10-Q: TXNM Energy Reports Q2 Earnings Decline Amidst Merger Progress and Strategic Investments

TXNM Energy, Inc. reported a significant drop in second-quarter net earnings, primarily driven by increased operating expenses and interest charges, while advancing its proposed merger with Blackstone Infrastructure and continuing substantial grid modernization and clean energy investments.

Summary

• Net earnings attributable to TXNM decreased to $21.6 million ($0.22 per diluted share) for the three months ended June 30, 2025, compared to $48.0 million ($0.53 per diluted share) for the same period in 2024.
• For the six months ended June 30, 2025, net earnings attributable to TXNM were $30.5 million ($0.32 per diluted share), down from $95.2 million ($1.05 per diluted share) in the prior year period.
• Consolidated electric operating revenues increased to $502.4 million for Q2 2025 from $488.1 million in Q2 2024, and to $985.2 million for the six months ended June 30, 2025, from $925.0 million in the prior year.
• Operating income for the three months ended June 30, 2025, was $72.7 million, a decrease from $105.7 million in the same period of 2024, and for the six months, it was $144.6 million, down from $186.3 million.
• Interest charges significantly increased to $72.0 million for Q2 2025 from $55.8 million in Q2 2024, and to $135.6 million for the six months from $109.6 million in the prior year.
• PNM's segment earnings decreased by $6.4 million for Q2 and $47.4 million for the six months, primarily due to higher operating expenses, increased depreciation, lower transmission margin, and capacity arrangements.
• TNMP's segment earnings slightly decreased by $8.9 million for Q2 and $1.2 million for the six months, impacted by higher operating expenses, increased depreciation, and higher interest charges, despite rate increases and load growth.
• The Corporate and Other segment's loss increased by $11.1 million for Q2 and $16.1 million for the six months, largely due to increased merger-related costs and the absence of a gain from the NMRD equity method investment sale recognized in 2024.
• Total capital requirements for 2025-2029 are projected at $8.6 billion, including $7.8 billion for construction expenditures and $0.8 billion for dividends.
• The proposed merger with Blackstone Infrastructure, valued at $61.25 per share, is unanimously approved by the Board and expected to close in the second half of 2026, pending regulatory and shareholder approvals.
• PNM's 2025 Rate Request for a general increase in retail electric rates, proposing a $105.0 million increase in two phases, was approved by the NMPRC on May 15, 2025.
• TNMP issued $1,084.3 million in First Mortgage Bonds in July 2025 to repay the TNMP Merger Backstop Term Loan, and PNM issued $350.0 million in Senior Unsecured Notes in July 2025 for debt repayment and general corporate purposes.
• TXNM sold 3.6 million shares of common stock for approximately $200 million in June 2025 and 8 million shares for $400 million in May 2025 through private placements to fund debt repayment and equity contributions to TNMP.

Sentiment

Score: 4

Explanation: The significant decline in net earnings and cash from operations, coupled with increased losses in the Corporate and Other segment, indicates a challenging financial period. While the company is actively pursuing strategic investments and has secured substantial financing, the immediate financial results are worse than the prior year. The ongoing merger process introduces both potential upside (acquisition premium) and downside (risk of termination, litigation costs) that overshadow operational performance, leading to a neutral-to-slightly-negative sentiment based purely on the reported financial results.

Positives

• Consolidated electric operating revenues increased for both the three and six months ended June 30, 2025, indicating continued demand for services.
• TNMP experienced increased utility margin due to transmission and distribution rate increases, as well as weather-normalized demand-based load growth of 6.4% for large commercial and industrial consumers over six months.
• PNM's investment securities in Nuclear Decommissioning Trusts (NDT) and coal mine reclamation trusts showed increased performance, contributing positively to other income.
• The company successfully secured significant long-term financing, including $350.0 million in PNM Senior Unsecured Notes and $1,084.3 million in TNMP First Mortgage Bonds, to manage debt and fund capital expenditures.
• The debt-to-capitalization ratio for TXNM improved to 62.0% at June 30, 2025, from 65.9% at December 31, 2024, indicating a stronger capital structure.
• PNM's Grid Modernization Plan, with increased investments to $367 million for the first six years and decreased projected O&M costs by 18%, was largely approved, supporting future reliability and efficiency.
• The 2028 Resource Application for PNM, including energy storage agreements, a power purchase agreement for Valencia, and a new solar/battery facility, received NMPRC approval, securing future energy resources.
• TNMP's System Resiliency Plan, with approved capital investments of $545.8 million and $86.1 million in O&M costs, aims to enhance distribution system resiliency.
• The company maintains investment-grade credit ratings from S&P and Moody's, facilitating access to capital markets at reasonable costs.
• Ongoing efforts in energy efficiency programs continue to yield robust results, with PNM saving an estimated 86 GWh and TNMP saving 16 GWh in 2024, equivalent to powering thousands of homes.

Negatives

• Net earnings attributable to TXNM significantly decreased by $64.7 million for the six months ended June 30, 2025, compared to the prior year, primarily due to higher operating expenses and interest charges.
• PNM's segment earnings saw a substantial decline of $47.4 million for the six months ended June 30, 2025, driven by lower transmission margin, increased capacity arrangements, and higher operating costs.
• Consolidated operating income decreased by $41.7 million for the six months ended June 30, 2025, reflecting increased operational costs across segments.
• Interest charges increased significantly across all segments, rising by $26.0 million for the six months ended June 30, 2025, impacting overall profitability.
• Cash flows from operating activities decreased by $24.7 million for the six months ended June 30, 2025, compared to the prior year, indicating less cash generated from core operations.
• Cash flows used in investing activities increased by $131.8 million for the six months ended June 30, 2025, primarily due to higher utility plant additions.
• The Corporate and Other segment's loss widened by $16.1 million for the six months ended June 30, 2025, largely due to increased merger-related costs and the absence of a gain from a prior year asset sale.
• PNM recorded a regulatory disallowance of $4.0 million related to the San Juan Coal Mine surface mine reclamation liability in 2024, indicating unrecoverable costs.
• The company realized a pre-tax net loss of $1.6 million from the termination of treasury lock agreements in July 2025, which will be amortized through interest expense.

Risks

• The proposed merger with Blackstone Infrastructure is subject to various conditions, including shareholder and regulatory approvals (PUCT, NMPRC, FERC, NRC, HSR), and there is no assurance when or if it will be completed.
• Failure to obtain required regulatory approvals for the merger, or delays in obtaining them, could reduce anticipated benefits or cause the parties to abandon the transaction.
• The merger agreement contains provisions that could lead to TXNM paying a termination fee of $210.0 million plus costs and expenses under certain circumstances, such as if the Board changes its recommendation or if TXNM terminates to accept a superior proposal.
• The announcement and pendency of the merger could disrupt TXNM's businesses, affecting relationships with customers, suppliers, and employees, and diverting management's time and resources.
• TXNM will incur substantial non-recurring transaction fees and costs related to the merger, regardless of whether it is completed.
• If the merger is not completed, TXNM may experience negative reactions from financial markets, customers, regulators, and employees, and may not find an alternative acquisition offer.
• Litigation challenging the proposed merger has been instituted, and adverse judgments could prevent or delay the merger, or result in significant costs and reputational harm.
• PNM's 2024 Rate Change is subject to ongoing appeals with the NM Supreme Court, creating uncertainty regarding the final outcome of cost recovery related to Four Corners and PVNGS.
• The company is exposed to significant compliance costs and potential operational impacts from evolving federal and state environmental regulations, including those related to GHG emissions, regional haze, NAAQS, cooling water intake structures, and effluent limitation guidelines.
• PNM is assessing a letter from NMED requiring a Stage 1 Abatement Plan for groundwater and soil contamination at the former SJGS, with potential future remediation obligations and costs.
• The ultimate cost to reclaim the San Juan mine is uncertain and subject to many assumptions, and PNM could be exposed to additional loss related to surface mine reclamation beyond the NMPRC-capped amount of $100.0 million.
• The company is exposed to risks from severe weather events, including hurricanes and wildfires, which can cause physical damage, disrupt operations, reduce customer usage, and result in third-party claims.
• PNM is at risk for shortfalls in funding of nuclear decommissioning and coal mine reclamation obligations due to investment losses in their respective trusts, to the extent not ultimately recovered through rates.
• The company's ability to access credit and capital markets at a reasonable cost is dependent on its ability to earn a fair return, financial market conditions, and credit ratings, which could be adversely affected by macroeconomic conditions or regulatory outcomes.
• Changes in U.S. federal income tax laws, such as the recently enacted OBBBA, could impact the company's estimated annual effective tax rate and cash tax position, although no material impact is currently expected.

Future Outlook

The company is focused on creating a clean and bright energy future, aiming for a 100% carbon-free generating portfolio by 2040. This involves significant sustained additions of renewable resources, replacing retiring or expiring capacity, and meeting concurrent load growth. Investments in grid modernization and system resiliency are planned to enhance reliability, efficiency, and security. The company anticipates continued economic growth in its service territories, particularly in Texas, driving demand for infrastructure investments. Management expects to meet capital requirements through internal cash generation, existing credit arrangements, and access to public and private capital markets, including those provided for under the pending merger agreement. The company will continue to monitor macroeconomic conditions and regulatory changes, including the impacts of the OBBBA on tax credits and the ongoing reconsideration of EPA's environmental regulations.

Management Comments

• The company's vision is to create a clean and bright energy future while fulfilling its purpose to work together with customers and communities to meet their energy needs.
• Safety, Caring, and Integrity are the core values and foundation for the company's business objectives, which focus on safety excellence and customer satisfaction, including reliability.
• Maintaining strong and modern electric infrastructure is critical to ensuring reliability and supporting economic growth.
• The company is committed to fostering relationships with its customers, stakeholders, and communities through outreach, collaboration, and various community-oriented programs.
• The company believes that earning allowed returns is viewed positively by credit rating agencies and that improvements in ratings could lower costs to utility customers.
• The company is closely monitoring the impacts on the capital markets of other macroeconomic conditions, including actions by the Federal Reserve to address inflationary concerns or other market conditions, recently enacted federal legislation, and geopolitical activity.
• The company has not experienced, nor does it expect significant negative impacts to customer usage at PNM and TNMP resulting from these economic impacts.
• The company currently believes it has adequate liquidity but cannot predict the effects of any of these macroeconomic conditions on the global, national, or local economy, including the company's ability to access capital in the financial markets, or on the company's financial position, results of operations, and cash flows.
• The company's commitment to becoming 100% carbon-free by 2040 produces a carbon emissions reduction pathway that tracks within the ranges of climate scenario pathways consistent with limiting global warming to less than 2 degrees Celsius.

Industry Context

The utility industry is undergoing a significant transition towards clean energy and grid modernization, driven by regulatory mandates like New Mexico's Energy Transition Act (ETA) and federal incentives such as the Inflation Reduction Act. Companies like TXNM are investing heavily in renewable generation, energy storage, and advanced grid infrastructure to meet escalating renewable portfolio standards and reduce carbon emissions. The focus on grid resiliency is also increasing, particularly in regions prone to extreme weather, as evidenced by TNMP's System Resiliency Plan in Texas. Regulatory frameworks, such as those in Texas allowing for more timely cost recovery for infrastructure investments, are crucial for utilities to fund these capital-intensive transitions. The industry also faces challenges from rising interest rates, inflationary pressures, and the uncertainty of evolving environmental regulations, which can impact profitability and capital access. The trend of consolidation and private equity interest, as seen with the proposed Blackstone merger, reflects a broader industry shift towards stable, regulated assets and long-term infrastructure investment.

Comparison to Industry Standards

• TXNM measures reliability and benchmarks performance of PNM and TNMP against other utilities using industry-standard metrics, including System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI).
• PNM's participation in the Western Energy Imbalance Market (EIM) and plans to join the Extended Day Ahead Market (EDAM) align with industry trends towards regional energy markets to optimize resource utilization and integrate renewables.
• PNM's joining of the Western Resource Adequacy Program (WRAP) in April 2023 demonstrates alignment with industry efforts to bolster regional coordination for resource adequacy and emergency preparedness.
• TNMP's recognition as an EEI Emergency Response Award recipient in January 2025 for its assistance efforts following Hurricane Helene indicates strong performance in emergency response compared to industry peers.
• PNM's ranking in J.D. Power's customer satisfaction surveys remains stable despite overall industry declines, suggesting sustained efforts to improve customer experience are effective relative to competitors.
• The company's goal of a 100% carbon-free generating portfolio by 2040 and compliance with New Mexico's ETA (100% zero-carbon by 2045) compares favorably to the U.S. Intended Nationally Determined Contribution (INDC) of 50%-52% carbon emissions reduction by 2030 and the Biden Administration's goal of net-zero emissions by 2050.
• The company's commitment to increasing electric vehicles in its fleet (25% light duty by 2025, 50% by 2030) and participation in the National Electric Highway Coalition align with broader utility industry initiatives for transportation electrification.

Management Changes

Corporate Governance

Legal Proceedings

• Counsel for TXNM has received demand letters and draft complaints from purported TXNM shareholders alleging omitted or misrepresented material information in the preliminary proxy statement regarding the merger, seeking injunctive relief and other remedies. TXNM believes these allegations are without merit and will defend vigorously.
• PNM's 2024 Rate Change final order is subject to appeals filed with the NM Supreme Court by NEE, PNM, and a joint appeal by the NM Department of Justice, Bernalillo County, and Albuquerque Bernalillo County Water Utility Authority (ABCWUA). PNM has filed an uncontested motion to dismiss its appeal.
• PNM received a letter from the NMED on July 29, 2025, designating PNM as a responsible party and requiring a Stage 1 Abatement Plan proposal for groundwater and soil contamination associated with former operations at the San Juan Generating Station (SJGS). PNM is currently assessing the letter and its response.
• The 2024 rule revising Effluent Limitation Guidelines (ELG) was challenged in the U.S. Court of Appeals for the Eighth Circuit, but motions for a stay were denied, so the rule remains in effect. EPA announced reconsideration of the ELGs on March 12, 2025.
• The Legacy Rule extending federal CCR regulatory requirements to inactive CCR surface impoundments and CCR management units was challenged in the D.C. Circuit, with the case held in abeyance until August 11, 2025.

Related Party Transactions

• TXNM billed PNM $67.4 million for services for the six months ended June 30, 2025.
• TXNM billed TNMP $27.5 million for services for the six months ended June 30, 2025.
• PNM billed TNMP $0.2 million for services for the six months ended June 30, 2025.
• TNMP billed TXNM $0.1 million for services for the six months ended June 30, 2025.
• TXNM billed NMRD $0.1 million for services for the six months ended June 30, 2024 (prior to NMRD sale).
• PNM purchased $1.5 million in renewable energy from NMRD for the six months ended June 30, 2024 (prior to NMRD sale).
• TXNM billed PNM $0.1 million for interest charges for the six months ended June 30, 2025.
• PNM billed TXNM $0.3 million for interest charges for the six months ended June 30, 2025.
• TXNM billed TNMP $0.2 million for interest charges for the six months ended June 30, 2025.

Stakeholder Impact

• Shareholders: The proposed merger offers a cash consideration of $61.25 per share, providing a clear exit strategy, but also carries risks of termination and associated litigation.
• Customers: PNM's approved rate increase of $105.0 million will impact customer bills, but the company is also implementing energy efficiency programs, low-income assistance (PNM Good Neighbor Fund, TEP), and a redesigned bill for better understanding.
• Employees: Executive compensation plans have been amended, and the company maintains an employee crisis management fund to support team members impacted by natural disasters like wildfires and hurricanes.
• Communities: The company continues its corporate giving and Foundation grants, contributing to tribal communities, civic, educational, environmental, low-income, and economic development organizations. Initiatives like 'Light up Navajo' and partnerships with universities demonstrate community engagement.
• Suppliers/Creditors: The company's ability to maintain investment-grade credit ratings and access to capital markets is crucial for its ongoing operations and large capital expenditure plans, ensuring it can meet obligations to suppliers and creditors. The merger triggered change-of-control provisions in some debt agreements, requiring waivers or refinancing.

Next Steps

• The proposed merger with Blackstone Infrastructure is expected to close in the second half of 2026, pending satisfaction of customary conditions, including shareholder and regulatory approvals.
• TXNM will coordinate with lenders to amend or refinance debt agreements to permit the merger prior to its closing.
• PNM will continue to monitor the appeals related to its 2024 Rate Change with the NM Supreme Court.
• PNM will submit its Stage 1 Abatement Plan proposal for SJGS groundwater and soil contamination within 60 days of July 29, 2025.
• PNM will continue to conduct site investigation reports for Coal Combustion Residuals Management Units (CCRMUs) at SJGS, with initial reports due by February 9, 2026, and final reports by February 8, 2027.
• PNM will continue to seek approval to procure renewable resources to meet forecasted peak load requirements and New Mexico's escalating RPS and carbon-free resource requirements.
• TNMP expects to make its first comprehensive filing under PURA 36.216 in 2026 to recover costs associated with eligible transmission and distribution investments.
• TNMP's application to further update its transmission rates, seeking a $12.3 million annual increase, is pending before the PUCT.
• TNMP's second 2025 Periodic Distribution Rate Adjustment (DCRF) application, requesting a $5.4 million annual increase, is pending review by the PUCT.
• TNMP's request to adjust the Energy Efficiency Cost Recovery Factor (EECRF) for 2026, including a $2.5 million performance bonus, is pending review by the PUCT.
• A hearing is scheduled for October 27, 2025, for PNM's application for an amended special service contract, PPAs, ESAs, and rates to service a new phase of the Meta data center.
• EPA intends to finalize the proposed rule to repeal and revise GHG emission standards for EGUs by the end of 2025.
• The NM Environmental Improvement Board is expected to deliberate and deliver a final rule on regional haze during its regular meeting on October 24, 2025.
• Site wide groundwater sampling for the Santa Fe Generating Station abatement plans will take place in 2025, with reports provided to NMED.

Key Dates

Recommendation

The primary driver for TXNM's stock price will be the progression and ultimate completion of the proposed merger with Blackstone Infrastructure. Given the agreed-upon cash consideration of $61.25 per share, the stock price is likely to trade in close proximity to this value, adjusted for the time value of money and the perceived risk of the merger not closing. Operational performance, while important for the underlying business, becomes secondary to the merger arbitrage opportunity. The significant decline in Q2 earnings and cash flow from operations, coupled with rising interest expenses, would typically warrant a 'sell' or 'strong sell' for a standalone company. However, the pending acquisition fundamentally changes the investment thesis. Investors currently holding the stock should 'hold' to realize the merger premium, while new investors should carefully assess the remaining arbitrage spread against the risks of regulatory hurdles, potential litigation, and the possibility of the merger's termination. The company's long-term strategic shift towards clean energy and grid modernization is positive, but its impact on shareholder value is currently overshadowed by the merger.

Keywords

Utility, Electric Power, Energy Transition, Merger, Blackstone Infrastructure, SEC Filing, Quarterly Report, Financial Performance, Regulatory Approval, Capital Expenditures, Debt Financing, Renewable Energy, Grid Modernization, Environmental Compliance, Rate Case, New Mexico, Texas