Spire Inc.

Good morning and welcome to SPIRE's fiscal 2024 third quarter earnings conference call. Today, all participants will be in a listen-only mode. Should you need assistance during today's call, please signal for a conference specialist by pressing the star key followed by zero on your telephone keypad. 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 withdraw your question, please press star event two. Please note that today's event is being recorded. I would now like to turn the conference over to Megan McSale, Managing Director of Investor Relations. Please proceed.

Good morning and welcome to SPIRE's fiscal 2024 third quarter earnings call. We issued an earnings release this morning. You may access on our website at spireenergy.com. There's a slide presentation that accompanies our webcast. and you may download it from either the webcast site or from our website. 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 our performance and results of operations. Explanations and reconciliations of these measures to their GAAP counterparts are contained in both our news release and slide presentation. On the call today is Steve Lindsay, President and CEO of Scott Doyle, Executive Vice President and COO, and Steve Rasche, Executive Vice President and CFO. Also in the room today is Adam Woodard, Vice President and Treasurer. With that, I will turn the call over to Steve Lindsey. Steve?

Thanks, Megan, and good morning, everyone. We appreciate you joining us for SPIRE's fiscal third quarter earnings call for a review of our quarterly performance and an update on recent developments and outlook. Earnings slide three, let's start with our quarterly results. This morning, we reported a net economic earnings, or NEE, basis. Fiscal third quarter loss of $0.14 per share compared to an NEE loss of $0.42 per share a year ago. The improvement year over year reflected improved results across all of our business segments. Scott and Steve will provide a deeper dive into these results and an outlook in a moment. Throughout the year, we have maintained our focus on cost management and creating efficiencies across the organizations. This is important as we strive to keep bills as low as possible for our customers. This past quarter, we heightened these efforts and launched an initiative to improve long-term customer affordability. These efforts are targeted at lowering our overall cost structure and improving operational efficiency, securing the benefits of our investments in technology and infrastructure upgrades. Most of the benefits of this work will come in fiscal years 2025 and 2026. We're seeing some of these savings during the fiscal year and we expect them to partially offset headwinds experienced at the gas utility during the year. As you recall, this winter we saw lower than expected margins due to warm winter weather in Missouri and higher interest rates overall. While we're also seeing stronger performance at our marketing and mentoring businesses, with three-quarters of this fiscal year behind us, it's not possible for us to claw back all of the shortfall. As a result, We now expect to earn between $4.15 and $4.25 per share this fiscal year. Our efforts set us up well for fiscal year 25 and beyond. We remain confident in our long-term strategy to grow our businesses, invest in infrastructure, and drive continuous improvement to deliver value over the long term with a steadfast commitment to safety. A key component of our long-term success is attracting new and growing businesses to our communities and states through economic development. We operate in states that serve as great partners to attract projects that bring significant jobs and investment to the communities we serve. Several factors come into play when a company looks for a location to build a facility, with one of the biggest being access to reliable, affordable energy, energy like natural gas. This fiscal year in Missouri, we've seen 25 publicly announced economic wins since the beginning of FY24. These projects represent an expected investment of nearly $3.5 billion in our state's economy resulting in the creation of over 3,500 jobs. Further in Alabama, the latest state report for calendar year 2023 includes 184 wins in new and existing projects, creating more than 8,000 jobs and $6.4 billion of investment in the state. We're committed to our collaboration with key stakeholders on this important topic. Earlier this month, we hosted Missouri business and government leaders to discuss economic development and ways to drive new business going forward. In Alabama, we remain actively engaged in strategic planning for the state, led by the Department of Commerce, to support future growth. As natural gas remains a fuel of choice for economic development, we'll continue to collaborate and drive further investment in our communities. Before moving on, I'm pleased to say that in June, we published our sixth sustainability report covering our continued progress across four key priorities, the environment, safety, people, and governance. This comprehensive report highlights our sustainability commitment to all key stakeholders, including reducing emissions and efforts that support our commitment to the communities we serve. I encourage you to learn more about our sustainability efforts in the report, which is available on our website at spireenergy.com. With that, I will now hand the call over to Scott to provide an update on the utilities. Thank you, Steve, and good morning, everyone. Let's turn to slide four for an update on our gas utilities. During the quarter, our employees continue to deliver for our customers, providing them safe and reliable energy with a focus on excellent service and customer affordability. This important work is supported by the constructive regulatory mechanisms across our jurisdictions that allow us to make significant investments to deliver natural gas to our customers and receive timely recovery of associated costs. In Alabama, our rates are set on a forecasted budget. and our annual RSE rate setting process will begin this fall. In Missouri, our semiannual infrastructure rider, ISRIS, allows us to recover revenues for certain eligible projects in between rate cases. We currently are benefiting from revenues reflected in this rider with an annualized run rate of $36.9 million. And earlier this month, we filed a new ISRIS request with the Missouri PSC for an additional $17.7 million. representing our fourth request since our last general rate case. This request covers investment and system upgrades through August of this calendar year. Looking ahead, we expect to file a general rate case in Missouri in the last calendar quarter of 2024. Our top priorities include updating our cost of service, rate base, and rate of return. We will also look to improve our recovery of volumetric revenues, including the impacts of both weather and conservation. This could be through a modification to the existing weather normalization adjustment rider, WNAR, or through a newly proposed mechanism or rate design. We look forward to working with key stakeholders throughout the process. As Steve mentioned during the quarter, we launched a customer affordability initiative to lower our overall cost structure and improve operational efficiency across the organizations. This initiative included expense reductions across shared services and utility business units, including a targeted reduction in workforce and a retirement incentive program. Other areas we are targeting include streamlining our leadership structure, standardizing our work processes, and capturing the O&M benefits associated with our capital investments. Further imperatives incorporate alignment of our field workforce through optimization of available resources, and efficient deployment of capital. I would like to highlight that earlier this week, ahead of schedule, we renewed our labor agreement with our largest union representing employees in our St. Louis market 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. Turning back to the broader customer affordability initiative, We expect to see these cost savings and improved efficiencies across the organization support our long-term growth expectations. And let me reassure you, none of these actions will impact the safety and reliability of our natural gas system. Moving to our quarterly results, utility earnings benefited from new rates in both Missouri and Alabama compared to the prior year. Utility run rate O&M was lower than last year, driven by lower operational expense, partially offset by higher bad debts. Slightly better interest expense was more than offset by lower gas carrying cost credits, reflecting our successful conclusion of collecting deferred gas costs from winter storm URI and the winter of 2022. We are seeing increased depreciation expense year over year as we continue to spend on infrastructure to provide safe and reliable energy. Turning now to slide five for an update on our capital investment plans. We continue to invest significant amounts of capital focused on modernizing infrastructure at our gas utilities. For the first nine months of fiscal 2024, CapEx totaled $631 million, which was primarily at our gas utilities. Year over year, our gas utility CapEx increased 14% to $501 million with a focus on upgrading distribution infrastructure and connecting more homes and businesses. Investment in our midstream segment totaled $130 million fiscal year to date, and we remain on track for completion of our Spire Storage West project in the last calendar quarter of 2024. We continue to install advanced meters for residential customers across our service territory. In fiscal year to date, we have installed approximately 265,000 advanced meters, bringing the total number of customers benefiting from this technology to 750,000. We've increased our total meter investment by $30 million this year, taking our expected FY24 capital investment target to $830 million from $800 million. Our expected total capital expenditure plan remains $7.3 billion over the next 10 years. Our focus will continue to be on infrastructure upgrades to support the safety and reliability of the system. To sum it up, we are well positioned for success over the longer term as we execute on our robust capital investment plan to support the growth and performance of our utilities and our gas-related businesses. We believe in the ability of our experienced management team and employees to successfully lead us into the future. I will now hand the call over to Steve Rasche to provide a financial update. Thanks, Scott, and good morning, everyone. We reported a fiscal third quarter loss on a net economic earnings basis of $4.3 million, or 14 cents per share, compared to a loss of just under $19 million, or 42 cents per share, last year. We saw a year-over-year improvement across all of our segments. Our gas utilities improved to a loss of $11 million, $1.3 million better than last year, reflecting new rates offset by higher depreciation and bad debt expense. Gas marketing results were $3.5 million higher due to improved transportation margins. Our midstream business posted higher results driven by additional storage capacity at Spire Storage West and new rates across both of our storage businesses. As a reminder, new rates kicked in effective April 1st, the beginning of injection season, and we are benefiting from higher demand and rates for both our new capacity as well as our recontracted existing capacity. Midstream results also benefited from the acquisition of MoGas and the inclusion of salt claims in net economic earnings this year. Other reflects higher interest expense partially offset by lower corporate costs. Slide seven provides detail on key variances, and we'll focus on the net variance column, which removes the cost of our customer affordability initiative, principally employee severance and other related restructuring costs. Hitting on a couple of the highlights, Contribution margins overall were higher across the gas utilities, marketing, and midstream for the reasons I just touched on. Looking at operations and maintenance expenses, for the gas utility, O&M expenses decreased by $1.7 million, as a $4.4 million increase in bad debt expense offset a $6.1 million reduction in other expenses. For the nine months of our fiscal year, our run-rate utility costs are down $7 million, excluding debt debts, for a year-over-year decline of 2%. Finishing up our O&M expenses, marketing is in alignment last year, and midstream was higher due to the addition of salt pipelines and MoGas. And interest expense was higher by $2 million, driven mostly by higher interest rates and short-term debt balances this quarter. Our three-year financing plan is largely unchanged from last quarter. Our AGM program has placed roughly $33 million in forward settlements so far this year. This leaves very modest equity needs through 2026. I would also note that we're repaid our $200 million term loan in May. And we continue to target FFO to debt at 15% to 16% on a consolidated basis. Now, turning to our outlook. As we look at our year-to-date results and our forecast for the final quarter, Including the pull-through of our customer affordability initiatives, here's how we think about fiscal year 24 and more importantly, fiscal year 25. As Steve mentioned, we certainly had headwinds coming out of the winter, essentially in two areas. First, lower than expected margins at a Missouri utility due to warm, unmitigated weather. Second, higher than expected interest expense at both the gas utilities and corporate. We did have one strong tailwind, O&M cost control. This is not a new trend, as we have worked for over many years to keep our discretionary costs low, taking advantage of our investments in technology, innovation, and infrastructure upgrades. And we continue to show good trends this year. However, the timing of those savings, higher bad debt expenses, and the realization that the added benefits of our customer affordability efforts will only partially offset the shortfall of margins and interest we carried into this quarter. So we've adjusted our earnings guidance for the remainder of this year as follows. We are lowering our gas utility range to $213 to $221 million, down $8 million from last quarter's update and down $18 million at the midpoint from our initial guidance for the reasons I just mentioned. We've raised the ranges for gas marketing and mid-spring to reflect the strong performance this year, with each up $8 million at the midpoint compared to our initial guidance. Corporate cost estimates moved up $6 million at the midpoint to between $24 and $28 million, reflecting the impacts of higher interest expense and the timing of cost savings. Putting it all together, we've lowered and narrowed our earnings target range for fiscal year 24 $4.15 to $4.25 per share. Now, despite the lower finish this year, we are well positioned heading into fiscal year 25. We expect to get back to normal margins in Missouri. We've also collected the deferred gas cost that Scott mentioned, which should relieve some pressure on our short-term borrowings going forward. Add the benefit from a lower cost structure, and we expect to return to the planned growth trajectory that we introduced at the beginning of this fiscal year. As a result, we remain confident in our long-term net economics earnings per share growth target of 5% to 7%. Thanks again for your confidence and trust you placed in us, and we look forward to speaking more about 2025 and beyond in our year-end earnings call in November. Steve, let me turn it back over to you for some final comments. Thank you, Steve. As far as delivering a solid third quarter, we are laser-focused on finishing our fiscal year well-positioned for success and growth over the long term. Thank you all for joining us today. We will now take your questions.