Emera (EMA) Q1 2025 earnings call transcript

DAVE BEZANSON Thank you, Mike, and thank you all for joining us this morning for Emera's first quarter 2025 conference call and live webcast. Emera's first quarter earnings release was distributed this morning by a newswire and the financial statements, management's discussion and analysis and the presentation being referenced on this call are available on our website at Emera. com. Joining me for this morning's call are Scott Balfour, Emera's President and Chief Executive Officer, Greg Blendon, Emera's Chief Financial Officer and other members of Emera's management team. Before we begin, I'd like to advise you that this morning's discussion will include forward-looking information, which is subject to the cautionary statement contained in the supporting slide. Today's discussion and presentation will also include references to non-GAAP financial measures.

You should refer to the appendix for reconciliations of historical non-GAAP Emera Q1 2025 Earnings Conference Call May 8th, 2025 measures to the closest GAAP financial measure. And now I will turn things over to Scott.

SCOTT BALFOUR Thank you, Dave, and good morning, everyone. This morning, we reported first quarter adjusted earnings per share of $1.28, representing a 68% increase over the same period 2024. I'm proud to say this represents the strongest first quarter performance in the company's history and sets us up to deliver well above our 5 to 7% earnings growth per share range in 2025. Our first quarter results were driven by robust performance across our regulated utilities. Tampa Electric and New Mexico Gas both benefited from new rates that reflect the rate-based investments they've been making in support of their customers. And at Nova Scotia Powers results benefited from the colder weather we experienced here in Nova Scotia this winter.

The results from our regulated utilities were further bolstered by a record quarter from Emera Energy. Cold weather in the Northeast resulted in higher pricing and market volatility, creating opportunities that the business was once again able to capitalize on to deliver exceptional results. Our performance this quarter is also, in many ways, a direct result of the actions we took in 2024, which provided the strong foundation of our execution this year. Last year, we successfully executed on our asset sale program, strengthened our balance sheet, adjusted our dividend growth guidance and finalized two important rate cases. These actions strengthened our company and positioned us well going into this year to translate our rate base growth into meaningful earnings per share and cash flow Emera Q1 2025 Earnings Conference Call May 8th, 2025 growth.

You can see this reflected in our first quarter results, and we're confident that we will see strong performance for the year overall. We also remain confident in our 5 to 7% average earnings per share guidance through 2027. Teams across the Emera have deployed over $700 million in customer focused capital in the first quarter, putting us well on track to execute our $3.4 billion capital plan for the year. Major projects underway including our solar development, solar development and deployment and reliability investments at Tampa Electric, energy storage and reliability upgrades in Nova Scotia and gas infrastructure expansion at People's Gas, are progressing as planned. We continue to see strong population and economic growth in Florida, with customer growth, the Tampa Electric and People's Gas continuing at a rate of over 1.5% and 3.5%, respectively, driving significant investment demand.

Between the projected increases in Tampa Electric’s capacity needs owing to organic load growth, coupled with their desire to enable economic development in West Central Florida, Tampa Electric has brought certainty to their generation expansion plan to ensure resource adequacy by contracting for the supply of two gas turbines to be delivered in 2028. These investments as well as continued investments in reliability, resiliency, renewable integration and technology are the key components of our 7 to 8% forecasted rate base growth and the foundational driver of our long-term earnings growth expectations. Against an uncertain macroeconomic backdrop, we are laser focused on managing our capital deployment, focusing on both customer affordability and the timely recovery in rates. To the extent that we see tariffs or supply chain impacts on our capital plan, we currently expect that we will work to report profile our capital spend to maintain our 7 to 8% rate base Emera Q1 2025 Earnings Conference Call May 8th, 2025 growth so as not to negatively impact affordability, while also meeting the needs of our customers.

As a result, we do not expect to make any material changes to our five-year capital plan. Our teams are also working diligently to mitigate supply chain risk and identify alternative domestic supply opportunities to reduce any direct exposures to tariffs on behalf of our customers. To that end, we've already secured and received panels for our solar investments through 2026, after which new panels will be 100% domestic supplied, with any tariff risk contractually mitigated through 2029. De-risking the major, the largest major project in our capital plan. at Peoples Gas pricing has been locked in for major projects and at Nova Scotia Power, approximately 95% of their capital spend is already sourced from Canadian suppliers. In addition, I want to highlight that we have very limited direct exposure to Chinese tariffs, with the only material exposure being planned energy storage investments at Tampa Electric.

Importantly, despite the current tariff exposure, the business case for storage remains intact as batteries remain the lowest cost alternative for customers. Given the intense sector focus on this, I would note that our $20 billion five-year capital plan does not include any major capital to support data centers. To the extent that we capture any of these new customer opportunities, the revenue and capital investment opportunities would be upside to our plan. On the regulatory front, our focus is in three key areas. The closing of the sale of New Mexico Gas, where the regulatory process continues as expected. The next milestone is the hearing scheduled to begin on June 23rd of this year. We continue to expect closing in Q4 of 2025.

At Nova Scotia Power, the team has been working constructively with key Emera Q1 2025 Earnings Conference Call May 8th, 2025 stakeholders in the province on a path forward to secure financial stability for the utility and allow Nova Scotia Power to continue making important reliability and resiliency investments for customers. As you know, these processes take time and while we would like to have more to share on our call today, we're encouraged by the progress and confident that we will have more to share in the second quarter. And at Peoples Gas, the rate application is also proceeding as expected with a hearing set for September and a final decision expected in the fourth quarter. And with that, I'll turn it over to Greg to take you through our financial results.

GREG BLUNDEN Thank you, Scott, and thank you all for joining us this morning. Turning to the details of our financial performance this morning, we reported record first quarter adjusted earnings of $379,000,000 and adjusted earnings per share of $1.28 compared to $216,000,000.76 in 2024. The robust earnings growth from across the business translate into a meaningful 37% increase in operating cash flow when normalized for fuel and storm deferrals. As you'll recall, our 2024 cash flow was impacted by the $464,000,000 USD storm deferral at Tampa Electric from the major storms we experienced last fall. Recovery of these costs began on March 1st and we will be collecting them over an 18- month period through August of 2026. And while the typical recovery period for storm costs in Florida is 12 months, we are recovering the cost over 18 months to prioritize affordability for customers by modestly extending the recovery period.

This quarter's cash flow growth has delivered important progress towards our credit metric targets Emera Q1 2025 Earnings Conference Call May 8th, 2025 with an over 200 basis point improvement in key metrics since the first quarter of 2024, bringing us closer to our 12% target on a trailing 12-month basis. Pro forma with the sale of New Mexico gas, we are north of this target on the trailing 12 month basis supporting our confidence in achieving targeted credit metrics at all rating agencies in 2025. We are pleased to see that S&P returned our outlook to stable in recognition of our successful efforts to delever and reflecting their confidence in our cash flow growth for 2025. And while we can't control the timing, we are confident that our actions to date and visible cash flow growth positions as well for Moody's and Pitch to also return our outlook to stable this year.

Turning to the drivers of our results, increased contributions for regulated utilities of mirror energy and lower corporate costs drove a 68% increase in adjusted EPS this quarter. At Tampa Electric, new rates reflecting the level of capital we've invested on behalf of customers increased contributions by 12 cents or 85% compared to the first quarter of 2024. For Canadian electric utilities, the recognition of income tax credits related to our battery storage projects and favorable weather increased contributions from Nova Scotia Power, which more than offset the lower contributions from equity investments resulting from the sale of Labrador Island Link last year. Emera Energy had the best quarter in their history with adjusted earnings of 48 million U. S. dollars in 2025 compared to 33 million U. S. dollars last year.

Cold weather brought higher pricing and market volatility, which the business was able to capitalize on. As most of you are aware, we generally see some earnings erosion over the summer because there is less margin opportunity while we are amortizing the cost of transport equally over the year. Emera Q1 2025 Earnings Conference Call May 8th, 2025 That said, in light of our strong Q1 performance, we are adjusting Emera Energies earning guidance upward for 2025 from the usual 15 to 30 million U. S. dollars to a range of 35 to 45 million U. S. dollars. The strengthening U. S. dollar had a meaningful impact on earnings from our US utilities and Emera Energy, driving a 7 cent increase in adjusted EPS compared to Q1 2024.

Net of hedges, that are reflected in corporate, this was a 5 cent increase. The remainder of the year. We continue to expect that every petty change in the Canada U. S. dollar foreign exchange rate will have a roughly 1 cent impact on our adjusted earnings per share. New rates of New Mexico Gas increased contributions from our gas utilities during the quarter, which were partially offset by modestly lower contributions from Peoples Gas. Corporate costs contributed 4 cents to the quarter-over-quarter earnings improvement primarily driven by timing differences in the valuation of long term compensation and related hedges in Q1 of last year. And finally, contributions from other electric utilities decreased modestly, driven primarily by higher operating costs.

The strategic actions undertaken in 2024 to strengthen our balance sheet and reduce our exposure to variable rate debt establish a strong foundation for growth and performance in 2025. As of March 31st, only 11% of our debt portfolio is variable rate with 5% at corporate and 6% at our operating companies. Of our variable rate exposure, the approximately 1 billion variable rate debt at the holding company level is expected to be repaid with the proceeds from the sale of New Mexico Gas. And at the operating company level, the variable rate that includes the incremental short-term debt we incurred to finance the storm deferrals at Temple Electric. And as I mentioned, recovery Emera Q1 2025 Earnings Conference Call May 8th, 2025 of those costs began on March 1st and will recovered and repaid over the next 18 months.

And with that, I'll now turn the call back to Scott.

SCOTT BALFOUR Against an uncertain macroeconomic environment, we remain strategically well positioned with our high quality portfolio of regulated assets to deliver consistent predictable performance. As always, we're focused on execution to safely deploy over $3 billion in customer focused capital to prudently operate our utilities and look for cost saving opportunities as well. With our strong foundation and expert team, our strategy will continue to allow us to deliver value for customers and shareholders. And now we'd like to open the call up for questions from our analysts.

SCOTT BALFOUR Hey, Rob, look, I, you know, I think we're into the, you know, so and well into the process now and every regulatory process involves, you know, stated positions from both sides. There's nothing that's unexpected from our perspective in terms of where we're at. Hearing coming up in June is the, you know, next milestone to, to pay attention to and the team's focused and getting ready for, for that. And as I said on a call, we continue to expect a successful outcome from that process and closing in the fourth quarter.

SCOTT BALFOUR Archie, would you like to address that please?

ARCHIE COLLINS Sure. Good morning, Rob. Lots of you know, what I think what I would say is there's lots Emera Q1 2025 Earnings Conference Call May 8th, 2025 of discussions happening with data center developers. Nothing, nothing that has developed to a point yet that we, you know, we're putting pen to paper on agreements. But you know, we, we continue to feel optimistic, confident, that that the developers are going to see the merits of siting in the West Central Florida geography. In fact, you know we continue to take steps to enable data center developed development by shoring up the supply chain. The two CTs that Scott referenced are certainly in line with that. So we continue to be optimistic.

I would say that recently we have felt a bit of a chill coming over, I think the entire data center community, because of interest rate uncertainty, tariff uncertainty, but things are still progressing in, in a good direction with all of the developers we're speaking with.

SCOTT BALFOUR Thanks for the question, Maurice. No, I wouldn't, I wouldn't say our, you know, our anxiety is very, is very high at the moment. And of course the team's working hard to, to address, you know, sort of tariff exposure, which is not that significant as you, you know, would have picked up from, from our calls. But you know, an effort to continue to ensure we are managing affordability impacts for, for customers. It's of course a high priority item for the team. You know, I think the other aspect to tariffs is just, you know, supply chain constraints and you know, it's disrupting supply chains. And so managing, managing supply chain processes and you know, when ensuring we've got, you know, good supply chain relationships and alternatives that that would be sort of the other key area of focus for the teams.

PETER GREGG Hi, Maurice, it's Peter Gregg from Nova Scotia Power. Great question. Early days yet obviously with the federal government, but I do think there's strong alignment between the economic development goals that the Houston government has here in Nova Scotia with what we're hearing our early goals of the of the Carney administration. I think, you know, certainly the Premier has been vocal about his desire to develop offshore wind resources that are quite strong in Nova Scotia. We do have a critical mineral strategy that is developing in Nova Scotia, that's a priority of Prime Minister Carney. So I think there's alignment and good potential opportunity there that we're going to stay close to. But again, saying it's, it's obviously very early days.

SCOTT BALFOUR And I just add, you know, encouraged by what would seem to be some momentum and thinking around East West energy corridors that that obviously is something of value and importance, I think to Canada nationally, but particularly to Atlantic Canada as well. And so, you know, those kinds of things I think are encouraging. But as Peter said, it's, you know, it's still early days, of course.

PETER GREGG Yeah, it's early, but you remember we did a lot of work a few years back on what we at that point called the Atlantic Loop. So there's been a lot of work done on that. But I think can be refreshed. It probably would not look the same as that. It's my expectation, but a lot of that thinking has been done. But obviously our interest at the Nova Scotia Power side would be on the, on the transmission, investing in the transmission access of the East West grid. And if there is going to be development of offshore wind, you know what's the rooting of that? We'd be interested in where that meets land in Nova Scotia making sure we have the transmission aspects of that.

So really, I know our interests from Nova Scotia Power would be on the on the transmission side.

SCOTT BALFOUR Yeah, Ross, I mean, look, I mean, a settlement can happen at any time. Of course, the later in the process that the settlement is it, you know, has some risk of impact on schedule. But yes, the settlement can, can happen at any point in time. And you know, it's a, you know, but the team, you know, remains focused on, on an, on the upcoming hearing and, and putting its case in front of the front of the regulator and demonstrating how in fact this transaction is beneficial for customers.

SCOTT BALFOUR Yeah. Even though, you know, we're well into the season of spring, we continue to to to Emera Q1 2025 Earnings Conference Call May 8th, 2025 guide that we expect a listing in, in New York in the spring of 2025.

And then given the given the FX volatility we've seen in April, are you thinking any difference in strategy around your hedging policy or how you look at hedging that going forward? GREG BLUNDEN Hey, Ross, it's Greg. No, at this point in time, you know the volatility we're experience is not uncommon for the Canadian dollar and at this point in time we have no plans to change our approach to hedging our U. S. dollar earnings.

SCOTT BALFOUR Yeah, I don't, I don't think the intention is, is to amend the application, Mark, I wouldn't say that. But through the through the process, of course we will respond, we will provide rebuttal effectively to the filings of the intervenors to respond to their concerns and that that evidence will be part of the deliberations that the Commission will consider at the hearing.

SCOTT BALFOUR So let me let me start and Archie can chime in. You know, I think, you know, obviously Emera Q1 2025 Earnings Conference Call May 8th, 2025 we pay attention to, you know, sort of economic growth signals across all our portfolios. And you know, I wouldn't say we've seen anything particularly notable in in Florida, but, it's certainly something that we're that we're watching for, you know what we're certainly not seeing growth accelerate in this, in this environment. But you know, but I would say it's, it's an environment, you know, probably in both Canada and the US where because of the sort of the broader economic conditions, you know, I think we and everyone are probably paying attention to what's happening in terms of in terms of growth, growth drivers underlying it.

You know, we still see the economy in Florida continuing to be strong. We've still seen strong customer growth in the in the first quarter and not really expecting any change to that, but it's certainly something we're paying attention to.

Archie, anything that you'd want to add to that? ARCHIE COLLINS I agree with everything you just said, Scott. The only thing that I would add is like, our economic development team is as active as they've ever been and the files that they're managing are not exclusively data center files. We have lots of companies looking to relocate to Florida. And, you know, when there's a, you can sense there's a real movement around the like the onshoring. And so, you know, I think there's opportunities that might provide to us in West Central Florida as well.

ARCHIE COLLINS Well certainly from an economic, our economic development work is, is exclusively CNI residential customer migration into our service territory. As Scott said, first quarter was consistent with where it's been for the last, for the last number of years. But you know it, I think there is a bit of there's some concern from economists that there's at this 10 seconds, there's a, you know, people are being more thoughtful about decisions they make given the economic uncertainty. But all things being equal in the US, Florida considered it continues to be a preferred destination for folks to relocate to.

Hi, Ben, It's Peter. Yeah, it's our outlook for the balance of the year is still consistent with the language we put in there. It's earning just below the allowed rate of return band. So even with a good first quarter, we still think that is the appropriate guidance for the year.

GREG BLUNDEN Yeah. Just, you know, we're not going to provide specific guidance, but you know, we had a ROE kind of mid eight, 8 1/2% range last year and I think it's fair to say that we would expect it to be somewhat similar this year.

Is it more supportive than before? Is it that they are the same? SCOTT BALFOUR Yeah. Well, first, first of all, you know, the constitution of the Commission is different today and that now it is appointed, where with our filing it was elected. You know, I'm not in a place to assess as to whether there's any difference in that. I'd say our experience with this Commission right from the beginning has been, you know, very balanced, very balanced outcomes. And you know, our regulatory experience in, in New Mexico has as, as reflected that I think. And you know, from, you know, our, our view, I think you know, Bernhard Capital Partners, while they are a private equity owner, we obviously are not, they do, they do operate a number of businesses.

They are not sort of a traditional private equity type firm. They have their hands on and are experienced owners and operators of businesses. And they have investments in New Mexico and are very committed to delivering value for customers and also, you know, committed to proceed through the regulatory process demonstrating benefit for customers. And that's what we expect will be, you know, evident through the rebuttal testimony that's filed and the and the hearing in June. Karen, anything that you'd want to add to that?

Emera Q1 2025 Earnings Conference Call May 8th, 2025 KAREN HUTT No, Scott. I think. I think. That's exactly right. We're working through the process. It is a net benefit test that we need to demonstrate in New Mexico and we're all aware of that and aligned on that. So we continue to engage with all parties and work through the process and we're confident that we're that we're positioned to be able to achieve those expectations in terms of the regulatory requirements.

DAVE BEZANSON Thank you, Michael. Thank you all for your interest in Emera. That concludes our call for today. Have a safe day.