Spire Inc.

Good morning and welcome to SPIRE's fiscal 2025 first quarter earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then 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 then two. Please note this event is being recorded. I would now like to turn the conference over to Megan McPhail, Managing Director, Investor Relations. Please go ahead.

Good morning and welcome to SPIRE's fiscal 2025 first quarter earnings call. We issued an earnings news release this morning. 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 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 releases and slide presentations. On the call today is Scott Doyle, Executive Vice President, COO and Acting CEO, and Adam Waters, Executive Vice President and CFO. With that, I will turn the call over to Scott Doyle. Scott?

Thank you, Megan, and good morning, everyone. Thank you for joining us today for a review of our fiscal first quarter results and an update on recent developments and outlook. Before we dive into results, We were pleased to announce earlier this week that Steve Lindsey, SPIRE's President and Chief Executive Officer, will return to work on February 10th after taking a leave of absence. He's eager to get back to the office, and we're looking forward to his return next week. I would also like to take this opportunity to thank our employees for their continued effort and dedication to maintaining safe and reliable gas delivery service for our customers as we enter the winter heating season. While we experienced a warmer than normal first quarter in both Missouri and Alabama, we began to see much colder, sustained weather patterns in early January. In fact, this past January was among the coldest in recent years throughout our service territories. The preparedness of our employees and past investments in our systems ensured reliable energy delivery for the communities we serve. Turning now to our first quarter results, This morning, we announced adjusted earnings of $1.34 per share compared to $1.47 a year ago. Our results reflect growth in our gas utility and midstream segments and lower earnings in our gas marketing segment. Key drivers of our results include our investments to modernize our natural gas infrastructure and our continued focus on cost management. Adam will provide more detail on our results and outlook in a moment. Turning to regulatory matters, starting with Missouri. Last November, we filed a rate case with the Public Service Commission, or PSE, for new rates effective by October of this year. In addition, in January, we filed a new infrastructure system replacement surcharge, or ISRIS, request with the PSE for additional revenues of $19 million. This is our fifth request since our last general rate case and includes the timely recovery of eligible investment for the September 2024 through February 2025 period. New rates are anticipated to be effective by July 2025. And if approved, the increase would bring our revenues in the rider to an annualized rate of $72.6 million. Moving to our Alabama operations. The fiscal 2025 budgets for SPIRE Alabama and SPIRE Gulf were approved by the Alabama Public Service Commission and rates are now effective under the Rate Stabilization and Equalization Mechanism, or RSE. This annual rate-setting framework is very constructive as we are granted recovery of our costs based on a forecasted budget and earn a return upon our average common equity. Our goal is to achieve consistent and constructive regulatory outcomes in all of our jurisdictions, leading to a more sustainable financial performance trajectory. Looking ahead, our 10-year CapEx plan remains $7.4 billion. We are also reaffirming our long-term EPS growth target of 5% to 7% and our fiscal 2025 earnings guidance of $4.40 to $4.60 per share. As we indicated on the call in November, we anticipate improving our earned returns in Missouri in FY2026 to help us achieve our targeted growth rate. We are committed to achieving our financial and operational goals as we execute our strategy to grow organically, invest in infrastructure, and drive continuous improvement. Turning to page five for an update on capital investments. During the first quarter, our CapEx totaled $260 million, with the majority of the spend taking place at our gas utilities. Year over year, utility CapEx increased nearly 25%, with an emphasis on upgrading distribution infrastructure and connecting more homes and businesses to safe, reliable, and affordable natural gas. During fiscal 2025, we plan to invest a total of $790 million with a focus on reliability, system modernization, new service connections, and advanced meter installations. Remember, approximately 98% of our 10-year capital expenditure plan is targeted utility split, driving our growth in rate base. Moving to page six, in late November 2024, we filed a request with Missouri PSE to increase revenues $289.5 million. The drivers of our requested increase include significant capital investments in our delivery system, as well as the inflationary impacts on our cost of service since our last rate case, which was completed in December 2022. The request includes a 10.5% return on equity, a 55% equity ratio, and an estimated rate base of $4.4 billion with a May 31st true update. This filing is also inclusive of discrete adjustments of known and measurable items that will occur beyond the true update, but before new base rates are implemented. We believe this represents a more accurate snapshot of our costs when new rates take effect. These updates include items such as capital investments and changes to leases, payroll, and call center expenses, for example. We are also seeking to improve recovery of volumetric revenue, including the impacts of both weather and conservation. If approved as requested, when rates become effective, the average customer bill is expected to increase approximately 15% or $14 per month. However, when paired with the PGA decrease approved and implemented in November 2024, average customer bills are expected to be lower or unchanged compared to average bills in 2024 when final rates are approved. The Missouri PSC approved the procedural schedule last month, and we expect an order and new rates effective by October. 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 begin by addressing our quarterly results, which are detailed on pages 7 and 8 of our presentation. During the first quarter, we reported adjusted earnings of $81.1 million, or $1.34 per share, compared to $82.7 million, or $1.47 per share, a year ago. The results were driven by earnings growth at the gas utility and midstream segments, offset by lower earnings at marketing and other. Gas utility earnings were higher, reflecting increased earnings at Spire Alabama and Spire Gulf, partially offset by lower Spire Missouri earnings. Contribution margin increased across all utilities. We benefited from higher interest revenues in Missouri and new rates and usage at Spire Alabama net of weather mitigation, offset in part by lower Missouri usage, which was not fully mitigated. Utility earnings also reflected lower run rate O&M expense and higher depreciation expense. We saw strong earnings growth in our midstream segment, driven by new contracts on additional capacity and higher rates on contract renewals of existing capacity at Spire Storage, and the acquisition of MoGas in January of last year. Our marketing segment was lower than the prior year due to reduced market volatility combined with higher transportation and storage fees. I would like to note that we expect marketing to deliver within its originally expected guidance range during the fiscal year. Lastly, other corporate costs were higher primarily due to the absence of a $6.3 million after-tax benefit of an interest rate hedge settlement that occurred in the prior year coupled with higher interest expense this year. I will briefly touch on a couple of drivers of our results. We experienced another warm start to the winter in both Missouri and Alabama. From a heating degree day perspective, Missouri was 18% warmer than normal. Although this was in line with last year, usage by residential customers was down approximately 4%, resulting in lower volumetric margins of $3.4 million. Alabama was 25% warmer than normal and also warmer than last year. However, temperature-sensitive margins were effectively mitigated. We remain focused on cost management, and we expect run rate operation and maintenance expense at the gas utility to remain flat relative to fiscal 2024 levels. During the quarter, utility run rate O&M expense was lower by $1.6 million when compared to last year. Turning now to our growth outlook on page 9, as Scott mentioned, we are reaffirming our long-term adjusted earnings per share growth target of 5% to 7%. This growth is supported by 7% to 8% rate-based growth in our largest utility, Spire, Missouri, and continued timely recovery investment of investments eligible for interest, continued equity growth in the southeast coupled with annual RRC resets, our 10-year CapEx plan of $7.4 billion, and a consistent focus on cost management. We remain committed to executing on our strategy and are affirming our FY 2025 adjusted earnings guidance range of 440 to 460 per share. Moving to slide 10, our three-year financing plan remains unchanged from what we laid out in November. We expect our ATM program to fulfill our remaining equity needs through 2027. At the beginning of this fiscal year, we had a total of $75 million of outstanding forward sales agreements. We settled $32 million at the end of December, and we plan to settle the remaining $43 million by the end of March. Our long-term debt financing plan through 2027 includes issuances for the refinancing of maturities and incremental debt of approximately $600 million to fund our capital plan. Our FFO to debt and dividend payout ratio targets remain unchanged. In summary, we are executing in line with our plans and continue to feel positive about our financial position going forward. With that, let me turn it back over to you, Scott. Thank you, Adam. To wrap up, I want to remind everyone of our fiscal 2025 priorities to build a more resilient, efficient, and sustainable company that delivers value for our customers and shareholders. First and foremost, we are committed to delivering natural gas safely and reliably. During the year, we expect to achieve our capital plan. We are engaging with key stakeholders to realize constructive regulatory outcomes for customers and shareholders. Furthermore, we're focused on delivering on our fiscal 2025 EPS guidance range and maintaining the strength of our balance sheet. Executing on these objectives remains a priority in fiscal 2025 and beyond. This concludes our prepared remarks, and we're now ready to take questions.