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. [Operator Instructions] 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. Coordinating 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 the 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 3 state electric utility footprint includes nearly 200 projects and over 30 gigawatts of potential load over the next…

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 benefits 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.

[Operator Instructions] 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? A – Dan Tucker: 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 hone 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, focus on this year, but focus 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 be a part of the mix. We've got have diverse resources to meet this demand we see going forward, and nuclear's got a play a very prominent part in that role. But I think there's got be and needs to be great leadership from the government to really kind of help build the momentum that I 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 like we are seeing much stronger the 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? A – Dan Tucker: 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, it 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 and 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. A – Dan Tucker: 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? A – Dan Tucker: 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 2 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 3 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. A – Dan Tucker: Great question. So let me just kind of clarify the dynamics that are happening. That 17% that we referred to is existing data centers that are on the ground have been on the ground and they're either in the process of ramping to their full load or, in some cases, what we believe is also happening as some of these are actually improving the technology in the data centers with not only increasing processing capabilities, but that's also utilizing a little bit more electricity in the process. What will happen going forward, while this dynamic will be there, this is a small component of our overall commercial sales today? The -- everything we've been talking about in terms of what drives that 6% sales growth from '25 to '28, 9% at Georgia Power. Those are new data centers. And so it will be a significant acceleration that begins to happen in the '26, '27, '28 time frame and beyond, as these data centers are completed and they too will have their own ramp-ups to the point where overall commercial sales growth implicit in that 6% will be in the double-digits.

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? A – Dan Tucker: 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. Got it. That makes sense. And I was thinking about the load growth overall. And let's see, the other -- the other item I just wanted to check on, there was a valve issue at Vogtle 3 recently. Just wondering if you had any feedback on that kind of the extent of that issue? And anything else to watch for there.

Yes. No, they worked through that issue and the unit is now back online and Vogtle 3 has operated more than 98% is 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? A – Dan Tucker: Sure. And so I'm going to even take it a little bit further back to you because I think the progression here is important. So you mentioned the 21 gigawatts that was where we were as of our last call, and that's compared to 17 gigawatts back when we originally filed the 2023 IRP update at Georgia Power. So it had grown 4,000 gigawatts -- as we sit here today, that 21 gigawatts is 24.3 gigawatts in terms of the total pipeline. You mentioned the commitments. The commitments were a significant change from the original filing last quarter. So it went from 3.6 gigawatts to 6.2 gigawatts. And then from the last earnings call to today, that 6.2 gigawatts is now 7.3 gigawatts.

Got it. Okay. That's helpful. And then a totally separate question. The -- on Kinder Morgan's call, they mentioned expanding the SONAT system with $3 billion, I think, growth investment and kind of, I think, implied that you would represent half of it? And could you just talk to your thoughts on that and likelihood you'll do that? A – Dan Tucker: Yes. Look, it's really early for that. So yes, we're a 50% partner on Southern Natural. There is a project that is proposed that total capital is $3 billion. Our share would be $1.5 billion. It's just really early days. You know how these projects evolve. Look, we're very encouraged by it. It’s 90-plus percent, I believe, brownfield, existing rights of way, a tremendous opportunity there. We will kind of at the right time down the road once this thing has solidified a little bit more, there's some traction from a FERC perspective, in terms of approval kind of reflect that more in our outlook. But that's still -- all that said, it's 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.

Okay. And last question -- A – Dan Tucker: 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 1 more thing on that. I mean -- and we talk a lot about the importance of this country, building infrastructure. So these kind of things need to happen to support this economy going forward. But for us, it's just very early on, but it's somethings that this country must embrace and must move forward on.

Okay. One last question, just going back to my first topic on data centers. Can you just remind me what -- how you define firm commitments relative to pipeline for data centers? A – Dan Tucker: Yes. So the commitment we're characterizing is essentially signed request for service within our service territory. It's a commitment by the customer to be at a particular level to commitment by us to provide the service -- and then a lot of these commitments have kind of further papering, if you will, that goes beyond those kind of key elements where it's commitments for local infrastructure, commitments around pricing, commitments around the ramp so there's clearly different stages here. I think, importantly, because we argue with ourselves what is the right nomenclature for this, what's the right word to really characterize this because commitment sounds like something that's completely fixed and unreversible. The reality is we have these commitments. These requests for services and over time, there's puts and takes. And in fact, in the numbers I shared with you a few minutes ago, Steve, there were puts and takes in there. But net-net, the megawatts are still going up.

And Steve, last earnings call, we went through this, I guess, process, this orderly process that we go through internal in terms of confirming that this load is, in fact, real. And so if you look -- remember some of that, I mean, that's kind of the discipline in which we look at these projects to make sure they are real that they've demonstrated a commitment to the state that they've selected our utility companies. I mean a very orderly and disciplined process that we go through because actually, we've been in the second development business for a very, very long time. I mean we're in the market each and every day engaging with customers. But we know how this plays out. We know how it works and so for us as well as for them, it's important to understand what's real in terms of -- and what it means to have a commitment. So we spend a lot of time working on this. A – Dan Tucker: And so importantly, I'll just last thing, Steve, I'll just to clarify, commitment for us does not mean it's in our forecast. There's further risk adjustment from there. There's -- 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. A – Dan Tucker: Yes, there is potential for those to evolve, and I think that's what we will -- 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? A – Dan Tucker: Sure. Nick, happy to. So look, there's -- we believe -- and the DOE in the details as we work through this process with the DOE loan office, there could be big round numbers, eligible capital in the range of $15 billion to $20 billion over the next, I don't know, 7 to 8 years or so that could qualify for this. And the program allows that qualified capital to be financed up to 80% of the qualifying amount. So that's a significant amount of debt financing that could be done through a very low-cost source relative to the capital markets. Implication of that is a potential tremendous benefit to customers over time, not unlike what we had with Vogtle 3 and 4 in terms of the loan program there. Again, this program could potentially be 3x, 4x the size of the Vogtle 3 and 4 program, which created tremendous savings for customers.

I appreciate that. And maybe just one conceptual question here, just -- we've heard about economic development on your call on all of your peers' calls this earnings season, the tailwinds continue to be very strong. I can't help but notice that some economic and industrial indicators are now starting to roll. ISM indicators this morning were at their lowest since the pandemic. And I guess my question is, just what's differentiating your service territory, you think? On the economic development side? And then is this just all kind of chalking up to maybe you guys being conservative in this 5% to 7% outlook and waiting for it to come.

No, and we talked about it earlier on this call about the reliability and the performance of our company, the cost of living in the territory, the transportation hubs and access and resources that we have here, the kind of business climate, Alabama was recently recognized by CNBC as a top state to do business in. And so great advancements there. So I think a collection of things that occurring across the southeastern territory has really made -- has been attractive for a long period of time and continues to make this part of the country very attractive. And so I think we have a lot of good things going forward. And so we're kind of excited about where we are. And it shows up in the pipeline of business in the projects that are currently in the queue in all of our states -- all of our Southeastern states. So I think it speaks well for the characteristics of our states and where we are. And also, I think our vertically integrated model also supports kind of -- this is a good place to come and do business.

Our next question is from Durgesh Chopra with Evercore ISI.

Just then, as we think about your forward-looking guidance and your 2024 base, you've obviously started the year phenomenal year-to-date materially above the plan, but there are some one-timers in there like weather. So as we think about our models and '26, '27 EPS estimates and beyond, -- are you -- when you rebate whenever you provide this guidance at Q4, are you going to exclude these onetime benefits in 2024? I'm just trying to think of what should be the base of the new 5% to 7%, if you will. A – Dan Tucker: The base for the 5% to 7% is the current guidance in 2024, $3.95 to $4.05. The way to think about -- so you mentioned weather as an example, Durgesh, you heard us describe kind of the notion of fixing the roof while the sun is shining, advancing maintenance out of future years in this year. If you look back over the course of time at our O&M spend, while on average, it's probably flattish to down over time. Year-to-year, it's more of a sign wave, because again, what we're doing is managing the short term, taking advantage of opportunities like warmer-than-normal summers colder than normal winters, such that in other years, where we have milder weather, 2023 being a great example, we have the flexibility to spend less. And so we're managing to a regular predictable kind of sustainable results year-in and year-out despite what might be characterized as 1x things.

Got it. Okay. So basically, and then just one quick follow-up on credit metrics and FFO to debt. I think this year, in -- this is from the Q1 call, I believe, but you were kind of trending towards 14% by the end of this year and then 16% to 17% by the end of the planning period in 2028. How does that outlook get strengthened here given the year-to-date outperformance as we think about the end of 2024? A – Dan Tucker: 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. And then -- just wondering, as you sit back today, how you think about the current business mix in additional exposure as the electric backdrop is changing for load growth. Is there any rotation of assets that you might be interested in here? A – Dan Tucker: 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?

Once the Travis, as we go back to a pretty detailed conversation we had on our last call, it's also going to the commissions to confirm the reality of the projects, understanding what the risks are, understanding the pricing that needs to take place that make sure that we are working with these customers to really fully load, understand what the incremental costs are and their marginal costs are and how we price that. So that we also -- when we do this, we're providing benefits to the rest of the customers in terms of what sometimes we refer to as downward pressure. So just as we work to confirm reality and commitments, but also then do risk adjusting, having that same kind of process and conversation with the regulatory jurisdictions in terms of understanding the reality and then understanding the financial and pricing implications. And so 1 thing that I feel really good about is this kind of orderly process that we have to work through this with the commissions, but also the ability to work through this with their respective customers. So I just feel real good about kind of our process to give order to sometimes what looks like a lot of chaos in this marketplace. I think we have the experience, we have the wherewithal, we have these constructive regulatory environments, and we have the framework to do this, I think, in a way that makes sure that is orderly and disciplined and provides benefits to 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'll see those conversations, I think, on a regular basis annually. I mean, it's a little different than what happens in Georgia. But the -- as we look at their plans and look at the issues and needs that show up, I mean they'll take that to the commissions for first 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.