Third Quarter 2016 Earnings Conference Call August 3, 2016 - - PowerPoint PPT Presentation
Third Quarter 2016 Earnings Conference Call August 3, 2016 Participants on todays call Suzanne Steven P. Steven L. Michael C. Sitherwood Rasche Lindsey Geiselhart President and Executive Vice President, Executive Vice President
August 3, 2016
Steven L. Lindsey
Executive Vice President and Chief Operating Officer, Distribution Operations
Steven P. Rasche
Executive Vice President, Chief Financial Officer
Suzanne Sitherwood
President and Chief Executive Officer
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Michael C. Geiselhart
Senior Vice President, Strategy and Corporate Development
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. For a more complete description of these uncertainties and risk factors, see our Form 10-K for the fiscal year ended September 30, 2015 filed with the Securities and Exchange Commission (SEC) and our Form 10-Q for the quarter ended June 30, 2016 to be filed with the SEC later today. This presentation also includes “net economic earnings,” “net economic earnings per share,” “operating margin,” and “EBITDA,” 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, as well as the after-tax impacts related to acquisition, divestiture, and restructuring activities, including costs related to the pending acquisition of Mobile Gas and Willmut Gas and the acquisition and integration of Missouri Gas Energy (MGE) and Alabama Gas Corporation (Alagasco). Management believes that this presentation provides a useful representation of operating performance by facilitating comparisons of year-over-year results. Operating margin adjusts operating income to include only those costs that are directly passed on to customers and collected through revenues, which are the wholesale cost of natural gas and propane, and gross receipts taxes. 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, taxes, depreciation and amortization. A reconciliation of EBITDA to net income and of operating margin to operating income can be found in the Appendix to this presentation. 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
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shareholders
‒ Bringing people and energy together ‒ Championing people by delivering energy that inspires
and transformation of Spire
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Growing our gas utility business Acquiring and integrating gas utilities Modernizing
Investing in innovation
Investing in prudent infrastructure upgrades Successful organic growth initiatives Growing commercial and industrial load Operational enhancements and efficiencies Added 1 million customers MGE (2013) Alagasco (2014) Mobile Gas and Willmut Gas (pending 2016) Positioning Gas Marketing for continued success Improving supply diversity, reliability and resiliency Launched Spire STL Pipeline project newBLUE IT modernization Two Spire CNG fueling stations Mainstay partnership
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share of $0.33 with Gas Utility and Gas Marketing both contributing to increase
launch of open season
Willmut Gas remains on track
1See Net economic earnings (non-GAAP) reconciliation in Appendix.
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‒ Missouri regulatory reform initiatives by Senate and Missouri Public Service Commission (MoPSC) ‒ Office of Public Counsel (OPC) earnings complaint ‒ OPC and MoPSC Staff investigation into recent acquisitions
modernize state utility regulation
Willmut Gas
‒ Adds 104,000 customers and growing commercial and industrial load ‒ Provides additional capital investment and
‒ Accretive to NEE per share in FY18 ‒ Supports investment and dividends
acquisition in place
‒ Mississippi Public Service Commission approval ‒ Satisfying customary closing conditions
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‒ Achieve more diverse supply portfolio ‒ Improve reliability and resiliency ‒ Access lower-cost shale gas
accepted by FERC into their pre- filing process
foundation shipper with contractual commitment of 350 MMcf/d
solicit commercial interest in pipeline capacity 70-mile pipeline with capacity of 400 MMcf/d Connects to Rockies Express pipeline Project investment of $170 - $200 million Expect fiscal 2019 in-service date
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‒ Solid Gas Utility earnings driven by lower expenses ‒ Improved Gas Marketing earnings ‒ Lower corporate costs
1See Net economic earnings (non-GAAP) reconciliation in Appendix.
Net Economic Earnings1 FY16 FY15 FY16 FY15 Gas Utility 18.0 $ 16.5 $ 0.41 $ 0.38 $ Gas Marketing 1.8 0.5 0.04 0.01 Other (5.2) (5.9) (0.12) (0.14) 14.6 $ 11.1 $ 0.33 $ 0.25 $ Third Quarter Ended June 30 Per Diluted Share Millions
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‒ $3.3 million higher ISRS revenues for Missouri Utilities ‒ $2.8 million lower RSE adjustment at Alagasco ‒ Partially offset by $2.1 million of other variances, mainly timing of gas cost recoveries
‒ Higher volumes and storage earnings ‒ Partially offset by narrowing spreads
1Operating margin is operating revenues less gas costs and gross receipts taxes. See Operating margin (non-GAAP) reconciliation in Appendix.
FY16 FY15 $ % Operating Revenues Gas Utility 253.2 $ 260.2 $ (7.0) $
Gas Marketing & Other (3.9) 15.0 (18.9)
249.3 $ 275.2 $ (25.9) $
Operating Margin1 Gas Utility 176.9 $ 172.9 $ 4.0 $ 2% Gas Marketing (0.2) 3.1 (3.3)
Other and Eliminations 0.6 0.6
177.3 $ 176.6 $ 0.7 $ 0% Change
Third Quarter Ended June 30
Millions
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by $6.4 million on lower bad debt expense (weather, commodity costs) and employee related costs
revenues (recorded net), partially offset by higher volumes
FY16 FY15 $ % Operating Revenues 249.3 $ 275.2 $ (25.9) $
Operating Expenses Gas Utility Natural & propane gas 54.1 57.7 (3.6)
Other operation & maintenance 91.8 90.6 1.2 1% Depreciation & amortization 34.2 32.5 1.7 5% Taxes, other than income taxes 27.4 26.2 1.2 5% Gas Marketing & Other 6.5 32.2 (25.7)
Operating Income 35.3 36.0 (0.7)
Other (Income) Deductions, Net (1.6) (0.5) (1.1) 220% Interest Expense 19.4 17.8 1.6 9% Income Tax Expense 6.8 4.6 2.2 48% Change
Third Quarter Ended June 30
Millions
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1See Net economic earnings (non-GAAP) reconciliation in Appendix.
– Flat operating margin year-over year, reflecting lower volume due to warm winter weather, offset by higher ISRS revenues, lower RSE reset in Alabama and timing of gas cost recoveries – Lower operating costs including bad debt expense related to warmer weather
partially offset by a decrease in net spread
Net Economic Earnings1 FY16 FY15 FY16 FY15 Gas Utility 170.5 $ 162.8 3.91 $ 3.75 $ Gas Marketing 4.5 3.0 0.10 0.07 Other (11.8) (11.4) (0.27) (0.26) 163.2 $ 154.4 3.74 $ 3.56 $
Nine Months Ended June 30
Millions Per Diluted Share
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$381.0 $395.8 $0 $100 $200 $300 $400 9 Mos. FY15 9 Mos. FY16
up 4% from last year
$650 million of capacity
‒ Reflects equity units as equity ‒ Excludes permanent financing for pending acquisition
permanent finance activity in Q3
‒ $138 million gross proceeds from equity issuance of 2.2 million shares May 17 ‒ $165 million debt private placement commitments finalized June 20; funding tied to date of closing
1EBITDA is Earnings before interest, taxes, and depreciation and amortization. See EBITDA
(non-GAAP) reconciliation in Appendix.
2See Adjusted long-term capitalization reconciliation in Appendix.
EBITDA1
(Millions)
51.5% 48.5%
Equity Debt
Long-term capitalization2
(at June 30, 2016)
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after removing nonrecurring facility and ITS projects in 2015
with minimal regulatory lag
ISRS annual run rate now $35.3 million
and Willmut Gas upon closing
– Run-rate ~$17 million (not in forecast) – Opportunity to increase investment in prudent infrastructure upgrades
(Millions)
$202.9 $195.3 $0 $50 $100 $150 $200 $250 9 Mos. FY15 9 Mos. FY16
99 194 211 215 220 225 225 72 96 94 110 110 110 110 5 40 40 100
$0 $100 $200 $300 $400 2014 2015 2016E 2017E 2018E 2019E 2020E
$171 $435 $370 $290 $335 $310 $365 Utility, with Minimal Lag Other Utility and Non-Utility
(Millions)
5-year forecast: $1.8B
Spire STL Pipeline
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$1.62 $1.66 $1.70 $1.76 $1.84 $1.961 $1.40 $1.60 $1.80 $2.00 2011 2012 2013 2014 2015 2016
Annualized dividends per share
1Quarterly dividend of $0.49 per share, annualized. 2Based on $1.96 per share dividend and SR average closing stock price of $69.07 for July 2016.
Dividend Yield 2.8%2
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share (NEEPS) target $3.34 - $3.441
target remains 4% - 6%
anticipated to add to NEEPS in 2018
in-service date, with contributions from AFUDC beginning in 2017
$1.8 billion
1Consistent with past practice, expenses and financing impacts will be excluded from
NEEPS prior to closing the acquisition.
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growth and transformation
Spire during 2017
– Growing our gas utilities organically and through prudent investment in upgrades – Closing on Mobile Gas and Willmut Gas and effective integration into the Spire family – Moving forward with Spire STL Pipeline FPO – IMAGE MAY CHANGE
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Energy exists to help people. To enrich their lives, grow their businesses, advance their
but one that’s at the heart
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1Income taxes are calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items. 2Fiscal 2016 net economic earnings per share exclude the impact of the May 2016 equity issuance to fund a portion of the acquisition of Mobile Gas and Willmut Gas. The
weighted average diluted shares used in the net economic earnings per share calculation for the fiscal quarter ended June 30, 2016 was 43.5 compared to 44.6 in the GAAP diluted EPS calculation. Fiscal 2015 net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.
(Millions, except per share amounts)
Gas Utility Gas Marketing Other Total Per Diluted Share2 Three Months Ended June 30, 2016 Net Income (Loss) (GAAP) 17.9 $ (1.0) $ (6.2) $ 10.7 $ 0.24 $ Adjustments, pre-tax: Unrealized loss on energy-related derivatives
0.11 Lower of cost or market inventory adjustments
physical commodity
(0.01) Acquisition, divestiture and restructuring activities 0.2
1.8 0.04 Income tax effect of adjustments1 (0.1) (1.7) (0.6) (2.4) (0.06) Weighted average shares adjustment
Net Economic Earnings (Loss) (Non-GAAP) 18.0 $ 1.8 $ (5.2) $ 14.6 $ 0.33 $ Diluted EPS (GAAP) 0.40 $ (0.02) $ (0.14) $ 0.24 $ Net Economic EPS (Non-GAAP)2 0.41 $ 0.04 $ (0.12) $ 0.33 $ Three Months Ended June 30, 2015 Net Income (Loss) (GAAP) 20.7 $ 1.0 $ (7.6) $ 14.1 $ 0.32 $ Adjustments, pre-tax: Unrealized gain on energy-related derivatives
(0.07) Lower of cost or market inventory adjustments
(0.01) Realized loss on economic hedges prior to the sale of the physical commodity
0.06 Acquisition, divestiture and restructuring activities 0.8
3.5 0.08 Gain on sale of property (7.6)
(0.17) Income tax effect of adjustments1 2.6 0.3 (1.0) 1.9 0.04 Net Economic Earnings (Loss) (Non-GAAP) 16.5 $ 0.5 $ (5.9) $ 11.1 $ 0.25 $ Diluted EPS (GAAP) 0.48 $ 0.02 $ (0.18) $ 0.32 $ Net Economic EPS (Non-GAAP)2 0.38 $ 0.01 $ (0.14) $ 0.25 $
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(Millions, except per share amounts)
Gas Utility Gas Marketing Other Total Per Diluted Share2 Nine Months Ended June 30, 2016 Net Income (Loss) (GAAP) 169.6 $ 2.8 $ (14.0) $ 158.4 $ 3.60 $ Adjustments, pre-tax: Unrealized (gain) loss on energy-related derivatives (0.1) 3.0
0.07 Lower of cost or market inventory adjustments
0.01 Realized gain on economic hedges prior to the sale of the physical commodity
(0.02) Acquisition, divestiture and restructuring activities 1.6
5.1 0.12 Income tax effect of adjustments1 (0.6) (1.0) (1.3) (2.9) (0.07) Weighted average shares adjustment
Net Economic Earnings (Loss) (Non-GAAP) 170.5 $ 4.5 $ (11.8) $ 163.2 $ 3.74 $ Diluted EPS (GAAP) 3.86 $ 0.06 $ (0.32) $ 3.60 $ Net Economic EPS (Non-GAAP)2 3.91 $ 0.10 $ (0.27) $ 3.74 $ Nine Months Ended June 30, 2015 Net Income (Loss) (GAAP) 166.5 $ 3.5 $ (14.4) $ 155.6 $ 3.59 $ Adjustments, pre-tax: Unrealized gain on energy-related derivatives (0.1) (3.4)
(0.09) Realized loss on economic hedges prior to the sale of the physical commodity
0.06 Acquisition, divestiture and restructuring activities 1.7
6.5 0.15 Gain on sale of property (7.6)
(0.17) Income tax effect of adjustments1 2.3 0.3 (1.8) 0.8 0.02 Net Economic Earnings (Loss) (Non-GAAP) 162.8 $ 3.0 $ (11.4) $ 154.4 $ 3.56 $ Diluted EPS (GAAP) 3.84 $ 0.08 $ (0.33) $ 3.59 $ Net Economic EPS (Non-GAAP)2 3.75 $ 0.07 $ (0.26) $ 3.56 $
1Income taxes are calculated by applying federal, state, and local income tax rates applicable to ordinary income to the amounts of the pre-tax reconciling items. 2Fiscal 2016 net economic earnings per share exclude the impact of the May 2016 equity issuance to fund a portion of the acquisition of Mobile Gas and Willmut Gas. The
weighted average diluted shares used in the net economic earnings per share calculation for the nine months ended June 30, 2016 was 43.5 compared to 43.8 in the GAAP diluted EPS calculation. Fiscal 2015 net economic earnings per share is calculated by replacing consolidated net income with consolidated net economic earnings in the GAAP diluted EPS calculation.
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(Millions)
Gas Utility Gas Marketing Other Eliminations Consolidated
Three Months Ended June 30, 2016 Operating revenues
253.3 $ 2.3 $ 0.9 $ (7.2) $ 249.3 $
Natural and propane gas expense
61.1 2.5
56.7
Gross receipts tax expense
15.3
Operating margin (non-GAAP)
176.9 (0.2) 0.9 (0.3) 177.3
Depreciation and amortization
34.2 0.1 0.1
Other operating expenses
104.0 1.3 2.6 (0.3) 107.6
Operating income (loss) (GAAP)
38.7 $ (1.6) $ (1.8) $
35.3 $
Three Months Ended June 30, 2015 Operating revenues
261.2 $ 28.9 $ 1.0 $ (15.9) $ 275.2 $
Natural and propane gas expense
73.2 25.7 0.1 (15.6) 83.4
Gross receipts tax expense
15.1 0.1
Operating margin (non-GAAP)
172.9 3.1 0.9 (0.3) 176.6
Depreciation and amortization
32.5 0.1 0.1
Other operating expenses
102.0 1.5 4.7 (0.3) 107.9
Operating income (loss) (GAAP)
38.4 $ 1.5 $ (3.9) $
36.0 $
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1EBITDA is earnings before interest, income taxes, and depreciation and amortization.
(Millions)
Equity Debt Total Capitalization per balance sheet
1,802.4 $ 1,851.7 $ 3,654.1 $
Exclude May 2016 equity issuance
(133.2)
Reclassify equity units
143.8 (143.8)
1,813.0 $ 1,707.9 $ 3,520.9 $
% of Total
51.5% 48.5% 100.0%
As of June 30, 2016
(Millions)
FY16 FY15 Net Income 158.4 $ 155.6 $ Add back: Interest Charges 57.7 56.1 Income Tax Expense 77.7 71.9 Depreciation & Amortization 102.0 97.4 EBITDA 395.8 $ 381.0 $ Nine Months Ended June 30
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