Full Year 2023 Spire Inc Earnings Call
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Welcome to the spire year end earnings conference call.
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He's not this event is being recorded I would now like to turn the conference over to Scott Dudley with Investor Relations. Please go ahead, good morning, and welcome to the spire is fiscal 2023 year end earnings call.
Issued an earnings release this morning, and you may access it on our website aspire energy.
Under newsroom.
There is a slide presentation that accompanies our webcast you may download it from either the webcast site or from our website for investors and then events and presentations.
Before we begin let me cover our safe Harbor statement and use of non-GAAP earnings measures.
Earnings call, including responses to your questions may contain forward looking statements within the meaning of the private Securities Litigation Reform Act 1995.
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 net economic earnings and contribution margin, which are both non-GAAP measures used by management, the evaluating our performance and results of operations.
Explanations and reconciliations of these measures to their GAAP counterparts are contained.
And both our news release and slide presentation.
Presenting on the call today is Steve Lindsey President and CEO.
D Rashid executive Vice President and CFO.
Also in the room today is Adam Woodard, Vice President Treasurer.
CFO of our gas utilities.
I also want to formally introduce Megan Mcphail recently joined spire as managing director of Investor Relations.
Megan brings 15 years of experience in the utility industry, including five years in Investor Relations.
Just taking the reins as I'll be retiring on March 1st of next year.
That I will turn the call over to Steve Lindsey.
Thank you Scott and good morning, everyone I'm pleased to have this opportunity of CEO to update you on our performance for last year and outline our priorities plans and outlook this year and beyond.
Let's start by acknowledging the vision and leadership she's answer the what our CEO over the last dozen years.
The successful execution of our strategic priorities to grow and transform our company.
But her stewardship, we attained the scale and foundation and positioned us to organically grow our gas utilities expand our gas marketing operation and strategically invest in midstream.
As far as a financially strong and expanding natural gas company that is well positioned as a leader in the industry.
I'm honored to build on this strong foundation and leads far into the future and doing so I want to emphasize that our strategy will not change.
Made it to the same priorities growing our businesses investing in infrastructure and driving continuous improvement and our focus on strong operations and successful execution of our plans remains.
Well FY 'twenty, three presented challenges and headwinds, including regulatory outcomes, whether relation or commodity costs and rising interest rates.
Well to meet our capital plan focused on our gas utilities, and marketing was well positioned to take advantage of market opportunities.
<unk> also advanced our midstream segment, you announced the acquisition of Mo gas and the purchase of Salt Plains storage itself.
We're positioned for success in FY 'twenty, four and beyond as we continue delivering on our growth strategy.
We have a robust 10 year Capex plan centered on pipeline upgrades and new business for our gas utilities.
We remain squarely focused on the basics of strong execution, which includes driving greater efficiency through streamlining systems and processes, maintaining an unwavering commitment to operational excellence.
Thanks, Tom will work to further advance our marketing and midstream businesses building on recent expansion and growth.
I'm confident in our ability to deliver value over the long term for customers communities employees and shareholders.
Well achieve that through our strong focus on providing safe reliable cost effective energy with excellent service, while advancing our commitment to become carbon neutral company a mid century.
For FY 'twenty, three we reported net economic earnings of $4 <unk> per share, reflecting higher earnings and gas marketing and midstream.
Set by lower earnings from our gas utilities.
We'll discuss our financial results more detail in a moment.
In FY 'twenty four today, we're launching earnings guidance $4 25 to $4 45 per share and reiterating our long term annual earnings growth target of 5% to 7%.
I used where that growth is the mid point of our FY 'twenty four guidance range $4 35 per share.
You know the long term driver of our earnings growth as capital investment in our gas utility.
Slide 23, our capital investment totaled $663 million nearly 90% invested in our gas utilities.
Of that amount invested $290 million in upgrades of our pipeline infrastructure and additional $110 million to connect more homes and businesses to safe reliable and affordable natural gas service.
Midstream segment Capex totaled $73 million largely for the expansion of spire storage west.
Note that our cash spend and midstream came in below our forecast for the year due to timing. However, the project remains on schedule and on budget.
Looking to FY 'twenty four we expect to increase our utility capital investment to $660 million, reflecting increases in infrastructure and new business.
As further deployment of advanced meters.
We'll also be making an initial investment in R&D project the spire Missouri's developing in partnership with Kansas seawater apartment.
The 70% of our gas utility spend this year investing with some reliability and safety and another 16% dedicated customer growth.
Midstream Capex is expected to be $105 million, reflecting the timing and construction equipment purchases for our storage expansion projects that I just mentioned.
Recognizing our performance in 2023 as well as confidence in our long term growth plans. Our board of directors recently increased fire's common dividend by four 9% when annualized rate of $3 <unk> per share.
The 20 <unk> consecutive year of dividend increases, which we have continuously paid since 1946.
I'll turn it over to Steve Bradshaw for a financial review and update on our guidance and outlook.
Thanks, Dave and good morning, everyone, let's start with a brief review of our results and then I'll share our expectations as we look into 2024 and beyond.
Our fiscal year ended September 32023, we reported net economic earnings of $228 million of five 5% ahead of last year.
On a per share basis, our earnings of $4.05 or <unk> 19 sensor out of last year.
These full year results incorporate our fourth quarter loss of $38 million or 78 cents per share.
<unk> the seasonality of our business.
Well the analysis of our quarter is included in the appendix to this presentation and I will focus our remarks today on the full fiscal year.
Looking at our business segments.
Our gas utilities are in just over $200 million down 1% from last year as new customer rates in both jewelry and Alabama are more than offset by higher interest expense and the impact of warm weather.
Yes, marketing was well positioned to take advantage of commodity price volatility last winter and posted earnings of just under $48 million, an increase of more than 75%.
Our to last year.
Midstream delivered earnings of $14 million up 3 million from last year, reflecting our growing scale and optimization.
And finally higher interest expense and corporate costs.
Looking a bit deeper into our results starting with revenues and margins here on slide seven.
Revenues were up 21% this year with our gas utility revenues up $511 million.
Reflecting higher gas costs, including both the higher commodity costs from last winter as well as deferred gas cost from the previous year.
As a reminder.
Gas costs are passed through on our customer bill and netting out those costs. The gas utility contribution margin grew by 8%, reflecting principally new rates in Missouri, and Alabama, including <unk> filings in Missouri.
Our contribution margin was also higher because they created significant value from the transportation and storage positions as a result of favorable market conditions.
Midstream margin was up $13 million, reflecting our growing operations and optimization of injection and withdrawal commitments.
This increase also reflects the addition of salt plains that our fiscal third quarter.
The storage business is performing well against our expectations and wireless revenues and margins are included here and this analysis based on GAAP financials. Its earnings are excluded from the consolidated net economic earnings in fiscal year 'twenty three.
And I'll touch on shortly Salt Plains will be fully included in our net economic earnings and fiscal 'twenty four and beyond.
You can get a couple of other key variances on the next slide and focusing on the net variance column.
Gas utility operations and maintenance expenses reflect higher bad debts, and then $24 million of Missouri overhead costs that were expensed in 'twenty three.
A deferred and 22 the.
The remaining run rate expenses were up just over $10 million or two 5% as our cost controls helped offset higher payroll expenses.
Expenses.
O&M cost for our marketing and midstream segments reflect the growth in those businesses.
Corporate costs were higher this year, primarily due to onetime consulting and professional services fees not anticipated to recur in 2024.
Interest expense for the year was up nearly $66 million driven equally by two factors.
First long term debt balances that were higher by approximately $475 million net of refinancings.
Second higher short term interest rates up roughly 390 basis points over last year.
We continue to make progress on collecting that deferred gas cost balances and expect to substantially recover them by the end of the heating season.
Other income reflects the investment income from our benefit plans plus roughly $14 million in higher Missouri carrying cost credits.
Now turning to our outlook.
We anticipate our net economic earnings per share for fiscal year 'twenty four to be between 25 and $4 45 per share as Steve mentioned.
We are also reconfirming, our long term earnings per share target beyond 2024, 5% to 7% using the midpoint of our fiscal year 'twenty for range of $4.35 that space.
As a reminder, our long term target is calibrated it bounced safety reliability and affordability with our cost of capital recovery mechanisms.
Steve mentioned earlier, we've updated and extended our capital spend planned for speed your 33 and raised the target to $7 $2 billion.
Turning to slide 10, fewer our business unit earnings ranges for fiscal year 'twenty four.
You hit on a few points.
We anticipate our gas utilities to earn between 230 and $240 million next year, reflecting the combined benefits of.
Well, Europe, new Missouri rates as well as <unk> filings.
New Alabama rates.
And lower interest expense from cost management.
Gas marketing is anticipated to earn $19 million to $23 million a slight increase in our baseline expectation is driven by customer growth.
Scream expects to earn between 'twenty, one and $27 million, reflecting the addition of salt plains and the expected closing of the Mo gas acquisition.
In addition, C. The earnings pull through in the back half of fiscal year 'twenty four as we began operating the first tranche of new storage capacity in spire storage west.
Corporate another principally interest cost is anticipated to be in the range of negative 18 to negative $22 million down significantly from last year based upon lower corporate cost.
And lower interest cost, including the impacts of interest rate hedging.
Speaking of interest and financing we've also updated our three year financing plan as outlined here on slide 11.
I'm pleased to say that we have locked in approximately 80% of our equity needs for fiscal year 'twenty. Four. This includes the forward sales agreement from earlier this year of roughly $113 million, that's expected to settle by the end of the calendar year. It also reflects the $175 million conversion of equity units on much first.
No look through our ATM program for the remaining equity decent fiscal year 'twenty four and.
And we expect very modest equity needs in 2025 and 2026.
Turning to debt financing.
We expect to refinance $150 million debt maturing at spire, Inc. As well as complete the remarketing of the dotcom boom.
Right.
Our equity units. In addition, we expect to issue an incremental $50 million to $100 million of new long term debts is important no gas acquisition.
We have no planned issuance b on the refinancing of maturing debt in fiscal year's 25, and 26 and remain well positioned relative to the future interest rates.
We continue to target at that voter debt at 15% to 16% on a consolidated basis and expect to be in this range in 2025.
In summary, we are executing in line with our plans as we turn the page to fiscal year 'twenty four.
We are well positioned to deliver both operationally and financially.
Let me turn it back over to you Steve.
Yeah.
Thanks, Steve in fiscal 'twenty, three we delivered solid financial and operating performance, including strong results require market.
Well to execute on our capital investment plan supporting the growth of our gas utilities and the expansion of spire storage.
Building on this momentum we are squarely focused on executing to achieve our performance targets for FY 'twenty four and beyond.
We look forward to updating you on our performance and progress throughout the year.
Thank you for joining us today and now we're ready to take questions.
Thank you we will now begin the question and answer session.
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Our first question comes from Richard Sunderland with Jpmorgan. Please go ahead.
Hi, good morning am I coming through clearly.
Residents.
Great. Thank you.
Could you unpack 2023 relative to the <unk> outlook, particularly what landed in utility results versus plan I'm curious if any of this has worked to derisk 'twenty 'twenty four that's showing up as say expenses in 'twenty three.
Yeah Rich this is Steve let me, let me take a shot and I'm sure that Adam are Stephen went away and yeah. If you look at our Q4.
Against our guidance interest expense came in a little bit hotter as you might recall short term rates went up a little bit beyond what the market, including your firm had predicted and so we had that offset that and then it really was corporate cost and a lot of those are one off professional.
Fees and things that we don't expect to recur, which is why you see the corporate costs coming back in line next year those were really.
The big drivers everybody else came in reasonably in line with the plan that we would have expected.
Got it understood and then you touched on this a little bit to the previous question, but what are you assuming in 2020 for cost management.
Curious where those efforts stand in your overall line of sights of 'twenty 'twenty four expenses I guess supposed to if utilities since you talked about the corporate one offs.
Yeah, I'll, let me start on that on the cost management, which you saw in the back half of this last fiscal year and it should it shouldn't be lost on anyone that we started the year as many folks did pretty hot and the run rate of expenses and we ended up bringing those back down below the 4% that we had.
I did after you pull out our bad debt. So that the efforts that we continue to have in place, which start with how we operate efficiently in involving technology and innovation really are continuing into next year. We've got a number of initiatives that that would get us off on the right foot starting out if you kind of run down the <unk>.
Movers bad debt was wasn't that bad debt traded against us last year that that was more reflective.
Higher commodity costs last year, which is flushing through we have a we have a really solid collection program I don't suspect given where commodity costs are now that we will see that as an adverse movement probably moves back in the right direction and we continue to manage not only are the cost that we can control in a big way which would be.
The cost that we incur operating businesses, but also our third party costs and you know that there were a lot of headwinds in third party cost this year and it's not just us you've heard it from there from the industry or the cost of locates some professional fees and where you see those moderating as we've seen overall inflation rates coming back.
Down to a more reasonable level. So those would be some of the key items that are that we're working on.
And.
This is Steve Lindsey and I think just to follow up on that what we're really looking to do going forward and it started this year like Steve mentioned is really drive value throughout the utilities are we are on common platforms now, which makes a lot of difference when you think about it from a logistics perspective, whether it's around managing the people managing the materials from a supply chain perspective, or the fleet. So I think so.
Set up well to do that as well is really starting to reap the benefits of the capital investments that we've been making on infrastructure do you think about one of the metrics that we've all very closely our leads per thousand system, while it's down over 60% over the last five years those are O&M costs that in the future what will not occur. So I think all those things together really give us a straw.
Long foundation for managing our expenses not only in the near term, but really more for the long term.
Yeah, and then rich you had asked a question on on other on the other line, which is coming down pretty dramatically. The biggest mover. There is gonna be interest rates. We've our level of borrowing is down and we are managing interest rates. As you know we are currently active in our interest rate hedging which provides benefits going forward. So we ask.
We see interest cost at.
At the Holdco level, which is what it comes up in corporate and other down from probably the run rate that we've seen them in 'twenty three and then those one off costs aren't going to recur. So yeah, our cost control isn't just at the operating businesses, it's really and how we manage it.
The shared services level, but we're seeing some great benefits there.
Great. Thanks for all the color there I'll pass it along.
Okay.
Okay.
Our next question comes from Gabe Moreen.
Please go ahead.
Good morning, everyone, maybe if I can just keep on the gas cost him slash interest expense outlook can you just talk about maybe starting with the latter of the interest expense hedges and the lack of sensitivity to short term rates in 24, where does how does he had entered into a while ago. There was relatively recent and then also on the gas cost. Maybe you can just talk about I guess is this just a question on the.
Forward curve, you're making your own assumptions on gas costs. Just quick just just curious about that.
Yeah. So we actively are hedging gas cost as well.
The benefit of the customer, but the interest rate program is ongoing so it is it more of a dynamic program. So I'm not.
So any specific aging.
Hedges, but.
People feel obviously, we feel pretty good about our sensitivity to rates.
In the front here.
But we do see the deferred balances declining.
Throw out throughout the year as Steve mentioned and.
Really getting into kind of a more normalized deferrals state.
Yeah.
And then maybe if I could ask about the storage project and some of the Capex slippage is there can you just talk a little bit about more about the talk a little bit about that more is it just a question of timing is there any cost inflation any specifics on what the slippage is around there.
Okay.
And thanks for that question and it is timing.
Some of it is raw materials. Some of it is around equipment, we continue to project that for the full life.
The life of the project that we will be on time and on budget. Obviously, there are some challenges as you get into the winter in terms of what you can do but we're actually going to be doing some things inside some facilities.
Do you need to work forward on that so we were very pleased with the initial open season that we have we've got a lot of strong interest there. We anticipate the same over the next open season and so from the overall project perspective, I would just anchor back to where we're on time and on budget.
And Gabe if you look at our longer term forecast you can see that 20 or 30 million move from actually happened in 'twenty three 'twenty four 'twenty five that's more the cash spend on the project as you know construction season is now largely over in Wyoming with the beginning of the snow, but net.
We benefited from the weather in October and so we were going headlong, so some of that activity.
In the construction season that was the summer actually leak over into the next fiscal year, but you shouldn't read anything more into that and then just fine tuning how the cash is actually going up.
Thanks, guys and if I could just squeeze in one last one on pension expense and the assumptions I think most here was a benefit what youre assuming for next year and to a degree with the swing factor here 24 guidance.
I would not okay, Gabe I would not characterize it as a swing factor in our in our 44 guidance I'd I'd have to go to.
I'll be out here in a couple a couple of hours, but I'd have to go back and take a look at the exact assumptions are there several that go into that but.
Yeah and gave if youre focusing on the miscellaneous income line, we do have.
Some nonqualified benefits, where the funds that we used to fund those programs do are subject to market market returns and we've seen that swing negative in 'twenty. Two it was positive in 'twenty three our expectation is always kind of benign in terms of just reasonable, but not excessive market returns.
But we will continue to report on that every quarter. So you'll see a little volatility there. It was masked this year because of about $14 million of interest rate credits that we got as part of a recovery in Missouri for the short term interest costs.
Understood. Thanks, guys.
Our next question comes from Julien Dumoulin Smith with Bank of America. Please go ahead.
Okay.
Hi, Good morning team. This is Turner on for Julien how are you doing.
Okay.
Hi can you further disaggregate your midstream guide for fiscal year 'twenty four between the individual pieces, there and kind of share your expectations for how we should look at and run rate growth across each.
Yeah.
We stopped the midstream segment. This year. So when you can actually isolate what's going to be a growing piece of our business just recognizing the investments that we've already made so when you think about what's happening as you go from 23 to 24 at the midpoint of the range. It really is the recognition.
Salt Plains, and no we're not going to get into the individual.
Pretty details it was up $47 million acquisition, but we have every expectation of above utility rate returns and we're as we mentioned in our prepared remarks I'm seeing those we also.
I expect that the Mo gas acquisition will close early in the next call.
Wonder year, our fiscal Q2, and we're seeing that the earnings pull through as we go through the balance of the year and then lastly, we do see a little bit of pull through at the margin line on spire storage West and we talked about this when we launched the project that we're seeing some of that which is offsetting the financing cost it doesn't get too.
Run rate until 'twenty, five, but it does add a bit to the earnings really offsetting the earnings drag that we that we willingly took on and in the last fiscal year as we were investing to expand that facility that that would that would be as you think about the storage side of the business.
And a little bit of a pipeline from a gas perspective spire STL pipeline just continues to operate and you know we would expect that we'd have a pretty narrow range as with most pipelines unless theres. Some expansion project and we aren't speaking to anything.
At this point.
It's just going to continue to drive the kind of earnings that we've seen in prior years.
Hopefully that helps.
No. It does thank you.
And then on the utility your initial 2023 net economic earnings guidance of about $230 million at the midpoint and this year for FY 'twenty. Four you are guiding to the midpoint of $235 million, taking each one is normalize that implies something like low single digit growth year over year is there some conservatism.
Ism built into that estimate or are you, perhaps seeing likes different in Missouri. Just wanted some color there you could provide it.
Yeah. This is Adam.
I would I would look back to 'twenty, two and see the pull through over a couple of years, obviously, we came out Oh.
Back to bad cases in Missouri, and so it's a little it gets a little obscured but.
You know you didn't get to where we initially wanted to be this year and the utility.
A lot of that.
Some of it is just a pull through both both in Alabama, and Missouri, but but.
We do see that on a two year basis looking.
Looking like it was would meet our expectations, but I wouldn't characterize it as conservative or aggressive.
Understood great. Thank you very much guys.
Hello, and welcome Blake that's a good question.
And then one at this time.
Having no further questions I would like to turn the conference back over to Scott Dudley for any closing remarks.
Thank you all for joining us will be around for the rest of the day for any follow ups.
Being with us.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.