Spire Third Quarter Fiscal 2026 Earnings Conference Call

Good day, and welcome to the Spire, Inc. 3rd Quarter Fiscal Year 2026 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by 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 1, on a touch-tone phone. To withdraw your question, please press star, then 2. 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 2026 third quarter earnings call. On the call today are Scott Doyle, President and Chief Executive Officer, and Adam Littard, Executive Vice President and CFO. We issued an earnings news release this morning that can be accessed on our website at spireenergy.com, along with a slide presentation that accompanies our webcast. 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 Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These statements include, among others, statements regarding our expectations, plans, and objectives for future performance, future operating results, earnings guidance, capital investment plans, and the expected timing and benefits of and risk associated with acquisitions, dispositions, and related integration and transition activities. Our forward-looking statements on today's call speak only as of today, and we assume no duty to update them unless required by law. Although our forward-looking statements are based on estimates and assumptions that we believe are reasonable, 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 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. With that, I will now turn the call over to Scott.

Scott Good morning, and thank you for joining us. Over the past year, we've taken significant steps to position Spire into a stronger, more focused company. Through the acquisition of Spire Tennessee in the divestiture of our non-core businesses, we have completed our transformation to a fully regulated company, enhancing our earnings quality and improving visibility of our long-term growth. As we look ahead, we believe we are well positioned to benefit from the growing importance of natural gas in the nation's energy future. The EIA recently forecasted that both U.S. natural gas production and demand will reach record levels in 2026, reinforcing the critical role natural gas plays in providing reliable, affordable energy to homes, businesses, and communities across the country and the world. Today, we'll discuss our third quarter results, the progress we've made advancing our strategy, and the opportunities we see to continue creating long-term value for our customers, communities, and shareholders. Turning now to our performance for the quarter on slide four. This quarter marked another important step forward in executing our strategy. From a financial perspective, adjusted earnings per share from continuing operations improved to a loss of $0.26 per share, compared to a loss of $0.29 per share in the prior year quarter, representing an improvement of $0.03 per share. More importantly, we continued to safely and reliably serve our customers while maintaining our focus on affordability, operational excellence, and disciplined cost management. Strategically, this was a very significant quarter for Spire. We completed the divestitures of Spire marketing and Spire storage, further simplifying the company and sharpening our focus on our regulated utility operations. At the same time, integration of Spire Tennessee continues to progress well, and we remain on track to achieve key milestones to exit transition services in fiscal 2027. On the regulatory front, we continue to make progress across all of our jurisdictions. Spire Alabama and Spire Gulf have renewal hearings for the Rate Stabilization and Equalization, or RSE, mechanism scheduled later this week on August 6th and 7th. In Missouri last week, we reached a settlement in the Accounting Authority Order proceeding. And as a reminder, Spire Tennessee filed its annual review mechanism with the Tennessee Public Utility Commission in May. Adam will provide more details on each activity during his remarks. Finally, I'm pleased to reaffirm our fiscal 2026 and 2027 adjusted EPS guidance ranges, as well as our long-term adjusted EPS growth target of 5% to 7%. Moving to slide 5, our priorities remain unchanged and centered on operational excellence and customer affordability, constructive regulatory execution, financial discipline, and the successful integration of Spire, Tennessee. These priorities continue to guide our actions and support our long-term growth strategy. With the completion of the marketing and storage divestitures, we're now operating as a fully regulated company. Moving to slide six, Spire is now positioned around a mix of gas utilities and a FERC-regulated pipeline, with the expected sale of Spire, Mississippi still targeted to close in the first quarter of fiscal 2027. The exit of the storage and marketing businesses reduces earnings volatility and enhances predictability, representing an important shift. Our earnings outlook is now supported by rate-based growth, constructive regulatory mechanisms, and a more straightforward business model with a clearer path to deliver predictable earnings growth and long-term value creation. With that, I'll now turn the call over to Adam.

Thanks, Scott, and good morning, everyone. I'll begin on slide 7 with our third quarter results, which were in line with our expectations and support our outlook for the remainder of the year. For the quarter, we reported an adjusted loss of $15 million, or $0.26 per share, compared to an adjusted loss of $13 million, or $0.29 per share in the prior year quarter. Fiscal 2025 results included $0.06 per share of preferred dividend expense that did not recur this year, following the redemption of our preferred shares. The gassy tilting segment reported an adjusted loss of $3 million in the quarter, improving from a $10 million loss in the prior year. The improvement was primarily driven by new rates in Missouri and Alabama, including ISRIS rates implemented in Missouri this spring and the CCM mechanism in Alabama. Higher customer usage net of weather mitigation in Alabama was partially offset by lower usage net of weather mitigation in Missouri. O&M expense increased by approximately $4 million, primarily due to higher bad debt expense. Utility run rate O&M continues to track below the rate of inflation. Results were also affected by higher depreciation, taxes other than income taxes, and interest expense, reflecting updated amortization schedules, higher long-term debt balances, and other investments supporting our utility operations. And finally, other activities reported an adjusted loss of $12 million compared to a loss of $3 million in the prior year, reflecting higher corporate costs and higher interest expense in the current year. Fire's earnings from discontinued operations were $253.8 million during the third fiscal quarter, which includes an after-tax gain on sale of $254.6 million. Turning to slide 8, we're reaffirming our 5% to 7% long-term adjusted EPS growth target using the original Fiscal 2027 guidance midpoint of $5.75 as the base. This growth outlook is supported by approximately 7% rate-based growth and our $11.2 billion 10-year capital plan. For Fiscal 2026, we are reaffirming adjusted EPS guidance from continuing operations of $3.90 to $4.10 per share. That guidance excludes a full year of storage marketing in Tennessee, but includes Mississippi. For fiscal 2027, we are reaffirming adjusted EPS guidance of $5.40 to $5.60 per share. Our gas utility and corporate and other expected earnings ranges remain unchanged from our call in May. Moving to slide 9, in the first nine months of the year, we invested nearly $600 million in capital expenditures driven by system upgrades, infrastructure modernization, and new business connections at the gas utilities. We continue to expect full-year 2026 capital expenditures of approximately $800 million across our utilities, consistent with our 10-year, $11.2 billion capital plan. These investments support rate-based growth of 7% in Missouri and 7.5% in Tennessee, with 6% regulated equity growth in Alabama and Gulf, underpinning our confidence in delivering 5% to 7% adjusted EPS growth over time. Turning to our financing plan on slide 10, we expect to substantially fund our capital expenditure program with operating company debt and cash from operations, thus requiring limited annual equity issuance. Importantly, to help alleviate pressure from rising interest rates, we have a $375 million interest rate hedge portfolio that helps mitigate exposure to higher borrowing costs. Following the reduction in business risk from our recent portfolio actions, our FFO to debt target is 14 to 15 percent, which we expect to reach by the end of 2028. While admittedly, 2026 is a transition year for our credit metrics with businesses being both acquired and divested. Our current FFO to debt stands at 13 percent after factoring and trailing 12 months funds from operations, inclusive of Spire Tennessee. Our gain on sale of divested businesses pushes this metric even higher through this transition period. Turning now to an update on regulatory matters, starting with Alabama on slide 11. The RSC renewal process began earlier this year and is progressing as expected. As a reminder, the RSE is a formula-based rate-setting mechanism that allows rates to be adjusted annually within an approved ROE range, providing a more streamlined alternative to frequent general rate cases. Every three to four years, the mechanism is renewed, allowing key elements such as the authorized ROE, ROE range, capital structure, and other key provisions to be reviewed and approved by the Alabama Public Service Commission. Hearings for RSC renewals are scheduled for August 6th for Spire, Alabama, and August 7th for Spire, Gulf. The proceedings are focused on a limited number of items, including the ROE, ROE range, term of the RSC, the cost control mechanism, and the customer charge. We have requested an adjusting point ROE of 10.5% for Spire, Alabama, and 10.75% for Spire, Gulf. The Alabama regulatory environment remains constructive. The RSC framework supports predictable regulatory outcomes and timely recovery of investments for the benefit of customers. Turning to Missouri on slide 12, we continue to make progress on several important regulatory initiatives. First, we're pleased to have reached a settlement in the accounting authority order proceeding last week. The settlement recognizes the need to enhance the existing Weather Normalization Adjustment Rider, or WNAR, and provides a path for collaboration to develop improvements or consider a potential alternative in our next rate case. This is an important step towards improving revenue recovery and reducing earnings volatility while helping protect customers through more stable and predictable bills. In addition to this settlement, we filed a request in May to recover approximately $21 million of ISRIS revenues associated with continued infrastructure investments across our Missouri service territory. We expect those new rates to become effective in November. Finally, we remain on track to file our first Missouri future test year rate case in early November, 2026. This filing will represent an important milestone and is expected to further align rates with our ongoing investments while supporting the safe and reliable service our customers depend Turning now to slide 13, less than two months after closing of the acquisition, Spire Tennessee filed its first annual review mechanism on May 20, 2026, requesting a $14 million revenue increase. The filing reflects an authorized ROE of 9.8%, a capital structure of 49% equity and 51% debt, and a rate base of $1.5 billion as of December 31, 2025. New rates are expected to be effective October 1, 2026. To sum up our remarks today, Spire is operating from a position of greater focus with a fully regulated business profile, constructive regulatory frameworks, and a disciplined capital investment strategy. We remain confident in our ability to deliver 5% to 7% long-term UPS growth, supported by our $11.2 billion capital plan, while continuing to create long-term value for shareholders. Thank you for joining us today. Now we're ready to take your questions.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys if at any time your question has been addressed and you would like to withdraw your question please press star then two at this time we will pause momentarily to assemble our roster the first question today comes from julian de moulin smith with jeffries please go ahead hey guys uh luke finker on for julian i just wanted to ask on alabama i know you disclosed requests for hire allowed roes at both alabama and gulf Can you talk about, you know, the key factors supporting that, you know, and how you think about the upcoming renewal hearings?

Can you maybe, like, help frame which elements of the structure are more relevant, you know, the term customer charge or control mechanisms? Thanks.

Hey, Lou. Adam and I will tag team this. Maybe just to kind of ground everybody, the process, you know, that's unfolding in Alabama, you know, it's very similar to the process we've used to update, you know, attributes associated with that mechanism for many years, but now it has the addition of a more formalized or transparent public hearing. And so historically we've negotiated that renewal every three to four years with an agreement reached and then presented to the commission. And so just from a process standpoint, we look forward to wrapping up the hearings that are scheduled later this week and then expect a decision from the commission later in September. Let me let Adam speak to kind of the underpinnings of the ROE request and then just maybe make sure we clarify the elements that are under consideration this week.

Yeah, Luke, you know, we did reach an agreement on several issues, so it's only a limited number of issues that are going to hearing later this week. But on the ROE, some of it's an observation that, you know, Certainly the conditions underlying the request or recommendation are higher than they were when we reset it last time, and so that's baked into that as well. But, you know, besides ROE and the range, we do think a little bit wider range would be in the benefit of both us and the customer. But, you know, the cost control mechanism has been very valuable for customers as far as delivering O&M savings back to customers over the last several years and certainly want to preserve that ability to do that.

And, Luke, this is Scott again. I just comment again on ROE. You know, go back to the legislative session. One of the key points they made about ROEs, particularly in Alabama, is setting them close to the average for the region. And we are solidly in that range and feel comfortable with both our request and where we sit today.

And then maybe on Missouri, you know, the AAO settlement recognizes the need to enhance weather normalization. Can you discuss how you anticipate, like, addressing weather and usage variability in the upcoming future test year case? And what kind of changes, you know, could better align with recovery and customer usage patterns going forward?

Yeah, good question. Primarily, I think, you know, a lot of the best ways to address that is through decoupling mechanisms and rate design that helps remove some of the variability associated with recovery, particularly here in Missouri where we have a pretty good wide range of weather patterns, not only just throughout the year but even within the winter weather months. You know, our desire there is to put in place a mechanism that both protects the company but also protects the customer as well. And I think that's where, as we've been talking with commission, with staff, and other interveners, is a strong desire to collaborate on a solution that's durable and permanent. And so in that context, as you mentioned, the rate case is the place where we can get that ultimately finalized. This settlement that we've reached allows us to meet in advance of the rate case filing and work towards a solution, perhaps, that can be resolved in time for the actual future test year filing so that we can then turn everyone's attention and focus on the future test year implementation.

Awesome. I'll leave there. Thanks, guys, so much. Thanks, Luke.

The next question comes from Konstantin Lednik with Wells Fargo. Please go ahead.

Hi. Good morning, team. Thanks for taking the questions here. Just in terms of maybe capital allocation on a forward basis with kind of the more streamlined business mix that you're highlighting and the improving regulatory constructs, in particular with Missouri, do you anticipate more incremental capital or pull forwards into jurisdictions with lower ROE lag? And maybe just framing that as would that be accretive within the five to seven growth target post-27?

Hey, Constantine. Good question. We've been fairly direct and public about as we get ready to file this case and we think about the future test year, it's not about a pull forward of capital as far as an acceleration of capital, but it's managing affordability for our customers, the pacing of capital, and having it squarely within the earnings growth range that we've described for the market. So I think that's what you're asking when you talk about pulling forward capital. We're not looking to upsize capital, if that's the question.

Understood. And maybe just a quick follow-up on the renewal process in Alabama. Are there any net positives that you would highlight from the preceding, kind of like the wider ROE band opportunity, and maybe how that scales versus the assumptions that are embedded in the current 27 guidance?

Yeah, I think the primary way to look at this proceeding in Alabama is it's just a much more public process to what's been undertaken, as I was mentioning earlier, for many years. This mechanism's worked very well from a planning standpoint, both for the company and for a clarity to the commission as to how the company is spending its resources and how it's investing its capital across the plan year. And as everyone knows on the call, this is a forward-looking mechanism, and so we've set rates based on a budget. And as a result, there's a lot of transparency, both in the spend and an understanding of how the money is spent throughout the year as we have routine check-ins or points of test with the commission in which all those results are reviewed. So when I think about like just, you know, thinking about upside associated with the outcomes, I don't look to that as being a material driver necessarily in, you know, how this is unfolding at the commission. It's primarily, as it's historically been, just getting all the factors correct that underpin the actual way that rates are set in Missouri. I'm sorry, in Alabama.

Okay, understood. And maybe one kind of housekeeping item just on the annual review in Tennessee, just maybe your thoughts on kind of potential to settle and just the kind of deadlines that are set and just the general kind of engagement with stakeholders, any kind of feedback that you'll be able to provide?

Yeah, I think it's unfolding as expected. I would not look to an acceleration of the schedule at this time. You know, this is our first time to file. And as you can imagine, we filed using historical costs that were a part of the previous owner of that system. And so as we walk through it, we don't expect a lot of controversy associated with that. But Tennessee, our experience has been they follow the timelines, and that's what we would expect in this process as well.

Excellent. Appreciate that.

The next question comes from Paul Fremont with Ladenburg. Please go ahead.

Hey, thank you very much. I guess my first question would really relate to the Missouri settlement. Was it a unanimous settlement, and if not, which parties signed on to the settlement?

Hey, Paul, it's Adam. No, the settlement was between us and staff and the Office of Public Counsel. I believe there was one other party that was not a signatory, but we feel like it was the conclusion of the discussions that we were having.

And then your original request, if I'm not mistaken, included sort of a request to establish a regulatory asset. Does the settlement deal with that aspect of your request or not?

Hey, Paul, this is Scott. No, it does not. The primary outcome of the settlement is the collaborative work that we're going to do to develop a durable and permanent solution.

Okay, great. And then last question for me. Can we expect guidance for 2028 at some point in the not-too-distant future?

Yeah, Paul, this is Adam. We do expect to give guidance on the year-end call in November for 2028.

That's it for me. Thank you very much.

Thank you. Thanks, Paul.

The next question comes from Eli Jawson. with JPMorgan. Please go ahead.

Hey, good morning, everyone. Just one from me. Maybe circling back to Alabama, wanted to touch on the recommendations of the 8% to 9% ROEs we've seen from some of the interveners and how we think about that versus the 9.9% allowed. Just broader context there would be great. Thanks.

Sure. Hey, good morning, Eli. Yeah, I would just go back to, as I mentioned earlier, you know, we're taking a cue from the legislature as they looked at some of the work that they were doing this past session as they worked to, you know, change the structure of the commission. One of the key things they talked about was zeroing in on an ROE that is within the range of the average in the region, and so a recommendation that's in the eights is below average, And so we believe we've submitted and continue to operate within the range. It's within the average in the region.

Great. Appreciate that. I'll turn it back. Thanks, guys. Yep. Thank you, Eli.

The next question comes from Gabe Maureen with Mizuho. Please go ahead.

Hey, everyone. This is Dylan Lippner on for Gabe. I just kind of wanted to get a little more clarity on the AAO. I know you guys, when you put it in the last slide, it was to recover loss margin resulting from a lower weather-related usage. Now, is that a quantifiable amount that you reach in the settlement, or is that something we're going to kind of wait and hear for?

Yeah, no, that, again, the settlement does not contemplate either quantifying or recovery of the lost margin from this past year. The primary outcome of the settlement is a commitment to work towards a more durable and permanent solution.

Okay, so would you guys, you know, look to recover those margins in the upcoming rate case compared to, you know, in the settlement at the end of the year?

Yeah, no. I mean, I think, you know, our rate case, we haven't finalized. It's the parameters associated with that filing. You know, our focus right now is on developing a forward solution to this mechanism to ensure it's more durable and permanent.

No, I appreciate the color. Have a good day. Thanks, Dylan.

The next question comes from David Paz with Wolf Research. Please go ahead.

Good morning, everybody. Okay, great.

I was making sure your line was muted. Go ahead.

Thank you. So, as we look forward to your rebasing EPS growth off the 2028 guide in November, can you please just remind me what you have said about the linearity of the five to seven off of the initial 27? Did you expect that kind of be off of the initial 27 to be about 6% each year? Was 28 going to be on the high end of that 5-7 or more? Thank you.

Yeah, thanks, David. We have talked about 28 being a step-up year and the fact that it's driven by the Missouri rate case where we'll be recovering lag but then also pulling forward some future recovery through the future test year mechanism. So that was, you know, the discussion around rebasing on the 28 guide, which was our intent. We feel like that's going to be a cleaner base there. On a go forward position from 28, we do expect, you know, pretty good linearity. It still remains to be seen as far as what the exact path of Missouri will be with the future test year filings. But we, you know, Tennessee and Alabama are relatively linear, and Missouri will become more so in the future.

Okay. So just as we stand today, the 2020 expectation for 2020 would be on the higher end of the 507 off of 575 and 27?

Okay. yes okay thank you this concludes our question and answer session i would like to turn the conference back over to scott doyle for any closing remarks thank you chloe and thank you all on the call for your continued interest inspire we look forward to seeing many of you on the road in september at investor conferences and meetings everyone have a great day the conference has now concluded thank you for attending today's presentation you may now disconnect