Emera Inc (EMA) 2025 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the Emera Q2 2025 earnings conference call. (Operator Instructions)

This call is being recorded on Friday, August 8, 2025. I would now like to turn the conference over to Dave Bezanson, Vice President of Investor Relations. Please go ahead.

Thank you, Ludy, and thank you all for joining us this morning for Emera's second quarter 2025 conference call and live webcast. Emera's second quarter earnings release was distributed this morning via 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 Blunden, 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 measures to the closest GAAP financial measure.

And now I will turn things over to Scott.

Thank you, Dave, and good morning, everyone. This morning, we reported second quarter adjusted earnings per share of $0.79. This is almost a 50% increase over the same period in 2024. This strong result marks our fourth consecutive quarter of strong earnings growth and business performance and underscores the momentum we have built since the strategic update shared with you last year.

We remain laser-focused on delivering for customers and disciplined execution of our capital plan. First and foremost, our capital plan investments deliver value for our customers with projects that enhance reliability, storm harden our infrastructure and supports both economic and customer growth in the communities where we operate.

Our disciplined and prudent execution of these investments then also translates into meaningful earnings and cash flow growth that strengthened the financial position of our utilities and Emera overall and deliver value for our shareholders. Given all that we've accomplished in the first half of 2025, we are confident that we will be well above our 5% to 7% average annual adjusted earnings per share growth target for this year, and we remain committed to the average adjusted EPS growth guidance we initiated last year of 5% to 7% over the 2025 to 2027 period.

In the first half of 2025, we deployed more than $1.7 billion of customer-focused capital and remain on track to execute all $3.4 billion of our capital plan this year. Key projects are progressing as planned, including solar expansion and reliability investments at Tampa Electric, energy storage, transmission and reliability investments in Nova Scotia, and gas infrastructure expansion at Peoples Gas. Our capital plan is rooted in essential investments that improve reliability and meet customers' evolving demands.

More than half of our five-year capital plan is focused on investment in transmission, distribution and gas infrastructure expansion. This focus allows us to support customer growth as well as enhanced resilience and reliability through storm protection, vegetation management and grid modernization investments.

On the generation side, our solar investment in Florida is the single largest capital project in our five-year plan with more than $2 billion allocated. We've taken proactive steps to derisk this investment by using the Safe Harbor provisions in the recent US legislation, which should allow us access to PTCs through 2029 and help keep costs down for customers.

With our capital plan focused on essential investments and the underlying drivers of our business continuing to point to an ongoing requirement for this level of robust investment, we are confident in the durability of our capital spend and the foundation of our organic growth, both today and over the longer term. Our current plan does not include investment to support potential data center-driven growth, which represents promising upside potential to our capital and earnings growth profile.

On the regulatory front, we've seen constructive momentum in three key areas. Earlier this week, Peoples Gas reached a comprehensive agreement with key interveners and filed a motion to suspend activities associated with the rate case proceeding. The terms of the settlement are confidential until the formal settlement agreement is filed with the regulator, which we expect to happen next week. We expect a final order in the fourth quarter with new rates to be effective January 1, 2026.

At New Mexico Gas, in response to intervenor feedback received during the regulatory process, the joint applicants revise their application to incorporate additional customer benefits and protections. This positive step was supported by an extension to the procedural schedule setting a new hearing date in November 2025, which also provides additional time for the parties to submit a possible settlement stipulation. We remain confident in obtaining regulatory approval. As a result of the hearing schedule shifts, though, we expect the transaction to close in early 2026 rather than late 2025, as previously communicated.

At Nova Scotia Power, the team continues to work constructively with stakeholders to align understanding and support of the capital investment and revenue requirements needed to deliver for customers and to ensure financial stability for the utility. We're encouraged by the ongoing conversations and hope to provide additional updates soon as the team works to secure the necessary new rates for 2026.

And with that, I'll turn it over to Greg to take you through our financial results.

Thank you, Scott and all of you, for joining us today. Turning to the details of our financial performance. This morning, we reported strong second quarter adjusted earnings of $236 million and adjusted earnings per share of $0.79, compared to $151 million and $0.53 in the second quarter of 2024.

The robust earnings growth from across our business translated into a meaningful 32% increase in operating cash flow when normalized for fuel and storm deferrals. This cash flow growth drives meaningful progress towards our credit metric targets with an over 150 basis point improvement in key credit metrics since this time last year, bringing us much closer to our 12% target on a trailing 12-month basis.

We are also pleased to see that during the quarter, Fitch returned our outlook to stable in recognition of our successful efforts to delever and reflecting their confidence in our cash flow growth for 2025. At our Investor Day in December, we stated we expected to achieve a 12% to 12.5% cash flow to debt in 2025 with the sale of New Mexico Gas. With the closing of Mexico now expected in early 2026, we expect to still be in that range in 2025. Importantly, we remain confident in achieving target credit metrics at all three rating agencies in 2025 and beyond.

Our strengthened balance sheet provides us with increased flexibility to navigate the timing, the shift of New Mexico Gas transaction and to optimize our 2026 refinancings. In 2026, we have the $1.2 billion solar hybrid from the acquisition of Tampa Electric with a high reset call and a $750 million senior unsecured debt maturity. We are considering the best steps to derisk these over the next 12 months. And given the success of our 2024 hybrid financings and our targeted capital structure, we are considering the US hybrid debt offering later this year. Turning to the drivers of our results.

Adjusted earnings per share for the quarter increased 49%, primarily driven by higher contributions from Tampa Electric, Emera Energy and lower corporate costs. At Tampa Electric, new rates reflecting the level of capital we've invested on behalf of customers, continued customer growth and favorable weather, increased contributions by $0.25 compared to the second quarter of 2024. Corporate costs contributed $0.08 to the quarter-over-quarter earnings improvement driven by lower interest expense, higher income tax recoveries and modest timing differences in the valuation of long-term compensation and related hedges versus Q2 2024.

At Emera Energy, lower transport costs and favorable head settlements related to storage positions, increased contributions from their marketing and trading business. And at our gas utilities, new rates in New Mexico gas drove higher earnings, partially offset by lower contributions from Peoples Gas. The modestly stronger US dollar increased adjusted earnings by $0.01 during the quarter.

And finally, contributions from our Canadian electric utilities decreased $0.09 compared to the second quarter of 2024, driven by the sale of our equity interest in the Labrador Island Link in June of last year and higher operating costs at Nova Scotia Power. As a result of the cyber incident in the second quarter, Nova Scotia Power incurred approximately $5 million of after-tax costs that were not covered by insurance and that we will not be seeking recovery from customers.

Many of the drivers for the quarter are the same as they are for the year-to-date period but there are a few items I'd like to highlight. For the year, the strengthening US Dollar had a more meaningful impact on earnings from our US utilities driving an $0.08 increase and adjusted EPS compared to the same period in 2024.

Emera Energy's year-to-date performance reflects a record first quarter, where cold weather in the Northeast earlier this year brought higher pricing and market volatility that the business was able to capitalize on. And as a result of that, in the first quarter of this year, we adjusted Emera Energy's earning guidance upward to a range of USD35 million to USD45 million. And for the year-to-date contributions for Canadian Utilities benefited from the recognition of ITCs related to the ongoing energy storage projects and favorable weather in Nova Scotia in the first quarter, which more than offset the lower contributions as a result of our sale of the Labrador Island link in June of last year.

And with that, I will now turn the call back over to Scott.

Thank you, Greg. For those across the sector, this is a pivotal time to invest in increasing demand, resilience and efficiency. Emera will continue to build on our strong momentum, executing our durable, customer-focused $20 billion capital plan which in turn will offer better outcomes for utility customers, all the while focusing on keeping their bills as low as possible. At the same time, with our solid balance sheet and optimize capital allocation, we'll continue to translate our investment into earnings and cash flow growth for shareholders.

And now I would like to open the call up for questions from our analysts.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions)

Rob Hope, Scotiabank.

Good morning, everyone. The first question is on Tampa Electric. Scott, you mentioned in the prepared remarks potential upside related to data centers. Can you add a little bit more color on some of the size of the opportunity and how conversations are progressing?

Sure. And Archie is traveling at the moment, so he's not able to join us. But thank you for the question, Rob.

You would have heard us say, Archie and myself, this year that we'd be disappointed if we didn't secure a data center opportunity this year. That continues to be true, although I'd say there are a number of conversations that are going on, but we're not in a place yet obviously, to be able to count on any data center load or growth to the extent that we do. Realistically, this is '27 -- 2027 or 2028 related growth.

We're talking realistically, we're talking hundreds of megawatts, not gigawatts at this point. But I am encouraged that we are engaged in a number of discussions. We do see this as a real opportunity, but we're not in a place yet where we've built anything into our capital plans or expectations, but we do continue to work this. And as I say, we are encouraged.

Alright, appreciate that. And then maybe shifting over to Nova Scotia, continue to see the government speak about wanting additional transmission in the region. Can you maybe update us on how conversations are going for either interprovincial connections or even the potential to strengthen the grid to accommodate offshore wind?

Hi, Rob. It's Peter Gregg.

I would say, encouraged by the conversations that are happening at the federal level. And I know our premier is speaking a lot about the opportunity that offshore wind represents in Nova Scotia. So we're engaged in discussions with the province in terms of next steps to move forward on that. I'd say it's very, very early, but that a lot of encouraging discussion about nation building projects from the federal level. And I think it does represent opportunity for Nova Scotia and therefore, opportunity, I think, for Nova Scotia Power.

All right, appreciate that. And congrats on a good quarter.

Maurice Choy, RBC Capital Markets.

Thanks. And good morning, everyone.

Just sticking with the Nova Scotia theme here. I think in the prepared remarks, you mentioned that you're encouraged by the ongoing conversations. I do obviously recall that in a previous conference call, you suggested that there might be an update in Q2 -- presumable Q2 results, recognizing that this is obviously a complex discussion, but can you just provide more color on this? Rates obviously default yet, but what exactly are you trying to achieve in tandem with the government and your stakeholders?

Yes, Maurice, it's Peter again. I think Scott said it well in his prepared remarks. It's probably difficult for me to say much more than that. But we are -- just to echo that, we're having constructive discussions with the various stakeholders. And I think Scott closed by saying hope to have more updates in the not-too-distant future. It's probably all I'm prepared to say today.

Understood. Maybe just shifting over to the balance sheet. Greg, I think if I didn't mistake you hear this, I think you mentioned that you still expect to be in the 12% to 12.5% range for cash flow to debt in 2025 despite the absence of the NMGC transaction benefits. Can you share what steps you took or what tailwinds that help fill this gap that NMGC would have filled? I believe MGC would have helped the metric by about 50 bps. So just your thoughts on that. Thank you.

Yes. Thanks, Maurice. I think a lot of it is just the performance of our business on a year-to-date basis. And maybe to give you a little bit of context around that. And again, obviously, the focus of most of our investors is with Moody's, who is the only agency that still has a negative outlook. They're reported on a trailing 12-month basis at the end of Q1 had us at 11.3% on a FFO to debt perspective.

We expect when they publish at the end of Q2, that will be at 11.7% on a trailing 12-month basis. And of course, they are normalizing out the cash flow at Tampa Electric for storm cost recovery. They do not normalize out the debt that cash flow is actually servicing. If you normalize for that debt, we're at 11.9% on a trailing 12-month basis. So we're effectively there now on a trailing 12-month basis. So it's really been the business unit performance to date that gives us confidence that irrespective of the closing in Mexico will be where we need to be.

Understood. Thank you very much.

John Mould, TD Cowen.

Hi. Morning, everybody.

Maybe just going back to the Florida utility. Many of us have observed the announcement that Duke is selling a 20% interest in its Florida utility at a 2 times rate base. And looking back a couple of years at your 2023 Investor Day, I think you were very clear that you would not consider a sale of minority stake in your Florida utility. Just wondering if you could update us on your thinking there right now? And if there is any use of proceeds that you see as being sufficiently attractive to consider selling a minority stake in that asset.

Thanks for the question, John. So our thinking has not changed. We continue to see our operations in Florida, both the electric and gas operations as core to our business, to our strategy, to our growth, to our success and encouraged, obviously, at the transaction that between Duke and Brookfield, I think, reinforces supports our view that these are premium utilities in this market that Florida is a good market to own and operate a regulated utility, and we're fortunate enough to have two of them in that market. So I think it provides a useful valuation marker for us.

But as it relates to sort of liquidity opportunities and capital recycling, that's the process we've been on for the last 12 months and the decisions to sell our interest in the Labrador Link and New Mexico Gas are really the decision points that we made around that, and we continue to be happy with the rest of the portfolio, particularly including our operations in Florida.

Okay, great. Just wanted to check on that.

And then -- maybe just coming back to offshore wind in Nova Scotia. We did see the announcement last week that the first for offshore wind areas have been designated in Nova Scotia. I guess just wondering, looking at those sites as an early look, how much those leverage the existing transmission system in Nova Scotia versus potentially necessitating some upgrades to your system. I'm just wondering maybe, Peter, what you could tell us there in terms of an early look?

Yes. It is early. And so a bit hesitant to say. But I'd say the size of the resource that we know is out there is significantly more than the energy that we consume in Nova Scotia itself. So we'd obviously have an interest in securing that clean energy for our customers where we can.

But I think there's also going to be an opportunity for export of that power. And that's where a lot of the discussion about interregional transmission has come. So I think considering the size of it, and -- it may happen in phases but considering the size of it, we would likely need upgrades to our transmission network in Nova Scotia, both for delivery to our customers but also for export needs beyond Nova Scotia.

Okay, I'll leave it there. Thank you very much.

Mark Jarvi, CIBC Capital Markets.

Yes. Good morning, everyone.

Just wanted to follow up a little bit on that last conversation, Peter, just I guess one thing on the transmission interconnects if offshore incomes to be fruition. Is that de facto for NSPI or would that go to a competitive bid? And then your comment about being more resource and power than what you might need there, are you contemplating exports to the US again, like some of the options you look at a number of years ago?

Can you -- sorry, Mark, can you say the first part of your question again?

I was just wondering whether or not the transmission infrastructure build that would be needed for offshore wind, if it comes to fruition -- if you have the right to that, like incumbent rates at NSPI or whether or not that be a competitive process?

Yes, it's too early to know. I would say, though, that like other provincial jurisdictions, we do have sort of that franchise, right, I guess, you would say, for the transmission build in Nova Scotia under our tariff, and that would be similar in other provinces as well.

Your question about US, we're not actively pursuing anything like that at this point. I think the first step would be to look at the provinces obviously identified the first four parcels. I would expect that a request for expressions of interest would follow at some point, and we'll see what happens after that.

I think, Mark, the other thing I'd say on that is we are doing -- we'll do everything we can to support the provinces and the premier ambitions here in bold vision as it relates to developing this significant resource, and that includes Nova Scotia Power and Emera. We'll do everything we can to support. But it's largely being led by them.

And as Peter answered in the previous question, the resource opportunity there is multiples the size of the entire system here in Nova Scotia. So that would need a market. And the obvious markets for that are either west of here into sort of the more populous regions in Canada, Quebec and potentially Ontario or into New England.

And the Premier's Wind West initiative identifies both those markets. Obviously, there's a a lot of important math and economics. It has to go into making all of that work. But we'll be doing everything that we can to support his vision, the execution of that, including supporting whatever transmission needs and builds are required.

Understood. Thanks, Scott.

And then just coming back to NSPI and the path forward for new rates. I guess, at this point, is it kind of ruled out that would be a typical general rate application just given the time lines sort of more like a pre-negotiated settlement? Is that sort of the path forward here?

Yes, Mark, I'd just say, again, pleased with the constructive conversations we've been having and doing everything we can to secure those rates for 2026.

Got it. I had to try a little bit harder on that one. Yes.

Greg, last question for you. Just given those comments on credit metrics progress, I know New Mexico Gas sales has been pushed out a little bit. Does that mean anything around the usage of the ATM this year or do you feel like the tailwinds in the business clearly keep the ATM on the sidelines for the balance of this year?

Yes, I don't see any change at this point, Mark. I did make a reference to US hybrids. If New Mexico had to close originally as planned, we wouldn't have had a use of proceeds for any incremental corporate financing this year. But now, we have some flexibility to maybe get ahead of and derisk the June financing in the next year. So we're looking at that. But I'd say first and foremost, our focus would be on a US hybrid offering.

Got it. Okay. Thanks, everyone.

(Operator Instructions)

Ben Pham, BMO.

Hi. Thanks. Good morning.

I wanted to ask on your EPS guidance, the 5% to 7%. Can you comment directionally when you think about the key levers and that guidance, whether it's deployed or interest rates. How is that generally trending versus your budget? And can you also clarify what you're assuming in the hybrid assumption in that guidance?

Yes, Ben, let me maybe give you a little bit of color.

I mean, certainly, when we rolled it out, we assumed a constant FX rate, and we made the assumption that Emera Energy would earn at the midpoint of their band. What we're seeing from a tailwind this year, obviously, Emera Energy has outperformed that midpoint, and we've adjusted the guidance. We wouldn't necessarily expect that to continue in the four years.

We are seeing some favorable weather and load growth, in particular, in Florida. So that's been pushing us maybe at the higher end of that in the near term. We've always assumed in our long-term forecast that we would in one form or another, refinance the June 2026 hybrids in the market. Hybrid pricing has come in a little bit tighter than it certainly was six months ago, but I wouldn't say that would have an overall meaningful impact on our long-term EPS CAGR.

Okay. Is there -- just on that hybrid then, is there appetite and just you can do a full one-for-one hybrid offering versus taken spot with asset proceeds or ATM usage?

Yes, we have some flexibility in terms of -- it doesn't have to be 1 for 1 on the particular date. We could do it in multiple tranches, which is a likely scenario for us but it doesn't have to be done one for one, and we can certainly replace it with other sorts of financings. But ultimately, we would expect to have comparable preferred shares, hybrid financing in place to replace the $1.2 billion that we have maturing next year.

Okay. Got it. And then maybe one more last cleanup question. The cybersecurity reference, how does that have any change the cybersecurity CapEx of any or just how you look at IT investments outside of NSPR within NSPI.

Yes. I don't think Ben -- I don't think it's any different for us than anybody else. We're always trying to manage how we invest in our IT systems and the amount of investment from a cybersecurity prevention issue.

Certainly, I think the stuff that's in the cloud is generally more secure than stuff's on-premise and a lot of our infrastructure has already been migrated into the cloud, and there's still some work to be done. But I'd say it's a continued evolution of all of that and nothing particularly unique, I don't think, to us versus what you'd be seeing with our peers or quite frankly, any other company in North America.

Okay, got it. Thank you.

Thank you. And we currently have no further questions at this time. I would like to turn it back to Dave Bezanson for closing remarks.

Thank you, Ludy, and thank you all for your interest in Emera. Please reach out to the Investor Relations team if you have any further questions. Otherwise, have a safe day and rest of the summer.

Thank you, presenters. And ladies and gentlemen, this now concludes our presentation. Thank you all for attending. You may now disconnect.