Third quarter fiscal 2018

Size: px

Start display at page:

Download "Third quarter fiscal 2018"

Austin Parrish
5 years ago
Views:

1 Third quarter fiscal 2018 Earnings conference call August 2, 2018

2 Participants on today s call Suzanne Sitherwood President and Chief Executive Officer Steven P. Rasche Executive Vice President and Chief Financial Officer 2

3 Forward-looking statements and use of non-gaap measures This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of Our forwardlooking statements in this presentation speak only as of today, and we assume no duty to update them. Forward-looking statements are typically identified by words such as, but not limited to: estimates, expects, anticipates, intends, and similar expressions. Although our forward-looking statements are based on reasonable assumptions, various uncertainties and risk factors may cause future performance or results to be different than those anticipated. For a more complete description of these uncertainties and risk factors, see our Form 10-Q for the quarter ended June 30, 2018 to be filed with the Securities and Exchange Commission. This presentation also includes net economic earnings, net economic earnings per share, contribution margin, adjusted EBITDA, and adjusted long-term capitalization, non-gaap measures used internally by management when evaluating the Company s performance and results of operations. Net economic earnings exclude from net income the after-tax impacts of fair-value accounting and timing adjustments associated with energy-related transactions, the impacts of acquisition, divestiture, and restructuring activities and the largely non-cash impacts of other nonrecurring or unusual items such as certain regulatory, legislative, or GAAP standard-setting actions. In fiscal 2018, these items include the revaluation of deferred tax assets and liabilities due to the federal Tax Cuts and Jobs Act and write-off of certain long-standing assets related to pension costs and property sold as a result of disallowances in our Missouri rate proceedings. The fair value and timing adjustments, which primarily impact the Gas Marketing segment, include net unrealized gains and losses on energy-related derivatives resulting from the current changes in fair value of financial and physical transactions prior to their completion and settlement, lower of cost or market inventory adjustments, and realized gains and losses on economic hedges prior to the sale of the physical commodity. Management believes that excluding these items provides a useful representation of the economic impact of actual settled transactions and overall results of ongoing operations by facilitating comparisons of year-over-year results. Contribution margin is defined as operating revenues less natural and propane gas costs and gross receipts tax expense, which are directly passed on to customers and collected through revenues. These internal non-gaap operating metrics should not be considered as an alternative to, or more meaningful than, GAAP measures such as operating income or net income. Adjusted EBITDA is earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. Reconciliations of net income to net economic earnings and of contribution margin to operating income are contained in our SEC filings and in the Appendix to this presentation. Reconciliations of adjusted EBITDA to net income and of capitalization per balance sheet to adjusted long-term capitalization are also contained in the Appendix. Note: Years shown in this presentation are fiscal years ended September 30, unless otherwise indicated. Investor Relations contact Scott W. Dudley Jr. Managing Director, Investor Relations Scott.Dudley@SpireEnergy.com 3

4 At Spire, we re connecting people and energy Our mission Answer every challenge, advance every community and enrich every life through the strength of our energy. Transforming our company Growing organically Investing in infrastructure Acquiring and integrating Innovation and technology 4

5 Moving forward confidently Delivered solid Q3 performance Further improvement in operating performance NEE per share of $0.31, in line with our expectations Continued execution on our organic growth initiatives and capital investment plan Advancing our non-utility businesses Affirming our FY18 earnings and capex guidance NEE of $ $3.75 per share Capital expenditures of $500 million 5

6 Continuing to grow our gas utilities Continued execution of growth initiatives On track with FY18 capital investment target, focused on infrastructure upgrades $59 million of new business spend YTD, up 34% from last year 5.7% growth in new meters over last year s record pace Further improvement in system operating performance, safety and customer service Moving forward in Missouri Requested total ISRS increases of $11.9 million Filed for new financing authority of $500 million for fiscal Filed legal appeals on certain disallowances in MO rate cases Spire Alabama RSE parameters under review for possible update 6

Advancing our non-utility businesses Positioning Spire Marketing for further growth and success Strong year-to-date performance reflects ability to take advantage of favorable market conditions

7 Advancing our non-utility businesses Positioning Spire Marketing for further growth and success Strong year-to-date performance reflects ability to take advantage of favorable market conditions Growing the team Expanding geographically with Houston business center Advancing Spire Storage Acquired majority interest in large facility in Wyoming in late December Recently acquired a smaller adjacent facility Investing to improve operating performance and expand capacity Ready to move forward with Spire STL Pipeline 7

8 Delivering solid quarterly results Net Economic Earnings Gas Utility $ 16.9 $ 23.3 $ 0.34 $ 0.48 Gas Marketing Other (6.1) (4.0) (0.12) (0.09) Average Shares Outstanding Third Quarter Ended June 30, Millions Per Diluted Share $ 15.2 $ 21.6 $ 0.31 $ 0.44 NEE of $15 million ($0.31 per share) reflecting Continued strong results from Gas Marketing Offset by lower Gas Utility earnings (due principally to Missouri rate changes) and higher after-tax corporate costs NEE per share reflects successful equity issuance of 2.3 million shares in May See Net economic earnings (non-gaap) reconciliation in Appendix. 8

9 Growing revenues and margin (Millions) $ % Operating Revenues Gas Utility $ $ $ % Gas Marketing (3.5) -20% Other and Eliminations 1.4 (1.0) 2.4 n/m Contribution Margin 1 Gas Utility revenues up due to higher demand and higher commodity costs; contribution margin decreased by $4.1 million (-2%) as a result of + Higher usage volumes from April s colder weather + Modest customer growth Seasonal rate design change at Missouri utilities Lower utility rates due to tax reform Third Quarter Ended June 30, Millions Change $ $ $ % Gas Utility $ $ $ (4.1) -2% Gas Marketing % Other and Eliminations % $ $ $ % Gas Marketing margin (excluding $13.7 million of fair value adjustments) was up $2.4 million on improved market conditions, driving increased trading value and storage optimization 1 Contribution margin is operating revenues less gas costs and gross receipts taxes. See Contribution margin (non-gaap) reconciliation in Appendix. 9

10 Managing expenses Millions Change (Millions) $ % Operating Expenses Gas Utility Higher fuel and gross receipts taxes driven by higher volumes and commodity prices O&M expenses were up $4.8 million reflecting Higher pension and amortization expenses from the MO rate cases Increased bad debt expense Third Quarter Ended June 30, Natural & propane gas $ $ 76.7 $ % Operation and maintenance (O&M) % Depreciation & amortization (D&A) % Taxes, other than income taxes % Gas Marketing (19.1) -86% Other % Operating Income % Other Income, Net % Interest Expense % Higher D&A reflect increased capital investment Gas Marketing expenses were relatively flat after removing gains on derivatives (fair value accounting) Higher interest expense reflects increased utility LT debt issued over the last 12 months and higher rates, offset in part by lower ST debt levels 10

11 Delivering solid year-to-date performance Net Economic Earnings Gas Utility $ $ $ 4.26 $ 4.02 Gas Marketing Other (16.0) (12.9) (0.33) (0.28) $ $ $ 4.30 $ 3.82 Average Shares Outstanding Nine Months Ended June 30, Millions Per Diluted Share Net economic earnings up $32.2 million or 18%, reflecting The return of normal winter weather and the timing of rate adjustments Outstanding operating results from Gas Marketing, benefitting from the return of cold weather and improved market conditions Other expenses reflect higher after-tax interest and other corporate costs 1 See Net economic earnings (non-gaap) reconciliation in Appendix. 11

12 Strengthening our financial position YTD FY18 adjusted EBITDA 1 of $467 million, up 6% from last year Ample liquidity provided by our $975 million credit facility and commercial paper program Solid long-term equity capitalization 2 of 51.5% Up 280 basis points from fiscal year-end Reflects our May 2018 equity offering of 2.3 million shares with net proceeds of $153 million Adam Woodard joins Spire as Treasurer YTD adjusted EBITDA 1 (Millions) $500 $450 $400 $350 $300 $250 $200 $440 FY17 Long-term capitalization 2 (at June 30, 2018) Equity Debt $467 FY % 48.5% 1 Adjusted EBITDA is Earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. 2 See Adjusted long-term capitalization reconciliation in Appendix. 12

13 Staying on track with our capital spend plan YTD FY18 spend is up nearly 12% $188 million for infrastructure upgrades $59 million for new business FY18 capital expenditures target remains $500 million Spire STL Pipeline forecast reflects $15 million shifted to 2019 Utility spend increased based on strong YTD performance Capital expenditures (Millions) $350 $300 $250 $200 $150 $100 $50 $0 (Millions) $500 $400 $334 $ YTD 2018 YTD $500 $ $300 $200 $100 $ actual 2018 forecast 13 Utility, with minimal lag and new business Other utility Pipelines and storage

Growing our dividend Annualized dividends per share $2.30 $2.10 $1.90 $1.70 +2.4 % +3.5 % +4.5 % $1.76 $1.70 $1.66 $1.84 +6.5 % +7.1% $1.96 $2.10 +7.1 % $2.

5625 per share, payable October 2 15 years of consecutive dividend increases (+7.

14 Growing our dividend Annualized dividends per share $2.30 $2.10 $1.90 $ % +3.5 % +4.5 % $1.76 $1.70 $1.66 $ % +7.1% $1.96 $ % $ Dividend Yield 3.2% 2 $1.50 $ Board declared quarterly dividend of $ per share, payable October 2 15 years of consecutive dividend increases (+7.1% the last two years) 73 years of continuous payment Supported by a conservative payout ratio (target range of 55% - 65%) 1 Quarterly dividend of $ per share effective January 3, 2018, annualized. 2 Based on $2.25 per share dividend and SR average closing price of $70.50 for Q3 FY18 14

Driving future earnings growth Affirming our 2018 NEEPS guidance of $3.65 - $3.

15 Driving future earnings growth Affirming our 2018 NEEPS guidance of $ $3.75 Q loss expected to be double the level of last several years due primarily to the new Missouri rate design Long-term NEEPS growth target remains 4% - 7% off of run-rate 2018 Run-rate 2018 excludes Spire Marketing (~$0.17) results not anticipated to recur Reflects stronger growth in utility rate base (~6%) paired with organic growth Growing contribution from non-utility businesses: mix stays predominantly regulated Net economic earnings per share Rate base 1 growth (Billions) $ Rate base for Missouri utilities per order authorized 2/21/18 for cases C-GR and C-GR , plus retained shareholders equity for Spire Alabama and Spire Gulf per current RSE effective 12/1/17, and Spire Mississippi rate base per stipulation 4/10/18.

16 Investing for long-term growth 5-year capital investment forecast remains $2.5 billion Driven by utility infrastructure upgrade programs with lives up to 20 years Utility spend balanced across jurisdictions ~85% of planned spend is expected to be recovered with minimal regulatory lag or reflected in earnings Capital expenditures forecast (Millions) $ $475 $490 $ Utility, with minimal lag and new business 5-year forecast: $2.5B $575 Other utility Pipelines and storage Capital expenditures by jurisdiction/project (Millions) $ $ $475 $490 $ MO East MO West Alabama/EnergySouth Pipelines and storage

17 We re bringing people and energy together in ways that enrich the lives of those we serve and add value for our stakeholders. 17

18 Appendix 18

19 Our Spire utility portfolio Alabama (Alagasco) MO East (Laclede Gas) MO West (MGE) Gulf (Mobile Gas) Mississippi (Willmut Gas) Founded Primary Office Birmingham St. Louis Kansas City Mobile Hattiesburg Employees 826 1, Customers 421, , ,000 84,900 18,600 Pipeline Miles ~23,000 ~16,000 ~14,000 ~4,300 ~1,200 Rate Base (In Millions) $843 2 $1,221 3 $807 3 $157 2 $23 4 ROE 10.85% % % % 9.34% Equity Capitalization 56.5% 54.2% 54.2% 55.5% 50.0% 1 Employees for Gulf and Mississippi utilities combined. 2 Year-end capitalization for Rate Stabilization and Equalization (RSE) purposes as of 9/30/17 for Alabama and Gulf utilities. RSE uses capitalization rather than rate base for ratemaking purposes. 3 Per amended MoPSC order dated March 7, 2018 in MO East Case No. GR and MO West Case No. GR Mississippi net assets less def. taxes for Rate Stabilization Adjustment (RSA) purposes as of 6/30/17. 5 Includes 5 basis-point incentive for achievement of customer satisfaction ratings. 19

20 Income tax expense (Millions) GAAP income tax (benefit) expense $ (8.5) $ 84.3 $ 5.7 $ 8.7 Add: Benefit from Revaluation of net deferred tax liabilities (TCJA) Nine months ended June 30, Quarter ended June 30, Balance at 12/31/ Adjustment due to the Missouri rate cases Other tax adjustments Run rate income tax expense $ 49.0 $ 84.3 $ 7.3 $ 8.7 Effective tax rate 21.1% 32.5% 23.1% 28.6% Federal income tax expense now reflects the net TCJA impact based on current Treasury guidance Net tax expense now reflects customer rate reductions across all of our jurisdictions to return the benefit of tax reform as lower rates For the full year 2018, we anticipate our effective tax rate to be in the range of 20-21% (excluding the deferred tax revaluation) 20

21 Net economic earnings (non-gaap) reconciliation (Millions, except per share amounts) Gas Utility Gas Marketing Other Total Per Diluted Share 2 Three Months Ended June 30, 2018 Net Income (Loss) (GAAP) $ 18.5 $ 16.2 $ (8.8) $ 25.9 $ 0.52 Adjustments, pre-tax: Unrealized gain on energy-related derivatives - (16.0) - (16.0) (0.32) Acquisition, divestiture and restructuring activities Income tax effect of adjustments 1 (1.6) 4.2 (0.6) Net Economic Earnings (Loss) (Non-GAAP) $ 16.9 $ 4.4 $ (6.1) $ 15.2 $ 0.31 Diluted EPS (GAAP) $ 0.37 $ 0.33 $ (0.18) $ 0.52 Net Economic EPS (Non-GAAP) 2 $ 0.34 $ 0.09 $ (0.12) $ 0.31 Three Months Ended June 30, 2017 Net Income (Loss) (GAAP) $ 23.0 $ 3.7 $ (5.0) $ 21.7 $ 0.45 Adjustments, pre-tax: Unrealized loss (gain) on energy-related derivatives 0.1 (2.3) - (2.2) (0.05) Acquisition, divestiture and restructuring activities Income tax effect of adjustments (0.7) Net Economic Earnings (Loss) (Non-GAAP) $ 23.3 $ 2.3 $ (4.0) $ 21.6 $ 0.44 Diluted EPS (GAAP) $ 0.48 $ 0.08 $ (0.11) $ 0.45 Net Economic EPS (Non-GAAP) 2 $ 0.48 $ 0.05 $ (0.09) $ Income tax effect is calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items and then adding any estimated effects of enacted state or local income tax laws for periods before the related effective date. 2 Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation. 21

22 Net economic earnings (non-gaap) reconciliation (Millions, except per share amounts) Gas Utility Gas Marketing Other Total Per Diluted Share 2 Nine Months Ended June 30, 2018 Net Income (GAAP) $ $ 20.0 $ 53.9 $ $ 4.91 Adjustments, pre-tax: Missouri regulatory adjustments Unrealized gain on energy-related derivatives - (3.4) - (3.4) (0.07) Realized gain on economic hedges prior to the sale of the physical commodity - (0.3) - (0.3) (0.01) Acquisition, divestiture and restructuring activities Income tax effect of adjustments 1 (9.2) 1.0 (1.5) (9.7) (0.20) Effects of the Tax Cuts and Jobs Act (75.2) (54.0) (1.10) Net Economic Earnings (Loss) (Non-GAAP) $ $ 18.2 $ (16.0) $ $ 4.30 Diluted EPS (GAAP) $ 3.40 $ 0.41 $ 1.10 $ 4.91 Net Economic EPS (Non-GAAP) 2 $ 4.26 $ 0.37 $ (0.33) $ 4.30 Nine Months Ended June 30, 2017 Net Income (Loss) (GAAP) $ $ 1.9 $ (14.0) $ $ 3.75 Adjustments, pre-tax: Unrealized loss on energy-related derivatives Realized gain on economic hedges prior to the sale of the physical commodity - (0.2) - (0.2) - Acquisition, divestiture and restructuring activities Income tax effect of adjustments 1 (0.1) (1.1) (0.7) (1.9) (0.04) Net Economic Earnings (Loss) (Non-GAAP) $ $ 3.7 $ (12.9) $ $ 3.82 Diluted EPS (GAAP) $ 4.01 $ 0.04 $ (0.30) $ 3.75 Net Economic EPS (Non-GAAP) 2 $ 4.02 $ 0.08 $ (0.28) $ Income tax effect is calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items and then adding any estimated effects of enacted state or local income tax laws for periods before the related effective date. 2 Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation. 22

23 Contribution margin (non-gaap) reconciliation (Millions) Gas Utility Gas Marketing Other Eliminations Consolidated Three Months Ended June 30, 2018 Operating income (loss) (GAAP) $ 35.0 $ 21.6 $ (4.2) $ - $ 52.4 Operation and maintenance (2.6) Depreciation and amortization Taxes, other than income taxes Less: Gross receipts tax expense (20.4) (20.4) Contribution margin (non-gaap) (2.6) Natural and propane gas costs (9.3) - (0.3) Gross receipts tax expense Operating revenues $ $ 14.4 $ 4.3 $ (2.9) $ Three Months Ended June 30, 2017 Operating income (loss) (GAAP) $ 47.1 $ 5.9 $ (2.7) $ - $ 50.3 Operation and maintenance (1.3) Depreciation and amortization Taxes, other than income taxes Less: Gross receipts tax expense (17.3) (17.3) Contribution margin (non-gaap) (1.3) Natural and propane gas costs (1.8) 97.3 Gross receipts tax expense Operating revenues $ $ 17.9 $ 2.1 $ (3.1) $

24 Adjusted EBITDA 1 (non-gaap) reconciliation (Millions) Net Income $ $ Add back: Nine Months Ended June 30, Interest charges Regulatory asset writeoffs Income tax (benefit) expense (8.5) 84.3 Depreciation & amortization Adjusted EBITDA $ $ Adjusted long-term capitalization reconciliation As of June 30, 2018 As of June 30, 2017 (Millions) Equity 3 Debt Total Equity Debt Total Capitalization per balance sheet $ 2,314.2 $ 2,024.5 $ 4,338.7 $ 2,028.2 $ 1,925.3 $ 3,953.5 Current portion of long-term debt Adjusted long-term capitalization $ 2,314.2 $ 2,180.0 $ 4,494.2 $ 2,028.2 $ 1,925.3 $ 3,953.5 % of Total 51.5% 48.5% 100.0% 51.3% 48.7% 100.0% 1 Adjusted EBITDA is Earnings before interest, income taxes, depreciation and amortization, plus largely non-cash write-offs related to Missouri rate cases. 2 Largely non-cash, pre-tax impacts of regulatory asset and expense write-offs disallowed in Missouri rate cases. 3 Includes non-controlling interest ($6.5M). 24

Energy in motion. Year-end fiscal 2018 earnings results. November 15, 2018

Energy in motion. Year-end fiscal 2018 earnings results. November 15, 2018 Energy in motion Year-end fiscal 2018 earnings results November 15, 2018 Participants on today s call Suzanne Sitherwood President and Chief Executive Officer Steven L. Lindsey Executive Vice President