Spire (SR) Q3 2025 Earnings Call August 05, 2025 11:00 AM ET Company ParticipantsMegan McPhail - MD - IRScott Doyle - President & CEOAdam Woodard - EVP & CFORichard Sunderland - Equity Research - North American Utilities & PowerChristopher Jaffrey - Equity Research - Senior AssociateDylan Lipner - Associate - Equity ResearchSelman Akyol - Managing Director - Energy & Power sectorConference Call ParticipantsBarry Klein - Associate Director, Portfolio Manager & Senior Investment AnalystOperatorGood morning, a ...

Financial Data and Key Metrics Changes - The company reported diluted earnings per share of $1.85 in Q2 2025, down from $2.07 in the same period last year, reflecting a decline in earnings [7][23] - Despite the decline, the midpoint of the 2025 earnings guidance was increased to $6.26 from $5.88 due to better-than-expected performance in the Plastics segment [8][29] - The company maintains its original earnings guidance for all other segments, with an expected year-over-year growth of over 7% for the electric segment [30] Business Line Data and Key Metrics Changes - Electric segment earnings increased by $0.02 per share in Q2 2025, driven by timely recovery on capital investments and favorable weather conditions [23][24] - Manufacturing segment earnings decreased by $0.08 per share primarily due to lower product pricing and decreased sales volumes [25] - The Plastics segment experienced a decline in earnings of $0.18 per share, attributed to a 15% decrease in sales prices, although sales volumes increased by 11% [26][27] Market Data and Key Metrics Changes - The company continues to have some of the lowest electric rates in the nation, with 2024 rates being 30% below the national average and 16% below regional peers [18] - The construction and lawn and garden end markets are improving, while recreational vehicle and agricultural end markets are still facing challenges due to high inventory levels [19] Company Strategy and Development Direction - The company is focused on a significant capital investment plan totaling $1.4 billion over five years, aimed at benefiting customers and driving earnings growth [9][30] - The electric segment is projected to have a compounded annual growth rate of 9% through 2029, with a focus on customer-centric investments [12][31] - The company is also working on expanding its manufacturing capabilities, including the BTD Georgia facility and Vinyltech expansion [22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term fundamentals of the manufacturing segment despite current down cycles, emphasizing a strong track record of performance during market rebounds [25][31] - The company is monitoring legislative changes that may impact renewable energy projects but expects its current capital investment plan to remain intact [9][10] Other Important Information - The company filed a request with the South Dakota Public Utilities Commission to increase base electric rates for the first time since 2018, proposing to increase net revenues by approximately $5.7 million [11] - The company is finalizing a cost of service analysis in Minnesota and anticipates filing a rate case later this year [12] Q&A Session Summary Question: No questions were raised during the Q&A session - The operator noted that there were no questions in the queue and concluded the call [35][37]

Financial Data and Key Metrics Changes - Total asset footprint increased to $986 billion, representing a 5% year-over-year growth [4] - Assets Under Management (AUM) grew by $11 billion or 9% year-over-year, reaching $141 billion [5] - Assets Under Administration (AUA) rose by $35 billion or 4% year-over-year, totaling $845 billion [5] - Quarterly GAAP EPS was $1.28 based on $54 million of GAAP net income, while non-GAAP EPS was $1.31 based on $72 million of adjusted net income [6] - Fee-related earnings for the quarter increased by 31% compared to the prior year period [6] Business Line Data and Key Metrics Changes - Total fee-earning AUM stood at $74 billion, growing by $6.7 billion or 10% year-over-year [8] - Customized separate account fee-earning AUM reached $40 billion, growing by $2.1 billion or 5% year-over-year [10] - Specialized funds fee-earning AUM increased to $34 billion, reflecting a 16% growth year-over-year [12] - Evergreen platform AUM approached $12.5 billion, marking a nearly 65% growth over the last twelve months [16] Market Data and Key Metrics Changes - The company continues to see strong momentum in its semi-liquid Evergreen products, contributing to the growth of total fund net asset value [9] - The company has maintained a strong backlog of business, with significant committed and contractual dry powder available for deployment [11] Company Strategy and Development Direction - The company is focused on expanding strategic partnerships and enhancing its global distribution strategy [18] - New product offerings have been launched, including infrastructure products and a fund focused on Asian private market investments [18] - The company emphasizes a long-term growth strategy, viewing its investments alongside clients as crucial for continued growth [27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth trajectory, highlighting strong execution across all business fronts [8] - The company is focused on meeting diverse customer needs through various distribution channels, including digital and traditional methods [33] - Management noted that while recent quarters have seen lighter incentive fees, a positive macroeconomic environment could lead to increased exit opportunities [49] Other Important Information - Management and advisory fees decreased by 4% year-over-year, primarily due to retro fees [20] - Total expenses decreased by $8 million compared to the prior year period, with total compensation and benefits down by $9 million [23] Q&A Session Summary Question: Insights on DBS private banking relationship - Management described the relationship as an expansion of existing strategies, focusing on diverse distribution methods and meeting customer needs [31][36] Question: Status of fund secondary fund six and marketing for fund seven - Management confirmed that fund six is more than halfway invested and that marketing for fund seven has not yet started [38][39] Question: Drivers of customized separate account growth - Management indicated that growth was driven by new sales, re-ups, and increased investment activity, with a significant pipeline of business in progress [44] Question: Outlook on incentive fees and market conditions - Management agreed that a positive macro backdrop could enhance exit opportunities, with expectations for increased activity in the latter half of the year [48] Question: Institutional demand for Evergreen Fund - Management noted that approximately 15% of flows into Evergreen are from institutional investors, with the remainder from traditional retail wealth [52][55] Question: G&A expense outlook - Management projected G&A expenses to be around $33 million per quarter, with some increases expected due to revenue-related expenses [58]

Financial Data and Key Metrics Changes - Adjusted earnings per share increased by 8% compared to Q2 2024, reaching $2.95 [6][18] - Organic sales growth for the quarter was 8%, with record quarterly revenue of $7 billion and segment margins expanded by 20 basis points to 23.9% [6][18] - Book to bill ratio for combined segments increased to 1.1, indicating strong demand [8][20] Business Line Data and Key Metrics Changes - **Electrical Americas**: Achieved organic sales growth of 12%, primarily driven by data center strength, which was up about 50% [18][19] - **Electrical Global**: Total growth of 9%, with organic growth of 7% and a 2-point FX tailwind [22] - **Aerospace**: Organic sales growth of 11%, with a strong backlog increase of 16% year over year [25] - **Vehicle Segment**: Experienced a decline of 8% on both total and organic basis, primarily due to weaknesses in the North America truck market [26] Market Data and Key Metrics Changes - Demand in the aerospace business remains strong, with a 10% increase in orders on a rolling twelve-month basis [25] - APAC region posted double-digit organic growth, while EMEA showed mid-single-digit recovery [22] - Major project negotiations pipeline increased by 31% year over year, indicating robust market activity [21] Company Strategy and Development Direction - The company is focusing on three strategic pillars: lead, invest, and execute for growth, aiming to accelerate growth and create sustained shareholder value [9] - Recent acquisitions, such as Ultra PCS and Resilient Power Systems, are aimed at strengthening positions in high-growth markets like aerospace and data centers [11][12] - Partnerships with companies like NVIDIA and Siemens Energy are intended to enhance infrastructure and power distribution capabilities [14][15] Management Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth trajectory, citing strong order momentum and a robust negotiation pipeline [42][44] - The company raised its guidance for organic growth to a range of 8.5% to 9.5% for the year, reflecting positive market conditions [30][31] - Management noted that while some markets are not growing, the overall outlook remains positive due to strong performance in data centers and defense aerospace [28][29] Other Important Information - The company is investing in AI and ERP systems to enhance operational efficiency and customer interaction [103][105] - There is an expectation of margin improvement as capacity ramps up and inefficiencies are addressed [101][102] Q&A Session Summary Question: What is the expectation for Electrical Americas and global orders? - Management indicated strong visibility into Q3 orders, especially in Electrical Americas, with a backlog expected to remain above one [42][43] Question: Is Electrical Americas gaining market share in the US? - Management confirmed market share gains in North America, particularly in data centers, where growth outpaced market averages [51] Question: Can you recap your data center strategy regarding gray space and white space? - The company emphasized a comprehensive strategy addressing power availability and construction speed, with partnerships and acquisitions enhancing their position [53][56] Question: What is the impact of new capacity on orders? - Management noted that new capacity is expected to strengthen orders, with ongoing investments in FiberBond to meet data center demand [143][144] Question: How is the company managing margin pressures from capacity ramp-up? - Management acknowledged current inefficiencies but expects improved margins as operations normalize and capacity increases [101][102]

Financial Data and Key Metrics Changes - The company reported a record backlog of $1,300 million, the highest in its history, with a $650 million increase in new projects secured during the quarter compared to the previous year [18][19] - Adjusted EBITDA guidance was lowered by $55 million, primarily due to a softer Oregon market and wet weather, with updated guidance for consolidated revenue between $3,100 million and $3,300 million [36][37] - The company ended the quarter with nearly $1,400 million of long-term debt, resulting in a net leverage position of 3.1 times, which is expected to decrease below the long-term target of 2.5 times by year-end [35][36] Business Line Data and Key Metrics Changes - Contracting services revenue declined by 8.5% year-over-year, while asphalt revenue volumes decreased by 9% [28][30] - Aggregate revenue increased due to the acquisition of Strata, with prices improving by almost 12%, although lower volumes impacted gross margins [30][31] - Ready mix volume and price improved, resulting in a 15% increase in revenue, with significant contributions from the Central segment and higher demand in Hawaii and Alaska [31] Market Data and Key Metrics Changes - In Oregon, aggregate volumes were down about 25% year-over-year, significantly impacting consolidated financial results, with over 50% of EBITDA variance attributed to this state [11][28] - The company noted strong demand in California, Hawaii, and Alaska, with aggregate volumes up almost 60% in Alaska and a 30% increase in contracting services revenue in California [12][31] - Record DOT budgets in the company's operating states are growing at 14% for fiscal year 2026, compared to just 3% for the U.S. average [19][80] Company Strategy and Development Direction - The company is focused on its competitive edge strategy, aiming for a long-term goal of a 20% adjusted EBITDA margin, with multiple paths identified to achieve this [20][100] - Recent acquisitions, including Kramer Trucking and High Desert Aggregates, align with the company's growth strategy and are expected to enhance its market presence [21][22] - The company continues to invest in process improvement teams to drive standardization, cost control, and pricing optimization [23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of unfavorable weather and project delays in Oregon, but expressed confidence in the overall demand for infrastructure work and the company's ability to recover [5][36] - The integration of Strata is progressing well, and management remains optimistic about the contributions from recent acquisitions [41][58] - The company expects to see improved volumes and pricing in the second half of the year, driven by a strong backlog and favorable market conditions [20][30] Other Important Information - The company has maintained an active deal pipeline and continues to pursue acquisitions and organic growth opportunities that fit its strategic goals [23][90] - SG&A expenses increased by $9.7 million due to overhead costs from acquisitions and higher business development costs, but are still in line with expectations [32][33] - The company anticipates maintenance capital expenditures to be 5% to 7% of revenue for the full year [34] Q&A Session Summary Question: What are the expectations for the Oregon market in the second half of the year? - Management noted that the integration of Strata is on track, but the Oregon legislature's failure to pass a comprehensive transportation funding bill is a concern, impacting paving work for the year [41][42][43] Question: What factors might drive lower margins in the backlog? - Management indicated that shifting revenue from higher-margin Oregon to other regions and larger projects with lower margins are contributing to the lower margins observed [48][49] Question: How sustainable is the improvement in aggregate pricing? - Management credited the disciplined implementation of dynamic pricing and the acquisition of Strata for the improved average selling price, raising guidance for pricing increases to high single digits [50][51] Question: How are the Strata and Albina acquisitions performing? - Both acquisitions accounted for about 8% of total revenue for the quarter, with expectations for increased contributions in the second half of the year [59][60] Question: What is the company's appetite for M&A? - Management expressed a strong focus on integrating Strata while maintaining an active pipeline for future acquisitions that align with the company's growth strategy [90][91]

Financial Data and Key Metrics Changes - PSEG reported net income of $1.17 per share for Q2 2025, compared to $0.87 per share in Q2 2024, reflecting a significant increase [17] - Non-GAAP operating earnings were $0.77 per share in Q2 2025, up from $0.63 per share in Q2 2024, marking over a 20% increase year-over-year [17][18] - For the year-to-date ending June 30, 2025, net income was $878 million, compared to $790 million in 2024 [18] Business Line Data and Key Metrics Changes - PSEG's utility segment reported net income and non-GAAP operating earnings of $332 million for Q2 2025, compared to $300 million in Q2 2024 [18] - PSEG Power and Other reported net income of $253 million in Q2 2025, up from $132 million in Q2 2024, with non-GAAP operating earnings increasing to $52 million from $11 million [22][23] - The nuclear fleet produced approximately 7.5 terawatt hours in Q2 2025, an increase of 0.5 terawatt hours compared to the same period in 2024 [23] Market Data and Key Metrics Changes - The temperature humidity index was 21% warmer than normal but 14% cooler than in 2024, impacting electricity demand [21] - PSEG's pipeline of large load inquiries for new service connections grew to over 9,400 megawatts, up 47% from 6,400 megawatts reported as of March 31 [12] Company Strategy and Development Direction - PSEG is focused on a $3.8 billion regulated capital investment program for 2025 aimed at infrastructure modernization and reliability [6][11] - The company is also pursuing a five-year capital spending plan of $21 billion to $24 billion through 2029, supporting a projected rate base CAGR of 6% to 7.5% [15][16] - PSEG is advocating for legislative decisions in New Jersey regarding energy affordability and resource adequacy, emphasizing the need for new generation capacity [33][41] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of balancing reliability, affordability, and environmental policies in ongoing discussions with New Jersey legislators [33][41] - The company anticipates a near-flat impact on customer electric bills despite recent capacity price increases, due to other supply-related costs expected to decrease [9][10] - PSEG reiterated its full-year 2025 non-GAAP operating earnings guidance of $3.94 to $4.06 per share, reflecting a 9% increase at the midpoint over 2024 results [15][26] Other Important Information - PSEG's total available liquidity as of June 30 was $3.6 billion, including $186 million in cash [25] - Recent federal tax legislation preserved the nuclear production tax credit and extended 100% bonus depreciation for qualified business property, improving cash flow [26] Q&A Session Summary Question: Update on New Jersey Resource Adequacy Conference - Management indicated ongoing discussions regarding future generation build in New Jersey, emphasizing the need for state decisions on reliability and affordability targets [31][33] Question: Data Center Pipeline and Nuclear Plant Opportunities - Management noted a significant increase in data center inquiries, with ongoing discussions about nuclear plant opportunities across New Jersey and Pennsylvania [34][36] Question: New Generation Needs in New Jersey - Management acknowledged the need for new generation capacity in New Jersey, emphasizing the state's reliance on power imports [41][43] Question: Impact of Capacity Auction Results - Management confirmed that while capacity auction results are important, they maintain their guidance based on the nuclear production tax credit threshold [45][46] Question: Affordability-Focused Bills - Management stated that while several affordability-focused bills were discussed, no specific bill is currently prioritized as the legislature is not scheduled to reconvene soon [62][63] Question: Incremental Generation Potential from Nuclear Upgrades - Management confirmed that engineering work for nuclear upgrades is ongoing, with plans for a 24-month fuel cycle at Hope Creek [66] Question: Large Load Inquiries Conversion Rate - Management confirmed that the conversion rate for large load inquiries remains at 10% to 20%, primarily driven by data center projects [73]

Financial Data and Key Metrics Changes - The average household income of residents who moved in during the second quarter increased by 8.5% year-over-year, while rent as a percentage of income remains low at 20% [12] - The blended rate growth was 3%, driven by a strong renewal rate of 5.2%, with 60% of residents renewing their leases [13] - Physical occupancy was reported at 96.6%, although new lease rates were slightly negative due to price sensitivity and continued use of concessions in several markets [14] Business Line Data and Key Metrics Changes - The company experienced strong revenue results in urban markets like New York City and Downtown San Francisco, where supply has declined significantly [7] - The acquisition of an eight-property portfolio in Atlanta was completed, expanding the company's presence in a market expected to see quicker supply declines [9] - The company lowered its acquisition expectations for the year from $1.5 billion to $1 billion, reflecting a competitive transaction market [10] Market Data and Key Metrics Changes - The unemployment rate for the college-educated demographic is at 2.7%, contributing to high resident retention rates [6] - New York continues to show high occupancy and minimal competitive supply, leading to strong blended rate growth [15] - The Washington DC market has seen strong performance but is experiencing a slowdown due to job market uncertainties [16][17] Company Strategy and Development Direction - The company aims to maintain a balanced portfolio of urban and suburban assets to capture changing renter demographics [8] - The focus remains on occupancy and renewal rates, with a strategy to prioritize these over new lease growth in uncertain economic conditions [7] - The company is optimistic about future revenue growth due to declining apartment supply and societal trends favoring renting [7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business setup for 2026, expecting normal embedded growth and strong renewal performance against less competitive supply [25] - The company anticipates blended rates to moderate in the third quarter, with expected growth between 2.2% and 2.8% [25] - Management noted that the transaction market is competitive, with cap rates for desirable assets often in the high 4% range, which is lower than the cost of debt [10] Other Important Information - The company is implementing AI technology to improve operational efficiency and customer experience, with pilots showing a reduction in application completion time by over 50% [24] - The company is focused on maintaining strong occupancy and retention rates, with record low resident turnover levels [25] Q&A Session Summary Question: Supply picture and job market impact on growth - Management indicated that reduced competitive supply will likely offset a slowing job market, enhancing pricing power for 2026 [33][34] Question: Portfolio mix and expansion markets - Management confirmed that the portfolio is well-positioned for the next year and a half, with a balanced approach between established and expansion markets [36][38] Question: Concessions usage and future setup - Concessions were used more than expected in the second quarter, but management anticipates a positive setup for next spring due to strong retention [44][47] Question: Differentiation between DC and Northern Virginia - Management noted that while DC is experiencing some softness, Northern Virginia is facing isolated pressures, but demand has rebounded with rate adjustments [48][49] Question: Pricing power and market dynamics - Management stated that improved consumer confidence and job growth are necessary for pricing power, with expectations for easier comps in the second half of the year [85] Question: Impact of algorithmic pricing ban in San Francisco - Management confirmed compliance with regulations and emphasized that supply and demand dynamics are the primary drivers of rent fluctuations, not algorithmic pricing [88][90] Question: Capital allocation strategy - Management remains disciplined in acquisitions, focusing on opportunities that align with their balanced portfolio strategy, while also considering buybacks funded by asset sales [100][102]

Financial Data and Key Metrics Changes - The second quarter adjusted EBITDA increased by 12% compared to the first quarter, totaling $1,980,000,000, with a net income attributable to ONEOK of $841,000,000 or $1.34 per share, representing a more than 30% increase compared to the first quarter [5][8] - The company ended the second quarter with $97,000,000 in cash and no borrowings under its $3,500,000,000 credit facility, having reduced senior notes by nearly $600,000,000 during the quarter [8][9] - The 2025 financial guidance was affirmed, with net income expected to be between $3,100,000,000 and $3,600,000, and adjusted EBITDA projected between $8,000,000,000 and $8,450,000,000 [9][10] Business Line Data and Key Metrics Changes - Natural Gas Liquids (NGL) raw feed throughput volumes increased by 18% compared to the first quarter, with the Rocky Mountain Region achieving record volumes of nearly 470,000 barrels per day [15] - Refined product volumes increased sequentially due to seasonal demand, with diesel and aviation fuel volumes remaining strong [19] - Natural gas processing volumes increased by 9% in the Mid Continent region compared to the first quarter, with the Permian Basin seeing a 4% growth in volumes [21][23] Market Data and Key Metrics Changes - The company noted strong domestic and global demand for U.S. energy, with producers executing their 2025 drilling plans effectively [5][6] - The Permian Basin continues to be a key area for strategic growth, with a new natural gas processing plant announced to enhance operations in the Delaware Basin [6][22] - The overall decrease in crude volumes was attributed to low-margin exchange volumes, while wellhead gathering volumes on Medallion assets increased approximately 20% year over year [20] Company Strategy and Development Direction - ONEOK is focused on high-return organic projects, including pipeline expansions and fractionation facilities, to capture incremental growth across its assets [6][7] - The company is committed to disciplined capital allocation and is actively monitoring market dynamics to support its growth strategy [7][10] - The integration of acquired assets is expected to deliver significant synergies, with approximately $250,000,000 of synergies anticipated in 2025 [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of the energy sector despite evolving macroeconomic conditions, with expectations for mid to upper single-digit EBITDA growth in 2026 [10][11] - The company is tempering its 2026 outlook based on current commodity prices, adjusting expectations downward by approximately 2% or $200,000,000 [10] - Management highlighted the importance of safety, integrity, and responsibility in operations, with a commitment to sustainability [25][26] Other Important Information - The company expects to benefit from over $1,300,000,000 in lower cash taxes over the next five years due to recent tax legislation [11] - The new Bighorn plant in the Delaware Basin is expected to have a capacity of 300,000,000 cubic feet per day and is projected to be completed by mid-2027 [22] Q&A Session Summary Question: 2026 outlook and growth drivers - Management acknowledged the change in market conditions since February and noted that the 2026 outlook was adjusted downward by 2% due to tightened spread differentials [29][31] Question: Natural gas business performance - Management indicated ongoing discussions with over 30 potential customers in the AI and data center sectors, with some contracts expected to materialize in the coming years [33][35] Question: Synergy capture and guidance confidence - Management highlighted specific projects, including connections between NGL and refined products assets, as key drivers for synergy capture and guidance confidence [42][44] Question: BridgeTex performance and outlook - Management confirmed that increasing volumes on the BridgeTex pipeline are expected, benefiting from integrated assets and strategic decisions [60][61] Question: LPG export facility and market pricing - Management stated that the location of the Texas City terminal provides a competitive advantage, with rates in line with estimated economics [50][52] Question: Hedging strategy and margins - Management noted that hedging activity is in line with previous years, allowing for opportunistic decisions based on market conditions [97][99] Question: New processing plant economics - Management discussed the integrated value of the new processing plant investment, emphasizing the benefits of having an integrated footprint [101][105]

Financial Data and Key Metrics Changes - Crescent Energy reported approximately $514 million in adjusted EBITDA and $171 million in levered free cash flow for the quarter, exceeding Wall Street expectations [14][8] - The company generated record production of 263,000 barrels of oil equivalent per day, including 108,000 barrels of oil per day [8][9] - Capital expenditures for the quarter were approximately $265 million, with a focus on maximizing free cash flow and returns on capital invested [14][9] Business Line Data and Key Metrics Changes - The Eagle Ford operations are delivering on a flexible capital program, focusing on gas activity in the latter half of the year [9] - In the Uinta basin, the company is maintaining a prudent approach to capturing long-term resource opportunities, with strong performance from joint ventures [10][11] - The minerals portfolio is expected to generate approximately $100 million of annual cash flow, with recent acquisitions enhancing this segment [11][14] Market Data and Key Metrics Changes - The A&D market was quieter in Q2, with continued volatility in commodity pricing, but the company successfully identified and executed accretive transactions [10][11] - The company repurchased approximately $28 million worth of stock at a weighted average price of $7.88, reflecting a strategy to capitalize on market volatility [15][14] Company Strategy and Development Direction - Crescent Energy is focused on operational excellence and long-term value creation, with a business model designed to generate durable free cash flow [5][6] - The company is simplifying its stock structure by transitioning to a single share class, which is expected to enhance shareholder value [8][14] - The management emphasizes a proactive approach to capital allocation, balancing debt repayment, dividends, and share repurchases [33][35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating market volatility and highlighted the importance of operational execution in driving free cash flow [5][6] - The company is optimistic about future opportunities, particularly in the context of ongoing market dislocation [40][41] - Management reiterated a commitment to maintaining a strong balance sheet while pursuing growth opportunities [62][65] Other Important Information - The company has eliminated its Up C structure, simplifying its public company evolution [14] - Crescent Energy has a strong liquidity position of $1 billion, following significant debt repayment [15][14] Q&A Session Summary Question: Efficiency gains in D&C per foot - Management attributed efficiency gains to the execution of best practices, particularly in completion operations [20][21] Question: Capital allocation decisions in Uinta - Management indicated excitement about resource potential in Uinta and plans to allocate capital prudently based on proven economic inventory [22][24] Question: Justification for adding to the minerals portfolio - The acquisition aligns with the company's strategy and is expected to be highly cash flow accretive [28][30] Question: Balance sheet and capital allocation - Management confirmed that 80% of free cash flow was directed towards debt repayment, with the remaining 20% allocated to dividends and buybacks [33][35] Question: Market dislocation in A&D - Management noted that many asset sale processes were pulled due to market volatility, indicating a functioning but cautious market [39][40] Question: Production response in Uinta - Management expressed satisfaction with reservoir performance and indicated no surprises in production results [42][43] Question: Future capital allocation flexibility - Management confirmed the ability to pivot capital allocation between oil and gas based on market conditions [52][53] Question: Cash tax benefits and future outlook - Management highlighted significant cash tax savings expected over the next few years due to updated tax legislation [56][57] Question: Realistic leverage targets - Management reiterated a focus on maintaining leverage within the 1 to 1.5 times range, with plans for continued debt reduction [61][62]

Financial Data and Key Metrics Changes - Viper Energy reported strong oil production growth in Q2 2025, both in absolute terms and per share, despite oil price volatility [5] - The company plans to return $0.56 per share to shareholders this quarter, representing 75% of cash available for distribution [7] - The pro forma net debt target is set at $1.5 billion, which represents approximately one turn of leverage at $50 WTI [7][8] Business Line Data and Key Metrics Changes - The acquisition of SITIO royalties is expected to add substantial scale and inventory depth, supporting the production profile over the next decade [6] - Viper anticipates a mid-single-digit percentage increase in average production for the full year 2026 compared to Q4 2025 production levels [7] Market Data and Key Metrics Changes - The company expects over 15% year-over-year growth in Diamondback operated net oil production [6] - Current activity levels from third-party operators are encouraging, with a potential for growth despite a generally flat gross activity [18][19] Company Strategy and Development Direction - Viper Energy aims to maintain a strong relationship with Diamondback, which is seen as a competitive advantage [8] - The company is focused on organic growth and accretive acquisitions, with plans to return excess cash to shareholders once the net debt target is achieved [8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the organic growth trajectory continuing into 2026 at current prices [6] - The company is aware of its undervalued stock and plans to balance between non-core asset sales and free cash generation to reach the net debt target [11][12] Other Important Information - The integration of the SITIO acquisition is expected to be quick, with key employees likely joining Viper [24] - The company is exploring opportunities for further acquisitions but is prioritizing patience to ensure the benefits of recent deals are fully realized [51] Q&A Session Summary Question: Flexibility towards the $1.5 billion net debt target - Management indicated that the business can generate significant free cash flow, allowing for a mix of asset sales and cash generation to reach the target [11] Question: Sustainability of third-party operator activities - Management noted that large-cap operators are expected to maintain consistent development plans, benefiting Viper [18] Question: Evaluation of non-core assets in the CTO portfolio - Management plans to be patient with larger positions in non-core assets, given the strong buyer universe [23] Question: Strategy for dividends versus buybacks - Management expressed a preference for buybacks over variable dividends due to current stock undervaluation [32] Question: Anticipation of hitting the net debt target - Management believes it is reasonable to expect the board to consider increasing the base dividend in the near future [49]