908 Devices Inc.

Good day and welcome to the Spire Inc Q2 FY25 earnings conference call. All participants will be in listen only mode. Should you need assistance, please know a conference specialist or pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To try your question, please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to Omegam McPhail, Managing Director of Investor Relations. Please go ahead.

Good morning and welcome to Spire's Fiscal 2025 second quarter earnings call. On the call with me today is Scott Doyle, President and CEO, and Adam Woodard, Executive Vice President and CFO. We issued an earnings news release this morning and you may access it on our website at spireenergy.com under newsroom. There is a slide presentation that accompanies our webcast which can be downloaded from our website under investors and then events and presentations. Before we begin, let me cover our Safe Harbor Statement and use of non-GAAP earnings measures. Today's call, including responses to questions, may contain forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Although our forward-looking statements are based on reasonable assumptions, there are various uncertainties and risk factors that may cause future performance or results to be different than those anticipated. These risks and uncertainties are outlined in our quarterly and annual filings with the SEC. In our comments, we will be discussing non-GAAP measures used by management when evaluating performance and results of operations. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentations. Now here's Scott who will start on page 4 of the presentation.

Thank you, Megan. Good morning, everyone, and thank you for joining us today for our fiscal second quarter earnings conference call. I am honored to address you today as the newly appointed President and CEO of SPIRE. I'd like to express my gratitude to Steve Lindsay for his dedicated service and commitment to SPIRE over the years. Under his leadership, the company made significant strides and built a strong foundation for the future. Steve is assisting me over the next several months, ensuring we have a seamless transition. I want to assure you our strategy remains unchanged. We'll continue to focus on organic growth, infrastructure investment, and continuous improvement. This includes modernizing our systems to benefit our customers, advancing our regulatory engagement, and maximizing value for our customers and other stakeholders while keeping the safety of our employees, customers, and communities at the center of it all. Before I dive into results, I would like to express my gratitude to our employees for their dedication to providing safe and reliable GAAP service for our customers. Despite challenges of extreme cold at times throughout the winter, our natural GAAP system performed exceptionally well, thanks to their hard work and commitment. Turning to our performance for the quarter, this morning we announced adjusted earnings of $3.60 per share compared to $3.45 per share a year ago. The -over-year increase reflects strong growth in our utility and midstream segments, partially offset by slightly lower results in gas marketing. Our performance is driven by strategic infrastructure investments to modernize our natural GAAP systems, coupled with our ongoing commitment to disciplined cost management. Adam will provide a more detailed breakdown of our results and share insights into our outlook. Now for an update on regulatory matters. Since our last earnings call, we have worked closely with key stakeholders in our ongoing Missouri rate case. We will continue to collaborate in the coming months to ensure a constructive outcome. In addition, earlier this month, the Missouri Public Service Commission staff recommended a $19 million revenue increase in our Infrastructure System Replacement Surcharge, or ISRIS, request. This is our fifth such request since our last general rate case, and if approved, would bring our revenues in the rider to an annualized rate of $72.6 million. On the legislative front, we are pleased that Missouri Governor Keyhove signed Senate Bill 4 into law, marking a significant advancement for the state's utilities. This constructive legislation introduces a future test year rate setting model that is forward looking, allowing natural gas and water utilities to set rates based on projected costs rather than historical expenses. By attracting investment in energy infrastructure, the bill aims to enhance system reliability and drive economic growth across Missouri. The bill allows utilities to file a rate case based on a future test year starting in July of 2026. We continue to be focused on achieving consistent and constructive regulatory outcomes in all of our jurisdictions, leading to a more sustainable financial performance trajectory. Looking ahead, we are reaffirming our long-term EPS growth target of 5 to 7%. This is supported by our 10-year $7.4 billion capital investment plan, and we expect to deliver within our fiscal 2025 earnings guidance of $4.40 to $4.60 per share. We are committed to delivering strong results in the second half of the year and beyond. With a focus on executing our capital investment plan, driving operational excellence, and strengthening the performance of our utilities and gas-related businesses, SPYRE is poised for sustainable growth. In St. Louis, we're excited about the growth opportunities ahead. The labor market has now fully recovered, reaching pre-pandemic employment levels. In addition, Boeing recently was selected to build the next-generation fighter aircraft for the United States Air Force, driving growth of high-quality jobs in the St. Louis area, strengthening Missouri's economy, and securing a prosperous future for our community. I would also like to highlight that last week, we renewed our labor agreement with our local 548 union representing employees in our Alabama service territory. This three-year agreement is a win-win as it provides stability to our workforce and allows us to focus on operational excellence. We are well positioned to achieve our financial and operational goals as we execute our strategy to grow organically, invest in infrastructure, and drive continuous improvement. Turning to page five, we continue to make capital investments to improve reliability, resiliency, and safety for the benefit of our customers. -to-date, our capex totaled $479 million, with the majority of the spend taking place at our gas utilities. -over-year, utility capex increased nearly 27% as we focused on upgrading distribution infrastructure and connecting more homes and businesses to safe, reliable, and affordable natural gas. Investment in our midstream segment totaled $84 million -to-date, largely for the expansion of Spire Storage West. The expansion is now substantially complete, and we are pleased with the returns on the project. We expect to have the final components placed in service by the end of this summer. Looking ahead, we are increasing our fiscal 2025 capital investment target by $50 million to $840 million. The higher capex includes a $15 million increase at Spire Missouri and a $35 million increase at midstream, primarily for the storage expansion project. As a reminder, our long-term investment plan is focused on organic growth of utilities. Approximately 98% of our 10-year capital expenditure plan is targeted utility spend, driving our growth and rate base. Moving to page 6 for our Missouri Rate Case update. Last week, the PSC staff proposed a $246 million annual revenue increase in our Spire Missouri Rate Case. This increase amount is made up of two parts, approximately $205 million included in the staff's direct testimony and staff's estimated $42 million true-up through May 31, 2025. The proposed revenue increase differs from our requested increase of $290 million, primarily due to staff's proposed .63% return on equity and .19% equity layer, compared to our requested return on equity of .5% and 55% equity layer in discrete adjustments, which we expect to be addressed in subsequent testimony. You may recall our requested increase reflects an estimated rate base of $4.4 billion, inclusive of discrete adjustments. We expect future testimony to address the weather mechanism and other elements of the case. Evident Chair hearings are scheduled to begin on August 4th and an order from the Commission and new rates expected to be effective by October. We appreciate the constructive engagement thus far and remain committed to working closely with stakeholders throughout the remainder of the process. I'll now turn the call over to Adam for a financial review and update on guidance and outlook. Adam? Thanks Scott and good morning everyone. I'll start with a review of our quarterly results which are detailed on pages 7 and 8 of our presentation. During the second quarter, we reported adjusted earnings of over $214 million, an increase of almost $18 million compared to last year. The gas utility segment had earnings of approximately $195 million. In the second quarter, over $7 million higher than last year. The increased results reflect higher contribution margin at Spire Missouri, driven by an increase in business revenues and usage net of weather mitigation, as well as new rates at Spire Alabama. These favorable items were partially offset by lower Spire Alabama usage net of weather mitigation. Excluding bad debt, utility earnings also reflected lower run rate O&M expense and higher depreciation expense. During the quarter, we continue to see strong earnings growth in our midstream segment driven by new contracts on additional capacity, higher rates on contract renewals, and asset optimization at Spire Storage. Earnings in our marketing segment were strong but slightly lower than the prior year due to reduced market volatility. Lastly, other corporate costs were higher primarily due to higher borrowing balances. In both Missouri and Alabama, we experienced colder temperatures than last year and slightly colder than normal temperatures. Our volumetric margins in Missouri for the quarter were higher by nearly $7 million, but short of our expectations. This adjustment is highly dependent on the relationship between heating degree days and customer usage set in the previous rate proceeding. The weather mitigation adjustment in Missouri was not effective as revenues were not aligned with usage over the course of the quarter. Looking out at Alabama, while we experienced a higher than anticipated adjustment under the weather mitigation mechanism during the quarter, the -to-date results are largely aligned with expectations. We're focused on cost management and continue to expect run rate O&M expense at the gas utility flat relative to fiscal 2024 levels. During the quarter, gas utility run rate O&M expense was lower by $800,000 when compared to last year. Turning now to our growth outlook on page 9. We are confident that our long-term adjusted earnings per share growth target of 5 to 7 percent. This is reinforced by 7 to 8 percent rate-based growth at Spire, Missouri, and steady sustained equity growth at Spire, Alabama, coupled with efficient recovery mechanisms. We remain committed to executing on our strategy and are affirming our FY 2025 adjusted earnings guidance range of 440 to 460 per share. Weighted average shares for FY 25 are expected to be approximately 58.5 million, slightly lower than our previously anticipated 59 million shares, providing the benefit and expected adjusted earnings per share for the year. We are updating our adjusted earnings targets by business segment to reflect first-half results and expectations for the remainder of the year. We are lowering the gas utility range by $11 million primarily due to weather-related margin headwinds experienced year to date. As a result of the ineffectiveness of the weather adjustment and usage, we anticipate approximately $9 million of lower margins for residential customers. We are raising the range for gas marketing by $4 million on stronger than expected earnings in the first half of the year, and we are increasing our midstream earnings outlook by $8 million to reflect the realization of higher rates in capacity and optimization of our storage assets during the first half of the year. The range for corporate and others loss was increased by $4 million primarily due to higher interest expense from higher short-term balances. Moving to slide 10 for a financing update, our three-year financing plan is unchanged. To support our equity needs, we settled approximately $43 million of forward sales during the quarter. Looking ahead, we anticipate using our ATM program for planned equity issuances through 2027. In April, we priced $150 million of Spire Missouri first mortgage bonds that we expect to fund on May 1st. Our financing plan includes additional issuances in 2026 and 2027 to refinance maturities and incremental debt of approximately $500 million to fund our capital plan. Our FFO to debt target remains at 15 to 16 percent. In summary, we are executing our financing plan effectively and are confident in our financial position going forward. With that, let me turn it back over to you, Scott. Thanks, Adam. As you have heard today, we have made significant progress towards achieving our priorities for the year, strengthening our position as a more resilient, efficient, and sustainable company that creates value for both customers and shareholders. Our unwavering commitment to delivering natural gas safely and reliably remains at the core of our efforts. We are executing on our capital investment plan while actively collaborating with key stakeholders to secure constructive regulatory outcomes that benefit both our customers and shareholders. Additionally, we are focused on meeting our fiscal 2025 adjusted earnings per share guidance range and preserving the strength of our balance sheet. Executing on these objectives is not just a focus for FY 2025, but a long-term commitment to driving success and delivering meaningful results in the years to come. Thank you for your ongoing support of Spire, and we look forward to seeing many of you at the AGA Financial Forum in a few weeks. We're now ready to take questions.

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your hands up before pressing the keys. Anytime your question has been addressed and you'd like to withdraw it, please press star then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Richard Sunderland with JPMorgan.

Hey, good morning, and Scott, congrats on your new leadership of the company.

Morning, Rich. Thank you.

Digging into the results a little bit in finer detail, you know, some moving pieces on the segment guidance. I realize share account is tweaked as well. Can you speak a little bit about 1-H trends and then where you're trending on a full-year basis giving all these moving pieces?

Hey, Rich, it's Adam. You know, we wanted to stop and take a minute and really took – we saw the margin weakness in Missouri and had elected to take that guidance down. Now, fortunately, the midstream had exceeded our expectations and we're able to move that up. So, I mean, from a trendline perspective, obviously we're moving into the summer months and, you know, we won't see a lot of performance out of the gas utilities, but we do see the midstream turning well into the end of the year. And as I mentioned in the last call, you know, marketing, we feel very good about where they're at and where they're going for the year.

Understood. So, it sounds like, you know, the sort of weather at the utility is obviously unfortunate. Is that really the sole deviation on the utility side? I think you referenced 9 million of customer margin, so it looks like there should be a few other small pieces in there too. Just trying to understand the weather versus where else you're having difficulty forecasting the utility.

That's the main driver. There's a – as you mentioned, there's a few other pieces, but the main driver really is the weather-related margin.

Okay. Okay. Understood. And then with the midstream guidance, that $8 million increase, is that solely a one-off for 2025, or are you seeing a higher run rate for the business going forward?

That's a great question. There's a little bit of – we mentioned optimization there. One, we are seeing relative to where we started the year, feeling better about kind of where we're at on capacity and pricing. But a piece of that is optimization. So, this would indicate some run rate lift over time, but I want to stress that it's not complete – a complete lift on run rate. There is some optimization in there around circumstances or volatility that we saw in the first couple quarters.

Okay. Understood. And sorry, just one last one on midstream while we're on that. The higher capex for midstream, is that impacting your return expectations for the storage expansion project?

Yeah, it's Adam again. No, it's not. We did see some higher capital costs go into that, and really it continues to exceed our return expectations. Great. I'll leave it there. Thank you.

Thank you. And the next question comes from David Arcada with Morgan Stanley.

Hey, good morning. Thanks so much. Hey, best wishes to Steve and congratulations, Scott.

Thank you, David. Appreciate that.

Yeah, absolutely. I was curious just maybe on the weather mechanism. Could you elaborate a bit more on kind of what you see as the path forward here within the ray case, just prospects and where that could go?

Yeah, thanks, David. It's Adam. You know, obviously it's front and center in the ray case, and it's something beyond the normal kind of cost of service, cost of capital reviews that we're going through is really one of the main issues for us. And we do feel like we're in a good position to have that conversation with staff and the commission and other stakeholders. But clearly we need to, you know, there's something that we need to get fixed here. We realize that, and it's a big focus for us. Yeah, and David, I'll just add, you know, we proposed in this current case a couple of different options that we want to work with commission staff on and all the stakeholders as we get into the next elements of this case. And it ranges from decoupling to updating the weather time horizon that's used as the comparison as well. So a lot of detail that we got provided in the case, but clearly some work to be done there, and we look forward to those discussions going forward.

Yep, got it. Makes sense. Thanks. And then I was just curious, your latest thinking on the prospects for a settlement within the ray case.

Yeah, hey, great, great question. And we still have a lot of work to do. So we're that's a little early in the process, maybe just kind of lay out the process where we are in these stages. We do have the community meetings that take place that are coming up here very shortly. Then we have the public hearing or the commission hearing later this summer. There'll be opportunity that's built into the schedule for settlement discussions and those settlement talks can take place, you know, both prior to and after the commission hearing as well. The commission, you know, at least we're just watching over the last, you know, 12 to 18 months appears to be working towards settlements. So we're certainly willing to entertain those types of discussions as well. So look forward to collective and collaborative discussions going forward.

Okay, excellent. I appreciate the color. Thanks. Thank you. Thanks, David.

Thank you. And the next question comes from Gabe Maureen with Mizzouho.

Hey, good morning and congrats, Scott, as well. I would just ask, I know it's a little premature to ask about subsequent race cases in Missouri, given that you're still involved in the midst of one right now. But as far as SB6 and its passage, can you talk about timing on future rate cases? Do you have to wait until that's implemented before you even start another rate case? So I'm just curious in terms of timing and how that may or may not influence your thoughts about future regulatory activity in Missouri.

Yeah, hey, Gabe, good morning and thank you for the question. Yeah, maybe that's, and you set up very well. Clearly our focus is this case right now and that's where our minds attention is. If you look at Senate Bill 4 and see what's laid out there, July of 26 is the first time that either a gas or water utility can file based on a future test year basis for their rate case. And so it won't be until that time before we clearly would be able to file. But we have an interest in working under that new paradigm for Missouri. And so more to come in that space as we move forward. But clearly our efforts right now are focused on this case and getting it to conclusion.

Thanks, Scott. Maybe if I could just add a follow on Missouri regulation. I know you're trying to reform the weather mechanism in this rate case here. And I think staff's going to opine sometime soon on that. Is that a negotiation? Is it sort of a thumbs up, thumbs down? I'm just curious how you envision that sort of shaking out within the rate case.

Yeah, good question. I think, you know, as in all cases, these are things that both parties clearly take sides and then work together. And it's something that could be worked on together to get to the right solution that addresses both the needs of the customer, but as well as the company as well. And I think that's the posture we're going to take as we work through this as well. So just like in all cases, there's opportunity for both sides to bring the issues to the table and work together to get to a constructive solution. That's what we're working towards.

Understood. Thanks, Scott. Appreciate it.

Thank you. And the next question comes from Stephen Dumbrizy with Latinburg-Thalmann.

Hey, guys. Thanks very much for taking my question, Scott. Congratulations on the new role and best of luck leading the company. Thank you, Stephen. Good morning. Good morning. I guess my question would be just on the guidance modification. I guess listening to some of the answers in the earlier questions, it kind of sounds like the takeaway is that to the extent you can fix the weather norm mechanism in the context of this rate case, the earnings power of the utility business hasn't really changed. And then maybe you're seeing some slight structural uplift in the marketing and midstream businesses. So can you just, am I reading that right or just how are you framing this guidance revision?

Yeah. Hi, Steve. It's Adam. I'll give you my point of view and let Scott chime in as well. I think that's a fair assumption. It is. We are, you know, we do expect to get to a constructive outcome on the weather mechanism, weather mitigation mechanism. And we do see some, obviously with how I characterize the midstream guidance revision, we do see some structural uplift there relative to our earlier expectations. So I think that's a fair assumption. Yeah. And Stephen, I think what I'd add, maybe just take it up a level, is just think about what's happening at the micro level within our company. And it's the things we laid out in the script and also just kind of what's been happening, you know, in particular as we've been working through this case. But it really is about building momentum as we are finishing out this fiscal year going into 26. Clearly, you can see the pull through of our customer affordability project that we implemented last year. Those expenses are, we're seeing the benefit of those expenses staying where they need to be in the right places. I think if you look a little deeper into the numbers, you can see we're down in administrative in general, but slightly up in our field activities. And that means we're putting the money to the places that benefit our customers. So then coming out of that, if you think about the pull through of capital across both midstream and our utilities, that's what we're working on right now. You're seeing the project, the storage projects coming to life and we're seeing the pull through of the returns there. And then as we're updating our capital recovery in this instant case that we have before the commission right now, those are things that are providing momentum to us to get us back to the returns that we expect in this business. We feel good about the future and that's what we're focused on right now.

Okay, that sounds great. Thank you. And then just one follow up just on implementation. I know you guys have a case of you're prosecuting and there's some time here, but do you expect the commission, do they need to do a rulemaking or will there be some type of process that gets done and does that go concurrently? Is there anything that needs to get done from a regulatory perspective before you guys are actually able to file with a future test year?

Yeah, so maybe I'll just point to the bill, how it's laid out in the bill. The bill does allow for a case to be filed in July of 26 or later. It speaks to some rulemaking that has to be completed by a certain date, which is July of the following year. But what we anticipate, and I don't want to get ahead of our commission or kind of how they're thinking on it is, is once they start up, the rulemaking will be active in that and we'll certainly work within the confines of the legislation as we think about the timing of our next case.

Okay, that's great. Thank you very much for the time. Appreciate it.

Thanks, Steve. Thank you. Once again, please press star, then 1 if you would like to ask a question. All right, well, this does conclude our question and answer session. I will let you turn the floor back over to Mick Fale for any closing comments.

Thank you for joining the call today. Have a great day.

Thank you so much. Thank you for attending today's presentation. The conference has now concluded. You may now disconnect your lines.