Good day and welcome to the Spire Fiscal 2024 Second Quarter Earnings Call. [Operator Instructions] 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 2024 Second Quarter Earnings Call. We issued an earnings news release this morning. And you may access it on our website at spireenergy.com, under Newsroom. There's a slide presentation that accompanies our webcast. You may download it either from the webcast site; or from the -- our website, under investors and then Events & Presentations. Before we begin, let me [ quickly ] 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 the Private Securities Litigation Reform Act of 1995. Although our forward-looking statements are based upon reasonable assumptions, 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 the SEC. In our comments, we will be discussing net economic earnings and contribution margin, which are both 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. On the call today is Steve Lindsey, President and CEO; Scott Doyle, Executive Vice President and COO; and Steve Rasche, Executive Vice President and CFO. Also in the room today is Adam Woodard, Vice President and Treasurer. With that, I will turn the call over to Steve Lindsey. Steve?

Thanks, Megan. And good morning, everyone. Thank you for joining us today for a review of our second quarter performance and an update on recent developments and outlook. Let's start with our quarterly results. This morning, we reported fiscal second quarter net economic earnings of $3.45 per share compared to NEE of $3.70 per share a year ago. The year-over-year decrease was driven by a few key items, including lower usage in Missouri due to significantly warmer-than-normal weather and higher interest expense. Scott and Steve will discuss our results in more detail in a moment. Our results reflect our dedication and commitment to serve our customers and communities safe and reliable energy. And we continue to execute on our strategy to grow our businesses, invest in infrastructure and drive continuous improvement to deliver value over the long term. Having a diverse portfolio of natural gas businesses enhances our ability to provide value. Further, consistent with our Board of Directors' focus on strong oversight and governance, last month, we announced the election of Sheri Cook as the newest addition to our Board. Her extensive business experience and leadership in human resources, along with her background in economics and finance, will be vital as we execute our strategy. Her presence and involvement throughout our Alabama service territory further ensures we remain connected to our communities we serve. And I look forward to working closely with her in the future. Before I wrap up, I would like to highlight the important role that natural gas plays and will continue to play as part of America's sustainable energy future. Approximately 200 million Americans and businesses use natural gas because it is affordable, reliable and safe. In fact, according to the American Gas Association, households that use natural gas for heating, cooking and clothes drying save over $1,100 on average per year compared to homes using electricity. Together, natural gas utilities across the country, including Spire, continue to invest billions of dollars of capital each year to enhance the natural gas distribution and transmission systems. As an industry, we can be proud of the important work we've done in modernizing infrastructure and deploying technology that have led to increased safety, efficiency and reliability for natural gas customers. To sum up. We are well positioned for success in the second half of fiscal year '24 and over the long term as we execute on our robust capital investment plan to support the growth and performance of our utilities and our gas-related businesses. Spire is a strong and well-positioned company with a proven growth strategy. We have confidence in that strategy and in the ability of our experienced management team and employees to successfully lead us into the future. With that, I'll now turn the call over to you, Scott.

Thank you, Steve. And good morning, everyone. I'd like to begin by thanking our employees for their hard work and continued focus on maintaining safe and reliable natural gas service to our customers through the winter heating season. I am extremely grateful and proud to be a part of the Spire team. Turning now to an update on the Gas Utility segment. Our commitment to strong operations and continued modernization of our system was visible when we were well positioned to deliver safe, reliable and affordable natural gas energy for our customers and communities who depend on this resource as a critical energy need. We remained focused on driving efficiencies throughout the organization, including streamlining systems and processes and maintaining an unwavering commitment to operational excellence. On the regulatory front, in Missouri we were pleased with the constructive outcome in our recent filing for an updated ISRS, our semiannual capital recovery infrastructure rider. Last week, the Missouri Public Service Commission approved $16.8 million in new revenues for recovery of system upgrade investments made September 2023 through February 2024, bringing our annualized ISRS revenue to $36.9 million. Rates are expected to be effective later this month. In Alabama, the rates that were effective January 1 were the result of working alongside the public service commission staff during our annual rate-setting process. As you may recall, our rates in Alabama are set using a forecasted budget. Our second quarter results reflect the benefits of these constructive regulatory mechanisms we have in each state, as earnings benefited from new rates in Alabama and previously approved Missouri ISRS revenues. During the quarter, we experienced warm temperatures across all of our service territories; and Alabama temperatures were approximately 10% warmer than normal. I'm glad to say, as a result of our efforts with the Alabama…

Thanks, Scott. And good morning, everyone. Let's start with our Midstream segment. As you know, we closed the acquisition of MoGas and Omega in January of this year. And we are pleased with both our progress and integration as well as the solid performance of the system this winter. We've also updated our expansion plan at Spire Storage West, supporting our targeted completion in fiscal year '25. Here are a few key points. During the quarter, we completed our open season and re-contracting activities for the capacity that is coming online in fiscal years '24 and '25. Consistent with the higher demand we've been seeing in the Western U.S., we were able to lock in rates well above our initial estimates and for contract terms consistent with the current market of 3 to 5 years. We also increased our total targeted investment by $55 million to $250 million, with $35 million of that investment falling in fiscal year '24. This increase was driven by expanded scope of the project, including enhancing the power supply, line heating and maintenance capabilities; higher drilling costs for the injection and withdrawal wells; and increased construction costs, especially for electrical, equipment and labor, reflecting the high demand across the energy sector and the market overall. Combining these factors, the returns on the project have improved from our original target. To put this in perspective: The total impact of the Spire Storage West expansion and a full year of MoGas is expected to increase our Midstream earnings by $10 million to $12 million in fiscal year '25. Now turning to our results. Earlier today, we reported fiscal second quarter net economic earnings of $197 million, down $2.6 million from last year. Looking at the segments. Our Gas Utility had earnings of $188 million, an increase of…

[Operator Instructions] Please note this event is being recorded. The first question comes from Richard Sunderland with JPMorgan.

Can you hear me?

We can.

Great. A couple of ones on the weather, to start. I guess, looking across the business and given these weather headwinds, where are you trending in the guidance range of the segment revisions? I think, on my thumb math, it's maybe a 1% decline old to new, so is it fair, that that's putting you in the bottom half of the range? And then I'm also curious kind of where FFO-to-debt stands currently given this weather headwind as well.

Yes. Rich, let me start on that. Yes, we have a range. And I can't argue with the logic that you put forward. If you look at the individual business units, it would show a little bit of degradation in total. And it's weather in the utility and a little bit of interest rates at the corporate. And that -- what I would say is that, as you think about this half year and then play it forward as we think about next year, the beauty of the weather headwinds, if there's any bright sides to that cloud that we've dealt with, is that we would expect to get that to normalize weather and mitigation next year, which is essentially what we had in Missouri last year. And that, if you look at the material, and we did, in the appendix to the presentation, provide a lot more granular information on the weather, it would point to a rebound of 18%. So if you think about how to model the rest of this year, but then what does that look like as you rebase this year going forward, we're very confident that we're still on track. Adam?

Yes, Rich. And I think that -- good question on FFO-to-debt, connecting that to our weather pull-through. As you know, we're -- given our volume -- the volumes that we count on for cash flow, that has -- those lower volumes have negatively impacted that cash flow growth trajectory, so we do -- while we still see very steady progress to that target range, we do now expect that to happen after year-end '24. On the bright side, we do see deferred gas costs almost completely recovered here at the end of the quarter and hope to be completely recovered here shortly.

Got it, got it. Very helpful color all around. And then I think you unpacked this in the script but did want to revisit in terms of how this weather impact is showing up. You were mentioning extreme fluctuations. And then there's a -- greater usage impacts relative to what the degree days are. Is that effectively the difference between your 2Q results now and 1Q? I'm just trying to think about [ where ] the degree days were [ light ] on both sides but the weather impacting your results is actually really showing up this quarter. If you could help parse kind of 2Q versus 1Q, that would be helpful.

Richard, this is Scott Doyle, yes. Maybe I can help with that a little bit. Maybe just start with the response and tie back to the quarter last year. We were at -- we were -- this quarter, we were 2% warmer than the quarter last year. And so if you just look at last year, we had good weather mitigation with the same mechanism in place. When you look at this quarter, really February, March were much warmer than normal. And it was variable weather, so much so that there was no real consistent weather pattern across those 2 months. What we saw, as we've been analyzing the data, is that the customer usage is off significantly during those months and are not correlated to the -- to what the HDDs would show for that same time period, so on balance, what that tells us is there's some work we need to do, relative to that mechanism, to get better correlation. That's work we have to do with PSC staff. The timing of that will be -- rate case is the forum which that takes place, but dialogue can certainly take place in advance of that as well, so look for that, for us to dig more deeply into that more closely with staff as we work to enhance and improve that mechanism.

Understood. And then just one last one, if I could. I know you reiterated that -- the growth outlook here. We've also had, I guess, a couple of quarters now with some interest rate commentary and rate impacts on results. Just curious what you're assuming now on a forward basis for interest rates given kind of the latest market backdrop and then your -- relative to your plan and outlook here.

Yes, no, I -- Rich, great question. We have continued to take a higher-for-longer tack. And obviously the interest rate forecasts are moving as well. I think a lot of the extra interest expense we're seeing is more balance-based rather than interest rate-based. So it's again going back to the kind of the volumetric pull-through. That's probably having more of a -- kind of stubbornly long impacts there than actual -- our actual interest rate forecasts.

Got it. Well, I'll leave it there.

The next question comes from Shar Pourreza with Guggenheim.

It's Jamieson Ward on for Shar. So Richard had some good questions there that a couple of the ones I had, but I did have -- I wanted to just delve a little bit more into on the weather. You mentioned so -- a rate case will be the proper avenue to go about making adjustments to mechanism and that there's a lack of correlation in Missouri between degree days and the amount of mitigation. Just sort of wondering, has the cause of that been identified? Is it something that needs to be studied? I'm just trying to get a sense of where we're at. Like is there a solution in mind and you're just waiting for the next rate case to be filed to kind of tack it onto that? Or is it something that requires maybe a bit more modeling to figure out why they're not connecting the way that you would expect them to, and the way they are working properly in other jurisdictions that you have? Just kind of how we should think about sort of the work to be done there in order to get them to match up. And then a follow-up would just be timing of when we might see -- I guess, in this case, asking about a case, but really the question is when we might see a new mechanism take effect.

Jamieson, Scott Doyle again. Thank you for your question. I think the simple answer to your question -- is this something that does require a little more study, the -- and more modeling just to see if there's an opportunity to correlate this particular weather pattern? Just recall this weather pattern was unique in its -- that it was not a normal weather pattern in that it doesn't follow the norms perhaps within the mechanism. And so we just need to take a deeper dive looking at that, alongside the PSC staff, as we do that. In answer to your question about the timing of the rate case: As a result of us using the ISRS mechanism, we have a must-file date by May of 2026, but expect our rate case to be filed sooner than that as we work to reduce regulatory lag associated with our significant capital investment program that we have underway right now.

Perfect, very clear. Really appreciate the color.

[Operator Instructions] Our next question comes from Christopher Jeffrey with Mizuho Securities.

Maybe turning to the Midstream and the storage in particular. It looks like the guidance there was raised for the new storage rates like Steve was talking about. Just curious how we should think about is there any more room for expansion. Any spare capacity there? And kind of how we should think about the fees expected after the capacity expansion in '25. Are those rated at -- are those kind of locked in at the current rates right now?

All right, Chris, this is Steve. Let me take a shot at that. You had a number of things there. If I missed something, just ping me, yes. If you think about the Midstream business overall broadly, [ let's start broad ]. And we're going to step into the new scale that we currently operate and/or are [ describing ] to get to, as we finish the expansion of Spire Storage West in the back half of this year, in '25 and '26. And the reason for that and the reason why you should expect to see that kind of step-up over the next 2.5 years is that the physical dynamics of storage are that you bring the storage online. And then as the wells and the cavern season over time, the team not only gets comfortable with how the operations are, but then we get a better feel for how we can optimize the use of that cavern capacity over time. This is pretty standard in the space. It takes a couple of years, at least, to kind of work our way through that, so if you think about the Midstream segment broadly, you should expect to see that kind of step-up over the next 2.5 years. We've given the guidance for this year for the Midstream business. And we gave you a preview of how to think about the Midstream business for '25. Will we continue to look for opportunities to optimize? Absolutely. That's part of our job, but remember the Midstream business is a business where the rates that we charge really are driven by the volatility [ in the commodity ]. But the actual monetization [ of ] that volatility, in many ways, is left for our customers, but it does support higher rates. And as…

Great. That's super helpful. And then maybe just last one for me, just kind of in terms of the reiterated guidance for '24. If I kind of just compare that expectation for the second half of the year, compare to last year's second half, kind of implies a decent amount of improvement. Just wondering. In that context of year-over-year, kind of what are you expecting to kind of be the driver of that trend improvement?

Yes. It's a -- that's a pretty broad question. I -- let me focus on the utility and the corporate and other segment because I think we've been pretty clear in what the drivers and movers are in both the Midstream and the marketing segment, yes. And if you remember, last year, we had some outsized one-off costs in the corporate side, in the last fiscal quarter of last year. We obviously don't expect any of that to recur this year, so from a cost perspective, you should expect to see our overall O&M cost be a lot lower. And as Scott mentioned in his prepared remarks, we are focused a lot on how we can get our costs in-line and keep those in-line over time. Now we have a long history of doing this and doing this successfully. It shouldn't be lost on you or anybody else that our actual costs in the utility are lower than they were last year. And we're going to continue to make sure that we have the right cost structure that meet our customers' needs but also -- and support the growth. And that's going to be an ongoing process, so that will be one of the tailwinds that will -- that you will see when you compare this year versus last year. And then secondly, as Adam mentioned, now that we have largely recovered all of our deferred gas costs, I think we can expect with April bills. And as they flow through, we'll get the rest of that deferred gas cost recovered. The headwinds on the balances and short-term debt should mitigate quite a bit and maybe turn into a tailwind. And although we have the same view that the market does that it's probably higher for longer, getting those balances down is another way in which we should be able to create a little bit of uplift when you compare this year versus last.

This concludes our question-and-answer session. I would like to turn the conference back over to Megan McPhail for any closing remarks.

Thank you for joining us on the call today. We look forward to talking to you later today; and in the coming weeks, at AGA. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.