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 are 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 one on your telephone keypad. To try your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Megan 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's 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 Securities 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 the 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 four 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 Lindsey 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 gas service for our customers. Despite challenges of extreme cold at times throughout the winter, our natural gas 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 year-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 gas 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 Kehoe 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 percent. This is supported by our 10-year, $7.4 billion capital investment plan. 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, SPIRE 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 communities. 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. Year-to-date, our CapEx totaled $479 million, with the majority of the spend taking place at our gas utilities. Year-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 year 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 six for a Missouri rate case update, last week, 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 9.63% return on equity and 53.19% equity layer, compared to our requested return on equity of 10.5% 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. Evidence-sharing 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 distress 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 continued to see strong earnings growth in our midstream segment, driven by new contracts on additional capacity, higher rates on contract renewals, and asset optimization as higher 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 at Alabama, while we experienced a higher than anticipated adjustment under the weather mitigation mechanism during the quarter, the year-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 to be 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 in 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 FY25 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're 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 and 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 incremental debt of approximately $500 million to fund our capital plan. Our FFO to debt target remains at 15% to 16%. 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've 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, Aspire, 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.