Atmos Energy Corporation Price & Performance (ATO)

Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer and Chris Boresight, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review our financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 27. And are more fully described in our SEC filings. I'll now turn the call over to Kevin. Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. I want to begin today's call by thanking all 5,300 Atmos Energy employees for their focus and dedication to safely serving our customers during very challenging weather conditions. And thank you for all that you do every day for our customers and our community. You are truly the heart and soul of Atmos Energy.

Yesterday, we reported first quarter net income of $352,000,000 or $2.23 per diluted share. And our first fiscal quarter capital spending was $891,000,000 to support continued system modernization and growth across our service territory. Customer growth continued to be solid as for the twelve months ended December 31. 2024, we added over 59,000 new customers with over 46,000 of those located here in Texas. The Texas Workforce Commission reported in January this the seasonally adjusted number of employees reached a new record high at over $14,300,000 Texas once again added jobs at a faster rate than the nation over the last twelve months. Adding nearly 284,000 jobs in calendar 2024 representing a 2% annual growth rate. Commercial customer growth remained solid as well with nearly 1,100 commercial customers connecting to the system And we added 11 new industrial customers, which when fully operation We anticipate utilizing 2.3 Bcf of gas [indiscernible] This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development and fueling the energy demand across our service territory. In APT, we completed several projects that will enhance the safety, reliability, versatility and supply diversification of our system and support the continued growth we see in the local distribution companies behind the APT system.

The final phase of our 36 inches line S2 project was placed into service in December 2024. And we are now flowing additional supply from the Haynesville and Cotton Valley shale plays to the east side of the growing Dallas Fort Worth metro plant. APT's 55 miles of 36 inches pipe from our Bethel storage facility to our gross bed compressor station which will provide additional pipeline capacity to transport gas from our Bethel storage facility to the growing DFW Metroplex and the Interstate 35 Corridor. To enhance supply reliability and system versatility, APT completed two interconnect projects during the quarter. One on our line F2 near Carthage and the second near our growing service territory outside Austin. Our customer support associates and service technicians satisfaction ratings remained high for the quarter at 98%. And our customer advocacy team and customer support agents continue their reach Everest to energy assistance agencies and customers during the first quarter helping over 16,000 customers receive $4,000,000 in funding Our employees focus on customer service and process improvement was recognized in December went for the third consecutive year J. D. Power ranked Atmos Energy number one in customer satisfaction among midsized gas utilities in the Midwest.

Advanced Energy is well positioned to continue safely delivering reliable and efficient natural gas to homes businesses and industry to fuel our energy needs now and in the future. I'll now turn the call over to Chris for his Thank you, Kevin, and good morning, everyone.

As Kevin mentioned, our fiscal twenty twenty five first quarter diluted earnings per share was $0.23 which represents a 7.2% increase over the prior year quarter. Consolidated operating income increased 15 percent $459,000,000 in the first quarter. This performance is driven by several factors. Rate increases in both of our operating segments totaled $69,000,000 Residential commercial customer growth combined with higher industrial load increased operating income by an additional $10,000,000 Finally, APT's through system revenues increased by $8,000,000 driven by both an increase in throughput and spreads. These market conditions were largely driven by capacity constraints experienced primarily in the first half of the first quarter due to maintenance and some unplanned outages on various pipelines. Since that time, spreads have returned to more normal historical norms for this time of the year. Partially offsetting these increases was a $41,000,000 increase in consolidated O and M. Driven by several factors. Net expense increased $15,000,000 As a reminder, we recognized a $14,000,000 non recurring reduction prior year quarter resulting from a regulatory change in how we recover our bad debt expenses. [indiscernible] Primarily due to increased headcount to support company growth and higher and over higher overtime and standby costs driven by increased service work.

We also experienced an $8,000,000 increase in compliance and safety related spending associated with increased leak safety work within our Distribution segment and time of the in line inspection work in our Pipeline Storage and other segments. Finally, we experienced a $5,000,000 increase in APTs system safety and integrity expense which is offset by a corresponding increase in revenue as a result of APT's new system safety and integrity mechanism. Therefore, this increase had no impact to operating income. We are off to a good start from a regulatory perspective.

Since the beginning of the fiscal year, we have implemented $152,000,000 in annualized operating income increases in our Distribution segment. Of this amount, hundred and 17,000,000 relates to the implementation of our two annual rate revenue mechanisms in Texas.

And $28,000,000 relates the implementation of our two annual filing filings in the Pacific Currently, we have seven filings in progress seeking $126,000,000 in annualized operating income increases. Included in this filed format is approximately $90,000,000 in taxes from four filings.

The first is a $40,000,000 system wide general rate case in our West Texas distribution that we filed last fall As a reminder, this is a required filing that affects all of our customers in West Texas based on the settlement we reached in 2020.

Additionally, we required refresh our rates following five years of grid lines to portions of our West Texas division.

During the first fiscal quarter, we filed two new cases in our Mid Texas division seeking $20,000,000 as the five year GRIP filing cycle had ended for these jurisdictions. And in January, we filed our annual filing mechanism with the City of Dallas seeking a $30,000,000 increase in annualized operating income. Finally, we have a general rate case in progress in Kentucky saving approximately $34,000,000 These filings are proceeding as planned and we anticipate completing all of them by late spring of twenty twenty five.

We plan to make additional filings this fiscal year seeking approximately $300,000,000 in annualized operating income increase. During the quarter, we completed over $1,000,000,000 of long term debt net refinancing highlighted by the $650,000,000 long term debt financing we completed in October 2024, [indiscernible] Our equity capitalization as of December 31 is 60% and we did not have any short term debt outstanding. We also had $5,200,000,000 in available liquidity. This includes approximately $1,500,000,000 of net proceeds available under existing forward sales agreements which is expected to satisfy the remainder of our anticipated fiscal twenty twenty five equity needs and almost all of our anticipated equity needs for fiscal twenty twenty six. Our first quarter results have positioned us well to achieve in the range of $7.05 to $7.25 and we would remain on track to achieve our capital spending plan of $3,700,000,000 Thanks for your time this morning. I will now open up the call for questions.

We'll take our first question from the line of Julien Dumoulin Smith with Jefferies. Please go ahead.

Hi, guys. Good morning. You've got James Ward here on for Julian. How is everyone?

Good morning. Thank you. Good to hear from Terrific. We're looking for a little bit more, pardon me, I'm a bit under the weather. So hopefully, I'm still clear enough to hear. But essentially, what we're looking for is a bit more color on so the higher CapEx plan announced less last quarter looking at rate lags or NOI trajectory moving forward. A little more strategic, a little bit more high level. Just looking to get some incremental color as we sort of build in some of those potential of what could be into our models. The art of the possible, so to speak. As our leader here likes to say.

Yes. Let's I mean, if you did overall, that would be great.

Yes, let's start with the first part of your question there around the capital plan for this year. As we said, at our last quarterly call, that reflects the growth across our system, our system modernization strategy supporting our pipeline replacement programs, continue to be out in front of the growth that we just talked about on this call as well. We also heard some of the interconnects on this call that APT is putting into place. As well as some of the storage enhancements that we have going out there. So it's a continuation of what we had the last several years more of a roll forward, if you will, as we continue to identify projects and growth areas across the system or areas that need additional system modernization. Continuation of the same strategy. Got you.

Got you. Just wanted to clarify that. That's very helpful. I think you kind of covered most of what we've actually said here as questions in the prepared remarks. So we really appreciate you guys giving that color. Anything else you could speak to just on the customer growth target? I know you addressed it initially, but just anything, even more color on sort of large scale industrial generation projects and so on.

Okay. Thank you. Yes, as we said on this call, here, we continue to see good growth across all sectors. Residential, commercial, industrial, On the industrial side, 11 new coming on this quarter alone was about two to 2.5 Bcf anticipated load there. We continue to have prospects, but again, we're not going to get into the depth of prospects until we have actual customers signing agreements with the company and we know for sure that they're going to be a customer. But again, the economy feedback from builders, developers, Commercial, developers as well continues to be strong across the entire service territory. So it's again, it's a continuation of what we've seen in the last several years and continue to hear from those folks that things are looking positive across our service Terrific. Thank you very much. Our next question comes from the line of Richard Sunderland with JPMorgan. Hey, good morning. Thank you for the time today.

Good morning.

Within that $1,500,000,000 under the equity forward for $25,000,000 and most of '26 much equity should we be modeling for 2025 specifically? And should we assume that a is ratable.

So we've traditionally talked about, again, equity issued in a balanced fashion throughout the fiscal year So we have traditionally run-in the hundred million dollars to $800,000,000 range. I think that's a good range to plan on for fiscal twenty twenty five. It will in terms of drawing it down, we talked about drawing down $380,000,000 first quarter For the remainder of the fiscal year, it would just depend on our cash flow needs and just where we see our balance sheet on any given point time during the year. So we'll try to do it around those needs It could be ratable. It could be a little bit more quarter specific, but it just depends on how the year goes in terms of cash flow.

Okay, got it.

So So the $600,000,000 to $800,000,000 is helpful for $25,000,000 but then basically as we roll forward through the years in your plans, you'll be expecting that number to tick up annually? Is that the right way to think about it?

Yes, that's correct. As the capital continues to grow, going back to the original question, we got $24,000,000,000 in the five year plan, we're about $3,700,000,000 this year. That will continue to grow somewhat ravely over the next few years. And the long term financing will grow, commensurate equity.

And with equity being through the Atmos Got it. Very clear. And then for APT spread benefit on the quarter, you're recognizing it's early in the year, but does this move you higher within the guidance range Any other thoughts on sort of that benefit relative to guidance assumptions? Thank you.

Yes. As we had talked about, we saw that spread widen early in the quarter and then come back to more normal, what we traditionally seen this time of year. And we'll just have to keep an eye on it as we move forward. It's going to depend on this again what weather shows up the remainder of this heating season. What does the cooling load look like this summer, the power gen load, those sort of things. So again, I think we're just going to have to watch the market and see what does as we head into the rest of the fiscal year right now and not try and predict or get too far out in front of that.

Fair enough. Thank you for the time today. Thank you. Thank you. Our next question comes from the line of David Arcaro with Morgan Stanley.

Hey, thanks. Good morning. Good morning.

Let me see. You had a question on the power plant side of things. Maybe we've been hearing more about microgrids and new gas fired power plants looking for long term contracts for gas supply. So I guess I was wondering, are any of those 11 new industrial customers power plants? And then maybe more broadly, are you seeing [indiscernible] opportunities on the customer side of things from power generation.

Let's take the middle part of your question there first. Now these 11 are not new power facilities. There are a variety of industries from distilling to manufacturing, [indiscernible] Again, I think that's the strength of our service territories. We've got exceptional diversification of low from residential commercial, which we see a lot of here in Texas to industrial through Kentucky, Tennessee, Virginia, Mississippi. A good balance across the system of large load and diversified load as well as some of those industrial loads are more medical in nature as well supporting the medical industry. As we've seen with those larger industrial loads, we continue to have inquiries across all eight states. But again, don't want to get into specifics or speculate at this point until we actually have customers that have signed a contract and are ready to make announcements at this point. Other than that, we'll continue to work with economic development, chambers of commerce, customers that want to talk about, think about or seek opportunities for natural gas supply in various locations. And we'll continue to answer their questions and wait till we get to a action signature on the contract.

Okay, understood. Thanks for that color. That makes sense. And then maybe on Any issues that you think with getting the grip re upped now that you're getting into the next iteration of those longer term programs there? Yes. David, I would characterize these rate cases again coming to the end of the five year grid cycle or being stipulated by a prior settlement just really [indiscernible] of refresh the RWA, the cap structure we've got a couple of items where we're asking for various riders, same similar to SSI or what other you utilities in the state have previously received. So these are not maybe potentially new to Aetna's, but certainly not new in terms of concepts that had been discussed within the regulatory framework within Texas. So again, our team is doing a great job in working through the regulatory process. And as I we're hopeful to have all of these wrapped up by the end of the spring. Okay, got it. Good to hear. Thanks so much. I appreciate it. Thank you. Thank you. Our next question comes from the line of Beshi with Barclays. Hi, good morning team. For taking my question and congrats on another successful quarter.

I just really have one follow-up regarding balance sheet to support both capital plan and the credit metrics. Could you comment on the Moody's rating outlook since been a year almost a year that we had the last credit update and and with higher equity issuance just in the first quarter this year, you reap and the colors you just provided on the equity plan on an annualized basis, how should we think about, I metric going forward. Thanks. Sure. Yes, this is Chris. So So as you mentioned, Moody's put us on the negative outlook back April of last year. They typically take about twelve months to refresh their outlook and their their whole management process. We've been in communication with them on a regular basis since April, provided we have obviously updates as sort of what we provided to the investment community around the new five year plan taking a look at the FFO of debt, And we'll see where they come out probably by the March, April. Based upon the timing. But again, as we think about our financing strategy, we really like the [indiscernible] it's benefited us many, many times over the last five years through pandemics, economic volatility, winter storm, fury and the like.

And we feel like that's a very comfortable position to be in. And so see where Moody's comes out on that, but we have factored in various alternatives within our planning cycle depending on how how the rating checks out. But ultimately, if it's a a one notch downgrade perhaps, it probably should not have much of an impact on our financing cost at all. Perfect. Thanks for the color. I appreciate it.

And our next question will come from the line of Ryan Levine with Citi. Please go ahead.

Good morning. Good morning. I guess given all the headlines at the federal level around tariffs, wanted to hear your comments around impacts of Chinese and potentially Mexican tariffs around O and M and CapEx. I assume it's small, but any color you could share?

Yes, Ryan, we continue to watch that. I'll start with saying We're We're very pleased to see the support both with some of the executive orders [indiscernible] through press conferences for the oil and natural gas industry. What we do what the men and women of the oil and natural gas industry do every day to fuel this energy demand and provide for national security. Very proud of what our folks continue to do. It's good to see and hear that recognition. We continue to watch as executive orders come out.

We continue to communicate with our key stakeholders at the federal level as well. On the tariff piece of it, to that part of your question, just saw recently where those were put on pause. So we're going to continue to work with our vendors and suppliers, manufacturers to see which of any components that we currently have sourced are either fully made overseas or all made here or parts brought here to and assembled here in The United States. So right now, I would say they'd probably be on the lower end if at all, but we're continuing to work with vendors and suppliers to put a handle on that and anticipate what that may look like as we go forward.

If there were to be an upward pressure on costs can you remind us around the regulatory mechanisms across your service territory to allow for recovery on the capital side?

Yes, Kim, we have annual mechanisms and just about every jurisdiction. One place will have traditional cases of the ones Chris mentioned today. Like Kentucky like Virginia, or Kansas, those would be the ones where we'd go in to recover any of those [indiscernible] should they show up. But at this point, again, continue to work and identify with our suppliers and vendors if there is anything that would show itself as we continue to move Thanks. And then on the similar vein in terms of federal announcements around Stargate and the centers added growth in in generation and gas consumption in that region, would that have any impact on your business?

Well, again, if customer wants to sign a contract and come on to our system, it more than likely be on the AT and T system. There. And as you know, we have that 75%, 25% sharing mechanism APT system and that would be on available capacity on an interruptible basis. So we would share of any upside that would come through from that customer being with those customers at a 75% rate.

Thank you.

And that will conclude our question and answer session. I will now hand the back over to Dan Mizer for any closing remarks.

We appreciate your interest in Atmos Energy Atmos thank you again for joining us this morning. A recording of this call will be available for replay on our website through March 31 Have a great day.

Everyone, that will conclude today's call. Thank you all for joining.