Atmos Energy Corporation

Q2 2024 Earnings Conference Call

5/9/2024

spk07: Thank you for standing by. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 2024 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. Once again, star one. And if you would like to withdraw your question, simply press star one again. Thank you. I would now like to turn the call over to Dan Mazir, Vice President of Investor Relations and Treasurer. Dan, please go ahead.
spk04: Thank you, Greg. Good morning, everyone, and thank you for joining our Fiscal 2024 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 30 and more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers, our President and CEO. Kevin?
spk03: Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported -to-date Fiscal 24 net income of $743 million, or $4.93 per diluted share. And we updated our Fiscal 24 earnings per share guidance to a range of $6.70 to $6.80. This performance continues to reflect the commitment, dedication, focus, and effort of all 5,000 Atmos Energy employees to successfully modernize our natural gas distribution, transmission, and storage systems while safely providing reliable natural gas service to 3.4 million customers in 1,400 communities across our eight states. For the quarter, we continued to experience robust customer growth driven by continuing favorable employment trends in Texas, along with a strong new housing market in the North Texas area. For the 12 months ended March 31, 2024, we added over 56,000 new customers with more than 43,000 of those new customers located in Texas. New home starts in North Texas were up .7% during the first calendar quarter of 2024 compared to the first quarter of 2023. As a result, the annual new home start rate is now at the highest pace since mid-2022. The Texas Workforce Commission reported in April that the seasonally adjusted number of employees reached a new record high at over 14.1 million. Texas again added jobs at a faster rate than the nation over the last 12 months ending March, adding nearly 271,000 jobs representing a 2% annual growth rate. Industrial demand for natural gas in our service territories also remained strong. During the second quarter, we added 11 new industrial customers with an anticipated annual load of approximately 1 BCF once they are fully operational. Fiscal year to date, we've added 22 new industrial customers with an anticipated annual load of approximately 4 BCF once they are fully operational. On a volumetric basis, this is equal to adding approximately 68,000 residential customers to our system. Commercial customer growth remained solid as well, with over 900 customers connecting to the system during the second quarter and over 2,000 customers connecting to the system fiscal year to date. This growth continues to highlight the value and vital role natural gas plays in economic development across our service territories. In APT, we continue our work on several projects that will enhance the safety, reliability, versatility, and supply diversification of our system as well as support the continued growth we are seeing in the local distribution companies behind APT systems. Work continues on the fourth and final phase of our Line S2 project. This phase will replace the existing 14-inch and 20-inch pipelines with 40 miles of 36-inch pipelines. As a reminder, this project brings supply from the Haynesville and Cotton Valley Shell Plays to the east side of the growing DFW Metroplex. This phase of the project is anticipated to be in service by the end of this calendar year. To the south of the DFW Metroplex, we have a project underway that will provide additional pipeline capacity to transport gas from our Bethel Storage Facility into the growing DFW Metroplex and the growth corridor along Interstate 35 in Waco, Temple, and the Austin area. This project is scheduled to be placed into service late in calendar year 2025. During the second quarter, our customer support associates and service technicians once again received a 98% satisfaction rating from our customers, reflecting the exceptional customer service they provide each and every day. Our customer advocacy team and customer support agents continued their outreach efforts to energy assistance agencies and customers during the first six months of the fiscal year. Through their efforts, the team helped nearly 34,000 customers receive over $12 million in funding assistance. Recently, the American Customer Satisfaction Index ranked Atmos Energy first in customer satisfaction. This is the second consecutive year we have reached this ranking. For the second year in a row as well, we gained recognition on Newsweek's list of most trustworthy companies in America, and we also appeared in the first Newsweek Excellence 1000 Index, which identifies models of corporate responsibility across more than 25 industries. Finally, for the fourth consecutive year, we were named on the Forbes list of America's best mid-sized employers, and this year we are ranked first among all companies in the utility industry. This recognition demonstrates how our dedicated employees continue to be guided by the simple values of honesty, integrity, and good moral character, the core values laid out by our founding chairman, Charles K. Vaughan. These values, combined with our employees' laser focus on our vision to be the safest provider of natural gas services, continue to benefit our customers and the communities we serve. I will now turn the call over to Chris for his update.
spk05: Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the first six months of the fiscal year was $4.93, which represents a 12% increase over the $4.40 per share reported in the prior year period. Operating income increased to $950 million, or 28%, for the first six months of the fiscal year. I'll highlight a few key drivers for our financial performance. Rate increases in both of our operating segments totaled $192 million. Residential commercial customer growth in our distribution segment, combined with higher industrial load, increased operating income by an initial $12 million. Revenues in our pipeline and storage segment increased $8 million period over period due to higher spreads between the Waha header on the western end of the APT system and delivery points on the eastern and southern ends of its system. Consolidated O&M expense decreased $13 million, primarily driven by the one-time bad debt adjustment recorded in Mississippi in the first quarter. Excluding this impact, O&M was essentially flat period over period. Finally, operating income was favorably impacted by approximately $15 million when the legislative change in taxes reduced profit tax expenses that we discussed last quarter. This amount approximates 7 cents. From a regulatory perspective, fiscal year to date, we have implemented approximately $170 million in annualized regulatory outcomes. And we currently have over $350 million in progress. Of this amount, we anticipate implementing $170 to $180 million in fiscal 24 with remainder in the first quarter of fiscal 25. Our balance sheet and financial position remained strong. Our equity capitalization as of March 31 was 61% and we did not have any short-term debt outstanding. During the second quarter, we expanded our available liquidity through the renewal of our four credit facilities. We now have $3.1 billion available from these facilities, a $600 million increase over what was provided by our former credit facilities. At quarter end, we had $4.2 billion in available liquidity to support our operations. Including this amount is $890 million in net proceeds available from our ATM activities, which is expected to satisfy the remainder of our anticipated fiscal 24 equity needs and a significant portion of our anticipated equity needs for fiscal 25. And as we mentioned before, the ATM will continue to be our preferred method to issue equity. To support that strategy, yesterday we registered a new $1 billion ATM program. Our fiscal -to-day performance gives us confidence to increase our fiscal 24 earnings per share guidance from a range of $6.45 to $6.65 to a new range of $6.70 to $6.80, which leaves us well positioned to grow earnings per share from the 22nd consecutive year. We expect the remaining contribution to fiscal 24 earnings per share to be recognized somewhat evenly by quarter and the back half of the fiscal year. This updated guidance range includes approximately $0.10 to $0.11 for the one-time Texas property tax benefit and approximately $0.07 for the one-time Mississippi bad debt adjustment. When we initiate our fiscal 25 earnings per share guidance in November, we will exclude the effect of both non-recurring items. And we anticipate 6 to 8 percent earnings per share growth from this adjusted earnings per share amount. In addition to the one-time tax and property tax and bad debt expense adjustments, I'd like to highlight a few additional items reflected in our revised guidance. From a revenue perspective, the winter heating season is over and approximately 70 percent of our distribution segment revenue has been recognized. Additionally, the most significant regulatory filings impacting fiscal 24 has been or will soon be completed. This gets a better line of sight into our revenues for the remainder of the fiscal year. Additionally, we are anticipating higher than planned customer growth and consumption for the fiscal year. Going into the fiscal year, we anticipated residential customer growth slow somewhat due to higher mortgage rates. However, that trend was not as pronounced as we had anticipated. Finally, we are anticipating higher throughput revenues at APT, net at the Rider-Ret benchmark, as spreads are expected to remain higher than we had originally anticipated. Partially offset of these positive trends, we have increased our O&M range from $780 million to $800 million to a new range of $820 million, inclusive of the Mississippi bad debt expense adjustment. As we said before, we are not a -in-time compliance company, but we intend to stay ahead of our compliance work in the second half of the fiscal year to further enhance the safety and reliability of our system. We'll also perform some additional maintenance this summer to prepare for the upcoming winter heating season. Since most of the spending will be incurred in the back half of fiscal year, we anticipate O&M for the third and fiscal fourth quarters to trend higher than the prior year's third and fiscal fourth quarters. Also included in this revised range is approximately $7 million for amortization of some regulatory assets after they are approved in the APT case in December. This increased amortization expense does not impact operating income as we are reflecting an offsetting amount through rates. In addition to operating our earnings for sure guidance, we have increased our capital spending guidance from approximately $2.9 billion to approximately $3.1 billion. Based on our ongoing assessment of our distribution and transmission systems, we've identified some additional system fortifications that will be completed in advance of the next winter heating season. Additionally, the robust new Hazley Market in the North Texas that Kevin mentioned has modestly increased our gross spending. We appreciate your time this morning and your interest in that and this energy. We'll now open up the call for questions.
spk07: Thank you. And at this time, I would like to remind everyone that in order to ask a question, again, press star one on your telephone keypad. Once again, star one. And we will pause just a moment to compile the Q&A roster. All right. It looks like our first question comes from the line of Richard Sunderland with JP Morgan. Richard, please go ahead.
spk01: Hi. Good morning. Can you hear me? Sure can. Good morning. Great. Thank you for the time and thanks for all the clarifications around guidance and the changes there. I did just want to circle back to that and particularly the language around the role forward of the growth rate at year end, ex-fos, non-recurring items. Just for the sake of clarity, can you quantify again what those items are and suggest to be clear those two items would then be removed from your year end results for the purposes of calculating the growth rate on a forward basis? Am I summarizing that correctly?
spk05: You are. So just to kind of reemphasize on the Texas property tax adjustment, we're anticipating that impact be 10 to 11 cents. Additionally, the Mississippi bad denix adjustment was about 7 cents. So when we initiate our fiscal 25 guidance, wherever we land on a gap basis, we'll back off the 10 to 11 cents and the 7 cents and that will be the rebased or adjusted earnings to share from which we will launch our fiscal 25 guidance. And as I mentioned, we're anticipating 6 to 8% growth off of that adjusted amount.
spk01: Okay. Got it. Very helpful there. Thank you. And then just to parse the 24 guidance changes a little more finely, if I'm recalling correctly from last quarter, you had said Mississippi was in the prior range and then Texas property taxes, there had been a little uncertainty about whether it was all incremental or not and now we're obviously getting that update today. So is the balance of the change relative to the 10 to 11 cents on the Texas side? Is it the customer growth and consumption and the APT spreads that you referenced in the script or are there any other key things we should think about in terms of trends into 25 that you're kind of illuminating today?
spk05: Okay. So lots of impact there. So I think, again, on the 10 to 11 cents on the Texas property tax, that was really related to, you know, we're receiving the final valuations and our property tax valuations here in this quarter and our team is working through what those final valuations will be for taxation purposes. So that's why there's a range there. On the Mississippi bad debt expense, which we articulated last quarter, that was a one-time event, you know, as a result of a regulatory change in how we recover those costs. And so, again, that will, you know, going forward, you know, that impact will no longer be reflected in our P&L, but the catch-up, if you will, related to primarily prior year periods because the adjustment dated back from April 2022 all the way through the end of calendar 23. So we had effectively recognized bad debt expense in the past that we were then allowed to reallocate back under our GCA recovery balances on the balance sheet. So that was the reason for the pickups, and that's why it's a one-time event. And then going forward in terms of trends, you know, we will update our fiscal 25 guidance here in the fall and we'll see what happens, you know, this summer was spread with customer growth, mortgage interest rates, and all that will be fully reflected in our 25 guides, which we will launch out later this fiscal year or later this year.
spk01: Okay, got it. Well, thanks for running through all of that. I'll leave it there. Thank you. All right. Thank you, Richard.
spk07: Thank you, Richard. And our next question comes from the line of Christopher, excuse me, Christopher Jeffery with Mizzouho. Christopher, please go ahead.
spk02: Hi, everyone. Thanks. Maybe picking up on one of the other guidance items that was updated. I think the contact guidance is about 200 million. I apologize if you talked about it in the call already, but any kind of color there as to what kind of a spread between distribution or pipeline or anything else to call out?
spk03: Yeah, it's a little hard to understand your question there, but I think, Gene, you were asking about the spreads on the pipeline. And obviously at different times throughout the year, there will be maintenance on various other takeaway capacity. That's what we've seen over the last few weeks and months and anticipate several other pipelines to have additional maintenance, which is driving some negative spreads coming out of Waha. I believe this morning today's cash prices were negative $2.30. A couple of pipelines have again announced further maintenance into this month, maybe into the following month as well, which will continue to show those wider spreads for the next few week period. And Chris mentioned those in his remarks as well. So we expect that to clear up later toward the summer period.
spk02: Thank you, Kevin. So one of my questions was about the spreads on the pipeline. So maybe to clarify my last question, the CAPEX guide for 24 increased from the last update. I was just hoping for color on what's driving the increase and which businesses.
spk03: Yeah, as we normally do, what drives our CAPEX is our safety and reliability investment. And again, Chris mentioned in his remarks that we identified several projects before heading into the heating season that we would like to complete for reliability measures that are out there. And our team continues to evaluate safety projects that are out there for pipe programs across our various jurisdictions. We'll further identify those as we head toward our update near the October-November time frame on 2025.
spk06: Okay, great. Thank you. All right. Thank
spk07: you. And one last call for questions. Again, if you would like to ask a question, star one on your telephone keypad. Once again, star
spk06: one.
spk07: And
spk06: it looks like there
spk07: are no further questions. So at this point, I will turn the call back over to Dan Mazir for closing remarks. Dan?
spk04: We appreciate your interest in Atmos Energy and thank you again for joining us this morning. The recording of this call is available for replay on our website through June 30th. Have a great day.
spk07: Thanks, Dan. And again, ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.
Disclaimer

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