Atmos Energy Corporation

Greetings and welcome to the Atmos Energy Fourth Quarter Earnings Conference 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. It is now my pleasure to introduce your host, Jennifer Hills, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Jesse. 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, which we will reference in our prepared remarks, are available at atmisenergy.com under the Investor Relations tab. 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 54 and are more fully described in our SEC filing. Our first speaker is Chris Forsyth, Senior Vice President and CFO of Atmos Energy. Chris?

Thank you, Jennifer, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Yesterday, we reported fiscal 2019 net income of $511 million, or $4.35 per diluted share. This represents the 17th consecutive year of rising earnings per share. Slide six and seven provide details of the year-over-year changes to operating income for each of our segments. I will touch on a few of the fiscal year highlights. Solidated contribution margin rose about 5%, or about $95 million. Rate increases driven by increased safety and reliability capital spending. provided an incremental $80 million. Virtually all of these increases were in our Texas, Louisiana, and Mississippi jurisdictions. As we've discussed over the last couple of quarters, our pipeline and storage segment benefited from the supply and demand dynamics that had impacted pricing in the Permian Basin over the last 12 to 18 months. We were able to capture a portion of the widened Waha Decade spread, resulting in a $12 million increase over fiscal 2018. However, as expected, a new merchant pipeline came online mid-summer and we saw narrower spread opportunities in the back half of the fourth quarter. Finally, our distribution segment continued to experience solid customer growth. Over the last 12 months, our distribution segment added a net 37,000 customers, a 1.2% increase over last year. Consolidated operating expenses rose approximately 6%, reflecting higher depreciation expense associated with increased capital spending and higher O&M spending, attributed to increased pipeline integrity and maintenance activities, and higher employee costs. As we discussed last quarter, in fiscal 2019, we increased service-related pay count in our mid-techs division to support the growth in our DFW market. Additionally, we continue to roll out our rollout of advanced leak survey technology. Although this rollout has modestly increased our O&M, it plays an important role in our ability to identify and mitigate risk. Finally, we continue to increase the training provided to our employees to further enable them to operate our system safely and reliably. Consolidated capital spending increased 15% to $1.7 billion, with 87% of our spending directed towards investments to improve the safety and reliability of our system. Our ability to support this level of capital spending is due in part to the various regulatory mechanisms we have in place to minimize regulatory lag. During fiscal 2019, over 85% of our capital spending began to earn a return within six months of the test period end. We accomplished this by implementing $117 million in annualized operating income increases through 23 regulatory proceedings. Since September 30th, we have implemented an additional $57 million through six regulatory proceedings that were filed in the back half of fiscal 2019. As of today, we have four filings pending seeking about $6 million. Slides 39 to 53 summarize our regulatory activities for fiscal 2019. Our ability to support this level of capital spending is also predicated on our ability to attract the necessary long-term financing to fund our ongoing capital expenditure program while maintaining the strength of our balance sheet. During the fourth quarter, we continued to utilize equity forward agreements executed under our ATM to help meet our fiscal 2020 equity needs. We issued 1.4 million shares at an average price of $108.70. Additionally, we settled forward agreements for $1.1 million, 1.1 million shares for net proceeds of approximately $100 million. As of September 30, 2019, we had about $463 million remaining under equity forward arrangements. This issuance completed a very busy financing year where we were able to successfully raise over $2 billion of debt and equity financing. In the process, we reduced our weighted average cost of debt from 5.21% to 4.58% and increased our weighted average maturities from 16 years to 22 years, helping to ensure our customers benefit from the current low interest rate environment for years to come. And our equity capitalization increased 230 basis points to 59% as of September 30th. We finished the fiscal year with approximately $1.6 billion of liquidity under our credit facilities and equity forward agreements. Details of our financing activities, including our equity forward arrangements, as well as our financial profile can be found on slides 9 through 11. Looking forward, fiscal 2020 will represent the ninth year of executing our operating plan to modernize our distribution, transmission, and storage systems. Our plan is summarized in slide 13. We expect fiscal 2020 earnings per share to be in the range of $4.58 to $4.73 per diluted share, with about 68% of our earnings coming from our distribution segment. By fiscal 2024, we anticipate earnings per share to be in the range of $5.90 to $6.30 per diluted share. Slides 14 and 15 present some of the details supporting our fiscal 2020 guidance. O&M is expected to be in line with fiscal 2019. Our O&M will continue to be focused on race-based activities that address system safety and compliance. These activities include enhanced league survey, pipeline integrity work, and continued records establishment and retention. They also include spending for work to help us We've set a baseline of understanding of our system before FinZen's new integrity management rules go into effect on July 1 of 2020. As we've discussed in the past, we have been anticipating these new rules for a few years and have reflected that activity in our future O&M projections. As a result, similar to last year's five-year plan, we continue to assume O&M inflation of 2.5% to 3.5% annually. Appreciation will rise due to high-level capital spending, Interest expense will be lower as we've reduced our weighted average cost of debt and expect to capitalize more interest through AFUDC. And finally, we expect our effective tax rate to be between 20% and 22% in fiscal 2020, inclusive of the impact of amortizing or excess deferred tax liabilities. Excluding this amortization, we anticipate the effective tax rate to range from 23% to 25%. Fiscal 2020 capital spending is expected to rise about 12%, and range between $1.85 billion to $1.95 billion, with approximately 86% of this spending dedicated to safety and reliability spending. Approximately 73% of this spending will be allocated to our distribution segment. Almost 90% of our consolidated capital spending is expected to begin earning a return within six months of the test period end. Continued spending, persistent replacement, and modernization will be the primary driver for the anticipated increase in capital spending net income, and earnings per share through fiscal 2024. As you can see on slide 17, we anticipate capital spending to increase 7% to 8% per year off the fiscal 2019 spend levels for a total of $10 to $11 billion over the next five years. This level of spending is expected to approximate four times depreciation annually. This should result in rate-based growth of about 12% to 14% per year. This translates into an estimated rate base of $17 to $18 billion in fiscal 2024 up from about $9 billion at the end of fiscal 2019, as you can see on slide 18. Annual filing mechanisms will be the primary means through which we recover our capital spending. These mechanisms enable us to more efficiently deploy capital and generate the returns necessary to attract new capital needed to finance our investment. And these mechanisms produce a smaller impact to our customer bills while providing the regular rate adjustments that support our system modernization efforts. We have assumed no material changes to these mechanisms through fiscal 2024. In fiscal 2020, we anticipate completing filings for $160 million to $180 million in annualized regulatory outcomes that will impact fiscal years 2020 and 2021. Moving to slide 20, in light of our financial performance for fiscal 2019, Atmospheric's Board of Directors approved our 144th consecutive quarterly cash dividend yesterday. The indicated annual dividend for fiscal 2020 is $2.30, a 9.5% increase over fiscal 2019. We continue to expect dividends per share to grow in line with earnings per share over the next five years, and we will continue to target a payout ratio of approximately 50% as it strikes the right balance between using funds to invest in the modernization of our system and providing a return to our shareholders who support our operating plans with their investments. This five-year plan continues the financing strategy that we've been executing over the last few years. It balances the interests of our customers and our investors while preserving our strong credit metrics that minimize the cost of financing for our customers. Based on our spending assumptions, we anticipate the need to raise between $5.5 billion and $6.5 billion in incremental long-term financing over the next five years. The strength of our balance sheet enables us to use a crude mix long-term debt and equity financing in order to maintain a balanced capital structure with a targeted equity and capitalization ratio ranging from 50% to 60%, inclusive of short-term debt. This strategy is summarized in slide 21, and consistent with prior plans, our financing plan has been fully reflected in our earnings for sure guidance through fiscal 2024. In October, we got off to a great start towards executing this plan with the issuance of $800 million in long-term debt. we issued a mix of 10-year and 30-year notes and achieved a weighted average cost of debt of 3.18% in this offering. As a result, our overall weighted average cost of debt decreased another 26 basis points to 4.32%. From an equity perspective, we announced during fiscal 2019 that we did not perceive a need for discrete equity issuance in fiscal 2020. The equity forwards we executed during fiscal 2019 are expected to satisfy a substantial portion of our equity needs for the fiscal year. We expect to raise the remaining equity needs for fiscal 2020 through our ATM program. In closing, the execution of our operating plans to modernize our system through disciplined capital spending, timely recovery of those investments through our various regulatory mechanisms, and balanced long-term financing support our ability to grow earnings per share and dividends per share 6% to 80% annually through fiscal 2024. And as you can see on slides 22 and 23, the execution of this plan will also keep customer builds affordable. which helps us sustain this plan for the long term. Thank you for your time this morning. I will now turn the call over to Kevin for his prepared remarks.