Atmos Energy Corporation

Greetings and welcome to the Atmos Energy second quarter earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Dan Mazur, Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Thank you, Diego. Good morning, everyone, and thank you for joining our fiscal 2022 second quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer, and Chris Forsythe, 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 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 33 and are more fully described in our SEC filings. With that, I will turn the call over to Chris Forsyth, our Senior VP and CFO. Chris?

Thank you, Dan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Last night, we reported fiscal 22 second quarter net income of $325 million, or $2.37 per diluted share, compared to $297 million, or $2.30 per diluted share in the prior year quarter. Year-to-date, earnings were $574 million, or $4.24 per diluted share. compared with earnings of $514 million, or $4.01 per diluted share in the prior year period. Consolidated operating income decreased to $661 million from the six months ended March 31st. As a reminder, beginning the second quarter of fiscal 21 and through the end of last fiscal year, we reached agreement with regulators in various states to begin refunding excess deferred tax liabilities, generally over a three- to five-year period. These refunds reduce revenues throughout the fiscal year when those revenues are billed. The corresponding reduction in our interim annual effective income tax rate was recognized in the prior year when those agreements were completed. In fiscal 22, the corresponding reduction in the effective tax rate was recognized at the beginning of the fiscal year. Therefore, period-over-period changes in revenues and income tax expense may not offset within minimum periods. However, they will substantially offset by the end of the fiscal year. Excluding the impact of these refunds, operating income for the six months ended March 31st increased $62 million, or 9%, to $743 million. Slides four and five summarize the key performance drivers for each of our operating segments that three and six months ended March 31st. I will focus on some of the key drivers underlying our year-to-day performance. Rate increases in both of our operating segments, driven by increased safety and reliability capital spending, totaled $120 million, with approximately 77% coming from our distribution segment. Continued robust customer growth in our distribution segment increased operating income by an additional $11 million. These increases were partially offset by a $17 million decrease in consumption. Most of this decrease occurred during the second quarter, where we observed that residential consumption on a per heating degree day basis was approximately 6% lower than the prior year quarter. We attribute this decrease primarily to customer conservation in response to the current inflationary environment, including the increased cost of natural gas included in customer bills. As a reminder, our weather normalization mechanisms substantially offset changes in weather as measured on a heating degree day basis. However, they do not adjust for changes in customer behavior. Additionally, we experienced a $27 million increase in consolidated O&M expense. $20 million of this increase occurred during the first fiscal quarter as we performed more pipeline maintenance activities in this year's first fiscal quarter compared to prior year. Consolidated capital spending increased 41%, or $344 million, to $1.2 billion, with 87% dedicated to improving the safety and reliability of our system while reducing methane emissions. This increase primarily reflects the increased system modernization, system integrity, and system expansion spending to meet the growing natural gas demand in our service territories. We remain on track to spend $2.4 to $2.5 billion in capital expenditures this fiscal year. We are also on track with our regulatory filings. To date, we have completed $74 million in annualized regulatory outcomes, excluding refunds of excess deferred tax liabilities. And we currently have about $270 million in progress. Slides 23-32 summarize those outcomes. and slide 17 outlines our planned filings for the remainder of the fiscal year. During the second quarter, we completed our planned financing activities for fiscal 22. In January, we issued $200 million in long-term debt through a cap of our existing 10-year 2.625% notes due September 2029. The net proceeds were used to pay off our $200 million term loan that was scheduled to mature in April. Additionally, we fully priced our remaining equity needs for fiscal 22 and a significant portion of our fiscal 23 equity needs. During the second quarter, we executed forward sales agreements under our ATM program for approximately 4.7 million shares for $500 million, and we settled forward agreements on 3.5 million shares for approximately $322 million in net proceeds. As of March 31st, we have approximately $450 million in net proceeds available under existing forward sales agreements. Our second quarter activities exhausted our $1 billion ATM program we established in June of 2021, and we established a new $1 billion ATM program at the end of March. We finished the second quarter with an equity capitalization ratio of 61%, excluding the $2.2 billion of interim winter storm financing, and total liquidity of approximately $3.5 billion. Additional details of our financing activities, including our equity forward arrangements, as well as our financial profile can be found on slides eight through 11. During the second quarter, we continue to make progress in securitization. In March, the Kansas Corporation Commission approved our gas and other related costs incurred during winter storm URI with no disallowances. We plan to file our application for a financing order during our third fiscal quarter. And in Texas, the Texas Public Financing Authority continues its work on the statewide securitization program and we still anticipate the securitization transaction will be completed by the end of our fiscal year. I'll close my portion of our prepared remarks with a few comments on our fiscal 22 earnings per share guidance, which we tightened to a range of $5.50 to $5.60 per diluted share. Earnings for the first half of the fiscal year were in line with our expectations. With approximately 70% of our distribution revenues earned for the fiscal year and the fact we're heading into the summer months, we believe any potential change in customer behavior in the second half of the fiscal year will not have a material impact on revenue. Additionally, customer growth for the first six months of the fiscal year was stronger than we had planned, and we expect that trend to continue into the second half of the fiscal year. In our pipeline and storage segment, our straight fixed variable rate design for substantially all of the segment's revenues provides clarity into the second half of the fiscal year. Additionally, we're seeing spreads widen which is expected to provide a modest increase in APTs through system revenue. Finally, we have completed our fiscal 22 financing program, including pricing all of our equity needs for the remainder of the fiscal year, which removes one more variable. Slides 13 through 14 provide additional details around our guidance. Thank you for your time today. I will now turn the call over to Kevin Akers for his update and some closing remarks. Kevin?