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The company, which is restructuring into studio-focused Warner Bros and cable-centric Discovery Global, reported second-quarter revenue of $9.81 billion. Analysts had expected $9.76 billion, according to data compiled by LSEG.
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Essent Group (ESNT) Q2 2025 Earnings Transcript
Date Aug. 8, 2025 at 2:00 p.m. ET Call participants Chairman, President, and Chief Executive Officer — Mark Casale Senior Vice President, Investor Relations — Phil Stefano Senior Vice President and Chief Financial Officer — David Weinstock Need a quote from a Motley Fool analyst? Email pr@ Takeaways Net income -- Net income (GAAP) was $195 million for fiscal Q2 2025 ended June 30, 2025, down from $204 million in fiscal Q2 2024, a decrease of approximately 4.4%. Return on average equity -- 14% annualized return on average equity. US mortgage insurance in force -- $246.8 billion at quarter end, representing a sequential increase of $2.1 billion and a 2.5% increase from $240.7 billion a year earlier. Weighted average FICO -- 746 weighted average FICO for insurance in force. Weighted average original LTV -- 93% weighted average original LTV for insurance in force. Persistency -- 85.8%, effectively unchanged from fiscal Q1 2025. Mortgage insurance net premium earned -- $234 million, including $13.6 million earned by Essent Re on third-party business. Average base premium rate (US MI portfolio) -- 41 basis points; Net average premium rate -- 36 basis points, both consistent sequentially. Provision for losses and LAE -- $15 million, sharply lower than $30.7 million for fiscal Q1 2025 and compared to a benefit of $1.2 million in fiscal Q2 2024. Default rate (US MI portfolio) -- 2.12%, down from 2.19% at March 31, 2025, a seven basis point sequential decline. Mortgage insurance operating expenses -- $36.3 million with an expense ratio of 15.5%, down from $43.6 million and 18.7% in fiscal Q1 2025. Investment income -- Consolidated net investment income rose by $1.1 million, or 2%, to $593 million compared to fiscal Q1 2025, with a portfolio yield of 3.9% and new money yield near 5%. GAAP equity -- $5.7 billion in GAAP equity as of June 30, 2025. Liquidity position -- $6.4 billion in consolidated cash and investments; $500 million undrawn revolver capacity. Essent Re risk in force -- $2.3 billion in GSE and other risk share as of June 30, 2025. Excess of loss reinsurance capacity -- $1.4 billion in excess of loss reinsurance as of June 30, 2025; two new excess of loss transactions effective July 1, 2025, and July 1, 2026, covering new insurance written. PMIERs sufficiency ratio -- 176% as of June 30, 2025, with $1.6 billion of excess available assets. Trailing twelve-month operating cash flow -- Trailing twelve-month operating cash flow was $867 million. Statutory capital (Essent Guaranty) -- Statutory capital was $3.7 billion as of June 30, 2025, with a risk to capital ratio of 9.2:1. Debt -- $500 million in senior unsecured notes outstanding as of June 30, 2025; debt to capital ratio was 8% as of June 30, 2025. Moody's rating actions -- Moody's upgraded Essent Guaranty's insurance financial strength rating to A2 during fiscal Q2 2025 and Essent Group's senior unsecured debt rating was upgraded to Baa2 by Moody's in August 2025. Share repurchases -- 3 million shares repurchased for $171 million; an additional 1 million shares bought in July 2025 for $59 million; year-to-date total of nearly 7 million shares, or $390 million, through July 31, 2025. Common dividend -- The Board approved a $0.31 per share dividend for 2025. Essent Guaranty dividends -- $65 million paid in fiscal Q2 2025, with $366 million available for payment as of July 1, 2025. Essent Re dividend -- $120 million paid to Essent Group in fiscal Q2 2025. Total shareholder dividends paid -- Total shareholder dividends paid were $30.9 million. Summary Essent Group (NYSE:ESNT) reported steady insurance portfolio growth and stable credit quality, highlighting elevated persistency supported by higher rates and predictable premium revenue. Management outlined disciplined capital returns, including a $0.31 common dividend for 2025 and nearly 7 million shares repurchased for $390 million year to date through July 31. Strategic capital management updates included new reinsurance transactions and an increased ceding percentage for Essent Re, aimed at enhancing risk transfer and capital efficiency. Moody's rating upgrades for both Essent Guaranty and Essent Group's senior unsecured debt reflect external recognition of the company's financial strength and resilient business fundamentals. Management expects persistent equity accumulation within the portfolio due to rising home values, which may mitigate claims risk. Mark Casale said, "We see home prices going up in certain areas still because of the lack of supply. Other areas, we think there's going to be some weakening. And we thought that for a while. And it depends on the extent of it. You know, five-ish, ten-ish percent maybe in certain markets." Essent's operating model and proprietary EssentEDGE credit engine are used to price loans granularly, which may improve premium yields relative to industry benchmarks. Management indicated an active but valuation-sensitive approach to share buybacks, with the pace supported by current excess capital levels. Essent Guaranty's ability to pay future dividends is enhanced by the recent unlocking of an additional $366 million in ordinary dividend capacity as of July 1, 2025. Phil Stefano highlighted capital 'sufficiency' under PMIERs and enterprise stress testing as determinants in capital return decisions. Operational efficiency improvements were explicitly noted, as operating expenses declined both in absolute terms and as a percentage of earned premiums. Title insurance operations are not expected to contribute materially to near-term earnings due to ongoing market headwinds. Industry glossary PMIERs: Private Mortgage Insurer Eligibility Requirements, the regulatory capital framework for U.S. mortgage insurers established by the Federal Housing Finance Agency (FHFA). EssentEDGE: Essent Group's proprietary mortgage insurance risk and credit scoring analytical platform used to set loan-level premium pricing. NIW: New Insurance Written, referencing new mortgage insurance policies issued within a specified period. GSE risk share: Portfolio of risk transferred by government-sponsored enterprises, such as Fannie Mae and Freddie Mac, to private mortgage insurers or reinsurers. LAE: Loss adjustment expenses, the costs associated with investigating and settling insurance claims. Full Conference Call Transcript Mark Casale: Thanks, Phil, and good morning, everyone. Earlier today, we released our second quarter 2025 financial results, which continue to benefit from favorable credit performance and the impact of higher interest rates on persistency and investment income. Our second quarter performance demonstrates the strength of our business model in the current macroeconomic environment. We believe that our buy, manage, and distribute operating model uniquely positions Essent within a range of economic scenarios to generate high-quality earnings. Our outlook on housing remains constructive over the longer term as we believe that demographics will continue to drive demand and provide home price support. Over the last several years, demand has exceeded supply, resulting in meaningful home price appreciation and affordability challenges. A byproduct of these affordability issues is that higher creditworthy borrowers are being for mortgages, as evidenced by the weighted average credit score of our new business. Also, the increase in home values has resulted in further embedded equity within our insured portfolio, which provides a level of protection in reducing the probability of loans transitioning from default to claim. And now for our results. For 2025, we reported net income of $195 million compared to $204 million a year ago. On a diluted per share basis, we earned $1.93 for the second quarter, compared to $1.91 a year ago. On an annualized basis, our return on average equity was 14% in the quarter. As of June 30, our US mortgage insurance in force was $247 billion, a 3% increase versus a year ago. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Our twelve-month persistency on June 30 was 86%, flat from last quarter. While nearly half of our in-force portfolio has a note rate of 5% or lower, we continue to expect that the current level of mortgage rates will support elevated persistency in the near term. On the Washington front, our industry continues to play a vital role in supporting a well-functioning and sustainable housing finance system. We believe that access and affordability will continue to be the primary focus in DC. Essent is supportive and believes that our industry is very effective in enabling homeownership for low down payment borrowers while also reducing taxpayer risk. During the quarter, Essent Re continued writing high-quality GSE risk share business and earning advisory fees through its MGA business with a panel of reinsurer clients. Phil Stefano: As of June 30, Essent Re had risk in force of $2.3 billion for GSE and other risk share. Essent Re achieves both capital and tax efficiencies through its affiliate quota share with Essent Guaranty and allows us to leverage Essent's credit expertise beyond primary MI. It also provides a valuable platform for potential long-term growth in diversification of the Essent franchise. Essent Title remains focused on expanding our client base, footprint, and production capabilities in key markets. We continue to maintain a long-term horizon for this business, and given persistent headwinds of high rates, do not expect title to have any material impact on our earnings over the near term. Our consolidated cash and investments as of June 30 totaled $6.4 billion with an annualized investment yield on the second quarter of 3.9%. Our new money yield in the second quarter was nearly 5%, holding largely stable over the past several quarters. We continue to operate from a position of strength with $5.7 billion in GAAP equity, access to $1.4 billion in excess of loss reinsurance, and a PMIER sufficiency ratio of 176% with a trailing twelve-month operating cash flow of $867 million, our franchise remains well positioned from an earnings, cash flow, and balance sheet perspective. Earlier this week, we were pleased that Moody's upgraded Essent Guaranty's insurance finance strength rating to A2 and Essent Group senior unsecured debt rating to Baa2. We believe these actions reflect our consistent strong results, high-quality insured portfolio, financial flexibility, and the benefits of our comprehensive reinsurance program. Our capital strategy is to maintain a conservative balance sheet, withstand a severe stress, and preserve optionality for strategic growth opportunities. We continue to believe that success in our business is best measured by growth in book value per share as we look to optimize returns over the long term. In addition, our strong capital position and slowdown in portfolio growth allows us to be active in returning capital to shareholders. With that in mind, I am pleased to announce that our Board has approved a common dividend of $0.31 for 2025. Further, year to date through July 31, we repurchased nearly 7 million shares for approximately $390 million. Now let me turn the call over to Dave. David Weinstock: Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we earned $1.93 per diluted share compared to $1.69 last quarter and $1.91 in the second quarter a year ago. My comments today are going to focus primarily on the results of our mortgage insurance segment, which aggregates our US mortgage insurance business and the GSE and other mortgage reinsurance business at our subsidiary, Essent Re. There's additional information on corporate and other results in Exhibit O of the financial supplement. Our US mortgage insurance portfolio ended the second quarter with insurance in force of $246.8 billion, an increase of $2.1 billion from March 31, an increase of $6.1 billion or 2.5% compared to $240.7 billion at June 30, 2024. Persistency at June 30, 2025, was 85.8%, essentially unchanged from 2025. Mortgage insurance net premium earned for 2025 was $234 million and included $13.6 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the US mortgage insurance portfolio for the second quarter was 41 basis points, and the net average premium rate was 36 basis points, both consistent with last quarter. Our mortgage insurance provision for losses and loss adjustment expenses was $15 million in 2025, compared to $30.7 million in 2025 and a benefit of $1.2 million in the second quarter a year ago. At June 30, the default rate on the US mortgage insurance portfolio was 2.12%, down seven basis points from 2.19% at March 31, 2025. While we continue to observe a decline in the number of defaults associated with Hurricanes Helene and Milton during the second quarter due to cure activity, we made no changes to the reserve for hurricane-related defaults. As this amount continues to be our best estimate of ultimate losses being incurred for claims associated with those defaults. Mortgage insurance operating expenses in the second quarter were $36.3 million, and the expense ratio was 15.5%, compared to $43.6 million and 18.7% in the first quarter. As a reminder, in April, we entered into two excess of loss transactions covering our 2025 and 2026 new insurance written, effective July 1 of each year with panels of highly rated reinsurers. In addition, in April, the ceding percentage of our affiliate quota share with Essent Re increased from 35% to 50%, retroactive to NIW starting from January 1, 2025. At June 30, Essent Guaranty's PMIERs deficiency rate ratio was strong at 176%, with $1.6 billion in excess available assets. Consolidated net investment income increased $1.1 million or 2% to $593 million in 2025 compared to last quarter due primarily to a modest increase in the overall yield of the portfolio. As Mark noted, our total holding company liquidity remains strong and includes $500 million of undrawn revolver capacity under our committed credit facility. At June 30, we had $500 million of senior unsecured notes outstanding, and our debt to capital ratio was 8%. During the second quarter, Essent Guaranty paid a dividend of $65 million to its US holding company. As of July 1, Essent Guaranty can pay an additional ordinary dividend of $366 million in 2025. At quarter end, contingency reserves at June 30. Essent Guaranty's statutory capital was $3.7 billion with the risk to capital ratio of 9.2 to one. Note that statutory capital includes $2.6 billion of During the second quarter, Essent Re paid a dividend of $120 million to Essent Group. Also in the quarter, Essent Group paid cash dividends totaling $30.9 million to shareholders, and we repurchased 3 million shares for $171 million. In July 2025, we repurchased 1 million shares for $59 million. Now let me turn the call back over to Mark. Mark Casale: Thanks, Dave. In closing, we are pleased with our second quarter financial results as Essent continues to generate high-quality earnings while our balance sheet and liquidity remain strong. Our outlook for housing remains constructive over the long term, and we believe Essent is well positioned to navigate the current environment given the strength of our buy, manage, and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital to shareholders. We believe this approach is in the best long-term interest of Essent and our stakeholders while Essent continues to play an integral role in supporting affordable and sustainable homeownership. Now let's get to your questions. Operator? Operator: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, please press 1 again. And your first question comes from the line of Terry Ma with Barclays. Please go ahead. Terry Ma: Hey, thank you. Good morning. Wanted to ask about home prices and your expectations going forward. To the extent home prices turn negative, how do you think about pricing on a go-forward basis? And then second, how would you feel about the more recent vintages that the industry has underwritten, which has seen just less home price appreciation overall? Mark Casale: Good morning, Terry. I think on home price appreciation, where do we see home prices going? Well, it really depends down at the MSA level. So, I mean, we have a pretty detailed forward-looking model across all of the MSAs. The driving factors are clearly month supply, recent home price appreciation, and job growth. Those are kind of three factors if you boil it down to a local community. We see home prices going up in certain areas still because of the lack of supply. Other areas, we think there's going to be some weakening. And we thought that for a while. And it depends on the extent of it. You know, five-ish, ten-ish percent maybe in certain markets. When we take a step back, that's actually pretty good. It's healthy. Some of the markets have really increased rapidly. I think almost a 50% increase over a few year period. Income growth still at three, 4%, and then you had a doubling of rates. So that's why you've seen such a slowdown in housing. We're kind of coming out of that. You've heard me say before, the COVID bubble, so to speak, with low rates and high demand, and we're kind of on the second leg of that. So I think coming out of that, if you think of just affordability when it becomes kind of normalized again, you're going to need a mix of job growth, HPA kind of flattening out or decreasing in certain areas, and clearly a little bit of relief on rates. And you can almost draw the map up as to depending on where your belief is on rates. So I think, again, in certain markets for home prices to come down, I think that's healthy for borrowers. You heard me say it in the script. There's a big issue. There's a big push in DC around affordability. There's a big push with our lenders as it should be. It's very difficult to get a mortgage in, especially when you think of the first-time homebuyer is thirty-eight years old and historically, it's in the low thirties. That tells you right there that folks are having trouble getting home. So anything to help affordability, if that means HPA is going down a little bit, that's fine. I look at the embedded equity in our portfolio. I'm not particularly worried. You said the recent vintages I would say, sure. They're we've always said they're probably more exposed. But they're pretty normal. So if you think about, historically, Terry, kind of on average, of, let's say, before COVID and you looked at our portfolio, it was probably 81-ish, 82%. Mark to market. It's below that today. So assuming it gets back to that level, that's the normal business. So we're not particularly concerned around that. In terms of new business, we always price differently. So we have little add-ons for what we'll call market of focus. And that again has to be it's not just HPA, Rose A Lot Puts The Market Of Focus For Us. If There's Still Underlying Strong Income Growth And Kind Of Lack Of Supply That Kind Of You Know, We'll We'll Probably Like That Market. And If You Just Think About All Of Our Markets In General, If You Go Down To The MSA Level, And You'll Hear About, You Know, Cape Coral's in the Wall Street Journal, and you should stay away from it. The default rates in that area for us are pretty similar to the rest of our portfolio. Wanna say it's a touch higher. Go to Austin, our default rates actually lower than the overall portfolio. So you have to be careful at trying to look at the industry from a 30,000-foot level. I think when you look at individually at Essent, I continually, the returns are there. And that you know, obviously, when you think about how what we're doing on the capital side, you know, I think we probably have a pretty good sense of where, you know, our view around credit. Terry Ma: Got it. Super helpful. And I guess maybe on just credit for the quarter, new defaults, were up 9% year over year. The pace of increase has decelerated markedly the last few quarters. It seems like it's pretty consistent across the MIs that I cover. So, I guess, any color on the makeup of new defaults that you've seen the last quarter or two? And I guess, what's the outlook there? Thank you. Mark Casale: Yeah. I mean, again, new defaults nothing surprising. I mean, consistent with our other quarters and just again, from an investor standpoint, you just have to understand that's really this, we're starting to get back to probably about normal seasoning pattern. Around the faults where you see it kind of decrease in the first half of the year. And tends to pick up a little bit in the second half of the year. There's kind of a normal seasoning that folks should be aware of. It happened last year. And it seemed to catch, you know, everyone by surprise that our default season and then, you know, now they're kind of you know, they decrease the first half of the year. But I think you'll see that normal seasoning. Big picture, you know, Terry, again, it's, you know, two-ish, one point was it 2.12% default? You know, out of roughly 811,000 or 12,000 loans that we have. So you know, again, it ebbs and flows a little bit, but I think big picture given the embedded equity in the portfolio you know, having some of those even if they become the false transitioning, the claim depending on the vintage is know, it's it's it's it's probably in a lower probability side. So I again, I think from a credit standpoint, big picture, you know, we feel pretty good you know, from that first loss perspective. Terry Ma: Got it. Thank you. Operator: And your next question comes from the line of Bose George with KBW. Please go ahead. Bose George: Hey, guys. Good morning. On the buybacks, would you characterize the pace of your buybacks this year as opportunistic, or is there any change in how you're thinking about excess capital, which is, obviously, built quite a bit over the last couple of years? Mark Casale: It's a little bit of both, Bose. I think we've always I think we kind of have we are valuation sensitive around the buyback. So we have a grid that we execute across. And it changes quarter to quarter depending on where we think credit is. Are there any opportunities to invest the cash? Pretty high bar given the returns in the core business. And to your point, you know, we said before we have a and invest mentality. Well, we haven't really invested in a couple of years, so we've retained a lot. So it's a little bit of we have a lot of buildup of excess capital. We like you know, where, you know, the valuation is. We think it's really good returns for the shareholders. So it's a good use of proceeds. And given you know, what we did in July, I wouldn't expect that to change for the remainder of the year. I wouldn't be surprised if it doesn't change. Know, given what we're looking at. And we'll have something else. It's probably gonna be in an investor deck we'll put out next week. Around kind of the embedded value of the portfolio. You know, one of our peers did it a couple years ago, and stopped doing it, but it's a really interesting kind of slide that I think it's important for analysts and investors to take a look at. And if you think about it'll give you some context for how we think about you know, the company, Bose. I mean, we roughly $5.7 billion of capital that we have today. That's roughly where stock trades in terms of a market cap. If you look, it doesn't really give any credit meant for the what $245 billion insurance in force we have in the earns 40 basis points in yield, and you can kind of predict or, you know, you can assume a certain combined ratio over four to five years, discount it back, Take a look at the investment portfolio, $6.5 billion, you know, yielding close to 4. A lot of embedded value in the investment portfolio of those that frankly wasn't there three, four years ago. So when you look at that number, you can be yeah. And you can pick whatever discount, rate that you like. It's probably $15 to $20 in terms of stock. In terms of the valuation, additional book value. So embedded book value, and that doesn't give us doesn't that ignores any credit for being a platform or franchise that's one of six in the country that all low down payment borrowers to the top lenders, back with the GSEs. So, again, just big picture I don't it's a slide, and I think it's something just for investors to be aware of. And I think it's something we're gonna start thinking through and discussing with investors. It's a pretty true for all of our competitors too, so it's not just an Essent only thing. And I think it deserves a little bit more of a spotlight. So I think when you put in the context of that, and, again, given where, you know, the valuation is, we feel comfortable buying shares, healthy amount of shares back at these prices. Bose George: So that's great. Very helpful. Thanks. And then just one follow-up on the buyback. See, what was the dollar amount that was spent just during the second quarter? David Weinstock: Bose, this is Dave Weinstock. So we repurchased 3 million shares at $171 million in the second quarter. Bose George: Okay. Great. Thank you. Operator: And your next question comes from the line of Doug Harter with UBS. Please go ahead. Doug Harter: Thanks, and good morning. Mark, just, I guess, following up on that embedded value in the buyback, how are you thinking about sizing it? You know, what are the limitations of, you know, kind of cash flow up to the holding company, know, and just how do you think about, you know, holding back for opportunities that you know, may or may not present themselves versus, you know, kind of buying back today? Mark Casale: No. It's a good question. I think there's clearly a limit. Right? I mean, in and we have, you know, we get cash back to the group two ways. Obviously through US and Holdings, which is the core, so we'll dividend and from guarantee of the holdings, and I have to get it to group. Then we have Essent Re. So as we've tended to use a little bit more Essent Re it's a little bit more tax efficient, Doug. But there is a limit. So when you think about kind of payout type ratios, you know, I think a 100 is probably is kind of a max just from kind of how the cash moves through the system. Not saying we would do that, but if you're looking at an upper end just over the net you know, where it was kind of in the first half of the year, that's a decent level. In terms of how we calculate excess capital, we've gotten many questions over the years. PMIERs is certainly one. But we also look at it from an enterprise framework. Right? Because we include Essent Re in there. So we kind of look at it like consolidated capital requirements and needs. And we run it through different stress. I would say the Moody's S4 stress is one. And the constant severity model that they use Moody's obviously looked at both of those during the upgrade. So and I think that's important. Right? So I think you have now another, you know, independent party looking at our balance sheet and our risk and detailed review of the stresses and feels comfortable now that we're at the kind of single A. That's good news for investors and clearly for bondholders. We'll also look at it. We're still running through the great financial crisis. We'll still run that. So we're all you're always looking because remember, we're that upper tier, Doug. Right? We own the first loss. We're very comfortable. That's why I don't get too stressed about default rates and first loss. That's kind of what we signed up for. And it's much more it's clearly earnings versus capital. And then, you know, we hedge out that whole mezz piece. Know, our exposure is when it comes back to the top. And I think when we think about what comes back to the top, is the probability that low? Sure it is. But, you know, it was low, it's low doesn't mean zero. So I think when we look at that environment, we're looking to make sure we clearly have enough more than enough capital from a PMIER standpoint. And remember how procyclical PMIERs is, Doug. So there's a liquidity component of that to the MIs that I'm not sure all investors appreciate. So we run it through that. Not just capital, clearly P&L, but PMIERs too. So we want to make sure we have enough capital not to just withstand that, but basically to be maybe use it as an opportunity an opportunistic. So, we had that chance in 2020. If you go back, we raised capital. We had plenty of capital. We wrote a lot more business than some of our competitors back then because we had the capital. We're still enjoying the cash flows of that today. So I think it's making sure we're just well positioned between, we say, like a range of economic scenarios so we really don't get caught on our back foot. So, again, clearly, you know, with the buybacks in the first half of the year, we feel comfortable around that scenario and still have the capital to return to shareholders. And both Bose alluded to it. Some of it is just a buildup been over the last couple of years, Doug. You know, we have it and we're comfortable and we're fortunate, you know, and I say this in everyone wants their stock price up, but if you're looking to buy shares back, you kind of like the valuation that it's at. So I you know, we're not too we're not too, you know, stressed about that either. So hopefully, gave you a little color. Doug Harter: Very helpful, Mark. Thank you. Operator: And your next question comes from the line of Rick Shane with JPMorgan. Please go ahead. Rick Shane: Good morning, everybody, and thanks for taking my question. Hey. I'd like to dig in a little bit on the persistency. When we look at the persistency by vintage, there is some dispersion. The '23 vintage persistency was a little bit lower. That makes sense. Presumably, that is the cuspius of the slightly seasoned vintages. And so probably have borrowers there who are trying to take advantage of the refi window. The other two vintages that have persistency a little bit lower sequentially are 2020 and 2021. I'd like to delve in a little bit more on that. Is that just natural aging associated with those vintages? Should we expect regardless of rate that the persistency should trend down there? Or is it exogenous factors like borrowers taking seconds and the brokers you know, getting appraisals and allowing borrowers to rescind the PMI. Mark Casale: Yeah. I mean, a lot to unpack there, Rick. I would say, which is typical one of your insightful questions, I think when we think about persistency, a little bit of it depends on you didn't bring this up, but, you know, our persistency tends to be a little bit higher because we don't really place a lot in the lower kind of half of the high LTV, like the 80 to 85. If you look at our mark if you kind of break our market share between 80 to 85, we may be the lowest in the industry. So, you know, having a bit of a higher LTV, which clearly comes with more risk, also helps a bit on the persistency side. I think on the earlier books, 2021, I just think they're seasoning. Right? And all of a sudden, now you're five years into it. You know, especially folks who bought the house then. If their families are bigger, they're again, in rates on all side, you know, they could be looking to move up. So that doesn't that's pretty natural and that's happened over time as the portfolio seasons. I don't think it's seconds, and I know there's a lot of noise around seconds. I do think seconds in home equities will become you know, continue to increase as they should if someone is kind of locked into the 3% mortgage and they need another bedroom and, you know, they get a home equity loan and in addition makes perfect sense. We haven't done it most recently, but I think the last time we did it, 3% of our portfolio had seconds on it. So I wouldn't, again, back to reading, you know, big picture articles and assigning it into the to the 85 or 90 LTV, even if it has built a, you know, built in market. It's a lot of that gonna be on the traditional, you know, below 80 business for the GSEs. So, again, I think it is also interesting, Rick, just to point out, again, the strength of the business model. We got questions galore from 2014 to 2020, like, especially '18. Might have been even in '18 when rates went up. Like, jeez, Mark, how's your portfolio been able to perform when rates increase? You know, what's gonna to asset when rates increase? And we would say, hey. You know what? There's a hedge. You know, NIW is gonna go down, but persistency should stay elevated. And then clearly in 2022, I mean, we ran a business where our yields were below. And every year, we thought the yields would go up and they never did, and then we woke up one day and now they're at, you know, new money yields at five. I do think it's a reminder of the strength of the portfolio. So and kind of the business model. It's a unique business model in that we're we play in a space that we understand very well, we're able to take that in insurance form and premium form. So there's a building kind of cash flow advantage to getting paid first. And now the next question we'll get as we should get is what happens when rates go down. You know, what does that do? And I think the same thing, Rick. It's gonna be persistency's gonna be lower in certain segments, especially the newer segments, right, where that rate are in the sixes. But the renewed NIW is probably gonna grow the portfolio. So we're I just don't know when that's going to be. I think you had asked me that a couple of years ago and we're still not sure. The timing of it. Lot it gets back to that earlier comment around affordability. It has to reach kind of that medium level. And then I believe you know, I could be wrong. I've been wrong many times before, but I do believe there's a pent-up demand for housing. And I think it's and I think and it's ironic, but the longer this slowdown lasts, probably the more upside there'll be in housing, in the return to housing and demand. Which I think will bode well for the top line for Essent and the whole industry, to be honest. Rick Shane: No. It's fair. And there's an interesting comment there, which is you've been wrong many times. And I appreciate the humility of that, and acknowledge the number of times I've been wrong too. But I would argue that you built this too. Portfolio not for being right, but actually for being wrong. And that's part of what you constructed here. Curious and this question's driven by something we saw earlier in the week. We have another company we follow that makes very, very short duration loans. And they are because of that, and the short-term uncertainty, pulling back from originations. And if they miss a window of six months given the, you know, twelve to eighteen-month duration of their assets, they can recover that very quickly. And it made me think of you guys and how long the duration of your portfolio is. Are you willing to when you see those have those concerns take the risk of pulling back and knowing that for five years, you will have a cohort that is under representative at the risk of being wrong. Mark Casale: I think it depends. I wouldn't say we wouldn't shy away from lower share, and we've done it in the past. I think we probably you know, there's been records where we've been I think we've been top market share, like, twice in a quarter in our history, but we've been at the bottom more than twice. So we're not afraid to make calls there. A lot of it's around pricing. And it's also an interesting thing in our industry. There's a lot of, as you know and that's really the only competitive to the industry, Rick. We don't really have a lot of credit competition in the industry, and that goes back again to the guardrail setup. We've always called them the credit guardrails set up with, you know, the qualified mortgage rule. Fannie and Freddie with DUNLP. They do such a good job of segmenting risk, They do a great job around QC. What kind of the beneficiaries of that as is the industry. There's not a lot of credit competition. And I think, you know, we haven't gotten a question. But if you think about GSE reform, like, happens if the GSEs go public? You know, one, I think that helps us a lot more so than people think because I think it'll bring a lot more liquidity into the space. From an investor standpoint. It helped us on the CRT side. Kinda more visibility, probably more share. Right? Because they're gonna start they're gonna they'll do the buy, manage, and distribute operating model, again, probably in much greater force. And they'll probably expand the market a little bit. And there's good and bad to that. It's good because higher top line. The bad is it could introduce some credit competition to the space, and we haven't had that. And I think that's when that's when you're gonna make more calls on higher or lower share. Right now, you know, yielding, you know, price if, you know, we'll back off a little bit on price with the end of the day that we if the returns are there, we're still there. There's a lot of volatility around the loss assumptions I think then you're gonna see a lot more disparity in share. And we have an advantage there. I think it's an advantage we've been able to leverage much. But, you know, when you think about our credit scoring at Engine, EssentEDGE, and this comes in with a lot of there's been a lot of banter about with the scores, the Vantage scores, and the new FICO score and all those sort of things. We look at the Royal Credit Bureau. So we're almost agnostic to the score. And we can and we use two bureaus so we can we don't even need necessarily the third to be able to triangulate and get the right price. If there's a lot of this disparity in the market and let's say I will use the analogy, Rick, of, like, a fairway. If that fairway starts to widen, all of our lenders will increase their volume as they should. I would do the exact same thing. I think then when we look at our ability to discern between kind of a good 700 and a bad 700. And, again, if there's a lot of different scores flying around, I think it's even a bigger advantage for us. So, again, that may just that advantage may have us decide not to do some of the business. Versus to do the business. So, again, not saying that market gonna happen, but I think that's and so we think about we always think about multiple kind of scenarios and how we would react and position the business, you know, kind of before it happens. Rick Shane: Okay. I appreciate it very much. Thank you, guys. Phil Stefano: You're welcome. Operator: And once again, if you would like to ask a question, simply press star 1 on your telephone keypad. Your next question comes from the line of Mihir Bhatia with Bank of America. Please go ahead. Mihir Bhatia: Hi. Good morning, and thank you for taking my questions. First, I just wanted to actually follow-up on the EssentEDGE point you just made, Mark. Specifically, I guess, you know, EssentEDGE in the next generation has been out for a couple of years. Can you just talk a little bit about what you've seen so far? I appreciate you saying that, you know, it's you haven't I guess, the outside, we haven't really been able to you know, we can't really tell given how low default rates are. How these engines are different. But maybe just talk a little bit about what you're seeing internally and are you continuing to invest that? There's adding, you know, or is it more just a matter of now we're getting all this data and it's just waiting for the fairway to widen as you mentioned. Mark Casale: Yeah. I would say we haven't made a ton of investment on it over the last twelve months once we got we got you know, we did a lot to get that second credit bureau in. So clearly, with some of the noise around the industry with the TriMerge and things like that, we may make the investment to get the third bureau clearly, and I've gone the whole call without saying AI. Which seems to be the banter for most companies, not our industry, but others. The technology there has increased so much just even over the last six months. So we're seeing more opportunities to use it within our IT group and other areas to speed things up to market. I think that's you know, saw some of the lenders announce some things, which we've been watching. So there's some things there that we potentially could use to improve it over time, which I don't know if I would have said that a year ago. I know we felt pretty comfortable with it a year ago. And you're right. So I think you're gonna need some disparity in credit for it to really shine. The one way for people to look at it today, for investors to look at it today, Mihir, is look at our earned premium yield. Right? Our earned premium yield's higher than the rest of the industry. And what does that tell you? And our defaults are relatively the same. It says we're able to get a little bit extra yield. Okay? What's a basis point or two? Two basis points on $145 billion adds up. So I think they're if you're from the outside looking in, that's probably the best evidence of kind of the success of how the credit engine works. And, remember, it's just a credit engine. We'll use that then to create price using an old kind of fashion yield analysis. In there, the price is a little bit you know, you're testing pricing elasticity in certain markets you can get a little bit more price. So think of it more as a, you know, as a way to get value for an individual loan. Mihir Bhatia: So that is helpful, and it's certainly something we see in the data. You mentioned AI. And my second question actually does relate to AI, but almost like from a little bit of a threat. To your business. And maybe not a threat, actually. I was trying to understand the implications. But, specifically, I'm talking about today, borrowers getting an appraisal and canceling MI. My understanding is that is not super common. As more and more data moves to the crowd, fintechs innovate, trying to build these personal finance recommendations, do you worry about that becoming something that becomes more common where borrowers ask to go get an appraisal and cancel MI from existing policies. How would that something like that impact your business and returns? Mark Casale: Yeah. I mean, it's been kind of it's been discussion over the last five years ever since rates went down. It's not very common in the business. And part of it is that there's clearly friction to it for sure, Mihir, but a lot of the major servicers do it. They do notify the borrowers. So the borrowers are aware of it. Or they're notified of it. It's just small dollars. You know? I think it's, you know, again, you're gonna there's work to be done to refinance something that's, you know, 30 to 40 basis points. So I'm not saying it can't be done. We don't lose a lot of sleep over it. And I do think that we're when in terms of AI, it'll impact it. I'd be surprised if it didn't. It's also gonna make refinancings even, you know and our lenders, I would say, today are brutally efficient in refinancing loans. I think it's gonna be even more frictionless. And if you speak to some of our top lenders and their investments technology, I think what's the common theme of all this, though, is the borrower benefits. So if the borrower right now the borrower, you know, the MI automatically cancels below 80. I think that's a great rule. And I think that benefits the borrower. So if there's a slowdown in rates and borrowers are locked into their mortgage and their home price appreciates significantly, and they're able to, you know, get the appraisal easier and cancel MI. Good for them. Good for the borrower. And that means it's a good borrower. So, yeah, we don't get too fussed about it. There could be some economic impact to it, but I don't think it's very big. So I wouldn't we're not gonna lose a lot of sleep over it. Mihir Bhatia: Right. Just if I could squeeze in one question on just OpEx. Any thoughts on outlook for the year? I think there's a little bit of a downtick this quarter. Any callouts there? David Weinstock: Hey, Mihir. It's Dave Weinstock. We're I think we feel really good about our guidance. If you look at where we are for the six months, I think we're kind of right on track. Our $160 to $165, probably a little bit towards the lower end. But, you know, a quarter to quarter basis, things can fluctuate, you know, based on production volume, staffing levels, things like that. So but overall, we're happy with where we are. Mihir Bhatia: Got it. Thank you for taking my questions. Phil Stefano: You're welcome. Operator: And I'm showing no further questions at this time. I would like to turn it back to the management for any closing remarks. Mark Casale: I'd like to thank everyone for their time today, and enjoy the rest of your summer. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you for attending. You may now disconnect. Where to invest $1,000 right now When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor's total average return is 1,047%* — a market-crushing outperformance compared to 181% for the S&P 500. They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor. *Stock Advisor returns as of August 4, 2025 This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
Globe and Mail
15 minutes ago
- Globe and Mail
Amazon's Dim Q3 Operating Income Outlook: Should You Hold the Stock?
Amazon AMZN delivered strong second-quarter results with revenues of $167.7 billion, surpassing the Zacks Consensus Estimate by 3.32%, while earnings per share of $1.68 significantly beat the consensus mark by 26.32%. Despite this strength, investors reacted negatively as the stock tumbled more than 7% in after-hours trading, reflecting concerns about forward guidance and operational efficiency. The disappointment centered on Amazon's third-quarter operating income guidance of $15.5 billion to $20.5 billion compared with $17.4 billion in the third quarter of 2024. This wide guidance range signals uncertainty in management's outlook and raises questions about profit margin sustainability amid intensifying competition and substantial artificial intelligence investments. The Zacks Consensus Estimate for 2025 net sales is pegged at $706.45 billion, indicating growth of 10.74% from the prior-year reported figure. The Zacks Consensus Estimate for 2025 earnings is pegged at $6.7 per share, which indicates a jump of 21.16% from the year-ago period. AWS Growth Deceleration Raises Strategic Questions Amazon Web Services ('AWS') experienced challenges in the quarter, with operating margins declining from 39.5% in the first quarter to 32.9% in the recent results. Management attributed roughly half this sequential drop to seasonal stock-based compensation, while the remainder stemmed from rising depreciation tied to AI infrastructure investments and foreign exchange headwinds. AWS grew 17% year over year to $30.9 billion, beating the consensus mark by 0.71% but representing deceleration from previous quarters. This growth rate also trails Microsoft MSFT Azure's 39% and Alphabet GOOGL -owned Google Cloud's 32% expansion in the same period. The AWS backlog was pinned at $195 billion, up 25% year over year, signaling healthy forward demand, though constrained supply — especially power — continues to limit revenue realization. Demand continues to outstrip capacity, and resolution may take several quarters. This supply-demand imbalance highlights both AWS' market strength and its current infrastructure bottlenecks, particularly as hyperscaler competitors intensify their artificial intelligence offerings. The retail segments delivered solid performance, with online store sales reaching $61.5 billion, up 11% year over year. Seller services revenues increased 11% to $40.3 billion, while advertising revenues climbed 23% to $15.6 billion. These figures demonstrate Amazon's continued e-commerce dominance and expanding advertising ecosystem monetization potential. Investment Thesis and Risk Assessment Amazon announced its expectation to increase capital expenditures to more than $100 billion in 2025, up from $83 billion in 2024, with the majority allocated toward building AI capacity for AWS. This massive investment commitment underscores management's confidence in artificial intelligence's long-term potential but also pressures near-term profitability metrics that investors closely monitor. The company faces macroeconomic headwinds that could impact consumer spending patterns. For the second consecutive quarter, Amazon included recessionary fears, along with tariff and trade policies, as factors potentially affecting its guidance. While tariffs have not yet impacted demand or pricing, ongoing uncertainty creates complexity for forward planning and margin management. Current valuation metrics suggest that the stock trades at premium levels relative to historical norms, making it vulnerable to disappointments in growth or profitability. Amazon's forward 12-month price-to-sales ratio of 3.18X is significantly above the Zacks Internet - Commerce industry average of 2.17X. The market's negative reaction to third-quarter guidance demonstrates investor sensitivity to operational deceleration, particularly given substantial resources being deployed in AI infrastructure. AMZN's P/S F12M Ratio Depicts Premium Valuation Cloud Market Dynamics and Competitive Pressure Recent data from Synergy shows that AWS remains the dominant cloud leader in the world, capturing 30% share of the global market in the second quarter of 2025 despite 2-point decline year over year. Microsoft achieved a 20% share of the global cloud market as the software giant's share dropped 3 points year over year. Google Cloud continued to grow at 13%, while Oracle ORCL captured 3% market share. The cloud computing market continues experiencing robust growth, with global infrastructure spending driven by AI adoption programs. While AWS leads in market share, both Microsoft and Google are pushing aggressively into AI and machine learning services. This intensifying competition could pressure AWS' historically strong margins and require additional investment to maintain technological leadership. Shares of AMZN have declined 4.6% over the past six months, underperforming the broader Zacks Retail-Wholesale sector and the S&P 500. Microsoft, Google and Oracle have returned 26.7%, 7.7% and 39%, respectively. AMZN Underperforms Sector, Peers In 6-Months Conclusion Amazon's premium valuation reflects expectations for sustained growth and margin expansion, but recent results suggest achieving these goals may prove challenging amid competitive dynamics. Supply constraints, particularly compute capacity, continue to limit revenue realization while competitors gain ground in artificial intelligence segments. These factors suggest investors should maintain positions while waiting for attractive entry points, particularly if the stock experiences weakness due to margin pressure or competitive positioning challenges. AMZN currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. See our %%CTA_TEXT%% report – free today! 7 Best Stocks for the Next 30 Days Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Oracle Corporation (ORCL): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis Report
Globe and Mail
15 minutes ago
- Globe and Mail
Plains GP (PAGP) Q2 2025 Earnings Call Transcript
Date Aug. 8, 2025 2:00 p.m. ET Call participants Chairman and Chief Executive Officer — Willie Chiang Executive Vice President and Chief Financial Officer — Al Swanson Executive Vice President and Chief Operating Officer — Chris Chandler Executive Vice President and Chief Commercial Officer — Jeremy Goebel Vice President, Investor Relations — Blake Fernandez Need a quote from a Motley Fool analyst? Email pr@ Takeaways Adjusted EBITDA -- Plains reported $672 million of adjusted EBITDA for Q2 2025, including contributions from both the crude oil and NGL segments. Crude oil segment adjusted EBITDA -- Crude oil segment adjusted EBITDA was $580 million, benefiting sequentially from Permian volume growth, bolt-on acquisitions, and higher throughput as refiner customers returned from downtime. NGL segment adjusted EBITDA -- Adjusted EBITDA for the NGL segment was $87 million, with a sequential decrease attributable to seasonality and lower frac spreads. NGL business divestiture -- Agreements to sell substantially all of the NGL business to Keyera for approximately $3.75 billion, as announced in June 2025, with closure expected in 2026, will transition Plains' focus toward crude oil midstream. Net proceeds from NGL sale -- Approximately $3 billion in net proceeds from the NGL business sale are anticipated, targeted for disciplined bolt-on M&A, preferred unit repurchases, and opportunistic common unit buybacks. Bolt-on acquisition activity -- Plains completed five bolt-on deals year to date in 2025, totaling approximately $800 million, including the acquisition of a further 20% interest in BridgeTex Pipeline Company LLC for $100 million net to Plains, raising its overall interest to 40%. Full-year 2025 adjusted EBITDA guidance -- Maintained at $2.8 billion to $2.95 billion for full-year 2025; management indicated both EBITDA and Permian growth outlooks for the year are likely tracking toward the lower half of their respective ranges. Permian volume growth outlook -- The stated range remains 200,000 to 300,000 barrels per day for full-year 2025 guidance, but current conditions suggest results in the lower half. 2025 adjusted free cash flow guidance -- $870 million of adjusted free cash flow is expected for 2025, excluding changes in assets and liabilities, reflecting the impacts of 2025 growth capex and bolt-on transactions. Growth capital guidance increase -- Full-year 2025 growth capex revised up by $75 million to $475 million, primarily to fund new Permian and South Texas lease connects, terminal expansions, weather delays, and scope changes. Maintenance capital guidance -- Trending near $230 million for fiscal 2025. This is $10 million below the initial forecast. BridgeTex pipeline positioning -- Plains and ONEOK will jointly work to optimize pipeline capacity and fill by leveraging their respective gathering system connections; all interests acquired are outside the ORIX JV. Retained U.S. NGL assets -- Retained U.S. NGL assets are expected to contribute $10 million to $15 million of EBITDA in 2025, with an indicated value of around $200 million (valuation estimate provided by management); management expressed intent to divest these over time rather than pursue a larger NGL strategy. Contract roll-offs -- Second-half 2025 will see lower contracted rates for Cactus II, Cactus I, and Sunrise, offset in part by Permian production growth and recontracting, as previously guided. Distribution growth messaging -- Management clarified there is no change in intent regarding 'multiyear sustainable' distribution growth despite altered slide language; future growth depends on successful redeployment of divestiture proceeds. Summary Plains GP Holdings (NASDAQ:PAGP) announced the divestiture of its NGL business to Keyera for approximately $3.75 billion in June 2025, marking a significant strategic exit from the Canadian NGL market and a sharper focus on crude oil infrastructure. Capital deployment priorities encompass bolt-on M&A, capital structure optimization, and potential unit buybacks, enabled by expected net proceeds of approximately $3 billion from the NGL transaction, as disclosed in June 2025. Despite confirming full-year EBITDA and Permian volume guidance ranges, management signaled that both metrics—full-year 2025 EBITDA guidance and Permian growth outlook—will likely land in the lower half of their respective ranges, due to factors including contract repricing and market volatility. Crude oil segment adjusted EBITDA performance was aided by Permian growth and contributions from recent bolt-on acquisitions, while NGL results reflected seasonal and spread-driven declines and are now classified largely as discontinued operations. Growth capital guidance for 2025 was raised by $75 million to $475 million to accommodate new lease connections and terminal expansions, with management noting that part of the increase in 2025 capital expenditures reflects deferred spending from last year. Retained U.S. NGL operations remain limited in scale, with eventual divestiture expected and no indication of a growth strategy for these residual assets. Distribution growth remains a core goal, but interim capital deployment will be guided by opportunities to redeploy divestiture proceeds 'in a way that's accretive to DCF.' Demand commentary from management emphasized ongoing refining strength and an absence of the previously anticipated slowdown in crude and product demand over the last six months. Industry glossary Bolt-on acquisition: Purchase of smaller, strategically complementary assets intended to expand or enhance an existing business platform. Frac spread: The difference between the price of natural gas liquids extracted and the cost of the natural gas feedstock used to generate them, often impacting profitability for NGL segment operators. ORIX JV: Refers to a joint venture co-owned by Plains and ORIX; in this context, BridgeTex interest acquisitions are outside the scope of this JV. DCF (Distributable Cash Flow): Cash available to be paid to unit holders after capital expenditures and other obligations, commonly used in pipeline MLP context. Full Conference Call Transcript Willie Chiang: Thank you, Blake. Good morning, everyone, and thank you for joining us today. Earlier this morning, we reported solid second quarter adjusted EBITDA attributable to Plains of $672 million, which I will cover in more detail. In June, we announced the execution of definitive agreements to sell substantially all of our NGL business to Keyera for approximately $3.75 billion, with an expected close in 2026. Initial investor feedback has been positive, and we view this as a win-win transaction for both parties. Plains will exit the Canadian NGL market at an attractive valuation while Keyera will receive highly complementary critical infrastructure in a strategic market. From a Plains perspective and as highlighted on slide four, this transaction will result in a streamlined crude oil midstream entity. With less commodity exposure, a more durable and steady cash flow stream, and substantial financial flexibility to further execute on our capital allocation framework. With approximately $3 billion of net proceeds from the sale, we expect to continue focusing on disciplined bolt-on M&A to extend and expand our crude oil-focused portfolio as well as opportunities to optimize our capital structure, including potential repurchases of Series A and B preferred units, along with opportunistic common unit repurchases. Building upon the foundation of our disciplined capital allocation framework, we announced a bolt-on acquisition of an additional 20% interest in BridgeTex Pipeline Company LLC for an aggregate cash consideration of $100 million net to Plains. This brings our overall interest in the joint venture to 40%. Both Plains and ONEOK have extensive upstream gathering systems, and both companies are committed to optimizing the operating capacity on the pipeline. In addition, this transaction is expected to provide risk-adjusted returns in line with Plains' bolt-on framework. Year to date, we've completed five bolt-on transactions totaling approximately $800 million, and we've consistently maintained the view that there is a runway of opportunities for Plains to advance its bolt-on strategy. As illustrated on slide five and as proven over the last few years, we continue to execute on that backlog of opportunities. Additionally, the financial flexibility that'll be created by our recent NGL announcement further enhances our commitment and capacity to pursue these and other opportunities, provided they offer attractive returns. With that, I'll turn the call over to Al. Al Swanson: Thank you, Willie. Prior to discussing further details of our second quarter results, I would like to reiterate that following our NGL announcement, the majority of the NGL segment has been reclassified as a discontinued operation. To ensure consistent financial disclosure to the market, we have also included pertinent information reconciling these changes with our original 2025 guidance for the NGL segment. Turning to the second quarter, we reported crude oil segment adjusted EBITDA of $580 million, which benefited sequentially from Permian volume growth, contributions from recent bolt-on acquisitions, and higher throughput associated with our refiner customers returning from downtime in 2025. Moving to the NGL segment, we reported adjusted EBITDA of $87 million, which stepped down sequentially due to normal seasonality and lower quarter-on-quarter frac spreads. Slides six and seven in today's presentation contain adjusted EBITDA walks that provide additional details on our performance. Regarding guidance, our full-year 2025 EBITDA range of $2.8 to $2.95 billion remains intact. Consistent with our communication last quarter, in the prevailing environment, both our EBITDA guidance and the Permian growth outlook of 200,000 to 300,000 barrels per day would likely be in the lower half of their respective ranges. A summary of our 2025 guidance metrics is located on slide eight. As for capital allocation, which is illustrated on slide nine, for 2025, we expect to generate approximately $870 million of adjusted free cash flow, excluding changes in assets and liabilities. Our adjusted free cash flow guidance reflects the impact of bolt-on acquisitions, including the acquisition of the interest in BridgeTex Pipeline, as well as our revised 2025 growth capital guidance, which has increased $75 million to $475 million. The capital investment increase is primarily associated with new projects, including Permian and South Texas lease connects, and Permian terminal expansions, in addition to weather delays and scope changes on other projects. While 2025 growth capital was above our initial guidance, maintenance capital is trending closer to $230 million, which is $10 million below our initial forecast. With that, I'll turn the call back to Willie. Willie Chiang: Thanks, Al. As illustrated on Slide 10, we've made significant progress on our strategy over the last several years. This begins with a portfolio of world-class assets, value has been unlocked through the capabilities of our Plains team along with collaboration with our customers. Our strategy is grounded in our established financial priorities, with a focus on generating substantial free cash flow, maintaining financial flexibility, and increasing return of capital to our unitholders through disciplined execution in each of these areas. The divestiture of our NGL business marks a significant step in the strategic direction of Plains. By reallocating resources and capital towards our legacy crude oil operations, where we have significant size and scale, we will be better positioned to enhance our focused portfolio. This move not only increases our financial flexibility, but it also underscores our resolve to streamline operations and drive growth while generating strong returns for our unitholders. Our strategy centers on the view that crude oil will remain essential to global energy and society for decades. Despite near-term volatility, we're confident in our ability to navigate current market dynamics. And we expect fundamentals to improve longer term due to continued population and economic growth driving demand. We anticipate that new OPEC plus supply will be absorbed, reducing spare capacity, and limited long lead project and resource additions will increase the reliance on North American onshore production. Plains will continue to be a vital infrastructure provider to meeting the growing need for reliable energy across global markets. In closing, our efficient growth strategy, financial flexibility, and commitment to execution have positioned us well to capitalize on opportunities and manage challenges with resilience. I'm confident in our position. At this point, we'll look forward to your questions. Blake, would you lead us into Q&A? Blake Fernandez: Thanks, Willie. As we enter the Q&A session, please limit yourself to two questions. For those with additional questions, please feel free to return to the queue. This will allow us to address questions from as many participants as possible in our available time this morning. The IR team will also be available after the call to address any additional questions you may have. Latif, would you please open the call for questions? Operator: Sir, as a reminder, to ask a question, you will need to press 11 on your telephone. Our first question comes from the line of Manav Gupta of UBS. Please go ahead, Manav. Sonia (for Manav Gupta): Hi. This is Sonia on for Manav. Good morning, and congrats on the quarter. When you think about assets in the Mid Con, there may be more one-time step-ups in synergy versus the Permian that could have more organic growth on top of that. So when we look at more bolt-on strategies and M&A, how do you factor in the sensitivity to basin-level growth? And in general, with basins, are you seeing more growth over time? Jeremy Goebel: Sandy, good morning. This is Jeremy. Here's what I would say. We take all that into consideration. And, candidly, as we've said before, we're a DCF shop, and we're looking for discounted cash flow over time and contributions. You have to look at the integrated network. So take the Mid Continent, for instance, which is an example. We have a lot of assets that touch a lot of other areas. So things that could impact Cushing or other downstream pipelines may have multiple touchpoints. So while the Permian has different resources, we look at them independently and use market fundamentals to drive an outload. Book of cash flows, and we use a discounted cash flow, and we have to beat our return thresholds, our cost of capital by 300 to 500 basis points as we've said. So we take all that into consideration. Not necessarily gonna say where our target area is right now, but we do look at everything and gotta hit our return threshold. And we certainly take a look at fundamentals and the multiple touchpoints we can have in each area. Sonia (for Manav Gupta): Got it. Thank you. And then on the macro side more, could you provide some color on real-time demand signals and any sign of slowdown or anything you're seeing on the refining or on the export side? Jeremy Goebel: Yes, ma'am. This is Jeremy again. Here's what I would say. I would follow the refiners. They've all talked about improving diesel demand and feel like it's strong. The last six months have felt a lot better than the prior six months from a demand perspective. We haven't seen the slowdown in demand most were expecting. And we expect that to continue. Willie mentioned that in his notes. So I'd say continue to follow the refiners and their demand. We're not seeing any issues from the downstream refining signals from crack spreads internationally and domestically. Differentials do move, and that's some indication, but over the last six-month period, we've seen strengthening demand, and we look forward to that continuing. Willie Chiang: Yes, Sonia. This is Willie. One comment I would add to that is that, you know, we're all watching a lot of uncertainty, certainly, over the last number of months and even years. Our view is continued short-term volatility, longer-term, more constructive. And where I would tell you our view is, despite a lot of the uncertainties, I have more confidence in the world and its ability to continue to grow than I did probably over the past year. So our views are pretty constructive, but I think there's gonna be a lot of volatility short term. Sonia (for Manav Gupta): Great. Thank you. Jeremy Goebel: Thank you. Operator: Thank you. Our next question comes from the line of Gabriel Moreen of Mizuho. Please go ahead, Gabriel. Gabriel Moreen: Hey. Good morning, everyone. Can I just ask on the BridgeTex deal and maybe talk about how that pipe is situated currently contract-wise and maybe how it would fit with the rest of your business? The value also seems to be a little bit, you know, changed from what it may have transacted out in the past. So if you can speak to that as well. Jeremy Goebel: Hi, Gabe. This is Jeremy. We're excited about the outcome consolidating that interest with ONEOK. I think from a contracting perspective, it's best to speak with them. But one thing is, as part of this transaction, we work on the cost structure going forward, as well as to consider commercial ways to fill the pipeline from a Plains perspective. To unite Plains and ONEOK's gathering systems to help keep the pipeline full. I think us working together will strengthen the positioning of the pipeline longer term. Gabriel Moreen: Thanks, Jeremy. And then maybe if I can ask in terms of some of the CapEx ins and outs on the growth CapEx raise here. For the lease connects in South Texas and the Permian, does that imply some degree of greater activity than you had been seeing, or is it just, you know, some degree of noise in terms of just things going on during the course of the year? Chris Chandler: Hey. Good morning, Gabe. It's Chris Chandler. I'll take this one. So, yeah, we have increased our 2025 investment CapEx guide to $475 million net to Plains. We've developed some new opportunities related to the Permian and Eagle Ford gathering, as you mentioned, in additional storage opportunities in the Permian. Some of this is basin growth-related, but some of it's frankly capturing business that we did not have before. They're good investments. They exceed our return thresholds, and they weren't in our original guidance. Hence being a new opportunity. So I hope that helps. Gabriel Moreen: Appreciate it. Thanks, Chris. Operator: Our next question comes from the line of Michael Blum of Wells Fargo. Michael Blum: Thanks. Good morning, everyone. Willie, I want to ask kind of a big picture question. You addressed some of this at the end of your remarks, but you know, you've made a big step here. You've exited the NGL business in Canada. You're now more or less solely focused on crude. So my question is, is the plan to simply execute the growth and capital return strategy as is, as you've been doing? Or could you see the company pivoting or diversifying into another area, whether that be expanding the crude footprint more expansively or into a whole different line of business? Just wanna get your sort of high-level thoughts there. Willie Chiang: Sure, Michael. Going to a pure play was not the objective. Right? Our objective is to create value for the unitholders however we possibly can. And so for us, you know, I've articulated this efficient growth strategy, and we've been executing on being able to unlock that. Now practically speaking, our business was roughly 80-85% crude, 15-20% NGL. By being able to do this transaction, it really catalyzes a lot of opportunities for us within Plains, which is why I spend a little more time in my prepared comments talking about that. One, we're gonna be able to redeploy approximately $3 billion. I can't say exactly how it's gonna be redeployed, but there's a number of opportunities that we've articulated on the bolt-on acquisitions, capital structure, opportunistic unit buybacks. And if you think about the cash flow that we've sold at a great valuation, we think we can do better redeploying it in the liquids business. When you think about how do you create value, it's all around synergies. And it's difficult to capture synergies if you don't have a strong position somewhere. So this is kind of a long-winded answer of saying, we're gonna stick to what we know. We've got size and scale. Really, a premier competitor in the industry, providing a lot of services for our customers. And we're gonna parlay on that and try to build even a stronger system kind of anchored on the platform of our constructive view of oil markets going forward. So if there are other opportunities that we can, whether it's in different basins or other commodities, we absolutely look at all those. We've got a very robust BD team. But practically speaking, I think you're gonna see more of it around the crude assets. And we feel we have a good runway of opportunities to look at. So, hopefully, that's helpful. Michael Blum: It is. So thank you for that. And then second, wanted to ask, and I might be nitpicking here, so apologies upfront. But on slide nine, the language on distribution growth changed a little bit. It used to say targeting multiyear sustainable distribution growth, and this latest slide deck says targeting sustainable distribution growth. So want to see if there's a shift in messaging there that we should be aware of. Thanks. Al Swanson: Hey, Michael. This is Al. No intended shift in messaging at all. We intend to grow our distribution over a multiyear period. So no intent there. Clearly, in the very interim time, Willie mentioned, we need to redeploy these proceeds. We fully expect to redeploy them in a way that's accretive to DCF, which would further enhance our ability to grow the dividend. Michael Blum: Thank you. Operator: Thank you. Our next question comes from the line of Spiro Dounis of Citi. Please go ahead, Spiro. Spiro Dounis: Thanks, operator. Good morning, gentlemen. I wanted to first ask about the 2025 guidance. It seems to suggest maybe a similar second half to the first half, if not maybe even a little bit lower. And so I'm curious, is that consistent with how you're viewing the back half of the year? And I guess, why would that be the case? It seemed like volumes are trending up kind of nicely this quarter. I know you mentioned some volatility out there, so maybe it's just that. But you've also got the contribution from some bolt-ons. So just looking to get some color there in the back half. Jeremy Goebel: Good morning, Spiro. It's Jeremy. Just remember, we have the contract roll-offs of Cactus II, Cactus I, and Sunrise in the second half of the year, all consistent with guidance. So those roll off of the contract rates, all those volumes have been recontracted. It's a function of rate being lower. So you had those contributions in the first half. You're gonna have the growing production, the FERC escalator, and other pieces contributing to backfill that. So while it may look flat, you backfilled some of the roll-off of the contracts with growth. Spiro Dounis: Got it. It's helpful, Jeremy. Thank you. Second question, just maybe going to the bolt-on strategy again. I guess, we think about your ability to keep doing these bolt-ons for the rest of the year? Pending that NGL sale? I don't imagine you want to pre-spend that $3 billion. But as you do think about getting those proceeds, you could obviously do a lot more than a bolt-on with that $3 billion. So I guess I'm just curious how you're weighing the ability or maybe the potential to do something larger? Willie Chiang: Well, Spiro, it's very difficult to time all these things, as you well know. Which is why I mentioned our robust BD team looking at a lot of things. What I would tell you is that's the other reason of our financial flex creating a lot of capacity on our balance sheet. To be able to absorb some of that. So where I think we're positioned, where we are positioned at is look at a lot of opportunities, and as they come up, we're trying to put ourselves in the best position to be able to execute on them, whether they're small, medium, or even large. So I'll leave it at that. Spiro Dounis: Helpful as always. Thank you, gentlemen. Have a good weekend. Operator: Thank you. Next question comes from the line of Sunil Sibal of Seaport Global. Please go ahead, Sunil. Sunil Sibal: Yes. Hi. Good morning. And most of my bigger questions have been hit, but I just wanted to clarify a couple of things. On the BridgeTex, so you're buying that as part of the ORIX JV? Jeremy Goebel: Correct. Sunil, this is Jeremy. No. That's independent. That is Plains purchasing it. We're an existing owner in the JV, and ONEOK and Plains are buying in proportionate to their interest in the pipeline. Sunil Sibal: Okay. Understood. And then in terms of the overall positioning, seems like you're still retaining some US NGL business. If that's correct, you know, is there a bigger strategy there, or how should we think about, you know, that piece of the business going forward? Jeremy Goebel: Sunil, that's very minor and relative to the entire asset base. Those were smaller contributors. And from a tax perspective and operations perspective, it made sense for us to and we'll look to monetize those at a later date. But I would say that's not part of a larger strategy. You'd see us more likely to divest those than retain them. Sunil Sibal: Got it. Thank you. Operator: Thank you. Our next question comes from the line of John Mackay of Goldman Sachs. Please go ahead, John. John Mackay: Hey, guys. Thank you for the time. Maybe just wanted to touch on the CapEx piece again this year. I mean, how much of that increase do you think is maybe actually a pickup in producer activity overall relative to what you're expecting, or maybe that's more of just a, you know, you guys had some commercial success, but it's not necessarily pointing to kind of a broader macro theme. And then maybe just taking that neck looking forward, you know, why shouldn't we think of the kind of run rate CapEx number moving up a little bit if you guys were able to get these wins? Thanks. Chris Chandler: John, it's Chris Chandler. I'll take that. It's really a combination of all the above. The factors that you mentioned. You know, there's certainly new opportunities that we didn't anticipate coming into the year, and those played a role. I'd also point out our continued bolt-on acquisition strategy brings new opportunities for synergy capture around those assets where we didn't have operations before. So it's really kind of an all of the above. When you think in 2026 on investment capital spend, we're obviously not giving guidance at this point in time. We'll do that in early 2026. You can look at how much we're spending on NGL this year, which is above average compared to prior years. So, you know, we would expect that to step down when the NGL sale to Keyera closes. But we continue to be successful identifying new opportunities. So, you know, in respect of identifying and capturing those projects that meet our investment threshold, you know, we'd love to grow CapEx modestly because of the good opportunities that we're able to capture. Blake Fernandez: Hey, John. It's Blake. If you don't mind real quick, I would add, just as a reminder, the 2025 CapEx program includes about $30 or $40 million of deferrals from last year. So that might help you think about the progression into 2026. John Mackay: Makes sense. That's helpful. And then maybe just going back to your comments on the retained NGL assets, I think your answer before made sense. I understand they're small. But are you guys able just to quantify for us again what that looks like right now? And then maybe is that reflecting kind of a 2025 spread environment, or is that a pretty good whatever you share, is that a pretty good number going forward? Jeremy Goebel: I can put that in the $10 to $15 million of EBITDA category. And just from a valuation standpoint, think of the $200 million range. John Mackay: That's helpful. I appreciate that. Thank you guys for the time. Operator: Thanks, John. Our next question comes from the line of Brandon Bingham of Scotiabank. Brandon Bingham: Hi. Good morning. Thanks for taking the questions here. Just one quick one for me. I know it says in the slides that you still expect to come in towards the lower end of the EBITDA guide, but things have improved even just slightly versus all the one Q chaos. So just kind of curious where you see that as we move forward throughout the year and whether or not there's a higher likelihood now that we could be back towards the midpoint. Al Swanson: This is Al. I'll take a shot at it. I think the wording should have been lower half, so we weren't trying to point at the low end by any means if that's what the question was. And we believe the lower half would be how we're trying to guide it. We're not trying to guide you to the midpoint or the bottom end, but just the lower half. Clearly, there's a period of time here. Prices have been fairly volatile. I think crude oil today is roughly where we articulated the range to be a quarter ago in the $60-65 range. I think we're kind of at the high end of that now. So more time to come with regard to that, but we would kind of point you to the lower half, not the lower end. Brandon Bingham: Okay. Apologies. I might have misread. But thank you. Operator: I would now like to turn the conference back to management for closing remarks. Willie Chiang: Latif, thanks, and thanks to everyone for joining us today. We'll look forward to giving you more updates, and we'll see you on the road. Have a great day and a great weekend. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Where to invest $1,000 right now When our analyst team has a stock tip, it can pay to listen. After all, Stock Advisor's total average return is 1,047%* — a market-crushing outperformance compared to 181% for the S&P 500. They just revealed what they believe are the 10 best stocks for investors to buy right now, available when you join Stock Advisor. 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