SO - NYSE

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 decade or so. While it's likely these numbers include some degree of duplication as in potential projects as some prospective customers are evaluating multiple states that we serve for their facilities, these numbers are significantly higher than what we've seen historically. About 40% of the projects in the pipeline and 80% of the potential electric load are data centers. In addition to data centers, clean energy and transportation manufacturing, port related businesses and other heavy industries continue to be attracted to our states due to reliable energy, a diverse workforce, robust transportation networks and a low cost of living, all compelling reasons to locate or expand in our Southeastern states. The potential load growth in this pipeline that is reflected in our forecast is currently only a fraction of this full potential. As a reminder, during our year-end earnings call in February, we updated our forecast to reflect projected retail electric sales growth that is expected to accelerate in the latter part of this decade with a projected growth rate of approximately 6% from 2025 to 2028. The underlying Georgia Power projected sales growth is approximately 9% over the same period. In response to this growth, Georgia Power filed and the Georgia Public Service Commission subsequently approved earlier this year its 2023 Integrated Resource Plan Update. Since the time of the original filing last year, Georgia Power's pipeline of potential large load additions by the mid-2030 has grown approximately 40%, and the amount of committed peak demand at the same time frame has more than doubled, now totaling over 7 gigawatts. As we described in detail on our last earnings call, we continue to execute on our disciplined approach to attracting, serving, pricing and forecasting this potential incremental electric load, and we continue to expect that our disciplined approach to pricing this new load should result in revenues that not only cover the incremental cost to serve these new customers, but also provides economic benefits to existing customers. Chris, I'll now turn the call back over to you.

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.

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.

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?

Our next question is from Julien Dumoulin-Smith with Jefferies.

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.

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.

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.

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.

Our next question is from Nick Campanella with Barclays.

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.

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.

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.