Atmos Energy Corporation

Greetings and welcome to Atmos Energy first quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Hill, Vice President of Investor Relations.

Thank you and good morning, everyone. And thank you for joining us. This call is being webcast live on the Internet. Our earnings release and conference call slide presentation are available on our website at atmisenergy.com. As we review these 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 21 and are more fully described in our SEC filings. Our first speaker is Chris Forsyth, Senior Vice President and CFO at Atmos Energy. Chris?

Thank you, Jennifer, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported fiscal 2019 first quarter earnings of $158 million, a $1.38 per dilute share, compared with adjusted earnings of $152 million or $1.40 per diluted share in the prior year quarter. Fiscal 2018 adjusted earnings and diluted earnings per share excluded a $162 million or $1.49 per diluted share benefit as a result of implementing tax reform last year. Also yesterday, the Board of Directors approved a 141st consecutive quarterly cash dividend of 52.5 cents, which represents an indicated annual dividend of $2.10 per share in fiscal 2019, an 8.2% increase over fiscal 2018. Slides 4 and 5 provide details of the quarter-over-quarter changes to operating income for distribution and pipeline storage segments. I will touch on a few of the highlights. Contribution margin in our distribution segment rose a net 1%, or about $4 million. Strong consumption, driven by colder weather in October and November, when most of our weather normalization mechanisms were not yet in effect, contributed an incremental $7.7 million. The weather was 20% colder quarter of a quarter, with most first service areas experiencing colder than normal conditions. Solid customer growth continued, primarily in our mid-techs division. Over the last 12 months, our distribution segment added a net 36,000 customers, which represents 1.1% net customer growth. This growth contributed an incremental $3.7 million to contribution margin. The implementation of tax reform into customer bills more than offset rate increases that were implemented in the prior fiscal year and the first quarter, resulting in a net $7.3 million decrease in customer rates. However, this had no material impact to the segment's net income as a result of the corresponding reduction in our effective income tax rate. Operating expenses rose 3.5%. Higher employee-related costs, depreciation, and added alarm tax expenses drove this increase. In our pipeline and storage segments, Contribution margin increased about $9 million. About two-thirds of this increase relates to new rates that were approved in the prior fiscal year through APT's two-grip filings. Additionally, stronger transportation margins contributed an incremental $3.1 million, another the impact of our Rider-Rev mechanism, as APT continues to benefit from wider spreads. The supply-demand dynamics in the Permian Basin, combined with colder weather, drove a 12% increase in transportation volumes. Operating expenses for this segment increased $11 million, or almost 20%. This increase was focused on pipeline integrity work and requested timing of these activities. In the current year quarter, APT accelerated some hydrostatic testing that had been planned for later this fiscal year. In the prior year quarter, pipeline integrity work that had been planned for the first quarter was deferred later into fiscal 2018, resulting in a lower than normal expense for that quarter. Additionally, depreciation and ad valorem taxes rose year over year due to last year's capital spending. Consolidated capital spending increased 8.7% to $416 million. About 82% of the spending was dedicated to safety and reliability projects. Cold and wet weather in some of our serious areas created challenging conditions, which delayed some projects. However, we benefit from having over 6,000 relatively small projects each year that allow us to quickly reallocate our spending when we face these types of challenges. We remained on track to achieve a capital spending target of $1.65 billion to $1.75 billion for the year. From a financing perspective, we had a very busy quarter, as we completed $1.35 billion in debt and equity financing. In early October, we completed a successful $600 million in 30-year public debt issuance at an interest rate of 4.3%. The net proceeds were used to pay down outstanding commercial paper. In late November, we issued approximately $750 million of equity. The offering included an equity forward arrangement that will remain in place through March of 2020. Upon completion of the offering, we received approximately $495 million in net proceeds and allocated the remaining $245 million to the forward. As of December 31, 2018, we have not accessed the net proceeds allocated to the forward. At this time, we anticipate the net proceeds from this issuance will satisfy our equity needs for fiscal 2019. Additionally, in November, we filed a new $500 million at-the-market equity issuance program that will support our equity needs beyond fiscal 2019. As a result of these financing activities, our equity to total capitalization was 59%, and we had no short-term debt at quarter end. When you consider the $218 million in cash on hand at the end of December, we have approximately $1.8 billion in total equity available to support our capital spending program. After an exceptionally busy year in fiscal 2018, we expect our fiscal 2019 regulatory calendar to return to a more traditional cadence. To date, we have implemented $21 million in annualized regulatory outcomes and have about $38 million in progress. General rate cases in Kentucky and for about 15% of our Texas customers, and annual filings for a trans-law service area in Louisiana, the City of Dallas, and Tennessee highlight the key filings that are currently in progress. We continue to implement tax reform into customer bills with the completion of our Mississippi and Tennessee annual filings during the first quarter. Virginia is the last stage. We have not yet incorporated the effects of tax reform into our rates, but our general rate case currently in progress will address tax reform. We are now focused on finalizing the refund periods for our access deferred taxes. Slide 20 details the progress we have made on tax reform to date. In summary, we are off to a solid start to the fiscal year. We've made on track to meet our 6% to 8% earnings for sure growth target, and yesterday we reaffirmed our fiscal 2019 earnings for sure guidance range of $4.20 to $4.35 per diluted share. I will now turn the call over to Mike for some closing remarks.