TXNM Energy, Inc. (TXNM) Earnings Call Transcript & Summary

Good day, and welcome to the TXNM Energy Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Lisa Goodman of Investor Relations. Please go ahead.

Thank you, Wyatt, and thank you, everyone, for joining us to discuss today's announcement regarding the agreement under which TXNM will be acquired by Blackstone Infrastructure. Please note that the presentation for this conference call and other supporting documents are available on our website at txnmenergy.com. Joining me today are TXNM Energy Chair and CEO, Pat Collawn, and President and Chief Operating Officer, Don Tarry. Before I turn the call over to Pat, I need to remind you that some of the information provided this morning should be considered forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. We caution you that all of the forward-looking statements are based upon current expectations and estimates, and that TXNM Energy assumes no obligation to update this information. For a detailed discussion of factors affecting TXNM Energy results, please refer to our current and future annual reports on Form 10-K, quarterly reports on Form 10-Q, as well as reports on Form 8-K filed with the SEC. With that, I will turn the call over to Pat.

Thank you, Lisa. Good morning, everyone, and thank you for joining us today. Earlier this morning, we announced our agreement to be acquired by Blackstone Infrastructure. We know that many of you are busy at the AGA Investor Conference, but we wanted to provide an opportunity for you to hear from us on this transaction. Let's start on Slide 4. We have talked many times about the need for scale in our business. This transaction achieves this advantage while keeping TXNM Energy, PNM and TNMP intact. Our headquarters and teams all remain in place. The financial backing of Blackstone Infrastructure makes us stronger and allows us to do more for our customers. The fund's long-term investment approach lets us focus on opportunities to bring more value to our customers over the long term and maintain investment-grade credit metrics without the challenges associated with today's capital markets. This means greater opportunities for our customers, our employees and our communities, which is how this transaction will be evaluated. Don will talk more about these benefits. The agreement also includes provisions for us to secure $800 million of equity before the transaction closes. The pricing for this transaction has been structured to provide cash compensation to our current shareholders in exchange for their expected return on investment. Upon closing of the transaction, shareholders of our common stock will receive $61.25 per share in cash. This is a 23% premium over the unaffected stock price and a 15.8% premium over Friday's closing price and reflects an $11.5 billion total enterprise value. Now turning to Slide 5. I'll share more about Blackstone Infrastructure and how their investment approach stands out. First off, this portfolio within Blackstone has seen incredible success, growing to $60 billion in infrastructure assets under management. Blackstone Infrastructure funds enable decades-long partnerships, which make them more appealing to longer-term investors like pension plans. This encourages its own companies to maintain a strong asset base, unlike other types of funds and provides financial scale and strength. This allows our team to focus on the execution of our long-term strategic plan and making the right investment decisions for our customers. This fund is solely dedicated to infrastructure investments and recognizes the role these assets play in our communities. By allowing management to focus on the execution of its long-term plans, the fund builds resilient companies that can better support their communities. Blackstone Infrastructure also believes the well-being of its employees is foundational to its success and invest in health and safety initiatives, competitive compensation and benefits, as well as training and skill development. They also have a charitable foundation that encourages and supports their portfolio companies. As an investor, they also have experience in our industry and supporting strong management teams. They have funded growth prospects at FirstEnergy, NIPSCO and Invenergy, the largest private renewable developer in the U.S. With that, I'm going to turn it over to Don to talk more about how this particular transaction will benefit our customers, employees and communities.

Thank you, Pat. I'll pick things up on Slide 6. I've been meeting with Blackstone Infrastructure team for the last several months, and I can tell you firsthand how excited they are for this opportunity. They have seen the great work that we've done in both New Mexico and Texas and also where they can fit in to help our teams thrive. Blackstone Infrastructure shares our priority to keep customers first in our decision-making and business strategies. They understand the additional investments provide customers with safe, reliable power. They also understand customer rates and that these investments come with the cost. So it is important to prioritize and allocate costs to the right investments that will increase value for customers over the long time -- long term. They know that they are not the ultimate decision maker when it comes to what's best for customers. And PNM and TNMP will continue to be regulated by their commissions in each state. We will continue to use an open collaborative process and engage with stakeholders on regulatory matters. This includes the regulatory approvals that are required for this transaction. We expect to spend the next few months working with parties to put together a complete package that demonstrates the continued commitment to our customers and our communities. Blackstone Infrastructure has committed in this acquisition agreement to keeping TXNM Energy, PNM and TNMP locally operated and managed with headquarters in New Mexico and Texas, respectively. I will continue to lead these operations with leadership teams we have in place. We also recognize the value our teams provide and have committed to no reductions in our workforce and our compensation and benefits for at least 2 years after transaction close. And as Pat has explained, it is core to Blackstone Infrastructure to support their communities. We look forward to continuing economic and charitable contributions and supporting employees who are volunteering with organizations making a difference. We look forward to continuing our programs that support education and building trade skills like the PNM Power Pros and the types of programs our foundation supports like reduce your use grants and matching donations. Now I'll flip to Slide 7 to talk about the financial considerations for this transaction. The purchase price is $61.25 per share in cash upon closing. Pat already mentioned that this is a 23% premium over the unaffected price and a 15.8% premium to where the stock closed on Friday. Within 10 business days, Blackstone Infrastructure is providing $400 million of upfront investments in our business through purchase of 8 million newly issued shares. In addition, we will be issuing another $400 million of shares on the market between now and the closing of the transaction. This removes the pressure of financing our current investment plan, while the transaction is working its way through the regulatory approval process. The transaction is funded entirely through equity, and there will be no incremental debt added to TXNM Energy. And we continue to pay a dividend on our common stock over the course of the transaction process, subject to the same board approval currently in place. The Board has the ability to maintain our current targeted payout levels and increase the dividend amount consistent with our current plans. Before I hand it over to Pat to cover the approval process, I want to thank the internal team that worked through this process and helped us build a transaction that can benefit our customers and our communities well into the future. Pat?

Thanks, Don. And please, I want to add my sincere thanks to all of the folks on our teams who have supported this process. And I'd also like to thank our Board of Directors who have supported us through every step. Slide 8 covers the approvals needed for the transaction. We will file our proxy in the next 60 days and will set the date for our shareholder meeting. The transaction is subject to regulatory approvals at the state and national level, and we expect that process to be completed in the second half of 2026. As Don noted, we plan to spend the next several months engaging with PNM and TNMP stakeholders, and this will happen before we submit each of our state filings. Before I turn it over to question and answer, I'd like to thank Lisa Eden, who announced her retirement last fall, but has continued to stay on with us and will be with us until July 3. I'd also like to congratulate Henry Monroy, who has been named our new Senior Vice President and Chief Financial Officer. Henry has been with the company for 22 years and has held roles, including Vice President and Corporate Controller; and was most recently the Vice President of PNM Regulatory. We are so happy to welcome him in his new role. With that, Wyatt, let's open it up for questions.

[Operator Instructions] Our first question will come from Julien Dumoulin-Smith with Jefferies.

This is Tanner on for Julian. Just kind of starting off, can you provide a little bit more detail as it relates to the $400 million of equity to be issued prior to the closing of the transaction. Should we think of this -- of the issuance as being contingent on the progression of certain regulatory approvals? Or is it specifically on an issue when-needed basis?

It's on an issue when-needed basis, Tanner. We have the flexibility to issue when we need to and want to.

Understood. Great. And can you remind us of the various statutory regulatory review processes, how long each of them are expected to take? And what kind of -- what milestones we can look for in the near and kind of longer term?

Well, I think, Tanner, the first thing you'll watch for is when we do the filing. And as we mentioned, we are going to spend some time doing significant outreach with our stakeholders in both Texas and New Mexico and listening to them. Texas, as you know, has a 6-month time clock. The federal approvals are not statutory time frames, but they are within the month. New Mexico does not have a statutory time frame to do a merger, but we expect it to take about 9 to 12 months after filing.

Great. And then last one for me here. Obviously, you'll continue to execute on the stated investment ramp. But will this process or this review process have any effect on your broader regulatory strategy? Like how should we think about the review affecting rate case need and timing across your subsidiaries?

Yes. No. I mean we will continue to focus on managing the business like we always do. In Texas, we've talked about a rate case we would file. We will look and consult and talk to our stakeholders in that state to determine whether we continue filing that on schedule, like we talked about in the fourth quarter or not. And currently, we don't have a rate case scheduled for New Mexico. So again, we'll continue the process like we normally do.

Our next question will come from Anthony Crowdell with Mizuho.

Congratulations.

Thank you, Anthony.

I apologize for the background noise. I'm at this wonderful AGA Conference right now in Florida.

You are at the bar on the beach there, Anthony. We know it.

I do have a suit on, so -- but -- your [indiscernible] is correct. I guess if I could -- just a couple of things. The dividend growth, is the cadence of dividend growth is going to be the same -- consistent? You do mention in the slides that there will be a dividend, but I'm just want to make sure the growth cadence is the same?

Subject to Board approval, yes, Anthony.

Great. And then on the termination fee, I think it's -- apologies, I guess I'm verifying. Is the termination fee $210 million?

On the TXNM Energy side, that would be correct. On the Blackstone Infrastructure fund, it would be $350 million.

Great. And then just -- I don't recall, I apologize. Is New Mexico and Texas, are they net benefit states for a transaction? I was just wondering if you could help refresh us on the process there?

Yes, sir.

Both net benefits?

Yes. Sorry.

Okay. Great. I don't have any more else -- anything else. And Lisa, thanks for sticking around. I'm sure, July is coming up right on the corner, but -- again, congratulations.

Our next question will come from Mike Lonegan with Evercore.

Just wondering what gives you confidence that there will be smoother approval process in New Mexico after the Avangrid deal?

Yes, thanks. Great question. We will continue to work closely with intervenors. As Pat said, we're taking a little bit of a different approach on this one. It's consistent with the approach we've followed over the last 24 months, which is engage the intervenors early and the stakeholders early. So we likely won't file the case for like 90 days, and that allows us to engage and to listen first with our intervenors and to build some consensus as we go into that filing or at least understanding the issues so we can address them in the filing. And that's been consistent in how we've done the rate case and the last 2 resource filings. And that's both in Texas and New Mexico.

Great. And then secondly from me, you had your prior $1.3 billion equity issuance planned through '29. Obviously, there's the $800 million that you're announcing today with this deal. How should we think about your 5-year equity financing plan now?

Yes. No, that equity financing plan is exactly what we have talked about, the $1.3 billion. This consumes about $800 million of it in this transaction. So it takes care of about $800 million of that $1.3 billion.

[Operator Instructions] Our next question will come from Mario Gabelli with Gabelli & Co.

Thanks for being Marathon runners and all you do for the New Mexico where we own telephone companies is obviously and Texas where we're involved. More importantly, thanks for everything, Pat. Take care. Questions were answered by Tony and Anthony and several others.

Thank you, Mario. We appreciate your support over all these years.

It's only been 20.

With no further questions, this will conclude our question-and-answer session. I would like to turn the conference back over to Pat Collawn for any closing remarks.

Thank you, Wyatt, and thank you all again for joining us today. We appreciate your investment in TXNM Energy and your support for this transaction. Safe stakes down there for those of you that are on the beach. Thank you.

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