress. I would say we have a few more months to go to finish it up. But that will be a published technical report, updating our current technical report. It will provide preliminary economics, meaning potential cash flows, cost to produce, return on investment capital, the whole shebang. And not only will that provide objective third-party validation of what we see, but it would also allow us to provide sensitivities, right? So third-party would do this, but what does this thing look like at $2,500 gold? What does it look like $3,500? What does it look like at $4,400 gold? And so we've seen some companies publish these recently. They're outstanding. They're transparent. They're crystal clear. And luckily for us, because of all the data we have in our previous mining history and otherwise, it's only a few tens of thousands of dollars for us to get this fully wrapped up. And it's a very important thing for our shareholders to know and maybe more importantly, for prospective mining companies to know. Zach Spencer: And with that in mind, what's the biggest barrier to restarting mining? Corrado De Gasperis: Our only barrier would be prioritizing it. Like we're not prioritizing going into mining production. There's no scenario we're going to allocate $1 to restart a mine when we're looking at deploying 7 recycling facilities that could produce $350 million to $400 million of free cash flow a year. So that's it in a nutshell. So the most practical obstacle would be finding a partner or someone who wants to do it, right, and figuring out the smartest, most effective way to monetize those assets. Zach Spencer: Will you joint venture or sell your gold and silver assets? Corrado De Gasperis: We would do -- we use the word monetization. I'm trying not to be cute, okay. So let me just be explicit. Monetization could be a joint venture where people pay us. Monetization could be a sale, right? Monetization could be a sale and a royalty. At the end of the day, monetization could be mining and getting all the money, okay? That's not -- I just said where our position is on that, right? But we just have to look at all the relative possibilities. We're obviously trying to do the formers, not the latters. Zach Spencer: Okay, Corrado. And that was a 2-part question. Sorry, I didn't tell you that at the beginning. Any serious inquiries? Corrado De Gasperis: I would say yes now. Yeah, I would say yes now. There are serious inquiries, right? And there were a lot of not so serious inquiries before, just FYI. Zach Spencer: All right. We have a final question on the mining and then we will move on to fuels. But the final one for mining. How sensitive is your internal view to precious metals prices? Corrado De Gasperis: So I guess I can only answer that for the Dayton resource, okay, where we have over 300,000 gold equivalent ounces in that resource, and we've profiled the mine plan. I mean you look at the recoveries, you would say that for every $100 of gold, you're going to add over $20 million. So that's why our free cash flow. So when we went from [ $3,500 to $4,000 ], it increased our cash flow outlook from $500 million to $600 million. But there's a lot more in the district to be developed and expanded on. So when you're talking about thousands and thousands of acres and your resource is sitting on only about 45 or 50 of those acres, there's more potential than just that one mine plan. But that's the answer. It's strong. Zach Spencer: Moving on to Bioleum Corporation. Has Bioleum secured Series A capital from outside investors for the refinery scale up? Corrado De Gasperis: So we have secured Series A capital. We have the deal that we announced and closed in May. Of course, we also have Marathon with their coming in with their facility and some additional cash commitment. We hired a Director of Capital Markets, who is extraordinary. We're doing a number of things, transactions at the Bioleum level to round out and fortify the supply chain. It's extremely exciting. These things will likely be known over the next month or so. And then we are finalizing all of our preparation to more formally go back into the market. It will probably be January. It will probably get done in Q1. We're feeling very, very, very good about it to raise and complete the Series A offering. And to be clear, the Series A offering was never for proceeds to build the first biorefinery, right? That would be a second capital raise at the project level with project financing for that larger scale commercialization. And those activities would come after the Series A. So yeah, that's it. Zach Spencer: Okay. And you touched on this, but what is Bioleum's capital structure? Corrado De Gasperis: Yeah. We have $65 million in preferred stock. It represents about 75% today, pre-completion of the Series A, that number will absolutely go down when we complete the Series A, obviously, management and founders own 20% and the new investors to-date are about 5%. If we do some acquisitions with some stock and we finish the Series A, as I said, our 75% will be lower, but still very, very strong, very, very valuable, and we're extremely excited about it. Zach Spencer: How did you determine the Oklahoma site? Corrado De Gasperis: The site activities in Oklahoma were -- I think the things that are important to us, I think, will probably be intuitive logistics, proximity to feedstock, relevant infrastructure. To be really blunt, like we had many attractive sites in Oklahoma. One of the problems wasn't finding one. It was which one would be the best first and best first from an economic and transactional perspective. So all that played into -- we have defined a site. It's fantastic. But now there's overtures with one of the other sites aggressively with potential more incentives and capital. So we're not being indecisive. We have a couple of really great opportunities that are going to manifest itself. So we're long on Oklahoma. The business environment is exceptional better than I've seen, frankly, anywhere else. And that doesn't mean the business environment in Wisconsin is not fantastic. It is. We're really sitting in two really good locations. Zach Spencer: Staying with Oklahoma, please provide an update on the Oklahoma bond placement and other incentives. Corrado De Gasperis: Yeah. So we got $3 million grant. The first $1 million was tied to committing to our headquarters there, done. The second was tied to committing to a site. That's done, although now we're just -- we're toggling between a couple of options. I don't think there's a winner and loser. I think it's just a question of which one goes first, which ones go second. So that's really great news. So we build the second of the third million. And then the third comes when we've done sufficient work in terms of preparing that site. So all that's on track. We also got $152 million bond allocation. That's in the process of just being extended, which was part of our original plan. We knew when we got it, that there would need to be a rollover or extension. So all that's going really, really great. Zach Spencer: And are load shareholders still connected to the fuels business? Corrado De Gasperis: Yeah. I mean I apologize if we -- I guess, we obviously create a lot of confusion on this at the beginning of the year. I'm a little surprised that confusion persists. We separated Bioleum. We achieved our objective there. They've raised capital independently. That's just an incredible achievement that the market is still waiting to help us recognize and value. We know we need to deliver more and achieve more for that to happen. But ultimately, the management team is performance incented in a massive way to not only get these commercial activities done, but then go public, okay? So the end game of the capital structure is a standalone public company, which then results in us having a liquid investment in a massive potential oil and gas, renewable gas company. So hopefully, that answers the question once and for all. Zach Spencer: Okay. Thank you for that. Moving on to battery recycling. What about our investment in Green Li-ion and battery recycling? Corrado De Gasperis: So Green Li-ion initiated when we started the process in 2021 of going into lithium-ion battery recycling. As I mentioned at the beginning, we've pivoted from battery recycling to solar panel recycling. The battery recycling that we were doing would produce a black mass that the Green Li-ion technology would then take and refine into precursor cathode active materials, not dissimilar to us taking the silver tailings, the silver-rich tailings and refining them into more salable and valuable products. A little bit different, but similar. So as we went into solar panel recycling, the Green Li-ion investment became less interdependent, certainly less strategic, if you will, and we're looking to monetize it. They're making incredible progress in Oklahoma with their facility #1. In context, we're like ahead of them, right? We fully demonstrated it. We've fully demonstrated our unit economics. Now we're scaling to massive industry scale. They're still doing that first part. It's going very well. I think as they start to scale up, and quite frankly, I'm more optimistic now it's a tough -- technology development of something brand new that's never been done before is not easy. They have big feedstock agreements. They have big offtake agreements with blue-chip automotive companies, frankly. So we like what they're putting in place. We like how they're putting in place. Obviously, you always wish it would go faster. But ultimately, they're either going to do -- they're going to need to raise more capital, I'm sure, to get to the next level. Hopefully, as part of that process, we can monetize our investment out. That's our objective. God willing, if they went public, then would make it easier for us to ultimately monetize our investment. That's our thing. We monitor them very closely. We like what they're doing. We're close with the people. Things could go wrong in any TRL scaling company, getting out of the valley of death, sorry to use that term, it is very, very difficult. We know it well. That's why we're so excited about what we're doing with metals and fuels. But right now, we would think hopefully, maybe hoping mid to later next year that there's some transaction that enables us to do some kind of monetization. Zach Spencer: We do have a follow-up question on Comstock Metals. Will we license our solar panel recycle business to other countries for royalties? Corrado De Gasperis: That's a good question. 1.2 billion, 1.3 billion, 1.4 billion, whatever number you picked for U.S. panel deployment is massive. But outside the U.S., it's 8x to 10x that. So you're talking about 8 billion to 10 billion panels deployed outside the U.S. And we have gotten some very positive inquiries, overtures, visits outside the U.S. jurisdiction with the interest in leveraging our technology in their countries. And so for us, we need to make sure that they're good partners. We need to make sure that there's some control over the process and the technology. So would it be a joint venture? Would it be some combination of a joint venture/licensing agreement? Yes, it's not at the top of our priority list, but it's certainly bubbling under the surface. Zach Spencer: Okay. And a follow-up question on SSOF. Can you walk us through the increased investment in SSOF? Corrado De Gasperis: Yes. So not super explicitly, but I can tell you what's happened so far, right? There's a number of transactions that are forming. We have to make sure SSOF is in a position to execute those transactions in a very strong way. So because we haven't concluded on all of the details, we played it very safe, right? We advanced some money. Theoretically, we could get that money back and not take any additional ownership or we could do something more meaningful. That's what's happening right now. So it looks like it's -- well, it doesn't look like we stated it as an interest-free advance, but it's not a free advance, right? There's really big opportunity here. We're being very diligent. We're being very careful. We're in control. So that's a good fact pattern. There's demand. Look, I mean, we find ourselves in three markets now. One is solar panel recycling. The demand equation is exponential. Biofuels, the demand equation is exponential. And all of a sudden, data, infrastructure, compute, is exponential. So we just need to be very, very particular about how we do this, and we will, right? We will. We're not obviously going to put any of our existing commitments at risk. Everything -- if you ask me what percentage of time do we spend on what, we're spending 95% of our time on the execution of the metal recycling deployment. And Fortunato and his team are spending 110% of their time on the metal deployment. So we're feeling pretty good about the opportunities that we're facing right now. We're trying to be as focused as possible, though, to make sure that the execution is strong. And it is. So far, it's -- we're very happy. Zach Spencer: Corrado, we have a final question -- actually, two questions on Bioleum. How much do you expect to realize from the separation of Bioleum? And how will that translate into share price? Corrado De Gasperis: So if you were to compare and contrast metals and fuels, they're very different, right? So metals is high speed. It is low capital, it is high throughput. Bioleum is a little bit slower in commercialization and deployment. It's much higher capital, very strong throughput, right? The common denominator is high growth, high throughput. But the market, it's not infinite, but it might as well be as far as we're concerned, okay? We're a tiny, tiny fraction of liquid fuels. In the United States, I mean, our highest expectation, we're doing 8 billion gallons. We would barely be a knit in the 250 billion gallon market. So that's the U.S. alone. So the simple answer to the question is our objectives are not in the single billions of value, okay? They're in much, much bigger numbers. And so I don't want to speculate on values or timing. What I do know is that there is a 5-year plan -- and we would look to be public or facing being public in this 5- to 6-year period. The markets will ultimately dictate when that happens. Our execution will dictate how soon we'll be ready for that to happen. But the numbers are very, very -- the potential, what we're going for is remarkable. You want to run a sensitivity on $1 billion, that's easy. If we had 60% of $1 billion, you want to run a sensitivity on $10 billion, you want to run a sensitivity on $100 billion. What's your timeframe? I'm not going anywhere, right? So two decades from now, we'll have something very, very different in our hands. So it couldn't be more exciting. Zach Spencer: Corrado, speaking of time, we're coming up on time. And I think we covered all of the important questions. If we did not get to your question, please send it to ir@comstockinc.com and we'll do our best to respond either directly or we'll post the response on X. For anyone who is not following us on X, our main account is [ @comstockinc ]. Please follow us. Corrado, before we wrap up, please give us some final thoughts for the remainder of Q4 and the rest of 2025. Corrado De Gasperis: Yeah, absolutely. The most exciting thing is the issuance of these permits, there's this public period and then the arrival of the equipment announcing new and bigger customers and then commissioning and going into production with metals. It's going to be fluid. It's a river from here until April-May, it's going to be incredible. With fuels, there'll be some transactions, and they're all fortifying and they're all credibility enhancing because of the capacity and competency and technology that they bring in to the system. And then with mining and SSOF, I do think there will be some transactional activities. The timing of that is less in our control but becoming more and more prevalent. Zach Spencer: Thank you, Corrado, and thank you, Judd. That concludes Comstock's Third Quarter 2025 Earnings Call and Business Update. Thank you all for joining us. Corrado De Gasperis: Thank you.
Operator: Good morning, and welcome to the Markel Group Third Quarter 2025 Conference Call. [Operator Instructions] During the call today, we may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. They are based on current assumptions and opinions concerning a variety of known and unknown risks. Actual results may differ materially from those contained in or suggested by such forward-looking statements. Additional information about factors that could cause actual results to differ materially from those projected in the forward-looking statements is included in our press release for our third quarter 2025 results as well as our most recent annual report on Form 10-K and quarterly report on Form 10-Q, including under the caption Safe Harbor and Cautionary Statements and Risk Factors. We may also discuss certain non-GAAP financial measures during the call today. You may find the most directly comparable GAAP measures and reconciliation to GAAP for these measures in the press release for our third quarter 2025 results or in our most recent Form 10-Q. The press release for our third quarter 2025 results as well as our Form 10-K and Form 10-Q can be found on our website at www.mklgroup.com in the Investor Relations section. Please note, this event is being recorded. I would now like to turn the conference over to Tom Gayner, Chief Executive Officer. Please go ahead. Thomas Gayner: Good morning, Kelvin, and thank you very much. Welcome, and thank you for joining us for today's call. I'm delighted to be joined by my colleagues, Brian Costanzo, our CFO; and Simon Wilson, our CEO of Markel Insurance. We're also joined by Mike Heaton, our COO, for the question-and-answer portion of the call. At Markel Group, we're committed to relentlessly compounding your capital and building shareholder value. I'm happy to report that so far in 2025, we continue to do exactly that. I'm particularly pleased that throughout the first 9 months of 2025, every reportable segment made positive contributions to the value of the Markel Group. They also did so in a capital-efficient way, generating significant cash flows that helped fund our ongoing share repurchases and buildup of liquidity. The first 9 months of 2025 stand as compelling evidence of how our differentiated model works. Brian will provide more on our detailed financial performance in a minute, and Simon will speak about our ongoing improvements in our insurance business. But before I turn the call over to them, I would like to say a bit more about our progress this year. First, as you know, our Board and management have been intensely focused on improving our core insurance business. We've taken many decisive actions over the last few years, including: one, exiting underperforming businesses, most notably reinsurance; two, making key leadership changes, including appointing a new insurance company CEO with a proven track record of success; and three, implementing key organizational and structural changes to improve accountability, including shifting most of our overhead directly into the businesses. I'm pleased to report that these actions are beginning to translate into results as we achieved a combined ratio of 93% within Markel Insurance in the third quarter compared to 97% in the comparable period. While this was aided by light cat activity this year, looking underneath some of the lines we exited, the improvement in our core insurance business is becoming clearer. We believe this is just the beginning. The improvements in insurance profitability so far provide evidence that our actions are starting to drive better results. I think it's also worthwhile to point out that we have reported favorable reserve development on an annual basis each year for more than 2 decades now. This reflects our inherent conservatism and commitment to financial integrity. Simon will provide more comments on our insurance business, but the headlines are that we're doing more of what works and less of what does not. We are simplifying the business, increasing accountability to front lines and setting the stage for renewed growth and improved profitability. In all of the businesses we own and oversee, our CEOs have continued to run their businesses with professionalism, long-term focus and extreme skill, navigating through volatile and uncertain economic conditions to deliver strong returns on capital and profitability. The Markel Group system also continues to generate significant cash flow, offering further evidence of the strength of our model. Over the trailing 5 years ending September 30, 2025, our cumulative operating income was nearly $13 billion. This incoming cash gives us financial strength and offers us flexibility to pursue opportunities we understand with partners we trust while returning capital to our shareholders at the same time. Our opportunity set is significant. We can reinvest in our existing businesses or expand into new public and private businesses. Much of our growth capital has been deployed in the industrial, consumer and other and financial sectors, where over decades, we have developed a core set of competencies around culture, capital and leaders, each of which adds to our ability to relentlessly compound your capital. I'll also note that we've earned strong returns on those investments. In the 5-year period of 2020 to 2024, the insurance, industrial, financial and consumer and other segments of Markel Group paid dividends up to the holding company of approximately $2.2 billion. We invested $1.7 billion in acquisitions and additional interest in our existing businesses, primarily in the industrial and consumer sectors, all while supporting substantial growth in insurance. Regarding share repurchases, from the end of 2020 through the end of Q3 2025, we've returned approximately $1.9 billion of capital to shareholders via repurchases, again, while strengthening the balance sheet. Share count was reduced from 13.8 million to 12.6 million. In our investment operations, we continue to remain focused on preserving and protecting your capital. We earned 8.4% on our equity investments so far in 2025. The book yield on our fixed income is 3.5%, and our reinvestment yield was 4.2%. We aim to be thoughtful stewards of capital and seek to match our liabilities by investing in only the highest rated fixed income securities. This safety-first approach has served us well. We are then able to utilize the strength of our balance sheet to invest in the areas where we see the best opportunities to deploy capital. As part of our Board-led review, we also committed to improving our financial disclosures to ensure that you can better see where our earnings come from, how we allocate capital to its highest and best use and how capital has performed overall and in all parts of the Markel Group system. Last quarter, we enhanced our disclosures for the insurance operations to better align it with the business' strategy and provide more detail for investors. This quarter, as you can see from our 10-Q and the supplemental materials we provided yesterday evening, we have provided additional new disclosures, including now reporting our business results into 4 segments: insurance, industrial, financial and consumer and other. I'm sure it will take a little time for everyone to process and digest our new disclosure format, but I hope you will find it helpful in how it describes the ways our diversified set of businesses reinforce our overall financial strength and stability and how our significant reinvestment options and highly efficient and low-cost capital allocation all work together to generate steady and diverse cash flows and relentless compounding of your capital over time. We believe that a key part of our success has always been how our Board and leadership team maintain strong oversight over the company's operational, financial and value performance, always evaluating ways to improve. With that, I'd like to turn things over to Brian. I look forward to answering your questions after he and Simon provide you with an update. Brian? Brian Costanzo: Thank you, Tom. Good morning, everyone. As Tom mentioned, after a listening tour with our investors earlier this year, we decided to undertake the effort partnering with our Board and third-party advisers to further enhance our financial disclosures. Markel Group's evolution created the opportunity to take a fresh look at how we report our financial results to shareholders. We released the first part of these changes in the second quarter to align with our reorganized Markel Insurance segment. Last night, we released the remainder of our changes across Markel Group. We are excited to hear your feedback. We believe that these changes will help investors both better understand your company and provide improved insights into how both Markel Group as a whole and its family of businesses are performing. While I will reference several of these changes as I walk through our quarterly results, the primary changes to our financial disclosures include changing how we present investment gains and losses to provide investors with a better sense of reoccurring operating results from our businesses through: first, moving the presentation of investment gains and losses to outside of revenues; and second, introducing a new metric for adjusted operating income, which excludes investment gains and amortization expense from our operating results. We also reorganized our business results into 4 reportable segments: Markel Insurance, Industrial, Financial and Consumer and Other, and shifted to adjusted operating income as our segment performance metric for each of our reportable segments, collapsed our investments segment into the new reportable segments, introduced new consolidated and segment-level KPIs such as organic revenue growth and return on equity for Markel Insurance; and finally, updated business descriptions to help investors more fulsomely understand our family of businesses across the variety of industries in which we operate. We also created a Reporting Changes Guide for shareholders, along with supplemental recast financial information that aligns with our new segment structure for the trailing 7 quarters. We filed both by an 8-K last night, and they are available to you now on the SEC's website and our Markel Group website. We hope these tools are helpful in navigating through the changes in our financial disclosures. With that, let's turn to the results for the period, starting with our consolidated results. Consolidated revenues were up 7% for the quarter and 4% year-to-date. Revenues in all periods are conformed based on our updated measurement, which excludes net investment gains from our total revenues. All reportable segments were up year-over-year for both the quarter and year-to-date periods. Operating income for the quarter was $1 billion versus $1.4 billion in the comparable period last year. Operating income includes net investment gains, which as historically been the case, drove most of the year-over-year variance. Net investment gains were $433 million for the quarter compared to $918 million in the comparable period last year. Our new metric of adjusted operating income totaled $621 million for the quarter, up $121 million or 24% versus the same period last year. A quick reminder that adjusted operating income excludes net investment gains and amortization expense. We believe this metric will provide better insights on the reoccurring operating performance of our businesses. Insurance contributed $153 million of the adjusted operating income increase for the quarter and $100 million year-to-date due to improvements in underwriting results and increases in net investment income. The other segments were relatively flat compared to last year for both periods. Operating cash flows for the first 9 months were $2.1 billion. Comprehensive income to shareholders was $793 million for the quarter and $2 billion for the first 9 months of this year. Turning now to our operating segments, starting with our Markel Insurance segment. Results from our Markel Insurance segment now include underwriting and insurance activities, along with the results from our investments that are held by Markel Insurance subsidiaries. This change to a balance sheet view let it be clear what the after-tax returns on our insurance capital are on an annual and 5-year average basis. Due to the inclusion of equity securities within our insurance capital, we believe a 5-year average metric is a better gauge of long-term performance. The average after-tax return on equity for Markel Insurance for the 5-year period of 2020 through 2024 was 12%. Underwriting gross written premiums were up 11% year-over-year for the quarter and 4% year-to-date, driven by growth in our personal lines, general liability lines and our international lines for the year and our reinsurance professional lines in the quarter. The increase in reinsurance professional lines was driven by the timing of 2 large contract renewals that occurred prior to the execution of the renewal rights deal. Premium volume for the quarter within our Wholesale and Specialty division was down 6% versus last year, due to the exit of our U.S. risk-managed professional liability lines earlier this year and down 1% excluding the 5% impact from these exited lines. Our International and Programs and Solutions divisions both had strong growth in underwriting premiums in the quarter of 25% and 12%, respectively. Earned premium was up 5% for the quarter and 2% year-to-date due to increased growth in more recent quarters. Adjusted operating income for Markel Insurance was $428 million for the quarter, up from $276 million in the same quarter last year. The combined ratio for the quarter came in at just under 93% compared to 97% last year. The 4-point improvement consisted of lower cat activity, which drove 3 points of the difference with lower losses from CPI contributing another point. For the year, the combined ratio stands at 95% for both periods. The results from our runoff Global Reinsurance division added 2 points to both our current year quarter-to-date and year-to-date combined ratios. Our International division continues to produce fantastic results for the year, with a year-to-date combined ratio of 84%. The quarter and year-to-date expense ratio of 36% is slightly higher than a year ago. Higher expenses were primarily driven by higher personnel costs, primarily within our international division, and increased third-party professional fees and severance costs. Prior year loss development was consistent at 6 points favorable in both the quarter and year-to-date periods in both years. For our 2025 year-to-date results, favorable development across several product classes across the globe was partially offset by adverse development in our reinsurance casualty lines and in our discontinued risk-managed professional liability lines, both of which were recognized during the first half of this year. Investment income within our insurance operations was up 10% for the quarter and 9% year-to-date due to higher interest rates and volume of investments held within our fixed income portfolio. As a reminder, 96% of our fixed income portfolio is rated AA or better. Moving next to beyond our Markel Insurance segment and starting with the Industrial segment. Revenues were $1 billion, up 5% versus the same quarter 1 year ago, driven by increased industrial production activity and demand in the wind energy, construction and building products industries, partially offset by softening demand in the auto industry. Adjusted operating income was $101 million for the quarter versus $112 million in the same quarter a year ago, down 9% year-over-year driven by softening demand in the auto industry and higher raw material and labor costs across several businesses. Next, within our Consumer and Other segment, revenues and adjusted operating income within the Consumer and Other segment have a significant seasonal variability due to the timing of sales of ornamental plants, which are heaviest during the second quarter of the year. Revenues were $291 million, up 10% versus the same quarter a year ago. Revenue growth benefited from the acquisition of EPI and higher sales volume of ornamental plants. Adjusted operating income was $17 million for the quarter versus breakeven in the prior year. The increase year-over-year was driven primarily by the contribution of EPI and increases from operating leverage resulting from the higher sales of ornamental plants. Next, within our Financial segment. Revenues for the quarter were $162 million, up 16% year-over-year due to higher fronting fees and earned premium within our program and lender services products. Adjusted operating income was $61 million for the quarter, down 23% from the same period last year driven by favorable loss development on the runoff reinsurance contracts for Markel CATCo Re, which were recognized in the third quarter of 2024, all of which was attributable to noncontrolling interest. Excluding that impact, adjusted operating income across our other businesses was up notably in line with the revenue growth. Finally, regarding capital allocation. For the year, we repurchased shares totaling $344 million, reducing our share count to 12.6 million shares from 12.8 million at the end of last year. With that, let me pass it over to Simon to discuss more about Markel Insurance. Simon Wilson: Thank you, Brian. Good morning, everyone. It's great to be with you on the call today to discuss a solid set of results for Markel Insurance for the quarter with a combined ratio in the low 90s and GWP growth of 11% versus Q3 last year. This growth is mainly being driven by our high-performing international and personal lines divisions, where prior year strategic investments in new people, products and systems are paying off. Where our performance is more challenged or market conditions are less favorable, we are concentrating on improving the portfolio, and as such, growth is muted. Cycle management remains at the forefront of our minds, but we are taking advantage of areas where we have developed competitive advantage. The team at Markel Insurance couldn't be more aware that we need to demonstrate genuine progress to you. It is good to be started along that path. The coordinated set of recent actions are beginning to have an impact on the organization. Step by step, we're working towards achieving our full potential. Step 1, the first big step we began in earnest around 2 years ago when we began reshaping our portfolio with a particular focus on casualty and professional classes in the U.S. In both areas, we have made meaningful changes to tighten our risk appetite as well as improving pricing and terms. Where we were unable to achieve the required improvements in specific areas, we made the decision to exit lines. As a result, we've seen tangible benefits. Our year-to-date combined ratio within our recurring business stands in the high 80s. This factors in 2 items versus our reported combined ratio. First, excluding the 3.5-point impact from exited lines, the largest of which are U.S. and European risk-managed professional lines along with CPI and second, a 2-point drag in the overall combined ratio from the Global Reinsurance division results. We're now seeing improved and more consistent underwriting performance in the divisions where these changes were implemented. I remain excited by the sequential improvement. It's still early days, but we believe these early outcomes validate the tough decisions we made to set a stronger foundation for future growth. Step 2, with the portfolio streamlined and greater discipline in place, our next big step began earlier this year, shifting our focus from simply pruning the portfolio and exiting unprofitable lines to actively pursuing profitable growth. Our strategy is based on a clear go-to-market structure, where we have created a series of distinct P&Ls, each headed by a leader who has full responsibility and accountability for the performance of their unit. This structure pushes decision-making closer to the customer and allow for greater speed and response time. Specific actions we have taken are as follows: We have collapsed our matrix reporting structure in the U.S. We reorganized into 4 simple and distinct divisions. We removed reporting of State National and Nephila into Markel Group. We aligned our financial reporting to the new structure so that we can clearly see where there is underperformance that needs to be addressed. We can also see where we are having success, enabling us to divert investments to these areas to continue to fuel profitable growth. We moved over 80% of the people that previously worked for the central functions into the newly created P&L. This provides transparency over costs for business owners and also ensures that the work of these individuals is fully aligned with business needs. And on our last earnings call, I announced the exit of Global Re. Every single one of these changes were designed to simplify our business model and enhance our ability to provide market-leading specialty insurance products to brokers and customers around the world. Beyond these organizational changes, we strengthened our margin of safety by increasing reserves, particularly in our Reinsurance division and our risk-managed or large-account U.S. D&O book. This continues Markel's tradition of conservative reserving, which protected our balance sheet through cycles of uncertainty. We've consistently have reserves that are more likely redundant and deficient, demonstrated through 20 consecutive years of favorable prior year loss reserve releases. Step 3, now that we've made our way through the bulk of the necessary organizational changes, we are turning our focus to execution, including developing bottom-up, customer-focused business plans by our new P&L owners for 2026 and beyond. I'm confident these plans will enhance the experience of our customers, which will in turn grow the business and ultimately increase our profitability. While we are still early in the game, the overall energy and execution I'm witnessing across the business continues to be encouraging. First, let me share a story about our U.S. personal lines business that illustrates the impact of the changes we have made. As we reorganize the business into distinct P&Ls, one business unit that stood out for the right reasons was our personal lines business based out of Wisconsin. This organization has been growing strongly over several years with excellent profitability. Jeff May runs the business and outlined a plan to overhaul the technology stack over the next 2 years. In our previous structure, this investment opportunity hasn't managed to rise sufficiently up the priority list. But now that Jeff sets the priorities for this business, the plan was very much on the table. We took the decision to go ahead with the implementation within days. And Jeff and his team are now implementing a system which will consolidate our position as the market leader in E&S homeowners business in the U.S. with expectations to grow this business to over $1 billion a year in annual GWP. Second is a story about how we are doing more with less in our core U.S. Wholesale and Specialty business. After taking the helm in late April this year, Wendy Houser set about reorganizing our business, Wendy reduced the total number of regions from 8 to 4, simplifying our go-to-market structure and creating the opportunity to reduce costs. Some tough decisions were made, particularly around people, but we're now operating the business at a lower salary base than before without impacting levels of service. The 4 regions have full P&L responsibility with an excellent line of sight into the financials, and so I expect this recent cost discipline to continue. Stories like this exist throughout Markel Insurance. The new structure helps bring them to the surface and enables us to do several things at once. If our business leaders have well-thought-out plans, we are ready and willing to support them. What will success look like a story like this compound? What can you, as investors track to know that things are progressing. Early progress isn't always obvious right away in the numbers, especially in long-tail insurance. It will first show up in the way our people think, the speed at which we move and serve and the trust and credibility we're restoring with our partners and our customers. Some of the signposts or leading indicators where monitoring include employee engagement source, customer net promoter scores, growth in submission count, increase in our quote rate, improvement in our quote-to-bind ratio and growth in new business within our targeted areas. As these indicators start to move in the right direction, the financials should take care of themselves. The WSIA conference in San Diego last month, Wendy Houser, the President of our Wholesale and Specialty division, said very pointedly to the press that we're back. Our leadership team is confident in the changes we've made. It will take time to show up. But with each passing day, the team is working together in new and better ways. I'm excited about our position in the marketplace, whether it's in our top quality international operations, our niche business units such as surety and personal lines, or our improving core U.S. Wholesale and Specialty division. We have plenty of runway to grow and to grow profitably. We'll continue to work hard to make that a reality. With that, I'll hand you back to Tom. Thomas Gayner: Thank you, Simon. And with that, Kelvin, we'll open the floor for your questions. Operator: [Operator Instructions] Your first question comes from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: And I'd like to start in the insurance division with the expense ratio at 36%, which is relatively high versus specialty peers. And then kind of contrast it with what you're doing in technology spend and how to make the company more efficient. Could you talk on the interaction of those 2 dynamics and where the expense ratio could go over the next few years? Thomas Gayner: Thank you, Andrew. I'll ask Brian to start off addressing that. Brian Costanzo: Sure. Let me say a couple of things there. First of all, like where we are this year, we're kind of right where we thought we would be for this year. If you mix in the fact that we've had some product exits, some contraction in a few spots where we needed to shore up the overall underwriting results, that does carry a little bit of a burden on the expense ratio. The other piece I would say is where we are growing. If you think about those classes, international lines in Europe, expansion in Asia, U.S. surety, those lines are very, very profitable for us, but they do shift the mix between the loss ratio and the expense ratio that are added to the expense ratio overall. From an investment standpoint, Simon mentioned the investment in the personal line space. Now that we have individual businesses, we have an investment portfolio that's out there. We're looking to make the investments that we need to, to kind of shore up our results overall. While we're focused on expenses and managing those and we expect to bring those down over time, we're really focused on the combined ratio and the overall profitability of the business and in our return on equity, the new metric that we put out there and that overall kind of capital return and the returns that we produces inside of insurance. Maybe the last thing I'll mention there is we talked about the exit of Global Re in that division. And while that division has poorly performed from a combined ratio perspective and been a drag on the results, 2 points kind of in the quarter and year-to-date, that division does have a lower than kind of normalized expense ratio for us. So as that premium burns off, at around a 28% expense ratio, that will be a little bit of a drag on the overall reported expense ratio as the earned premium remix is back to the insurance side. Simon Wilson: Maybe, Brian, I might just add a couple of points on this, Andrew, as well. It's Simon. Look, I'm obsessed with the combined ratio. That's the most important metric that we have overall. Brian talked about the mix between some of our business units, which have been performing incredibly well the last few years. And the odd thing is there that mainly they've had a high expense ratio. Now what I wouldn't say is that a high expense ratio leads to a great combined ratio. That's not the point here. But what we do need to be very conscious of is as we look to the expense ratio and we look to reduce it, and we very much are focused on that as a strategic imperative, we need to do that in areas where we're actually cutting costs out of the business, which are frictional costs. There are some costs here where there are genuine investments like the personal lines thing, it will probably heighten the expense ratio for a couple of years in that area. But in the long term, that creates a heck of a lot of scale potential within a business like personal lines. Where I'm really looking for the rubber to hit the road is in these individual P&Ls and looking at individuals who want to invest in the business. That case has to be rock solid because anything which is just sort of fat within the organization, I think that's going to get highlighted a lot more than it has been in previous years now, and we're going to go after that. We're going to go after it hard. So the point I'll make is we have got a focus on the expense ratio. It is in the context of the most important metric that we have is the combined ratio, but we're looking to get rid of expenses that aren't additive to the business. But we're not going to stop investing in areas that I think it's got a great potential to build the franchise over a period of time. So it might be a bit bumpy over '26 and Brian spoke about Global Re there, but believe me we will be focused on that metric as we go through '26 and into '27, it's an area where we do need to improve. Andrew Kligerman: Very helpful. And then maybe just thinking about gross written premium, which was strong at 11%. And I mean international has been just a really bright spot. But looking at U.S. Wholesale and Specialty, I think Brian said the exit of the risk managed business, the U.S. risk managed business, it was up about 5%, and then in Programs and Solutions, we saw a 17% increase, could you give a little color on where you're seeing the successes in programs and U.S. Wholesale and Specialty, respectively? Brian Costanzo: Yes. Maybe I'll start, Andrew. On the Wholesale and Specialty, so the reported results was down 6. 5 of that 6 points we were down was the impact of the risk-managed product line exit. So down 1, excluding that, relatively flat. What I would say there is you think about the 3 products we write there, professional, casualty, property, casualty is up while we're being very selective, but we're getting good rate on that business, low double-digit rate on kind of primary, higher than that on more excess lines. So the growth is not growth in exposure. It's growth driven by rate. Property, we are trying to grow, but there's a little bit of challenge in the rate environment there. Professional has been relatively holding flat. We've been growing a little bit in our management liability lines and some of the commercial professional. But that is an area both in the property and the professional space where growth in the future is where we're targeting. Simon Wilson: Yes. And obviously, let's talk about -- we'll talk about Wholesale and Specialty first. You just mentioned that the sort of the nuts and bolts of that, Brian. That, I would say, Andrew, we've got to get to grips with the loss ratio situation in that business. That's what's been hurting us. That's why we've made those decisions to exit lines in the various areas. And frankly, casualty is a difficult class of business. At the moment to get the price right, we can see that. So selective in terms of our risk appetite, making the right decisions in terms of additional pricing. And those 2 bits in combination should get us to the combined ratio that work for us. But we're not -- we're certainly not putting our foot to the floor in the casualty area even though the rating is pretty attractive, in some respects, just because the exposure there is equally -- probably tricky in terms of where to place your chips in that particular area. Elsewhere in Wholesale and Specialty, yes, there's competition in the professional and the property. We think that we've got a really good mouse trap in those 2 areas to attract business into Markel, the clarity of the new structure, I think, is paying dividends with our partners, the broker partners that are out there. And I think that will continue to attract business back into the Markel that's within appetite and at the right price. So there will be continued headwinds from the market conditions in those 2 areas. Programs and Solutions, really nice business areas. They're very discrete. And I think we've mentioned personal lines where we feel we've got probably a better product and a really good way of interacting with that particular area. We're also seeing a lot of growth and a lot of growth opportunity in the program space. The business that's run by Jeff Lamb here. That is an area where it's clear that many of the large wholesale brokers are investing a heck of a lot of resource into those -- into that program space. That provides opportunities to us. We are highly, highly selective in that space, but just the number of new opportunities that are coming through. The desk is driving a degree of growth there. And we think we've picked some good programs to be on, which are growing with in the marketplace. Finally, I'd probably call out the workers' comp business and the surety business continue to be really solid businesses for us. They've been fairly discrete within the Markel Insurance world. We now called them out that much more. But because they've got those singular leaders on top, they are able to focus on the customers and focus on the actual products that they're getting over the line there. And I think that additional degree of independence is allowing those businesses to grow, and I think that will continue over time. So Programs and Solutions, I think there are some specific market conditions, which continue to help us. I think the new structure helps those guys. In Wholesale and Specialty, it's loss ratio first alongside the combined ratio. And I think as that stabilizes, as we go into next year, I think our position in the market will help us continue to grow in that particular area in areas that we think we can make profit. Brian Costanzo: Maybe on the international side, I'll add. That's a place where we've been consciously investing in people, some of the driver of the elevated expense ratio is the personnel costs in that division. You're starting to see the fruits of that coming through the top line with growth in kind of expanded territories in Asia and Europe, along with product expansion where we've been rolling out casualty products to more geographic regions. We've invested in people in both of those spaces, seeing that start to come through the top line growth more pronounced this quarter. Operator: Your next question comes from the line of Andrew Andersen, Jefferies. Andrew Andersen: Some good favorable reserve development overall. If I were to maybe just pick at one thing and a question here is I think you called out some adverse on international professional liability. Can you maybe just expand on that just expand on that, maybe what accident years? And the reason I ask is I think you were releasing from international professional liability in '23 and '24. Brian Costanzo: Yes, that is correct. We did have a couple of large claims come in and large claims. I'm talking the 5 million, 10 million-ish site claims from a net standpoint to us. While we had adverse development there, it's nothing to the range of the things we've been talking about in the past few years. So it's a fairly modest amount. It just happened to be the driver in the period. We feel really good about overall that book and the profitability. In terms of the periods, it's more -- it's not in the current year. It's more of the couple back prior years than it is the current year or in years that are more deep into the tail. Andrew Andersen: And then just thinking about capital management. Buyback has been maybe a little bit lighter in the last 2 quarters than I would have otherwise thought. So I would love to just hear your thoughts, Tom, on kind of capital deployment priorities, whether it's buyback. And I think there might have been an article earlier this quarter just about insurance M&A perhaps being back on the table. And maybe that was misconstrued, and it was more of a comment around teams and technology for insurance M&A, but I would just love to hear your overall thoughts there. Thomas Gayner: Well, I think you answered the second part of the question, when you asked it. So I think it was misconstrued. We have successfully added teams and talent over the years, and we look to continue to do that. The first important principle is actions speak louder than words. The #1 use of capital and capital deployment we've had for the last couple of years has been buying back our own shares. We're price sensitive when we do so. Unfortunately, market seems to be acknowledging and understanding and appreciating a bit the changes we've made here. And you look year-over-year, the stock price was up at any given point in time, 15% to 20% compared to what it had been last year. So we respond to that. We're sensitive to that. We continue to buy stock through our program on a daily basis. And you can expect us to continue to do that, and you can expect us to be very rational and buy more if the price is low, and buy less as the price moves up, and our largest single capital allocation choice has been to repurchase shares. In rough, rough numbers over the course of the last 5 years, the share count at Markel at its highest was just a bit shy of 14 million shares. It's now down to 12.6 million. In rough numbers, that's 10% of the shares that have been repurchased. The next 10% reduction, I don't think that will take 5 years, especially at these kind of prices. So that might happen in 3 to 5 years. So 10% tranche is done, another 10% tranche underway. So we'll be buying back stock. Operator: Your next question comes from the line of Mark Hughes of Truist. Mark Hughes: When we think about international versus the U.S., you talked about some of the expense versus loss ratio dynamics. Is the combined ratio opportunity better internationally? Is there just a -- that's a better loss environment? Thomas Gayner: Before Simon answers that question, you're talking about international, the U.S., first thing I thought about was the Ryder Cup. And the U.S. needs to do better. So we're working on that. Simon Wilson: I've been thinking about the Ryder Cup a lot lately, but not really thinking about it. So there we are. Thank you for that reference, Tom. That's excellent. I think there are plenty of places in the U.S. where you can go after business from a loss ratio perspective, which is very, very attractive. They typically are in the, I would say, lower exposed areas, but also almost lower premium type areas. They're kind of the small, micro business. We, international, have been building that side of our business for probably 10 to 12 years. And the loss ratio, let me tell you, back in '16, '17 in international wasn't that great. But I think as we scaled up those retail operations that we've got in places like Europe, Canada, the U.K. regions and increasingly in our Asia Pacific business, the weighting of the business, which is that small, micro business is really -- has grown within that division. And we've seen the loss ratio come down consistently as a result. Quite a lot of the business that we're backing out, the London operations. I mean, people think about London as kind of large ticket volatile business. Well, quite a lot of the business that we have back there is delegated authority business where the ultimate customer is smaller micros. So there's a very like heavy focus in our international business at a small and micro end of the risk area. Now that has 2 dynamics. One is typically a relatively low loss ratio, but it does go alongside that higher expense ratio. And frankly, I don't mind paying a little bit more to excess and service business, which is going to consistently perform at a lower loss ratio. I think that's a healthy kind of balance that we've got within the business. We do, of course, have larger ticket risks as well to look at in the energy space, for example, and some of the marine risks. But by and large, we've got a relatively small micro focus with our international operations, and we've been really pleased with that. That's probably been lacking a little bit in some of our -- in the U.S. portfolio as a whole. So we've been in the mid-market there. And in recent years, and we've had core results actually in many of the areas where we've gone into the very large risk segment. Things like the U.S. large ticket D&O is a perfect example, where we've gone down that route. So I do think over time, one of the things that I'd like to bring with increased focus on technology. Some of the teams of people that we're going to be bringing in, in those programs and solutions businesses will be to go after that small and micro business within the U.S. to an increasing level. And that will, over time, I think, bring down the loss ratio to a degree. So maybe it won't be exactly in line with international. But I do think there's a ton of opportunity in the U.S. to go after. Maybe it's not just -- not been a huge focus of what we have been doing, but it will be a focus of what we'll be doing in the future and the investments that we'll be making. Thomas Gayner: At risk of answering a different question than what you asked, so my colleagues caution me on this all the time because this is not going to help you model anything better or make a quantitative point, but it's a qualitative point that really drives the results over time. So this exact discussion is something that Simon and I actually talked about at some length when the two of us, along with some other colleagues, walked 130 miles last year from Pittsburgh, Pennsylvania to Cumberland, Maryland on the Great Allegheny Passage. And one of the things we talked about was -- I mean, obviously, insurance is a business where it's never going to be perfect, and you're always going to have losses. But what does it look like to have a loss? What does the loss mean? What is the way in which you can be compensated fairly for the size and scale of the losses you're taking? And what should your overall profile be to understand and absorb the losses that are just part and parcel of this business? So that effort has been underway for a while. There have been some very thoughtful work done on where we should be and where we shouldn't be. And you're starting to see what I would call the green shoot of this quarter where that's starting to pay off. But we look forward to green shoots coming in the years to come. But I can assure you a lot of thought and work and thoughtfulness has gone into the way we approach the business. Mark Hughes: Appreciate that perspective. Curious to get your thoughts if it looks like storm season, at least domestically is going to end up being pretty quiet. What do you think that means for property in 2026? Thomas Gayner: Well, as the old saying goes, what you see depends on where you stand. And there are some people in various parts of the world right now that would not think that this was a benign storm season. So our thoughts and prayers are with them. That's real damage. And one of the things we hang our hat on and we're proud of in this business is we help people get back on their feet when they've experienced either sudden and dramatic loss or gradual losses over time. Clearly, again, I think you've answered your own question to some degree, the overall aggregate cat losses were lower this year than what had been expected. And that tends to put pressure on rates. The good news about Markel writ large is spread of business. So we are not a cat-dependent or exclusively or even majority property-oriented company. So this is a normal course of business. Simon Wilson: Yes. And I'll pick up at an exact point there, Thomas. If I look at the portfolio overall, property plays a relatively small part of our overall offering. We're more of a casualty professional lines and then sort of nuanced specialties that go alongside it. So probably relatively small. I do think you've seen insurance cycles before. If you look at the specific cycle within property, there's going to be pressure on reinsurance. As a buyer of reinsurance, that should probably benefit us going into next season, but that will have a knock on in the primary markets where, particularly in the U.S. brokerage property space, I think that's going to come under even more pressure next year than it has done this year. And it definitely is a competitive part of the market at present. What we're doing in that is very much focused on price adequacy. If it works within the portfolio, the price is adequate, then we'll continue to compete in that area. Once you go over the line and it's not adequate anymore, we don't need to chase that market down. I think the other thing that benefits us a little bit is we also say that our international portfolio is typically small, micro. I do think the majority of our U.S. risks are probably medium, small. In that part of the market, it's slightly less competitive in property than it is in the large ticket risk where you've got kind of structured and layered programs, which really are in very much in the competitive space at the moment. So I think we're pretty well placed. One by virtue of not being overly dependent on the property market. But secondly, the part of the property market that we do play in, I think, it's a little bit more sheltered from this level of competition in other areas. So expect to see more competition, but I like our position in the market overall because of the balance of the portfolio that we've created over time. Thomas Gayner: And one final point to pick up on that and extend it. The good news is we don't have to chase it down because we have other things to do. And that's not just within the realm of insurance. We do have an investment portfolio, which has been collapsed into the segments, but it still exists. And it's a pretty big number of recurring dividend and interest income that flows in here. We have a set of industrial, commercial and financial consumer businesses that generates pretty nice returns, too. So the good news is we have the ability to remain rational in ways that people without our structure would not enjoy. Mark Hughes: And then finally, any observations on mix shift to and from the E&S market and what that might mean for you all? Simon Wilson: Yes, it's a very dynamic market at the moment. That's for sure. I think you're saying -- the property question that you asked previously, I think that's probably the most intense area where you're seeing movement between E&S and retail. At the moment, there's a lot of pressure in the E&S space, in particular, in property. So maybe that will drop back into the retail market. I think in professional lines as well, that happened a little bit earlier where we saw some of that going back into the retail market rather than the wholesale market. So there's a little bit of that, that we definitely see. So there's nuances between E&S and the admitted market, for sure. One area where -- which is counter to that is casualty. I mean the casualty market is a hard market at the moment for good reason. And we're seeing a lot more opportunity in the E&S space there. Structurally, I would suggest that the wholesale market, we've seen this over a number of years, is a different place now than it was even 5 years ago and certainly a decade ago. So the expectation is that an awful lot of this business that has flowed into the wholesale marketplace will remain there albeit in some areas at slightly more competitive rates. But we're looking at that part of the market now being almost like 25%, I think, of the U.S. commercial lines space, maybe a little bit higher than that if you include the Lloyd's market. And as well my sense is that it stays at that level and probably continues to edge up a little bit just because of the sophistication of what we see from the wholesale brokers and retail brokers trying to get into that space as well. So I like the fact that we play E&S. We can move the rate as we need to. We can change terms and conditions. I also like the fact that there is a pull factor into that marketplace due to the strength of the wholesale marketplace is just materially different than it was a decade ago. Mark Hughes: In the spirit of the Ryder Cup, I was trying to think of some way to heckle you all, but facts up today. So I guess I'll just not do that. So I appreciate the good answers. Have a great day. Operator: Your next question comes from the line of Drew Estes of Banyan Capital Market Management. Drew Estes: I really like the reporting updates. So thank you all for that. I have a couple of questions regarding your fronting operations, which are sizable. One is a housekeeping item and the other one is a more general question. So first on a housekeeping item. I was surprised that Markel Insurance, it's fronting operations were so large as opposed to State National. Is that mainly business that's flowing through to Nephila? Brian Costanzo: You got it, Drew. That's right. So we bifurcated kind of where the fronting is reported. So what sits in our programs and solutions division in the insurance segment, that is the business that we front on our Bermuda paper for Nephila. And that's the only thing that sits in there today in that division. The State National business, the traditional program services business, that sits in the Financial Services segment. Drew Estes: And for the more general question, a lot of alternative capital seem to have flown into the E&S market. And there's a lot of new fronting carriers out there that have clearly taken some share. And I'm curious, are these new entrants gaining share mainly by relaxing collateral and capital requirements? And if so, how do you ensure the State National doesn't relax its standards in an environment like that? Thomas Gayner: Yes. Thank you, Drew. It's an excellent question. And clearly, State National was at the forefront and the leader and really the pioneer in developing the market. And when you're the leader in the first actor, you can kind of set terms and conditions in the -- define the field and have it as you like it. In every business in the world that I've ever observed in my lifetime, when somebody does well, competition appears. And the terms and conditions change and set and evolve over time. And fronting and State National is no different whatsoever. The good news is the culture, the long-term discipline, the return on capital discipline that is consistent with everything else we do about Markel, applies at State National as well. And they compete in the world in which they live, but they do so with adherence to standards and values and discipline that's consistent for the rest of the organization. So we don't get to choose what the external environment is like. We get to choose the discipline we have to face it. And we've got a long history around here of doing exactly that across the organization, no matter where you're talking about. Drew Estes: I appreciate that, and I'm glad to hear it. But just quickly as a follow-up, is it -- are you seeing the new entrants compete by relaxing collateral and capital requirements? Or are they mainly focused on pricing? Thomas Gayner: Well, I think -- I mean, that's really all the way of saying pricing. So it's sort of a net price when you define it, as lower collateral, what have you. So it's -- the price is the answer. Operator: Your next question comes from the line of Andrew Kligerman of TD Cowen. Andrew Kligerman: Just following up on the prior question about fronting. In both segments, actually, in insurance, it was up 51%, $1.8 billion in the last 9 months. And I'm kind of wondering, what was driving that? What kind of gave you that upside? And same thing in the financial segment where operating revenues were up 18% in the 9 months to $513 million. I assume a big part of that was fronting. And maybe you could give a little color on where you're seeing that -- just the outlook in both segments for the fronting business. Brian Costanzo: Sure, Andrew. It's Brian. So let's take the fronting at Nephila and programs first. There, what we've seen, Nephila had some nice growth in premium. We've used the MBL balance sheet that's allowed them to place more business with the AUM that they have on their books and grow that business at attractive rates that are out there in the property market. If you think back to when they placed a lot of that business, first 4 to 6 months of this year was a very attractive rate environment. That book is going to perform very well on the fronting side, and it's going to perform very well, considering where we are thus far in the year from an investor standpoint with the low level of cat losses that are out there. So the vast, vast majority of that is property cat business that's fronted in the program space. So with the rate environment, growth aspirations at Nephila, that's really what drives the fronting revenues that we see in the programs and solutions division. Within program services, it's kind of a mixture. They signed on some new programs as they -- renew and brought in some new business. And then you've just got underlying growth in their kind of wider range of programs. They're hitting kind of all product classes. It's a pretty varied and mixed set of business there across property, casualty, workers' comp lines that they front and they just got natural growth coming from their producers that are partnering with them to front business. Andrew Kligerman: So it sounds like in both segments, these trends are sustainable into 2026. Brian Costanzo: Yes. I would say you're looking at -- the property market is certainly going to be a bigger driver on the vision and the Nephila fronting where it's going to be more broader insurance trends and our ability to kind of add on new programs. In the program space, you can have chunky things come in and out. You signed new agreements. People either move on or if you're fronting for them because they're -- they've been downgraded from a rating standpoint, they cure that, that program goes away. So there can be some chunky movements from time to time in that program services business in both directions. Andrew Kligerman: And then in the industrial segment, there was a little pressure, I think, Brian, you called out soft auto demand and higher materials costs in the auto area despite good performance in the other segments. Do you see this continuing to play out over the next year or so? Thomas Gayner: Andrew, it's Tom. Yes, I would describe this quarter and really this 9 months, it's just normal oscillation of the business. So we had some things that were white hot last year that weren't quite as white hot this year. You have the tariff noise and the general economic environment. So there's puts and takes across the line. And I think that's normal for this collection of businesses. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Tom Gayner for any closing remarks. Please go ahead. Thomas Gayner: Thank you all for joining us. That concludes my closing remarks. See you next quarter. Thank you. Operator: The conference call has now concluded. Thank you for attending today's presentation. You may disconnect.
Operator: Good morning, everyone, and welcome to Encompass Health's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Mark Miller, Encompass Health's Chief Investor Relations Officer. Mark Miller: Thank you, operator, and good morning, everyone. Thank you for joining Encompass Health's Third Quarter 2025 Earnings Call. Before we begin, if you do not already have a copy, the third quarter earnings release, supplemental information and related Form 8-K filed with the SEC are available on our website at encompasshealth.com. On Page 2 of the supplemental information, you will find the safe harbor statements, which are also set forth in greater detail on the last page of the earnings release. During the call, we will make forward-looking statements, such as guidance and growth projections, which are subject to risks and uncertainties, many of which are beyond our control. Certain risks and uncertainties, like those relating to regulatory developments as well as volume, bad debt and cost trends that could cause actual results to differ materially from our projections, estimates and expectations are discussed in the company's SEC filings, including the earnings release and related Form 8-K the Form 10-K for the year ended December 31, 2024, and the Form 10-Q for the quarters ended March 31, 2025, June 30, 2025, and September 30, 2025, when filed. We encourage you to read them. You are cautioned not to place undue reliance on the estimates, projections, guidance and other forward-looking information presented, which are based on current estimates of future events and speak only as of today. We do not undertake a duty to update these forward-looking statements. Our supplemental information and discussion on this call will include certain non-GAAP financial measures. For such measures, reconciliation to the most directly comparable GAAP measure is available at the end of the supplemental information, at the end of the earnings release and as part of the Form 8-K filed yesterday with the SEC, all of which are available on our website. I would like to remind everyone that we will adhere to the one question and one follow-up question rule to allow everyone to submit a question. If you have additional questions, please feel free to put yourself back in the queue. With that, I'll turn the call over to President and Chief Executive Officer, Mark Tarr. Mark Tarr: Thank you, Mark, and good morning, everyone. Revenue in Q3 increased 9.4% and adjusted EBITDA grew 11.4%, contributing to year-to-date revenue growth of 10.6% and adjusted EBITDA growth of 14.5%. Owing largely to our Q3 results, we have again increased our 2025 guidance. Doug will cover the details of the quarter and guidance in his comments. Our dedicated and highly competent clinical teams continue to deliver outstanding patient outcomes. Our Q3 discharge community rate was 84.6%. Our discharge to acute rate was 8.6%, and our discharge to SNF rate was 6%. Our performance on each of these quality metrics exceeds the industry average. Our high-quality patient care was again recognized by Newsweek and Statista who named Encompass Health America's most awarded leader in inpatient rehabilitation for the sixth consecutive year. We continue to invest in our clinical staff by providing professional growth and development opportunities such as our career ladder programs. These programs contribute to our continued favorable turnover rates. Q3 '25 annualized RN turnover of 20.2% and annualized therapist turnover of 7.8% are consistent with last year's very favorable trends. In Q3, we opened 3 new hospitals, a 40-bed hospital in Danbury, Connecticut, our first in that state, a 50-bed hospital in Daytona Beach, Florida; and a 50-bed hospital in Wildwood, Florida or the villages. We also added 39 beds to existing hospitals. Earlier this month, we opened a 50-bed hospital in St. Petersburg, Florida. We expect to open 2 additional 50-bed hospitals in Q4, one in Amarillo, Texas and the other in Lake Worth, Florida and add approximately 37 beds to existing hospitals. The demand for inpatient rehabilitation services remains considerably underserved and continues to grow as the U.S. population ages. The Medicare beneficiary population is the fastest-growing segment of the U.S. population. It is estimated that by 2030, 1 in 5 Americans, more than 70 million people will be aged 65 or older. The 65 or older population has been growing consistently at a CAGR of approximately 3%. The average age of our Medicare beneficiary patient is 77 years old, and the age 75-plus population is growing at approximately 4%, yet the supply of licensed IRF beds in the U.S. has increased only nominally. As a result, the demand for treatment of the complex medical conditions such as stroke, necessitating IRF care intensity remains significantly underserved. We are responding to this unmet need by continuing to open new hospitals and add beds to existing hospitals. We have again increased our expected bed addition growth. We now expect to add approximately 127 beds to existing hospitals in 2025 and approximately 150 to 200 in both 2026 and 2027. Our pipeline of announced new hospitals with opening dates beyond 2025 currently consists of 14 hospitals with 690 beds. With an active pipeline of more than 40 projects, additional hospital locations will soon join this list. To this point, last week, we received CON approval to build a 40-bed hospital in Clarksville, Tennessee. On October 3, we converted our ERP system to Oracle Fusion. Our team worked tirelessly and diligently for more than 18 months to accomplish this challenging feat. We experienced no significant disruptions to our operations from the conversion, although like any other project of this magnitude, there remains bugs to be resolved and refinements to be made. Now I'll turn it over to Doug. Douglas Coltharp: Thank you, Mark, and good morning, everyone. Revenue growth of 9.4% in Q3 was driven primarily by a 5% increase in total discharges and a 3.3% increase in net revenue per discharge. As we have previously stated, quarterly fluctuations in discharge volume growth and the composition of that growth between same and new store is a normal expectation of our business model. Volume growth in any particular quarter is influenced by factors such as the prior year period comp, the timing of capacity additions in the current and prior year and the calendar, for example, the day of the week on which the quarter ends and the timing of any holidays. Specific to Q3, discharge growth comp from Q3 '24 is a very strong 8.8%. Q3 '24 same-store discharge growth of 6.8% is our highest since Q2 '21 when we were normalizing from COVID. As for the timing of capacity additions, in comparison to Q3 '25, Q3 '24 same-store growth benefited from a significantly higher number of de novo beds transitioning from new store to same-store as well as a higher number of bed additions to existing hospitals in the immediately preceding quarters. Additionally, this year, we consolidated 2 satellite locations comprising 72 beds in Cincinnati, Ohio and Swickley, Pennsylvania into their host hospitals. This was primarily attributable to lease expirations and allows for market rationalization. Ultimately, we expect to transition much of the volume in these closed units to the remaining hospitals. And in the case of Cincinnati, we are adding beds to accommodate this expectation. Nonetheless, these consolidations had a negative impact of approximately 35 basis points on Q3 total and same-store discharge growth. As Mark stated, the market for IRF services is growing and underserved. Reflective of this market opportunity, we are again increasing our estimated annual bed additions to existing hospitals through 2027. We have increased the estimated bed additions to existing hospitals for 2025 from approximately 110 to approximately 127 each of 2026 and 2027 from approximately 120 to now 150 to 200. Taken together with our new hospitals, capacity expansions now total approximately 517 beds in 2025, 540 to 590 beds in 2026 and 450 to 500 beds in 2027. Q3 '25 adjusted EBITDA increased 11.4% to $300.1 million. The quarter included $10.8 million of net provider tax revenue, an increase of $7.7 million from Q3 '24, owing largely to retroactive payments related to newly initiated programs in Tennessee and West Virginia. This increase in net provider tax revenue was partially offset by a $1.6 million increase in noncontrolling interest expense associated with higher net provider tax revenues at joint venture hospitals. Q3 '25 adjusted EBITDA also included a $1.3 million retroactive property tax assessment associated with one of our California hospitals and approximately $3 million in accelerated supplies purchases in anticipation of the October Fusion ERP conversion. Q3 SWB per FTE increased 2.6%. Premium labor costs, comprised of contract labor and sign-on and shift bonuses, declined $5.6 million from Q3 '24 to $27 million. Benefits expense per FTE increased 1.9% as we anniversaried the large increase in group medical claims experienced in Q3 last year. EPOB of 3.42 for the quarter was driven in part by the timing of capacity additions. Q3 adjusted free cash flow decreased 8.2% to $174.2 million, primarily due to a $55.8 million increase in working capital, which included accelerated payments of accounts payable in preparation for the October Fusion conversion. We expect accounts payable balances to normalize during Q4. On a year-to-date basis, free cash flow increased 16.5% to $582.5 million. We have increased our full-year adjusted free cash flow estimate to $730 million to $810 million. During Q3, we repurchased approximately 221,000 shares of our common stock for approximately $25 million, bringing the year-to-date total to approximately $82 million. We also declared a cash dividend of $0.19 per share, which was paid earlier this month. Our leverage and liquidity remain well-positioned. Net leverage at quarter end was 2x. And in September, we retired the remaining $100 million balance of our 2025 5.75% senior notes. As Mark stated, we have again raised our 2025 guidance. We now assume net operating revenue of $5.905 billion to $5.955 billion, adjusted EBITDA of $1.235 billion to $1.255 billion and adjusted earnings per share of $5.22 to $5.37. The key considerations underlying our guidance can be found on Page 11 of the supplemental slides. And with that, we'll open the lines for Q&A. Operator: [Operator Instructions] And we will take our first question from Joanna Gajuk with Bank of America. Joanna Gajuk: So I guess maybe first on the discussion around, I guess, accelerated bed additions and de novos too, which is clearly the volume seem to be the issue, I guess, or where questions are in terms of just slowdown this quarter, but obviously, you kind of explained a couple of things. But let's talk about the future, right? So how should we think about this accelerated bed addition plans impacting your volume growth going forward? And I guess to that point, your 6% to 8% sort of long-term growth algo, can you talk about -- I know you don't give any specifics for '26, but kind of how should we think about it into next year? Douglas Coltharp: Yes. So I think the fact that for the second time this year, we're increasing bed expansions and now doing it for a multiyear period is really a validation of our business model and strategy. It reflects the fact that our de novos have been performing well and are justifying bed expansions as they mature. It also reflects what we've been saying about the unmet need for IRF services really across the country and our unique position to be able to step in and add capacity. We've also talked in the past that bed additions to existing hospitals offer the highest return on invested capital we have. So that's a favorable component as well. And I think all of you have observed as we have, that our occupancy has been steadily rising over the last couple of years. So this is in response to that demand that we're seeing at existing facilities. We continue to be very optimistic about the market that is in front of us, the total addressable market. This suggests that on a go-forward basis, we're going to be more heavily weighted in the past than we have been towards bed additions in terms of total capacity expansions. But it's going to be continued utilization of both of those arrows in our quiver, maintaining the de novo program and then the increased bed expansions that we outlined for at least the next 3 years. Mark Tarr: Joanna, you may recall from past calls where we've mentioned that one of the areas we're prioritizing where we add beds is to help give a higher complement of private beds to those hospitals that have a high percentage of semiprivate rooms. So that too has helped with our overall occupancy. Douglas Coltharp: I think it's important to note, too, that these aren't just numbers that we have specifically identified projects and the number of beds at each one of those hospitals supporting those increased ranges for bed additions over the next 3 years. Operator: And we can move next to Pito Chickering with Deutsche Bank. Pito Chickering: Not surprising, I'm asking a similar question there. But I guess sitting back here and looking at sort of the next couple of years here, what percent of -- I guess, what level of CapEx as a percent of revenue should we be modeling in order to keep your discharge growth in that 6% to 8% range? Just as are you scaling up bed additions to sort of get to the proper levels of occupancy for more durable growth? Douglas Coltharp: Yes. So growth CapEx this year at the midpoint of the estimate is about $580 million. We're increasing the number of bed expansions and holding the number of anticipated de novos relatively constant from year-to-year. So you figure at the midpoint of the range at 175, you're up about 50 beds in each of the next 2 years and the average cost per bed on a bed addition is roughly $800,000. That would be the increment to the $580,000 that you might pencil in. Pito Chickering: Okay. Great. And then a question on occupancy. In order to maximize margins but still maintain growth, what is the target occupancy before you expand beds at the facility? And how quickly can you expand capacity at those facilities? And any color on what percent of your facilities today are at max occupancy and a headwind for growth? Douglas Coltharp: Yes. So there's a lot of it depends on there, as we've talked about before, in terms of when you're hitting what might be considered a peak occupancy, the composition between private and semi-private beds that Mark mentioned earlier goes a long way towards that determination. We've been steadily moving the percentage of our overall portfolio that is comprised of private beds. At the end of Q3, it was up again to 57%. And again, that compares favorably to 41% at the end of 2020. Generally speaking, whether it's semi-private or private, a hospital starts to hit our radar screen for potential bed expansion after it crosses 80% of sustained occupancy. Within an all-private room hospital, because you're not facing issues of gender or germ compatibility, you can run into the mid-90% and do that very efficiently. With semi-private, you're probably going to peak out just south of 90%. In terms of ability to add beds, it depends on the physical configuration of the plant and then really whether or not you're in a CON state or not. I will note that even for our hospitals in CON states, in almost every instance that we can think of, the process for adding beds to an existing hospital is much shorter and less complicated than it is for getting a CON for a new hospital. When I mentioned the physical plant for the building, we have some older legacy hospitals that just cannot be expanded anymore. We have the ability to address capacity needs in those markets by adding a freestanding satellite. You've seen us do that effectively a number of places in our portfolio. We are also in the design process and something that we're going to be talking a lot more in the future, which is what we call a small-format hospital, which will be a smaller version of a freestanding unit that can be used for bed expansion opportunities and market diversification. And that would be roughly a 24-bed unit built on, say, 2 to 2.5 acres of land. It's a very efficient plant. Again, we expect to be talking more about that in the future. In most cases, where we do have the ability to add beds to an existing hospital, it can happen pretty quickly, meaning from the point of ideation to it working its way through the design and construction timeline, it's certainly less than 24 months, and it may be closer to 18 months. Operator: And we will take our next question from Ann Hynes with Mizuho Securities. Ann Hynes: I know your stock is down a little bit on today's earnings. Did expectations come in line with your estimates? Did anything surprise you in the quarter versus what you initially thought? And then secondly, maybe if you can give an update just on the Washington outlook and there's anything that the company is watching closely. Douglas Coltharp: I would say no surprises in the quarter, other than the retro payment from Tennessee and West Virginia on the net provider taxes and maybe the California property assessment. Those were kind of in the queue, but we weren't sure when they would come through. Otherwise, I would say just kind of scanning down the P&L that everything was pretty much in line with our expectations. Had another quarter of really good labor management, both in terms of controlling the spend, seeing a year-to-year decrease in the premium labor spend, felt really good. We had been anticipating, but until it gets there, you don't know that we would see a nice decrease in the inflation rate on the benefits because of what we experienced in the second half of last year. And it was nice to see yet another quarter where bad debt was at the low end of our expectations. TPE activity did resume at a modest level in Q3. But again, nothing that caused any alarm and our performance under RCD remains very strong in the latest cycle. So again, aside from maybe the timing and the magnitude of the out-of-period provider tax revenue, nothing that was a surprise. Mark, do you want to give? Mark Tarr: Yes. And relative to your question around Washington, in spite of Washington being closed down in a lot of areas, we remain active there. We are not seeing anything near-term that is of concern. It was -- it's our understanding that CMS was called back to the office this week. So hopefully, things go back to a normal flow there, but we're just not overly concerned about anything that we see right now on the horizon. Patrick Tuer: And this is Pat. Just a quick expansion on the labor comment. There's a lot to be proud of here. Both our centralized TA team and our operators have done a great job. We posted our best same-store net hiring quarter since Q3 of 2023. Turnover is back down to pre-pandemic levels and contract labor shift and sign-on bonus are at their lowest level since Q1 of 2021. Operator: And we can move next to Matthew Gilmore with KeyBanc. Matthew Gillmor: I thought I might ask about payer mix. I think there was some favorability in the first half with traditional Medicare and VA. It seems like that may be normalized in the third quarter with moderation in pricing. Just curious if you could give some comments on how payer mix evolved in the third quarter compared to the first half. Douglas Coltharp: Yes. So in terms of payer mix, if we just look at the growth rates by payer in Q3, relatively comparable between Medicare and Medicare Advantage, both were up or Medicare was up 4.4%. This is total discharge growth. Medicare Advantage was up 4.8%. Managed care saw another nice increase, 9.2%. I'll remind you that, that includes the volume that we're getting under the VA Community Care network, and that continued to see another nice increase in the quarter. That was up. And again, it's off of a relatively small base, but that was up almost 26% on a year-over-year basis, and that pays at the Medicare CMG rate. That contract now comprises about 18% of our total managed care volume. In terms of elsewhere in the payer mix, Medicaid was up about 3.5%. So overall, we feel like the growth across the payers was pretty well balanced. Matthew Gillmor: That's great. And then, Doug, I thought I might see if you could provide some comments on headwinds and tailwinds for 2026. I know you're not providing specific guidance, but anything to call out just from a modeling perspective as we're thinking about next year? Douglas Coltharp: I don't know that a lot comes immediately to mind other than I think net provider taxes will continue to be a bit of a wildcard. But again, if you look at the progress that we've made through the course of the year on premium labor, I think that sets us up well going into 2026. Again, the level of capacity expansion overall is going to be up somewhat next year. My guess is because we're going to be at roughly the same level on de novo activity that ramp-up costs and start-up costs will be comparable next year to what they are this year. It could be a little bit of fluctuation in bad debt, but things seem to have settled in there. So Matt, we're currently in the budgeting process for 2026, but I'm not aware of anything at this point that I would call out as a significant headwind or tailwind. And look, a continuation in this environment would not be a bad thing. Operator: And we will go next to Whit Mayo with Leerink Partners. Benjamin Mayo: Maybe just back to volumes for a second. You quantified the satellite consolidation. I think that was 35 basis points. Doug, any way to put numbers around the timing of beds, the calendar? I think 4th of July might have been on a Friday. There are some other factors there. I mean the comp is the comp, it is what it is. Just wondering if just -- there's any way to put a framework around maybe just quantifying what some of those other factors might mean optically for the same-store discharges. Douglas Coltharp: You can kind of walk yourself in circles a little bit in trying to do that. It was a little bit of an odd cadence to the quarter. If we compare it to last year, the toughest comp that we were actually up against was the month of July, and yet we did pretty well in July. The quarter -- volume in the quarter was kind of a U-shape. July was solid. We reached the nadir in August and then recovered nicely in September. And so I don't know that we can point to any specifics. We've got kind of the same dynamic with more holidays as we look at Q4. And so I think overall, the dynamics with regard to the impact of the capacity expansions in the satellites for Q4 set up a lot like Q3 with an extra dynamic around the timing of holidays. And it's a bit of a wildcard. So we can look, for instance, at the month of October, and it ends tomorrow on a Friday that happens to be Halloween. Is that a positive or a negative? I don't know. It's a factor, though. Likewise, Thanksgiving this year is 2 days short of the latest that can fall. It falls on Thursday, the 27. Again, that's going to have an impact, but it could be a positive or a negative. So it's again difficult to be too specific about those things. We look again -- and I think we're not measuring this -- we're not managing this business quarter-to-quarter. And we've said all along that there were going to be fluctuations based on the factors that I identified in my script. We set out a target to have a discharge CAGR between 2023 and 2027, total discharges of somewhere in the 6% to 8%. We're almost 3 years through that 5-year target, and we're 7.5%. We've increased the number of capacity additions that we're going to have in future periods. So obviously, we feel very good about the prospects of the business. Mark Tarr: Whit, there weren't really -- if you look at our actual program mix, when we mentioned payer mix earlier, program mix, there weren't anything that really stood out. We continue to see progress made and continued absolute case growth for strokes, other neuro continues to be strong. So there wasn't anything that really kind of stood out from a volume standpoint that would tie back to our program mix. Douglas Coltharp: And I think that's important to note. Obviously, we analyze the volume and the trends there in a lot of different ways. We didn't see anything looking at the third quarter results that said we need to make a course correction other than in the normal course of business, where we do recognize that some markets outperformed others, and we'd like to see a rising tide lift all boats. Benjamin Mayo: Yes. You can kind of tie your brain into a pretzel trying to figure this out. My second question is really just an update on the Review Choice demo and how your experience has evolved this year versus your expectations. Douglas Coltharp: So every month, since the end of the first quarter, we run with all 7 of our hospitals in the state of Alabama having affirmation rates north of 90%. Cycle 3 ended in June. And because of our performance early in that cycle, we did not clear the 90% affirmation rate for all of cycle 3. Cycle 4 began on July 1. And since cycle 4 began, all 7 of our hospitals have been north of the target 90% affirmation rate. It remains a situation where we have to stay very hands-on with regard to Palmetto. And as much as we can through a government shutdown, we're also staying very much in touch with CMS to ensure that we are being treated fairly and appropriately throughout this process. So we continue to have to apply more administrative resources to this and should be necessary. But generally speaking, the program is running much better than it was during the course of cycle 2 and cycle 3. Operator: And we will take our next question from Andrew Mok with Barclays. Andrew Mok: Given all the de novos and supply-demand factors, we don't usually hear much about closures or consolidations in the space. So I was hoping you can speak a little bit to that dynamic. Was this truly a unique event? Or does this happen with more regularity and is only getting called out given the extra attention to volumes in the quarter? Patrick Tuer: Andrew, this is Pat. Both of those are unique situations where the -- where we were renting space from the hospital or a location closed. So one-off events, very small percentage of our portfolio and not anticipating any additional activity in the future. Andrew Mok: Great. And maybe a question on the Medicare landscape more broadly. It's undergoing some pretty big changes, whether there's a slowdown in Medicare Advantage growth next year or greater than normal churn across the national payers. Just curious how you're thinking about that and any implications for your business. Douglas Coltharp: Yes. I think -- and again, it's reflected in some of the discharge growth rates by payer that I reviewed earlier. But what we like is that we do well across the payer spectrum. Obviously, our 2 primary areas of focus are with Medicare fee-for-service and Medicare Advantage. If Medicare Advantage growth is slowing, that means that the greater opportunity is within fee-for-service, and that actually pays at a slightly higher rate than we do better with regard to conversion rates, the percentage of admits to referrals. That's not a bad dynamic for us. Conversely, if Medicare Advantage growth resumes, well, we've demonstrated, particularly over the last 4 years that we can effectively play in that sandbox as well. So in terms of how we're planning for 2026, a more global shift between Medicare Advantage and Medicare fee-for-service is not going to impact how we plan the business. Patrick Tuer: Andrew, this is Pat. Just some additional context. So when we look at strokes, about half of them in the country are going to skilled nursing facilities. And that's including in markets that we currently operate in. So we see continued upside there. The same story plays out with brain injury, which is just a huge patient population that we have the opportunity to serve. And then, while it's not fee-for-service Medicare, that VA dynamic that Doug talked about before, it's a small end size, but it grew 25.6%. And that -- this was the first quarter where we have really put some scaled attention to it. And we had -- originally, when this opportunity came out, we weren't sure how to size it. We thought it was proximity to a VA. And when we looked across our portfolio at what we were currently pulling, we had hospitals that were 250 miles away from a VA that were growing double-digit percentage points. So we looked at hospitals like that and what they were doing from a process perspective, created a toolkit, scaled that up. And Q3 is really the first time that we have implemented that. So I see upside in these areas in 2026. Operator: And we will go next to A.J. Rice with UBS. Albert Rice: Just to maybe think about -- we obviously talked a lot about the development and program and so forth. I wonder if you could comment on your pipeline. And you sort of hit on this trajectory of 6 to 10 a year, averaging about 8 and you sort of got that pipeline baked for the next 3 years, it looks like. Is there any pressure that people want to move faster than you're able to accommodate them in terms of potential partners out there? What's the competitive landscape to other people? Are they on basically the same time frame that are competing against you for those joint ventures? Any thoughts on that? Douglas Coltharp: Yes. So go back to a couple of things that Mark mentioned in his comments. One is we've got 14 projects that were announced and underway as at the end of Q3. Since then, we've already added another project with the awarding of another CON in the state of Tennessee. That's within a total active pipeline, meaning more than just exploratory conversations of 40 projects. We feel good about being able to operate at least the midpoint of that 6% to 10% target range. What could change that and move us up in the near term? We've talked before about the potential for CON restrictions to be dropped in some key states, namely North Carolina. In terms of pressure from any other parties, I think you specifically cited potential joint venture partners to move more quickly. It tends to be the opposite, which is we can move much more quickly than our partners just because of the experience we have, both in operating as a joint venture and the way that we have streamlined our design and construction process. So that is not an issue. With regard to competition, we've got a number of parties out there, mainly Select Medical and HCA, who have publicly stated plans to increase the number of beds they're adding. They have different models than we do, and the market remains incredibly underserved. So we don't see that in any way crowding us out. And as we've mentioned previously, part of the reason that in spite of the very attractive market opportunity that's out there, you don't see more competition coming in is the barriers to entry in this business are really high. It is capital-intensive. It is clinically complex. It is heavily regulated. All of those things make it very difficult for somebody who's not really well capitalized and experienced to step into the breach. Mark Tarr: A.J., the fact that we've done a lot of new development in the last x number of years, and we have the resources internally, whether that's through real estate or our design and construction team, and we can move with a high priority on first-mover advantages, speed to market. I think we've shown that over and over again. Relative to your question around joint venture partners, as Doug noted, it does vary from partner to partner. But if you look at a partner like what we have with Piedmont in the state of Georgia, I mean, we collectively have both systems have really prioritized post-acute and rehabilitation in particular. We now have 7 hospitals with that partnership because we moved at a brisk pace to make sure we were taking advantage of the opportunities in the various marketplaces they serve. So we think we're very well aligned with our partnership opportunities out there. Albert Rice: Okay. On your -- at one point when we had met during the summer, you had said that you may be looking at expanding your prefab capability that there were some geographic constraints on it. Where does that stand at this point? And what might that do for you if that -- if you are able to open that up to a broader geography? Douglas Coltharp: Yes. So what A.J. is referencing specifically is right now, there are some geographical limitations on where we could utilize, specifically full prefabrication of hospitals, and that relates to transportation costs. Right now, the way that we are using prefab construction for larger projects is we're essentially building modules and those modules are loaded on the flatbed trucks and transported to the site. And we are using predominantly trucks because the modules are too wide to effectively utilize rail. So we are looking at 2 things. One is, can we change the configuration of the modules so they can fit on rail, which is a more cost-effective mode of transportation and could increase the geography to which the replicable or do we need a second manufacturing site that would be closer to those geographies or there's a version of modular construction on prefab that is called panelized construction. So if you think about taking a cardboard box and folding it from where it's open, that changes the overall dimensions of that particular module and it can potentially fit on rail. So there are a number of things underway that I would state are very much still in the evaluation stage. I will say that the other thing that is changing is a dynamic, and this is more empirical or anecdotal than it is completely empirical right now is that we are seeing that increasingly for our type of construction, whereas we used to compare conventional to full prefab, there's really not much happening. There's no pure conventional anymore. Almost all conventional construction, certainly all that we're using at least uses componentized prefab construction, meaning the incorporation of prefab bathrooms or head walls or both. So it's a bit of a hybrid model. And as that has become the norm, the cost differential has stayed relatively constant between the 2, which is insignificant. But the construction timeline, which had a significant advantage for full prefab is decreasing. And so that's a dynamic we need to keep an eye on, a favorable dynamic. Operator: And we'll move to our next question, which comes from Brian Tanquilut with Jefferies. Brian Tanquilut: Maybe, Doug, as I think about the salaries line as a percentage of revenue, it looked pretty good this quarter. But tying it back to your comments and just some of the ramp. Just curious, how are you thinking about labor and then maybe EPOB, where that eventually optimizes once all the ramping of capacity happens? Douglas Coltharp: Yes. So I'm going to ask first for Pat to comment on EPOB, and then I'll talk maybe a little bit about just other trends within that stuff.. Patrick Tuer: Brian, this is Pat. One of the comments on the quarter for EPOB, part of it is related to the timing components of de novo activity. But the other piece ties back to the hiring that we've done in Q3. We had 162 net RNs hired for the quarter. Outside of RNs, we had a really robust hiring quarter. And those are people that are currently in some form of orientation or precepting right now that is pushing EPOB up that will normalize in the future. And if retention stays where it is to the benefit of other buckets like premium pay. Mark Tarr: Brian, as we've stated in the past, that 3.4 number on EPOB, that's where we feel is the right number. I mean if you -- there might be times when you have a volume increase, you might see the EPOB drop down a little bit. But on an ongoing basis, we feel that's the right number to make sure that we are efficient, but yet we are also responding to the staff and the ability to retain staff is critically important. So that 3.4 would be a number that we really try to work towards. Douglas Coltharp: So in terms of labor trends and combining what Pat and Mark have offered on EPOB, we think that we've made great progress and more of the progress that we anticipated on reducing premium labor spend in 2025. If we can hold that relatively steady on a nominal dollar basis moving into 2026, that would certainly be a positive. even as volume grows. I think our assumption is that our core underlying SWB per FTE inflation is probably going to stabilize at least for the near term, somewhere around 3% to 3.25%. The benefits piece, which is about 10.5% of the total SWB line, predominantly because of group medical, which is 75% of benefits, excluding payroll taxes, is likely to have an inflation factor in 2026 in the high single digits. Patrick Tuer: Just to clarify that 162 net RNs hired was a same-store number as well. Brian Tanquilut: Got it. And then maybe, Doug, just quickly on the ERP rollout. Just curious what you can share with us in terms of, number one, what you're seeing so far? And then number two, what kinds of efficiency gains should we expect on the P&L at some point and kind of like the timeline in terms of achieving those targets? Douglas Coltharp: So the good news is we threw the switch on October 3 and the lights didn't go out, right? But -- and this was a very comprehensive ERP conversion across all finance and accounting functions, across supply chain, which is a big deal for us and across all HR functions. The overwhelming majority of modules within that work from the get-go smoothly and efficiently and as we had hoped. But as is the case with every one of these items, there are bugs that need to be fixed and refinements that need to be made. That's why you see the $3 million in incremental post-implementation expenses that we've added for this year. We, in anticipating that this would be the case, asked our implementation consultants, and we did this back in the summer to continue to devote those same resources to us for a period of time post-implementation to help us work through these things in the real term. And those -- we're knocking items off the list on a daily basis. As we had stated from the get-go, unlike a lot of other ERPs, that were driven because of inefficiencies or inconsistencies in the legacy system, that was not necessarily the case here. Again, many times, the driver for an ERP conversion is a company that has grown through acquisitions and has not converted every one of their various business units over to a single unit. That wasn't applicable for us. We were on a single operating system. Everybody was basically on PeopleSoft products, and we were operating efficiently. I say that because ultimately, we do believe that there will be enhanced efficiencies in workflows from the full implementation of Fusion, but it's not something that was done for a specific ROI, and therefore, we're not looking to quantify a specific impact on our P&L. Mark Tarr: Brian, this is Mark. I mentioned it in my script, but I do want to give a call out to our teams here in Birmingham as well as our teams out in the hospitals as part of this conversion. They've worked day and night plus the weekends to make sure that this execution was near flawless. And not just any organization can do this in the manner that they did. I'm really proud of what they've done. Operator: And we can move to our next questioner, Jared Haase with William Blair. Jared Haase: I'll ask another one on sort of the backdrop or outlook for Medicare Advantage. And I'm curious, we've heard a lot about the plans sort of talking about them moving members from more flexible PPO products towards these HMOs. And I'm curious when you see kind of that shift in mix towards more of a managed care product like that, does that have any impact on Encompass either from kind of a pre-authorization perspective or maybe your ability to be a part of those, call it, narrower or tighter networks? Patrick Tuer: Jared, this is Pat. We have not seen much change in the MA side on the pre-auth perspective and don't anticipate changes as we head into 2026. We -- as Doug said, we have a lot of success on the prior auth perspective. And as we navigate the layers of appeal, but it's still a grind every day dealing with those plans, but our teams are persistent and advocating for the patients in those markets that deserve our level of care. Jared Haase: Okay. Great. That's helpful. And then maybe just a follow-up on occupancy. When we think about the confluence of your, I guess, 2025 capacity investments maturing and then the additions that you have planned for next year, any nuances we should keep in mind from, I guess, a cadence perspective next year on the occupancy rate? Or should we sort of pencil that in staying relatively constant in the mid-70s range? Douglas Coltharp: Yes. I think just maybe thinking initially about the Q4, Q1 dynamic. So remember, we had our highest ever occupancy level in Q1 of last year. And then as you look maybe to Q3 and Q4 of this year, we're adding a lot of our bulk capacity, meaning the de novos coming online late in the year. So we had an opening that occurred very late in September, and then we've got one each in October, November and December. So those are all still going to be very much in ramp mode as we move into the first quarter of next year. So it wouldn't -- and I haven't put a pen to the paper yet, but it wouldn't surprise me if you saw some downward pressure in terms of the year-over-year comparison in occupancy rates in the first quarter of next year. Of course, all of that can change depending on the intensity of a flu season. I guess you got to throw COVID into the mix and all that other kind of stuff. But anyway, there will be period-to-period fluctuations as a result of the timing of capacity additions, but our overall occupancy rates remain on an upward trajectory. Mark Tarr: Jared, in our supplemental slides on Slide 17, we have the development activity and when the hospitals will come on in 2026. So I just draw your attention to that. Operator: [Operator Instructions] We will go next to Raj Kumar. Raj Kumar: Maybe just kind of on the kind of satellite consolidation. And maybe I missed the comment, but what's kind of embedded from a year-on-year standpoint in 4Q in terms of the growth headwind? And then maybe just one on the kind of potential impacts from the negative headlines that came out earlier in the 3Q. Do you kind of see any changes to referral patterns as a result of that? Or was it kind of business as usual? Mark Tarr: I'll take your -- I'll answer the last question first. This is Mark. We've not seen any impact among our referral patterns. As we stated on last quarter's call, we're very proactive in terms of communicating with our joint venture partners, with our referral sources -- and they're all aware of our quality, and we share that openly. So we've not seen any negative fallout from that article. Douglas Coltharp: With regard to the Q4 potential headwind from the 2 satellite closures, again, we estimated that at 35 basis points in Q3. Even before we add the beds to Cincinnati, we should start seeing a resumption or consolidation of some of that volume into the remaining hospitals in that market. So I would say it will probably be a little bit less, maybe 25 to 30 basis points in Q4. Raj Kumar: Got it. And then as a follow-up, just kind of thinking about the preopening and start-up costs, $11 million year-to-date. I think, roughly $7 million from the low end of what's embedded for this year. So maybe kind of helping us think about from the 3 hospitals that are opening in 4Q, how much of that was realized in the third quarter? And it seems like you have like a back half weighted pipeline next year as well from an opening standpoint. So maybe what's kind of being assumed in 4Q spend related to the first half hospitals in '26? Douglas Coltharp: Yes. So it's going to be on kind of a rolling basis. So the estimate for the year is $18 million to $22 million. You're at $11 million through 3 quarters, probably pegging the midpoint of that range is not a bad place to be in terms of the Q4 estimate. Most of that is going to be related to the openings that occur in Q4. A portion is applicable to the early openings in 2026. Probably a good proxy for where we might land with regard to a '26 number is something in the same range that we had for the full year this year. And two, when you get into the latter stages of 2026, that is going to include some expenses related to '27 openings. Operator: At this time, there are no additional questions. I'd like to turn the program over to Mark Miller for any closing remarks. Mark Miller: Thank you, operator. If anyone has additional questions, please call me at (205) 970-5860. Thank you again for joining today's call. Operator: Thank you for your participation. This does conclude today's program. You may disconnect at any time.
Operator: Good afternoon, and welcome to Asure's Third Quarter 2025 Earnings Conference Call. Joining us today's call are Chairman and CEO, Pat Goepel; Chief Financial Officer, John Pence; and Vice President of Investor Relations, Patrick McKillop. Following their prepared remarks, there will be a question-and-answer session for the analysts and the investors. I would now like to turn the call over to Patrick McKillop for introductory remarks. Please go ahead, sir. Patrick McKillop: Thank you, operator. Good afternoon, everyone, and thank you for joining us for Asure's Third Quarter 2025 Earnings Results Call. Following the close of the markets, we released our financial results. The earnings release is available on the SEC's website and our Investor Relations website at investor.asuresoftware.com, where you can also find the investor presentation. During our call today, we will reference non-GAAP financial measures, which we believe to be useful to investors and exclude the impact of certain items. A description and timing of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and as such, involve some risks. We use words such as expects, believes and may to indicate forward-looking statements, and we encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I will hand the call over to Pat in a moment, but I just wanted to take a moment to remind people of our upcoming Investor Relations activities. During the month of November, we will be attending the following conferences. On November 18, the Craig-Hallum Alpha Select Conference in New York; on November 19, the ROTH Technology Conference in New York, and the Stephens Conference in Nashville. On November 20, we will attend the Needham Technology Conference in New York. On December 16, we will participate in the Northland Growth Conference, which is being held virtually. We also expect to schedule some additional non-deal roadshows. Investor outreach is very important to Asure, and I would like to thank all of those that assist us in our efforts to connect with investors. Finally, I would like to remind everyone that this call is being recorded, and it will be made available for replay via a link available on the Investor Relations section of our website. With that, I would now like to turn the call over to Pat Goepel, Chairman and CEO. Pat? Patrick Goepel: Thank you, Patrick, and welcome, everyone, to Asure Software's Third Quarter 2025 Earnings Results Call. I am joined on this call by our CFO, John Pence, and we will provide a business update for our third quarter 2025 results as well as our outlook for the remainder of 2025 plus our initial guidance for 2026. Following our remarks, we'll be available to answer your questions. We're pleased to report that our third quarter revenues were very strong, coming in at $36.3 million, 24% increase versus the prior year third quarter. Our revenues reflect what we believe is an inflection point of increasing growth, which was broadly based across all our product lines such as payroll, benefits, recruiting, time and attendance as well as our payroll tax management business. Organic growth in the third quarter improved sequentially from the second quarter, and we're forecasting continued improvement in the future. Our performance this quarter is reflective of what we believe is strong demand for human capital management products from business owners of all sizes. Our recent acquisition of Lathem Time is also performing well, and our team is continuing to work on achieving revenue and cost synergies going forward, which we believe can be obtained over the next 12 months. As a reminder, we believe the addition of Lathem will further increase cross-selling opportunities for us and quicken the pace of which we can get new payroll clients started. As we've discussed during the past earnings calls, we have made investments in order to improve our technology as well as integrate the different point solutions we have acquired over the past few years. Today, we are excited to announce that we recently launched a new client interface, which we call Asure Central. Asure Central will offer clients a new experience with a brand-new look and feel and improve their workflow as well as enable us to amplify items such as event-driven marketing efforts. We believe that this new client experience will also further accelerate the rate at which we can drive our cross-selling or attach rates with more than our 100,000 clients going forward. Our team has just started this rollout in the past week with our direct clients, and we plan to introduce it to our indirect clients soon. Our bookings for the third quarter declined by 41% versus a year ago due to large enterprise deals, which were booked in the third quarter of 2024. Excluding those deals from the comparison, our bookings were up 21%. Now I would like to hand it off to John to discuss our financial results in more detail as well as our guidance. John? John Pence: Thanks, Pat. As Patrick mentioned at the beginning of this call, several of the financial figures discussed today are given on a non-GAAP or adjusted basis. You will find a description of these GAAP to non-GAAP reconciliations in the earnings release that was made available earlier today. The reconciliations themselves are also included on our most recent investor presentation posted in the Investor Relations section of our website at investor.asuresoftware.com. Now on to the third quarter results. Third quarter total revenue was $36.3 million, increasing by 24% compared to the prior year period. Recurring revenues for the third quarter grew 11% versus the prior year to $31.8 million. Our professional services and hardware revenue was $4.4 million in the quarter compared to $700,000 in the third quarter of last year. A majority of the revenue growth in this category was driven by hardware sales tied to our recent acquisition of Lathem Time. Our organic growth improved sequentially to approximately 4% in the third quarter compared to 1% in the second quarter. The impact of HRC ERTC-related churn in the second quarter was 4%. And in the third quarter, it was 3%. So, in summary, our organic growth, excluding HRC ERTC-related churn in the third quarter was 7% compared to 5% in the second quarter. Float revenue was down slightly versus prior year due to previous rate reductions made to the federal funds rate, partially offset by an increase in client funds. Regarding our outlook for interest rates, yesterday, the Federal Reserve cut rates by 0.25 point, and we are now modeling another 0.25 point interest rate cut in the remainder of this year. We believe that as our client fund balances increase, this will help offset some of these rate cuts. Our cross-selling efforts showed good results this quarter with our attach rates, which measure clients that take more than one product, continuing to move higher sequentially in the low single digits versus second quarter. Gross profit for the third quarter increased to $23.1 million versus $19.7 million in the prior year third quarter. Gross margins for the third quarter were 64% compared with prior year at 67%. Non-GAAP gross margins for the third quarter were 70% compared to the third quarter of the prior year at 73%. Our overall gross margins were down due to revenue mix as we experienced an increase in lower-margin nonrecurring sales, primarily driven by the recent Lathem acquisition. Net loss for the third quarter was $5.4 million versus a net loss of $3.9 million during the prior year. EBITDA for the third quarter was $3.9 million, up from $2.2 million in the prior year. Adjusted EBITDA for the third quarter increased 49% to $8.1 million from $5.4 million in the prior year, and our adjusted EBITDA margin was 22%, an increase of 300 basis points compared to 19% in the prior year. Turning now to the balance sheet. We ended the third quarter with cash and cash equivalents of $21.5 million, and we have debt of $70.4 million as of September 30, 2025. As we discussed on prior earnings calls during 2025, we have and continue to invest in our technology and our product offerings to achieve our continued revenue growth and improve profitability goals. We continue to model for a relatively stable cost structure for the remainder of this year and into 2026. Our fourth quarter and 2025 full year preliminary 2026 guidance is based on continued positive momentum in our business. Now in terms of guidance for the fourth quarter of 2025, we are expecting fourth quarter revenues to be in the range of $38 million to $40 million, and adjusted EBITDA for the fourth quarter is expected to be between $10 million and $12 million. Therefore, our full year 2025 results should be between $139 million to $141 million in revenue, with adjusted EBITDA margins of between 22% and 23%. Today, we are also providing our initial view on 2026 revenue, which we believe will be between $158 million and $162 million, with adjusted EBITDA margins of between 23% to 25%. Our belief is that at these higher revenue levels, combined with a consistent cost structure, we will begin to deliver consistent GAAP profitability. In conclusion, we are excited about the remainder of 2025 and look forward to 2026 being an inflection point for Asure's business. With that, I will turn the call back to Pat for closing remarks. Patrick Goepel: Thanks, John. We are pleased to have delivered strong results in the third quarter of 2025. Our business has performed well during the first nine months of the year, and we're excited about the future. We believe that we are at an inflection point in the business with all the hard work we've done to improve our product offerings, invest in our technology and integrate acquisitions. We will continue to increase our growth organically while potentially being GAAP profitable in Q4 of 2025 and for the year 2026, both of which are important milestones for the business. As we look forward to 2026, we'll continue to grow organically, invest in sales and marketing, roll out technology and look to acquire value-creating opportunities. We're not slowing down. Our guidance for 2026 implies continued improving organic growth and margin improvement. We're well on our way to our medium-term plan of between $180 million to $200 million in revenues, where we believe we can achieve adjusted EBITDA margins of 30% plus. We are super excited about the launch of Asure Central, which we believe is going to be a major enhancement to our client experience. Our R&D team has spent an enormous amount of time on this development, and I would like to thank them for their efforts. Asure Central is the latest in this list of the many accomplishments we achieved during this past year. In summary, we're very pleased to have delivered a strong performance in quarter 3. The outlook for a combination of improved organic growth, more free cash flow and potential GAAP profitability, we believe, is a great recipe for success. We continue to work diligently on creating increased value for our shareholders and our stakeholders. We'll continue to provide innovative human capital management solutions that help businesses thrive, human capital management providers grow their base and large enterprise is streamline their tax compliance. Thank you for listening to our prepared remarks. So, with that, I will send the call back to the operator for the Q&A session. Operator? Operator: [Operator Instructions] Our first question comes from Joshua Reilly with Needham & Co. Joshua Reilly: All right. Nice job on the quarter here. I just wanted to hit on the 2026 outlook to start with here and get a better understanding of what are you assuming in terms of the traditional organic growth and enhanced organic growth assumed in the trend there? And then along with that, how are you thinking about where the balance sheet is at today to kind of continue the reseller acquisitions at a pace that you have been going at in the first half of this year and what you were doing in 2024? John Pence: Yes. I'll answer the -- Josh, this is John. I'll go first and let Pat kind of annotate. I think we feel pretty good about where the balance sheet sits right now. We'll be opportunistic like we always are in terms of doing the tuck-in deals. We have not modeled anything extraordinary in terms of the enhanced organic going into next year. Really, it's just the runoff of what we've previously purchased that's currently in our estimation for next year. In terms of capacity, one of the reasons we chose mid-cap now we've used up the current committed facility. But obviously, they've got the wherewithal to support us if we find things that are interesting. So long-winded answer to say not a lot played in for enhanced outside of what's already been acquired. And we feel like we -- with our lending partner, if we do find something that's pretty large that we can tap them to help us with those extra deals -- large deals. So, I'll give it to Pat. Patrick Goepel: Yes, Josh, I think we're at an inflection point. Second quarter was an inflection point. organic growth, we're going to end the year with each quarter increasing more and more on organic growth, and that won't slow down in '26. I think you're going to see is the '26 guide. What we have visibility, especially in the first half year is to continued organic growth increases. So the $160 million would imply somewhere around 7% or so, but we're continuing to have confidence. And the way we've thought about the year is the stuff that's already baked and we have visibility to. And I think towards the second half of '26, we have the ability then as those plans continue to crystallize to increase it. As far as profitability, we're at a point now where we can start throwing off cash. So from a lending perspective, the nice thing about it is we have some cash on the balance sheet, but we're also generating cash, and we'll have that available. And then as John stated, from a mid-cap perspective, if we need to expand the line, we'll do that. But I really feel like we have increasing momentum here. The inflection point was the second quarter. And I think you're going to see both in GAAP profitability as well as organic growth that we're in a position to keep increasing here. And then from an enhanced perspective, I think we all -- we will have opportunities as we go into the year, but we don't have anything extraordinarily planned right now. Joshua Reilly: Got you. And then just one follow-up on the 7% adjusted organic for the ERTC HR Compliance item there. How much of that -- that's a little better run rate than what we've seen recently -- how much of that is from cross-sell versus net new units to the business? Any color there would be helpful. Patrick Goepel: Yes. What I would say our cross-sell results were up 7% quarter-over-quarter, and that's without Asure Central. And Asure Central brings all the products and solutions together under one common UI. The other thing to point to that, which is really exciting, is the fastest growing of the sequential growth is in three, four, five products. So people are wanting to buy the whole solution. And from a technology and a delivery perspective, we're increasingly capable of setting that up for clients and really leaning into that. So I think you're going to see that be a big driver and a big theme into next year. And like I said, I think Q2 was the inflection point, a down payment here in Q3. You'll see an increase in Q4. You'll start to see an increase in Q1. We really have some pretty good momentum in this area. And then we've been planning for it in the entire organization, whether it's technology, sales, marketing, implementation, we're bringing all these products together from point solutions to a solution for the entire business, and that's really exciting. John Pence: And I think just to your point on ERTC and we believe that there's probably another 1% maybe impact in the fourth quarter, and then we'll never have to talk about it again. So I think we're getting pretty close to having ERTC and compares and talking about that out of our contract. Operator: Our next question comes from Bryan Bergin with TD Cowen. Jared Levine: This is actually Jared Levine on for Brian. Can I just start, can you talk about sales cycles and pipeline views across your key offerings? Has anything kind of materially changed since last quarter? Patrick Goepel: No. I think from a small business perspective, I think in some cases, decisions are quick. In some cases, I would say there might be multi-solution deals that take a little bit extra-long. But in the segment of the market we play, which is largely in the small business, medium-sized business market, we're not seeing too much slowdown, if you will. On the large enterprise deals, you may see an extra 30 days of measuring once or measuring twice, cutting once. But nothing material for us to talk about today. I think it's really business as usual in the small business area despite what happens in the broader macro environment. Jared Levine: And what about those pipeline views as well? Patrick Goepel: Pipeline views look pretty strong. I do think you're going to see us lean in more to marketing in '26, and that was implied in our guide already that we'll continue to look. We think there's opportunities to continue to market and sell to that base. As far as the pipeline this year, pipeline is up quite a bit. Jared Levine: Got it. And then in terms of that 7% organic growth assumed for FY '26, I just want to double-click on this. Can you highlight what are the key drivers underlying this and whether that's kind of key offerings under within the business there? And then how much of a headwind will float revenue be to that organic growth rate? Patrick Goepel: Yes. From a float revenue perspective, we've modeled two more cuts in '26, and we think that we'll be somewhere between 3% and 3.25% at the low point. Now we also believe account balances going up will partially offset that. And then as you know, in our Q, we have roughly $90 million or so that is in long term. So that protects that float quite a bit. So, really, we're probably a small degradation planned in next year, but we're hopeful that, that gets minimized by some of the things we talked about. We model kind of flat employment, if you will, nothing heroic there. And as far as the solution offering and the reason we're so excited about it at Asure Central is as we bring these solutions together, the ability to sell, let's say, an ASO offering with multiple products and services similar to, let's say, a PEO without the PEO kind of insurance policies, et cetera, or employee leasing. And it allows us really to be a back office for a small business and be compliant across all products and services, whether it's HR, payroll tax filing. We think that's a winning proposition, and that's the one we're going to lean into in general. Some of our point solutions will continue to grow as well. And then obviously, with the acquisition of Lathem, we think the attach rates of time to payroll will continue to grow up as part of those offerings. Operator: Our next question comes from Eric Martinuzzi with Lake Street. Eric Martinuzzi: Yes. Regarding the Lathem time, you had said last quarter that you were anticipating about a $15 million revenue contribution over the 12-month period from July through the end of June of 2026. Is that still an accurate number? John Pence: Yes. I mean I think there's -- this quarter, for example, we -- the net impact before the acquisition was roughly $4.7 million or $4.6 million. It's in the kind of bridge of the 24%. And the composition of that is roughly 40% hardware or nonrecurring and the rest is recurring. So about $2.7 million or so of that $4.7 million, $4.6 million is recurring. So the recurring is pretty easy to predict, right? So take that $2.7 million, that's $10 million. So there'll be $10 million of recurring contribution over an annual period for Lathem. And then the question mark really is what's the velocity of the hardware sales. I think what the $15 million is probably not unreasonable. It could be a little bit higher if we have some windfalls. But what you got to remember is what we're going to do ultimately with Lathem is change their business model a little bit. Historically, what they were doing is they sell hardware, have a onetime event and then upsell the software or the solution. We're going to probably do more of a bundling approach, especially as we start to offer payroll with it and some other products. So I think that's where I'm a little bit hesitant to say, I think 15% is fair. It might be a little bit more. But ultimately, we're going to change a little bit of their business model, the go-to-market strategy. So that's why I think that's probably not an accurate view of kind of Lathem over time. Patrick Goepel: The other point I'd say is the integration is right on schedule as far as bringing Asure and Lathem together. Lathem has some areas where they have channel partners, et cetera, and we're not going to change too much of that model. But as we integrate the offering between Asure Payroll and Lathem, I think we've already seen some pretty good synergy from a revenue perspective coming together with our offering. So excited about the possibilities for '26. John Pence: Yes. And the way I think about it, too, just as another point on Eric, they have 15,000 customers right now that are on using their time and attendance solutions that don't have a connection with us in terms of payroll. So when we look at that business, yes, they brought us the customers, but we're going to take credit for when we start to sell the payroll into them. So that's where we see a lot of growth. It's going to be into that Lathem base, but it's going to be our product on top of that Lathem base. Eric Martinuzzi: And if I could follow up on the hardware. Obviously, you had a higher number in Q3 because of Lathem. That $4.4 million number for professional services and hardware, is that kind of a safe new run rate for that portion of the revenue? John Pence: I think about $3 million, honestly. I think probably fair for the near term to think about $2 million of hardware for sure, at least for the next 12 months. And I think a fair number for professional services is probably $1 million. Now it might be higher or lower. The variability on professional services is going to come in as we're doing some work for these large tax deals that can vary decently between quarters as they're going up and live. So I think you saw a little bit of that last year in the fourth quarter where we had a pretty heavy install, which makes sense right around year-end. So I think you'll see some dynamic in the professional services -- but in general, I think two and one between those two over the year is probably a fair way to start. Does that include that? Patrick Goepel: Yes. No, I think -- yes, I think that's exactly right. And I think the two and one is pretty safe, and there might be some upside down the line. But right now, that's a great place to model. Operator: Our next question comes from Richard Baldry with ROTH Capital Partners. Richard Baldry: I'm curious if Asure Central, the rollout of that will cut any of your sort of legacy technology stack support costs and whether it's already includes as a front end for Lathem or if that's sort of a near-term thing that will develop? Patrick Goepel: Yes, Rich, no, great question. First of all, from a legacy development, we're already seeing some pretty good cost initiatives around some of our costs. The newer products and services that we've rolled out significantly are cheaper. We're also, from a development cycle, spending less money on maintenance and more money on new, and that continues to grow over the past couple of years as we kind of have an eye towards the future, and we've been able to stabilize and improve the back end quite a bit now the front end. And as we look at some of the new development costs and the new products, they're definitely lower on maintenance. So really excited about that. As far as Lathem, we're in the, I'll call it, months, not years. We're really close to integrating that with Asure Central. All -- most of the other products are either online or going to be online within this quarter. So Lathem probably targeted towards first quarter, but we're well on our way to doing that. Richard Baldry: Great. Well, you're seeing the improvement in the organic growth. Can you talk about sort of what's the underlying drivers there? Is it sales headcount improvements? Is it sales efficiencies? Is it sort of unit driven or ARPU driven, just sort of the pieces underlying that. Patrick Goepel: Yes, Rich, we said earlier in the year that attach rates are going to be kind of a driver. And the 7% sequential, we think is a pretty good proof point from second to third quarter. And then if I dive into those numbers, which is two or more products, if I look at three, four, five products, that's the fastest growing. So I think as we look at this year, we've been kind of run rating it. As you look at 2026, I think you're going to see us spend more money in sales and marketing. That's implicit in the guide. We're also bringing online the technology development really that we've been building towards for the last couple of years. So you'll continue to roll that out. That's in the guide. I think we really are sitting on an opportunity to really grow exponentially here as we bring all these point solutions together. Now any time you're bringing them together, it's kind of crawl, walk, run. I would say we're walking fast, and we'll continue to do that and get momentum here, not only this quarter as we've done in third quarter, but fourth quarter will be increased, first quarter will be increased. And we anticipate each quarter in '26 to continue for us to get better at selling, implementing, servicing multiproduct installations, and we anticipate that area to grow. Richard Baldry: Last for me would be with the rollout of some of the newer AI-driven sort of development tools, but other agentic things to help back offices be more efficient. How do you think about the connection or leverage on top line growth versus operating expense growth sort of near term, long term now? Patrick Goepel: Yes. And John has done a nice job, and we've done a nice job internally around growing scale. If you can think about, let's say, 2021, we were somewhere around $76 million with about adjusted EBITDA of $8 million. Our long-term goal here is $180 million to $200 million or medium-term goal and to get to 30% margins. This year, implicit in our guide for '26 is 23% to 25%. So we're continuing to just grow profitability. On the revenue side -- and by the way, on the profitability, our headcount has been relatively flat. We've added marketing and sales, but operations and some of the G&A have really been relatively flat during this period of time. So we're getting scale. And then from a revenue perspective, what we've been leaning into is software and multiproduct software gives you all kinds of advantages. But with the AI workflow, and we have Luna as our Gen agent, and then we have her actually connecting to other agents. We think we have the ability to really control the narrative, not only in software, but also workflow with the software. And we think that there's all kinds of opportunities in that area. And then for us, we're going to lean into that compliance area. So if you think of a business with 20 employees that now has to report to COBRA, the system can kind of really tell the client that at 20 employees, they have to report COBRA and then we can go out and do it for them with their permission. That kind of experience is an AI experience that drives revenue, and it also drives workflow on cost. So you're going to see a lot of examples in that over the upcoming year. Operator: [Operator Instructions] Our next question comes from Greg Gibas with Northland Securities. Gregory Gibas: Could you maybe speak to attach rates, the trends you're seeing there? You mentioned, I think, 400 basis points of year-over-year improvement last quarter. Wondering if that trend remained relatively consistent. John Pence: Yes. I think what I said in my prepared statements, I think Pat just made a comment to it as well. I mean it's single digits sequentially increasing. So I think you said 7%. I think that's about right, is somewhere in that range sequentially in terms of the improvement quarter-to-quarter. Gregory Gibas: Got it. And then to follow up, just to clarify, you mentioned about, I think, 7% implied organic growth in 2026. Is that consistent with your expectations for Q4 of this year? John Pence: Yes, I think so. I think we did that in Q3. So we expect, I think, maybe a little bit of a tick up based on the fourth quarter, just implied in the guide. It has to come basically from organic a place for it to come from. Gregory Gibas: Fair enough. And I guess, lastly, as it relates to integration plans with Lathem time, relatively early still, but could you maybe discuss further integration plans that are maybe currently underway? John Pence: I mean I think there's some really exciting things. Like we've talked in the past about the AsurePay card, which we're still in the early stages of. But imagine what they've got is they've got a time clock, right? So pretty simple, you go and you wand in with a badge to log in and clock your time in and clock out. Well, what we can do and what they're working on is another integration point is usually AsurePay as that wanding device. So you've got in the hand of the employee, you've got a device not only that allows them to clock in and clock out, but also as a way to get paid. And that can be the vehicle that they're going to get their paycheck. So that's just one example. We feel like there's a lot of potential with that deal. Patrick Goepel: Yes. And Greg, just on that, their client base and our direct client base Chile have 30,000 clients. the ability to work together, improved book-to-bill on all those products. We talked a little bit about integration. And then back-office systems, we have opportunities to get integration really through the -- all the way through '26. So really excited about it, really good people. We're excited about the movement, both from a revenue perspective as well as the scale and efficiency perspective. Operator: Our next question comes from Alex Neumann with Stephens. Alexander Neumann: Could you talk a little bit more about Asure Central? Just what are the major difference here in the new platform? And then just secondly, how do you feel about the upgrade platform from a competitive standpoint and if you're expecting any uplift in price from it? Patrick Goepel: Yes. I think from us over time, and we'll talk about in '26 is some of the -- not only the attach rates, but the ARPU or revenue per unit. We do anticipate upticks. We're kind of showing that or proving that out, and you'll see more of that in 2026. But if you think about just in Q2 -- in Q3, we had a 7% improvement in unit volume, and we really didn't have Asure Central yet. So we believe that, that common look and feel across all products and services will drive more adoption of our cross-sell and in turn, that revenue opportunity. We're really excited about that. I think we'll get a little bit more firm data on the ARPU in '26. But for right now, we see evidence that it's happening. We're rolling this out in all avenues of the business from marketing, implementation, sales, operations and technology. So we know -- and in my past life, I've had this kind of experience before. We think it's -- we're really at an inflection point and bringing these point solutions together will do that. And then from an efficiency perspective, the idea to get to event-driven marketing will make it degrees of difficulty easier to cross-sell and implement faster. So we'll use our data and reach into AI to enable that to grow faster. And our guide reflects high single digits or so. I think we have an ability to beat that as we go. But that's a story for more proof points along the way. And each quarter, we'll have an opportunity to talk about that. Operator: There are no further questions at this time. So I would now like to turn the floor back over to Pat Goepel for closing comments. Patrick Goepel: Yes. I really appreciate everybody's interest today. Like I said, I think it's -- we're at an inflection point. We hit that in the second quarter. We're growing. We're bringing everything together here that we've been working on for multiple years, all our products and point solutions, integrating them together. We've had really good growth in areas. We've had really good progress in our money movement and our tax filing business. That will continue as well. So we think we're at the verge of increasing results, and you'll see that through the end of '25 as well as '26, and we really appreciate your support. Patrick mentioned that we'll be out on some road shows and some client events and investor conferences, and we look forward to telling that story and seeing you out there. Thanks for your time today. And again, really appreciate it. Take care. Operator: This concludes today's teleconference. You may now disconnect your lines. Thank you for your participation.
Operator: Good morning, and welcome to Blue Owl Capital's Third Quarter 2025 Earnings Call. [Operator Instructions] I'd like to advice all parties, that this conference call is being recorded. I will now turn the call over to Ann Dai, Head of Investor Relations for Blue Owl. Ann Dai: Thanks, operator, and good morning to everyone. Joining me today are Marc Lipschultz, our co-Chief Executive Officer; and Alan Kirshenbaum, our Chief Financial Officer. I'd like to remind our listeners, that remarks made during the call may contain forward-looking statements, which are not a guarantee of future performance or results and involve a number of risks and uncertainties that are outside the company's [Technical Difficulty] actual results may differ materially from those forward-looking statements as a result of a number of factors, including those described from time to time in Blue Owl Capital's filings with the Securities and Exchange Commission. The company assumes no obligation to update any forward-looking statements. We'd also like to remind everyone that we'll refer to non-GAAP measures on the call, which are reconciled to GAAP figures in our earnings presentation, available on the Shareholders section of our website at blueowl.com. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any Blue Owl fund. This morning, we issued our financial results for the third quarter of 2025, reporting fee-related earnings, or FRE of $0.24 per share and distributable earnings or DE of $0.22 per share. We declared a dividend of $0.225 per share for the third quarter, payable on November 24 for holders of record as of November 10. During the call today, we'll be referring to the earnings presentation which we posted to our website this morning. So please have that on hand to follow along. With that, I'd like to turn the call over to Marc. Marc S. Lipschultz: Great. Thank you so much, Ann. The results we reported for the third quarter of 2025 reflects strong growth and business performance across an increasingly diversified set of investment platforms. Not only are we beginning to see the benefits of the ongoing investments being made across our institutional and private wealth distribution channels, we have also had early successes in new product expansion efforts. We continue to see a comprehensive shift in how assets are being financed globally. Financing offered by the private market is more and more so, being recognized by borrowers as a compelling solution that offers the ability to execute with certainty and at scale and with terms tailored to the specific counterparty. This is a structural evolution for which Blue Owl is particularly well positioned given our leading franchises and one that we are increasingly able to meet in a cross-asset class fashion as a result of our acquisitions. . Concurrently, investor focus has continued to shift toward credit and digital infrastructure, which are taking greater market share away from legacy categories. We're seeing this play out broadly across institutional, insurance and private wealth channels and have already strategically positioned Blue Owl to be a beneficiary of these trends. We've skated to where the puck is going and our investors are benefiting from that. Of course, in any period of meaningful structural change within markets, there's always a concern that some participants may act irresponsibly resulting in negative outcomes. There have been some headlines over the past months detailing idiosyncratic credit issues, which have led to broader questions about the health of the corporate and asset-backed credit markets. Let me start by saying that Blue Owl has no exposure to Tricolor or First Brands. And broadly speaking, we do not view the events that have unfolded for those companies as canaries in the coal mine for the health of the private credit markets. However, we do believe that these two situations are reminders that vigilance is required in credit investing. As we have highlighted in previous earnings calls and continue to call out, the health of our credit portfolio remains excellent with an average annual realized loss of just 13 basis points and no signs of meaningful stress. In direct lending, the modest level of nonaccruals we have seen are not thematic in nature, and there's not been an uptick in our watch list levels. Similarly, in alternative credit, we're not seeing anything that would indicate weakness in consumer credit. In fact, you've heard numerous banks highlight the resilience of their consumer portfolios during recent earnings calls, despite some of the financial press headlines. The reaction that we have seen in public equity markets has not been consistent with the strong fundamental performance we see in our portfolios. And our software loans have remained the best sector performer with our direct lending portfolio, and we are very pleased with the credit quality and ongoing health of the underlying borrowers there. Moving on to business performance. During the quarter, we saw over $14 billion of new capital commitments, bringing us to another record last 12-month capital raise of $57 billion, the equivalent of 24% of our assets under management a year ago. This capital raising does not yet reflect any contributions from our acquisitions from which we are anticipating significant growth over the next couple of years. And notably, we have a growing base of AUM not yet paying fees, $28 billion as of the third quarter, which we expect to largely deploy over the next couple of years and drive over $360 million of management fees upon deployment. In direct lending, we're seeing an uptick in the pipeline for deployment and continue to find high-quality investment opportunities, generally underwriting to a high single-digit unlevered return despite tighter spread dynamics industry-wide. With the risk-free rate expected to end the year below 4% and with leverage loan and high yield currently offering 6% to 7%, we believe our direct lending strategy continues to offer meaningful spread premium and an attractive risk return versus other asset classes. Gross origination in the third quarter was roughly $11 billion and net deployment increased to $3 billion, bringing last 12-month gross and net originations to $47 billion and $12 billion, respectively. In alternative credit, we continue to demonstrate scale benefits, deploying approximately $5 billion over the last 12 months, primarily focused on small business, equipment leasing, aviation and consumer transactions. This is consistent with our broader asset-backed strategy of financing the Main Street economy. The team continues to make meaningful progress capitalizing on long-standing relationships to deliver for our insurance clients for whom we have originated several billion dollars this year with a robust forward pipeline. And we continue to see the power of the integrated platform more broadly as the alternative credit team works closely with direct lending, real assets and insurance to build focused efforts in areas such as equipment leasing. During the quarter, we announced a forward flow agreement with PayPal, their first partnership with the sort in the U.S. We thought it would be worth spending a moment on how we structure forward flow agreements to create downside protection for our investors and why they're so compelling. One of the most important elements is the dynamic nature of these agreements, meaning we monitor performance of the portfolio on a daily basis, and we can turn off the flow if the assets are not performing as expected. In addition, our team is focused on partnering with best-in-class originators where we have a high degree of alignment. In other words, the originators are at a minimum owning risk side by side with us through their balance sheets and are often the first loss risk. Finally, these assets are typically shorter lived self-amortizing assets with a duration of two years or less. This means that if there is weakness by vintage or originator, it runs off relatively quickly compared to other forms of credit. We underwrite to severely challenged economic conditions. And when we buy our land, our starting point is to assume that credit will get worse. To reiterate my earlier comments, we see no weakness of note. In real assets, we have continued to execute across a record pipeline of capital demand in the data center space specifically with over $50 billion of investment announced over the past two months across two transactions, including $30 billion of capital investment with Meta in Louisiana and over $20 billion of capital investment with Oracle in New Mexico. This is in addition to the previously announced development with Oracle in Abilene, Texas where Blue Owl has anchored the financing of approximately $15 billion of project value through Phase 2. We are fortunate to be in the position to offer the scale of capital and deep sector expertise that together make Blue Owl the preferred partner for the hyperscalers representing the forefront of cloud and AI innovation as highlighted by our leadership role in all three of the largest financings in the space. Across our diversified Net Lease and digital infrastructure strategies, we have raised more than $15 billion in aggregate capital over the past two years, reflecting strong interest from investors for what we are offering. And this only includes $1 billion of the $7 billion digital infrastructure fund we just finished raising. In diversified Net Lease alone, the $14 billion we have raised over that period compares to $26 billion of total AUM for that strategy two years ago. This includes the largest real estate fund raised in 2024, the top real estate products in private wealth on a net capital raise basis, and over $4 billion raised toward our next vintage and associated co-invest. To add to that, during the third quarter, we announced a substantial strategic partnership with QIA, one of the largest sovereign wealth funds with a shared goal of further scaling and expanding Blue Owl's digital infrastructure business. Extending our progress on this front. Subsequent to quarter end, we launched our digital infrastructure semi-liquid product ahead of schedule and anticipate a first close in December with significant investor interest already observed. We have built what we think is an outstanding business in private wealth, where we have raised over $16 billion over the last 12 months, more than doubling our fundraising pace from two years ago. I believe the strength of our results is indicative of the durable partnerships we've built over time and a long track record of bringing innovative solutions to market. Today, we have an installed base of over 160,000 individual investors in Blue Owl products and are adding highly complementary new products in digital infrastructure and alternative credit to the lineup. We're very excited about the runway for these new initiatives and look forward to providing more detail in the coming quarters. In GP Stakes, we closed on two investments during the third quarter bringing us over 35% invested on our target size for our latest flagship vintage. We also completed our largest strip sales to date selling about 18% of the assets in Fund IV for proceeds of over $2.5 billion, delivering a 3.2x gross return on the assets sold across two transactions. As you've seen over the past year, we have been successful in delivering liquidity to the investors in these funds, while introducing innovative path for new investors to participate in the strategy. In total, our GP Stakes flagship funds have distributed more than $5.5 billion over the last 18 months in a market increasingly focused on DPI or distributions to paid in situating our funds squarely within the top quartile on this important metric. And considering the strong results we reported for the third quarter and the ongoing momentum across Blue Owl, we continue to center around a few guiding principles that anchor our accomplishments to date and inform our path forward. First, performance remains key. If we do right by our investors, growth will follow, and so our focus is always, first and foremost, on delivering exceptional return per unit of risk and protecting the downside. Second, duration of capital is highly important to achieve positive investment outcomes over time. And we have an embedded base of permanent capital that not only supports the investors in our funds, but also creates meaningful visibility in earnings for the investors in our stock. And finally, we are hypervigilant to the notion of complacency. We always look to be skating to where the puck is going, not where it has been. This focus on innovation and being ahead of the curve has brought us to our current position at the intersection of many of the largest secular trends happening across alternatives, and we believe it will continue to serve our investors well going forward. With that, let me turn it to Alan to discuss our financial results. Alan Kirshenbaum: Thank you, Marc, and good morning, everyone. We are very pleased with the results we reported this quarter, marking our 18th consecutive quarter of management fee and FRE growth. Over the last 12 months, management fees increased by 29% and 86% was from permanent capital vehicles. FRE was up 19% and DE was up 15%. We had another very strong quarter of fundraising taking in over $11 billion of equity in the third quarter and nearly $40 billion over the last 12 months, an increase of over 60% from the prior year and another record for Blue Owl. Of that $40 billion, $23 billion or roughly 60% came from institutional clients, reflecting an increase of over 100% versus the prior year period. And in private wealth, we have gotten off to a great start with two new wealth-focused vehicles with significant interest in our alternative credit interval funds and our new digital infrastructure fund. And we continue to see a growing breadth of interest in our existing product lineup. We highlight the massive secular trends in play for these strategies on Slide 5 of our earnings presentation. To break down the third quarter fundraising numbers across our strategies and products, in credit, we raised $5.6 billion, a near record quarter for our credit platform. $3 billion was raised in direct lending of which $2.4 billion came from our nontraded BDC, OCIC, and OTIC. The remainder was primarily raised across our newly launched interval funds and other alternative credit funds, various diversified lending funds and SMAs and investment-grade credits. In Real Assets, we raised $3 billion, $1 billion was raised from ORENT with another $1 billion raised with the 7th vintage of our flagship Net Lease strategy. The remainder was primarily raised in insurance-focused products and co-investors dollars. And in GP Strategic Capital, we raised $2.7 billion with most of this due to the strip sales that Marc referenced earlier. The latest vintage of our large-cap GP stake strategy is now up to $8 billion raised towards our $13 billion goal. And from a forward-looking fund raise perspective here, as we commented on last quarter's call, we expect the fourth quarter fundraise to come in at a similar level for the second and third quarter. Turning to our platform. In credit, our direct lending strategy gross returns were approximately 3% in the third quarter and 13% over the last 12 months. Weighted average LTVs remains in the high 30s across direct lending and in the low 30s specifically in our software lending portfolios. On average, underlying revenue and EBITDA growth across our portfolios was in the high single digits. And as Marc mentioned earlier, credit quality remains very strong. In light of the most recent 25 basis point rate cut, we wanted to refresh the framework of how rate cuts impact Blue Owl and underscore the resiliency of our Part 1 fees. So for every 100 basis points of rate cuts, the impact of Part 1 fees was approximately $60 million or a modest 2% of our third quarter revenues annualized. So now with that refresher, first, let's look backwards and then we're going to look forward. Over the last 12 months, we have grown total direct lending management fees by 18% and Part 1 fees by 12% during a period that included 100 basis points of rate cuts and relatively modest sponsor M&A activity, reflecting the advantages of incumbency and scale in this business. Sitting here today, looking at the forward SOFR curve, which shows approximately 100 basis points of average rate decline in 2026 over 2025 and incorporating our current expectations around fundraising and deployment in direct lending, we anticipate continued growth in Part 1 fees in 2026. Turning to alternative credit now. Our strategy gross returns were approximately 4% in the third quarter and 16% over the last 12 months. The vast majority of portfolio returns in this strategy have historically been generated by contractual yield and principal recapture with relatively short duration compared to corporate credit. Over the past two quarters, we held one of the largest first closes for an interval fund at $850 million and have subsequently raised an additional $150 million to date, bringing us to over $1 billion raised for this new product, an incredibly strong start. We are now onboarding at a number of the major custodians, enabling a broader swath of platform to distribute the product on a continuously offered basis, and we continue to add large distribution platforms for the pipeline for onboarding. And we have deployed the majority of this initial fundraise already by upsizing existing partnerships and transactions as we had more demand for capital than we were able to fill previously. In Real Assets, you heard about the strength of our data center pipeline from Marc just now. Combining the demand for capital in this area with robust opportunities we see in logistics and manufacturing onshoring, we continue to expect that Net Lease Fund VI would have committed nearly all of its available capital for investment by year-end. Through September 30, we have deployed roughly 50% of this fund with much of the remainder slated for deployment over the next 12 to 18 months as various build-to-suit projects reach completion. Our Net Lease pipeline continues to grow with over $50 billion of transaction volume under the letter of intent for a contract to close. With regards to performance, gross returns in Net Lease were approximately 4% for the third quarter and 10% over the last 12 months. In GP Strategic Capital, we have now closed on four investments to date in the latest vintage of our GP stake strategy. Year-to-date, we have deployed more than $5 billion of equity in our large-cap strategy, slightly above the average annual deployment over the past few years. Performance in these funds remained strong with a net IRR of 22% for Fund III, 34% for Fund IV and 13% for Fund V. A few items remaining here that I wanted to cover with everyone. First, during the quarter, we saw a fee step down on a portion of the AUM in Net Lease Fund VI that paid fees on committed capital. This resulted in very modest management fee growth in our Real Assets platform for the third quarter. As we look ahead, we anticipate a meaningful acceleration in management fee growth for real assets given our robust fundraising momentum and the strong pipeline we just discussed with the anticipated mid-single-digit growth for the fourth quarter, quarter-over-quarter, which annualizes to about 20% growth and further acceleration expected into 2026. As a reminder, we have committed 90% of Fund VI to be invested but have only deployed roughly 50% of capital out of that fund, providing visibility into management fee growth as those projects reach completion. Second, in GP stakes, there was a fee step down for Fund II that is occurring at the end of October and will result in an annual management fee impact of about $22 million. And finally, when we look at our most important key metrics like FRE growth and FRE per share growth, or DE growth and DE per share growth, due to the timing of when shares are issued for each of our acquisitions, shares are issued at close, there can be a natural, very short-term divergence between something like FRE growth and FRE per share growth. So to see the best indicator of our current EPS growth rate, we can look at our quarter-over-quarter growth for, say, 1Q to 2Q '25 or 2Q to 3Q '25. Since we closed our last acquisition at the beginning of January, these are clean quarters, meaning each quarter has full share count and full P&L from all acquisitions. What you see in quarter-over-quarter growth for these recent quarters is a meaningful closing of the gap between FRE and FRE per share as well as an acceleration in FRE per share growth. So to wrap up, I think you've seen from our business performance that nothing has changed fundamentally across Blue Owl despite the acute reaction we've seen in all stocks over the past month or so. One of the benefits of our model is that we have very high visibility into future earnings given the recurring nature of our revenues, reflecting our very durable business model. Portfolio quality has remained very strong across the board, fundraising has been very robust, and we continue to lean into our incumbency and scale to drive positive outcomes for our shareholders and investors. Thank you very much for joining us this morning. Operator, can we please open the line for questions. Operator: [Operator Instructions] Your first question comes from Glenn Schorr of Evercore ISI. Glenn Schorr: Maybe I'm going to try to -- maybe I'll try to just get a summary with your last commentary on the acceleration. So I think I'm okay -- I am okay with some dilution that gets Blue Owl into these key growth markets. And maybe it offsets any pressures from any lower rates and maturation of any of your legacy businesses. So the question I have is, we're trying to solve -- I think we're all trying to solve for the magnitude and the timing of the growth investments when they stop having any dilution and improve the FRE growth, FRE per margin per share growth and the margin. So maybe just big picture, '26 and '27, are we back on track? Do you see 20-plus percent FRE growth, FRE per share matching that? And do we see margin stabilization and improvement from here? Just trying to get to the like the summary of it all because I think that's where you're getting that. Alan Kirshenbaum: Yes. Thanks, Glenn. I appreciate the question. The answer is yes, across the board. We expect over time to continue to have margin expansion from where we are today as we get into '26, '27 and certainly our 2029 goals. We will expect to see meaningful accretion -- meaningful acceleration, excuse me, of metrics like FRE per share, DE per share as we look '25 to '26, and again, as we look '26 to '27, each of those years builds on each other. We are from everything we see sitting here right on track, with what we call our North Star, our Investor Day goals of 20-plus percent growth for management fees for revenues for 20% growth on metrics like FRE per share. Marc S. Lipschultz: I'll just add up taking the numbers that Alan just said, I take a step back for a moment, the -- and well, to be clear, we understand why people ask questions about acquisitions because this is an industry that hasn't always done them well. But I say this all to humility. We've done them phenomenally well. I mean think about where we are and how we've positioned for where the real opportunities going forward are, both for our investors in our funds and for our shareholders. Our position in digital infrastructure is variably monumental. We have this incredibly successful interval fund already in asset-backed, and asset backed is growing. So these are capabilities that are fully integrated. And in fact, you've already seen, if you look at the Meta transaction, we had about 100 people working across the firm on that, that never could have been done absent the capabilities that we have built organically and added. And so this sort of recurring -- not your mathematical question because I absolutely understand there's the mathematical reality that if you issue shares and have less than a year of earnings, then I mean, obviously, the per share effect won't show up until you get a year out or if you look at our annualized numbers look quarter-over-quarter and annualize them, you can already see what we're talking about. This isn't a -- we can see it on the come, just look at the quarter-over-quarter numbers annualize and you can see that the acceleration coming back to the levels that we're all anticipating. So from where we sit today, just so everyone knows that those acquisitions are done, dusted and thriving. And we view that as having been no small part of our success. Look at -- let's look at ORENT. ORENT today is, by far, the leader in that fundraise and net flows in real estate continuously offered. Our fund, our real estate traditional flagship fund, as you know, we've already raised nearly half of our target fund size just out of the blocks. We've already committed -- I think we're now 90% committed in Fund VI. I mean so we're really thriving, not just in our core businesses that we already had, like direct lending, but these additions. So absolutely, we need to deliver it through to the numbers. That's just math, thankfully. It's not operational. It's not execution. It's not strategic. But that math will show through. Alan Kirshenbaum: And maybe one other thing to add. When folks are looking for early measures of success, right, it takes years to ramp products, ramp strategies to get a good level of AUM that we're working off of. When you think of early measures of success, it could take 9 to 12 months to roll out an organic brand new product -- a brand-new strategy within your business. Think about what we've done with our acquisitions. The interval fund was out in market in less than 12 months. ODI, which is our digital infrastructure, wealth dedicated product we've talked a lot about here we're going to have our first close in less than 12 months from when we closed the acquisition. So when folks are looking for how much are we going to raise, what's going to happen over time, it takes time. But when you look for those early measures of success, are they on the right track? I couldn't agree more with Marc, we're hitting on all cylinders and things are pointing up into the right for us with all of these acquisitions. Operator: The next question comes from Patrick Davitt with Autonomous Research. Patrick Davitt: I have a question on retail flows. I guess, through the lens of the volatility in August. It looks like October 1 subscriptions were still quite strong. Do you have any early view on how the credit volatility we've seen in the news flow has or has not impacted the numbers we're going to see for November 1. Alan Kirshenbaum: Thanks, Patrick. Appreciate the question. We're coming off just for credit, just focusing on what we're doing there, but I'm going to pull the lens back a little. Very strong flows. We're coming off of a record quarter in our wealth dedicated products for 3Q. We have continued momentum this month. We should build on what we did last month for products like OCIC. We had a record quarter -- I'm sorry, a record month with ORENT. We broke over $300 million. We are well on our way to one of our goals -- one of our many goals that we're on track with of hitting $1 billion a quarter run rate for ORENT by the end of this year. So we're very encouraged by what we see, and we see a lot of resiliency in the channel for what we've been doing. Marc S. Lipschultz: ORENT and OCIC, just very particularly the way you phrased it, to be clear, they're accelerating this month. Accelerating. So I have to add it to the list of imaginary problems that people are concerned about. And maybe it speaks to this point, sometimes we get this issue of, Oh gosh, individual investors, are they more volatile, they're going to be fickle. Actually, the evidence to us is, there's certainly no evidence of that. It might be to the contrary that institutions actually can sometimes be much more heard like and can hit odd rigid barriers or someone on their board calls and says, gosh, I read an article. I don't really know. But actually, the evidence we have doesn't suggest that individuals -- in fact, it seems like they're grasping the reality that these strategies are working really, really well, perhaps better than the media and maybe some institutions, although we're doing quite well with institutions now as well. Operator: The next question comes from Brian McKenna with Citizens. Brian Mckenna: So if I look at all of your public companies, that includes OWL, OBDC, OTF, all three continue to deliver pretty strong results across the board. You look at the underlying fundamentals, they remain some of the best in the industry. And even for your public BDCs, they are really the best in the industry. And then you look at direct lending, gross returns that you reported today, it should be another strong quarter for your BDC. So your fundamentals remain really strong, but you look at all the stocks and they're trading at a pretty meaningful discount to peers. So what do you think is still misunderstood about your businesses within the market today? And what are you doing as a management team to change these perceptions and ultimately get these stock prices higher? And then does there come a point when insiders start to step in and they ultimately start buying some of these stocks. Marc S. Lipschultz: So as to what investors don't understand, it's probably hard for us to give you a comprehensive answer, in fact, you've obviously talked to a lot of investors, we can offer some theories. I can certainly tell you what we're doing. We're doing two things that I think at the end of the day, will solve this problem. One, we are executing, executing, executing. Business is good. Business is continuing to be good. And we're focused on continuing to deliver. We haven't seen an opportunity as good for investors and by extension for Blue Owl as the digital infrastructure investment cycle that we're in. And so we're just going to continue to deliver results for investors and continue to deliver -- frankly, we're short capital in an arena like that. So I think that execution is the name of the game, internal for us and then communication, we are out on the road talking to shareholders all the time. Everyone in the senior team here is, by the way, happy to do it. We like spending time with shareholders and we're out on the road, and we'll answer any question anybody has. So I think we can communicate. We're trying to spend time answering questions as best we can in the media as well. So we're going to communicate and execute. And to what you just said, look to our way of thinking, it couldn't be better said. I mean the reality is we and every one of these vehicles they're an incredible value. So rather than complain about it, which I know is a natural tendency we can have, that seems kind of pointless, rather, we're just going to continue to deliver spectacular results. Look at where we are compared to where we were when we set up our Investor Day, we're tracking right along. Look at like RDE this year versus what people thought a year ago and compare that to what the revisions happened with our peers. I mean we're in a different category as we should be because we have a highly predictable fee stream. So I don't know, we'll take advice from anyone on how better to do either of those things or crack the code, but history is a guide, those who join us now, I think, are going to be the beneficiaries of the upside from here, which we think, are just substantial. Operator: The next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: My question is on the digital infra business. So we've seen these large deals recently, like the $27 billion deal to develop the Hyperion data center. And I'm sorry, I'm losing my voice a little bit here, but I believe the underlying leases have maturities of about 15 to 20 years. So my question is, under what scenarios can Meta terminate or walk away from the lease earlier than 15 years? And if they do that, what compensation would they owe Blue Owl's funds? And how would that impact the IRR for Blue Owl LPs on that investment? Marc S. Lipschultz: Yes. So the leases -- first of all, let's step back. The leases are designed to function for 20-plus years. So just to start to level set to your point. There is a -- it is -- and this is part of the skill and art that both Meta and I think we brought to it. They're designed in a very bespoke way to create elements of flexibility for Meta. Of course, as you know, they're actually -- just yesterday, we're talking about how they're actually rapidly accelerating their spend. So I think this is more about having a flexibility, which I give them full credit for than having anything that's likely to be used. But just to cut through it all and I don't want to lose the forest for the trees. If there were an early termination, there is a perfectly mathematical make whole where we make -- the debt makes all its money. We make a spectacular equity return under every circumstance. So it is really -- it doesn't -- we expect it will end up being a 20-plus year undertaking but it actually -- you call it doesn't matter. If we terminated anywhere along where they have the options to do it, there is a value guarantee on the assets. So we make a great return under any one of those conditions. So there's -- we're happy any which way. Operator: The next question comes from Bill Katz with TD Cowen. William Katz: I wish it was a day we could ask more than one. Maybe sticking with the digital story. I was wondering if you could help us understand how quickly you might be able to absorb the most recent flagship fundraising given the size of the pipeline? And then secondarily, despite the strong macro dynamics, the fund performance has been pretty weak two quarters in a row. I was wondering if you can help us unpack why that's the case? And would that be a hindrance to drive growth from here? Marc S. Lipschultz: Yes. Let's first just clear up the accounting, therefore, kind of -- not your misunderstanding but understandable misunderstanding of the return points. So Alan why don't you cover that first and then I'll talk about fund. Alan Kirshenbaum: Sure. Thanks, Bill. This quarter, we saw some mark-to-market on swaps that we have around debt that's in place. So when we look at this, we see these are very long-term projects. When you look at the underlying performance of the data centers, they are very strong. And I'll tell you, on average, across our digital infrastructure funds, Fund I, II and III, we have IRRs in the high teens. So we're experiencing great IRRs for our investors. This is short-term noise. Marc S. Lipschultz: Yes. And just to frame that in a way that will be apparent to everyone I'm sure it's already apparent to you. These are very long-dated leases with rent escalators, not to be lost by the way, that escalator is very powerful over time. But to match, we will -- we swap debt in many cases against them. So we've locked in our returns and our returns are outstanding. But as an accounting matter, the swap itself gets marked for accounting purposes unrelated to the fact that really, it's just serving to create this fixed income stream. So that is just an accounting quirk. The -- in terms of the absorption of the Fund, yes, we are heavily committed already through Fund III. And so we will be back with Fund IV in the 2026. And at this point, as I said, we're -- the demand for capital given the partnerships we have and the capabilities we have, vastly exceeds our current capital on hand. So that's a great opportunity for our LPs, or frankly, others that may join us in other strategic roles, take like QIA, who joined us as a strategic partner in our continuously offered product, $1 billion commitment to help anchor that product. And we're going to continue to grow that partnership. They've been a fantastic strategic partner. And they picked this platform because they see the scale and quality of the opportunities. So we're going to continue to develop these both strategic partnerships, and we're already seeing really great fund flows in uptake rates, speeds of adoption we've not seen before in continuously offered world. So we're trying to gather the capital, but it's still very imbalanced. We need much more than we have to capture what we may think are once-in-generation opportunities. Alan Kirshenbaum: When you think of the momentum we have here, Bill, if you think about Fund III closed at the end of April, and within 12 or 18 months, we should be out -- and we expect we will be out of our first close, not just marketing, but our first close for Fund IV. And the digital infrastructure wealth product I mentioned a few minutes ago, our plans were to launch that in early 2026. We're ahead of that plan. We have so much momentum. We have two of our biggest distribution partners live in the system. We expect our first close to be December 1, and we are really encouraged by the early signs we're seeing in the channels there. Operator: The next question comes from Benjamin Budish with Barclays. Benjamin Budish: I wanted to ask about operating leverage in the business. You indicated, I think, earlier in the Q&A that you expect -- you do expect FRE acceleration in the next few years. Curious if I just look at this quarter, you did have a big step-up in credit management fees, I think driven by the listing of OTF, but margins are still sort of in low 57% range. I guess that was presumably embedded into your prior full year guidance. But can you just remind us like why wasn't there more in the quarter? And as we think about the next several years, obviously, a lot going on in the top line and from a fundraising perspective, but how else are you thinking about expanding FRE margins and what that may look like? Marc S. Lipschultz: There's a reason that we're -- there's a reason that we grow faster and more predictably than anyone in our industry. And there's a reason that we get to strategic places like digital infrastructure and alternative credit. And I want to say that other people are doing a phenomenal job, they are. But there's a reason when you just step back and put the numbers on a piece of paper, we are kind of in a category of our own. And it's because we invest in continuing that track forward. So we will continue, of course, to be a highly profitable business. You continue to see our margin this quarter at 57% plus. Sure, there's some operating leverage in the business over the medium term. But just -- from our point of view, that is not where you make money in our business. We have 30 more basis points of margin and gave up investing in the thing that's going to be the continuation of this accelerated growth two years from now, it'd be a really terrible trade. So we don't find the idea of trying to squeeze a $0.01 out of our margin versus invested in the future a worthwhile trade. So yes, there's operating leverage, but you should expect -- you should -- I mean I don't want to tell you what you should want us to do, that's obviously your call, but I would profer you should want us to continue to invest in this dramatic outperformance over the long term versus trying to optimize the last dollar of margin today. And so that's where we are. We will continue to make growth investments. So I'd rather have you think about us as growing for a very, very long time at a very high margin with the highest fee rate, by the way, which we do have in the industry. But whether we take the last 50 basis points of margin to the bottom line or put it into the business, pun intended, on the margins, you should expect we want to put that in the business, so we continue to outperform so dramatically in North Star, $5 billion of revenue, $3 billion of FRE. That's where we're going. Operator: The next question comes from Crispin Love with Piper Sandler. Crispin Love: I want to go back to digital infrastructure, definitely had some meaningful announcements recently, the Qatar Investment Authority partnership, the Meta JV. When you think of upcoming data center opportunities, what type of pipeline are you looking at? Are you able to put a dollar value on that? And then as well as just expected structures for these types of investments, could structures evolve? And then just on the Meta JV, why do you think the JV structure made the most sense for that one? Marc S. Lipschultz: Yes. It's a wonderful question about the structures because if you look at the three largest data center complexes financings done, which no surprise, I'll note, all three are ours. The -- that each one is a different structure. And I think this is really an important point to understand. In the hundreds and hundreds of billions and to quantify, I don't even quite know how to quantify the pipeline because it's so vast in terms of the number of projects that we've already signed or that we're advanced on or that we're talking about. And remember, the size of each one is just so massive. But in excess of $100 billion for sure in terms of the way we would look at our pipeline. So let's call the pipeline or addressable market for practical purposes kind of infinite. It doesn't really matter. That's not the constraint. And by the way, if I'm sure we all did look at the numbers from yesterday from all the big -- three of the big hyperscalers and the articles in the journal and as far as I was reading the journal, three articles in a row all talk about one very core theme from Google, from Meta, from Microsoft, dramatic acceleration in capital spending beyond what the big numbers are people already thought and had. And if you actually, I think, talked to a lot of folks, they'd say we're underspending in the opportunity not over. Now I don't want to be in a position and we're not in a position to take that risk. We do things under long-dated contracts with exceptionally high-quality companies where we earn these really, really strong and growing yields. So that's our part. We're the picks and shovels, we're the infrastructure of that part, but with that said, there are multiple structures, and this is part of the strength we can deliver at Blue Owl. I think the reason that we are prevailing in this market is because we can serve as that one-stop shop, depending on what kind of solution you want, and I'm going to just quickly take you through this. If you look at -- if you look at the Abilene, Texas or Stargate project as sometimes referred to, so that project, we're developing in partnership with a fantastic company, Crusoe, who recently just announced their own actual financing, which we're a part of, but that really reflects the strategic partnership we have with Crusoe. They're outstanding at what they do. They've been a pioneer in this business. They have big projects they're working on and we're working together on how we look there in the development business, and we're in the owned the capital business. It's a wonderful compliment. So in that case, they're the developer, and we're the owner and Oracle is the tenant. So that's one structure. In the case of the BorderPlex project, which is now -- and that one, by the way, Phase 1 and 2, that was a $15 billion project. In BorderPlex, that's a $22 billion project. In BorderPlex, we're the developer. Remember, we have a business called STACK. STACK has about 1,000 people in it. This is another one of the -- may or may not be fully understood, but the gigantic barriers to answer here is everyone's happy to own a data center. We just took one of our data centers we had created organically and say we're creating our data centers at 7%, 8% cap rates, we just agreed to sell one at a 5.25% cap rate. So everyone would like to own them. The question is, how do you get to own them at 7% and 8% cap rates? Well, you have to have the partnerships and be able to either with Crusoe or on your own, in the case of this on our own, develop. So STACK, We have 1,000 people that do design, build, operate. And it's not about what you did today. It's about what you did two years ago to position yourself with the right land and the right power and the right to understand into the regulatory frameworks and how to actually get this done because getting it done it matters as much as the capital and we do both. And then the third iteration is Meta. Meta develops and is very good at developing their own data centers. So they're saying, okay, I don't need the development. What I need is someone that can deliver $27 billion of capital that understands my business and understands all the nuances that are going to go into developing this project. So our expertise isn't like we need to build it away from them, but rather our expertise allows us to structure in partnership with Meta in a way that meets their needs. So they say, "Oh, yes, like it's great. We get to work with someone that understands what we're doing. And so Meta is building that project. So what I liked about that just so happens that all three -- you see three different all good flavors depending on what the user of the data center wants. And we're positioned to do all three, and we're happy to do all three. Operator: The next question comes from Brennan Hawken with BMO. Brennan Hawken: I wanted to ask a clarifying question and then one a little bit more forward-looking. So I think Alan, in your prepared remarks, you were talking about the GP Stakes business and then you went into fundraising expectations. So I was a little unsure about whether or not -- I thought those fundraising expectations were firm wide and not narrowly to the GP Stakes business where you expect 4Q to be equal to 2Q and 3Q levels, but just want to confirm that. And then you also highlighted expectations for management fee acceleration in the real asset business. Does that mean that the fee rate step down that we saw this quarter should recover? Or are you going to be seeing strong revenue growth despite the lower fee rate? Alan Kirshenbaum: Thanks, Brennan. Good question. I appreciate you asking. I'm sorry, I have an opportunity to clarify. On the first question, 4Q similar to 3Q, 2Q, it was a comment out of this prepared remarks, same comments as last quarter, strictly related to sixth vintage of GP Stakes. So that's what I was focused on in that comment, narrowly, not broadly for Owl. And on the real asset side -- yes, the answer is yes. So the fee rate looks lower this quarter. It's a little bit of a mix shift. It's a little bit of a Fund VI fee step down, but the fees for Fund VII haven't really fully kicked in. We've called a little bit of capital, but not that much. And so that's the dynamic you're seeing. We've raised money for ORENT. Fees are coming down a little here because of the Fund VI step down. So it's a very, very modest growth there. You're going to see an acceleration of growth and continued fee expansion for real assets. Operator: The next question comes from Steven Chubak with Wolfe Research. Steven Chubak: Marc, can you provide some really helpful detail on the forward flow agreements and your approach to underwriting and structuring these deals, certainly a growing area of focus among investors. And I was hoping to delve a little bit deeper. There's like four subcomponents, I was hoping to unpack. First, if you could talk about the quality of the underlying credits? Second, the amount of subordination you build into these structures. Third is the volume it's expected to produce in a typical quarter. And then the appetite to afford similar agreements. So I know that was quite a bit, but credit quality, subordination, volume and appetite for more partnerships. Marc S. Lipschultz: Sure. So let us tackle all and they're all good questions, and they're all highly salient. These flow partnerships are something we very much like because what we're doing, again, this kind of theme, no surprise in the Blue Owl system, which is we like to find the people that are best at what they do, we work with them in the case of, say, a Meta, we work with them in the case of, say, a PayPal. Buy them when it's something that is an internal asset management capability that we need to should have, all the IPI or Atalaya. So I think the theme you're going to always see is we're looking for best of breed. And we are very keenly aware of what we are great at and not great at or put another way, when you focus, you tend to be really great at things. There's a reason that we are outperforming for our LPs in almost everything we do is because we focus. We don't have that many strategies. There is a reason we win partnerships that I think many would love to have because we're more focused in a few core areas that really work. And so the flow partnerships are part of that. So let's start with quality. Well, quality, what you see is we're looking -- and this is quite important, too, even with all the noise in the market. We work with prime. We're not in the subprime business. And so we're talking about prime credit quality. That is why you'll see partnerships with people like PayPal or SoFi, who have strong prime flows in their -- in what they take in. So that's a logical starting point. So quality, very high. We don't play in the edges. We don't do anything meaningful in subprime, we do prime. And then, of course, a lot of it is just business finance, business lease finance and otherwise. So high credit quality by individual credit. And then obviously, of course, it gets down to the packaging, the diligence and then to your second point, subordination. In everything we do in these partnerships, either the person we're partnering with is owning part of the same risk we are owning on their balance sheet or in most cases, subordinating. Now the amount of subordination, I can't really -- I can't give you a numeric answer because obviously, that depends on the exact credit quality, how much, what controls there are and what can go into the box. But important to understand, we're not buying a package of things and saying, well, good luck with that. They're keeping a parallel piece or usually a subordinated piece. And the flow agreements, we can shut them off. We're doing daily feeds. This is a very data-intensive business. We're doing daily feeds between them and us. We see everything that's processing. And so these flow agreements can be shut off if there's deterioration around parameters, in which case, they actually run off quite rapidly. One of the beauties of alternative credit and flow arrangements is the duration per package per month is very fast. So in a world of liquidity, if people want liquidity or strategy where you can get to liquidity as an answer to a change in the world or a change in preference, this is the best match, which is why we put the interval structure -- interval fund structure here. You've got to match structure to strategy if you really want to deliver for investors. And so that's -- on subordination, there is most often subordination, there's always at least parallel ownership, and there's tremendous day-to-day controls through data and tech integration with these big platforms. Volume. So you've seen some of the announcements we have. Now remember, it's important when we talk about $7 billion, for example. It's not that we put out $7 billion, right? That is going to be deployed over a couple of year period in this sort of running cycle of take receivables and then they get quickly paid down and then you add more receivables. So we can take you through and we can certainly try to make sure people understand going forward a bit of like what's the deployment -- peak deployment or deployment pace, but it really gives us what is a lot of visibility and optionality, maybe for lack of a better term, but it's not like we put $7 billion to work in any given moment, that divide that over a couple of years effectively. And then on doing similar partnerships, absolutely. Again, what we want are the best originators in the world and leverage their capabilities and will be the best capital partner they can have, partner of choice. So that marries with a lot of what we do. Same thing we do in the world of direct lending, right? We're not in the private equity business. We don't compete with our borrowers. They're in the business. They're great at it. They originate, if you will, and then we support their purchases. So we -- yes, you'll absolutely continue to see similar partnerships form. Operator: The next question comes from Alex Blostein with Goldman Sachs. Alexander Blostein: Another one for you guys related to credit, and while the three instances that occurred a few weeks ago seemed to be related to fraud and it sounds like there's another one this morning with HPS and kind of that -- those headlines coming out in the last hour or so here. But I guess, as you look at the credit exposures broadly across your platform and acknowledging that those four are like not really related to you guys. And it sounds like it was all related to fraud. But how are you addressing potential fraud risks across the platform? Is there anything differently that you're starting to look at? Is there an extra diligence you're starting to look at throughout the portfolios? And ultimately, will that require any incremental spend if these instances start to kind of percolate throughout the industry? Marc S. Lipschultz: Yes, thanks. And I think maybe what I'm going to take a slight step back and just try to comprehensively address the overall credit theme question and well phrased. So I think it's actually important to level set in one place to begin with, which is credit quality here, our peers and at the banks for that matter, despite some Tempus and [indiscernible] it's very strong, very strong. The -- I'm going to come back to us, but let's just start with the ecosystem in total. It's very healthy. The ecosystem, the credit ecosystem is extremely well capitalized. It's trillions and trillions of dollars, and then you have a problem. And in this case, as you point out, a handful of problems that appear to be rooted in fraud, which is kind of the least relevant indicative issue when it comes to credit quality or systemic problems and yet has garnered extraordinary amounts of attention. Banks do a very good job. Like I don't want this to be misunderstood. We're all part of a common ecosystem. We have a different approach. But take banks like Wells Fargo. They do a phenomenal job. JPMorgan, phenomenal job. These are great institutions, and we work with them all the time. And so I think we should start with -- there's almost like -- I don't know you're all familiar with the Mandela effect. This is like the Mandela effect of finance, which is this just common population collective misimpression of what's going on. And for those who don't know Mandela effect, there's these like people imagine that the monopoly guy had a monopole, he didn't, or the Pikachu's tail has a black tip, it doesn't. There's just these common misunderstandings and misimaginations, and I can do a list so everyone has one. Fruit of the Loom doesn't have a cornucopia. So in any case, the point being like somehow by just talking about this enough, people have worked themselves into this imaginary world where there's some big or potential credit problem. And from where we sit now, I'm going to be a little more parochial, there's definitely not. When I now look at our book, performance remains extremely strong. You know we've originated over $150 billion in credit over the last decade, and we're still running at 13 basis point loss rates. And it will be higher than that over time, like that's too low. That's not the right rate. We don't suggest it is or should be. And in any given quarter, we have a company that has its challenges. We've had every -- we'll have it every quarter. We'll have -- some company has a challenge. We have 400 of them. But the key is to have very few when you have them get a good recovery. And all of that is working, and we are not seeing anything in our portfolio that is thematically problematic. We're not seeing anything that suggests a shift in overall credit quality or yellow lights or anything like it. We're still seeing growth. I'm not trying to be Pollyanna like I said, of course, there are going to be companies that get in trouble. We've had them and we will have them. And so will our peers and so the banks that's the nature of being a lender. But the key is, is it thematic, does it suggest anything greater or does it even really matter much to the net result when you talk about such small numbers of defaults with any reason recovery, and the answer is it doesn't. And so I'm not -- by any measure, trying to be dismissive, but I do think like a little bit of a step back because now it's like this daily rhythm of like everyone saying, what about this thing? What about that thing? As for the items you mentioned, now let me just tie it back again. Now I'll just be parochial again rather than try to speak so broadly. Actually, the strength of what we do in asset-backed is exactly what you described, the thoroughness with which we tie in with the originators, the quality of the originators, just like we do in sponsor finance, we care who the partner is. We care who that originator is. And I have to tell you that there's a lot of reasons to think that SoFi and PayPal are really well-run companies that aren't -- I hope God willing, companies like that are not any part of the problems that we're talking about. And so that is part of selection. Then there's how you do it. There are tools that can be deployed and we deploy in this business. You do use third-party servicers. That's a way to have someone else looking. You do field checks. And by the way, if you do field checks in some of these circumstances, you see red flags. If you look at platforms, you see red flags, like -- it is very, a, a lot of work can be done even to confront fraud and prevent it or at least prevent it from getting into your portfolio. And then once you're in any credit, while they -- let's forget fraud, let's just talk about deteriorating performance, daily data ties. We have a whole data science team here. This is -- that's why I get asset-backed ought to be done by professionals and asset-backed, part of why we acquired one of the best in the business because this is a very different business from what many people in credit do. It does have many, many more line items and flows. So do we do anything new? Well, listen, any time there's a problem anywhere in the financial markets, of course, our job is to instantly go back and look and say, does this suggest there's anything else we should have been doing or could be doing? And the comforting answer for you will be we went back, we looked and no, there's nothing that we would -- that we missed. There's nothing we would change. We think we have fantastic controls. That doesn't mean no one could ever defraud us. Anybody could be defrauded. But I would tell you that, no, we actually looked and when we study what did happen and study how we approach it and frankly, what we even knew about maybe we're having looked at some of these companies over time, no, I think we feel great about how our process works, but we will always be vigilant about it. But again, I think everyone is maybe -- not everyone. I think we're a little careful of just kind of this churning and churning and churning. I think the credit system banks and private lenders I think we're in a really, really healthy place. And last thing I'll say, if you really -- if someone is looking around for, oh, you know what, there's really some problem in the world of credit, then I would tell you that people should take the flight to quality and get into our BDCs and get into our real estate products, all of which are designed to be defensive and take credit. It's the senior part of the equity capital stack. So the last point I'll make, and I don't mean to drone on about this, but I know it's a really important topic to the market right now, and I understand that. If you're actually concerned about the broad credit industry, banks, private lenders included, I mean, people need to take a pause and think about what that means for their equity books. We are the senior parts of hundreds and hundreds and hundreds of companies -- and by the way, many favorably selected by sector, by sponsor, by capital structure. So if you really are watching this problem, we ought to all collectively turn our attention to, in that case, wildly overvalued equity markets, and we ought to have people moving into credit, not out of credit. And that's not my opinion that we have wildly overvalued. I think we actually have a really healthy economy and a really healthy ecosystem. And last, I see it with our portfolio. We continue to see great strength. Operator: The next question comes from Chris Kotowski with Oppenheimer. . Christoph Kotowski: So I'm trying to think about going back to the data center financing space and trying to think about how -- when we see these press reports about financing, how to translate it into what it means for your AUM and fee paying AUM, when, where and how much. So thinking about Hyperion, for example, the reports I saw that you put in about $2.5 billion of equity, there was $27 billion of debt and that the lease terms going to 2049. So three-part question then. One, I assume what's AUM for you is the $2.5 billion, not the $27 billion, not the 2, I assume that, that $2.5 billion is primarily spoken by -- Net Lease VI and Infra III. And as such, it would already be in the fee paying AUM, but it would explain why you're coming back to market so soon? And then thirdly, does this stay fee paying AUM for you until 2049? Or are there step downs before then? Marc S. Lipschultz: Yes. So a few things, and then Alan and I will cover both parts of this. So our investment in Meta's equity is roughly $3 billion just to use the right number between us. That is deployed by us over time into -- and therefore, to, I think, the point you raised, its commitments today that fund over time, but it's therefore use of capital. We have several strategies and one of the hallmarks of Blue Owl been this drive to make sure that individual investors and institutions get treated as true peers. And so we have multiple vehicles, depending on how you choose to participate that will have a strategy that will participate in this product. And so while $3 billion is a gigantic number, right? Remember, we have multiple strategies that participate in that. So you said -- you named two of them very much correctly, our Net Lease product, for sure, is a relevant piece. Our digital infrastructure is the lead horse, if you will, right? This is an example of a digital infrastructure originated product, which, by the way, wouldn't have if we didn't have IPI, which therefore, benefits the Net Lease fund back to our point, remember, Net Lease has participated. By the way, Net Lease is where we originated Oracle. So that can be a benefit for digital infrastructure. So these aren't coincidental combinations. Then and very importantly, we have our ORENT triple Net Lease product and are now ODIT, our digital infrastructure trust. And those are the wealth access channels, those participate. So it isn't a matter of -- I wonder if I picked the right fund. It's really did I pick the right firm, and investors picked the right firm. And so we have homes for that. For that equity and it's great equity. So that's really how we approach it. And then just to calls out your point, yes, there will be gaps between the time we commit and the time we deploy. So that does, in part, explain if people are trying to reconcile drawdown to when we'll be back in market, obviously, once we commit to Meta, whether we funded it today or two years from now, I mean, you have to have that money on hand. As for assets under management. Well, of course, it depends on the vehicle. But it is the case that within a perpetual product, we're talking about long periods of time, we've got 20-something years. But yes, that asset could just stay there -- could stay there forever. I mean, in that sense of the word, 20-plus years. So we would get paid continuously. That, again, is the beauty of matching capital structure to assets. In our funds, it won't stay forever, right, in our funds, like our real estate funds, we will often buy and then we'll sell at nice premiums, the results. And in fact, that is kind of a thing we're talking just the other day, actually, like our real estate product. So we want to invest in real estate and you want to make well risk managed returns, you look at our -- we've now fully invested and exited our first three real estate funds. And as the 24% net IRR doing business with IG companies. And that has to do with the difference between the running kind of double-digit hold forever kinds of returns to buy -- if you create things at 7% and 8%, and if you want to, sell some of them at 5% to 6%, you generate very high IRR. So the beauty is we have the ability to do all of the above. And whoever joins us, they can pick their entry path and participate in these -- this digital transformation. Operator: The next question comes from Brian Bedell with Deutsche Bank. Brian Bedell: Maybe just continuing on that line of that question, just extending that to maybe tying it back to some comments you made earlier in the call, Marc, about the supply of capital for digital infrastructure versus the deployment opportunities being very vast over a long period of time. How do you think about sort of the strategy of fundraising to try to match that deployment in the future? I know you have, of course, IPI for coming up, and real estate even still in the market. But as we think -- as you think about that timeline over the next 1 to 2 and even 3 years, in terms of trying to match that demand if you think that's still going to be there. What are the strategies either -- either launch new funds or use the retail markets maybe as a more major fundraiser for those projects? Marc S. Lipschultz: Yes. So look, I think -- what I had mentioned, and I appreciate the question, look, we have great homes for a lot of capital. And by the way, we're open to very creative approaches also on top of what I'm going to describe. But we have four entry points that allow you to participate in this digital transformation depending on exactly what assets you want and what type of structure you want. And that's like -- again, this is very driven around meeting our investors where they live. So I'm not going to repeat it at all, but we have our real estate product, as you said, real estate VII in the market. Real Estate VII is a diversified triple-Net Lease product that owns a variety of different kinds of real estate projects with really strong tenants and 15- and 20-year leases. I think we're running in our product right now of close to an 8% average cap in those real estate products. We have a long history of stability and great results. And that's a great institutional entry into real estate. And in fact, you're doing real estate, I -- it's a little hard for us to say why that wouldn't be the way you'd want to do real estate period with that word stopping there. Now if you want a vertical exposure into the data centers, which is this moment in time generational we think, opportunity. I think by the way, as years to run, again, just go read the headlines, everyone keeps announcing bigger numbers, not smaller numbers, and their mind-bending numbers. Then we have our digital infrastructure business, where once again, we have an unparalleled history. We've done over 100 different data centers. I think today, we have -- already have or are building 10 gigawatts, and I know that's not like an intuitive term. But if you think about a gigawatt is the amount of power that a typical sizable city in America consumes. So when you think about it, we're talking about like right now, we have built or are building 10 cities worth of data center capability. And of course, that's a fraction of the market. So you can participate. And those are both drawdown funds. So if you are comfortable and like that structure, you'll be in a drawdown fund. It obviously, therefore, means it's more about money going in and ultimately cycling back out, but it's drawdown and it has all the positive and negative attributes to that structure. The exact parallel to that is you can participate in ORENT, which is obviously our continuously offered version that allows you to participate in triple-Net Leased assets. And each one has a slight nuance in the kinds of projects. One is built more for hold and collecting yields. One is built more for sort of that drawdown and ultimate exit, but they're participating in the same origination engine, so you can participate there. And then on the digital infrastructure side, as an individual, if you prefer to have the semi-liquid option where you can get your yields and then come and redeem the capital -- seek redemption on a quarterly basis, then you come into ODIT. So if I put those four together, we have the horizontal real estate solution and the vertical data center solution. We have the drawdown entry point. And the continuously offered semi-liquid edgy point. So I think we have everything you need, and we welcome anybody anywhere. QIA is anchoring and coming into the continuously offered product. So I even think this idea that people like is an institutional product in -- we've never described that, but now more than ever, that isn't the right way to think about it. It's about creating structures and matching them to people's preferences, about the kinds of assets and access to capital and holds and the like that they have in mind. So QIA is in ODIT. So that's really how we've laid out our system. We don't have as many products as most people. We won't have as many products as most. We are open, of course, doing SMAs and customized solutions. But we're really trying to make sure we have the right entry points and that they're all scaled. Brian Bedell: And so you think the fundraising for those products can accelerate given the deployment opportunities? I guess that's what sort of the punchline of the overall question was. Marc S. Lipschultz: Yes. Yes. I think we'll see -- we'll continue to -- our target for Real Estate VII, remember, at $7.5 billion, and that's triple what it was two funds ago, right? So they are scaling and scaling is frankly, an ever better market for us to deploy. Digital infra already was a gigantic step-up Fund III from Fund II. We haven't set a target, obviously, for Fund IV yet. So those will scale, but then the continuency offered, of course, are the ones that people can really -- they can participate tomorrow in these assets. And of course, that, therefore, is a highly flexible way to introduce capital into this accelerating demand. Alan Kirshenbaum: I would only add to that, that it's not just the supply that's driving the demand, it's the amazing risk-adjusted returns that we're seeing when we make these investments that are driving the investor today. This is a generational opportunity that we're seeing. And I think that's a big part of what's driving the demand on the investor side. Operator: The next question comes from Wilma Burdis with Raymond James. This will conclude the Q&A session. I'll turn the call to Marc Lipschultz for closing remarks. Marc S. Lipschultz: Great. Thank you very much. Look, I think we covered a lot of ground and we are trying to figure out the right way to balance the sort of bigger picture with the results, but I'll tell you that it was a great quarter. We're really happy with most importantly, the performance of the products in turn leads to importantly, great performance at the Blue Owl level, bang on track with durability and predictability. We're feeling very good that we skated to where the puck has gone, and we'll continue to do that. We'll always be vigilant. Don't take anything away from the fact that we understand people and we do too. We always are on the lookout, but sitting here today, we love the position and we're quite positive about the future ad for both Blue Owl and our Blue Owl products. So we appreciate your time, and we will keep executing and we'll keep communicating. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Good day, and welcome to the Third Quarter 2025 Cheniere Energy Earnings Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Randy Bhatia, Vice President of Investor Relations and Communications. Please go ahead. Randy Bhatia: Thank you, operator. Good morning, everyone, and welcome to Cheniere's Third Quarter 2025 Earnings Conference Call. The slide presentation and access to the webcast for today's call are available at cheniere.com. Joining me this morning are Jack Fusco, Cheniere's President and CEO; Anatol Feygin, Executive Vice President and Chief Commercial Officer; and Zach Davis, Executive Vice President and CFO. Before we begin, I would like to remind all listeners that our remarks, including answers to your questions, may contain forward-looking statements, and actual results could differ materially from what is described in these statements. Slide 2 of our presentation contains a discussion of those forward-looking statements and associated risks. In addition, we may include references to certain non-GAAP financial measures, such as consolidated adjusted EBITDA and distributable cash flow. A reconciliation of these measures to the most comparable GAAP financial measure can be found in the appendix to the slide presentation. As part of our discussion of Cheniere's results, today's call may also include selected financial information and results for Cheniere Energy Partners LP, or CQP. We do not intend to cover CQP's results separately from those of Cheniere Energy, Inc. The call agenda is shown on Slide 3. Jack will begin with operating and financial highlights, Anatol will then provide an update on the LNG market, and Zach will review our financial results, 2025 guidance and initial outlook for 2026. After prepared remarks, we will open the call for Q&A. I will now turn the call over to Jack Fusco, Cheniere's President and CEO. Jack Fusco: Thank you, Randy. Good morning, everyone. Thanks for joining us today as we review our results from the third quarter of 2025. I think we can all agree that this year has been one of the more challenging with geopolitical unrest, rising cost and unsufficient supply chains, tariffs and now a government shutdown. My focus has been to lead Cheniere by putting our heads down, driving our growth strategy forward, continuing to deliver on operational excellence, executing on construction management and implementing our capital allocation program. The third quarter of 2025 was once again marked by many key successes across our entire business. We made significant progress on the expansion of Corpus Christi Stage 3. We progressed our development plans for engineering and commercialization of our expansion at Sabine Pass, all while continuing to achieve operational milestones, solidifying our reputation as a reliable supplier and partner to our global customer portfolio. The third quarter also gave us an opportunity to invest meaningfully back into ourselves with our share repurchase program for the benefit of all Cheniere stakeholders. In the LNG market, events and data points on both the supply side and demand side of the equation continue to fuel noise and volatility. But Cheniere's disciplined approach in our highly contracted business profile enable us to reliably deliver visible, predictable results in line with our previously issued forecast. We're very pleased to announce this morning that substantial completion of the third Train of Corpus Christi Stage 3 has been achieved, an acceleration of our forecasted time line from only a few months ago. I have more to say on Stage 3 in a few minutes, including on our recently improved time line on Train 4. Please turn now to Slide 5, where I'll highlight our key results and accomplishments for the third quarter of 2025. In the third quarter, we generated consolidated adjusted EBITDA of approximately $1.6 billion distributable cash flow of approximately $1.6 billion and net income of approximately $1 billion. Today, we are reconfirming our full year 2025 guidance range of $6.6 billion to $7 billion in consolidated adjusted EBITDA, and we are raising our distributable cash flow guidance range from $4.4 billion to $4.8 billion to $4.8 billion to $5.2 billion. Zack will provide more detail later on this call on our financial results, but the guidance increase related to our DCF outlook is being driven by a discrete IRS rule change related to the corporate alternative minimum tax. Our guidance continues to be supported by the high degree of visibility and certainty, our highly contracted platform affords and we remain on track to deliver financial results within these ranges. During the third quarter, we produced and export 163 cargoes of LNG from our facilities, which included the 3,000 LNG cargo produced at Sabine Pass. I'd like to recognize and congratulate our production and shipping teams at Sabine Pass on this milestone achievement, an incredible accomplishment less than 10 years since the first cargo was produced and exported from our facility. Across both facilities, we achieved production levels this year that are within our financial forecast, while successfully navigating some operational challenges, primarily driven by external factors such as variability and natural gas quality. Structural shifts in the basin mix of domestic gas production attributed to new gas transportation infrastructure have made slight but noticeable changes in the composition of some feed gas we receive at our terminals. This requires our operating steps to make real-time adjustments to our liquefaction processes like solvent injections or defrost to clean heat exchangers or adjusting our operating modes and maintenance activities to adapt to those changes. I'm extremely proud of the teams at both facilities for working safely and collaboratively to address these variables, develop long-term solutions to address feed gas composition in order to maximize sustainable reliable production and enable us to deliver LNG volumes and financial results within our guided ranges. Looking ahead, the preliminary production forecast for 2026 has recently been completed, and aided by the startup of the remaining trains at Corpus Christi Stage 3. We expect 2026 to be another record year for LNG production. Our production forecast for 2026 accounts for the impact of strategically planned maintenance including certain downtimes designed to deploy engineering solutions at both facilities to bolster long-term production reliability and build additional resilience to those external forces, which can create production variability. With that said, with 3 mid-scale trains now commercially operable and together with the remaining 4 Stage 3 trains and no prolonged major maintenance planned, we're looking forward to 2026 being our first year of producing over 50 million tons. During the third quarter, we continue to make excellent progress on our comprehensive capital allocation plan, deploying approximately $1.8 billion across the pillars of our program. We funded approximately $600 million in growth CapEx, primarily across Corpus Christi Stage 3 and mid-scale trains 8 and 9. We paid approximately $110 million in dividends, and we repaid approximately $50 million in long-term debt. The balance of the capital deployed was under our share repurchase plan which was able to take further advantage of the value present in the shares during the quarter and bought back approximately 4.4 million shares for just over $1 billion, the second highest quarterly amount we have deployed repurchasing shares to date. Please turn to Slide 6, where I'll update you on the progress of Corpus Christi Stage 3. I'm very proud of the progress we have made and continue to make executing on all phases of this project as total project completion on Stage 3 reached over 90% last month. Execution remains on accelerated schedule. And as I mentioned earlier, we reached substantial completion on Train 3 ahead of our previous forecast. Together with Bechtel, we are achieving construction commissioning milestones with the benefit of lessons learned on the first train of the project. In fact, we reached a single-day LNG production record last week of approximately 7.5 TBtu of LNG with Train 3 now operating. Similar to the commissioning time line improvement we saw on Train 2, Train 3 went from first LNG to substantial completion in just 38 days. This is in contrast to the 77 days on the first train and evidence of the acceleration resulting from experience and knowledge transfer across trains and of course, our long-term partnership with Bechtel. Train 4 is benefiting as well. And those that follow us closely, have surely seen the regulatory approvals we've been receiving relating to the start-up of that train. On our previous call, my expectation was that we would have Train 4 in commissioning by the end of the year. However, we're bringing forward our time line by over a month with Train 4 now expected to produce first LNG very soon and is on track for substantial completion by the end of this year. We continue to forecast substantial completion of trains 5 through 7 next year. Current key activities across those trains include the last few percentage points of concrete and structural steel and the installation of above-ground piping. As for the cadence of substantial completion for Trains 5, 6 and 7 next year, we expect those to occur in the spring, summer and fall, respectively, after Train 4 becomes commercially operable this winter. On the mid-scale trains 8, 9, a debottlenecking project, full notice to proceed was issued to Bechtel in June, and it has hit the ground running quite literally as the first ground pile was installed during the quarter. The bulk of the activity thus far has been on engineering and procurement as well as mobilization and site preparation. We're extremely excited about this project economics and time line benefiting from all the work that's been done on Stage 3, and I look forward to updating you all on the safe execution and achievement of the milestones as we move into construction. In the highly competitive market that we are in, continued demonstration of construction execution and timely delivery on customer commitments is a meaningful differentiator and significant competitive advantage especially as we seek to further expand our footprint with more accretive brownfield growth at both sites that never compromises on our contracted return targets for investments. I'm extremely proud of these elements that have come to exemplify the Cheniere standard, which we are all committed to upholding across all aspects of our business for the benefit of all Cheniere's shareholders. With that, I'll now hand it over to Anatol to discuss the LNG market. Thank you all again for your continued support of Cheniere. Anatol Feygin: Thanks, Jack, and good morning, everyone. Please turn to Slide 8. Global LNG demand in the third quarter of '25 was once again underpinned by European imports amid continued softness in Asia, resulting in price differentials that incentivize the flow of U.S. cargoes to Europe throughout the quarter. Unlike earlier in the year, when geopolitical events drove volatility in global gas prices, both the JKM and TTF benchmarks remained largely range-bound during the third quarter as compared to both the second quarter of '25 and the third quarter of '24. Despite an increase in LNG supply as new liquefaction capacity comes online and in light of the relative moderation of Middle East intentions that caused gas prices to increase late in the second quarter, global benchmarks remained relatively flat in the third. Monthly price settlements during the quarter averaged $12.50 an MM for JKM and $11.27 an MM for TTF, both relatively unchanged year-on-year. This is a clear indication that the market remains somewhat tight throughout the first half of '25 and into the third quarter amid lower Russian gas deliveries year-on-year and much higher European underground storage injection requirements. This dynamic persisted into the third quarter despite an increase in global LNG supply and more moderate Asian LNG demand which were unable to offset structural decreases in Russian pipe gas and meaningfully higher European injections as compared to '24. Ultimately, these dynamics provide a floor for global gas prices in the third quarter maintaining price levels throughout the quarter, which contributed to muted price-sensitive Asian demand aside from a temporary uptick in August, driven by early restocking. In the near to medium term, we broadly expect spot LNG prices to moderate as global balances begin to loosen in the upcoming period as additional liquefaction capacity comes online. As we've discussed previously, we expect the market tightness of the past few years to moderate with global prices becoming less sensitive to episodic price disruptions and volatility that stems from a delicately balanced market with minimal spare LNG capacity. We expect a significant portion of expected increases in liquefaction capacity to come from the U.S. highlighting the importance of U.S. LNG in maintaining global gas balances, and we expect this incremental supply will translate to a more stable pricing environment and start to catalyze demand from price-sensitive markets. Let's turn to the next page to address the regional dynamics in some detail. Europe's LNG imports continued to increase year-on-year in the third quarter, maintaining its call on U.S. cargoes away from Asia, despite a period of stronger competition in August driven by early restocking in that market. With regards to pipe gas volumes, residual Russian pipe volumes flowing into Europe were 3.4 bcm or a 43% decrease year-on-year during the quarter as other sources of pipe volumes from Norway, North Africa and Azerbaijan were marginally higher in aggregate. Meanwhile, the continent entered the third quarter with a 20 bcm deficit in gas storage versus last year, driving stronger storage injections. As of the third quarter, storage injections have reduced that deficit to 13 bcm or the equivalent of about 130 LNG cargoes, leaving European balances moderately tighter than we have seen in recent years especially in light of a cooler than usual autumn, weaker hydropower output and a potentially cooler winter forecast. Conversely, LNG imports into Asia remained subdued, declining 4% year-on-year during the third quarter and 6% 2025 year-to-date. Softer gas demand across key markets in Asia, including China and India as well as other regions resulted in aggregate LNG declines in the first half of '25, reversing the growth seen in 2024. This moderation in gas demand continued to filter into the LNG market in the third quarter despite the beginning of a demand rebound in China, which can be seen in the lower middle chart. Overall gas demand in China increased by 4.6 bcm from January through August, with much of that increased demand realized in recent months. While that pace of gas demand growth in China remains more measured overall, industrial demand has improved and gas-fired power generation has increased through August, gaining support from an 8 gigawatt increase in gas generation capacity in the first half of the year. Against that backdrop, Chinese domestic gas production increased nearly 10 bcm and Russian piped imports increased 6.3 bcm in the corresponding period from January to August. This dynamic of increased domestic production and increased pipe gas volumes, reduced the call on LNG imports in China, which declined 11% year-on-year or 2 million tons in the third quarter and 19% year-on-year or 11 million tonnes year-to-date. As compared to '24 when persistent heat waves in South and Southeast Asia drove a surge in LNG imports, gas demand in the region has moderated year-to-date. Milder weather this summer, along with stronger hydroelectric power generation and lower electricity demand overall drove gas power generation demand to decline by 19% in India in the first 8 months of the year. India led the South and Southeast Asian regions declines in LNG imports with a demand decline of 2 million tonnes year-to-date and 0.7 million tonnes of this decline occurring in the third quarter. As the European call on LNG to replenish gas inventories ahead of winter remains strong and prices remain at current levels, we expect LNG demand growth in Asia to remain moderate in the near term. However, as discussed, we expect these dynamics to reverse in the medium term as new supply enters the market over the coming quarters with significant implications for market balances moving forward. Within this context, we expect continued long-term LNG and natural gas adoption throughout Asia as demonstrated by forecast infrastructure growth in the region. Considering the region as a whole, gas-fired power generation capacity is expected to reach approximately 830 gigawatts by 2040. That's an increase of over 70% from 2024 with regas capacity expected to reach over 1,000 million tonnes by 2040, a more than 50% increase from 2024. Let's turn to the next page to further address our outlook on LNG market balances. With a significant amount of liquefaction capacity forecast to come online over the next few years across the globe, the LNG market is entering a period of significant supply growth. This long expected supply cycle is beginning to tangibly come to fruition as our CCL Stage 3 project has started to come online alongside other North American LNG projects, both along the Gulf Coast and in Canada. And new capacity from Qatar is expected to enter the market later in the decade. We expect the global LNG market will add an average of 35 million tonnes of liquefaction capacity annually from 2025 through 2030. This significant supply growth represents an annual CAGR of approximately 7% from 2025 through 2030. Despite incremental supply of approximately 30 million to 40 million tonnes per annum expected in '26, we continue to believe that latent price-sensitive LNG demand, particularly in Asia, will stand ready to absorb this additional supply efficiently. We expect to return to stronger growth in Asian LNG demand as the availability and affordability of LNG increases, catalyzing price-sensitive demand. The multiyear period of elevated prices we have experienced represents a clear signal that the market requires additional LNG supply, and we ultimately view a moderation in global LNG prices as favorable, necessary perhaps for meaningful long-term adoption of natural gas as a primary energy source and for investment in gas and LNG infrastructure across both developed and developing regions. The forward curve currently indicates '26 Asian spot LNG prices in the $11 range, which is supported by generally strong consensus from key market researchers that anchors around $10 to $11 price levels. With forecasted prices set to moderate later in the decade, aided by new supply, we expect '26 to represent the beginning of a pivot to more normalized spot LNG prices in the region. Even at the lower end of this price outlook, we expect U.S. LNG exports to continue unabated and do not expect any meaningful curtailments of U.S. LNG volumes. Ultimately, we view LNG supply additions as a moderating force on the global LNG market, and we expect this increased supply to invigorate demand as LNG becomes increasingly available and affordable, especially in price-sensitive and developing economies. In developed markets, this period of increased supply would represent a welcome change for consumers following the current multiyear period of elevated prices following the energy crisis in Europe. In the context of this period of shifting market dynamics and increased LNG supply, our highly contracted business model insulates us from near to midterm market volatility while providing our customers destination flexible volumes that enable them to navigate an evolving global LNG market as well as their own demand and consumption needs. At Cheniere, we'll continue to maintain our disciplined approach to sanctioning new liquefaction capacity under long-term contracts and with high visibility into future cash flows as we enter this new period in the global LNG market. With that, I'll turn the call over to Zach to review our financial results and guidance. Zach Davis: Thanks, Anatol, and good morning, everyone. I'm pleased to be here today to review our third quarter 2025 results and key financial accomplishments, our financial guidance ranges for 2025 and our preliminary outlook for 2026 LNG volumes. Turn to Slide 12. For the third quarter of 2025, we generated net income of approximately $1.05 billion, consolidated adjusted EBITDA of approximately $1.6 billion and distributable cash flow of approximately $1.6 billion. Compared to the third quarter of 2024, our 2025 results reflect higher total volumes of LNG produced across our platform, primarily as a result of the substantial completion of mid-scale trains 1 and 2 at CCL Stage 3 and higher total margins as a result of increased cargoes that CMI was able to sell in the spot market opportunistically earlier this year. As Jack mentioned, we navigated some operational volatility this quarter, primarily related to feed gas composition variability across both facilities. However, these impacts were partially offset by the ongoing acceleration in the commissioning and start-up of the CCL Stage 3 project. Looking forward, we expect to continue deploying solutions to build resiliency against production variability and bolster our operation reliability year-over-year as well as bringing the remainder of the Stage 3 trains online safely and ahead of schedule. We have generated approximately $4.9 billion of consolidated adjusted EBITDA and approximately $3.8 billion of distributable cash flow in the first 9 months of 2025 supporting our confidence in our guidance ranges, for the full year, which I'll address on the next slide. During the third quarter, we recognized in income 584 TBtu of physical LNG which included 581 TBtu from our projects and 3 TBtu sourced from third parties. Approximately 93% of our LNG volumes recognized were sold in relation to term SPA or IPM agreements. During the quarter, we also produced and sold approximately 7 TBtu of LNG attributable to the commissioning of trains 2 and 3 of the Stage 3 project. The net margin of which an adherence to GAAP is not recognized in income nor our EBITDA or DCF, but rather as an offset to our overall CapEx spend on the project. Our strong financial results year-to-date enabled our team to deploy another approximately $1.8 billion under our comprehensive all-of-the-above capital allocation plan. We've now deployed approximately $18 billion of our initial target of $20 billion through 2026 as we continue to invest in our accretive brownfield growth, reduce our share count and enhance our shareholder returns while retaining the financial strength and flexibility to self-fund future accretive growth across our platform with a solidly investment-grade balance sheet. We are now on track to surpass the $20 billion deployment target comfortably before the end of 2026. We've already made a dent on our $25 billion target through 2030 with over $3 billion now deployed into our capital allocation pillars in just the last 2 quarters. During the third quarter, we repurchased 4.4 million shares for approximately $1 billion. Bringing our shares outstanding to approximately $217 million as of quarter end. And as you can see from the 10-Q cover, our plan has continued to be active and opportunistic early in the fourth quarter amidst continued volatility bringing our share count down into the 215 million range. Our buyback activity in the third quarter and beyond highlights the power of the plan and its ability to be opportunistic during periods of share price volatility especially following the incorporation of mid-scale 8 to 9 and our increased run rate forecast into the valuation framework that governs our repurchases. Thanks to our liquidity and balance sheet position, contracted cash flow visibility and our uncompromising discipline to grow if and only if an investment meets our standards, our buyback consistently stands at the ready to demonstrate our conviction in the long-term value of this company especially through any volatility or dislocations. We have now deployed approximately $1.7 billion on the buyback this year through Q3, leaving approximately $2.2 billion on our current authorization. Meaning, we are on track to seek our fourth share repurchase authorization from the Board in the next year. We continue to make methodical yet opportunistic progress towards our initial target of 200 million shares outstanding and allow our shareholders to continue growing their ownership of Sabine and Corpus over time. For the third quarter, we declared a dividend of $0.555 per common share or $2.22 annualized which is an increase of over 10% from the prior quarter. With this increase, we have grown our quarterly dividend by almost 70% since initiation approximately four years ago at $1.32 annualized. We remain committed to our guidance of growing our dividend by approximately 10% annually through the end of this decade, targeting a payout ratio of approximately 20% over time, enabling the financial flexibility essential to our long-term capital allocation plan and our disciplined approach to self-funded and accretive growth. Moving to the balance sheet. During the third quarter, we repaid approximately $52 million of the outstanding principal of the SPL 2037 notes based on the fixed amortization schedule, representing the first amortization payment on these notes. In July, we repaid $1 billion of senior secured notes due 2026 at SPL with the net proceeds from the issuance of $1 billion of unsecured notes due 2035 at CQP along with cash on hand. We expect to repay the remaining $500 million of principal on the 2026 notes with cash on hand over the next few quarters, reducing our interest expense while further desubordinating our balance sheet and strengthening our investment-grade ratings. This all positions the CQP complex to efficiently finance the first phase of the SPL expansion project and maintain its robust distribution policy through construction. During the third quarter, we funded over $300 million of CapEx on Stage 3, bringing total spend to approximately $5.5 billion unlevered. We also deployed approximately $200 million in the third quarter towards the mid-scale trains 8 and 9 and debottlenecking project. We maintained substantial liquidity with approximately $1.4 billion in consolidated cash and billions of dollars of undrawn revolver and term loan liquidity throughout the Cheniere complex. We are well positioned to fund our disciplined growth objectives while retaining the significant financial flexibility fundamental to our capital allocation framework. Turning now to Slide 13, where I will discuss our 2025 guidance and initial volume forecast for 2026. Today, we are reconfirming our 2025 guidance ranges of $6.6 billion to $7 billion of consolidated adjusted EBITDA and $3.25 to $3.35 per common unit of distributions from CQP. We are raising our full year 2025 DCF guidance range from $4.4 billion to $4.8 billion to $4.8 billion to $5.2 billion. The $400 million increase to our DCF guidance range is primarily attributable to an improved cash tax outlook in 2025 due to the IRS revising rules in September related to the corporate alternative minimum tax. The rule change entitles us to a refund of previously paid KMT. This is in addition to $200 million DCF benefit in 2025 guided to on the August call, from the previous implementation of 100% bonus depreciation going forward starting this year. As always, precisely where we land within the full year guidance ranges will be influenced by the timing of certain cargoes around year-end the ramp-up of Train 3 and the timing of Train 4 of Stage 3 as well as contributions from optimization activities during the balance of the year. With the lessons learned from the substantial completion of Trains 1 through 3 and progress Jack highlighted in navigating production variables, we are confident we can deliver financial results within our reconfirmed EBITDA and upwardly revised DCF ranges. Looking ahead to 2026, we have completed the initial production forecast for both Sabine Pass and Corpus Christi, and we expect to produce approximately 51 million to 53 million tonnes of LNG in total across our two sites next year, up approximately 5 million tonnes year-over-year, inclusive of forecast Stage 3 volumes from Trains 4 through 7 and planned maintenance across both sites next year. While we expect the substantial completion of Trains 5 through 7 to occur across 2026, variability in this forecast is driven by the specific commissioning, ramp up and substantial completion timing as well as some general allowance for production variability year-to-year. Planned maintenance downtime to continue to bolster our resiliency long term across our platform in 2026 is a smaller scale compared to the major turnaround we executed this year, supporting 2026 to be a record production year again for us. And as always, year-end timing can drive some degree of variability in our full year results. Of the 51 million to 53 million tonnes of production, we forecast approximately 50 million to 52 million tonnes of volume after commissioning and in-transit timing year-to-year supporting 2026 EBITDA. After accounting for approximately 47 million tonnes of long-term contracts in place, up from approximately 43 million tonnes in 2025 we expect to have approximately 3 million to 5 million tonnes of spot volume available for CMI to sell into the market or 150 to 250 TBtu. Our team has been opportunistically selling and are hedging these open volumes, and we currently forecast approximately 1.5 million to 3.5 million tonnes or approximately 75 to 175 TBtu of unsold open capacity in 2026. We will continue to work this down opportunistically in coming quarters especially as we have greater clarity on completion and ramp-up timing of the remaining stage 3 trains. Therefore, we currently forecast that $1 change in market margins would impact EBITDA by approximately $0.1 billion to $0.2 billion for the full year, highlighting the cash flow visibility of the contracted platform. Consistent with previous years, we intend to provide 2026 financial guidance on our February call. We are proud of the team's efforts in enabling the achievement of substantial completion of Trains 1 to 3, and advancing Train 4 schedule since our last earnings call. With the expected substantial completion of Trains 5 to 7 in 2026 and several million tonnes of additional contracts starting in 2026 our platform will continue to be comfortably over 90% contracted with investment-grade counterparties, generating long-term take-or-pay style cash flows, which provides us significant insulation from volatility in a rapidly evolving global LNG market. Our achievements thus far in 2025 reinforce our conviction in Cheniere as the premier contracted infrastructure platform with decades of cash flow visibility. We will continue to remain disciplined and focused on enhancing the long-term value proposition we offer to both our shareholders and customers alike for the decades to come. That concludes our prepared remarks. Thank you for your time and your interest in Cheniere. Operator, we are ready to open the line for questions. Operator: [Operator Instructions] We'll take our first question from Jeremy Tonet with JPMorgan. Jeremy Tonet: Just want to start off, I guess, Zach, here with the buybacks, quite the pace this past quarter here and granted it's opportunistic in nature, but just wanted to see any thoughts you might be able to share with regards to the pace of the trajectory going forward, given what you've been able to accomplish so far? Zach Davis: Sure. Thanks, Jeremy. Yes, it was our second $1 billion quarter that we've had since we've initiated buybacks a few years back. And I think there's three dynamics to it. It's first liquidity and as you could see in just the cash balances, we started this year with over $3 billion and the fact that all of our revolvers are open, and we still have the Corpus term loan for CapEx of over $3 billion. We had more than enough liquidity. Then it gets into valuation. And honestly, if you look at these valuations, forget about where it is today even where it was in Q3. We're basically buying back the stock at an EV to EBITDA that's significantly lower than the CapEx to EBITDA of every other FID project that's occurred this year. And then on top of that is just performance. So as you can tell, the buyback is there, alive and ready to support the stock and our conviction of the long-term value of this company and those decades of contracted cash flows. So going forward, expect more of the same. This buyback program of $4 billion was supposed to go through '27. Basically, we're on target to need to go back to the Board and ask for an upsize next year. So expect that, and we'll keep on trucking along, especially if we are valued at levels that we think are clearly below where the -- just the -- without any more growth, we can value the company and earn a really good return for our shareholders. Jeremy Tonet: Got it. That's helpful. And Anatol, pivoting to the LNG market and picking up some of the commentary you put out there with regards to inflection point. I was just wondering if you might be able to comment a bit more on lower prices incentivizing demand, what type of demand within Asia, could you see there? How deep are those pockets? And the pricing range provided on Slide 10 on the right is a pretty wide range. Any thoughts, I guess, on how things could shape up versus the active forward curve versus some of the consultants? Anatol Feygin: Yes. Thanks, Jeremy. Look, we have gone through a multiyear period now with one of the largest disruptions to global gas supply and we've added order of magnitude 30 million tonnes to the LNG market, and now we're going to embark on more than half a decade of adding that much volume on an annual basis. So '26, we do think is a transition year, weather dependent. And obviously, it depends a lot on how some of those early price signals and demand elasticity play out. But the drivers for that gas demand, which we are very constructive on over the medium to longer term, right, we do think that not only does the LNG market get to that 700 million-tonne level by 2040, but also the gas market overall will have a robust growth period but it will be choppy. It will be things like power generation in China. You have over 150 gigawatts installed now. You have no issues with regas capacity that's -- that now has, I believe, 32 facilities up and running and will be 250 million tonnes of import capacity, just what's operating under construction. That generation fleet is grossly underutilized, and that could be a very substantial driver in and of itself. And as we've already said, the aggregate installed capacity is going to grow to 800 gigawatts in that theater. So that is a driver, but you'll also see industrial demand. You'll also see residential commercial demand. But the pace at which it absorbs this incremental supply will at times not match the supply timing. So that's the reason why we expect this volatility. And as Jack says, we'll continue to cheat and continue to contract the 95% plus of our capacity and let our investment-grade counterparties manage vast majority of that volatility. Operator: We'll take our next question from Theresa Chen with Barclays. Theresa Chen: With the EU moving forward to ban imports of Russian natural gas by Jan 1, 2026, do you think we could see upside to your marketing activities next year with 75 to 175 TBtu of unsold volumes as block leans further into U.S. LNG during the winter ahead? Jack Fusco: Yes. Thank you, Theresa. This is Jack. As you know, we have tried to be very constructive and supportive of the EU and their energy needs. We've delivered over 60%. I think it's close to 66% of all of our cargoes over the last three years have went to Europe. I would expect that there's going to be other opportunities for us in Europe just based on our relationship with our counterparties there, 24 million tonnes of our contracts are with EU counterparties. And our relationship there is very, very strong. But Anatol, do you have anything to add? Anatol Feygin: Yes. Thanks. Well, Theresa, just not to be too precise, but six months for the short-term contracts, so that's April of next year, long term as of January of '27, which is one of the reasons why we think this winter, again, is a bit of a transition period. As Jack said, we stand at the ready to support our customers, obviously, have destination flexible volumes. As you point out, Russian LNG has supplied about 11 million tonnes year-to-date into the EU. So that volume will be most likely impeded. We don't think it disappears. We think it is a little bit less sort of utilization of the Arctic facilities, but ultimately, unfortunately, they will likely find a market, as you all know. So it is a little bit of the question mark over this coming winter. But again, it's order of magnitude 10 million, 11 million tonnes against the backdrop of 30 million and 40 million-tonne growth years. Theresa Chen: Got it. And with the previous comments from Anatol about medium- to long-term demand elasticity in mind and tying it into your views on project commercialization given the onslaught of competing liquefaction project FIDs we've seen so far this year. How is Cheniere thinking about your own incremental capacity expansion from here beyond what has already been sanctioned? Jack Fusco: Yes, Theresa, thank you. And we're going to stick with our Cheniere standards. So we're going to make sure that if we're going to invest additional capital into growth that it meets all of our financial hurdles. Those hurdles are very robust. I'll let Zach go through at least the 5 or 10 of them that he wants to, but we make sure that we are fully contracted that it meets our hurdle rates and that we're providing our energy to investment-grade counterparties over the long term. But Zach, do you have anything to add? Zach Davis: Sure. I'll just say we're going to stay to our lane and stick to brownfield LNG development and construction and operations and remain as disciplined as possible in a pretty undisciplined environment right now. So the plan, as we've said many times, is we're going to permit the heck out of the site. We're permitting 20-plus million tonnes at both Sabine and Corpus as we speak. That doesn't mean that's the intention of what will FID in the near term. What we have line of sight to FID in the near term is, first, Sabine, a first phase expansion that would be a train and some incremental debottlenecking equipment. And that project alone would need an incremental birth, tank or pipeline, and that should be as economic as possible. And with that said, we have a good amount of contracts already on the books signed with CMI that could be assigned to either project that basically cover us off for contracting for a first phase project at Sabine. And then instead for the fourth large-scale train at Corpus that's slightly behind in terms of the permitting schedule as we just FID-ed mid-scale 8 and 9. So we'll stick to the standard basically unlevered 10% returns. And not at these $5 margins that we see on the curve today and into next year but comfortably under $3. We're going to stick to the 6x to 7x CapEx to EBITDA at the same type of margin level. We're going to be 90% contracted to really lock that in and then be in a position where we can fund it 50-50 and be credit accretive. That's how we've done every project to date and have no intention of slowing that down. Operator: We'll move to our next question from John Mackay with Goldman Sachs. John Mackay: I wanted to start on some of the comments on the feed gas this quarter. Jack, I appreciate your walk-through on everything the team has done to kind of fix that. I guess if you can just talk us through what that looks like going forward. Are there investments you guys can make at the plans or investments upstream? Is it something more just process and it takes some time? Maybe just walk us through that one more time, if you don't mind. Jack Fusco: Yes, John. Thank you. So first off, there's a lot of variability, right? Our biggest variability has always been weather. So we first had fog and a lot of fog at Sabine Pass. We built the third birth and we managed fog. Then it was hot and humid. And we've upgraded fans, and we've added windshield. So the team constantly surprises me and is able to make small capital investments to get through some of these variabilities. This -- lately, it's been the variability in the feed gas composition mostly from the Permian. So as some of the larger pipes have come across and have tied in Permian gas into Louisiana for lack of a better word, we've seen an increase in nitrogen and yes, there are things we can do to help minimize the nitrogen. But nitrogen is an inert gas, and it takes up space. And there's different ways to combat that. So at Sabine, we've seen the increase in nitrogen. We've changed processes to run it in what we call wet mode, which chills it and pushes it through our system a little more forgiving is what I'll say. And then secondly, minute quantities of substances in the gas stream when you're focusing billions and billions of cubic feet to one specific area. So 5 billion cubic feet a day to Sabine Pass or 3 billion cubic feet over to Corpus Christi minute quantities end up being very, very big. So we've seen some heavies. Those are C12 that -- or C12 pluses that are starting to freeze in our system before the liquefaction of the LNG. And that's where we've started to use different solvents to clean the heat exchangers, we've been defrosting a little bit more. But the team continues to figure out ways around it. And we have a long-term plan that we're going to implement next year to help us be much more resilient to small shifts in composition within the gas stream. Zach Davis: And I'll just add that as we gave preliminary and it's definitely preliminary production guidance for next year, we baked a lot of that in, in terms of -- there's some planned maintenance incrementally, in particular, at Corpus in the next year at least, that once we get through some of that, we could be in a position to potentially do better than, let's say, 1.5 million tonnes per train. But that's not something we're baking in, in October a year ahead before we've done much of that work. So some of those things are baked into the -- this initial forecast and clearly, we'll give financial guidance to the Street on the February call and have a better picture of where production is coming out. John Mackay: That's clear. I appreciate that color. Just a quick one for me, Zach, following up on your comments a couple of minutes ago. Can you just remind us, at this point, kind of gating items for Sabine Train 7 specifically? And I understand there's a few more moving pieces, but like loosely speaking, what's your bogey for potential FID timing? Zach Davis: Sure. So we're deep in that FERC process and don't expect to receive that permit until later next year. And then and only then would we even be in a position to break ground and start officially reach FID. With that said, we could definitely start LNTPs to an extent with Bechtel next year to start locking in certain costs, if it all meets the hurdles again. So we're still working that through with Bechtel and development and ensuring that we can get to that, let's say, 7x CapEx to EBITDA or better level. And as we get closer to that, we're going to lock in some long lead items, spend some money down there, and you'll see still a tempered CQP distribution out as we retain some of that variable distribution to make sure the balance sheet is good to go for that project as well as to fund some of this CapEx before we even FID. Operator: We'll take our next question from Spiro Dounis with Citi. Spiro Dounis: I wanted to start, Jack, maybe with some of your opening comments just around the trade outlook and some of the uncertainty there. I would love just to get your updated thoughts around trade relations, maybe how that's impacted your SPA and commercialization efforts. We know the President in Asia this week. So just curious if you're optimistic that maybe we could see some more announcements come through on the LNG side. Jack Fusco: Spiro, thank you. And I am, I mean, it is nice to have a presence that's so enthusiastic about our product and what our product can do for the world. So at times, we need to manage that a little bit, but it's good to have somebody that's out there out in the forefront. I do expect to see more opportunities for us in Asia. Asia, as you know, is where we see a majority of the growth happening this next decade or two. And I see some opportunities there, which is why I have a trip to Asia. So -- but thank you, Spiro. Spiro Dounis: Yes. I appreciate the color there, Jack. Second one, maybe for you, Zach, on 2026 volumes. So first blush, they did look a little conservative to us, but it sounds like you're baking in some of that feed gas issue. So that could be it but also just wanted to get your sense for what you've assumed around the cadence for Trains 5 through 7, reaching substantial completion next year. Just especially you seem to have cut that time in half between first LNG and substantial completion. And there, I say, is there even a chance that we could see Train 8 sneak into 2026? Zach Davis: Do not put Train 8 into 2026 -- that out there. We're only, I think, 20-something percent complete with none of the construction as of this call. So the team is pretty incredible, but I'd rather than do it safely and get it right. So we are optimistic on Trains 5 through 7 to come online next year. And again, as we talk about the guidance range, we assumed a Train 5 in the spring, a Train 6 in the summer and a Train 7 in the fall we'll be more precise as we get closer to those dates, as we're right now very focused on the fact that Train 4 is getting closer to first LNG, and we'll see if that's end of year this year, substantial completion or early next. So again, we're optimistic if there's any acceleration on those trains that could help the production forecast as well. In addition to that, as you'll start to see even from Train 1 to Train 2 to Train 3 the time between first LNG and substantial completion keeps on shortening. That would also produce more P&L volumes supporting EBITDA next year as we continue to take advantage of the lessons learned, train to train to train. So more to come with that in February, but we'll leave it on the seasonal pattern for now for the next 4 trains to come online. Operator: We'll take our next question from Brandon Bingham with Scotiabank. Brandon Bingham: Would just love to hear your thoughts as it's become more commonplace over the past couple of years to have market participants enter the LNG space from non-LNG arenas. Could you just discuss some of the impacts or even just the dynamics in contracting from having these non-LNG operators enter the market? Anatol Feygin: Well, I'll take a stab at it, I guess, this is Anatol. So this market a decade ago when we started, if you wanted to buy a U.S. Gulf cargo, you could only call one counterparty, and that was Cheniere. Now as this market surpasses 100 million tonnes on its way to 250 million tonnes you have a very, very different landscape, of course, and we've spoken about the kind of lack of discipline from our perspective, it seems like projects are getting over the FID finish line with a very broad array of counterparties and at times actually no counterparties at all. So it will be a very interesting and challenging dynamic as we go through the period of late this decade and first half of next. And again, that's why we are going to be sticking to that 95% plus contracted portfolio into the hands of credible experienced counterparties as well as our own. So expect things to be very challenging for a number of participants. And as we sometimes call them LNG tourists being among them. Brandon Bingham: That's very helpful. And then maybe just a quick follow-up to one of Spiro's questions here on the 2026 outlook. Maybe asking it in a different way. Is that range that you gave on total volumes? Does that include like is the high end potentially baking in an acceleration of Trains 5 through 7 or would an acceleration of Trains 5 through 7 similar to like a Train 4 time line sort of a setup, push you above the range? Zach Davis: Time will tell, but put it this way. Just on Trains 4 through 7 coming online, if they were each one month early or one month late, that's like 0.5 million tonnes alone. So that alone is a 1 million-tonne swing. And then if you just think about year-to-year operational reliability, variability, ambient temperatures, that's easy, 1 million tonnes at this point because just to remind folks, we're now in over 50 million-tonne operating company. So yes, there's a little bit in there. But if there's even more acceleration than that, or it's a bit colder or the operational liability is higher year-over-year, we could be at the high end or something else. So we'll see. But that's not really our style. We'll stick to 51 to 53 for now. Operator: We'll take our next question from Jean Ann Salisbury, with Bank of America. Jean Ann Salisbury: Well, the debottlenecking for CCL3 occur kind of gradually from now until 2028 or would you expect most of it to occur concurrently when Trains 8 and 9 start up? Jack Fusco: Jean, this is Jack. The debottlenecking started the day we took commercial operations of Train 1 and has been ongoing. And the team has done a great job with maximizing the production of those first 3 soon to be 4 trains very, very quickly, and I would expect us to continue to refine that as we go. Zach Davis: I would say that to get to the high, high end, we acknowledge that even Trains 8 and 9 at mid-scale would have some debottlenecking equipments. So that will come over time. But based on how things are working and some of the work that we continue to do, as Jack mentioned, yes, we're hopeful we can start doing better than 1.5 in the near future. Jean Ann Salisbury: Great. And then as has been referenced a lot on this call, there's been so much contracting year-to-date, so many projects going forward. So I guess my question for Anatol is in terms of global project FIDs, do you think we're near the end of this wave or in the middle? Anatol Feygin: Yes, a lot of FID, not as much contracting, I would say. But yes, so the world overall has had a very robust year. You remember the discussions of 4, 5 years ago is long-term contracting going away, and our view was always that it's not, but it is cyclical. So this year, I believe, over 80% of the contracts executed have been 20 years or longer, and there's still some more to be done globally but with the world at 70 million tonnes U.S. is about 61 million tonnes year-to-date, I think this period is in its denouement, shall we say. Operator: We'll Take our last question from Manav Gupta with UBS. Manav Gupta: We actually went through your revised Sabine Pass filings in June. And just like if you look at the earlier February filing of 2024, you seem to have found a number of extra MTPAs in a very short period of time. And I'm just trying to understand how are your engineering teams able to accomplish this so quickly? And if you could help us understand how this additional capacity was realized or could be realized as you bring this project on? Zach Davis: Sure. I think credit to our engineers and our operating folks that are always finding ways to debottleneck the facilities and get more out of them. I believe what you're speaking to is the FERC filing for the Sabine expansion. And clearly, as I mentioned before, as we intend to permit as much as possible at the 2 sites we're going to explore with Bechtel every which way to get the most out of Sabine Pass to ideally get that cost per tonne as low as possible by obviously working on the cost side, but specifically on the MTPA side as well. So I think there's just more ingenuity and pushing for the art of the possible right now for the permitting process, and then we'll see what we actually FID as none of that matters if it doesn't meet the standard. Operator: This concludes our question-and-answer session. I'd like to turn the conference back over for closing remarks. Jack Fusco: This is Jack. I just want to say thank you for all of your support and for your questions and always keeping us on our toes. Operator: This concludes today's call. Thank you for your participation. You may now disconnect, and have a great day.
Operator: Good morning, and welcome to the AXIS Capital Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Cliff Gallant, Head of Investor Relations and Corporate Development. Please go ahead, sir. Clifford Gallant: Thank you. Good morning, and welcome to our third quarter 2025 conference call. Our earnings press release and financial supplement were issued last night. If you would like copies, please visit the Investor Information section of our website at axiscapital.com. We set aside an hour for today's call, which is also available as an audio webcast on our website. Joining me on today's call are Vince Tizzio, our President and CEO; and Pete Vogt, our CFO. In addition, I would like to remind everyone that the statements made during this call, including the question-and-answer session, which are not historical facts, may be forward-looking statements. Forward-looking statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from those projected in the forward-looking statements due to a variety of factors, including the risk factors set forth in the company's most recent report on the Form 10-K or our quarterly report on Form 10-Q and other reports the company files with the SEC. This includes the additional risks identified in the cautionary note regarding the forward-looking statements in our earnings press release issued last night. We undertake no obligation to publicly update or revise any forward-looking statements. In addition, our non-GAAP financial measures may be discussed during this conference call. Reconciliations are included in our earnings press release and financial supplement. And with that, I'll turn the call over to Vince. Vincent Tizzio: Thank you, Cliff. Good morning, and thank you for joining our call. In the third quarter, our team once again delivered excellent results as the momentum in our performance further accelerated. The transformation we have undertaken has now demonstrated sustained profitable growth, underpinned by an enhanced operating platform with new capabilities, products and a highly focused team. In the quarter, we delivered a 14% year-over-year increase in diluted book value per common share at $73.82, 18% annualized operating return on equity, 20% increase in operating earnings per share over the prior year quarter at $3.25. Premiums of $2.1 billion, our highest third quarter ever, up nearly 10% over the prior year, including $670 million in new business. And finally, a combined ratio of 89.4%. We are achieving these results in a changing risk landscape with many different micro markets at play. Our strategy positions us well to compete in this environment. Premium adequacy across our aggregated portfolio is solid. We are actively cycle managing and leaning in where it is prudent. The investments we're making in people, products and platforms are creating value. Indeed, the further acceleration of our premium growth in insurance is bolstered by our new and expanded lines of business. Additionally, we continue to draw upon third-party capital partnerships while bringing innovative product capabilities to meet the diverse needs of our distribution partners. By example, we launched AXIS Capacity Solutions, which during the quarter, transacted its first deal, a partnership with Ryan Specialty. Through our How We Work program, we are continuing to strengthen all aspects of our operations and how we go to market. In the quarter, we made continued strides in modernizing our underwriting platform while leveraging emerging technologies and AI to drive efficiency, improve decision-making and support scalable growth. I'll share several examples. We've implemented a highly modern application platform across all business units and functions with very little legacy technology that is improving speed to market, heightening accuracy and reducing manual effort and cost. We are presently applying AI solutions in all forms, custom and package within applications on user desktops and in all cases, driving productivity increases. We've deployed the first release of our next-generation underwriting platform in North America, advancing how we ingest, route and review submissions while enhancing our overall efficiency. These advancements reflect the pledge that we made at our Investor Day to invest $100 million into our operational infrastructure. Capitalizing on our excess capital position, we have been accelerating and expanding these efforts, particularly in supporting our new business lines. We see these investments as a key to advancing our profitable growth ambition. We are also deepening our relationship with our distribution partners. In a broker survey conducted this year, our customers recognize AXIS with top quartile Net Promoter Scores while distinguishing our company for its specialty leadership and ranking us ahead of the market for our underwriting knowledge and solutions-oriented approach. None of these results can be achieved without a highly engaged and disciplined team. The AXIS culture we've developed and deep commitment of our people is exciting and enabling our progress. During the quarter, we have added talent to our underwriting teams throughout the globe. And on the corporate side, we notably announced Matt Kirk as our future CFO, succeeding Pete. Let's now dig deeper into our segment results. We'll start with insurance. Our insurance segment again delivered an outstanding quarter, highlighted by record third quarter premium production of $1.7 billion or 11% over the prior period, new premium written of $570 million, a current accident year ex-cat combined ratio of 83.3% and record underwriting income of $153 million, up 55% over the prior year. In North America, we produced stellar results with premiums up 12% and submission volume up 18% in the quarter as we continue to capitalize on the investments we've made in expanding our product offerings and in enhancing our underwriting platforms, yielding greater efficiency gains. Our lower middle market strategy is generating sustained acceleration and strength in value. In our Global Markets division, results were strong, and premiums were up 9%. In the quarter, our growth came from lead product positions in the London market, notably marine, energy and construction. Importantly, these classes remain premium adequate and have a robust pipeline. With respect to broader market conditions within insurance, we continue to observe an evolving risk environment. But overall, the competitive landscape is disciplined. Let's unpack this further for AXIS. In liability, rates were up 10% in the quarter with 8% growth. We generated a 12% rate increase and a 11% growth within our U.S. excess casualty business. Within this business, we continue to lean into the highly premium adequate wholesale lower middle market segment. Our casualty portfolio is well managed and within wholesale distribution, our excess casualty unit is recognized for its thought leadership and disciplined underwriting. As respect to property, we grew our property book 8% with rate changes varying widely across our many classes. Illustrating this, we see greater competition in large account E&S business but are still observing rate increases in small account business in our international book. We serve customers through 8 property underwriting units across the world, which are all seeing different degrees of competition, and we benefit from the diversity of our customer segmentation in these units. An increasing contributor is our lower middle market property unit, which evidenced continued growth in the quarter. Our property underwriting strategy remains disciplined and enjoys premium adequacy and average net limit in the low single digits, a well-balanced peril and geographic mix and is backed by a [ cat XOL ] protection that attaches at $100 million per event. In Professional, we grew 18%. The majority of our growth came from transactional liability and E&O. We are encouraged by the increasing contributions that we are continuing to see from our new and enhanced product offerings, including Design Professional, Allied Health and Environmental. As respect to management liability, we continue to drive reasonable growth within our private D&O business. As respect to public D&O, consistent with the last quarter comments, we continue to observe that pricing is flattening out. Within cyber, we observed industry ransomware attacks as increasing, but thus far not being reflected in our claim counts. That said, we are seeing the increased competition of MGAs and surplus capacity have placed unwarranted downward pressure in pricing dynamics. We have maintained our underwriting discipline, which is reflected in our selective approach in the quarter. In addition, we have now completed the reshaping of our delegated cyber book. We are strengthening our capabilities in our cyber risk advisory services, which help policyholders increase their organizational preparedness and resilience. We are focused on strengthening our SME presence globally and notably in the United States through our partnership with Elpha Secure. As respect to our reinsurance business, we continue to generate strong bottom line performance with our seventh straight quarter of consistent profitability. Our reinsurance underwriting strategy remains highly disciplined and focused on select specialty lines. In the quarter, we produced 6% premium growth. Specialty short-tail lines contributed 91% of our new business premiums, a combined ratio of 92% and underwriting income of $35 million. Reflective of our disciplined approach, we are increasingly vigilant in navigating liability and professional lines. Consistent with past comments, we generally do not view ceding commissions nor the rate environment for these lines, particularly in North America to be in keeping with our return expectations. Taken together, this was another strong quarter for AXIS. Across the micro markets of specialty insurance and reinsurance, we see an increasing need for tailored risk solutions. Thus, we see AXIS is very well positioned to support our customers and importantly, our distribution partners, while at the same time, rewarding our shareholders with sustained and attractive returns. We are building on our momentum. We are leveraging our capital position, the talent of our team and the support of our distribution partners to lean into our new and expanded lines as well as identifying new avenues to drive profitable growth. We are investing in our infrastructure and operations, embracing technology and AI. We're excited for our future, and we believe the best is yet ahead for AXIS. And with that now, I'll pass the floor to Pete for his comments. Peter Vogt: Thank you, Vince, and good morning, everyone. AXIS had another excellent quarter. Our net income available to common shareholders was $294 million or $3.74 per diluted common share. And our operating income was $255 million or $3.25 per diluted common share, producing a 17.8% annualized operating return on common equity. This drove our book value per diluted common share to $73.82 at September 30, an increase of 14.2% over the past 12 months and up 16.9% when adjusted for dividends declared. I'll start with consolidated company underwriting highlights. Our gross premiums written of $2.1 billion were up 9.7% over the prior year quarter, driven by accelerating growth initiatives in insurance. On a net basis, premiums were up 9.5%. Our combined ratio was an excellent 89.4%, and our accident year loss ratio ex-cat and weather was 56.3%. Cat losses were just $44 million, producing a cat loss ratio of 3%. Cat losses were driven by a combination of a $24 million impact primarily from severe convective storms in the United States and $20 million of losses related to the Middle East conflicts, which hit our marine and terrorism lines. We adhere to our philosophy of wanting to see sustained positive signals before releasing reserves. And we recorded a release of $19 million with $15 million in insurance and $4 million in reinsurance in the quarter. We continue to believe we are strongly reserved, and we rely upon a great deal of data and analysis to reach our conclusion. For example, from a high level, statistics like IBNR to total reserves are holding steady, continuing to give us confidence. Our consolidated G&A ratio, including corporate, was 11.7%, down from 12.1% a year ago. We continue to execute on our How We Work program, including investing in our business with new technology and adding underwriting teams. The investments we're making give us increased confidence that we will manage costs, grow the premium base and hit our full year 2026 target of an 11% G&A ratio. Now let's move on and discuss our segment results in more detail. Insurance had a strong quarter. Gross premiums written were $1.7 billion, a record third quarter for insurance and an increase of 11% compared to the prior year quarter. The strongest driver has been the continued momentum of our new and expanded initiatives. These initiatives contributed nearly 70% of the growth in the quarter. The growth was broad-based across the portfolio as all classes of business grew, except for cyber. In property, where we grew 8%, North America E&S grew 12.5% as our lower middle market initiative continues to grow, and we continue to attract new business at rates above our long-term target returns, even in the midst of the changing market landscape. Pro lines, as Vince mentioned, we had 18% growth, and I would reiterate that the growth was driven by a number of new and expanded products. Growth in A&H continues to be driven by our pet product and in credit and political risk, the new surety initiative continues to grow. In cyber, as Vince noted, market dynamics remain a challenge. Therefore, excluding the remediation work, which we completed this quarter, the rest of the portfolio was essentially flat year-over-year. Net written premiums were up 11%, and as we've signaled, we're keeping a little bit more of our well-priced portfolio. In insurance, we are gaining momentum from our recent growth initiatives. As we sit here today, we believe that going into next year, we will be able to construct a portfolio that remains premium adequate and that can grow at a mid- to high single-digit growth rate, excluding any impact from new sidecars such as RAC Re. But a lot of that depends on what happens in the shifting landscape and as always, our priority is underwriting profitability. With respect to RAC Re, we are excited about the new vehicle, which builds upon our strong relationship with Ryan Specialty. We expect to retain about 1/3 of the gross premiums written generated by the facility, which we expect to produce strong combined ratio business. In addition, we will earn fees on ceded earned premiums. The total volume will be a function of the growth rates of the underlying underwriting entities. And I would stress that this transaction is done on an underwriting year basis, which means a slow buildup of revenues in 2026. The insurance combined ratio was an outstanding 85.9%. The quarter included 3.9 points of cat and weather-related losses and 1.3 points of reserve releases from short-tail lines. Now let's move on to the reinsurance segment, where the business has continued to deliver stable, consistent and strong profitability. We grew 6% as we found opportunities to grow in credit surety lines as well as the agriculture business. In liability, we continue to be cautious, but this quarter benefited from a higher level of positive premium adjustments versus the prior year. The reinsurance combined ratio was 92.2% with an ex-cat accident year loss ratio of 67.9%. Cats were just 0.3 point with just over 1 point of benefit from the reserve releases. As we have done all year, we are taking a cautious stance to booking our reinsurance loss ratio while continuing to deliver consistent profitability. We had a very good quarter for investment income at $185 million. Our outlook for investment income remains favorable as we continue to generate excellent operating cash flow, which was $674 million in the quarter, and is driving growth in our asset base with a market yield of 4.8% is above our 4.6% book yield as of September 30. Our effective tax rate of 18.9% in the quarter reflects the geographic mix of our profits as we continue to generate outstanding results in our U.S. operations. We remain in a very strong capital position. We have returned substantial capital to our shareholders this year as we have completed $600 million of share repurchases and declared $105 million in common dividends. And we recently passed a new repurchase authorization for $400 million. I would reiterate that our priority use for capital is to fund profitable growth and to invest in the business. Our excellent financial results continue to demonstrate the hard work and commitment of our team to make us the leading specialty insurer in the world. We're tremendously excited for the future. And with that, operator, we'd be happy to take questions. Operator: [Operator Instructions] And our first question today will come from Andrew Kligerman with TD Cowen. Andrew Kligerman: I guess the first question would be around the really nice growth in property. And Vince and Pete, you gave really good color on how it broke down, notably North American E&S up 12.5% and then overall, up 8%. But I was kind of interested, Pete, you mentioned it's hitting your long-term targeted returns. So if I look at the loss ratio, and I don't know how you would kind of put in a cat load, but we all know pricing is coming down. So how does the combined ratio or loss ratio, whichever way you want to look at it, line up with where you're coming in presently? Because I'm kind of curious as to how that's going to trend as you grow the business. And it sounds like it's a great opportunity and lower middle market, I'm hearing really good things. Vincent Tizzio: Yes. Andrew, this is Vince. I'll start, and then Pete will come over the top. Please allow me as well to express on behalf of AXIS to all those in the path of Hurricane Melissa, our best wishes and speedy recovery as we are watching that, obviously, with good care. But direct to your question, we had 8-odd percent growth in our property line in the quarter. As you indicate, Pete and I detailed, it's important to play some context around this growth. First, we're letting that this growth in our judgment comes from an extremely solid starting point of premium adequacy. Second, a well-constructed portfolio with respect to limit/peril mix. Importantly, in our insurance business, 40-odd percent of our property business is noncritical cat, and our lower middle market growth was exceptional in the quarter. All of these have a different gearing effect against what you point to on the rate change, which in and of itself really doesn't address the start point of our premium adequacy. As you know, we've been working very hard over the past several years at reducing the cat profile of our company generally and within insurance, I think that we've shown that ability. And so taken together, that is exactly how we're able to produce the kind of results that we are. I'll finally note that, recall please that we go to market in property through 8 different entities around the world, and we're attracting different customer segmentations, industry groupings and obviously, geographic dispersion. And so we feel great confidence in the integrated approach that we're taking with our actuarial team, our claims team and certainly our underwriting leadership principally led with Mike and Sara in our insurance business where this growth is occurring. Pete, I don't know if you want to add to that. Peter Vogt: Yes. Very much appreciate the color on property. And I think that gets to your question there, Andrew. I think also inherent in your question is as you're looking at the insurance loss ratio of 52.3% and how is that kind of staying nice and consistent given what is some pricing pressure out there. I think what I would note is Vince has said this many times, we necessarily can't control the market, but we can control mix. Underlying that, I would say we've seen our underwriting loss ratios by our lines of business and business classes actually. We've actually shown the effect of rate and trend there where we've seen some increase in the underlying loss ratios, but that has actually been offset by mix. And if I look year-to-date, especially year-over-year, we've got a higher proportion of the short-tail lines of business, which tend to have a smaller -- a lower loss ratio. So underlying, we are reflecting rate and trend in what we're seeing in the markets in our underlying classes of business and the loss ratio. But the mix of business has changed such that, that's kind of offsetting the pressure we've seen. And that has allowed the loss ratio in the ex-cat loss ratio in insurance to stay very consistent. Andrew Kligerman: Great. And then maybe shifting over to third-party capital -- AXIS Capacity Solutions. That first deal with Ryan seem very exciting, very promising. Could you talk a little bit about the potential for more deals like that? Are you looking at a lot of them? Is there a pipeline out there that you're seeing? Vincent Tizzio: Yes. Andrew, I'll start. This is Vince again. Thank you for your question. AXIS Capacity Solutions we formed earlier this year, really in recognition of an emerging trend that we've observed in wholesale distribution relating to cross-class, cross-geographic opportunities. And in the case of Ryan Specialty and specifically RAC Re, this was an illustrated example where AXIS participated on about 1/3 of the MGUs within the Ryan Specialty organization. We had the opportunity to curate and participate on the select remaining MGUs that come to market from that very strong partner of ours. We agreed to do so with some careful deliberation around the portfolio makeup, the underwriting terms and conditions. At the same time, we assisted in the facilitation of a sidecar with the strength and belief on the prior comments we've made in any instance relating to delegated to work as hard as we can to align economic interest. We believe that the sidecar was a perfect example wherein AXIS receives a fee from the sidecar and the profitability trigger for Ryan Specialty is only satisfied after the profitability of the underlying business is met. And so we thought this was an appropriate transaction for us to lean into an existing channel of distribution that we have, a recognition of the underlying portfolio, an alignment of economic interest and ability to have our hand in the claims control of the underlying business and to ensure that we have transparency in the information. As it relates to the second part of your question, this transaction has no doubt spawned increasing interest from a variety of partners around the world. And yes, there is a pipeline. And critically important to Pete and myself is that we maintain the underwriting adherence from the lessons we learned in our own reserve charge relating to the delegated book that we had back in December of '23. We are leaning into the principles that we've previously outlined for when we engage in delegated underwriting authority and most importantly, we have satisfied ourselves on the alignment of interest, which is critically important to us. Operator: The next question will come from Elyse Greenspan with Wells Fargo. Elyse Greenspan: My first question, I wanted to go back -- go to, I guess, the insurance growth comments. Pete, I think you said mid- to high single-digit growth, like excluding sidecars like RAC Re. I believe RAC Re could add like $150 million on a net basis. So does that mean if we kind of lump that in there that next year could get to double digits? I'm just trying to bring all the guidance together for the insurance segment. Peter Vogt: Yes, Elyse, thanks for the question. And I specifically bifurcated the 2 because of exactly that. So I do think with the agreement we've got with Ryan Specialty, whatever comes in for RAC Re could actually put us into double digits for next year. Obviously, that's going to be dependent upon the underwriting platforms underneath and what they see in the markets, as I mentioned. But with RAC Re, with given what we've already got going on in our own core book with the expanded and new initiatives, we could be into double digits next year. Elyse Greenspan: And then my second question is on the G&A ratio, right? So the fees right on the RAC Re are contra right to G&A. And I believe, right, that wasn't contemplated when you guys told us sub 11 next year. So could you help us, I guess, kind of think through like the tailwind relative to the G&A guidance? I know it takes time for that to earn in, but I still think that there would be some tailwind expected in '26, right? Peter Vogt: That's -- I think the real important thing that you've got there, Elyse, is the comment where it's going to take some time to earn in. The deal with RAC Re is actually done through our Lloyd's Syndicate. So the announcement was basically on an underwriting year basis. So when we think about that from, I'll call it, SEC GAAP gross written premium, we would expect to see the written premium actually come in over a 3-year period. So that will be coming in '26 to '28. Given its underlying coverholders, you got to think about the underlying as a risk attaching basis. So the earned premium is actually going to be pretty much over a 4-year period, you're thinking '26 to '29. And so it will ramp up slowly. So as we think about calendar year '26, the impact from the fees are going to be pretty de minimis in that very first year because the ceded earned will take that same time to ramp up. Elyse Greenspan: And then one last one, capital. Is the Q3 buyback a good run rate level? And any current color you can give us on your excess capital position today? Peter Vogt: Yes. I'll ask Vince to chime in on that. But we did buy back $110 million in the third quarter. Again, our philosophy is we are going to look at growing the business first. We do want to see organic growth, and we're going to invest in our platform. As Vince talked about, we've been doing a lot on the technology side with regard to improving ourselves as we go to market with our distribution partners and clients. Having said that, I would not look at $110 million in a quarter as any kind of run rate. As we said, we're going to be opportunistic on our buybacks. We're not going to be held to any specific number quarter-to-quarter. We have a new $400 million authorization, and we'll look to use that as we go forward based upon how we look at the business, where we see the growth coming from as well as where we think we're trading on any given quarter. And with that, I'll ask Vince to chime in on that. Vincent Tizzio: Sure. The only thing I would come on over the top with Pete is, Elyse, you know that we'll continuously evaluate our capital position assuring ourselves that it's aligning shareholder interest with balancing the prudent risk management approach that we've taken. You know the chief source of using our capital will be inside the operating model. We expressly indicated an acceleration of expenditure in our technology and data analytic infrastructure. The continued hiring of persons in the quarter, discrete. We hired over 140-odd persons into the organization. And so we continue to invest. We're very pleased with the assimilation of our new colleagues that are supporting the growth that you're evidencing from us. So we'll maintain our course. We're not going to sort of guide on the order of magnitude of buybacks. We will use them opportunistically, as Pete has said. We've shown that through this calendar year over $600 million or approximately $600 million just in this operating year. So I'll leave it there. Operator: The next question will come from Josh Shanker with Bank of America. Joshua Shanker: I want to talk a little bit about paid to incurred ratios. Obviously, they remain persistently high. You have a lot of growth ambitions in what some people are calling a soft market. Generally, you're already growing faster than the industry, which usually depresses paid to incurred. Can we talk about where paid to incurred is right now, but also with an eye on what to expect? If you are growing as fast as you seem that you might be able to, that should be depressing paid to incurred ratio? And is that what we should expect going forward? Vincent Tizzio: Josh, this is Vince. I'll start out. Thank you for your question. We commented last quarter, the first instance that you saw a paid to incurred in an elevated state that we look at this [ indice ] really over a continuum of time. And I thought it really appropriate this quarter to unpack sort of our point of view and our learnings of what this ratio really means. We think, frankly, it is only one of many points that you look toward in terms of confidence in the health of the portfolio, the health of our reserves. And we think there's a few underlying factors that you'll continue to see evidence in the AXIS journey. Josh, when we indicate going on a transformation, we talk about the mix shifts in our underlying portfolio, long tail versus short tail. You're seeing AXIS with more than 50% in short tail. You see large losses from time to time arise inside a specialty organization, though decreasing in the last few years here at AXIS from time to time will evidence some of them. Third, you see timing differences between when we're paying some of these large losses and when they were originally a case reserved. And finally and perhaps most critically, from my learned point of view, whenever you undertake transformation and you make changes in your claims organization, including not only numbers of persons, the skills of those persons, the creation of newer capabilities in the form of complex claims organizations, shared service organizations, you invariably will get some form of acceleration. And so taken together, I would tell you expressly on behalf of AXIS that we're very comfortable with what we're observing. We would not be surprised to see if there are additional quarters reported where paid to incurred seems elevated. And overlaid with some of the statistics that Pete shared with you that we look at equally and importantly, with a critical eye, we feel very comfortable. Nonetheless, we appreciate the interest in the question. And you also referred to this notion of growth. Again, we're happy to unpack where the growth is coming from, what the line of business distinction is in terms of short tail versus long tail, what size customer it is and what kind of profit profile we believe it holds out. With that, I'll ask Pete if you'd like to come over the top with any additional comments. Peter Vogt: Yes. I think I would, josh, a couple of things just to point out. One, I appreciate the question. Getting to the heart of some of the question, we do want to say we're very comfortable in the strength of our insurance reserves. And we do review a multitude of metrics each and every quarter to give us confidence in those reserves. So it's not only paid to incurred, but we were looking at, as I mentioned, IBNR to total reserves, paid to ultimate factors, incurred to ultimate factors. And we look at these all by line of business as well as by duration. And then looking specific to this quarter, when we look at the paid to incurred ratio, a couple of things we're seeing is, one, we are having significant improvement in our claims organization in North America because as we've talked about through How We Work, it's all across the company. And in our claims organization and insurance in North America, we've actually seen an improvement where our closing ratios, that's paid to new claims has actually improved from 98% last year to 118% this year. So we're getting after more of the claims. We've seen some of the courts open up. We closed some claims, most importantly, those paid claims we paid in the quarter and some were material, especially in the FI book, and these are all pre-2019 claims. They were fully reserved for. So there's been no surprises on the reserve front that we've seen. So overall, we feel really good about where our claims organization is improving and evolving to, and we feel very good about the level of the reserves on our balance sheet. Operator: The next question will come from Matt Carletti with Citizens. Matthew Carletti: I just had a small cleanup question on the reserves. Pete, you talked about the -- it wasn't a huge number, but I think the $19 million of favorable in the quarter, $15 million in insurance, $4 in reinsurance. Can you just talk a little bit about where that came from? This was a more short tail, long tail? And were there any bigger moving pieces behind the scenes? Or was it just pretty kind of nothing to see here and just a [ broad small ] favorable? Peter Vogt: Yes. Thanks for the question. All coming from the short-tail lines. When we look at insurance, it actually came from property, credit and surety as well as A&H. On the reinsurance side, came from agriculture. 2024 continues to perform really well. So all from the short-tail lines. And in the background, always a little bit of movement when you look across the accident years looking back, but nothing material or notable. And so still feel very good about the reserves in totality as well as across the accident years. Operator: The next question will come from Charlie Lederer with BMO Capital Markets. Charles Lederer: Pete, you mentioned the favorable impact of mix on the underlying loss ratio in insurance. I guess just based on the accelerating breadth of growth in that segment that we saw in the quarter, how do you see that written growth impacting the ex-cat loss ratio as those premiums earn in? Peter Vogt: Yes, it's a great question, Charlie. As we look forward to next year, obviously, it's going to be very dependent upon what we see in the markets and where rate trend goes from here as well as right now, we have a really good property in the quarter, but we've also seen really good growth in our long-tail lines. So -- as I look forward to next year, I wouldn't necessarily want to give a number for next year, but we feel really good about where we are in insurance. But as the mix changes, that will impact the loss ratio next year. Again, overall, we look at the combined ratio, some of our longer-tail lines have really good acquisition costs associated with them. So we're feeling really good about the overall insurance segment as we go into next year. Charles Lederer: And then just on the G&A expense ratio. I know you mentioned you're still very confident in getting below 11%. I guess last year, you had a large catch-up in 4Q. Thanks to some really strong ROEs. I guess, should we be thinking about the same kind of dynamic this year, just given it's been a light cat year? Peter Vogt: Yes, Charlie, this is Pete. I appreciate the question. As we sit here through 9 months, we've done really, really well for our shareholders and got to complement the AXIS team for all the work they've been doing, not only with light cats, but as we think on an ex-cat basis, still able to grow the underwriting income and a really good ROE as we look at the ROE year-to-date at about 18.2%. So as we think about the end of the year, given we still think really good, and we're very confident about the fourth quarter, my expectation is we could [ be some ] reward for our teams as we go into the fourth quarter. So you may be looking at like what we did last year as consistent with what we might be doing this year. But really, really appreciative of the team overall for all the great work they've put in to create the results we've got this year so far. Operator: The next question will come from Jing Li with KBW. Jing Li: My first question is on Markel's renewal rights. I'm guessing that it plays a role in the solid professional line growth. Like can you provide an update on how is the profitability of the acquired book comparing to your underwriting expectations? Vincent Tizzio: This is Vince Tizzio. We had about $6-odd million from the Markel renewal rights transaction in the quarter discrete. We're pleased with the underwriting of that business. It's AXIS-led and it is meeting our expectations in terms of limit, remit, scope of terms and conditions. And thus far, we're pleased with the sort of the trade of what we expected through the renewal rights to accept versus that which we've non-renewed. And finally, we're very pleased and appreciative of our distribution partners for the support that they've lent in this transition from Markel to AXIS. Jing Li: Got it. Just a follow-up on that. So what's kind of the renewal retention rate in there? And how does the pricing on those renewals compared to the back book? Vincent Tizzio: I have data on the latter part of the questions. On the former, I have to search and see if I have the exact retention because, again, this is a renewal rights transaction. It wasn't part of our renewal base in the prior period. In terms of the acquisition or the hit ratio of what is coming over for potential retention, it's probably around half of what -- of the total, which would be in keeping with our expectation. We wouldn't expect reasonably to accept every renewal that's coming over. In terms of pricing, it is aligned with our expectations within the broader FI portfolio, which is a very strong portfolio for AXIS, well managed and historical for us. We've been in the business a long time. Operator: The next question will come from Andrew Andersen with Jefferies. Andrew Andersen: Just looking at the A&H growth within insurance, it's been doing really well for a couple of years now. Could you maybe just help us think about kind of how you're achieving that level of growth, whether it's kind of pricing, distribution, product breadth and maybe why that's a little bit different from the growth levels within reinsurance? Vincent Tizzio: This is Vince. I apologize, Pete. Within insurance, we're very pleased with our A&H business. It is predominantly driven by our pet business, which is a partnership business with Fetch. That was the predominant driver of growth in the quarter and will be for the year. Additionally, we've spoken in prior quarters about measures we were taking to support our other companion divisions within A&H, notably out of London market and Lloyd's. We have a very strong group there that is performing well, continuing to grow double digits, performing profitably. Further, we've reshaped our AXIS group benefits business over the last several years. It's been repositioned. It's in the phase of really executing its new underwriting strategy. There, again, it demonstrated growth. But off of the total basis, it's really driven by pet. The outlook for pet for us remains favorable, though Pete would describe because of what he detailed in the first or second quarter, I can't quite recall the reinsurance change. That level of GWP growth will dissipate, but the net will continue to be strong for AXIS. And certainly, most importantly, we like the profit outlook of that business. Peter Vogt: Andrew, this is Pete. Just to add a little bit of color. About a year ago, I think -- I know we mentioned that in our agreement with Fetch, we became the sole provider of the program. And that really helped because we were only 50% provider beforehand. So that has helped the pet growth this year really drive A&H through the first 9 months. We started being the sole provider and we got to the fourth quarter of '24. So when we go to the fourth quarter of '25, that growth rate is going to normalize a bit. And I would expect -- A&H, while it was up 35% in the third quarter, I would expect it to be more up just into the double digits when we get to the fourth quarter where that will actually normalize. If you like to look at the growth rate overall, you remember, I mentioned net written premium was actually negative in the first quarter. That's what was causing some anomalies, and that was because while we took over all the gross, we were ceding 50% of that pet business to the other partner that Fetch had. So all of that will normalize in the fourth quarter. So the gross growth will actually slow down. But if you're looking at like the net earned premium that you can see in the Q, that's been kind of normalized all year, and that's probably a better metric to look at. Andrew Andersen: And then just on the technology spend. I think you talked about the $100 million that you laid out at the Investor Day. Could you kind of level set where we are relative to that $100 million? And could we be seeing some benefit to the expense ratio in the next couple of years? Is that spend levels off? Vincent Tizzio: Yes. We noted expressly that we've accelerated the expenditure. That number certainly in the period that we talked about will probably approximate $150-odd million over the 3 years. In terms of its efficiency, no doubt. You should see efficiency gains on the expense ratio. In the quarter, discrete, just looking at North America, we're pleased with the early insights that shows improving quotes that are up about 27% year-over-year discrete 3Q '25 versus '24. Buyings are up about 19%. And so in the businesses that have had the effectuation of our technology enhancements, we are seeing individual productivity gains. We think that's going to continue to get stronger. The partnership between our How We Work organization led by Ann Haugh and Michael McKenna, who leads North America, will only get better over time. We're seeing a number of proof points, whether it be between the operations relationship with underwriting, the insights from actuarial being made more quickly into the underwriting. These are all going to show increasing propensity of buying and efficiency in how we go to market. So we're pretty optimistic. Operator: The next question will come from Brian Meredith with UBS. Brian Meredith: A couple here for Pete. First one, Pete, will AXIS qualify or will there be a benefit from the substance-based tax credits that Bermuda announced, I believe, in September? Peter Vogt: Yes. Brian, this is Pete. We're keeping our eye on that. Right now, it's always a bit early to tell. I'm going to mention that on the quantum, but we should be getting some benefit. But I mean, the consultation paper is out. We've submitted comments back to the government. We worked with the industry to do that. We should get some substance-based tax credits to see what they are. It's going to depend upon what the final legislation is. We should expect to see that mid-December or so. So we'll obviously have more to say about that on our fourth quarter call. If you recall or if you've looked at it, there's kind of a transition timing on that, too. So it may be some benefit in '25. It will go into '26. But we should get some associated with that. Obviously, our footprint on the island is not as big as others. And so our benefit -- it will be beneficial to us, but hard to say where the quantum is today. Brian Meredith: Great. And I'm assuming that's a benefit to your G&A expense ratio. Peter Vogt: Yes, that would actually flow through G&A because that actually would show up as tax credits against the payroll. So it definitely would go through G&A on the substance basis, yes. Brian Meredith: Great. Second question, and just -- I don't want to bring this up again, but the paid to incurred loss ratios. Pete, you mentioned some large claim payments, right, that kind of skewed it maybe the last quarter or 2 in the insurance segment. Is there any way to kind of ballpark what those were and maybe it gives us a better kind of a run rate paid to incurred ratio when we strip out those large claims activity? Peter Vogt: Yes. One, I would say, a lot of them were central to our FI book really, and they're actually coming from 2019 and prior. When we look at how big they were, there were a couple that were in there on a gross basis, Brian, in excess of $20 million. So when we look at it in total, just that line of business, the top 3 claims had in excess of $50 million worth of pay in the quarter. So that actually skews it a bit. And then last year -- actually, interestingly, Q3 last year, it just happened that in the quarter, we got about $20 million of recoveries from our reinsurers in the quarter, which depressed the number last year in the quarter. But overall, I think what's really important as we think about the paid to incurred especially, a lot of improvements in our claims organization. Megan Watt and her team are really embracing how we work and putting better processes into place. So in North America insurance, where we're seeing actually the close to new claims being at 118%, that's really quite good, especially since we're closing these claims within any reserves we had already been putting up. Brian Meredith: Got you. And then I guess last one, too, maybe this is more for Vince, the RAC Re deal. Maybe give us a little bit of color on kind of what do you think the margin profile of that business is going to look like and the kind of makeup of kind of the business you're expecting to receive since it's [ Lloyd's of London pipe ] business. Vincent Tizzio: Well, the mix of line is in keeping with our broader portfolio. Property will be a meaningful participation. And then there's some niche specialty lines within construction and professional and marine, where we have strong confidence in the underlying margin of the business and now what is going to be through these MGUs. So I would say it's in keeping with our overall profit profile of insurance that we've spoken about in the historical past. I don't see anything untoward affecting that. Operator: The next question will come from Robert Cox with Goldman Sachs. Jack Kendall: This is Jack on for Rob here. I was wondering, when you talked about the mid-single-digit to high single-digit growth in '26, can you just give us like any type of color on what lines you're expecting that growth to come from in '26? Or kind of how you're building up to that overall growth rate? Vincent Tizzio: I think what we'll say in this regard is, one, we're not going to lay out our playbook of exactly where the lines are coming from. But suffice to say, we have great confidence in the continued growth trajectory of our new and expanded initiatives in the quarter, discretely, they contributed meaningfully against the $165 million of our overall insurance growth. You know from our prior disclosures, we are a market leader in marine and energy segments of professionals, certainly within the wholesale, excess casualty, marketplace, the property marketplace and increasingly in the lower middle market. And so taken together, alongside our niche, highly defined delegated relationships in surety and in pet, we think that there's ample growth within these lines to reveal itself in '26. Jack Kendall: Got it. And when I look on an external basis, it looks like on a net premiums earned property and some of maybe the lower loss ratio lines, credit, property, cyber were a little bit less of a grower in mix for the quarter relative to the first 2 quarters. I'm just trying to work through the business mix impacts on a net premiums earned basis that's supporting kind of the underlying margins. Is there anything you can think of on like a sub-class basis or a better way to look at that from an external perspective? Peter Vogt: Yes, this is Pete. So I would tell you that if we look -- to your point, if we look year-to-date, the short-tail lines are up 60% -- or at 60% versus 57% last year. But in the quarter, it was 59% versus 58%. So very close, but down a little bit as we think about it on an earned basis. But the other thing that's also going on is we are seeing some adjustments within SEC classes, for example, in the political and credit risk, where we're writing more surety business, which has a lower loss ratio. So it's going to be hard to see overall. But as that mix ebbs and if we do write, as you note, more long-tail business, that might have a higher loss ratio. Again, I'd point to the combined ratio we'll look at because some of those lines have lower acquisition costs associated with them, and we feel good about the combined ratio going into next year. And that's kind of what I -- why I pointed that out. Operator: The last question of the day is a follow-up from Charlie Lederer with BMO Capital Markets. Charles Lederer: Just a quick one. I think this is the first quarter with the new LPT fully in place for the whole quarter. I think you guys were expecting some deferred gain amortization to come from that deal over time, I know smaller dollars, but was there any of that in the quarter? And I guess, should we expect that to be a small benefit next year? Peter Vogt: Charlie, this is Pete. Yes, there was a deferred gain in the quarter. It actually runs through other income. My recollection is that number was about $1.6 million in the quarter. That will adjust over time as we get further out in the duration. But yes, that will actually come through in 2026. I don't have the exact number for 2026 in front of me, but it is a very small number that will come through next year also through that line. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Vince Tizzio, CEO, for any closing remarks. Please go ahead, sir. Vincent Tizzio: Thank you for joining today's call. We continue to be encouraged by the sustained positive momentum in our performance and have confidence in our future. I want to extend my deep appreciation to all of our AXIS teammates worldwide for their outstanding work that they deliver day in and day out. This concludes our third quarter call. We look forward to updating you on our continued progress in the quarters ahead. Thank you very much. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Credit Acceptance Corporation Third Quarter 2025 Earnings Call. A webcast recording and transcript of today's earnings call will be made available on Credit Acceptance's website. At this time, I would like to turn the call over to Credit Acceptance Chief Financial Officer, Jay Martin. Jay Martin: Thank you. Good afternoon, and welcome to the Credit Acceptance Corporation Third Quarter 2025 Earnings Call. As you read our news release posted on the Investor Relations section of our website at ir.creditacceptance.com and as you listen to this conference call, please recognize that both contain forward-looking statements within the meaning of federal securities law. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control and which could cause actual results to differ materially from such statements. These risks and uncertainties include those spelled out in the cautionary statement regarding forward-looking information included in the news release. Consider all forward-looking statements in light of those and other risks and uncertainties. Additionally, I should mention to comply with the SEC's Regulation G, please refer to the Financial Results section of our news release, which provides tables showing how non-GAAP measures reconcile to GAAP measures. At this time, I'll turn the call over to our Chief Executive Officer, Ken Booth, to discuss our third quarter results. Kenneth Booth: Thanks, Jay. Our results for this quarter reflected steady execution with declines in loan performance and year-over-year originations volume, balanced by a portfolio that remains at a record high. Loan performance declined this quarter with our 2022, 2023 and 2024 vintages underperforming our expectations and our 2025 vintage exceeding our expectations, while our other vintages were stable during the quarter. Overall, forecasted net cash flows declined by 0.5% or $59 million. During the quarter, we experienced a decline in unit and dollar volumes, though our loan portfolio remained at its record high of $9.1 billion on an adjusted basis, up 2% from last Q3. Our market share in our core segment of used vehicles financed by subprime consumers was 5.1% for the first 8 months of the year, down from 6.5% from the same period in 2024. Our unit volume was impacted by our third quarter 2024 scorecard change that has resulted in lower advance rates and is also likely impacted by increased competition. Beyond these 2 key drivers, we continued making progress during the quarter towards our mission of maximizing intrinsic value and positively changing the lives for our 5 key constituents: dealers, consumers, team members, investors and the communities we operate in. We do this by providing a valuable product that enables dealers to sell vehicles to consumers regardless of their credit history. This allows dealers to make incremental sales to the 55% of adults with other than prime credit. For these adults, it enables them to obtain a vehicle to get to their jobs, take their kids to school, et cetera. It also gives them the opportunity to improve or build their credit. Our customers are people like Becky, a single mother who has faced significant financial challenges. Her career as a chef met that her hours and her paycheck were unpredictable. Between this and needing frequent car repairs, she was living paycheck to paycheck and struggling with poor credit after falling behind on her bills. Determined to turn things around, she was eventually able to finance a dependable vehicle through Credit Acceptance, which gave her stability and relief despite continuing to face financial hurdles. Credit Acceptance worked with Becky to come up with a realistic payment plan and provide her the flexibility to need to get back on track. Becky hopes to be able to purchase a home in the near future and urges others with similar struggles to look to Credit Acceptance. During the quarter, we financed almost 80,000 contracts for our dealers and consumers. We collected $1.4 billion overall and paid $52 million in dealer holdback and accelerated dealer holdback to our dealers. We enrolled over 1,300 new dealers and had 10,180 active dealers during the quarter. We continue to invest in our engineering team, which is focused on modernizing both our key technology architecture and how our teams perform work. The engineering team has made significant strides in modernizing our loan origination system. This modernization has laid a strong foundation for innovation, frictionless dealer experiences, and we've increased the speed that we deliver enhancements to our dealers by almost 70% compared to a year ago. This allows us to innovate faster and accelerate value to our business and customers. During the quarter, we received 4 awards for our amazing workplace, including being named one of the Best Workplaces in Financial Services and Insurance by the Great Place to Work and Fortune Magazine for the 11th year in a row. We're proud to be one of the few companies in our industry that offers remote first work. We work hard to ensure that every team member feels supported and connected, keeping our culture strong. In July, team members from around the country gathered Detroit to celebrate the company's 53rd anniversary. During this celebration, we recognized 8 of our team members, each of whom have been with the company for more than 30 years. Additionally, on a personal note, this will be my last quarterly earnings call. After starting my career over 34 years ago, including the last 22 years at Credit Acceptance, I've decided to retire and embark on the next chapter of my life. My decision wasn't easy. I will miss working with our amazing team members, and I'm so proud of everything we've accomplished together. But I believe the company is in a great position for the future. During his 4.5-year tenure on the Board, Vinayak has been an invaluable partner as we modernized our approach to the business. His strong mix of experience in technology, marketing, engineering and product, along with a proven track record of driving transformation and growth will be an excellent complement to our experienced management team. I look forward to both working alongside Vinayak as he transitions into his new role and continuing to serve the company as a Board member going forward. At this time, Jay Martin and I will take your questions along with Andrew Rostemi, our Chief Product and Marketing Officer; Jay Brinkley, our Senior Vice President and Treasurer; and Jeff Soutar, our Vice President and Assistant Treasurer. Operator: [Operator Instructions] Our first question comes from John Rowan with Janney Montgomery Scott. John Rowan: Your asset-backed securities used to have a covenant in them that said if there was a 10% forecast shortfall that would enter into early amortization. Does the current ABS still have that? And are you close on any of those? I mean just given -- looking at the 2022 vintage, it's down 8% relative to the initial forecast. Is that the right way to look at it? Just walk us through kind of the ABS covenants there. Douglas Busk: Yes, absolutely. We still have that covenant in our -- both our warehouse facilities and our ABS securitization debt. As you know our business well with the pooling concept, we tend to contribute loans to a securitization for our portfolio program, a lot of which are uncapped. So as additional loans are originated, they belong to the securitization. So if you were to look at the actual performance from a collection rate standpoint, they tend to run above 100%. So we have no outstanding securitizations that are close to the 90% trigger. John Rowan: Okay. And then G&A was still higher than I expected. Obviously, last quarter, you had a contingent loss in there, but it didn't go back to like the run rate to prior quarters. Can you give us an idea if there's any kind of onetime items in the $36 million G&A expense? Jay Martin: Yes. I would say -- I would suggest that you look at the adjusted results. We've used that to eliminate the onetime charges related to the contingent losses. So I think if you look at that, you'll see G&A is fairly consistent the last several quarters as a percentage of average capital. But you're right, like if you're looking at just the GAAP, we had a $23.4 million contingent loss in Q2, and we had an additional $15 million contingent loss this quarter. John Rowan: Okay. Can you let us know what your repurchase authorization is? Douglas Busk: Yes. We've got just over 2 million shares currently under the Board authorization. John Rowan: Okay. And then just last question for me. I was a little bit surprised to see the advance rate was actually up a little bit in the quarter relative to the first half of the year, but unit volume still continues to decline. Obviously, the advance rate is not back to where it was. But can you just talk us through that a little bit? Are you still having trouble competitively speaking, even at a higher advance rate? Kenneth Booth: Yes. I think it's really a little bit of a change in mix in our business. I think there's a higher percentage of purchase loans. And I also think there's a higher percentage of our product that is designed for people with a little bit better credit, and those tend to have higher advance rates. Operator: Our next question comes from Robert Wildhack with Autonomous Research. Robert Wildhack: Are you seeing any of your peers pull back at all in the industry? I just would love to get sort of the boots on the ground view of what's happening at the industry level in the wake of some of the headlines we've seen around subprime auto in the last couple of weeks. Kenneth Booth: Yes. I think overall, while there have been some that have had struggles and have pulled back, in general, the environment is very competitive right now. So we're seeing a lot of competition out there. I mean, you can look at our volume per dealer, and it's down, and it's a competitive market. Robert Wildhack: Why do you think the competitive intensity hasn't really reacted to like the poor credit results that we've seen for the last few vintages? I would have expected people to pull back a little bit more with the delinquencies and losses as high as they are. Kenneth Booth: It's always hard to tell what our competitors are doing. The market is fragmented. But oftentimes, at the beginning of downturns, it is a competitive environment. We've lived through this before. 2021 was super competitive, and those vintages ultimately didn't turn out very well. 2016, 2007. I mean, so there have been times where it's been like this. But I will say this has been a long time where it's been competitive, and we're seeing underperformance. I will say we build our business for the long run. Our goal is always to have a large margin of safety in the aggregate in our pricing. And we're at a point where our loan portfolio is kind of at the highest it's been. And we'd rather do less volume at solid margins than do chase volume. So that's where we're at on that. Robert Wildhack: Okay. And then just quickly, we noticed that attrition had been increasing in the last few quarters. I mean could you comment on some of the drivers there? Is there a chance that dealers are pushing back on the scorecard change or anything like that? Kenneth Booth: I mean a little bit, it could be. The way we measure attrition is that they've done a deal in the period shown. And given that we've got our lower volume, we've got some dealers that just aren't doing business with us right now. So I'm sure a little bit that's the scorecard, but it's also our scorecard relative to what everybody else is doing. And like I said before, it's a large fragmented market. So there's lots of different options out there. I would point out, though, that while it's been a challenging year for growth for Credit Acceptance, we're coming off our record year last year, and this will still end up probably -- we're kind of trending towards it being our fifth best year ever. So it's not like we've gone super, super far backwards, but we got tough comparables. Operator: [Operator Instructions] Our next question comes from Ryan Shelley with Bank of America. Ryan Shelley: I wanted to ask around the impact of tariffs. I mean, obviously, it's kind of on again, off again. But have you guys seen any profound impacts, whether it's in the marketplace or to your own business from federal policy? And just going into next year, how do you guys kind of handicap that? Kenneth Booth: Anything that impacts affordability for our consumer is a negative for us generally. Our consumer already has affordability issues and anything that tends to impact affordability will be a negative. It's hard to say how much the tariffs are impacting things. They seem like they change quite a bit. But anything that puts pressure on our consumers from an affordability standpoint, Ultimately, is generally not good for us and good for people in our industry. Ryan Shelley: Got it. And then just one more, if I could, on the scorecard change. Forgive me if you've already clarified this. But going forward, is there a potential for any loosening or change back maybe come next year or the year after? Or is that a permanent change going forward? Kenneth Booth: We always try to price to maximize the amount of economic profit we originate. So we consider recent trends in loan performance and capital market conditions, and we adjust our scorecard and our pricing based upon what we think we're going to collect and how we think we can maximize that economic profit originated. So I don't know what the future will hold, but it's not like this is probably a permanent scorecard from now until the end of time. As the situation changes, we make updates to it. And again, we always try to maximize economic profit originated. Operator: Our next question comes from Moshe Orenbuch with TD Cowen. Moshe Orenbuch: Maybe just to talk you come back a little bit to the volume story and market share? Because I guess, do you attribute it to supply of vehicles being down? Or are you just -- are there cars being sold and just some competitors is financing them? Because I mean, you fully -- by October, you fully anniversaried the scorecard change and still down double digit, maybe not as much as in Q3, but still down pretty hard. Any kind of any way to think about that? Kenneth Booth: Your question is a great one. I mean we are, I would say, anniversaried on the scorecard change for sure by October. I mean while it happened in Q3, there's a little bit of a lag. But by October, it's more apples-to-apples. I will say that Q4 last year was one of our better quarters. It was the second best Q4 in the history of the company. So it's still a little bit of a tougher comparable, but you're right, you wouldn't have expected it to be down as much as it is other than the fact that the intensity of the competitive environment is probably higher. I do think, as you mentioned, affordability of vehicles has been a detriment to us. Our consumer is challenged by prices and they kind of get squeezed out. If you were to look at the size of the subprime market, it has declined over the last 4 or 5 years. It seems like it's kind of stabilized somewhat right now, but our consumer has a lot of pressure on them in order to try to make purchases, which I think is impacting us negatively because we tend to be a little bit deeper in the subprime space than some other companies. Moshe Orenbuch: Got it. I guess from the competitive standpoint, I guess the other aspect that's been an issue this year in the first -- last 3 quarters has been the fact that your prepays have slowed. I mean you still got a full quarter of the '22 vintage still on the books, right, at the end of September. Wouldn't it stand a reason that if competition were higher, there would be somewhat more prepays, not less? Kenneth Booth: Can you say the question again? I didn't quite understand what you asked. Moshe Orenbuch: Sure. Yes. I mean one of the phenomena that you've observed this year has been that the loans are staying on the books longer. And I think you had said in the second quarter call that, that was an issue that there were just fewer people were able to either refinance or trade into another vehicle. But I guess, wouldn't a competitive environment be easier to do that in as opposed to harder? Douglas Busk: Yes. I think generally, over time, what you've seen is sort of a lag effect of when competition heats up, prepays tend to speed up because obligors have other options. And I think what you're pointing out here, Moshe, is that we're not really seeing that. It's tough to say. There is always a natural lag. I just think we're in a unique environment right now. Moshe Orenbuch: Got it. In terms of leverage... Jay Martin: I was just to say if history holds true, then we should see prepays tick up if competition continues. Moshe Orenbuch: Got it. Could you -- this -- that $15 million contingent loss that you talked about, I guess it said it related to previously disclosed legal matters, but I guess the dollars are coming because you're making settlement offers in the lawsuit, right? I mean that's what it says in the 10-Q, which I think is the first mention of that. Is there any way for us to kind of think about whether there are other terms that we should be aware of that might be part of that settlement? Jay Martin: You're correct. This is the first time that we've mentioned that. I would tell you, since it is an ongoing legal matter, though, we can't comment on it beyond the disclosures we've included in the 10-Q and the earnings release. So I can't provide any more detail than what's out there. Moshe Orenbuch: Got you. Appreciate that. And then just last one for me. Maybe just can you talk about your leverage and your kind of outlook given what you're seeing both from a growth and how that impacts your thoughts on share repurchase? Douglas Busk: Yes. Our current leverage on an adjusted basis is at the high end of that historical range. We've tended to operate in that 2 to 3x debt to adjusted debt-to-equity range. As we've talked about, all else equal, we tend to generally repurchase more shares when our leverage or growth rates are lower. I would also say that our leverage is modest relative to other industry participants. So I don't think there's -- I would tell you, there hasn't been a wholesale change in how we view the leverage on our balance sheet. But as we think about repurchasing shares, leverage is certainly a key aspect of that dialogue. Operator: Our next question comes from Kyle Joseph with Stephens. Kyle Joseph: Just wanted to get an update from you guys on kind of capital markets activity given the things that have gone on in the auto space. And I just want to get a sense for what credit markets are doing? Are they really differentiating between quality operators and whatnot and kind of the investor appetite in the fixed income market? Douglas Busk: Sure. Yes, happy to take that one. It's generally been a fairly favorable environment for ABS issuers this year. And I'd say ABS issuers, those of our peers, including ourselves in the subprime auto ABS market where aside really from a couple of weeks around Liberation Day where everything kind of froze, spreads have been pretty tight. I will note that in recent weeks, we have seen some widening in spreads really on the back of the Tricolor bankruptcy, but that's mostly been deeper in the capital structure than where we issue. We actually have an ABS deal in the market right now. We began marketing this morning, and we're seeing a lot of demand at levels that I think you'll see comparable to our recent deals. So we feel good about our access there. And would just point out as well that we think we're pretty well positioned regardless with the amount of liquidity that we keep on the books. So right now, as of quarter end, we had $1.6 billion of unused availability on our revolving credit facilities. Operator: Thank you. With no further questions in the queue, I would like to turn the conference back over to Mr. Martin for any additional or closing remarks. Jay Martin: We would like to thank everyone for their support and for joining us on the conference call today. If you have any additional follow-up questions, please direct them to our Investor Relations mailbox at ir@creditacceptance.com. We look forward to talking to you again next quarter. Thank you. Operator: Once again, this does conclude today's conference. We thank you for your participation.
Operator: Hello, and welcome to the Repsol's Third Quarter 2025 Results Conference Call. Today's conference will be conducted by Mr. Josu Jon Imaz, CEO and a brief introduction will be given by Mr. Pablo Bannatyne, Head of Investor Relations. I would now like to hand the call over to Mr. Bannatyne. Sir, you may begin. Pablo Bannatyne: Thank you, operator, and good morning to all. Welcome to the Repsol's Third Quarter 2025 Results Presentation. Today's conference call will be hosted by Josu Jon Imaz, our Chief Executive Officer with other members of the executive team joining us as well. At the end of the presentation, we will be available for a Q&A session. Before we start, let me draw your attention to our disclaimer. During this presentation, we may make forward-looking statements based on estimates. Actual results may differ materially depending on a number of factors as indicated in the disclaimer. I will now hand the conference call over to Josu. Josu Jon Imaz San Miguel: Thank you, Pablo. Good morning to everyone, and thank you for joining us. Repsol delivered a solid operational and financial performance in the first quarter of 2025, moving ahead on key projects, optimizing the asset portfolio and reinforcing its commitment to shareholder value and capital discipline. The energy landscape continues to be shaped by geopolitical stability and concerns of all our supply. In the U.S., gas prices softened compared to the previous quarter, yet fundamentals still point to a tighter market heading into next year. The Refining business continued to build on a positive momentum in a market characterized by additional supply deficit. Operations at our industrial sites restore activity levels following the disruptions caused by the Iberian outage in the second quarter. On the Commercial side, all business segments delivered a stronger year-over-year contribution. Retail fuel sales remained robust, well supported by seasonal trends. The adjusted income totaled EUR 820 million, 17% above the second quarter and 47% higher than in the same period of 2024. All four divisions improved their results over the third quarter last year. Cash flow from operations amounted to EUR 1.5 billion. The accumulated operating cash flow through September reached EUR 4.3 billion, 15% higher than in the first nine months of 2024. Net CapEx was EUR 0.3 billion in the quarter with a EUR 0.8 billion contribution from disposals, asset rotations and the EUR 0.2 billion received from the sale of tax credits in the Outpost project. The accumulated net CapEx to September was EUR 2.5 billion, including EUR 1.3 billion in proceeds from disposals and rotations. By quarter end, all the transactions announced in 2025 have been fully collected. Net debt stood at EUR 6.9 billion by quarter and an increase of EUR 1.2 billion compared to June, mainly due to integration of the new joint venture established with NEO Energy in the U.K. As part of the agreement, Repsol has retained a funding commitment of the commissioning liabilities related to a portion of its legacy assets. This amount was previously recognized as a nonfinancial liability in our financial statements. Repsol doesn't increase at all, Repsol exposure but it is now classified in a different way, it is classified as financial debt at the consolidated level. So is only, let me say, an accounting procedure and excluding the impact of U.K. integration, net debt would've been flat compared to June. Gearing rose to 20.5% by quarter end and 10.4%, excluding this remaining aligned with our strategic objective of preserving our current credit rating. Looking at the evolution of the main macroeconomic indicators in the quarter. Brent crude averaged $69 per barrel, 2% higher than in the second quarter and 14% lower than the same quarter last year. The Henry Hub averaged $3.1 per million BTU, 9% lower quarter-over-quarter and 41% above the same period driven by strong middle distillate differentials, the refining margin indicator stood at $8.8 per barrel, 49% higher than in the second quarter and 120% higher than the same period in 2024. Finally, the dollar continued to weaken against the euro with an average exchange rate of 1.17. Turning now to the Upstream performance. This division continued to deliver efficient and competitive growth, enhancing returns through new projects and portfolio management. We are improving the business and together with our partner, positioning the company for a potential liquidity event. Third quarter adjusted income was EUR 317 million, 28% below the second quarter and 11% higher year-over-year. Production averaged 551,000 barrels oil equivalent per day, about 1% lower than the previous quarter and probably in line with a year ago. Compared to the third quarter of last year, the impact of divestments and natural decline was offset by higher contributions from Libya and the U.K. In the U.K., the merger with NEO energy was completed in July. The new inventory is projected to produce around 130,000 barrels per day in 2025, increasing Repsol's net production in the country from around 30,000 to 59,000 barrels per day. On an annual basis, the JV is expected to contribute around $700 million of EBITDA for Repsol in 2026. In Indonesia, in September, we agreed the disposal of our stake in Sakakemang, completing our country exit after the disposal of our interest in Corridor announced in the second quarter. After this transaction, Repsol E&P is now present in 11 countries, 10 producing plus an exploratory position in Mexico, consistent with our strategic objective of concentrating operations on geographies where we hold the strongest competitive advantage. In this regard, the U.S. continues to strengthen its position as a strategic growth region within our Upstream portfolio. In the Gulf of America, the joint development of Leon and Castile reached first oil in September. And in Alaska, the first phase of Pikka is expected to start up early 2026. These projects, together with the upcoming startup of Lapa Southwest in Brazil are expected to add around 50,000 barrels of oil equivalent per day of new low emissions, low breakeven production by 2027. In addition, these developments have accounted for a substantial share of the upstream investment effort outlined to 2027 and their completion will allow us to transition to more normalized CapEx levels in the division at around or even below EUR 2 billion per year. Finally, as part of the preparation of our vehicle ahead of a potential liquidity event, Repsol E&P completed last quarter, a $2.5 billion bond offering, the largest in use U.S. dollars in Repsol's history. The offering structure in three tranches attracted a strong demand, underscoring the solid support for our upstream strategy. Continuing with the Industrial division, third quarter performance was driven by the consolidation of the refining up cycle and the solid contribution from the trading business. Following the impact of the Spanish outage on second quarter, operations activity at our industrial complexes returned to normalized levels, enabling us to capture the positive refining scenario. The adjusted income totaled EUR 315 million, 218% higher than in the second quarter and 70% above the same period a year ago. In Refining, our margin indicator climbed to levels not seen since the first quarter of 2024, supported by stronger product spreads, mainly in diesel. The premium of our indicator was $0.7 negatively impacted by the turnaround of Cartagena and planned maintenance at the C43 biofuels unit, and the absence of crude shipments from Venezuela. The C43 plant resumed full capacity operations in October. Distillation capacity utilization was 85%, while conversion units operated at 101% of nameplate capacity. Refining margins have remained robust. In the fourth quarter, with the indicator averaging $9.8 in October and $7.1 year-to-date, the export margin this morning was $13 per barrel. No major refinery turnarounds are planned this quarter, supporting healthy utilization rates. Fuels margins remain also at solid levels, driven by stricter regulatory mandates in Europe and lower imports. In the Chemical business, Market conditions in Europe remain challenging with flat demand and higher costs compared to other geographies. Repsol's petrochemical margin indicator declined by 22% over the previous quarter, driven by lower prices and higher energy costs. Our priority for this business remains lowering breakevens and expanding margins through differentiation. The Sines expansion scheduled to start in 2026 is expected to add around EUR 80 million of EBITDA at the current scenario. And in Puertollano, a new plants dedicated to highly specialized application is also planned to come onstream next year. In the wholesale and gas trading business, we received 5 cargos from Calcasieu Pass last quarter. This is in line with our goal of reaching a total of 11 cargos listed in 2025 contributing around EUR 100 million of incremental EBIT compared to initial plan. In our industrial transformation initiatives, the project to retrofit a former gas oil hydro-skimmer in Puertollano is expected to begin operations in the second quarter of 2026. An additional retrofitting project is currently under evaluation, which will become our third major advanced fuels facility in Spain. In Tarragona, the development of the Ecoplanta is progressing according to plan. Thus we signed our first offtake contract to supply renewable methanol to continue at this facility as part of our long-term agreement for the supply of renewable marine fuels. In hydrogen, during the quarter, we took the FID for our first large scale electrolyzer is going to be constructed in Cartagena, and we are finalizing the analysis for the approval of another two projects. These electrolyzers will constitute the main part of our total capacity in operation by the end of this decade. Moving now to customers. This division delivered the highest quarterly result in the history of Repsol's commercial businesses with all segments delivering higher contributions year-over-year. Third quarter adjusted income reached EUR 241 million, 22% above the second quarter and 34% higher than in the same period of 2024. EBITDA was EUR 434 million, a 25% increase year-over-year, bringing the accumulated figure through September to EUR 1.1 billion. This performance keeps us on track to deliver in 2025, the EUR 1.4 billion EBITDA targeted for 2027 in our plan. So this figure is going to be achieved this year. And all that is supported by resilient demand, efficiency gains, growth in power and gas retail in Spain and Portugal and the growth of aviation fuel sales in Iberia. In Mobility, sales of road transportation fuels grew 14% year-over-year, reaching pre-pandemic levels. The non-oil business delivered robust contribution margin growth in service stations, 10% above the third quarter of 2024. As of today, 56% of our network in Spain offers multi-energy solutions. In October, the range of renewable fuels available at our service station has been expanded with the incorporation of 100% renewable gasoline after our Tarragona refinery achieved the first industrial scale production of this product, a real technological milestone. Finally, in power and gas retail, we add 157,000 new customers last quarter for a total of 2.9 million clients by the end of September, on track to reach our 3 million target before year-end. Turning to low carbon generation. The adjusted income reached EUR 31 million, EUR 24 million higher quarter-over-quarter and EUR 38 million increase year-over-year. These better results were driven by renewables, the main driver, a higher contribution from combined cycles, whose activity increased to ensure system stability following the Spanish outage, the blackout we suffered in April. The average pool price in Spain was EUR 67 per megawatt hour, 71% above the previous quarter and 16% below the same quarter in 2024. The power generated by Repsol reached 3.3 terawatt hour, 39% higher year-over-year. Repsol has reached 5 gigawatts of installed renewable capacity under operation, and we expect to add another 500 megawatts before year-end, mainly driven by the startup of Pinnington Solar in Texas. We keep -- sorry, executing our business model based on building our projects from stretch and divesting in early stages of production to optimize financial structure and maximize returns. In the U.S., the 629-megawatt Outpost solar project achieved commercial operation in September joining Frye and Jicarilla that are already producing in the country. We are now in the process of closing the partial divestment of this development with cash in expected in 2025. In Spain, an additional asset rotation is also under negotiation for a 700-megawatt renewable portfolio, of which and that is an important fact to see in the current market situation, more than 400 are wind. Finally, earlier this month, we acquired an 805-megawatt wind pipeline with the end of hybridizing production at our combined cycle plant in Escatron in the Spanish region of Aragon securing the power supply for the future data center to be built in the area by a third party. Moving now briefly to a summary of the financial results. In this slide, you may find an overview of the figures that we have covered today. For further details, I encourage you to refer to the complete set of documents released this morning. Regarding our update outlook to the end of 2025. The cash flow from operations guidance remains unchanged at around EUR 6 billion, with the benefit of a higher refining margin indicator, as I explained before, and this effect is going to be partially compensated by the lower Henry Hub price and weaker dollar. Net CapEx is unchanged at around EUR 3.5 billion. I have the ambition to put this figure below EUR 3.5 billion by the end of the year, subject to the timing of the divestment processes under execution. Upstream production remains at an estimate of around 550,000 barrels per day. We will allocate EUR 1.8 billion to shareholder remuneration, EUR 1.1 billion for cash dividends and EUR 700 million to share buybacks to reduce capital at the higher end of our strategic cash flow from operation's distribution range. Following July 2 dividend payment, the total EPS distributed in 2025 has been EUR 0.975, an 8.3% increase over 2024. Our first capital reduction was carried out in July through the redemption of shares acquired for an equivalent amount of EUR 350 million and a second capital reduction for the same amount will be executed before year-end. For this, a new buyback program was launched in September of the acquisition of shares for the equivalent of EUR 300 million with the remainder, EUR 50 million coming from the settlement. In conclusion, Repsol is delivering on its commitments and the strength of our business model position us well to manage the uncertainties of the current environment. In the upstream, we are improving the margin of the barrels we produce, bringing forward our growth projects and upgrade in the portfolio. In Industrial, we are capturing the positive momentum in Refining while progressing on the transformation of our sites, building resilience to ensure the long-term sustainability of the business. Customer keeps increasing its cash contribution to the group, helped by a successful multi-energy story and a growing power retail business in Iberia. And in low carbon generation, we continue to deliver along our strategic lines, targeting free cash flow neutrality after factoring the proceeds generated by asset rotation. Ensuring strong distributions to our shareholders remains a key priority in our history of value growth. Always, of course, maintaining a clear commitment to our robust balance sheet and our net CapEx objectives. Next year, after the share capital reduction executed in 2025, our ordinary dividend per share will be around EUR 1.05 per share. I said around because that is going to depend on the exact figure of the shares we are going to redeem at the end of the current share buyback program. In 2026, the same key strategic principles will guide our path. After the release of our full year results in February, and in light of the changes in the macroeconomic, regulatory and business landscape that our industry has gone through our Capital Markets Day will be held in March and were we will provide updated projections to 2028. With this, I will turn it over to Pablo as we move on to the Q&A session. Thank you very much. Pablo Bannatyne: Thank you very much, Josu Jon. [Operator Instructions] As usual, I would like the operator to remind us Of the process to ask a question. Please go ahead, operator. Operator: Thank you. [Operator Instructions] Pablo Bannatyne: Thank you, operator. Let's get started with our first questions coming from Michele Della Vigna at Goldman Sachs. Michele Della Vigna: Thank you very much. And congratulations on the strong results and looking forward to the Capital Markets Day. Two questions, if I may. First, I wanted to focus a bit on biofuel, an area that you're growing very fast but also where we're seeing a tremendous improvement in margins. I was wondering if you could lay out what is the contribution at the moment from that business? And how big that could get next year with potentially further tightening with RED III and also higher volumes in the second half of the year. And then secondly, I wanted to come back to Venezuela. You're building up receivables. They are clearly difficult situations with the U.S. sanctions, I was wondering if there is any ongoing dialogue that could resolve the situation and allow you to take more Venezuelan cargos? Josu Jon Imaz San Miguel: [Foreign Language] Going to your first question, I mean, next year in 2026, taking into account the production we have in the co-process of our industrial activity plus the operation of C43, plus the second half of the year where we are going to have production coming from the retrofitting of Puertollano and adding the trading activity of these biofuels, plus the commercial side because you know that we already have 40% of our service stations commercializing this product. I mean to give you only a reference, not at the current levels of margins. But if we take -- roughly speaking $800, I mean I'm not giving, let me say, a guidance of prices because I don't have a crystal ball. But if we take $800 per ton as HVO minus UCO margin for 2026, with all these concepts, we will capture EUR 125 million of EBITDA. I mean roughly speaking, because that is not exactly -- it could be a rule, but you could add roughly speaking, EUR 30 million, EUR 35 million for every $100 per ton of margin. You have to take into account, Michele, you perfectly know that after investing in Puertollano, we will have a capital employed in this business of around EUR 400 million. So my point is that the business is performing in the right way. And that is -- it's positive. If you ask me if I see the current margins stay for coming months, I mean the normal situation will be to see some kind of going down of the margins because, I mean, we have had a lot of capacity out in turnaround program and so on in Europe. So that will be the most logical. But I mean, there is room to have a pretty good situation in this business. Going to Venezuela. I mean, let me say that as always, we are always to comply and will comply with all laws and regulations applicable for all operations in Venezuela. You know that we are still there. We maintain our presence and production in Venezuela. We are producing gas for the domestic market is our main activity in Venezuela. And I could confirm you that we maintain, and we are shipping going, maintaining a constructive and fully transparent dialogue with the U.S. administration at the moment to try to ensure a stable framework for our activities. I mean, and when I say a stable framework for our activities, this framework, of course, includes viable mechanisms or monetizing our products. So I mean, I'm not going to say that situation is okay because you know the difficulties that -- in political terms, the country is experiencing but let me say that I could confirm that we maintain this constructive and transparent dialogue with all the authorities, of course, including the American authorities. [Foreign language] Pablo Bannatyne: Thank you very much, Michele. Our next question comes from Alejandro Vigil at Banco Santander. Alejandro Vigil: The first one, I'm very curious about this strategic update in March, probably I'll have to wait for March to have more details. But you can elaborate about the reason for this update on potential moving parts of this strategic update. And the second question is about distributions. I agree that you are delivering these distributions in line with your range. But considering the strong cash flow this year and potentially good expectations for next year if there is potential upside in your share buyback program of EUR 700 million? Josu Jon Imaz San Miguel: [Foreign Language] I mean I could confirm that -- I mean, this strategic update, that is a terminology discussion, obviously, it's irrelevant Alejandro, what I'm going to say. But I mean I prefer to talk about the Capital Markets Day because the strategy is defined and the strategy is written on stone and that means that the priority is going to be the shareholder distribution, as we defined in February 2024 plus the strong balance sheet for Repsol because for us, it's very important and a proven CapEx transforming and pushing in the growth process of the company. But that is going to be the priority of the strategy that is going to go on from next March on. So what is going to be the target? So you can't expect, let me say, surprises because these three principles are going to be defined and written on the stone. Saying that the Capital Market Day is going to try to give you because, I mean, things metrics are changing in two years and giving you a clarity about '26, '27 and '28 years, in terms of all kinds of operational and financial metrics. That is the end of the Capital Markets Day we are going to call for March. So -- but again, the strategic principles are written on stone. First, distribution for our shareholders, strong balance sheet and a prudent net CapEx. That's -- I mean, if you allow me, Alejandro probably, and you were right. The consensus of the market six months ago would be that we have problems to deliver this prudent CapEx in net CapEx terms because the perception after 2025 on the first -- sorry, 2024 and the first month of 2025 for the market could be, and you were right that the CapEx effort was very high at the beginning of this strategic plan. That was right because we were, let me say, paving the way for the growth for the projects we were investing in and we were taking advantage of the negligible debt we had at the end of 2023 for launching this view. But as you could see, I mean, at the end of September, net CapEx is at a figure of EUR 2.5 billion. And again, the target we have is EUR 3.5 billion for the end -- by the end, better said, of 2025. But my ambition is to be below this figure this year. And next two years, if you take and that is going to be probably speaking, what I have in mind, a figure close to this EUR 3.5 billion in 2026 and 2027, you can see that we are going to be in the low range of the net CapEx we defined in the range for our strategic plan, EUR 16 million, EUR 19 billion. Today, our view is that we are going to be at around EUR 16 billion in this period. So we are going, let me say, to elaborate a bit more, all these figures that you could see in the figures of this quarter that we are on track of going in this direction. So what you could expect in terms of general framework of distribution and I said, priority we are going to be, of course, in the range of what you said and you could be sure, Alejandro, that in the current program in the current market conditions is going to be delivered also next year. So -- but of course, I prefer to wait and talk about that in March in the Capital Market Day, that we are going to be in the range defined. And if we see a higher cash flow from operations and that could happen in the current environment, what you could expect, of course, is going to be -- in fact is going to go, better set, in that direction. Excuse me, sorry, this year's , Alejandro forgot. I mean, if we take EUR 6 billion of -- and we are in the higher range, 30, 35 of this -- of the range. I mean it's true that we are going to have probably, as I mentioned before, a higher refining margin. What I'm seeing for this fourth quarter in terms of Repsol refining margin is going to be probably in the double digit is how I see the refining margin of Repsol in this fourth quarter at double digit. But if you take this figure, I mean, we could add, let me say, roughly speaking, $200 million more to the expectations we had -- the guidance we had before. It's true that the dollar-euro exchange rate is showing us a weaker dollar. So that is, I mean, reducing a bit also the cash flow from operations for our businesses and slightly weaker Henry Hub comparing with the $4 million BTU of last guidance. I mean, all in all, it could be possible to be above the EUR 6 billion, I mentioned before, as guidance but the figure is going to be negligible. And I mean, you are going to understand that if we are EUR 100 million, EUR 140 million of -- above this figure, I mean, we are going to be open a program of EUR 40 million, EUR 30 million or EUR 50 million. So I mean, we prefer to say that is over this year 2025 and we talk about that in March, but always under the same principle we are applying now. Thank you. Pablo Bannatyne: Thank you very much for you question. Our next question comes from Alessandro Pozzi at Mediobanca. Alessandro Pozzi: The first one is on the Refining margin outlook. You mentioned the spot prices into the double digits. What is your view for the rest of the year and going into 2026? Do you think the current, say, strength is driven more by lack of products? Or is it concerns around the availability of these or maybe in 2026, so more of a panic buying right now. And the second question is on capital allocation, clearly, customer is delivering much better results. As you look at 2026 and 2027, what do you think are the areas of the business that can give you a better return and where you can probably increase CapEx in the next couple of years? Josu Jon Imaz San Miguel: [Foreign language] I mean, starting by your first question related to Refining margin. Of course, let me underline that is evident but I'm going to repeat that I don't have a crystal ball but analyzing from our experience and the facts and the indications we are seeing in the market, I'm going to jump a bit into the unexplored arena of seeing what is going to happen with Refining margins. So First, current evidence. I mean, as of today, this year, we have $7.1 per barrel in our system. This month, in October, this figure is at around $9.8 per barrel. And this week, I mean, what we are seeing is something in between $12, $14 per barrel. That's our facts. What is behind that? My perception is that we have two drivers and both drivers pushing this direction, demand and supply. Supplies are crystal clear. I mean, new refining projects in the Atlantic Basin, they are -- they continue facing delays and operational problems. You know Olmeca in Mexico, my perception is that the problem of Olmeca is not going to be solved in the short term. So that could go on next year. Dangote is having operational problems that is going to be probably solved by 2026. In the midst, we have seen -- I mean, everything we talk about that remember in February, when I said that we were seeing probably speaking 1 million barrels a day of discontinuing activities in the refining in the world. I mean, in Europe, Wesseling in Germany, Lindsay and Grangemouth in the U.K., they are close on track in the case of Lindsay, Houston and Los Angeles also in the U.S., Dalian in China, Osaka in Japan, Kwinana in Australia, I mean all that is going to add more than 1 million barrels a day of less production. We said that new projects this year, they were going to be slightly above 1 million barrels a day. But with the operational problems I mentioned before, in the case of Dangote and Olmeca, this figure is lower. And I mean, there is a new, let me say, a new fact over the last 2, 3 months that due to the attacks on Eastern European refineries, the best approach we could have today, and again, that is not easy to be reported in an accurate way because, I mean, in a war situation, truth is sometimes hidden but probably a figure close to 37%, 38% of the refining capacity in Russia has been attacked and probably a figure close to a 25% of the total capacity could be out of operation. So we are speaking about a very important figure that is 1.5 million barrels a day, fully unexpected. On top of that, we are seeing that over the last 2, 3 years in a very unfair way for competition, refiners from China, India and so on, they were taking advantage of not fulfilling the sanctions against the Russian oil. They were buying cheap Russian oil, refining this oil and putting this product in a very unfair competition way in the European market. Thanks to the policies of the European Union and the Trump administration related to enforce sanctions against this unfair way, all that is going to have an impact in the market. I mean if we go to the demand, I mean, demand is growing, that is also a fact to 0.6 million, 0.7 million barrels a day this year. In our markets, we are experiencing a high demand as you could see in our Commercial businesses. And we have to say that -- I mean, we are still -- we are not already in the European coal season. I mean the European coal season is going to increase pressure on diesel. If we add to that the new ECA regulation in the Mediterranean that are effective from May 1 that are boosting marine gas oil demand. And at the same time, we are seeing that gasoline is also strong because the new hybrids that they consume a lot of gasoline and so on. I mean, again, I don't have a crystal ball but I'm comfortable. It's not a commitment because it's not in my hands, of course, that we are going to see an average of double digit in Repsol this quarter, I mean, a refining margin with double digit. I mean, jumping into the 2026 is more complex. But I could say that the $6 per barrel we saw 1 year ago for 2026, I mean, we are going to be clearly above this figure. Probably the first quarter, we are going to experience a similar situation we are going to experience the fourth quarter of the year. We could see probably in the second half a more normal market in terms of supply. But all in all, I think that -- I mean, seeing margins of, I don't know, $7, $8 per barrel over 2026 is not going to be a surprise for me. Going to the capital allocation on the 2026, 2027, we are going to see, I mean, good results and improvement, clearly speaking in the Upstream, new barrels, Leon-Castile already in operation, Alaska that is going to start the operation at the end of -- or the first part, as I said, of the first quarter. U.K., where the improvement is going to be clear. So better margins, new barrels, more production, 570,000 barrels a day, roughly speaking, we will clarify this figure in the Capital Market Day that we are going to be at around this figure and a clear improvement in the Upstream. Going to the Industrial, as I mentioned before, better by margin, Puertollano, the retrofitting in operation, a higher refining margin, and I mean, I know that there is -- and I have a concern related to the Chemical business because the performance and what we are suffering in the market is very negative. We have a competitiveness program that we are enforcing new margins, reduction of energy cost, cost reduction. On top of that, we are going to see, so the derivative chemical even in this exit margin adding at around EUR 80 million of new EBITDA in a year. We also have the ultra-high molecular weight polyethylene plant in Puertollano. So all in all, the commitment I have with my Board is that next year, in this acid margin scenario, so with no, let me say, tailwind pushing margins, we could be EBITDA neutral in 2026, and we will have in 2027, a positive result in the Chemical business. Again, at the current bad margins environment. Of course, any tailwind coming from the point of view of margins is going to improve this figure. In the customer growth is going to go on because -- I mean, it's not because of market situation, it's structural because we are entering new businesses, retail, power and gas is a new business where we are growing. We already have EUR 200 million of EBITDA and growing 3 million customers this year. Probably next year, we will be at around 3.5 million customers. That is -- we could be close to this figure but we have a clear growth road map. We are growing in lubricants. In aviation, I mean, if you check the figures in Iberia, we are in historical flights. Overcoming year after year, the figures we have. We are growing in the non-oil, as I mentioned before. So this EUR 1.4 billion of this year is going to be a figure close to EUR 1.5 billion of EBITDA in this business by 2026. And I mean, you see in low carbon businesses, I mean, in power generation, you could see that we are improving the result. We will see ups and downs, but there is a clear structural trend. Why? Because we are reducing our cost, our unitary cost because we have a business to operate more gigawatts and month after month, we are adding new production. So the unitary cost is going to be reduced in coming months and in coming years. On top of that, with difficulties at the beginning in the U.S., but the rotation business, the rotation game is going to go in the right direction because the projects we have Outpost has a higher PPA than Frye. Pinnington has a higher PPA than Outpost. That means that things are going in the right direction. These 9 months, if you take the total concepts, you could see that this business is close to be neutral in cash terms. I mean that is not going. It's not structural. We are going to have in coming months, I mean, capital needs for this business. But we are not going to be far in the period of a Capital Market Day defined to see that this business could be able to grow with a minimum capital commitment from Repsol because it's starting to work the model. So my point is that this EUR 3.5 billion is going to be deployed in a prudent way in these businesses, reducing, let me say, slightly default in the E&P because the projects are already on track. In the Industrial business, we will put on track the projects I mentioned before, customer business, I mean, it's investing but the investment level in intensity is lower than in some other businesses. And in the case of renewable power, this effort, let me say, has an asymptotic direction towards being neutral in cash terms. Are we going to achieve this target in 2026? Probably not. But this time, it's not far. So thank you. Pablo Bannatyne: Thank you very much, Alessandro. Our next question comes from Biraj Borkhataria of RBC. Biraj Borkhataria: So first one, just on refining. I might have missed this but I understand you have no maintenance in Q4 but are you able to give a bit more detail on the first half of '26. Just thinking about your ability to capture $13, $14 refining margins over the coming months if that was to persist. And then second question is just on the financials. There is a very significant difference between P&L tax and then the cash tax you pay and the gap seems to be getting wider. Just trying to understand if there's any particular reason why those 2 numbers won't converge over time. So any color there would be helpful. Josu Jon Imaz San Miguel: Thank you, Biraj. I mean, going to your first question, I mean, let me say that this quarter, in 2025, what I have in mind is that we are only to turn around the 1 crude unit in Puertollano and the breaker. I mean, breaker with my whole respect to this unit because its fuel production is negligible in Tarragona. So that is going to be the only turnaround campaign this quarter. If we go to 2026, what we have in the program, I mean, accepting some hydrosulfuration units, some catalyst changes and so on that are negligible in days terms. The only large turnaround campaigns are A Coruña, that is the smallest of our refinery, where we are going to have the conversion units maintenance that is going to stay for something between 40, 50 days in 2026. And in PetroNor, we are going to maintain the coker and the coker stay out of service for 40 days more or less. I mean that is the only -- any kind of significant maintenance campaign neither in Cartagena nor in Tarragona, as I said before, some -- I mean, catalyst changes, a hydrosulfuration unit, but I mean, nothing relevant. And let me say that if we see this historical what is program, a program could happen. I hope that we -- and I expect we could cope with any incidents in this sense. But when we analyze the historical -- in historical terms, the turnaround campaigns, it's going to be a quite soft year in terms of maintenance campaign in coming 15 months. Going to your second question, of course, you could check the figure in a more accurate way with our IR team. But there is no anything relevant to report related to the P&L in tax and in cash. We are, of course, optimizing, as always, credit tax positions. You know that because we are investing hard, we have a lot of tax credits because the investment we are developing in some jurisdictions like I don't know, the U.K. and some others because the losses of the past. And probably in the whole year 2025, we could have a figure close to EUR 800 million at the end of the year. But again, we are trying to optimize these figures and trying to use the credit tax positions we have. So that's clear. Pablo Bannatyne: Thank you, Biraj. Our next question comes from Guilherme Levy at Morgan Stanley. Guilherme Levy: Two questions from me, please. The first one, thinking about the next steps around the listing of the E&P subsidiary in the U.S. You, of course, started to talk about a potential reverse takeover process. So I was wondering if there are any particular features that you would like to see in a potential target to be taken over in the U.S. if exposure to either gas, oil or to any particular basin would be preferred. And then second one, also in the U.S., can you provide us some color in terms of the hedges that you currently have on gas prices over the coming quarters? Josu Jon Imaz San Miguel: Thank you, Guilherme. I mean, we are preparing the company for being ready for a liquidity event in 2026. As I mentioned before, in July, liquidity event could mean first, an IPO, a reverse merge with a company listed in the U.S., a new private investor entering in Repsol. So I mean, that's the broad meaning of liquidity event. And again, for me, here it is more important, the road and the journey at the end. That means that we are putting all the effort first in having a better upstream with better barrels. We are delivering in terms of improving the portfolio. We are in less countries in better jurisdictions with better barrels. When I say better barrels in terms not only of more sustainable barrels but also in terms of higher cash flow from operation per barrel, we are putting on track the projects that is very important. In a period that has been complex in terms of inflation and so on in the market, we have been able to put projects on track that has happened in September with Leon-Castile and it's going to happen in coming 3 months with Alaska. So that is the full focus of the company in this sense. On top of that, we are working internally in all the requirements and reporting and so on to be prepared for any event in this direction. But again, we are not in a hurry. We don't need any proceeds coming from this liquidity event. We are seeing that day after day, we are improving the quality of our upstream. That means that we will be prepared alongside 2026. We are fully aligned with our partner, EIG in this strategy. And of course, we will be ready to take advantage of any opportunity in the market but not being in a rush, not jumping any opportunity that could appear in the horizon and having crystal clear that maintaining the control on the 51% of the stake in this business, so consolidating this business is a line for Repsol. So we are going to own in this way. Going to some color about the gas for -- I mean, in 2025, we have 55% of the volumes hedged already with a collar with no cost, 6.1, so capturing all the value, guarantee the $3 million BTU and capturing all the value up to 6.1. Next year, if we go to the first quarter, we have a 20% of the production in the first quarter in a collar 3.5, 12.3. That is a surprising figure. But I mean, it was done with no cost. That means that we are guaranteeing the $3.5 million BTU and capturing all the price to $12 per million BTU. On top of that, we have a collar over the whole production of 2026, covering 52% of the production with a floor of 3.2 and capturing the value up to $5.1 million BTU, and in 2027, we have already hedged at 12% of the production debt is with a floor of 3 and capturing the price up to $5.8 per million of BTU. So let me say, as I summarize, we are comfortable because we are guaranteeing a minimum that is going to give us the return we expect in the gas production we have. And on top of that, we have plenty of room to capture any upside appearing in the market. Thank you, Guilherme. Pablo Bannatyne: Thank you very much, Guilherme. Our next question comes from Ignacio Doménech at JB Capital. Ignacio Doménech: Just a question on asset rotation, both on Upstream and on Renewables. So starting with Upstream. There was some news regarding potential asset rotation in Pikka and Alaska. So I was wondering if you are comfortable with your stake there or you are planning to dilute part of the exposure to the asset. And then in terms of asset rotation in Spain, just wondering if you've changed any -- if you've seen any change in appetite, just thinking about the 700-megawatt portfolio you're planning to rotate. Josu Jon Imaz San Miguel: Ignacio, thank you. So going to your first question, I don't have any appetite to divest in the Upstream business. We are comfortable with the position we have in the upstream business. We are an oil and gas company. We are adding barrels. We are adding new barrels. And probably, let me say that Alaska is a company maker asset in terms not only because the barrels we are going to start producing in 2026 but because the potential growth that this asset in Pikka 2 in coke and so on could have around the current production in lands and fields that are already in the hands of the JV we have with Santos. So I mean we have always to consider any option because, I mean, the portfolio is -- has to be managed. But today, I don't have any appetite to dispose or divest Alaska, I mean, and I need, let me say, a real very high figure to consider any option for that because, I mean, we are very happy, and we are very close to the first oil. So we are going to start monetizing this asset in 3 months. So we will consider, as always, any option in any asset. But to date, we don't have any target and any appetite to divest any asset in the upstream or Repsol. Going to the renewable asset rotation in Spain, I mean, we are seeing a positive appetite. It's curious because if you analyze Ignacio and you perfectly know Spanish renewable business, we have been able to rotate in a very successful way all the processes we have had over the last 4 years. And remember that the last one happened 8 months ago, roughly speaking, with green coat in a basket of assets that I thought I have in mind was that they were around 400, 500 megawatts in Spain. And we are seeing a very high appetite for these assets because, I mean, you know that today, 400 new operational production in wind in Spain is a quite scarce asset because you know that wind is able to capture the prices over the whole day, capturing also high prices in some parts of the day. And the advantage of the minority part of this basket of assets that is solar is that the PPAs are already there and are very good PPAs because they were negotiated in the -- I mean, 2 years ago, roughly speaking, in the high peak of the crisis, energy crisis in Spain, when there was Spain and Europe, when there was a strong appetite to negotiate PPAs. So very good asset with very good PPAs with very good mix of wind, solar. And I mean, for an investor, it's a real attractive asset. So I'm probably -- in the case of Outpost, I think that we are going to be able to monetize or to cash in, probably we are going to be there before the end of the year. In the case of these assets, we will close with a high probability of the transaction this year in 2025. And I prefer to be prudent because the authorization competition and so on, we need in terms of permits, probably the cash-in could enter in 2026. But in any case, the expectations are very positive. Thank you. Pablo Bannatyne: Thank you very much, Ignacio. Our next question comes from Irene Himona at Bernstein -- Societe Generale. Irene Himona: Just one quick one for me. I understand some of your disposal proceeds are from selling tax credits. And I'm not sure I understand myself how that works. How would it influence, for example, the future economics of those projects, if you can perhaps elaborate a little bit? Josu Jon Imaz San Miguel: Thank you, Irene. I mean you know that all the assets we have in the U.S., they are covered by the IRA, not only the current one but also the rest of the assets we are going to develop because we have in a safe harbor 3 gigawatts more in the country. So that means that we shape, let me say, the much more in terms of the support of the IRA. And in the case of how it works, there are 2 ways to monetize this support the PTC and the ITC. The ITC is some kind of upfront cash coming from the tax administration that is, I mean, in the range of 30%, 40% of the CapEx, even 50% in some places because it depends if there are industrial training areas and so on, the support, the local support is higher. And in some cases, you have what is called the PTC. The PTC is some kind of continuous payment for 10 years in your operation but you could monetize up 50% in upfront payment of this PTC. And in the case of Outpost, this EUR 185 million, something that appear, roughly speaking, are the part fitting with this upfront payment coming from this PTC. So it's quite complex, Irene, because some projects they have the ITC, some others, the PTC take the message that all of them, they are going to have sufficient support in the range, 30% to 50%. And if you need more granularity about these projects, of course, be sure that the team of IR will be ready to give you more clarity about that, Irene. Thank you. Pablo Bannatyne: Thank you, Irene. Our next question comes from Matt Lofting at JPMorgan. Matthew Lofting: First, I wondered if you could add some thoughts and color on what you're seeing in the market on light heavy spreads and the sort of the cost effectively of the feedstock basket in the Refining business. Just thinking about that in the context of the moving parts in the market at the moment. It looks like some debits and credits, more barrels coming from the Middle East, on the other hand, some of the constraints around Venezuela, et cetera, that you talked about earlier and what all that means for the outlook on the premium over the benchmark. And then secondly, just Jon, I wanted to just pick up on the earlier points that you made around CapEx. you talked about the low end of the sort of the range on the 4-year plan. I just wonder whether there's a case and a sort of a need to be more ambitious on medium-term CapEx reduction below that range rather than the low end in the context of moderated upstream prices now versus early 2024 areas of the low carbon value chain and the economics of that being still more challenging and probably greater geopolitical uncertainty in the macro backdrop than was the case when you did the CMD 18 months ago. I appreciate the thoughts there. Josu Jon Imaz San Miguel: Thank you, Matt. I mean, going to the -- it's true that this third quarter and one of the factors impacting a negative way in the premium of the refining margin that -- I mean, it was pretty good at $0.7 per barrel, we expect a bit more was the scarcity of heavy crude oil in the Atlantic Basin. And the main factor was the reduction of the exports of Maya crude oil from Mexico in this summer. The potential, let me say, reasons or problems behind this decision, they were left behind. And this quarter, we are seeing more Maya in the market. So probably we are going to see higher discounts for the heavy crude oil. On top of that, I mean, the rest of the crude oil, I mean, Colombia, Canada, what comes from Middle East, I mean, Basra and so on, they are entering in our system. Also, I mean, a small amount coming from Italy, Albania and so on. So my perception is that this component of our refining diet is going to be better in the fourth quarter than in the third one. In the case of Venezuela, it's clear because, I mean, you perfectly know that the constraints in the market are higher. But what we could see could be a more favorable environment this fourth quarter comparing with the third one, mainly because the Maya crude oil could be the driver that changed. I mean, we will talk about the -- in the Capital Market Day about the CapEx effort and so on. But again, we are comfortable with the figures I mentioned before. If things are worse, there are plenty of room to reduce this figure. In the case of the -- I mean, in case of seeing low oil and gas prices, that is not the case today, and we are not seeing that. We have the unconventional buffer, as you know. So the E&P could reduce default but we are not now there. We don't want now to reduce default because we are seeing good prices and good returns. You see that we have been able not because a CapEx reduction mindset because we prefer to be prudent guaranteeing the returns in the decarbonization of industrial assets. We have reduced the hydrogen ambition in almost 2/3 by 2030 comparing with the figures we have 2 years ago in our ambition. We are also prudent about the future investments in renewable fuels in Spain. We are analyzing a third project, and probably that is going to be done but we want to guarantee that this project is going to have good returns, and we are analyzing this option. You see that we are also being very prudent in the development of guaranteeing the returns of the renewable power generation. So my point is that situation is different. We have reduced our CapEx in a significant way because we want to guarantee returns. And in case of needed, we will be ready to do it. But today, we are comfortable in these figures because, as I mentioned before, the distribution to our shareholders will commit is guaranteed under this scenario. The balance sheet is strong, and we could modulate the CapEx in this effort. Thank you, Matt. Pablo Bannatyne: Thank you very much, Matt. Our next question comes from Naisheng Cui at Barclays. Naisheng Cui: Two questions from me, if that's okay. The first one is on data center in Spain. I understand you also do some data center things as part of your business. I wonder if you can add a bit of color on that. What's your view over there on the sector? Then the second question is just to clarify on the $2 billion divestment target for the year. I understand you mentioned earlier, there's no appetite to divest any upstream asset, but can you get to the $2 billion by just divesting the remaining U.S. and Spanish asset, please, the renewable ones? Josu Jon Imaz San Miguel: Thank you, Naish. I mean, first, I'm not an expert in data centers, my first disclaimer. Secondly, if I have to imagine a place in Europe, where you need to have data centers, computation capacity and so on. And energy is an important driver and renewable energy is an important driver. It seems to me that Spain is the right place to develop this data center. So from this point of view, I'm quite positive about the possibility to develop this data center. We are not a data center operator. So we are not going to invest in this business. What we are doing is because there is an appetite from investors to be in data centers in Spain, we have an asset that is Escatrón a CCGT with 800 megawatts of power in operation. And because the current regulation, we could use the connection permits of this asset to promote around this asset, an equivalent figure, in our case, 800 megawatts of wind hybridization with this CCGT plan. For that reason, we acquired an early pipeline of 800 megawatts of wind assets in Aragon in this region that is going to be developed something between '28, '29. So that means that we have the unique opportunity to develop wind assets in Spain that, as I mentioned before, is a very valuable production. And we could use half of this figure, 400 megawatts to fit with renewable power, combining with the CCGT, a potential investor in the area. And what we have is we have water in the area because you know that this kind of CCGTs, they need the refrigeration cooling processes. We have land. We have good connections, fiber in IT terms in this area. So what we are going is to sell the right to develop a data center in the area to a potential promoter -- and on top of that, we are going to provide this data center with PPAs with self-consumption, combining the wind and the gas. So we are seeing as an opportunity. I mean, we are going to monetize an option we have. And there is -- what we are seeing is that there are a lot of people interested in these assets. So it seems to me that today are a lot of people ready or interested in investing in Spain in this business. But again, Naish, I mean, if you need more clarity, of course, we have our team to -- at your service my comment related to your question. I mean, when we go to the figures, -- as you could see in the first months, we got the figure of EUR 1.3 billion by September. I mean, I'm taking EUR 1 billion of divestments plus the EUR 0.3 billion additional coming from -- I think that EUR 100 million, roughly speaking, from Aguayo Project. Aguayo Project is the first rotation we did in Spain at the beginning of the year. But because we retained the 51% is not in our accounting divestments but you could see the cash entering in our accounting. And on top of that, we have the $200 million coming from the PTC I mentioned before of Outpost. All in all, EUR 1.3 billion by September. We expect EUR 300 million more coming from the rotation of the U.S., I mentioned before, Outpost and the cash-in is going to be -- we have very high probability before the end of the year. All in all, EUR 1.6 billion, that is going to be enough to reach this EUR 3.5 billion net CapEx. And as I mentioned before, what could be out in cash in terms of this year 2025 is the rotation of the 700 megawatts in Spain that because the permit and authorization process and so on could be probably closed but not monetized before the end of the year. In any case, because we have been more prudent in gross CapEx terms, we are going to be below this EUR 3.5 billion -- that is my ambition before this EUR 3.5 billion of net CapEx by the end of this year. Thank you, Naish. Pablo Bannatyne: Thank you very much, Naish. Our next question comes from Henri Patricot at UBS. Henri Patricot: I have 2 questions, please. The first one, I want to come back to the comments you made, Jon, on the customer business. You mentioned on track to reach the EUR 1.4 billion EBITDA this year and maybe close to EUR 1.5 billion in 2026. But actually, you're already very close to EUR 1.5 billion over the past 12 months. So I was wondering if you're just being a bit conservative on the outlook for 2026 or if there was some exceptional performance over the past 12 months in the third quarter, in particular, that will explain why we should expect a slower growth in '26? And then secondly, on the Puertollano advanced power fuels plant, which you now plan to start up in the second quarter and have the first contribution in the second half of '26. If I'm not mistaken, you're previously flagging start-up in early 2026. Wondering why it's taking a little bit longer and if there's a risk of further delay of this project. Josu Jon Imaz San Miguel: [Foreign Language] Going to your first question, I mean, EUR 1.4 billion of EBITDA, that is going to be this year. Cash flow from operations will be at around EUR 1.2 billion, roughly speaking, this year. I mean I think that I'm not conservative. I'm ambitious for 2026 when I say that EUR 1.5 billion of EBITDA is our target. Why I'm, let me say, ambitious because the target we are achieving now for customers in the retail and power business in terms of EBITDA are the targets we had for 2027. So we are anticipating 2 years the delivery of the strategic plan. Is this performance exceptional? I mean, I don't think so. I think that is structural. I mean, if you take what has happened with our customer business over the last 10 years, from 2016, 2017, we have doubled the EBITDA figures of this business. And we are developing this effort year after year. That is not because ups and downs in the market because we have had ups and downs over these 10 years. It's structural. And the reason is, first, new businesses, I mean, an EBITDA that was not there and now is there and is growing when new businesses mainly. I mean, I could talk about power and gas. I talk about lubricants that you know that now we have an international footprint. We will talk about the [ gas ]. I mean, this kind of business developed around the energy efficiency that is also new. On top of that, I mean, we have almost 10 million digital users of our app Waylet. That is a unique position, not only in the energy sector in Spain, in the retail leadership in Spain. So we are becoming a leading retailer in the country with more than 3.5 -- almost 4,000 sales points with 24 million customers, including Spain and Portugal without digital leadership. So it's structural. We are growing this business. Of course, we will have better and worse situation of the market. But let me say that with EUR 1.5 billion of EBITDA, I'm feeling quite comfortable. And in this sense, I think that it is ambitious. I mean, if you take the EBITDA of this business and taking into account the investment level in this business that, I mean, it's also growing because we are growing in the gas and power business and so on, that you could pay almost 60%, 70%, the 2/3 of the cash dividend of Repsol could be paid by the free cash flow of this customer business that is always hidden because we are in all forms always talking about Brent price, Henry Hub price, refining margin. But the reality of this business is there. The retrofitting of Puertollano, I mean, it's going to be in operation at the end of the first quarter. So there are some -- there is -- I mean, no material delay. Perhaps some weeks of commissioning the project, but that is not, let me say, material in a complex industrial project like that. It is on budget. It's going to be finished at the end of the first quarter. And in the second quarter of 2026, it's going to be fully operational. [Foreign Language] Pablo Bannatyne: Thank you very much, Henri. Our next question comes from Paul Redman at BNP Paribas. Paul Redman: Two, please. The first one is just on the EUR 3.5 billion of CapEx you're talking about, I think it's for next year. How much divestment is included in that? And will the cash in from the Spanish sale be included in next year's or this year's divestment target? And then secondly, you mentioned earlier, Jon, about a possible EUR 1.05 dividend for next year. I see that's in between your EUR 1.3 and EUR 1.1 dividend guidance or range for 2026. I just want to understand how you get to that EUR 1.05, what we need to think about. Josu Jon Imaz San Miguel: Thank you, Paul. I mean going to your first question, that is net CapEx, the gross CapEx is going to be higher. What we are seeing, clearly speaking about rotation today are mainly the 700 megawatts of Spanish assets I mentioned before that is going to be cash in, in 2026. Plus probably Pinnington in the U.S. that is going to be partially in operation at the end of this year, 2025 but we are not yet in the process of rotation and so on because you have to prove, let me say, the operation of the asset. So that probably is going to be in 2026. And I don't have in mind any other disposal now, but you know that we always are analyzing our portfolio in a dynamic way. But you are right. This figure is net gross is going to be higher, and we will give you more clarity about that in the Capital Market Day of March. And going to the dividend, I mean, as I mentioned before, and I'm sorry for not having the possibility to be more precise, but you are going to understand why. This year, the dividend has been EUR 0.975. What we have in the strategic plan is that the total amount distributed in cash is going to increase in a 3%. So there is a first effect of a 3% growing of this figure. But on top of that, the absolute amount is growing but we are going to have less shares in 2026 than the shares we had at the beginning of this year. Why? Because we are going to redeem and here is where I can't be more precise because we are still in the process of acquiring the shares in the share buyback process. But probably, I mean, we take the prices and so on, we are going to cancel a figure that is going to be close. And again, disclaimer is going to be close because this math effect to a 4.1%. When I take the 3% plus the 4.1%, we arrive to a figure that is going to be close to EUR 1.05. We will have a full clarity about this figure at the end of this year, knowing exactly the number of shares redeemed but we are going to deliver and we are going to do what we commit in our strategic plan in terms of distribution. Again, that is an important target and what we said on that is going to be delivered. Thank you, Paul. Pablo Bannatyne: Thank you, Paul. That was our last question today. With this, we will bring our third quarter conference call to an end. Thank you very much for your attendance. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Q3 2025 DHT Holdings, Inc. 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, Laila Halverson, CFO. Please go ahead. Laila Halvorsen: Thank you. Good morning and good afternoon, everyone. Welcome, and thank you for joining DHT Holdings third quarter 2025 earnings call. I'm joined by DHT's President and CEO, Svein Moxnes Harfjeld. As usual, we will go through financials and some highlights before we open up for your questions. The link to the slide deck can be found on our website, dhtankers.com. Before we get started with today's call, I would like to make the following remarks. A replay of this conference call will be available on our website, dhtankers.com, until November 6. In addition, our earnings press release will be available on our website and on the SEC EDGAR system as an exhibit to our Form 6-K. As a reminder, on this conference call, we will discuss matters that are forward-looking in nature. These forward-looking statements are based on our current expectations about future events as detailed in our financial report. Actual results may differ materially from the expectations reflected in these forward-looking statements. We urge you to read our periodic reports available on our website and on the SEC EDGAR system, including the risk factors in these reports for more information regarding risks that we face. As usual, we will start the presentation with some financial highlights. In the third quarter of 2025, we achieved revenues on TCE basis of $79.1 million and adjusted EBITDA of $57.7 million. Net income came in at $44.8 million, equal to $0.28 per share. After adjusting for the $15.7 million gain on sale of vessel related to the sale of DHT Peony and the noncash fair value loss related to interest rate derivatives of $0.4 million, the company had a net profit for the quarter of $29.5 million, equal to $0.18 per share. Vessel operating expenses for the quarter were $18.4 million and G&A for the quarter was $4.1 million. For the third quarter, the average TCE for the vessels in the spot market was $38,700 per day. The vessels on time charters made $42,800 per day, while the average combined TCE achieved for the quarter was $40,500 per day. DHT has a robust balance sheet with low leverage and significant liquidity. The third quarter ended with total liquidity of $298 million, consisting of $81.2 million in cash and $216.5 million available under 2 of our revolving credit facilities. At quarter end, financial leverage was 12.4% based on market values for the ships and net debt was just below $9 million per vessel, which is well below estimated residual ship values. Looking at our cash flow for the quarter, we began with $82.7 million in cash, and we generated $57.7 million in EBITDA. Ordinary debt repayment and cash interest amounted to $17 million and $38.6 million was allocated to shareholders through a cash dividend. Maintenance CapEx amounted to $1.6 million, and we invested $26.2 million in our newbuilding program. Additionally, we placed a $10.7 million deposit for the acquisition of DHT Nakota. The sale of DHT Peony generated proceeds of $51 million, and we used $22 million for prepayment of long-term debt. Positive changes in working capital and other items amounted to $6.8 million, and the quarter ended with $81.2 million in cash. Now let's move on to our quarterly highlights. Many of these have already been communicated as subsequent events to the second quarter or as part of our recent business update. We entered into a $308.4 million secured credit facility to finance our 4 newbuildings. The facility is co-arranged by ING and Nordea with backing from K-Sure. It is competitively priced at SOFR plus a weighted average margin of 132 basis points. The facility has a true 12-year tenure and a 20-year repayment profile. We have also entered into a credit facility with Nordea to finance the vessel acquisition announced in June. This is a $64 million reducing revolving credit facility with a 7-year tenure and a 20-year repayment profile. It is priced at SOFR plus a margin of 150 basis points, and it's consistent with our established financing approach. The vessel to be named DHT Nakota is built in 2018, and we hope to take delivery in a couple of weeks' time. In September, we made a $22.1 million prepayment under the Nordea credit facility covering all scheduled installments for the fourth quarter of 2025 and all of 2026. The facility matures in the first quarter of 2027 with only $3.7 million remaining, representing the final installment. 8 vessels serve as collateral for this facility with a current combined market value of about $650 million. During the quarter, we entered into 8 3-year amortizing interest rate swap agreements totaling $200.6 million. The average fixed interest rate is 3.32% compared to current 3-month term SOFR of 3.84% with maturity in the fourth quarter of 2028. As a subsequent event and as announced on October 13th, Svein Moxnes Harfjeld was appointed to the Board of Directors. He will, of course, continue to serve as President and CEO of the company. And now over to capital allocation and dividend. In line with our capital allocation policy of paying out 100% of ordinary net income as quarterly cash dividend, the Board approved a dividend of $0.18 per share for the third quarter of 2025. This marks our 63rd consecutive quarterly cash dividend. The shares will trade ex-dividend on November 12, and the dividend will be paid on November 19th to shareholders of record as of November 12th. On the left side of this slide, we now present our estimated P&L and cash breakeven levels for 2026. These figures include all true cash costs, and the difference between the 2 is estimated at $7,500 per day for next year. This discretionary cash flow will remain within the company and be allocated to general corporate purposes, primarily to fund the remaining installments under our newbuilding program. On the right side of the slide, we illustrate the accumulated dividend since we updated our capital allocation policy in the third quarter of 2022. The total accumulated amount is $2.93 per share, which reflects strong shareholder returns during a period of share price appreciation. Finally, let me update you on the bookings to date for the fourth quarter of 2025. We expect to have 901 time charter days covered for the fourth quarter at $42,200 per day. This rate includes profit sharing for the month of October and the base rate only for the months of November and December for contracts with a profit-sharing future. We anticipate 1,070 spot days in this quarter, of which 68% have already been booked at an average rate of $64,900 per day. The spot P&L breakeven for the fourth quarter is estimated to be $15,200 per day. And with that, I will turn the call over to Svein. Svein Moxnes Harfjeld: Thank you, Laila. As you all have likely noticed, the VLCC market is demonstrating significant strength. This strength should positively impact our earnings for the latter part of the fourth quarter. The current freight market strength is driven by growing demand for seaborne transportation of crude oil in combination with increasingly aging and fragmented structure of the fleet. Importantly, for VLCCs, the workhorse of the crude oil transportation markets, they are regaining their market share, though it's most competitive freight offering and efficiency. Geopolitics, trade and tariff dynamics, sanctions and conflicts are adding to the picture, creating disruptions and focus on security of supply as the global fleet is reducing its efficiency and productivity. The U.S.-China meeting in Kuala Lumpur agreed for a 1-year postponement on many issues, including the port fees. OPEC's decision to reduce spare capacity by reversing production cuts and bringing more crude oil to the market seems to be well absorbed, partly supported by the Chinese demand for both consumption and stockpiling. Research suggests Chinese stockpiling to not only be short term and optimistic, but the longer-term need to fill its increased storage capacity and meet defined requirements for strategic storage. Further, it suggests the need to boost its oil security with concerns of interruption in supply from sanctions and potential regional political conflicts playing a part. Lastly, a diversification in foreign reserves by buying oil and gold is said to be a consideration. Goldman Sachs reports that the world's biggest oil companies are expected to press ahead with plans to accelerate production growth when they report earnings. Analyst estimates compiled by Bloomberg suggests planned output growth between 3.9% and 4.7% to be in the cards. We have, as per usual, been traveling to spend time with our customers, and these reports mirror some of the key takeaways from our most recent trip. Several of our customers expect to expand their footprints and are presenting opportunities with demand for our services and more ships. We are grateful for this encouraging support, which leaves us highly constructive on our franchise and future. As always, we are looking into opportunities to develop DHT with continuous improvements in our service offerings and possible expansion. We have what we believe to be a resilient strategy with a focus on solid customer relations, offering safe and reliable services, maintaining a competitive cost structure with robust breakeven levels, a strong balance sheet and a clear capital allocation policy. The whole DSC team continues to work hard and operate with leading governance standards and a high level of integrity. And with that, we open up for questions. Operator? Operator: [Operator Instructions] We will now take the first question coming from the line of Frode Morkedal from Clarksons Securities. Frode Morkedal: So on the port fees, that's interesting, suspended for a year. So I guess the question I had is like, is this a good thing for the market because I guess a lot of people had estimated some type of inefficiencies because of it, especially on the Chinese port fees, right? So maybe if things go back to normal, what's the impact on the market and maybe on your own positions? Svein Moxnes Harfjeld: So the jury, of course, is still out. But if I reflect on when the port fees were introduced, then the market typically took a time out, right? So you had a very quiet short period before people sort of got their heads around what was going on and then went on to continue fixing ships. Of course, some of that have maybe improved the sentiment a little bit, and you have some replacement jobs and all that with short notice that could drive up rates. But as sort of the later period now, you would note that most of sort of the biggest shipowners, they are responding to the questionnaires that were presented by the Chinese authorities. including disclaimers on information and stuff like that. And I think it appeared that there was a relatively modest part or minor part of the fleet that were actually exposed to this and that would create sort of a true cost disruption. So right now, of course, with the news again that this is being put on hold for a year, we will have a little time out, and then I think people will restart to fix ships again. So let's see how it plays out. But as we said on the prepared remarks here, we do believe that the strength in the market in general is because there is simply strong demand and fragmented and shrinking fleet. So -- but exactly how it translates into TC earnings is, of course, too early to say. Frode Morkedal: Yes. Clearly. I don't know if -- do you know if China still has this tariff on U.S. crude oil? I haven't seen any news on it. Svein Moxnes Harfjeld: Sorry, I didn't hear you. Frode Morkedal: China retaliated on having like a tariff on U.S. crude oil specifically, right? So you didn't -- the U.S. crude exports to China basically went away. Svein Moxnes Harfjeld: But U.S. crude oil export to China has been very, very modest, right? It's just a small portion of total exports. So -- and the big -- the 2 state-owned oil companies in China, they also use facilities outside China to store and transship oil and all of that. So -- but I guess this truth sort of includes everything, I would assume. So that's at least what the commercial secretary suggested after the meetings. So if there were any, I think that will probably be out of the equation as well. So I would guess so. Frode Morkedal: Yes. Interesting. I guess question with spot rates now clearly very high, how is the effect on the time charter side? Do you see levels improving or maybe duration is improving? Or is it still a bit too early? Svein Moxnes Harfjeld: I think you've seen increased interest and there are some shorter-term charters that have been done at sort of improved rates. But of course, with the delta on spot voyages and yesterday's time charter rates, it's very hard to put the right price on it. And if you consider some of these long voyages that the VLCCs tend to perform, U.S. Gulf Far East cargo is 120 days. I mean the premium in the spot market will have a big impact on the balance earnings of a time charter and what would be required. So it's very hard to find a midpoint that sort of works for both parties. So I think, again, here, we will have to see a little bit. I would expect that if the firm market continues at sort of current levels for a while, then people will have to man up, so to say, and the bid-ask that will have to come in and in particular, on the customer side that they will have to pay up if they really want time charters. Frode Morkedal: Yes, makes sense. And I guess I would expect that you would consider adding time charter coverage if that happens, right? As we have stated many times, we like in general to have some level of fixed income. We have a number of time charters coming off now in the next few months. So, there's an opportunity to reprice those charters, if you like, or maybe develop new charters with new customers for different ships. So if we can find a common ground on something that is meaningful, prefer a bit longer tender, we are open to that. And we are sort of in -- I wouldn't say negotiations that's overstating it, but in sort of preliminary discussions on what customers might be looking for in general. And -- but these things take quite a long time to develop. So one has to be patient. Operator: [Operator Instructions] The next question comes from the line of Geoffrey Scott from Scott Asset Management. Geoffrey Scott: There's always been a reluctance from the more respectable charters to take ships that are over 15 years old. In 2009, 2010, 2011, there were a lot of deliveries of these in those 3 years. They're coming up to or have just passed 15 years. As prices go up for charters, -- do you see any reduced reluctance of the major charters to take ships over 15 years? And is there any possibility that they'll actually go past 20 years to 21, 22, 22.5 in the next couple of years? Svein Moxnes Harfjeld: There's always been a bit of a dynamic in -- when it comes to acceptance of the age or the perceived age limit of ships on the market. So in the stronger market when the customer has less choice, they seem to be a bit more pragmatic. I think as a recent, most customers accept ships up to 17, 18 years of age. We have 3 ships built in 2007. They are all on time charters to significant counterparties. But I think beyond 20, then at least for our sort of profile and what we do, the commercial opportunities are limited. There are other owners that can find some pockets and trades where they can use these ships, but it's somewhat limited, I would say. So our commercial life expectation of ships are up to age 20, although the quality of our ships could operate well beyond that if the market had opportunities. It's not really for us. But of course, the sanctioned trade have created a big market for older ships. I would think that, that market is somewhat satisfied now, and there are some people looking to even renewing that fleet by seeing if they can scrap ships that are 25 years or even older and then look to buy ships that are 17, 18, 19 years old to replace those ships that are 5, 6 years older. So it's a bit of a dynamic environment, and it's evolving rather than changing very abruptly, I would say. Operator: There are no further questions at this time. I would now like to turn the conference back to Laila Halvorsen for closing remarks. Svein Moxnes Harfjeld: Okay. I'll step in for Laila and say thank you very much for attending the call and wishing you all a good day ahead. Thank you. Bye-bye. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Houlihan Lokey's Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this conference call is being recorded today, October 30, 2025. I would now like to turn the floor over to the company. Christopher Crain: Thank you, operator, and hello, everyone. By now, everyone should have access to our second quarter fiscal year 2026 earnings release which can be found on the Houlihan Lokey website at www.hl.com in the Investor Relations section. Before we begin our formal remarks, we need to remind everyone that the discussion today will include forward-looking statements. These forward-looking statements, which are usually identified by use of words such as will, expect, anticipate, should or other similar phrases are not guarantees of future performance. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. And therefore, you should exercise caution when interpreting and relying on them. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition. We encourage investors to review our regulatory filings, including the Form 10-Q for the quarter ended September 30, 2025, when it is filed with the SEC. During today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating the company's financial performance. These measures should not be considered in isolation or as a substitute for our financial results prepared in accordance with GAAP. A reconciliation of these measures to the most directly comparable GAAP measures is available in our earnings release and our investor presentation on the hl.com website. Hosting the call today, we have Scott Adelson, Houlihan Lokey's Chief Executive Officer; and Lindsey Alley, Chief Financial Officer. They will provide some opening remarks, and then we will open the call to questions. With that, I'll turn the call over to Scott. Scott Joseph Adelson: Thank you, Christopher. Welcome, everyone, to our second quarter fiscal 2026 earnings call. We ended the quarter with revenues of $659 million and adjusted earnings per share of $1.84. And revenues were up 15% and adjusted earnings per share were up 26% compared to the same period last year. We are pleased with our results for the quarter, which reflect our strong business model and improving market conditions. We have benefited from a steady macro environment the volatility of tariff policies, which marked the start of the fiscal year has quieted. The downward pressure on interest rates has also improved confidence. Capital markets are wide open and capital is plentiful. All this has increased overall confidence in the deal-making appetite. Should current conditions persist we believe the second half of the year will show improvement versus the second half of last year. Our Corporate Finance business produced $439 million in revenues for the quarter, representing a 21% increase over last year's second quarter. CF continues to benefit from improving M&A markets with activity levels increasing as expected. In terms of volume, the number of completed corporate finance transactions in the quarter was the highest since the peak of M&A activity in late 2021. New business generation remains strong, providing visibility into continued growth in fiscal 2027. As we assess the remainder of the current fiscal year, our backlog suggests a shift in deal timing. Currently, we expect CF to deliver a strong fourth quarter relative to the third quarter, making a departure from our typical seasonal patterns and underscoring the momentum building across our platform. Additionally, we continue to see strong growth in our capital solutions business which is helping to drive solid performance in Corporate Finance. Financial Restructuring produced $134 million in revenues for the second quarter, a 2% increase versus the same period last year. FR continues to perform at elevated levels even as we see improving market conditions for both M&A and capital markets. Easing interest rates and improving macro environment have tempered new business activity in restructuring somewhat, but persistent backlog supports expectations for continued strong performance for this group through the balance of the fiscal year. Financial and Valuation Advisory produced $87 million in revenues for the second quarter a 10% increase versus the same period last year. FDA like Corporate Finance is benefiting from an improving M&A market with stronger performance in service lines typically affected by M&A and continuing growth in the group's non-cyclical services. Our non-U.S. business performed notably well in the second quarter with performance in both EMEA and Asia Pacific regions showing solid growth and improving key indicators underscoring the consistent brand growth and momentum we are achieving outside the U.S. In the second quarter, we hired 5 new managing directors, and we continue to attract senior talent drawn to our global platform. In addition, since our last earnings call, we have made significant progress on our acquisition pipeline. We are confident that our combination of individual hires and strategic acquisitions will continue to drive strong growth in senior bankers around the world. Our outlook for the second half of fiscal 2026 is positive. We performed well in the first half of the year despite market uncertainties, and we enter the second half of the year with a better macro environment than we had in the last 6 months. If conditions remain on the current trajectory, we are well positioned to continue to experience year-over-year growth. With that, I will turn the call over to Lindsey. J. Alley: Thank you, Scott. Revenues in Corporate Finance were $439 million for the quarter, up 21% compared to the same period last year. We closed 171 transactions this quarter, up from 131 in the same period last year and our average transaction fee on closed deals decreased. Financial Restructuring revenues were $134 million for the quarter, a 2% increase versus the same period last year. We closed 37 transactions this quarter compared to 33 in the same quarter last year, and our average transaction fee on closed deals decreased. For Financial and Valuation Advisory, revenues were $87 million for the quarter, a 10% increase from the same period last year. We had 1,075 fee events during the quarter compared to 903 in the same period last year, a 19% increase. Turning to expenses. Our adjusted compensation expenses were $406 million for the quarter, versus $354 million for the same period last year. Our only adjustment was $18 million for deferred retention payments related to certain acquisitions. Our adjusted compensation expense ratio for the second quarter in both fiscal 2026 and 2025 was 61.5%. We expect to maintain our long-term target of 61.5% for our adjusted compensation expense ratio for the balance of the year. Our adjusted noncompensation expenses were relatively flat at $82 million for the quarter, compared to $81 million for the same period last year. Our adjusted noncompensation expense ratio for the second quarter was 12.5% compared to 14.1% in the same period last year. On a per employee basis, our adjusted noncompensation expense for the quarter was $30,000 versus $31,000 for the same period last year. For the quarter, we adjusted out of noncompensation expenses, $2.6 million in noncash acquisition-related amortization. Looking at year-to-date performance, our adjusted noncompensation expenses increased 9.7% versus the same year-to-date period last year, consistent with our expectations for the fiscal year. Our other income and expense produced income of approximately $9 million versus income of approximately $5 million in the same period last year. The improvement was primarily driven by higher interest income earned on cash balances and investment securities. Our adjusted effective tax rate for the quarter was 29.7% compared to 31.3% for the same quarter last year. The decrease was primarily a result of decreased state taxes and decreased taxes due to foreign operations. For the second quarter of fiscal 2026, we adjusted out of our effective tax rate, the effects of nondeductible acquisition-related costs. Turning to the balance sheet. We ended the quarter with approximately $1.1 billion of unrestricted cash and investment securities. As a reminder, we will pay our deferred cash bonuses related to fiscal 2025 in November which will reduce our balance sheet cash. Also, in our second quarter, we repurchased approximately 210,000 shares and we will continue to evaluate balance sheet flexibility for acquisitions, versus excess cash for share repurchases. And with that, operator, we can open the line for questions. Operator: [Operator Instructions] Our first question today comes from Brennan Hawken from BMO. Brennan Hawken: So thanks for the outlook commentary in your prepared remarks. I appreciate that. You made a reference to the restructuring business and the fact that backlog supports continued strength. We heard from another firm that they were starting to see the new business formation begin to slow in restructuring. You did speak that the outlook in the environment looks a little more constructive. So are you also beginning to see some slowdown in new business activity? Or has that been more consistent for you? Scott Joseph Adelson: I mean I think that what we're saying is that we have started to see the pace of things slowing, but that our backlog is still quite robust. And we're also recognized as we've seen actually during this quarter, the things could spike in restructuring. And so we -- from a flow basis, I would say, the lowering of interest rates and the increasing M&A environment, just the economy overall does tend to put a damper on the level of restructuring activity. But at the same time, as we've seen, there are episodic shocks that continue to add to it. Brennan Hawken: Got it. Makes a lot of sense. And then on the other side of that coin, as far as corporate finance, we've heard indications that sponsors are beginning to engage. It certainly seems like your outlook seems to be improving on the corporate finance side, but maybe a little bit more explicitly, are you starting to see the sponsors come back to market? Would you agree with the assessment that, that activity level is picking up into year-end and looks good into calendar 2026? Can you add any color to what you're seeing with the sponsor cohorts, please? Scott Joseph Adelson: Yes. I mean, I think we've been really consistent. It is getting better quarter-by-quarter. And clearly, after Labor Day, a significant uptick in activity, and we think that we just see that continuing. J. Alley: And Brennan, I would add, look, I have heard the same commentary from some of our peers. I mean, the sponsor community has been back since the beginning of the year for us. Our mix of sponsor versus strategic is similar this year than it has historically been. So I would say it's business as usual for us with the sponsor community, although I do think that the -- some of the larger cap peers that dynamic is a little bit different. But I do agree momentum continues to increase, but they have been a force of our growth since the beginning of the fiscal year. Operator: Our next question comes from James Yaro from Goldman Sachs. James Yaro: Could we just start with the FDA and how to think about the growth algorithm there? Obviously, the business has evolved substantially in recent years, and the M&A cycle continues to evolve. So how do you think about the growth profile there over the long-term? Scott Joseph Adelson: Yes. I mean I think the way that we like to think about it is it really breaks down into 3 segments. I mean one of them is really not cyclical, which is our PV business, our portfolio valuation business, which continues to grow very consistently, very nicely regardless of cycle. We have an opinion business that a portion of it is tied to the business cycle and a portion of it that is not, quite honestly. And so that is more of a hybrid, if you will. And then our transaction advisory services, which are, we call it, advisory is much more tied to the M&A cycle. And so that -- and we don't break out, as you know, the revenues within those segments, but it is a makeup of those 3 with, I will call it a meaningful portion of it not being overly cyclical. J. Alley: And over the -- James, over the kind of longer run, look, our FDA business in strong M&A cycles, our FDA business is going to grow, likely to grow similar to our Corporate Finance business, but not quite as strong, just given the difference of businesses. And in a weaker M&A cycle, it will likely not go down. as much as our Corporate Finance business. So I think that it's going to follow in general, the same direction as our Corporate Finance business. But just less volatile. And whether that's half or 70% or 30%, it just depends on too many factors. But this -- what you're seeing now is pretty typical of what you might see as you're coming into a stronger M&A cycle. James Yaro: Awesome. So just one other one here. Scott, you talked a little bit about the corporate finance timing across fiscal third quarter and fourth quarter. I think you talked about just timing of deals. Is there anything specific that is driving that? Is it just when the deals have arrived on your doorstep or something else as to why as the third is weaker and the fourth is stronger? Scott Joseph Adelson: I think -- I mean, I think the way that we think about it is second half of the year historically is stronger than the first half of the year, that's been pretty consistent over time. And I think if you look at it this is consistent with the ramping of the business that we've been talking about. So I think that it is as much the momentum we're seeing building in the businesses than anything else. I don't know, Lindsey, do you want to add something on that. J. Alley: Yes. There is a little bit of mix in there. There is a little bit of timing. It is unusual for us to see this dynamic from a seasonality standpoint. Our kind of general views of the year haven't changed. It's just you're just going to see kind of that difference in seasonality in Q3 versus Q4. Operator: Our next question comes from Devin Ryan from Citizens Bank. Devin Ryan: You have Brian I wanted to add a quick follow-up to Brennan's question on the restructuring. You guys had a press release earlier this week about some health care hires. I know there's been some headlines about stress in the health care and the commercial real estate sector. I was wondering if you could just double-click into restructuring trends and some of that episodic growth, just pockets where you're seeing that? Scott Joseph Adelson: Yes. I mean from our standpoint, there are always sectors that we see restructuring kind of in, and I think some of them are thematic and some are not, I mean, obviously, something -- I'll give you an example like the decline in alcohol consumption, something like that, which tends to persist for a prolonged period of time has effects on those businesses to the extent they have leverage. So that would be an example. But there are others, obviously as well, and there's been a tremendous amount of news lately, obviously, related to more, call it, idiosyncratic risks associated with individual credits, but there is no massive standout sectors at this point. I would say it's very much across-the-board. And at this point, our business is very diversified across geographies as well as industries. Devin Ryan: Got it. That's a good segue into my second question. I was going to ask just about the recent hires in EMEA and APAC. I guess when you think about productivity of the non-U.S. bankers, is there anything like commentary on the time line for ramping the full productivity between U.S. or U.S. or just any MD-specific trends there? Scott Joseph Adelson: Yes. I mean I think that the productivity does vary by geography. There's no doubt about that, and some of that is just maturation of business that the industry. We are -- as we noted, seeing really strong growth in both EMEA and Asia Pacific and are very happy with how things are coming along in those regions. Having said that, the productivity per banker in those regions does tend to lag the U.S. Operator: Our next question comes from Brendan O'Brien from Wolfe Research. Brendan O'Brien: To start, I want to touch on the last question a bit more. And specifically, there's been a lot of -- the general expectation has been like the recovery will be driven largely by a pickup in U.S. activity, but the data looks like trends in Europe have been quite strong as well. So I just wanted to get a sense as to what the trends are that you're seeing in Europe today relative to the U.S.? And how you think those 2 fee pools will track over the near to intermediate term? Scott Joseph Adelson: Yes. I mean, clearly, the U.S. is still obviously the largest part of our market. Having said that, we continue to gain importance in both Asia Pacific and in EMEA. And we are seeing just that continue to grow with time. And if you look at the levels of activity that we are seeing year-over-year in those regions, it is up quite significantly and we feel very good about that. Obviously, the U.S. business, though, is the major driver of our business. J. Alley: And just given the size differences, I mean, for us, in the kind of year-to-date period, EMEA and Asia have outperformed the U.S. corporate finance business. Having said that, we don't know if that's because there's more momentum on the continent or because we're just a much smaller business in those 2 regions than we are in the U.S. And so -- but those 2 regions have performed well. We're super excited about our investments there. To answer your medium-term question, and we've said this to investors before. We think that fee pool in Europe for Houlihan Lokey could be as big as the people for us in the U.S. Whether it takes us 4 years to get there or 10 years to get there, we're less focused on the amount of time we're going to do it deliberately. But it's a very exciting market for us. We like the competitive dynamic, and it's a step-by-step path to get us to where we want to get in Europe or in EMEA. Brendan O'Brien: That's helpful color. And then just a follow-up to the discussion on restructuring. Another one of your peers indicated that more of the near-term deal flow that they've been seeing in restructuring has been driven more by traditional Chapter 11 more so than liability management activity. So I just want to get a sense as to whether that is something you're seeing in your own business? And if so, what is driving that shift? J. Alley: Yes. I mean we still -- we still see quite a bit of liability management to say that there is a trend away from that towards more traditional Chapter 11. It's probably a little early. But we continue to see a pretty healthy amount of liability management business and still some traditional in-court restructuring. And so I think too early. I think maybe we could better address that 3 to 6 months from now when we've just got a little bit more time behind us. Operator: And our next question comes from Ryan Kenny from Morgan Stanley. Ryan Kenny: I want to start off with how -- can you take us inside the mind of your clients? I mean, you have a unique view into the middle market in the U.S. and Europe? And how are your clients feeling about the economy, are animal spirits as high as they are for the large corporate deals? And what are some of the risks that are top of mind? Is it interest rates? Is it something else? Scott Joseph Adelson: Yes. I mean I think that, again, it's hard to paint. We're so global in so many industries, and it's very hard to paint everything with one brush like that. I think that in general, we are living in an environment due to geopolitical issues and everything else that just has a greater degree of uncertainty maybe than at other times in the past and that uncertainty is something that does weigh on people. Having said that, the level of noise that people are willing to accept and just get on with business has been quite impressive. Ryan Kenny: And when you think about, go ahead. J. Alley: Yes. With the larger cap peers, not only did they have kind of the same M&A winter that we went through for a couple of years. They had an administration that was opposed to bigger is better. And so they had a regulatory overhang as well. So there is probably a bit more pent-up demand for the larger cap, I mean very large cap transactions where the middle market has been during these last, call it, 5 years, a bit less volatile. And so we're seeing increasing animal spirits, but there's been a lot of activity in the large-cap space in the last 6 months and maybe a step ahead of what we're seeing in the mid-cap space. Ryan Kenny: And on the sponsor side, how sensitive are clients to doing transactions to interest rates. So if Fed pauses, is that going to have any material impact on the pipeline? Scott Joseph Adelson: Obviously, lower rates are better, but it's really not a material factor. Really the biggest driver is whether or not capital is available. And right now, capital is extremely plentiful. People can adjust to rates within reason that really from -- that affects large cap much more than it affects the middle market. Operator: Our next question comes from Alex Bond from KBW. Alexander Bond: You've noted that your acquisition pipeline remains pretty strong, and it certainly seems like a competitive hiring environment for senior talent at the moment. So curious to what extent this is maybe having an impact on the acquisition front. Have you seen ask prices step up here recently with the hiring environment still very competitive? And is pricing maybe somewhat of an obstacle on the acquisition side at the moment? Scott Joseph Adelson: It is very much unchanged from our perspective and continuing along, right? We feel really good about the pipeline in both near-term and long-term on it and really have not seen any fundamental shifts at all. Alexander Bond: Got it. Okay. And then just maybe on the Capital Solutions business. Wondering if you could expand upon the results for that area of the business this quarter. You noted it was pretty strong. Was the contribution maybe to the overall corporate finance revenues higher than typical this quarter? And maybe also how this compared to last quarter's levels. J. Alley: Yes. I think we're going to keep away from specifics to the capital markets business. I will tell you that it has continued to grow very well. We can safely say that, that business has grown in this cycle faster than our M&A business. That may not always be the case. M&A is starting to come back, but it continues to perform well and as a percentage of our Corporate Finance business. And we've said this before, it's now at or above 20% of the total Corporate Finance business. But getting into the specifics, I think we prefer to wait. Operator: [Operator Instructions] Our next question comes from Nathan Stein from Deutsche Bank. Nathan Stein: I wanted to ask about, I guess, an increase in call it, macro negative headlines recently associated with some outsized or at least unexpected losses at traditional banks and private credit funds not to mention an ongoing government shutdown. I mean how do -- does any of this impact how either your clients are thinking about doing deals or how you guys are thinking about potential future acquisitions? Scott Joseph Adelson: Yes. I mean we really have not seen any of that having any material impact. I think that all falls under what I was saying, call it, there is just more noise in this environment than in other really improving environments and people seem to be comfortable with a reasonable level of noise. And it's that from our perspective and our acquisitions that's not affecting it at all. Nathan Stein: That's helpful. And then if I could also ask -- yes, if I could also ask, the business is performing very well broadly. And the stock has performed well this year. Does any of this impact how you guys think about open market share repurchases? J. Alley: It's interesting, the stock performance on the margin does not affect our share repurchases. I think we repurchase shares to the extent that we issue shares as part of the compensation to our employees. And so we do our best to maintain our share count and minimize dilution. We also repurchased shares to the extent we think we have enough excess cash capital to both support our acquisition strategy and have enough to do some share repurchases. Unless there is a significant change in stock price on the downward side. I think our strategy around share repurchases is more taking a look at opportunities that are out there on the acquisition side, making sure we have enough capital to support them and then to the extent we have excess repurchasing shares. And you can see that we did start a little bit last quarter. And I can't comment on what we will do this quarter or next quarter because it depends. But we will -- you will see us kind of drill back into the market on occasion to the step we feel comfortable with that balance. Operator: And ladies and gentlemen, at this time, I'm showing no additional questions, I'd like to turn the floor back over to Scott Adelson for closing comments. Scott Joseph Adelson: I want to thank you all for participating in our second quarter fiscal 2026 earnings call. We look forward to updating everyone on our progress when we discuss our third quarter results for fiscal 2026 this winter. Thank you, everybody. Operator: Ladies and gentlemen, with that, we'll conclude today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Operator: " Daniel Carlson: " David Moss: " Mark Lowdell: " CJ Barnum: " Cory Ellspermann: " Denis Reznik: " Raymond James Ltd., Research Division Jason Mccarthy: " Maxim Group LLC, Research Division Unknown Analyst: " Operator: Greetings, and welcome to the INmune Bio Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. A transcript will follow within 24 hours of this conference call. At this time, it is my pleasure to introduce Mr. Daniel Carlson, Head of Investor Relations of INmune Bio. Daniel? Daniel Carlson: Thank you, operator, and good afternoon, everyone. We thank you for joining us for the call for INmune Bio's Third Quarter 2025 Financial Results. Presenting on today's call are David Moss, CEO and Co-Founder of INmune Bio; Dr. Mark Lowdell, Chief Scientific Officer and Co-Founder of INmune Bio; Dr. CJ Barnum, Head of Neuroscience; and Cory Ellspermann, INmune Bio's CFO. Before we begin, I remind everyone that except for statements of historical fact, the statements made by management and responses to questions on this conference call are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that can cause actual results to differ materially from those such as forward-looking statements. Please see the forward-looking statements disclaimer on the company's earnings press release as well as risk factors in the company's SEC filings, including our most recent quarterly filings with the SEC. There is no assurance of any specific outcome. Undue reliance should not be placed on forward-looking statements, which speak only as of the date they are made as the facts and circumstances underlying these forward-looking statements may change. Except as required by law, INmune Bio disclaims any obligation to update these forward-looking statements to reflect future information, events or circumstances. It's now my pleasure to turn the call over to INmune Bio's CEO, David Moss. David? David Moss: Thank you, Dan, and good afternoon, everyone. For our third quarter 2025 call, today, I will review key takeaways and provide an update on our platform programs. Following my review of the recent developments at INmune Bio, I will pass the microphone to Dr. Lowdell, INmune Bio's Chief Scientific Officer and inventor of CORDStrom, who will provide an update on our CORDStrom MSC platform and particularly our RDEB program, along with INKmune. Next, Dr. CJ Barnum, who leads our CNS drug development efforts, will provide an update on the Alzheimer's program; and then Cory Ellspermann, our CFO, will present our financial results, after which I'll conclude our prepared remarks with a review of our upcoming catalysts, and then we'll be happy to take your questions. Since taking over the role of CEO at INmune Bio in July, it's been a time of transition for the company. Having spent the last 2 years with our main focus on Alzheimer's trial, which ended in late June, we're now able to direct our attention to the next stage of development for our platform drug programs. And we're highly optimistic that the next couple of years will demonstrate the success of our efforts as we take our programs through key development milestones, which we expect could lead to benefits not only for investors, but for patients suffering from diseases with limited therapeutic options available at this time. CORDStrom is our most advanced program as we are now in the process of preparing for submission for marketing approval to the regulatory bodies in both the U.K. and the U.S. We believe CORDStrom has demonstrated a clear and safe benefit to patients suffering from recessive dystrophic epidermolysis bullosa, also referred to as RDEB, a very debilitating disease. Patients on the drug had a significantly reduced itch, which not only affects wound healing in these young sufferers, but also reduces the itch-scratch wound cycle. While RDEB primarily manifests as a genetic condition causing skin fragility, blistering and scarring due to mutations of the collagen VII gene, it also involves mucus membrane and internal organs leading to multisystem complications. While RDEB has traditionally been treated topically, RDEB is a systemic disease that has blisters and scarring in the mouth, esophagus, eyes, urethra and anal area causing nutritional deficiencies, emotional stress and other problems. We believe CORDStrom is potentially one of the first systemic treatments for RDEB and made an improvement in the quality of life of the patients treated in our trial. Looking beyond our initial indications of RDEB, we believe CORDStrom is a platform opportunity for INmune Bio as it has the potential to accomplish all sorts of things in many different diseases. For example, we can genetically modify it to treat cancer cells, which is what it was originally developed for, and there are many other modifications you will hear about in the near future. So there's a lot of things that we can do with CORDStrom to improve its targeting in a variety of rare diseases and indeed, less rare or more common diseases. We'll be excited to share these modifications in the future as well as expansions towards other indications. Turning to the XPro platform. We remain confident in its potential to treat neuroinflammation in Alzheimer's disease. In September, we submitted a manuscript detailing the results of the Phase II MINDFuL trial for peer-review publication. As we analyze the complete data set, we're gaining deeper insight into the drug's activity. Dr. Barnum will -- will elaborate, but our findings indicate positive results in patients with higher baseline inflammation. We're actively pursuing an accelerated regulatory pathway and preparing for our end of Phase II meeting with the FDA. Defining a clear path forward for XPro is a primary objective and may be crucial for strategic funding and partnership discussions. 2025 also saw us complete the Phase II trial of INKmune in prostate cancer ahead of schedule. With the primary endpoint and 2 of the 3 secondary endpoints met, I'm excited to have Mark share more on INKmune later. To conclude my remarks before I turn the call over to the team to discuss the individual programs, I'd like to thank the patients that participated in our trials, the clinical trial sites and our dedicated team for helping us execute these very complex trials. I also want to thank our investors for their continued belief in our novel platforms and support. Our decision to develop 3 very different drug platforms in parallel to provide strength and opportunity has borne fruit. INmune now has 2 later-stage platform therapeutics that have demonstrated success in clinical trials and are ready to advance to the next stage of development and a third which completed a Phase II trial successfully. Our value proposition to shareholders and patients is clear. First is to get CORDStrom from to MAA in the U.K., followed by a BLA in the U.S. Meanwhile, for XPro, we await regulatory alignment with the end of Phase II study to determine next steps. We anticipate all of this will happen in '26, an exciting year for the company. Now I'll turn the call over to Mark Lowdell for more color on CORDStrom and INKmune. Mark? Mark Lowdell: Good afternoon, everybody, and thank you, David, for the introduction. As you've heard, we're progressing towards drug registration, firstly in the U.K. and then the U.S. with CORDStrom in RDEB as our initial indication, whilst developing other indications for the platform at the same time. This is a truly debilitating disease, which presents itself in the first months of life and for which there is no cure currently. The median survival for those with severe disease is fewer than 30 years. And although skin wounds are the most apparent manifestations of the disease, the lesions, as David has told you, are present throughout the gastrointestinal tract inside the nose and behind the eyes. The disease is driven by inflammation and CORDStrom provides systemic suppression of inflammation. Most importantly, CORDStrom is most effective when activated by the inflammatory cytokines at the sites, so its effect is somewhat targeted. During the MissionEB randomized placebo-controlled trial in the U.K., over 120 infusions of CORDStrom were administered to over 30 children without any severe adverse reactions or adverse events. As David has said, reduction in systemic itch was a major reported benefit by patients some as young as 2 years old who used a cartoon depiction of whole body itch to demonstrate their experience severity. Itch control is important because the resulting scratch initiates new skin wounds and increases risk of infection, which is part of the disease cycle. And I can't emphasize how much important -- how very important itch is to these children as it drives a vicious itch scratch wound cycle but impairs wound healing by separating skin layers and forming new blisters. These rupture easily creating open wounds or exacerbating existing wounds, delaying healing and creating this terrible feedback loop. It's painful for these children with intense itch causing a poor quality of life with distress, sleep loss and emotional burden. Breaking this itch-scratch wound habit is difficult and highlights one of the special aspects of CORDStrom. MissionEB was an investigator-led trial. It wasn't sponsored or funded by INmune. We secured access to the entire trial data pack in August and have appointed an independent group of clinical statisticians to analyze all of the data in depth. This is critical for our submission to regulatory agencies and is well underway. In the trial, all patients received both CORDStrom and placebo, separated by 6 months, some treated first with placebo and then CORDStrom and the other half treated with CORDStrom first and then placebo. These in-depth analysis of these data show improvements in disease activity scores in all patient subgroups after CORDStrom compared to their previous placebo treatment. In preparation for registration filing, INmune in the U.K. has now relocated into rented CGMP manufacturing space, which is compliant with commercial production as a licensed medicine. We successfully completed the technology transfer earlier this month, and we're on track to be ready for U.K. filing at the end of Q2 next year. But alongside the CGMP work, we're confirming the complex mechanisms of action of CORDStrom in RDEB and validating assays to test drug batches at the end of manufacture. This work is very critical since FDA and other agencies require robust tests of drug potency and failures to get these right with cellular drugs have delayed other drug approvals for many years. This year also saw the completion of the Phase II aspect of our trial of INKmune in patients with castration-resistant prostate cancer. As David said, we met the primary endpoint of the trial in Q1 of this year, and analysis of the first 9 patients showed evidence of NK cell proliferation in vivo and generation of the functional memory-like NK cells that we understand INKmune generates in 4 of the 6 patients treated at the lowest and intermediate dose levels. The data from the patients in the highest dose cohort are awaiting analysis, but the team is tied up with CORDStrom at the moment. Thus 2 of the secondary endpoints were met. The final secondary endpoint was reduction in tumor load, and our primary measure was PSMA PET scans. But it was obvious from the analysis of the first 6 subjects that the patients being enrolled had very high disease burden beyond that, which would respond to immunotherapy. We thus decided that since we've met the primary and 2 of the secondary endpoints at both low and intermediate doses, we had identified the dose to take forward to a randomized Phase II trial and so we could close the current trial to recruitment. We're analyzing the blood samples and the PET scans from the final 3 patients at present, and we'll report them to you as soon as they become available. Now we plan to work on the design of the randomized trial during 2026 as resources become available. So 2025 has been incredibly busy for the U.K. team in supporting both INKmune and CORDStrom, but all the staff remain fully dedicated to delivering the goals we've set, and we look forward to providing more good news as the data become available. Now I'll hand over to CJ to report on the company's progress with XPro and look forward to any questions later in the call. CJ? CJ Barnum: Thank you, Mark, and good afternoon, everyone. We have established 4 strategic priorities for XPro. First, to secure regulatory alignment with the FDA at our forthcoming end of Phase II meeting; second, to pursue an accelerated approval pathway. third, to publish comprehensive insights from our Phase II MINDFuL trial; and fourth, to advance discussions with potential partners to support late-stage clinical development. During the third quarter, we achieved an important milestone by submitting the Phase II MINDFuL trial results for peer-reviewed publication. A preprint manuscript is now available on MedRx, providing the scientific community and our stakeholders with expanded insights. While much of the data has been previously presented, this manuscript introduces new analyses from the dose-compliant patient set. These are patients who received at least 21 of the 23 scheduled doses. This population reflects the impact of sustained therapy and has been recognized by the FDA as a potential indicator of disease modifications. The findings demonstrate that longer treatment durations with XPro are associated with greater improvements in neuropsychiatric symptoms and biomarkers, including pTau217 and GFAP. We continue to build a robust evidence base to advanced analysis of neuroimaging endpoints. These focus on white matter integrity, an indicator of myelin preservation and gray matter metrics related to neurodegeneration. Emerging results are expected to further substantiate XPro's potential as a differentiated disease-modifying therapy, and we plan to share these findings as they become available. There remains substantial unmet need beyond existing anti-amyloid treatments, particularly for patients with a strong inflammatory profile or those unable to receive anti-amyloid therapies due to safety concerns such as ARIA. XPro is uniquely positioned to address this gap as no ARIA-related safety signals were observed even among high-risk individuals. Despite the challenges inherent in Alzheimer's drug development, XPro continues to distinguish itself through its targeted patient selection, compelling safety profile and growing body of evidence. Our disciplined data-driven approach, which prioritizes scientific rigor, regulatory engagement and financial responsibility supports the long-term goal of establishing XPro as a transformative therapy and delivering sustained value to patients, partners and shareholders. We look forward to providing ongoing updates as we advance toward key clinical and regulatory milestones. I will now turn it over to Cory for the financial update. Cory Ellspermann: Thank you, CJ. At this time, I'll provide a brief overview of our financial results. Net loss attributable to common stockholders for the quarter ended September 30, 2025, was approximately $6.5 million compared with approximately $12.1 million for the comparable period in 2024. Research and development expenses totaled approximately $4.9 million for the quarter ended September 30, 2025, compared with approximately $10.1 million for the comparable period in 2024. General and administrative expenses were approximately $2.5 million for the quarter ended September 30, 2025, compared with approximately $2.2 million for the comparable period in 2024. At September 30, 2025, the company had cash and cash equivalents of approximately $27.7 million. And based on our current operating plan, we believe our cash is sufficient to fund our operations into Q4 2026. As of October 30, 2025, the company had approximately 26.6 million shares of common stock outstanding. Now I'll pass it back to David. David Moss: Thank you, Corey. Now I'd like to present upcoming milestones for the company, and then we can start the Q&A session. For our CORDStrom program, we have a number of significant events in front of us. In Q4, we'll present additional data from the trial. In mid-'26, we expect to file a marketing authorization application in the U.K. A few months after filing the marketing authorization application, we expect to file a BLA, biologics licensing application with the FDA. We'd expect to hear back from the FDA sometime by the middle of '27 or later. For XPro, we expect to accomplish a lot in the next few quarters. In Q4, we anticipate getting more MRI data conducted during the MINDFuL trial. With this data, we hope to show improvements in myelin, gray matter and white matter, which would support the cognitive and biomarker findings of XPro's benefits that CJ spoke about earlier. We expect to hear from the FDA on accelerated pathway sometime in Q1 of '26, and we anticipate having the minutes from the end of the Phase II meeting sometime in Q1 of '26. So a lot happening in '26. At this point, I'd like to hand the call back to the operator to poll for questions. Operator: [Operator Instructions] We'll take our first question from Gary Nachman with Raymond James. Denis Reznik: This is Denis Reznik on for Gary Nachman. So just a couple from us. So on XPro, as you're preparing for this end of Phase II meeting with the FDA, can you just walk us through what some of the biggest questions or discussion topics that you're hoping to get more clarity on? And then I believe you were previously saying that the meeting could occur before the year-end, and now you're guiding to the meeting occurring in 1Q. So could you just speak as to why the slight delay occurred? And I've got one follow-up. David Moss: Yes. No, I appreciate it, Denis. Let me start with the second part of your question, and then I'll let CJ jump to the first part. We anticipated getting everything together, but we weren't able to get enough of the data in time to really get it to the FDA to have the meeting at the end of Q4. I will say, though, that we're very close. It still could happen. We're going by the end of the date that the FDA puts forward. I don't know what that's going to look like. And then keep in mind that you don't get the minutes for the meeting until approximately 30 days after. Our experience with the FDA in the past has been that we usually get it on day 30 or very close to day 30. So we're being relatively conservative saying in Q1, which is the -- not only the period of time you have the response from the FDA, but the 30 minutes -- the 30 days to get the written minutes. CJ, I'll let you respond to the type of questions. I'm not sure we're going to publicly disclose them, but I'll tell you that they relate around setting up a registration study. CJ? CJ Barnum: Yes. I mean I think there's a few obvious ones out there. One of them is that we talked about quite a bit is EMACC, right? We want to understand the agency's view on EMACC. Another one of the key questions is the enrichment biomarkers. It's clear from our data that the patients that had greater inflammation were the ones that are more likely to respond. And this is somewhat novel in this space, enriching for these biomarkers. So these are the sorts of questions that we need to ask. And as David said, because our goal is to really get alignment on how we move this into a registration trial, another key question is the safety database, right? The agency usually requires a certain number of patients to be treated prior to -- before the drug could be commercialized. So I think those are sort of the obvious ones. There's some obvious or some other nuanced ones as well, but those are sort of the big questions that I think that we're -- that we can discuss at this point. Denis Reznik: That's super helpful. And then sticking with XPro on the partnership conversations, can you provide some color as to how those are progressing or at least maybe compare the tone of the conversations as to where they were at the end of last quarter? And then separately, on INKmune, can you just talk a little bit more about how you view the future of that asset? Is this something that you're going to take through development yourself? Or would you consider partnering with? David Moss: Appreciate it, Denis. So I'll let Mark jump in on INKmune. Let me just jump in a little bit further. I think that before we really have aggressive partnering discussions, there's been very top-level discussions with a handful of groups. I think like our investors, they want to see what the regulatory feedback and alignment looks like. And on top of that, they want to see more of the dataset. I think if we're able to provide imaging data, white and gray matter that aligns with what we saw in our highly inflamed patient group, I mean, that's going to be, I think, very compelling. So we're still gathering all the package together. We want to deliver a complete package where we have really serious discussions. Mark, do you want to comment about INKmune? Mark Lowdell: Yes. Thanks for the question. So as you know, we've published data on INKmune potentiating NK responses to a number of different tumors, both hematological and solid. So there are plenty of opportunities to take INKmune into Phase II trials now that we've completed one Phase II trial in other disorders and indeed going now into prostate and looking at patients with better risk disease. I'm always very keen to talk to potential partners and others that would want to invest in or buy the asset. But I think from our perspective at the moment is to get more Phase II data in randomized trials in at least prostate and then maybe other diseases as funds become available. And then, yes, indeed, look for partnership opportunities in the first instance and potentially keeping it within the company depending upon funding and taking it through to commercial in the way that we're hoping to do with or expecting to do with CORDStrom. David Moss: Next question please. Operator: We will move next with Jason McCarthy with Maxim Group. Jason Mccarthy: I'm going to concentrate them on the CORDStrom activity. First, has there been any feedback from European regulators with any specifics you could provide us for potential MAA filing? And do you think if you could file the MAA, that will be further supportive with regulators here in the States? Mark Lowdell: So another good question. So we are waiting for our scientific meeting with the MHRA. I sit on the British Pharmacopoeia, which is part of the MHRA. So I do get unofficial conversations with colleagues at the agency. And they have been very supportive of us taking this through for scientific advice before the end of the year. So we're putting that package together, and we will submit it as soon as we've got the data from the enhanced statistical analyses that are being done at the moment. So I'm expecting early next month to submit the data to the agency for a scientific advice meeting, which we may well get before the end of the year, but it's probably going to be early next year and then move ahead with our program. We have contracted a specialist advisory group that work or advisory company called TMC Pharma that works with rare diseases and has taken a lot of these through the agency. And so they're giving us a lot of daily feedback really. They're doing all of our paperwork for that filing to the MHRA and then for the MAA. So as David said, we are still on track to deliver the MAA submission to the MHRA by the end -- by Q2 next year or in Q2 next year. And then the regulatory agencies talk to each other a lot, as I'm sure you know, and none likes to gain say another. So I'm confident that if we address the subtle differences for U.S. use compared to European use and get those data ready in the months after our MAA filing, we'll be in a good position to file a BLA by the end of the year, by which time the MHRA will have had their first opportunity, they have their 80-day line to come back to us with comments, and we can -- any improvements that they come up with, we can put into the FDA document. So I think if we have got an MAA being considered by the U.K. agency that will feed into the FDA's opinion of the same data. But obviously, these are agencies, so we can't really comment on what they -- on their activities and the way in which they review other people's data. Jason Mccarthy: It's part of that discussion -- thank you, Mark. It's part of that discussion to include at least conversation or anecdotal thoughts around limitations of gene therapy, given that they are topical, there's now 2 that are on the market, as you know, and potential use in the setting of some of these gene therapies because you'd imagine many of these kids going forward are going to probably try this. Mark Lowdell: Yes, absolutely. But the -- neither of those provide a systemic solution. So this is what we believe makes CORDStrom unique. But also the side effects associated with those therapies, one of the major side effects that was reported is itch. So even if it was an additional therapy to address the itch that isn't addressed by these topical therapies, there's a rationale there for CORDStrom's use in patients who are potentially being treated with the gene therapies. But as I say, the data we're getting at the moment, which once we've got them audited and good enough to share or secure enough to share, are already demonstrating changes in systemic cytokines associated with CORDStrom treatment. So we believe that the strength of this drug will be its ability to have a systemic effect on inflammatory cytokines and therefore, downstream as the patients get treated for longer. in terms of the overall disease pathway. Jason Mccarthy: And just one mechanistic question, sort of a 2-part question. First, you had mentioned, can you talk a little bit about the uniqueness of cytokine-based activation for CORDStrom once it is given systemically, at least in a setting of inflammation like in RDEB and also the ability to use the CORDStrom platform and tailor it to specific disease types. Obviously, that would be beyond RDEB and how that separates itself from other MSC therapies that are out there. Mark Lowdell: Absolutely. I could talk for hours on that. But the first question was about inflammation. And we know that for some functions of some MSCs, they require what's called licensing. So they need to be activated by inflammatory cytokines. And indeed, we have evidence in vitro that cause there's a ton of things that CORDStrom cells do without being activated by inflammatory cytokines. And then there are additional cytokines and functions that they perform in the presence of inflammatory cytokines. Now as I'm sure you know, cytokines don't work -- don't really work systemically in vivo. They are signaling molecules between cells, and they normally operate over sort of nano distances. But -- so what we know is that these patients have inflammatory cytokines being generated at the site of itch actually and then the wound. And the itch response is driven by a particular T cell called Th2 releasing a cytokine called IL-31. And we know that the CORDStrom suppresses those Th2 cells and suppresses the myeloid cells that are also producing inflammatory cytokines, and they are induced by the inflammatory cytokines that are there. So yes, we think that these cells have a targeted effect in vivo. But your second question was about CORDStrom being used in other indications. And what makes CORDStrom truly unique? There are, as you say, many MSCs have been put into trial and there are at least 3 products, which are now licensed around the world. But all of -- none of those use MSCs from 4 pooled donors. So what we do is we take our [ molecical ]cords, we get them from cord blood banks in the U.K. And we isolate the MSCs from those individual cords and then we test them for their various different potencies. So if we know the mechanism of action we want in a particular disease, we choose 4 cords that have that particular strength in their mechanism of action, and we pool them. So CORDStrom for EB is from 4 pooled donors that we have characterized very well, and we have other donors with the same characteristics, which we've also pooled and shown we make the same product. So CORDStrom is one -- CORDStrom EB is one derivation of CORDStrom, but we can select donors cords with different characteristics that might -- some of them are specific to chondrocyte interactions and anti-inflammatory responses that could be targeted to osteoarthritis, for example. We've used another pool to treat SLE patients in in a trial in France, which is published. So we can -- the reason it's a platform is because by selecting different cords, it becomes a different drug because the potency data, the potency selection are different, and therefore, the potency assays and release assays are different. So that's why we're really excited about it as a platform for multiple different indications. Jason Mccarthy: Sorry, David, a quick one for you. Just we discussed this, you and I at length a couple of weeks back, but just some high-level thoughts of the regulatory environment here in the States, particularly around MSCs and cell therapy in general because as you guys both know, there is one approved -- the first one in the United States was approved last year for GVHD. It could be another filing for heart failure soon, and you know where Capricor is in DMD. And then here, you guys are coming with Well, that's not an MSC, but Capricor cell therapy potentially for RDEB next year? David Moss: Sure. I think the beauty of Mark and his team and when Mark comes up with an idea, he wouldn't pursue it if he knew that he couldn't manufacture it consistently in large scale to deliver not dozens of doses or hundreds of doses, but tens of thousands of doses at a commercial scale cost for a drug. Whereas a lot of companies, they get in love with the science and they develop a drug and then they go back if they get approval to figure out how to manufacture it and the manufacturing cost ends up being so high. A lot of it has to do with staff and facilities and time. And CORDStrom and INKmune both solve that problem, right? I mean we can get the cost down dramatically. We can provide a repeatable batch and so on. So I think that what Mark has done is exactly what the agencies want to see. They want to see a product that batch to batch consistency. It's the same. They know that if Mark produces a batch today or produces it 10 years from now, it's not a different product. And then from an end user standpoint, an insurance standpoint and a payment standpoint, yes, these are ultra-rare diseases, so the prices are high because the volume is low, but still the margins are there. Typically, cell therapies, oftentimes, the margins are a little bit tight. We've seen some companies that have some approvals with some cell therapies, and they charge very high prices for it. But what they're making net is a challenge. They've got a lot of work to streamline their manufacturing. Those are not things we have to worry too much about with CORDStrom because that's the way Mark has built it. Truly kind of this process engineering mindset from the start. big advantage. So from a regulatory standpoint, it's nice to see that they're approving products like this. We've -- I like to think that CORDStrom is the most advanced mesenchymal stromal cell program out there, at least as far as I have seen. And I think it's designed with the regulators in mind from the very beginning. Operator: We will move next with James Molloy with AGP Alliance Global Partners. Unknown Analyst: Matt on for Jim today. First, on CORDStrom, I wanted to ask about the treatment paradigm, the current treatment paradigm for RDEB in the U.K. and how that looks and where CORDStrom might slot in there? I understand Krystal VYJUVEK is approved there, but not Abeona's EB? Mark Lowdell: Yes. So it is approved. It's not approved by NICE for reimbursement through the NHS. So there is no RDEB-specific treatment available to be prescribed and paid for by the U.K. government for -- in our health care system. So it's only available for self-payers in the U.K. and I'm not aware of it being widely used, if at all. Certainly, the largest center for pediatric RDEB in the U.K. is Great Ormond Street, where the trial was led from. And they are weekly calling me up and saying, how can we open the next phase of the trial for the patients who were treated. So there is a big demand for this. I think alluding to what David was saying, the challenge here with the therapies that are available in RDEB is the price, the price point, and we have a drug here that can come in well below those current price points and have a systemic effect. So we already have -- this trial was driven by NIHR. It was a publicly funded trial, and we were paid to supply the drug. We didn't run the trial, as I said. And that -- the NIHR, which is part of NHS England, specifically said they wanted this drug to be developed as a commercial product if the trials were successful. So we have a lot of push in the U.K. to make this drug available to patients as soon as possible. And I don't see a problem in terms of competing drugs at the moment. What will happen in the U.S., I'm uncertain because obviously, those drugs are already licensed and are being used in the U.S. But it going to come down to efficacy and cost at the end of the day in terms of which ones survive and which ones and where CORDStrom comes within that. David Moss: No, sorry to interrupt. I just want to add, if you don't mind. We cheer on all the competitor products. When you see this disease, it's a huge unmet need in these children, it's just heartbreaking to see -- and so we cheer them on. But I think that the one thing to really keep in mind is that it's typically looked at as a dermatologic disease from a topical nature, but the systemic system is overlooked. But a byproduct of all of the 3 approved products in the United States is an increase in itch. If you look at the label, it will say itch. And that's really part of the process of healing, right? So the more healing you have the itch. And again, if you're going to itch, you're going to itch this cream off, you've got to cover it up, tremendously painful. And if you look at the list of the top complaints from RDEB EB patients, usually #1 is itch, even before pain. It's been described to us as like being bitten by mosquito 1,000 times a day. It's just chronic itch. And so it should slot nicely with the competitors. And again, keep in mind, we're conscious on the margins of the product from day 0 before we even started the trial. Unknown Analyst: Got it. And in terms of data points suggesting CORDStrom has a systemic effect, I know you mentioned the cytokines, but do you have any anecdotal or quantitative data suggesting symptomatic relief for patients in terms of systemic like wounds behind the eyelid and stuff like that? Mark Lowdell: Yes. So the data that are published from the trial by Great Ormond Street that were published a few months ago demonstrated the systemic effects that are associated with itch is a systemic disease effectively. But yes, there are systemic data reports from that. What we're looking at now are getting into those data much more acutely, and that's being done independently and blinded from us to guarantee that when we have the data to take to the agencies, there's no question that we have manipulated it. So we'll be getting those data, but I haven't seen them, so I'm unable to comment on them. But when they come through, we will be sharing them. David Moss: Yes. And I'll just add from an anecdotal standpoint, because a very good question. The patients on the trial could pretty much identify whether they're on drug or placebo. And one of the patients to us ended up speaking to the BBC and the BBC published an article about it, and he talked about his massive improvement in quality of life, being able to do things he wasn't able to do before. And this is something that we heard from some of the PIs as well. And visually, they saw an improvement in the quality of life of these children and their wounds look different to them as well. But if you type in BBC and RDEB into Google, I think it's the first thing that pops up, but that is a child that describes his experience on the MissionEB trial from CORDStrom. Unknown Analyst: Got it. And then just lastly, on cash runway. Where does your current cash position get you out to in terms of milestones with CORDStrom and also with XPro as well? David Moss: Yes. So Q1 is a big timing period for us for XPro. We should have very clear clarity on an accelerated pathway, end of Phase II meeting and certainly the imaging data by then. Our cash runway, as we've reported in the quarter is really to the end of next year in Q4. And then obviously, we've got -- we're getting close to the MAA, which will be around the middle of next year. On top of that, as Mark had alluded earlier, we'll have -- we should have some of the cytokine data and additional data around the MissionEB program towards the end of this year as well. So a number of milestones before we run out of cash. Operator: And this does conclude our Q&A session. I will now turn the call back to David for closing remarks. David Moss: Appreciate it. I'd like to wrap up our prepared remarks by saying that we're as excited as ever about the future of INmune Bio. Despite the setbacks of missing the top line on the MINDFuL trial, we're convinced in the prospects for XPro in the Alzheimer's disease and in other diseases. Meanwhile, we're very optimistic about filing an MAA and BLA in course from next year, and we believe that platform has far greater potential than the market is giving it credit for. We've had a number of attainable goals in front of us, and we appreciate your support as we go about achieving them. As always, we thank our stakeholders for your continued support and look forward to updating you on our progress on the discussion milestones. Thank you, everybody. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to the Indivior PLC Q3 Results 2025 Webcast and 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 host for today, Jason Thompson. Please go ahead. Jason Thompson: Thanks, Sharon, and welcome to Indivior’s Third Quarter 2025 Earnings Conference Call. I'm joined today by Joe Ciaffoni, Chief Executive Officer; Patrick Barry, Chief Commercial Officer; and Ryan Preblick, Chief Financial Officer. We are also joined by Christian Heidbreder, our Chief Scientific Officer, who is also available for questions. Before we begin, I need to remind everyone on today's call that we may make forward-looking statements that are subject to risks and uncertainties and that actual results may differ materially. We list the factors that may cause our results to be materially different on Slide 2 of this presentation. We also may refer to non-GAAP measures, the reconciliations for which may also be found in the appendix to this presentation that is now posted on our website at indivior.com. I'll now turn the call over to Joe Ciaffoni, our CEO. Joseph Ciaffoni: Thanks, Jason. Good morning, and thank you for joining our third quarter results call. I'll start with a brief overview of our performance in the quarter and detail the progress we are making against the Indivior Action Agenda. Pat will then discuss SUBLOCADE's performance and the progress we are making to improve SUBLOCADE commercial execution, and Ryan will discuss our third quarter financial performance and our raised full year 2025 guidance. We will then open the call for questions. We are encouraged by our strong financial performance and improved commercial execution in the U.S. We are making steady progress versus our priorities and Phase 1 generate momentum of the Indivior action agenda. We have taken several actions to simplify the organization and position Indivior for success moving forward. In the third quarter, we delivered strong 15% year-over-year growth in SUBLOCADE and benefited from continued price stability in SUBOXONE Film in the U.S. Total net revenue grew 2% year-over-year and adjusted EBITDA was up 14%. The momentum we have generated year-to-date is enabling us to raise our 2025 financial guidance. We now expect total net revenue in 2025 to be up versus 2024, driven by SUBLOCADE growth of 10% at the midpoint and assume SUBOXONE Film price stability for the remainder of the year. Adjusted EBITDA is now expected to grow 15% versus 2024 at the midpoint. I want to thank the Indivior team for their performance in the quarter and for their commitment to making a positive difference in the lives of people living with opioid use disorder in the communities that we serve. For the rest of the year, we are focused on completing Phase 1, Generate Momentum of the Indivior Action Agenda, and we will be ready to enter Phase II, Accelerate, on January 1, 2026. The Indivior Action Agenda is a 3-phased multiyear operational road map intended to maximize the potential of our business and make a positive difference in the lives of people living with opioid use disorder while creating value for our shareholders. We are making steady progress in Phase 1, Generate Momentum versus our key priorities that include growing SUBLOCADE in the U.S. the remainder of the year by improving commercial execution, taking actions to simplify the organization, eliminating all nonessential activities and establishing our go-forward operating model and determining the actions and investments necessary to accelerate long-acting injectable penetration in the U.S. BMAT category and to accelerate SUBLOCADE net revenue growth in 2026 and beyond. For our top priority, growing SUBLOCADE in the U.S., improved commercial execution was the primary driver of solid dispense unit growth. Pat will discuss our commercial progress in more detail. We also took several actions to simplify the organization, improve commercial productivity for SUBLOCADE and strengthen our financial positions. These actions are expected to result in an annual reduction of operating expenses of at least $150 million as compared to 2025. Our 2026 operating budget will not exceed $450 million. To focus and simplify the organization in Phase 1, Generate Momentum, we have completed the London Stock Exchange cancellation with Indivior now trading exclusively on the NASDAQ. We consolidated our operating footprint. We restructured our R&D and medical affairs organizations while preserving key capabilities. We announced our intention to pursue a change in domicile from the U.K. to the U.S. We discontinued the sales and marketing efforts in support of OPVEE. We will continue to distribute product upon request and meet all required contractual and regulatory obligations, and we are optimizing our Rest of World business to focus on Australia, Canada, France and Germany, which generates 77% of forecasted Rest of World net revenue and 94% of forecasted adjusted EBITDA while further reducing organizational complexity. With these actions, we have established our go-forward operating model that we anticipate will generate immediate accretion to the bottom line and improved cash generation as we enter Phase II, Accelerate of the Indivior Action Agenda on January 1, 2026. We plan to provide full year 2026 financial guidance in early January. Also, as part of Phase 1, we are determining actions and investments necessary to accelerate SUBLOCADE growth in the U.S. Included in this is our new direct-to-consumer campaign, which launched on October 1. In Phase II, Accelerate, we will be focused on accelerating U.S. SUBLOCADE growth throughout the year, and we expect to immediately accelerate profitability and cash generation at a faster rate in 2026. I am encouraged by the steady progress that we are making in Phase I, Generate Momentum of the Indivior action agenda. I am confident that we will finish 2025 with momentum, and we are well positioned to enter Phase II, Accelerate, on January 1, 2026. I will now turn the call over to Pat. Patrick Barry: Thank you, Joe. We are encouraged by our strong U.S. SUBLOCADE performance this quarter, which was driven by improved commercial execution. Our commercial team is dedicated to helping people living with OUD and have a strong belief in SUBLOCADE as the #1 prescribed long-acting injectable in the category. To strengthen commercial execution, we have been sharpening the field force's message delivery with higher utilization of SUBLOCADE's core promotional materials on every call to improve overall intent to prescribe. We also are continuing to focus on improving field force call productivity to enable better reach and frequency on treatment providers. Building on our position as the clear #1 LAI, we are reinforcing SUBLOCADE's treatment benefits with prescribers, including broadening HCP awareness of SUBLOCADE's label updates. These label updates include alternate sites of injection and rapid patient induction along with the ability to receive a second injection of SUBLOCADE at day 8. SUBLOCADE's rapid induction is a unique offering in the LAI category, and this clinical option for patients can help maximize the time at effective blood plasma concentration levels by accelerating the second 300-milligram dose. This option is strongly resonating with treatment providers. This improved commercial execution led to strong SUBLOCADE net revenue growth in third quarter. Unit dispense growth was solid at 8% versus prior year and 3% versus the second quarter. Total category share of LAIs and new patient share in the U.S. for SUBLOCADE remained relatively stable at approximately 75%. We also saw 11% year-over-year growth in the number of active SUBLOCADE prescribers and 11% growth in those prescribing for 5 or more patients. The number of SUBLOCADE patients over the trailing 12 months also grew 5% year-over-year. These results are important early indicators of our commercial execution. For the rest of the year, we remain focused on executing Phase 1 of the Indivior Action Agenda for SUBLOCADE. This includes continuous improvement in commercial execution to generate prescribing momentum for the benefit of patients and identifying investments to accelerate LAI penetration in the U.S. to deliver sustained SUBLOCADE net revenue growth in 2026 and beyond. As part of the investments we are making to accelerate the growth of SUBLOCADE, we rolled out a brand-new direct-to-consumer campaign. On October 1, we launched our new campaign, Move Forward in Recovery, which is designed to emotionally and authentically connect with patients and drive awareness of SUBLOCADE as a treatment option for patients struggling with moderate to severe opioid addiction. Grounded in patient insights and shaped by research and lived experiences from patients and caregivers, its objective is to connect with patients by celebrating the everyday moments of recovery progress. Through emotionally rich visuals and a deeply personal narrative, it highlights the potential for growth, transformation and the motivation to move forward for oneself, family and community. Importantly, the campaign addresses the stigma surrounding opioid use disorder by portraying the humanity and dignity of people in recovery, shifting the narrative toward hope and possibility. This campaign is being deployed with sustained investment levels through an omnichannel approach, including national television, digital and social media and in-office and point-of-care materials, along with a newly designed patient website. We're pleased to have our new campaign in the marketplace that is raising awareness and educating patients on the hope and possibility of recovery. While I'm pleased with our progress, we have several opportunities to drive further growth in U.S. SUBLOCADE. I'm confident that we will finish 2025 with momentum and accelerate U.S. SUBLOCADE growth in 2026 and beyond. I will now turn the call over to Ryan. Ryan Preblick: Thanks, Pat. First, I'll discuss our third quarter financial performance, then our raised 2025 financial guidance and close on the financial impacts of our recent actions to simplify the organization. We are encouraged by our financial performance this quarter, which includes strong U.S. SUBLOCADE net revenue growth, stable SUBOXONE Film pricing and year-over-year adjusted EBITDA growth. We have taken meaningful steps to strengthen the business and are on track to achieve our financial commitments and complete Phase 1 of the Indivior Action Agenda, Generate Momentum. Looking at the third quarter results in more detail, starting with the top line. Total net revenue of $314 million, increased 2% versus the prior year as SUBLOCADE net revenue more than offset expected pricing pressure on SUBOXONE Film and the continued wind down of PERSERIS. Total SUBLOCADE net revenue of $219 million, increased 15% versus Q3 2024. Dispense volume growth year-over-year was solid at 8%. On a sequential basis, total SUBLOCADE net revenue increased 5%, reflecting a 3% increase in dispense volume versus Q2. Q3 SUBLOCADE net revenue included a gross to net benefit of $10 million as well as a stocking benefit of $4 million. Turning to SUBOXONE Film net revenue in Q3. We benefited from continued price stability in the U.S. Q3 net revenue included a gross to net benefit of $13 million. Total non-GAAP operating expenses were $145 million in the third quarter, down 3% versus the same quarter last year. Non-GAAP SG&A was unchanged versus the year ago quarter. Non-GAAP R&D expenses decreased 11% due to the reprioritization of pipeline activities and to benefits from the restructuring of the R&D and Medical Affairs organizations. Adjusted EBITDA was $120 million in the third quarter, up 14% versus the same quarter last year, driven by higher net revenue and lower operating expenses. Touching on the balance sheet. We ended the third quarter with gross cash and investments of $473 million, up from $347 million at year-end. The increase in cash year-to-date was driven by approximately $200 million of cash flow from operations. Based on our solid performance year-to-date, we are raising our 2025 financial guidance. Our total net revenue guidance range is increasing to $1.18 billion to $1.22 billion. This raised guidance reflects better-than-expected year-to-date performance of SUBLOCADE and stability in U.S. SUBOXONE Film pricing. We now expect total net revenue in 2025 to be up versus 2024 at the midpoint. For SUBLOCADE, we are raising our full year 2025 net revenue guidance to the range of $825 million to $845 million. This represents year-over-year growth of 10% at the midpoint. We continue to see improving fundamentals for SUBLOCADE and expect to see growth on a demand basis for the remainder of this year. We are maintaining our gross margin guidance in the low to mid-80% range and expect to come in at the high end of our non-GAAP operating expense guidance of $585 million to $600 million. While our total non-GAAP operating expense guidance range is unchanged, we now expect SG&A between $510 million to $520 million, reflecting increased investment behind U.S. SUBLOCADE and expect R&D between $75 million to $80 million, reflecting the restructuring of our R&D and Medical Affairs organizations. We are raising our full year 2025 adjusted EBITDA guidance to $400 million to $420 million, which is an increase of 15% versus 2024 at the midpoint. Turning to our actions to simplify the organization as part of Phase 1 of the Indivior Action Agenda, we made several strategic decisions that position us to realize at least $150 million in annual operating expense savings off the top end of our 2025 non-GAAP operating expense guidance range starting in 2026. These actions reduce operational complexity, increased our focus on growing SUBLOCADE in the U.S. and strengthen our financial position. All the actions taken as part of Phase 1 of the Indivior Action Agenda have resulted in non-GAAP charges of $65 million to date. These charges include severance costs, real estate consolidations, write-offs for inventory, equipment and intangibles as well as other termination payments and consulting costs. The related cash impact is expected to be $40 million and will largely be paid out in the third and fourth quarters of this year. We are on track to deliver Phase 1, Generate Momentum and achieve our revised 2025 financial guidance. We are in a strong financial position as we enter Phase 2 of the Indivior Action Agenda, Accelerate, beginning in 2026, during which we expect to drop significant dollars to the bottom line and accelerate cash flow generation. We plan to announce our 2026 financial guidance in early January. I'll turn the call back over to Joe for concluding remarks. Joseph Ciaffoni: Thanks, Ryan. In conclusion, we have made significant progress on Phase 1 of the Indivior Action Agenda, Generate Momentum. We delivered strong U.S. SUBLOCADE performance in the quarter. We improved our commercial execution, and we took several actions to simplify our organization. With our go-forward operating model in place, we are well positioned to finish 2025 with momentum and begin Phase 2 of the Indivior Action Agenda, Accelerate on January 1, 2026. On a final note, given the optimization of our Rest of World business, I would like to take a moment to recognize and thank our colleagues outside the U.S. who are potentially impacted by this decision and who have worked so hard to ensure patients have access to our medicines. Your contributions to our mission of making a positive difference in the lives of people living with opioid use disorder are important and greatly appreciated. We will now open the call for questions. Operator? Operator: [Operator Instructions] And your first question today comes from the line of Dennis Ding from Jefferies. Yuchen Ding: Congrats on the quarter. I have 2 for you guys. So number one, the new $150 million OpEx cuts for 2026, can you please break down where this is coming from? How much of this was from the recent restructuring plans from your 8-K a few months ago, which I believe was all U.S. personnel? And how much of the OUS optimization is factored into this $150 million number? And then number two, when I look at SG&A as a percentage of revenue, it's around $515 million this year or 43% of revenue. But when I look at industry peers, it's around 25%. So to get to the peer average, that implies at least $215 million cut in SG&A alone. Can you comment philosophically where do you eventually see yourself relative to peers on SG&A spend? And if your goal is to get to peer average or perhaps even better than peers? Joseph Ciaffoni: Dennis, thanks for the questions and for the congratulations. I'm going to have Ryan answer the first question, and then I'll take your second question. Ryan Preblick: Thanks for the question. Before I get to the $150 million, I just want to make it clear that the first priority we had was to make sure we put the right resourcing and investments behind [ Generate ] Momentum, behind SUBLOCADE. And then we went through the exercise of taking a look at the cost structure and the complexity in the business. And what you saw was the net result here of $150 million. And you can break it down into 4 categories. The largest category, almost half is tied to labor. We reduced our headcount by over 32%. The second component was the reduction of all the nonessential spend through the categories and the functions of the business. Then there was the discontinuation of the sales and marketing of OPVEE and then also the final decision to optimize the rest of the world. Joseph Ciaffoni: And Dennis, with regards to your second question, we did not approach Phase 1 of the Action Agenda, Generate Momentum from a perspective of targets. What we were focused on is doing what is in the best interest of Indivior creating value for our shareholders. We believe that starts with maximizing the SUBLOCADE opportunity in the U.S. And then what we did from there is we removed what we believe are all nonessential costs from the organization. My commitment as we go forward is we will continue to ensure that we are only investing in activities that are essential to us maximizing SUBLOCADE in the U.S. and also maximizing the opportunity for our portfolio in Canada and Australia. So it's really not about targets. It's about what's right and in the best interest of Indivior and the value we can create for our shareholders. Operator: Your next question comes from the line of David Amsellem from Piper Sandler. Unknown Analyst: This is [ Alex ] on for David. First one for me is you've talked about gaining traction in commercial patients who, as we know, are more profitable. Can you speak about that opportunity and also how you are balancing that with the core Medicaid population that comprises the majority of the business currently? And then second question is, can you help us contextualize R&D spend going forward given all the organizational changes? Joseph Ciaffoni: Sure. Thanks for the questions. I'll have Pat take the first one, and Ryan can take the second. Patrick Barry: Yes. No, I appreciate the question on the commercial channel. And to your point, we want all channels to grow. We want Medicaid and commercial to grow, and we're certainly taking on the big effort of driving commercial volume. And so it starts with improved commercial execution around messaging and making sure that our customers understand the broad coverage that we have and the fact that those commercial patients, in most cases, 95% of the time, will have a 0 out-of-pocket. And then it continues with the important work of our -- working with our specialty pharmacy channel to make that as an efficient channel as Medicaid. And so we're starting that work, and we do anticipate that, that -- while that will take some time, that we will see impact as we get into 2026. But the fact is that the commercial channel is growing. And certainly, Medicaid is going to be the predominant channel for us, but we think commercial is a strong opportunity for us as well. Joseph Ciaffoni: Ryan? Ryan Preblick: Yes. And on the R&D spend, what you're seeing there is the consolidation and streamlining of the R&D and the medical team cost consolidations and the complexity there. But as it stands right now, we are focused on the Phase II assets and progressing them through 2025 and looking forward to the readouts in 2026. But to be very clear, if they are ready to proceed into Phase III, we do have the capabilities to make that happen. Operator: Your next question comes from the line of Chase Knickerbocker from Craig-Hallum. Chase Knickerbocker: Congrats on a great quarter here. Maybe just first on SUBLOCADE. Guidance implies a very strong Q4. Can you just speak to if we're starting to see a meaningful increase in willingness to prescribe from those label updates, kind of anything there? And then just second on that, on the LAI market generally, I mean, clearly back to substantial growth. Do you think we're now clearly kind of seeing the benefits of 2 voices out there driving market growth? Or just kind of give us an update on kind of your thoughts on the market there as it's apparent, it's very, very strong in the third quarter. Joseph Ciaffoni: Yes. So Chase, thanks for the questions. With regards to SUBLOCADE, what I believe we're seeing is the cumulative effect of improved commercial execution right now as we're getting better, we're doing better. We're also seeing the impact of the label changes as awareness rises playing through in the marketplace, along with significant investments we've made in commercial throughout the year. As it pertains to LAI penetration, what I would emphasize there is we believe and have learned we're the player that has the expertise and the resources to make the investment to create the awareness and drive the education around the category, and that's exactly what it is that we're committed to do. And I want to be clear, as we transition to 2026 with our broad DTC campaign, we are going to be investing beyond what it is that our models suggest that we should because we are committed to maximizing the potential of SUBLOCADE in the U.S. Chase Knickerbocker: And just with the strength that we're seeing, I mean, I know we're -- it's probably too early of a question, but certainly, it seems like we should be thinking about SUBLOCADE next year as maintaining kind of double-digit year-over-year growth as your guidance even implies for 2025 now. So just any thoughts you'd be willing to share there, Joe? And then just second, on capital allocation. EBITDA guide was impressive. Can you just speak to how you're thinking about capital allocation now that your balance sheet is going to be strengthening meaningfully? Joseph Ciaffoni: Yes. So with regards to SUBLOCADE in 2026, we'll hold on commenting on that until we give our financial guidance for 2026 in January. What I would say is we are encouraged that all the indicators in support of SUBLOCADE are pointing in the right direction. As it pertains to capital allocation, we're going to ask people to be patient. We want the opportunity to finish Phase I of the Indivior Action Agenda, along with our internal planning process to ensure we have a clear line of sight to the top line and the cash that we will be generating. Obviously, we'll have a lot of optionality as we go forward. Operator: Your next question comes from the line of Christian Glennie from Stifel. Christian Glennie: First one, maybe on some more around the sort of drivers here potentially on SUBLOCADE as it relates to some topics maybe we haven't touched a bit on for a while, particularly things like the -- whether there's any benefit you're seeing on average duration of use for patients, but then also the ultimate conversion of prescription into an actual dispense prescription. So anything to add there initially on that in terms of other drivers that could drive some growth? Joseph Ciaffoni: Okay. Christian, thanks for the question. I'm going to ask Pat to take that one. Patrick Barry: Yes. No, on dispense growth, we're seeing really positive indicators. We saw an 8% dispense growth year-over-year and a sequential growth that was solid off of a strong quarter. We're also pleased by the fact that some of the drivers behind that is we're increasing our prescriber base as well as increasing those from -- that are committed to writing [ 5 ] plus, which is a good indicator of solid prescribing and adoption. And so those are the indicators that we're really, really focused on. And we do believe that enhanced label is a differentiator in the marketplace because we're the only long-acting injectable monthly that has that rapid induction, and that's resonating very well with customers. Christian Glennie: And sorry, anything on the average duration that patients are on SUBLOCADE? Joseph Ciaffoni: Yes. So Christian, with regards to -- and that comes through the work we'll be doing through our specialty distribution in terms of conversion of patients to starts, and how long they continue on treatment. That's a work stream we kicked off. We're digging deeply into, and we'll comment more on that in 2026, but we expect those efforts to start to have impact in 2026. And that's one of the areas of which we believe will help accelerate SUBLOCADE dispense unit growth as we move forward. Christian Glennie: And then my second one will be around just a clarification on the OpEx guide for '26 in terms of the savings certainly. Does that imply that effectively rest of world is streamlined and as it will be by the 1st of January, effectively of '26? And then just to clarify on the R&D part, does that -- does the guidance assume that those Phase II assets progress into Phase III, for example, with the cost of that? Or is that something that may subsequently need an update? Joseph Ciaffoni: Yes. So I'll ask Ryan to take the first question. I'll take the second. Ryan Preblick: Yes. So regarding the budget for next year, where we said we will not spend more than $450 million. That includes everything. That includes our go-forward model in the U.S. and in the Rest of the World business. Joseph Ciaffoni: Okay. And from an R&D perspective, with the changes that we've made, we've preserved the capability if we're fortunate enough to have programs to advance when the data reads out to be able to do so, and that would not result in an additional increase to OpEx in 2026. Operator: Your next question comes from the line of Brandon Folkes from H.C. Wainwright. Brandon Folkes: Congratulations on a very good quarter. Maybe just following on from an earlier question. So as we look ahead to 2026 and the potential to move into Phase III, what do you need to see from the SUBLOCADE business to move into that phase? Are you expecting the enhanced commercial focus to be running at full speed at that stage? And alternatively, how do you see the sort of long-term path to peak sales in SUBLOCADE or peak penetration in the LAI market? And then along those lines, thinking again of Phase III, sort of what are you thinking about in terms of that breakout phase in terms of assets you would go after? Are these adjacencies that may not distract from the SUBLOCADE efforts? Just any color on that would be helpful. Joseph Ciaffoni: Yes. So Brandon, thank you for the congratulations and certainly appreciate the questions. First off, I want to emphasize, we are head down in Phase I, generate momentum and looking to finish off the year and be positioned to start Phase II accelerate on January 1. The second thing I want to emphasize, we've been clear, we have to earn our way to Phase III. And that starts with internally the confidence that we have the capabilities to take on more. And then, of course, externally, that we have the credibility to do so. So we're not focused to Phase III at this point. We're focused around executing what we're setting out to do. I think to your question directly, when we transition to Phase II, the answer will be, one, the assessment of the internal capabilities, which will be aligned to the results that we're delivering relative to the guidance that we're giving. From a -- what we would be looking at, what I would be comfortable saying now if we earn our way to it, will be commercial stage assets that have the potential to enhance our growth profile and to diversify our revenue. And I'll let Pat comment on long-acting injectable penetration and what it is that we're doing to drive that. Patrick Barry: Yes. Thanks, Joe. Look, right now, we are the market leader, and we've more than stabilized share at 75%. But the fact is, is that the overall LAI category still sits at 8%. And so our focus is going to be on continuing to improve our commercial execution. As we get better, the business will get better. We do believe that our effectiveness will drive LAI category. And we also are placing a big bet on direct-to-consumer. As the category leader, we want to drive education of those OUD patients and drive traffic into our treaters' offices. And we're investing in that way in a sustained way to do just that. Certainly not going to call a peak penetration rate, but I might direct you to other analogs, whether it be the HIV market or the schizophrenia market, where the LAIs have achieved 20% to 25% peak penetration. We're a long way off from that, but that's what's encouraging for us. When we get better, we have a big opportunity to capitalize on. Joseph Ciaffoni: And Brandon, one other thing I would add, we've also -- Vanessa Procter has joined our organization, and we believe that it's important that the work that we do in advocating for these patients, inclusive of public policy will be key in ensuring access and ultimately increasing long-acting injectable penetration. So that along with the consumer are really where we're going to put our efforts to drive LAI penetration. Brandon Folkes: Great. And a follow-up, if I may, and I think this may be for Ryan, bit of minutia, but just cash flow from operations in the quarter, are there [ one-timer ] there just sort of the spend on the cost reduction and the Medicaid rebate that you called out in 2Q? Anything else? And then maybe just any color on cash conversion in 2026? And then also on that $450 million OpEx spend, is that a cash basis or an adjusted accounting figure, which may include some noncash figures? Sorry about the minutia, but I just want to get this right, and that's all for me. Joseph Ciaffoni: Ryan? Ryan Preblick: Yes. So starting with the 2025 cash, the $200 million is primarily driven by the underlying business, the strong demand that got us up and generate $200 million. But that was offset, as you can imagine, by some CapEx and some debt payments. So that's the walk in regards to 2025. In regards to 2026, that $450 million is our adjusted operating expense budget in terms of expense that will hit our P&L for next year. Operator: Your next question comes from the line of Thibault Boutherin from Morgan Stanley. Thibault Boutherin: Just maybe a quick question on SUBLOCADE in the quarter, and I apologize if it's been touched on and I missed it, but if you could give more details on the gross to net in the quarter for SUBLOCADE. Given the guidance for the year, I assume there is no risk of reversal, but could that be a sort of bigger base when you think about growth for next year? And then the second question, just on SUBOXONE. I know it's not the focus, but just if you could touch a bit on your visibility now that we've seen pricing being a bit stable for more time. The erosion seems to be stable as well. So just how you think about it in your building block when thinking about the outlook for the organization going forward? Joseph Ciaffoni: Thank you for the questions, Thibault. I'll take SUBOXONE and then hand the SUBLOCADE gross to net question off to Ryan. So, look, what I'll comment on SUBOXONE is limited to 2025, which is we are at a point in the year where in our raised guidance, we are not assuming any additional price erosion. So that's different than what we've previously said. We're assuming price stability. We've also seen a relatively slow decline from a share perspective. In terms of 2026, I'm going to hold until we have a full picture of the evolution of the payer landscape and those dynamics. So we'll -- that certainly, from a revenue perspective, will be incorporated into the guidance that we give in 2026. And then Ryan on SUBLOCADE. Ryan Preblick: Yes. So in regards to the Q3 net revenue, to give you a little color, we booked the $219 million, which was up 15% versus last year, driven primarily by the dispense. Within that number, you saw the result of our normal quarterly balance sheet review of our accruals. There was a gross to net release of $10 million in there, and then there was also some stocking in terms of shipment phasing. So that's the $4 million. So a total of $14 million of benefit in the quarter. Operator: I will now hand the call back to Joe for closing remarks. Joseph Ciaffoni: Thank you, operator, and thank you to everyone for joining the call today. We look forward to updating you on our progress as we execute the Indivior Action Agenda. Have a great day. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Hello, and welcome to today's Tyler Technologies Third Quarter 2025 Conference Call. Your host for today's call is Lynn Moore, President and CEO of Tyler Technologies. [Operator Instructions] And as a reminder, this conference is being recorded today, October 30, 2025. I would like to turn the call over to Hala Elsherbini, Tyler's Senior Director of Investor Relations. Please go ahead. Hala Elsherbini: Thank you, and welcome to our call. With me today is Lynn Moore, our President and Chief Executive Officer; and Brian Miller, our Chief Financial Officer. After I give the safe harbor statement, Lynn will have some initial comments on our quarter, and then Brian will review the details of our results and update our annual guidance for 2025. Lynn will end with some additional comments, and then we'll take your questions. During this call, management may make statements that provide information other than historical information and may include projections concerning the company's future prospects, revenues, expenses and profits. Such statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from these projections. We would refer you to our Form 10-K and other SEC filings for more information on those risks. Also in our earnings release, we have included non-GAAP measures that we believe facilitate understanding of our results and comparisons with peers in the software industry. A reconciliation of GAAP to non-GAAP measures is provided in our earnings release. We have also posted on the Investor Relations section of our website under the Financials tab, a schedule with supplemental information, including information about quarterly recurring revenues and bookings. On the Events and Presentations tab, we posted an earnings summary slide deck to supplement our prepared remarks. Please note that all growth comparisons we make on the call today will relate to the corresponding period of last year unless we specify otherwise. Lynn? H. Moore: Thanks, Hala. Third quarter results once again exceeded expectations across our key revenue and profitability measures, continuing the momentum we saw in the first half of the year. Total revenues grew by almost 10%, led by 20% SaaS revenue growth and 11.5% transaction revenue growth. We're also pleased to report solid bookings in Q3 as total SaaS bookings grew 5% sequentially and rose 5.8% year-over-year to reach a new all-time high. Our results reflect a high level of execution across our team as we advance our cloud strategy to lead the public sector's digital transformation. Our leading sales indicators, including RFP and demo activity remained steady, reflecting a healthy new business pipeline. Throughout the year, we have not seen any fundamental change in public sector demand nor have we seen any material impact on demand from DOGE or related initiatives or more recently, the federal government shutdown. As we've discussed previously, we view efficiency mandates as a long-term tailwind for our software and services across a large replacement market of aging mission-critical systems. We continue to operate in a resilient budget environment with allocations increasingly directed towards technology investments as a key lever for maximizing efficiency and productivity. We are executing our strategic priorities from a position of strength, grounded in durable fundamentals that reinforce our leadership position and competitive differentiators. Our 4 key growth pillars remain central to this strategy: Completing our cloud transition, leveraging our large client base, growing our payments business and expanding into new markets. Operationalizing our cloud-first strategy is fully embedded as the cornerstone of how we deliver, innovate and scale. Our cloud living approach will bring together technology and talent to drive agility and continuous improvement, ensuring consistency across releases and improve time to value for clients. Building on this foundation, our purpose-built AI innovation is amplifying the power of the cloud, creating more seamless connected client experiences, deepening relationships and expanding cross-sell and upsell opportunities across our portfolio. I'd like to highlight a few third quarter wins that illustrate progress against our growth objectives with a broader list of key deals included in our quarterly earnings deck. We continue to gain traction with our AI-driven solutions. Significant deals this quarter include the contract with Hillsborough County, Florida, the state's third largest county for document automation, adding $953,000 in ARR and a contract with the State of Arizona for our priority-based budgeting solution. We also signed a contract with the South Carolina Department of Administration for our resident engagement solution, adding to our growing roster of state clients, unlocking streamlined government services access through our AI-powered resident assistant. We continue to build momentum in the public safety market with competitive wins that demonstrate the breadth of our integrated offering and market strength. Public safety deals this quarter included contracts with Coweta County, Georgia in the metropolitan area of Atlanta for our full enterprise public safety suite and a cross-sell win with the City of Columbia, Missouri, an existing enterprise ERP client. We're also pleased to see market success from our recent acquisition, Emergency Networking, with the first statewide win for our National Emergency Response Information System with the state of Pennsylvania, serving more than 2,000 fire agencies across the state. Finally, we signed a statewide contract with the Colorado Department of Corrections for our Inmate Services Financial suite, which is expected to generate approximately $2 million in transaction-based ARR. Now I'd like Brian to provide more detail on the results for the quarter and our updated annual guidance for '25. Brian Miller: Thanks, Lynn. Total revenues for the quarter were $595.9 million, up 9.7%. Subscriptions revenue increased 15.5%. Within subscription, SaaS revenues grew 20% to $199.8 million. As we've discussed previously, there is often a lag from the signing of a new SaaS deal or flip to the start of revenue recognition that can vary from 1 to several quarters. Because of this as well as the timing of SaaS renewals and related price increases, SaaS revenue growth and SaaS bookings, both year-over-year and sequentially may fluctuate from quarter-to-quarter. Transaction revenues grew 11.5% to $201.3 million, driven by higher transaction volumes from both new and existing clients, increased adoption and deployment of new transaction-based services and higher revenues from third-party payment processing partners. Total bookings for Q3 were up 2.6% year-over-year. Total SaaS bookings, including new SaaS deals, flips of on-premises clients, expansions and renewals reached a new quarterly high, up 5% sequentially from Q2 and up 5.8% year-over-year. This bookings growth was driven by higher flips as well as expansions and renewals from our installed base. Total ARR from new SaaS deals and flips signed this quarter was approximately $30.8 million, up 8.5% sequentially from Q2 and down 3.3% from last year. ARR from flips rose 64%, while new SaaS ARR declined 39% against a difficult comparison from the exceptional number of large deals last year. As a reminder, the lumpiness of large deal timing was also evident in last year's fourth quarter new SaaS bookings, which also included several large deals. Our total annualized recurring revenue was approximately $2.05 billion, up 10.7%. Our non-GAAP operating margin expanded to 26.6%, up 120 basis points from last year, reflecting a continued positive shift in revenue mix towards higher-margin SaaS and transaction revenues and efficiency gains across our cloud operations. Cash flows from operations and free cash flow were solid at $255.2 million and $247.6 million, respectively, down slightly year-over-year, mainly due to the timing of working capital changes. We ended the quarter with $600 million of convertible debt outstanding and cash and investments of approximately $973 million. Our annual guidance for 2025 is as follows: we expect total revenues will be between $2.335 billion and $2.360 billion, the midpoint of our guidance implies growth of approximately 10%. We expect GAAP diluted EPS will be between $7.28 and $7.48 and may vary significantly due to the impact of discrete tax items on the GAAP effective tax rate. We expect non-GAAP diluted EPS will be between $11.30 and $11.50. Our estimated non-GAAP tax rate for 2025 is expected to be 22.5%. We expect our free cash flow margin will be between 25% and 27%. We expect research and development expense will be in the range of $202 million to $205 million. Other details of our guidance are included in our earnings release and in the Q3 earnings deck posted on our website. In addition, while we are currently in the middle of our 2026 planning process, I want to share an early view of our revenue outlook for next year, while we continue to evaluate our investment priorities. For 2026, we currently expect SaaS revenues to grow approximately 20%, and we anticipate total recurring revenue growth will be within our long-term target range of 10% to 12%, excluding the impact of the wind down of the Texas payments contract. Our 2025 guidance and 2026 revenue outlook reflects solid progress towards our 2030 goals, although long-term growth and margin expansion will not be linear. Now I'd like to turn the call back to Lynn. H. Moore: Thanks, Brian. We're pleased that our third quarter performance again surpassed expectations, and I remain confident in our ability to deliver sustained growth through our unique competitive strengths that position us to lead our clients' digital transformation through enhanced cloud capabilities, improved client experience and the next wave of AI modernization. We remain on track to achieve our 2030 targets, executing well and delivering across all key priorities. Importantly, our 2030 plan did not contemplate potential additive growth from M&A or AI, but we expect upside potential from both of those growth opportunities. Our balance sheet remains healthy, and we currently have more than $1 billion in cash and short-term investments. Our $600 million convertible debt matures in March of '26. Based on our internal modeling and interest rate movement since we issued the convert, it has proven to be an efficient component of the financing of the NIC acquisition. As we grow free cash flow, our historical capital allocation priorities remain unchanged and include internal investments, M&A and opportunistic share repurchases. We repurchased approximately 300,000 shares in Q3 in part to offset potential dilution from our convertible debt. Following our repurchases, the stock saw further weakness to levels we believe represent an attractive long-term value proposition, but most of the decline took place after our blackout period commenced. On the M&A front, we have closed 2 acquisitions this year, MyGov and Emergency Networking, and our M&A pipeline is active. We continue to follow our proven playbook, adding competitive products or functionality that are adjacent to or complementary with our existing core business. We expect to leverage our established sales channels and client base to grow acquired businesses faster than Tyler's overall growth rate. Looking ahead to 2026 and beyond, you'll see us take a more proactive intentional approach to M&A within our general guidelines while staying disciplined on valuation. Over recent years, we've discussed a higher bar for M&A. Yet since the NIC acquisition, we've closed 11 transactions of varying sizes for a total purchase price of nearly $400 million. The higher bar reflected both management bandwidth and balance sheet considerations. Going forward, we'll continue our disciplined valuation approach and consider management bandwidth, but I'd expect to use our significant free cash flow and if circumstances warrant reasonable levels of debt to drive future growth through M&A and when appropriate, fund opportunistic share repurchases. Now I'd like to make a few comments addressing some of the market noise around AI. For more than 25 years, Tyler has successfully navigated the public sector through successive waves of technological transformation from the emergence of web browsers in the dot-com revolution, to mobile computing, cloud migration and now artificial intelligence. Each shift brought similar promises. New entrants with new technology would disrupt established players. And each time, we learn the same fundamental lesson, technology alone never wins. In the public sector, durable outcomes come from deep domain expertise, trusted client partnerships and disciplined execution. That's been our edge, and it still is. Today, we are building on those same principles and expect to guide the public sector into the next era, one that's driven by AI. And we are confident that no company is better positioned than Tyler to lead this transformation. AI's effectiveness depends on quality data. Our 15,000-plus clients generate vast amounts of data daily through our systems, and they trust us to govern it responsibly. Through well-structured data partnerships and governance frameworks, we can leverage this client data with appropriate permissions and safeguards to build AI solutions that truly understand government operations and complex workflows. Our clients are ready, and they're seeing results. Early deployments of products like document automation and priority-based budgeting are delivering 10% to 30% productivity gains and 2 to 3x ROI on targeted processes while maintaining the level of reliability and trust that our clients demand. Looking ahead, I view our AI opportunities in 3 categories. First, internal efficiencies where we'll invest and set specific ROI targets. For example, we're currently scaling our investments in AI tooling for all 2,000 of our product development team members, rolling out the tooling, training and enablement required to innovate and deliver at the speed of AI. Second, competitive differentiation with existing products to win more business and provide more meaningful upsell opportunities. And finally, new products through M&A or internal development that drive revenue growth. Agentic AI, operating as a digital extension of the workforce has a natural path to monetization because it delivers clear, obvious and measurable outcomes, such as hours saved, backlogs reduced or revenue recovered. When that value is proven, we believe Tyler can capture a fair share of the ROI by simply as a predictable annual SaaS fee tied to the value. It's also interesting to note that some of our forward-thinking clients are starting to blend their software and labor budgets, allocating more of the latter towards their digital workforce. As digital labor shows impact, agencies can reallocate portions of labor spend to software. If this trend continues, we believe it will further expand Tyler's opportunity. In summary, and in my opinion, some of the noise around AI and vertical software has been a bit overblown. I've quipped that AI itself is fueling displacement fears and there's still significant hype, reminiscent of the dot-com era. With every technology cycle or transformation, there are shifts to redefine markets and leadership positions, and yet Tyler continues to endure, thrive and lead. To me, the question people should ask is, who is best positioned to lead the public sector through this next transformative cycle? I contend it's Tyler. Now we'd like to open the line for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Alex Zukin of Wolfe Research. Aleksandr Zukin: Maybe just the first -- I'll go with a tactical question first around some of the numbers and then maybe a high-level one. So maybe, Brian, for you, just understanding and helping us bridge the decline in kind of net new annual SaaS bookings year-to-date in the quarter on tough comps from last year, but the confidence in SaaS revenue growth for next year at 20%. Maybe just help -- give us a little bit of context for when the implementations, when those conversions need to happen from that prior booked business to hit that number? Like how much visibility do you have on that relative to previous years? And maybe some guardrails on those estimates for next year? And then why pull some of the segmented guidance for this year? Maybe just help on those 2 points, and I've got a big picture one. H. Moore: Yes. As we look -- and as we said, this is a preliminary look at 2026 as we're building out our plans, but we expect that SaaS revenues growth will be in that 20% range. It's really built up from all of the factors and our visibility into those that drive SaaS revenue growth. Part of that is new SaaS bookings, both those that will happen next year and those that have already happened. And as we've talked about, there can be a lag from 1 to multiple quarters. Sometimes these deals are phased in as they hit revenue. So some of that growth is coming out of the bookings that we saw this year and the bookings that -- some of them even that we saw last year as those are phased in. So effectively out of our backlog. There's also the impact of flips. We've talked about the trajectory of flips continuing to be on the uphill side. So those are still growing both in terms of number and in terms of size. So our expectations around flips next year are layered into that. And then there's our -- the renewals, the price -- the sales to new customers, which actually reflect the majority of new SaaS bookings are coming from add-on sales to existing customers, not the new name deals that we also disclosed. And then there's the pricing impact of our annual increases that we see on renewals. So as we look at all those -- how we build up all of those, those -- we have, I'd say, at least as good a visibility as we have in any normal year. And that is what drives that confidence around that 20% range for growth next year. Brian Miller: And on your question about segmented guidance, I assume you're asking about the breaking out revenue guidance by line item. We've given that early in the year to help with modeling in general. But now that we're down to the fourth quarter, we really don't have any significant changes around what we've given in the past. So we've tried to simplify things a bit and just go with the overall revenue guidance. Aleksandr Zukin: Got it. And then, Lynn, maybe for you, maybe you talked about not really seeing an impact from budgets and budget cycles in DOGE, which makes a lot of sense. When -- I guess it felt like the commentary around M&A was maybe a little bit more pointed. So maybe I'll just ask the question around -- how much should we anticipate from an organic -- from a total top line contribution maybe for fiscal '26 and beyond? Is this a change in terms of the point or so from M&A that we've kind of come to expect? Are you thinking maybe more can come because the opportunity set is so much broader than it's been before because of AI? Or what's the signal that you want us to take away from that comment? H. Moore: I think really the signal is, one, we've done 2 deals this year. They were relatively small. We do have an active pipeline. They're not necessarily large deals. I wouldn't expect '26 to have a meaningful impact more than that sort of 1%-ish range, assuming other deals may or may not go. Really, the comment is based around the fact that, hey, the last several years, we've talked about the need to strengthen our balance sheet, and we've talked about management bandwidth, not just because of M&A deals, but also we have a lot of strategic initiatives going on. And throughout this year, as you know, we've gotten to the point where we have the cash on the balance sheet to pay off the convert. We are getting past some major hurdles on some of these internal investments and strategic initiatives even as more are spinning up. And I just feel like we're more in a place now where we can actually be a little more proactive, whereas over the last few years, I think we've been a little more reactive, more responding to brokers instead of other types of deals. Now to be fair, the Emergency Networking deal that we did this year, that was something we proactively went after. They were a partner of ours. That's a proven model for us. We get to know them out in the market. Our ability to close on deals when we knock on doors or we establish a relationship versus a broker bringing it to us is much higher. And I think we're just in a position where I feel like we have the more of the ability, both, again, from a balance sheet perspective and a management perspective, everything to sort of go back to more of our traditional approach pre-NIC. Operator: Your next question comes from the line of Terry Tillman of Truist Securities. Terrell Tillman: It's good to see this flag in the ground on the 20% SaaS growth. I had a bunch of questions, but I'll keep it to one. And there's a maniacal focus on your supplemental information on your IR section of the website, and it is often on that new SaaS and flips SaaS bookings. I love how you brought up the idea of add-on sales. Could you maybe double-click on kind of approaches you have been taking to be much more programmatic to drive those add-on sales and expansions? And just where are you in kind of getting the benefits of that focused effort? H. Moore: Yes, Terry, it's been a focus of ours for some time. Our inside sales teams have been outperforming generally against their quotas for the last couple of years. But we're still, I would say, in the very early stages. I think at the 2030 targets, we talked about having at that time, 2 to 3 products per client. And our goal is to get to 10 to 12 or even more, particularly we do more M&A, it's more opportunity. We're still pretty early in that, but it is a big factor of what we -- of how we approach the business. I think the other thing I want to talk about going back to Alex's question about the markets is what we're seeing now is we've said for the last several quarters, RFP activity is steady, demo activity is steady to up. But for whatever reason, and we've talked with our sales guys in Q1 and Q2, for whatever reason, some procurements were put on pause, and we're starting to see that be released. And we feel good about our Q4 sales outlook. For example, in our enterprise ERP solutions. Q2 and Q3 had the highest number of RFPs that we've seen in the last 2 years. That demand, just like historically doesn't go away. We're there to capture it. I think that was -- for whatever reason, it was a post-ARPA hangover. It was a short blip. But we've seen that before in larger cases, whether it was post 9/11, Great Recession, COVID, whenever there was, for whatever reason, a pause, we were there. Now this obviously was never nothing to that extent, but it's part of our confidence as we move forward. Operator: Your next question comes from the line of Joshua Reilly of Needham. Joshua Reilly: Can you just remind us the moving parts of how the Texas payments contract winding down is going to impact transaction revenue for the balance of the year? And then offsetting that is the ramping of the California State Parks deal. Is that at a full run rate now? And are there any other notable payments deals ramping in transactions disrupting the normal seasonality for decline into Q4? H. Moore: Yes. The Texas contract continues to move towards wind down. I think we currently expect revenues from Texas for the full year to be kind of in the $39 million to $40 million range, which is maybe down just a tick from, I think last quarter, we said $41 million. So as we get more clarity as it transitions out, that's the level we expect to be. There's probably a little bit that carries over into next year, maybe $4 million or $5 million. So that delta between the $39 million to $40 million this year and $4 million or $5 million next year is what will come out of next year. With the California parks, which was a big basically software and services, but mostly software paid for as transactions. That contract started last August. So we lapped it during this quarter. So going forward, although that -- the revenues from that contract will continue to grow, I'd say it's not fully ramped, but most of that growth or most of the incremental revenues from that are now built into our base. I don't think there's anything that fundamentally changes the seasonality. We did call out -- Lynn mentioned one large transaction-based deal we signed this quarter with the State of Colorado for our inmate services Financial suite. So again, that's software that's being provided under a transaction-based arrangement that will add a couple of million dollars a year of revenue, but no individual deal that's on the scale of something like California. Hala Elsherbini: Yes, Josh, we also -- in this quarter, we signed a payments deal with Chesterfield County, Virginia that fully ramped up. We think it will be about $1.5 million deal. There are some other payments transactions that are in the queue right now that, as you know, we don't announce awards or where we sit. But we like the trajectory right now of our payments transaction business. Operator: Your next question comes from the line of Saket Kalia of Barclays. Saket Kalia: Great to hear the 20% SaaS growth for next year as well. Maybe for my one question, Lynn, it's really for you. Really appreciated your points on AI in your prepared comments. And I want to marry that with kind of Tyler's move to SaaS. As more of the base moves to SaaS, what do you -- and without getting too specific, what do you sort of see on Tyler's road map that's going to maybe grow that revenue opportunity in terms of AI in the public sector? And maybe relatedly, have you seen any changes from competitors as perhaps AI becomes more of an offering in public sector? That's been a question that I've gotten as well. Curious if you could comment. H. Moore: Yes. I think I haven't seen anything material out of competitors. I do think your analogy with SaaS is a good one. It's one I've used internally, which was, as you recall, we historically had an on-premise license business. We had a SaaS offering. We were cloud agnostic. And then in 2019, we made the strategic shift and we said, look, we're the leader in this space. We're going to lead the public sector to the cloud. We're not just going to be reactive. And that's the mindset that we have right now internally is we're going to lead the public sector through this next cycle of transformation, which is AI. And we're best positioned to do it. I mentioned some of those things on the -- in my prepared remarks, our access to data, our deep domain expertise, our know-how, both internal resources. We've got partnerships with AWS, OpenAI, Anthropic. But a big one also is trust. Our clients trust us. This is a journey that they're ready to take, but they really want someone a trusted partner to be moving forward with them. And that was a big theme at our Connect conference last year, and it's something that really resonates with our clients. So it's really capitalizing on our position. We're making investments in AI. We've got products right now that are clearly AI-driven. We've got plans for next year to ramp up more investments on AI. But one thing I want to be clear is I'm not going to jump on the AI hype train. We've got those products. It's part of our strategy. I'm not going to go out and put out big numbers that a lot of people are doing. We're going to continue to be like we've always been. We're going to tell you what we're going to do and then we're going to go do it. And that's going to be our approach. But we are excited about where we are. We're excited that our clients are ready. But again, it's -- this stuff doesn't happen overnight. As you know, it's going to take time. Operator: Your next question comes from the line of Kirk Materne of Evercore ISI. S. Kirk Materne: And Lynn, interesting to hear about how some clients are starting to marry their software and labor budgets together. My question is pretty similar or at least a follow-on to what Saket asked on the AI front, which is how are you -- I guess I realize it's early, but how are you envisioning discussing sort of pricing for AI functionality with your clients? I mean you guys have had a long partnership with your clients where I think there's been some sort of value exchange between you and your customers. Does that change at all in an AI world? Meaning is it -- or is it just sort of we're delivering more, we can take price as a result? Do you price per agent? I was trying to get a sense, and I realize it's early, but I was thinking more specifically around some -- as you bring in more AI functionality into the ERP suite, some of your core offerings. H. Moore: Yes. Thanks for the question, Kirk. I guess on the first part, yes, we've had a small -- a very small sampling of clients who actually have moved and took money out of the labor budget to help fund that. I mentioned Hillsborough County, Florida. And I think what that does is it actually produces another way for us to approach it. And your comment about Agentic AI and replacing the digital workforce is something where we can show a proven ROI return, and I think it's something that you can price. I also spoke about there will be areas of AI that I think are really going to be about improving our competitiveness and perhaps elevating a bundle or suite of products as opposed to maybe necessarily a separate module. But you're right, having to meeting our ability to sell the value on the ROI is what's going to be critical in terms of a separate monetization lane. Operator: Your next question comes from the line of Rob Oliver of Baird. Robert Oliver: My question is on the customer conversions or pace of flips. 2-part question. One, Lynn, have the drivers of flips changed at all? I know you guys have cited security and certain customers being ready to modernize in the past. And are there additional factors that could offset that like AI readiness or concern on AI? And then for Brian, just around the conversion math, if you could just remind us how that's looking today? And any color around cross-sell on top of that would be helpful. H. Moore: Yes, Rob, I think actually, security has historically been a foundational selling point. I think it's shifting now to the value that you're getting in the cloud. and the value of the enhancements, the upgrades. We have not yet -- we are in the process of formulating a consistent one Tyler approach to how we're going to -- to our clients as to our messaging around the cloud. We're still doing more of a carrot versus stick approach, but that's evolving. And -- but the carrot is the value prop that you're going to get by being in the cloud versus not being in the cloud. And that will include, to your comment, AI features and functionality. Brian Miller: And I'll also add that one sort of gating item around the pace of flips and the readiness of clients to flip is -- goes hand-in-hand with our version consolidation. And as we've continued to eliminate older versions of products and move more and more customers onto the current version of products, that puts them in a position to be able to migrate to the cloud where we ultimately have one cloud version of each product. And we've made a lot of progress with that, especially with our core key products over the last couple of years, and we continue to do work on that. But that has put more and more customers in a position, which also supports an increase in the pace of flips over these next couple of years. The math around the flip still sort of on a like-for-like basis, still holding pretty steady at that 1.7 to 1.8x uplift from their maintenance revenues. It's a bit anecdotal at this point, but I think we are seeing an increase in add-on sales, upsells, whether it's additional services or additional modules or products. as customers move to the cloud that provides that opportunity to have a conversation with them about other products that they could get from Tyler and deploy in the cloud at the same time. And I think we're more intentional about that today than we may have been in the past. Operator: Your next question comes from Matt VanVliet of Cantor. Matthew VanVliet: I guess when you look at the number of sort of subverticals that you play in, it sounds like some of the Courts & Justice and then the ERP financial side have been particularly strong. the last few quarters. Curious if there have been any areas where you've seen some weakness and maybe any reasons you've identified there, maybe any areas that have shown a little bit more of that ARPA hangover even on the K-12 side, maybe the ESSER funds in addition to ARPA. Just help us understand kind of where in the business is seeing some positives, maybe where some negatives are. H. Moore: Yes. I would say, Matt, generally, in the first quarter or 2, we talked about decisions being delayed, not canceled, but just sort of being delayed, and we attribute a lot of that to Post ARPA. That filtered across product suites. It filtered across our ERP enterprise ERP suite. It did filter across some of our justice solutions. Public safety is having a really great sales year, seeing our Courts & Justice solutions. I think there -- the softness that they saw in the first half really caused by sort of delay of deals that's starting to ramp back up. And as I mentioned, that's the case also with our enterprise ERP. Federal, obviously, has been impacted by a lot of the noise that's out there. But as a reminder, it's a pretty immaterial part of our business. Operator: Your next question comes from the line of Ken Wong of Oppenheimer. Hoi-Fung Wong: Brian, I wanted to maybe dig in a little deeper on Alex's question about '26 SaaS revenue. You touched on some of the components, the stuff coming off backlog, stuff coming in from new. At this stage in the planning cycle, any sense whether or not '26 might have a larger backlog component that gives you guys the confidence? Like how should we think about that relative to '25 or past years? Brian Miller: I think structurally, there's not a big difference. Probably -- again, given the number of big deals we did last year that are still filtering in, there's probably a little bit more that comes from that backlog just because like you saw quarters last year where SaaS ARR bookings growth was 60% and 50%. Obviously, our revenues didn't grow by that level. So that -- those bookings, some of those still have not fully hit revenues. And then there's just this continued increase in sales to our customer base, which is where the vast majority of those new -- of those SaaS revenue growth comes from. It's both pricing and it's add-on sales and selling other modules or other suites of products to existing customers. And those -- as Lynn pointed out, as we make more acquisitions and as we invest in more product development, we have more things to sell to those customers. We've made structural changes around our sales organizations, for example, adding the new state sales organization that are also helping position us to drive more of those sales into the existing customer base. So -- and then we talked about the trajectory of flips. So probably a minor more amount coming from backlog, but also just our general outlook around cross-sells, upsells, new sales next year, how we gauge the pipeline. So we've talked about for several quarters, the market activity, the number of RFPs, the number of demos we're doing, being kind of steady at this sort of historically elevated levels. So a very robust pipeline of business, but we have long sales cycles that can typically be a year, 18 months in large deals, sometimes well even longer than that. So that pipeline activity continues to support a really solid sales outlook as well. H. Moore: Ken, just to jump on that a little bit. 2024 was a record sales year. And we experienced a little bit of softness in Q1 that carried over a little bit to Q2. But as we said at the time, this was not something systemic. This was not a sustained issue. And what we've seen is what we expected is that as the year has gone on, our sales continue to ramp up, and we expect it to continue to ramp up in Q4. And it was just -- it was a temporary blip, but it was no fundamental change in either the markets or our offerings or our competitiveness. And we've seen it before in bigger situations. But from my perspective, there's nothing that's fundamentally changed about our trajectory and our 2030 targets. Operator: Your next question comes from the line of Jonathan Ho of William Blair. Jonathan Ho: Can you hear me okay? Unknown Executive: Yes. Jonathan Ho: Sorry. So I just wanted to understand, when it comes to some of your newer products like emergency response and prison transactions, can you help us understand the growth opportunity here and potential cross-sell synergies with some of your other systems? H. Moore: Yes. Those -- both of those product lines are resident our correction resident services has a big TAM. I don't have it in front of me. I remember when we did the acquisition, I believe we thought it was north of $100 million. And it actually represented a cross-sell opportunity. We utilized the relationships in Colorado from the NIC acquisition, married with our salespeople on the Justice side to create that opportunity. So that's pretty big. The emergency networking acquisition, a small acquisition, but an important one because they had their fire incident reporting system is one that is current and meets '26 compliance. And that's a big deal. So it's going to drive growth. They're smaller deals. But it's something that we're excited about. It's something that we can take and leverage. Pennsylvania, when we got the statewide, it's the state with the highest number of fire agencies in the country. And for us to win that deal and actually, the initial deal was kind of small, but it has expansion opportunities, which we're already seeing and get that success and then take that and transport it across the country will also help drive our public safety sales. Brian Miller: That's really a key characteristic that we look at in a lot of the acquisitions we do, these tuck-in types that even if they're relatively small at the time we acquire them, we expect them to grow at a rate that's significantly in excess of Tyler's core growth rate as we leverage our sales organization, put that product in the bags of many more sales reps than that business had on its own and sell it both existing Tyler customers in related products and bundle it in new sales, which is what we're doing with emergency networking. And we've seen that playbook work extremely well over the years. A lot of examples like our Enterprise Supervision product that have proven up that. So that really is a common characteristic of a lot of our acquisitions. Operator: Your next question comes from the line of Gabriela Borges of Goldman Sachs. Gabriela Borges: Lynn, I wanted to follow up on your comments on AI because there's been some frustration in the software ecosystem this year on just how long it's taking to see real productivity gains in knowledge workers and at the application layer. So my question for you is, there is this perception that government typically moves slower than enterprise. Based on your conversations, what are you seeing in terms of the guys customers being willing to engage? Are there some products that they're more willing to engage than others for AI use cases specifically? And to the extent there are limiting factors, what are you as a company doing to address those limiting factors directly? H. Moore: Yes. Thanks, Gabriela. I mean, clearly, our sector typically moves slower than the private sector. That probably was part of our approach when we used to talk about it probably about a year ago that we were taking a disciplined approach. We're seeing clients being more receptive today than others. A lot of it has to do with things around their workforce. As their workforce continues to age and reach retirement and they're not replacing it, they're starting to see the need and the demand for that. That's the whole Agentic AI and the digital worker. We've seen places in our business where I think it's been -- it's more receptive today than other places in our business. Certainly, in the court space, I talked about the document automation, which was our CSI acquisition a year ago. We're seeing a little more receptiveness in our ERP space for things like our priority-based budgeting and some other modules, AP automation and things like that. So it's not -- I wouldn't say that it's the dam has been broken, so to speak, but there is receptiveness to it. We will continue to push it because we will lay out that ROI value to our clients. Brian Miller: And I think some of that receptiveness is tied to the trust they have with Tyler. They -- we have these deep long-term, often decades-long relationships where we've brought them through different stages of technology, and they trust us to do that with AI as well and to show them the way and show them the value proposition, protect their data, provide the transparency where they may be less trusting of a point solution or a start-up that just comes in with an AI solution on top of other products. So they really -- they trust us to understand their needs and to marry that with the way we manage their complex workflows. So that trust factor is important in their receptiveness to AI. H. Moore: Yes, I'd be remiss to not also mention our products in the state space, resident assistant, resident engagement, automated field ops. And we did a deal this quarter with the South Carolina Department of Administration for our resident engagement product, and that was about $1 million in ARR. But the solutions that we're able to provide to help citizens navigate the complex web of government operations to find their needs and to meet -- find what they're looking for and meet their needs is also somewhat compelling. Operator: Your next question comes from the line of Mark Schappel of Loop Capital Markets. Mark Schappel: It sounds like it was a strong quarter for your public safety business. Q4 also tends to be a strong period for public safety. I was wondering if you could just provide some additional color on maybe your public sector -- excuse me, public safety pipeline and the setup for Q4, if you could. H. Moore: Yes, Mark, you're right. We had a good quarter in sales in public safety. We've got a lot of momentum in public safety, and I'm expecting some good sales in Q4 as well. We closed a few good deals. We don't talk necessarily about the competitors we beat, but I'm certainly happy with some of the wins that we had and because of the competitive people that we beat. And it's -- there's momentum there, and it's something that's got excitement up in our [ Tyler ] division. we're still the leader in the public safety space as it relates to cloud. I think this quarter, we're -- through this year, we're about 93% year-over-year ahead in subscription versus last year. And so that's -- it's a good place to be. Now we're not going to sit on our laurels. There's going to be more competitive investments we're going to make just like we do across the board, but I like our position there. Mark Schappel: Great. And then, Brian, just building on an earlier question around flips. I believe flips were growing about 25% this year. Just wondering if you could just comment on growth expectations for flips next year. And also, if you could maybe just provide an update on maybe what percent of the installed base has moved to SaaS. Brian Miller: Yes. We don't guide actually to a flip number, but we have said that the trajectory both into next year and really for the next 2 or 3 years, we've talked about a peak in the '27, '28 time frame. So that trajectory, both in terms of the number of flips and the size of flips. So the average size of flips is increasing. If you look at the cohort of customers that are still on-prem, it's more heavily weighted towards large customers, statewide court systems, large counties. So there is more revenue in that base that's still on-prem. So we do expect that trend to continue to be upward and to the right, but are not giving a specific number for how we expect that to grow. Just like with new sales, there's lumpiness around large flips. And those are a little less predictable about exactly what quarter or even what year they're going to fall in, although we're certainly in conversations with virtually every customer about their long-term plans to move to the cloud. The so that's kind of where we stand on that. The second part of your question, what was that? Mark Schappel: It was around the growth expectations, I think, for flips next year -- I'm sorry, what percentage of the installed base has moved to SaaS? Brian Miller: From a revenue standpoint, so if you take the maintenance revenue that we have today and multiply it by 1.75 to make a SaaS equivalent and compare that to our SaaS revenues. So from an equivalent revenue basis, it's about 50-50 right now. So about half of our customer base by revenue is still on-prem and about half is in the cloud. Operator: Your next question comes from the line of Michael Turrin of Wells Fargo. Unknown Analyst: This is [ Ron ] [indiscernible] on for Michael. Just wanted to ask about the cross-sell opportunity. You talked about that 8 to 10 product goal for a few months now. So just wanted to know like what are the key drivers to bridge that gap from the current 2 to 3 products that customers kind of have right now? And is this going to require some M&A or new product development? H. Moore: Yes, Michael. There's a number of factors that drive that. One factor is we're still in the process of getting all our products to a single cloud version, which will help that. Our approach to sales, we're taking a hard look right now at our overall approach to sales holistically and not really in a position to go into details on that right now. But suffice to say that's a significant a as to how we look at -- how we view a client, how we look at territories, how we view their bag of products. There's other things about it, too. These other initiatives that we've got going on, I talked about getting down to a cloud. That's our cloud living initiative. Our client SA initiative, making sure all our clients are extremely happy is a huge component of cross-sells and upsells. As I say, our clients aren't happy, they're not going to buy more of our products. And we've unleashed a lot of it. As you know, we hired Andrew Call, our new Chief Client Officer. We've started some One Tyler initiatives around client experience, standing up and getting a better One Tyler approach to client success and things like that. So there's a lot of motions in the background. It's not one specific thing, and some of these are bigger motions than others. But it still remains to be a significant opportunity for us over the next 5, 10 years. Operator: Your next question comes from the line of Pete Heckmann of D.A. Davidson. Peter Heckmann: A lot of my questions have been answered, but just a couple of follow-ups. Remind me, this was a big year for R&D catch-up. What are we thinking as -- I think in the longer term, framework that you had provided, you were thinking that R&D would approximate maybe 5% of revenue in 2030. But it looks to me like it's certainly above that now. And so should we expect it to plateau and then come down as a percentage as revenue grows? Or would we expect it to continue to maybe grow at an accelerated rate in 2026? Brian Miller: I think in general, as we look at long term over multiple years, we expect R&D would grow in line with or slightly below our overall revenue growth that -- so as a percentage of revenue, it would be stable or come down. As we've talked about in the past, this year and on into the next couple of years, there's an impact on R&D from sort of a geography change. So as we continue to evolve in our cloud transition that resources that were formerly classified in cost of sales are being redeployed in R&D. And so there is a move of expense that's part of the reason for that growth. But as we look at this year and on into next year, I'd say we are expecting an elevated level of R&D. So we're seeing actual increases above our revenue increase as we invest in various initiatives, some of which Lynn talked about, including incremental investments around AI. Peter Heckmann: Okay. That's helpful and a good reminder on the reallocation. And then just in terms of with the Texas payments deal deconversion, really the majority of that happening for next year, that creates a bit of a drag. And -- and if we're thinking of SaaS growth at 20%, I guess what's the underlying growth rate of payments that we should be thinking about to get to kind of thinking about where subscriptions growth ends up next year in terms of thinking about like is the right way to think about transaction revenue growth ex the Texas payments, something in the mid- to high teens? Brian Miller: I'd say, yes, ex the impact of Texas, low double digit. Peter Heckmann: Okay. Low double digit. Okay. So certainly, on a combined basis, then just because of Texas, we will see subscription revenue growth fall kind of more towards the mid-teens next year versus what looks like it's going to be 18% this year. Is that the right way to think about it? Brian Miller: I think that's generally the way to frame it. But again, the only guidance or directional guidance we've talked about today is really around the total SaaS growth and that subscription growth in the recurring revenue growth in the 10% to 12% range. So the recurring revenue growth being the SaaS, maintenance and transactions combined. So you can kind of back into the -- what that leaves for transactions if you take -- apply the 20% to the SaaS. And that recurring revenue growth excludes the impact of the Texas transition. Operator: Your next question comes from the line of Trevor Walsh of Citizens. Trevor Walsh: Brian, maybe for you, but Lynn, feel free to weigh in as well. I appreciate all the color around kind of 2026 and kind of top line type of outlook. But can you maybe just give us a sense of how -- from a profitability standpoint, kind of where are some of the levers you think going into '26 that might be pulled? And also on that front, could you give us an update on the data center closure? I think there was one targeted for the end of this year. And if my memory serves, that was going to have locations kind of in the early part of next year. So maybe if we could just get an update on that process just as part of your answer, that would be terrific. Brian Miller: Sure. The Margins, we've said -- we're not giving guidance on margins for next year. We have said that, that progression of margins will not be linear over the next several years. It's been at a bit of an elevated level for the last couple of years. We're a little bit ahead of plan as we've seen ahead of our long-term trajectory as we've seen some of the benefits of the cloud transition earlier. We've also seen more OpEx benefits earlier. So I would expect that margin expansion next year will not reach the same level of margin expansion that we're seeing this year, but certainly on track to achieve or exceed the targets that we've already established for 2030. H. Moore: Yes. I'd say, Trevor, that's right. We're too early in the process to talk about margins. I will say we have approved and greenlighted some investments that were not in this year's budget that are coming online now, investments in our products, investment in both competitive and AI investments. And I would expect some of that additional elevated investment next year. On the data center closure, you're right. We have exited the Army data center, a huge milestone. Huge congratulations to our teams. We did that a little bit a couple of months early. And we talked about this in '23 about exiting the Dallas data center on time, and now we've done it with the Army data center. One thing I want to caution about that exit is that does not necessarily equate to immediate cost savings. There are some transitional headwind costs that are short term. I'm not prepared to give you a window of that. But clearly, over the long term, it's a tailwind to margins. Operator: Your next question comes from the line of Clarke Jeffries of Piper Sandler. Clarke Jeffries: I just wanted to do a follow-up on some of the commentary on flips. I just -- and Brian, how much is version consolidation still a limiting factor across the product base? I think it was framed at the beginning of the year, you were ahead of schedule with ERP at a 95% level, Justice at 75%. I just want to wonder -- I just wanted to ask about 2026 going into next year, where are you at in that version consolidation? What limiting factors really are left just to frame the ability to really have capacity for greater flips next year? H. Moore: Yes. So there's -- take ERP, for example, there's 2 motions that are going on. One is we had multiple versions out in the field, which you consolidate those. And then we also have our cloud version of the software, which we will flip to that. And those are 2 different functions that are going on. You need one to get to the other, and we've made significant progress there. Operator: And your last question comes from the line of Charles Strauzer of CJS Securities. Charles Strauzer: Just on the conversation, just looking at the time it takes a customer to go live in the cloud kind of once they've signed on to flip, are you seeing noticeable improved efficiencies allowing you to convert the customers at a faster clip? Brian Miller: I think in general, our experience has been pretty good. I'd say we've probably gotten better at it. It varies from client to client. There's typically a lot of planning done well in advance, often months in some cases, multiple quarters before they actually signed to flip. But we've seen pretty good experience in terms of the time from when they sign to when they actually go live in the cloud. Stay, the Idaho court system, for example, I think, was in a matter of just a few months. We've seen -- so I'd say our experience probably is really good there. It's more around the client doing a lot of planning in advance and working it into their overall IT road map. We've certainly seen situations where often because of a ransomware attack, the decisions are made very quickly, and we're able to bring customers up in the cloud sometimes in a matter of days. So that doesn't have to be a really long lead time, but it varies from client to client. H. Moore: Each client has got different levels of complexity, and we have been able to do things pretty quickly, maybe not full functionality. But I would say that as we get -- as we continue to move forward, yes, I think we're getting better and more efficient. I couldn't quantify what that is at this point. Operator: With no further questions, I'd like to turn the call back over to Lynn Moore for closing remarks. H. Moore: Thanks, Dale, and thanks, everybody, for joining us today. If you have any further questions, please feel free to contact Brian Miller or myself. Thanks again, and have a great day. Operator: This concludes today's conference call. You may now disconnect.