Energy in motion First quarter fiscal 2019 February 6, 2019 - - PowerPoint PPT Presentation

Energy in motion

First quarter fiscal 2019

February 6, 2019

Participants on today’s call

Spire | First quarter fiscal 2019 earnings results 2

• Suzanne Sitherwood

President and Chief Executive Officer

• Steven P. Rasche

Executive Vice President and Chief Financial Officer

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 1995. Our forward- looking 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. More complete descriptions and listings of these uncertainties and risk factors can be found in our annual (Form 10-K) and quarterly (Form 10-Q) filings with the Securities and Exchange Commission. This presentation also includes “net economic earnings,” “net economic earnings per share,” “contribution margin,” “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 non-recurring or unusual items such as certain regulatory, legislative, or GAAP standard-setting actions. In fiscal 2018, these items included the revaluation of deferred tax assets and liabilities due to the Tax Cuts and Jobs Act, and the write-off of certain long-standing assets 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. EBITDA is earnings before interest, income taxes, depreciation and amortization. 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 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 314-342-0878 Scott.Dudley@SpireEnergy.com

Spire | First quarter fiscal 2019 earnings results 3

Putting our energy in motion

Our mission

Answer every challenge, advance every community and enrich every life through the strength of our energy.

Transforming our company

• 1. Growing organically
• 2. Investing in infrastructure
• 3. Acquiring and integrating
• 4. Innovation and technology

4 Spire | First quarter fiscal 2019 earnings results 4

Spire | First quarter fiscal 2019 earnings results 5

• Posted strong Q1 net economic earnings
• f $1.30 per share, up 9% from a year ago
• Grew utility earnings per share by over 7%

this quarter

• Delivered improved operating results

across our gas utilities

• Began construction of Spire STL Pipeline
• Received FERC approval to consolidate
• ur storage facilities

Building on our momentum

Growing our gas utilities

• Driving organic growth

– Enhancing our new business processes, driving residential and commercial growth – New business capital investment of $27M, up 19% – 9% growth in new meters (over last year’s record pace)

• Increasing capital investment

– Q1 utility capital expenditures up by 40% – 85% of utility spend recovered with minimal lag or reflected in earnings

• Securing regulatory recovery of investments

– Missouri: $19M in additional annual ISRS revenues filed Jan. 14 – Alabama: Progressing on AIM program (incentive to accelerate infrastructure upgrades)

• Managing costs across our utilities

Spire | First quarter fiscal 2019 earnings results 6

Enhancing our operating performance

• Investment in infrastructure upgrades,

technology and our people is driving

• perating performance
• Continuing to see positive results

– Reduced employee injury rates and improved overall safety – Further enhanced system integrity – Reduced maintenance costs – Increased field service levels

Spire | First quarter fiscal 2019 earnings results 7

Spire | First quarter fiscal 2019 earnings results 8

Inspiring innovation through technology

• Technology is helping us connect with and better serve customers
• We are seeing increased levels of engagement via My Account

‒ Serving more than 680,000 homes and businesses ‒ Increased enrollment in paperless billing, budget billing and AutoPay ‒ Greater adoption of self-service for billing options and service reconnection

• We’re achieving higher service levels

Building Spire STL Pipeline

• We’ve received required approvals,

permits and land rights

• Construction is now underway
• Total project investment estimated

at $210-$225 million

• The 65-mile pipeline will bring new

gas supply to the St. Louis region

• Targeting in-service date by the

end of our fiscal year

Spire | First quarter fiscal 2019 earnings results 9

Advancing our other gas-related businesses

• Positioning Spire Marketing for further growth and success

‒ Adding talent and building the team in Houston ‒ Scaling the business by expanding geographic reach and customer base ‒ We achieved strong Q1 performance with NEEPS of $0.16

• Building Spire Storage

‒ With FERC approval, we’re integrating our facilities and finalizing development plan ‒ Evaluating investments to take advantage of expanded longer term opportunities ‒ Growing capacity and capabilities to serve a variety of customers, including utilities, power generators and producers ‒ Earnings contribution expected in fiscal 2020

Spire | First quarter fiscal 2019 earnings results 10

Growing the dividend

1Quarterly dividend of $0.5925 per share effective January 3, 2019, annualized. 2Based on $2.37 per share dividend and SR average closing stock price of $75.55 for month of January 2019.

Spire | First quarter fiscal 2019 earnings results 11

• Board declared quarterly dividend of $0.5925, payable April 2
• 16 consecutive years of increases; 74 years of continuous payment
• Dividend growth (5.3% in 2019) supported by our

‒ Long-term earnings growth targets ‒ Conservative payout ratio and target range of 55%-65%

Dividend Yield 3.1%2

Dividend payout ratio Dividends per share

Annualized dividends per share

Dividend payout ratio

1

We’re driving earnings growth

Spire | First quarter fiscal 2019 earnings results 12

• Net economic earnings up nearly 14% or $8.0M with growth in both business segments

‒ Gas Utility +$6.9M or 12% ‒ Gas Marketing +$4.7M or 131% ‒ Offset, in part by higher corporate costs and the net loss from Spire Storage (excluded from NEE last year)

• NEE per share up 11¢ or 9%, reflecting higher share count from our May 2018 equity
• ffering

1See Net economic earnings (non-GAAP) reconciliation in the Appendix. 2Tax Cuts and Jobs Act; All other includes recurring NEE adjustments for fair value, acquisition, and income tax effect.

2018 2017 2018 2017 Gas Utility 66.4 $ 59.5 $ 1.31 $ 1.22 $ Gas Marketing 8.3 3.6 0.16 0.08 Other (8.8) (5.2) (0.17) (0.11) 65.9 $ 57.9 $ 1.30 $ 1.19 $ Effect of TCJA2  59.9  1.24 All other adjustments2 1.4 (1.8) 0.02 (0.04) 67.3 $ 116.0 $ 1.32 $ 2.39 $ Average diluted shares outstanding 50.8 48.4 First quarter ended December 31, Millions Per diluted share Net Economic Earnings (NEE)1 Net income (GAAP)

• Revenue grew 7%, reflecting higher demand and higher commodity cost
• Gas Utility contribution margin growth of $2.0M includes

‒ +$16.0M or 6% growth due to higher volumes from colder weather, rate design changes and modest customer increases ‒ ($14.0M) in rate reductions from tax reform that are offset by lower income tax expense

• Gas Marketing contribution margin more than doubled on geographic expansion and

favorable market conditions

Increasing revenues and margin

Spire | First quarter fiscal 2019 earnings results 13

1Contribution margin is operating revenues less gas costs and gross receipts taxes. See Contribution margin (non-GAAP) reconciliation in the Appendix.

2018 2017 $ % Operating Revenues Gas Utility 575.2 $ 542.0 $ 33.2 $ 6% Gas Marketing 25.8 19.6 6.2 32% Other and eliminations 1.0 0.2 0.8 602.0 $ 561.8 $ 40.2 $ 7% Contribution Margin1 Gas Utility 257.5 $ 255.5 $ 2.0 $ 1% Gas Marketing 15.3 6.6 8.7 132% Other and eliminations 2.6 0.4 2.2 275.4 $ 262.5 $ 12.9 $ 5% First quarter ended December 31, Millions Change

Spire | First quarter fiscal 2019 earnings results 14

Expenses

• Gas Utility operating expenses

– Higher volumes, commodity prices drove utility fuel costs and gross receipts taxes – O&M includes $4.1M in higher benefit and energy efficiency costs reset in our Missouri rate cases,

• ffset in part by overall lower controllable costs

– Depreciation and amortization increased consistent with higher investment levels

• Gas Marketing and other expenses

– Higher Gas Marketing costs driven by higher volumes and prices, offset by a higher mix of trading business (recorded net reduction in costs) – Costs of Spire Storage of $4.0M

• Interest expense reflects higher rates and debt levels

2018 2017 $ % Gas Utility Natural and propane gas 251.7 $ 240.8 $ 10.9 $ 5% Operation and maintenance (O&M) 102.5 99.0 3.5 4% Depreciation and amortization 43.7 40.3 3.4 8% Taxes, other than income taxes 39.2 36.7 2.5 7% Gas Marketing and other 59.8 41.0 18.8 46% Other Income, Net 2.8 3.3 (0.5)

• 15%

Interest Expense 25.9 24.4 1.5 6% Change First quarter ended December 31, Millions

Investing for long-term growth

• Q1 FY19 capital spend of $207M
• FY19 forecasted spend of $650M

– $475M for gas utilities – Includes majority of total project spend for Spire STL Pipeline – Refining development plan for Spire Storage

• 5-year capital investment of $2.6B

– Higher utility spend driven by long- lived infrastructure upgrade programs – Driving long-term 6% rate base growth – 85%+ of utility spend recovered with minimum regulatory lag or reflected in earnings Capital expenditures

393 400 405 410 420 63 75 65 70 70 43 175

2018 2019 2020 2021 2022

Utility, with minimal lag and new business

5-year forecast: $2.6B

Pipelines and storage Other utility

$499 $650 $485 $495 $505

(Millions) Spire | First quarter fiscal 2019 earnings results 15

$111 $207 $0 $50 $100 $150 $200 $250 Q1 FY18 Q1 FY19

$148 $152 $100 $120 $140 $160 Q1 FY18 Q1 FY19

Spire | First quarter fiscal 2019 earnings results 16

Strengthening our financial position

• Q1 FY19 EBITDA1 of $152M, up 3%
• Ample liquidity at the peak of our

seasonal borrowing

• Solid LT equity capitalization2 51.3%,

up 190 basis points from a year ago

• Planned financings on track

‒ On Dec. 3, Spire MO completed and funded $100M 3-year term loan ‒ On Jan. 15, Spire AL completed private placement of $90M in Senior Notes

• Announcing $150M equity

At-The-Market program

‒ 3-year program ‒ Not active at this time ‒ Satisfies anticipated equity needs for the next two years

1EBITDA is earnings before interest, income taxes, depreciation and amortization. 2See Adjusted long-term capitalization reconciliation in the Appendix.

EBITDA1

(Millions)

51.3% 48.7% Equity Debt

Long-term capitalization2

(at December 31, 2018)

Affirming our earnings guidance

• FY19 NEEPS range of $3.70-$3.80
• Long-term NEEPS growth target of 4%-7%

Spire | First quarter fiscal 2019 earnings results 17

Net economic earnings per share

1Run-rate adjustment is an estimate of Spire Marketing results of $0.17 in 2018 not anticipated to recur.

1

Spire | First quarter fiscal 2019 earnings results 18

At Spire, we’re always in motion, using our energy to get the job done today while exploring new and innovative ideas for tomorrow.

Appendix

Spire | First quarter fiscal 2019 earnings results

19

Our Spire utility portfolio

Spire | First quarter fiscal 2019 earnings results 20

Alabama Gulf Mississippi MO East MO West Founded 1852 1836 1933 1857 1867 Primary office Birmingham Mobile Hattiesburg

• St. Louis

Kansas City Employees1 861 123 33 1,721 600 Customers1 420,600 83,900 18,500 653,600 516,300 Pipeline miles ~23,000 ~4,300 ~1,200 ~16,000 ~14,000 Rate base (Millions) $5092 $922 $243 $1,2744 $9434 Return on equity 10.40%5 10.70% 9.34% 9.80% 9.80% Equity capitalization 55.5%5 55.5% 50.0% 54.2% 54.2%

1Employees and customers as of September 30, 2018. 2The Rate Stabilization and Equalization (RSE) mechanism uses avg common equity for year ended 9/30/18 for Alabama and Gulf utilities, rather than rate base, for ratemaking purposes. 3Mississippi net assets less deferred taxes for Rate Stabilization Adjustment (RSA) purposes as of 9/14/18 filing. 4Estimated FY18 year-end rate base at Spire Missouri reflecting growth since amended MoPSC order dated March 7, 2018, establishing rate base in MO East of $1,221M and MO West of

$807M. Growth in rate base subject to prudence review.

5Terms of renewed RSE, effective 10/1/18 through 9/30/22.

Gaining regulatory certainty

• 2018 marked the completion of regulatory resets across our footprint
• The last major component was the reset of Spire Alabama’s Rate Stabilization

and Equalization (RSE) metrics

• As expected, we reset ROEs and CCM benefit sharing and harmonized capital

structures across Alabama

• Gained incentive for infrastructure upgrades

Spire | First quarter fiscal 2019 earnings results 21

Current Prior Current Prior Return on Equity (ROE) Range 10.15% - 10.65% 10.50% - 10.95% 10.45% - 10.95% 10.45% - 10.95% Adjusting point 10.40% 10.80% 10.70% 10.80% Equity capitalization 55.50% 56.50% 55.50% 56.00% Infrastructure incentive AIM: +/-10 bps ROE CIMFR: 75% eq ratio > baseline thru 2019 Cost Control Measure (CCM) Metric O&M / customer Total O&M O&M / customer Total O&M Base year 2018 2007 2017 2014 +/- band 1.50% 1.75% 1.50% 1.75% Spire Alabama Spire Gulf

Net economic earnings [non-GAAP] reconciliation

1Income 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.

2Net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.

Spire | First quarter fiscal 2019 earnings results 22

(Millions, except per share amounts)

Gas Utility Gas Marketing Other Total Per diluted share2 Three months ended December 31, 2018 Net Income (Loss) [GAAP] 66.4 $ 10.0 $ (9.1) $ 67.3 $ 1.32 $ Adjustments, pre-tax: Unrealized gain on energy-related derivatives  (2.2)  (2.2) (0.04) Acquisition, divestiture and restructuring activities   0.4 0.4 0.01 Income tax effect of adjustments1  0.5 (0.1) 0.4 0.01 Net Economic Earnings (Loss) [Non-GAAP] 66.4 $ 8.3 $ (8.8) $ 65.9 $ 1.30 $ Diluted EPS [GAAP] 1.31 $ 0.19 $ (0.18) $ 1.32 $ Net Economic EPS [Non-GAAP]2 1.31 $ 0.16 $ (0.17) $ 1.30 $ Three months ended December 31, 2017 Net Income [GAAP] 45.2 $ 3.5 $ 67.3 $ 116.0 $ 2.39 $ Adjustments, pre-tax: Unrealized loss on energy-related derivatives  0.8  0.8 0.02 Realized gain on economic hedges prior to the sale of the physical commodity  (0.1)  (0.1)  Acquisition, divestiture and restructuring activities   1.7 1.7 0.04 Income tax effect of adjustments1  (0.2) (0.4) (0.6) (0.02) Effectof the Tax Cuts and Jobs Act 14.3 (0.4) (73.8) (59.9) (1.24) Net Economic Earnings (Loss) [Non-GAAP] 59.5 $ 3.6 $ (5.2) $ 57.9 $ 1.19 $ Diluted EPS [GAAP] 0.93 $ 0.07 $ 1.39 $ 2.39 $ Net Economic EPS [Non-GAAP]2 1.22 $ 0.08 $ (0.11) $ 1.19 $

Contribution margin [non-GAAP] reconciliation

Spire | First quarter fiscal 2019 earnings results 23

(Millions)

Gas Utility Gas Marketing Other Eliminations Consolidated

Three months ended December 31, 2018 Operating income (loss) [GAAP]

95.6 $ 12.5 $ (3.0) $  105.1 $

Operation and maintenance

104.9 2.6 7.4 (2.7) 112.2

Depreciation and amortization

43.7  0.5  44.2

Taxes, other than income taxes

39.2 0.2 0.4  39.8

Less: Gross receipts tax expense

(25.9)    (25.9)

Contribution margin [non-GAAP]

257.5 15.3 5.3 (2.7) 275.4

Natural and propane gas costs

291.8 10.5 0.1 (1.7) 300.7

Gross receipts tax expense

25.9    25.9

Operating revenues

575.2 $ 25.8 $ 5.4 $ (4.4) $ 602.0 $

Three months ended December 31, 2017 Operating income (loss) [GAAP]

100.7 $ 5.0 $ (1.7) $  104.0 $

Operation and maintenance

100.9 1.6 4.3 (2.3) 104.5

Depreciation and amortization

40.3  0.1  40.4

Taxes, other than income taxes

36.7    36.7

Less: Gross receipts tax expense

(23.1)    (23.1)

Contribution margin [non-GAAP]

255.5 6.6 2.7 (2.3) 262.5

Natural and propane gas costs

263.4 13.0 0.1 (0.3) 276.2

Gross receipts tax expense

23.1    23.1

Operating revenues

542.0 $ 19.6 $ 2.8 $ (2.6) $ 561.8 $

EBITDA1 [non-GAAP] reconciliation Adjusted long-term capitalization reconciliation

1EBITDA is earnings before interest, income taxes, depreciation and amortization. 2Redeemable noncontrolling interest included in Equity ($6.5M) as of December 31, 2017.

Spire | First quarter fiscal 2019 earnings results 24

(Millions)

2018 2017 Net Income 67.3 $ 116.0 $ Add back: Interest charges 25.9 24.4 Income tax expense (benefit) 14.7 (33.1) Depreciation & amortization 44.2 40.4 EBITDA 152.1 $ 147.7 $ Three months ended December 31,

(Millions)

Equity Debt Total Equity Debt Total Capitalization per balance sheet2 $ 2,284.6 $ 1,992.0 $ 4,276.6 $ 2,085.7 $ 2,030.0 $ 4,115.7 Current portion of long-term debt  175.0 175.0  105.5 105.5 Adjusted long-term capitalization $ 2,284.6 $ 2,167.0 $ 4,451.6 $ 2,085.7 $ 2,135.5 $ 4,221.2 % of Total 51.3% 48.7% 100.0% 49.4% 50.6% 100.0% As of December 31, 2018 As of December 31, 2017