Good afternoon. My name is Sherry, and I will be your conference operator today. At this time, I would like to welcome everybody to the Southern Company Second Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. Scott Gammill, Vice President, Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Sherry. Good afternoon, and welcome to Southern Company’s second quarter 2024 earnings call. Joining me today are Chris Womack, Chairman, President and Chief Executive Officer of Southern Company; and Dan Tucker, Chief Financial Officer. Let me remind you, we'll be making forward-looking statements today in addition to providing historical information. Various important factors could cause actual results to differ materially from those indicated in the forward-looking statements, including those discussed in our Form 10-K, Form 10-Q and subsequent filings. In addition, we'll present non-GAAP financial information on this call. Reconciliations to the applicable GAAP measure are included in the financial information we've released this morning, as well as the slides for this conference call, which are both available on our Investor Relations website at investor.southerncompany.com. At this time, I'll turn it over to Chris.

Thank you, Scott, and good afternoon, and thank you for joining us today. As you can see from the materials we released this morning, we reported strong adjusted earnings results for the second quarter, meaningfully ahead of the estimate provided last quarter. We believe we are well-positioned to achieve our financial objectives for 2024. All our businesses, electric and gas, are performing well, and we continue to see both economic resilience and economic growth, especially within our southeast service territories. During the most recent heat wave across the southeast, our dedicated employees, supported by our coordinated planning, ensured our electric system delivered outstanding reliability and resiliency for the customers and communities that we are privileged to serve. Last quarter represented the warmest second quarter in the last 38 years, with a peak electric load of over 38,000 megawatts, the third highest June peak electric load on record for the Southern Company system. We take tremendous pride in our ability to reliably serve our customers through all operating conditions. Our performance continues to highlight the value of the integrated regulated framework in which we operate. Coordinated planning for generation and transmission as well as our robust portfolio of natural gas transportation, capacity and storage have positioned us to effectively manage peak demand needs. This same framework, including our orderly internal and external regulatory processes for long-term demand planning and resource decisions, is what also positions us so well to reliably serve the significant electric load growth projected over the next decade, an opportunity we're excited about. Dan, I'll now turn the call over to you for a financial update.

Thanks, Chris, and good afternoon, everyone. For the second quarter of 2024, our adjusted earnings per share was $1.10 per share, $0.31 higher than the second quarter of 2023 and $0.20 above our estimate. The primary drivers of our performance for the quarter compared to last year were continued investment in our state-regulated utilities and warmer-than-normal weather for our electric subsidiaries. This was somewhat offset by higher interest and depreciation expenses. A complete reconciliation of year-over-year earnings is included in the materials we released this morning. Our adjusted EPS estimate for the third quarter is $1.30 per share. As Chris noted, all of our businesses experienced a strong second quarter leading to adjusted financial results meaningfully higher than our estimate of $0.90 per share. The warmer-than-normal weather in Q2 contributed to these results as well as our continued focus on managing operating costs. Additionally, during the second quarter, we experienced higher-than-expected weather-adjusted electricity sales in our commercial customer class. These higher sales were driven by a combination of continued strength in our local economies as well as increased usage by many of our existing data center customers. In fact, sales to existing data centers for the quarter were up approximately 17% year-over-year. The strong Southeast economy, including favorable business climates and expansions in manufacturing, continues to drive net in-migration and customer growth. For the second quarter, we saw residential customer additions of 14,000 in our electric businesses and 6,000 in our natural gas distribution businesses. We also continue to see strong economic development activity across our electric service territories. The aggregate pipeline for potential new industrial and commercial customers across our three-state electric utility footprint includes nearly 200 projects and over 30 gigawatts of potential load over the next decade or so. While it's likely these numbers include some degree of duplication as some prospective customers are evaluating multiple states that we serve for their facilities, these numbers are significantly higher than what we've seen historically. About 40% of the projects in the pipeline and 80% of the potential electric load are data centers. In addition to data centers, clean energy and transportation manufacturing, port-related businesses and other heavy industries continue to be attracted to our states due to reliable energy, a diverse workforce, robust transportation networks and a low cost of living, all compelling reasons to locate or expand in our Southeastern states. The potential load growth in this pipeline that is reflected in our forecast is currently only a fraction of this full potential. As a reminder, during our year-end earnings call in February, we updated our forecast to reflect projected retail electric sales growth that is expected to accelerate in the latter part of this decade with a projected growth rate of approximately 6% from 2025 to 2028. The underlying Georgia Power projected sales growth is approximately 9% over the same period. In response to this growth, Georgia Power filed and the Georgia Public Service Commission subsequently approved earlier this year its 2023 Integrated Resource Plan Update. Since the time of the original filing last year, Georgia Power's pipeline of potential large load additions by the mid-2030 has grown approximately 40%, and the amount of committed peak demand at the same time frame has more than doubled, now totaling over 7 gigawatts. As we described in detail on our last earnings call, we continue to execute on our disciplined approach to attracting, serving, pricing and forecasting this potential incremental electric load, and we continue to expect that our disciplined approach to pricing this new load should result in revenues that not only cover the incremental cost to serve these new customers but also provide economic benefits to existing customers. Chris, I'll now turn the call back over to you.

Thanks, Dan. Southern Company remains focused on execution, and we're excited about the future. We believe we are well-positioned to capture the value of this significant electricity demand for the benefit of all stakeholders. Our orderly and proven processes for engaging with prospective customers and for addressing resource needs with our regulators differentiates Southern Company from our peers and helps mitigate risk for our customers and our investors. Additionally, prospective electric customers are increasingly recognizing the value of our institutional experience and wherewithal, the value of the great states we operate in, and the value of the vertically-integrated regulated utility model. Before taking your questions this afternoon, I'd like to take a moment to recognize the hundreds of team members from Alabama Power, Georgia Power, and Mississippi Power who recently returned home, after aiding in power restorations in Texas following the devastation caused by Hurricane Beryl. These teams and others from across our industry worked tirelessly to bring relief to affected communities, and their performance throughout the successful restoration effort stands as a testament that our employees are at their very best when conditions are at their worst. Let me conclude by saying, we have delivered very strong operational and financial results for the first half of this year. We will remain focused on continuing to execute on our plan, and we believe that we are extraordinarily well positioned to deliver the superior performance that you expect from us for the remainder of the year. Operator, we're now ready to take your questions.

Our first question is from Carly Davenport with Goldman Sachs.

Maybe just to start on the quarter itself, I guess just with the significant beat relative to your initial $0.90 guidance, sort of how are you thinking about the puts and takes around the full year guidance and your execution there at this point?

Look, we're always very cautious. While we're halfway through the year, there's a lot of year left to go. And in particular, with our electric utilities being in the Southeast, the summer is a pretty big period from a revenue perspective. So we've typically kind of honed in on a more specific expectation after our third quarter call. That said, to your point, we are incredibly well-positioned. We're off to a great start. And what we also have a history of doing is really taking that kind of opportunity and doing anything and everything that we can to not only deliver on the current year but use that as an opportunity to improve our positioning for future years. So that might look like advancing maintenance work out of future years into 2024 or getting ahead on other programs or reliability reserves. We have the opportunity to kind of optimize in some of our states. And so with how we're positioned, we're working hard to do all those things, focusing on this year but focusing on the long term. But, you know, all that to say, given how we started, if we, you know, don't end up in the top half of our range, I think Chris and I would be disciplined.

But I think, Dan, I think as we say internally a lot, when we have the opportunity to fix the roof while the sun is shining, and so thinking about '24 and '25 and '26, those are some things we'll consider as we continue to move forward through this year.

Great. Appreciate that color. And then the follow-up, just would love to get your perspectives on nuclear as it continues to gain focus here. I guess, what do you think the industry needs to do to support the build-out of new large-scale nuclear? And as you think about the 2025 Georgia IRP filing, is there any potential to see nuclear play a role there?

Carly, I mean, I think the industry has got to continue to do all the planning, all the reviews, working with industries to look at what all the possibilities may be. I think to ultimately get that build-out and get the momentum, we've got to have incredible leadership from the government to make this a reality. We know there are risks, and I think we all must find ways, and I think support from the government can help mitigate some of that risk. So I think that is the critical element in terms of really gaining the momentum to build on what we got done by completing both units 3 and 4. I think it's got to be a part of the future. It's got to be a part of the mix. We've got to have diverse resources to meet this demand we see going forward, and nuclear's got to play a very prominent part in that role. But I think there's got to be and needs to be great leadership from the government to really kind of help build the momentum that we need to see. I mean, I'll leave it at that.

Our next question is from Shar Pourreza with Guggenheim Partners.

Excellent. So, Dan, I can maybe a quick one for Dan. Dan, I can totally appreciate the conservativeness and sort of how you're messaging around this year. But like obviously, we are seeing much stronger reality of your sort of your footprint is much stronger than kind of your planning assumptions. Right? And I know you've talked about in the past that maybe you can provide an update in the fourth quarter or potentially EEI timeframe of what all this kind of means to your longer range guidance. I guess what other trigger points are you looking for outside of sustainability around this load backdrop to really revisit how you guys think about a longer range plan?

I think it does. I know you said besides sustainability, but it really is rooted in that notion of continued momentum. Look, I think we feel good about what we know and see right in front of us, and that's a large part of what we addressed in this recent Georgia proceeding. We've got the 2025 IRP ahead of us, that will provide an opportunity to kind of further button up the latter part of the decade and into the next decade. For again, what we kind of know sitting here today, the opportunity and it certainly feels like there is continued increased momentum. The opportunity is that, assuming that continues, there will inevitably be more capital investment needed to serve continued load growth, whether that's in the form of new generation resources, certainly transmission improvements around the system. But the thing I want to balance all of that with and I think we've continued to say this, this is really a later in the decade phenomenon. This is not a '25 thing. This is starting to bleed into '26. But because of the long-term nature of these capital investments, because of the long-term nature of building out these data centers, this is an opportunity that sustains beyond the current forecast period, the kind of financial profile and strength that we see.

Okay. Got it. That's helpful. Maybe just, Chris, on your end, I know, obviously, we've got a Georgia GRC coming. It's going to come sooner than we think. There's been some noise around sort of ROEs and equity ratios maybe being overly adequate now that Vogtle is online from just some of the commissioners. Can you maybe just talk this through a bit? Is this going to be an issue as you prep for the case? Have you begun discussions kind of with stakeholders ahead of this filing?

I mean, there's always conversations about those matters as we go through those proceedings. And so I would not be surprised. I mean, we always have good deliberations about those issues in terms of where we are recognizing the level of service that we provide and the premium nature of how we run this business. I mean, equity ratio also came from a tax reform issue, not just from Vogtle. I mean, so there are a lot of implications. And so, as usual, I mean, as we go through '25, all of these issues, I think, will be thoroughly vetted and thoroughly debated, recognized. And also, once again, as I said, recognizing how we perform as a company.

The equity ratio kind of changes were broad-based. This is not just a Georgia conversation. It was in all of our states and Chris made the point, that was for tax reform. It was coincidentally during the construction of Vogtle, but had nothing to do with Vogtle construction itself. Unless there's some major change to the tax policy that has implications, I think defending that is where we will start from.

Our next question is from Julien Dumoulin-Smith with Jefferies.

Look, speaking of having the sunshine, I think you guys have starting the year off pretty well. It's nice to see. Maybe to turn that into a specific question. You've got this $1.30 out there. Just to kick it off, you've probably seen some continuation of that good weather from 2Q into 3Q. Is that already reflected in that $1.30 or is there some more upside there? Because you already had $0.10 versus normal in the second quarter?

What we would typically do, Julian, and what we've certainly done in this case is put out a quarterly estimate that is weather-normal. There's always still at least two months left in the quarter when we put these out and just anecdotally, I would say, I think this is the first day in about three weeks that it hasn't rained here in Atlanta. So I'm not so sure that July has looked like June too.

It sounds like Texas as far as rig go. Anyway, just to keep going on that. In terms of the backdrop of the loan growth here, I just want to make sure I'm hearing because clearly on this, right? The 17% is phenomenal on the data center load growth, how do you think about that number in terms of the medium and longer term? And you've obviously provided some very healthy longer-term loan growth numbers. Should we expect that to continue to compound kind of consistently through the period here or to what extent actually could we see an acceleration of that number here? I mean there's a lot of talk about building infrastructure, but you guys are realizing it in a much more tangible way than perhaps some of your peers.

Great question. Let me clarify the dynamics at play. The 17% we mentioned pertains to existing data centers that are currently operational and either nearing their full capacity or, in some instances, upgrading their technology which increases processing capabilities and, consequently, uses a bit more electricity. Moving forward, while this situation will persist, it represents a small part of our total commercial sales right now. Everything we’ve discussed regarding the factors contributing to the 6% sales growth from 2025 to 2028, including the 9% from Georgia Power, relates to new data centers. Thus, we anticipate a significant acceleration beginning in 2026, 2027, and 2028 as these new data centers come online, each with their own ramp-up, leading to overall commercial sales growth that will likely exceed double digits as reflected in that 6%.

Right. But the point is all 17% looks phenomenal you just think that acceleration is obviously accentuated in '26. And we can see continued ramping of the existing base in '25.

Our next question is from David Arcaro with Morgan Stanley.

Great commentary here just on the load growth that you're seeing in data center commentary. Are you tracking ahead of that 6% assumption? I feel like things are pretty fluid and moving quickly. Are there indications that it could be stronger from here?

I think given how the pipeline is evolving, there are indications the long-term could certainly be stronger. So again, we're talking into the decade into the 2030s, the way that is building the momentum is very promising. In terms of the very near term, Dave, like the 17% we were just talking about, even if that swung a little bit. It's such a small piece today, it's not going to have a meaningful impact on kind of current results. It really is about the capital being deployed in the big hyperscale data centers that are due to be online a little bit here in a few years.

Yes, I understand. That makes sense. I was considering the overall load growth. Also, I wanted to ask about the recent valve issue at Vogtle 3. Do you have any updates on the nature of that issue and anything else we should be aware of?

Yes. No, they worked through that issue and the unit is now back online and Vogtle 3 has operated more than 98% capacity factor over the period. So those things will happen with new units, but we're very pleased with the performance of Vogtle 3 and Vogtle 4.

Our next question is from Steve Fleishman with Wolfe Research.

Chris. First, just wanted to clarify on the data center. So I think on the Q1 call, you gave a number of pipeline of 21 gigawatts firm commitment of 6.2 gigawatts by the mid-2030s. Does that sound right? What are those numbers now?

Sure. I'm going to expand a bit on what you've asked because I believe it's important to understand the progression. You mentioned the 21 gigawatts that we reported during our last call, which was an increase from 17 gigawatts when we first submitted the 2023 IRP update at Georgia Power. That represents a growth of 4,000 gigawatts. Today, that 21 gigawatts has increased to 24.3 gigawatts in total pipeline capacity. You also referenced the commitments, which showed a significant increase from our previous filing last quarter, rising from 3.6 gigawatts to 6.2 gigawatts. Now, from the last earnings call until today, that 6.2 gigawatts has further increased to 7.3 gigawatts.

Got it. Okay. That's helpful. And then a totally separate question. On Kinder Morgan's call, they mentioned expanding the SONAT system with a $3 billion growth investment and implied that you would represent half of it. Could you share your thoughts on that and the likelihood of proceeding with it?

Yes, it's still early for that. We are a 50% partner in Southern Natural. There is a proposed project with a total capital of $3 billion, and our share would be $1.5 billion. It's quite early in the process, and you know how these projects develop. We're very encouraged by the project, as it's primarily brownfield, utilizing existing rights of way, presenting a significant opportunity. At the appropriate time, once the project has solidified further and received some approval traction from FERC, we will include that more prominently in our outlook. However, it's still an encouraging opportunity.

Steve, the only thing I would add, I think Dan said it, but it's just very early on in that process. I think there's a great deal of diligence to be done. But I think at this point in time, I think the thing to note is that's just very early on in that consideration.

Going to say just policy-wise, I mean we're excited about it. To the extent that we can get this done, it's important for everything else is happening, right? To the extent that all this large load is down the road has the opportunity to be served with more gas capacity like this is really important. And so we're super supportive.

Yes, Steven, let me add one more thing on that. We discuss the importance of this country building infrastructure. These things need to happen to support the economy moving forward. For us, it's still very early on, but it's something this country must embrace and advance.

Okay. And for the last question.

Going to say just policy-wise, I mean, we're excited about it. To the extent that we can get this done, it's important for everything else that's happening, right? To the extent that all this large load is down the road has the opportunity to be served with more gas capacity like this is really important. And so we're super supportive.

And Steve, during the last earnings call, we discussed the process we follow internally to confirm that this load is genuine. It's essential to ensure that the projects we evaluate are legitimate and that they've shown a commitment to the state by selecting our utility companies. We have a structured and systematic approach to this, as we've been involved in the second development business for a long time. We engage with customers every day and understand how the process unfolds, making it important for both us and them to grasp the reality of the commitments involved. Therefore, we dedicate significant time to this work.

And so importantly, I'll just last thing, Steve, I'll just clarify, commitment for us does not mean it's in our forecast. There's further risk adjustment from there. We know that things will get delayed. We know that the actual peak load alluded to may not show up to that extent, but there'll be load, but not that much. So we're risk-adjusting beyond this commitment level to be conservative but also as pragmatic as we can with the forecast.

And then lastly, the 9% Georgia Power growth rate, that was based off of the initial numbers that you gave at the end of '23 for when you had the filing.

Yes, there is potential for those to evolve, and I think we will see where we are at the time of the 2025 IRP filing.

Our next question is from Nick Campanella with Barclays.

Hey, a lot of questions have been answered, but I guess just I know that there's been potential for DOE loans to enter the portfolio and hopefully, that's coming up soon. But just can you just remind us how that could affect your overall financing plans and what could maybe be on the table, if anything?

Sure, Nick, I'm happy to. We believe that based on our discussions with the DOE, there could be a significant amount of eligible capital, estimated between $15 billion to $20 billion, available over the next 7 to 8 years. The program permits qualifying capital to be financed up to 80% of the eligible amount, which offers a substantial opportunity for debt financing at a lower cost compared to traditional capital markets. This could lead to significant benefits for customers in the long term, similar to what we experienced with the Vogtle 3 and 4 loan program. In fact, this new program might be three to four times larger than the Vogtle 3 and 4 initiative, which resulted in considerable savings for our customers.

I appreciate that. I have a conceptual question regarding economic development as discussed in your call and those of your peers this earnings season, where the positive trends are still robust. However, I've noticed that some economic and industrial indicators are beginning to decline. The ISM indicators released this morning reached their lowest point since the pandemic. So my question is, what do you think sets your service territory apart in terms of economic development? And do you believe your 5% to 7% outlook reflects a more cautious approach as you anticipate changes?

No, we discussed earlier on this call about the reliability and performance of our company, the cost of living in the area, the transportation hubs, and the resources we have. The business climate in Alabama has recently been recognized by CNBC as a top state for business, which is a significant improvement. A variety of factors across the southeastern region have made it an attractive place for quite some time and continue to do so. We have many positive developments ahead, and we are excited about our current position. This is reflected in our business pipeline and the projects we have lined up in all southeastern states, which highlights the favorable characteristics of these regions. Additionally, our vertically integrated model supports the idea that this is an excellent place to conduct business.

Our next question is from Durgesh Chopra with Evercore ISI.

As we look at your forward-looking guidance and the 2024 baseline, you've clearly started the year strong, significantly exceeding the plan so far, but there are some one-time factors like weather involved. As we consider our models and EPS estimates for '26, '27 and beyond, will you be excluding these one-time benefits when you provide your guidance in Q4? I'm trying to understand what the new base for the 5% to 7% range will be.

The base for the 5% to 7% is the current guidance in 2024, which is between $3.95 and $4.05. To consider your point about weather, we've discussed the idea of making improvements while conditions are favorable, such as advancing maintenance tasks from future years to this year. Historically, our operations and maintenance spending has generally stayed flat or decreased over time. However, it fluctuates year-to-year like a sine wave because we are managing short-term conditions, taking advantage of opportunities presented by warmer-than-normal summers and colder-than-normal winters. In years with milder weather, like 2023, we have the ability to reduce spending. Thus, we are aiming for consistent and predictable sustainable results year after year, even in the face of what can be seen as one-time events.

Got it. Okay. So basically, I have a quick follow-up on credit metrics and FFO to debt. This year, based on the Q1 call, it seems you were trending towards 14% by the end of the year and then 16% to 17% by the end of the planning period in 2028. How does that outlook get strengthened here considering the year-to-date outperformance as we look towards the end of 2024?

I think we are where we were. You heard Chris and I allude to maybe being disappointed if we're not in the top half of the range. So maybe there's some incremental benefit for 2024. But I think in terms of the trajectory we're on, we are exactly where we were and how you described it.

Our next question is from Jeremy Tonet with JPMorgan.

Just wanted to come back to the SONAT expansion, if I could, in the open season. I was just wondering if you're able to share any color on shipper interest there and whether that was a larger Southern or there was others that came in with good demand there.

I think it's very premature. I mean we have no insight or perspective on that at this time. It's just very early in the process.

Got it. Fair enough. Just wondering, as you reflect today, how you view the current business mix and additional exposure as the electric backdrop is changing for load growth. Are you considering any asset rotations in this context?

Yes. I don't think we're there. I mean we love the portfolio we have. We've done a lot of work over the years to kind of hone it to the portfolio it is today. We've got great electric and gas jurisdictions at large. We've got great complements with Southern Power. So no, there's certainly no designs on anything like that as we sit here today.

And our next question is from Travis Miller with Morningstar Inc.

Back to the data center conversation. As you go through those numbers and you talked about risk adjusting and all of that, what are the regulatory hurdles, the state regulatory hurdles that you face in terms of thinking about that risk adjustment and some of those numbers actually coming to fruition?

As we revisit the detailed discussion from our last call, it's important to confirm the reality of our projects by understanding the associated risks and pricing to ensure we are fully engaged with our customers. This includes assessing the incremental and marginal costs and determining our pricing strategy to create benefits for other customers, often referred to as downward pressure. As we work to solidify commitments and adjust for risks, we also need to engage with regulatory jurisdictions to grasp the realities and the financial and pricing implications involved. I am confident in our structured approach to collaborate with the commissions and our customers. This process helps bring order to what can often seem chaotic in the marketplace. We possess the necessary experience, resources, and constructive regulatory environments to navigate this effectively, allowing us to operate in an orderly and disciplined manner that benefits all stakeholders.

Sure, sure. And do each of those contracts need official regulatory sign-off, or can you negotiate those without regulatory sign-off state regulatory?

Yes, we can negotiate that without regulatory approval.

Okay. Very good. And then real quick, what's the long-term planning process timing in Alabama and Mississippi in terms of when we might get more information on data center load or total C&I load growth there.

You will notice those conversations take place on an annual basis. It's somewhat different from what occurs in Georgia. However, as we review their plans and the issues and needs that arise, they will present that to the commissions for initial certification.

And that will conclude today's question-and-answer session. Sir, are there any closing remarks?

Again, thanks, everybody, for taking time to be with us. We feel good about where we are as a company and how we're performing and executing and we're incredibly excited about the future. Thanks for being with us today and be safe.

Thank you. Ladies and gentlemen, this concludes The Southern Company's second quarter 2024 earnings call. You may now disconnect.