Atmos Energy Corporation

your telephone keypad. And if you would like to withdraw that question, again, press star one. Thank you. I would now like to turn the conference over to Dan Mazur, Vice President of Investor Relations and Treasurer. Dan, you may begin.

Great. Thank you, Krista. Good morning, everyone, and thank you for joining our fiscal 2024 third quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer of 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 32 and are more fully described in our SEC filings. With that, I will turn the call over to Chris Forsyth, our Senior Vice President and CFO.

Chris? Thank you, Dan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Yesterday, we announced fiscal year-to-date diluted earnings per share of $6.00 compared to $5.33 per dividend share in the prior year period. Our third quarter and fiscal year-to-date results continue to be driven by two themes, regulatory outcomes reflecting increased safety and reliability spending, and customer growth. Additionally, strong through-system revenues of APT, particularly during the third fiscal quarter, contributed to our performance. Regulatory outcomes in both of our segments increased operating income by $238 million. And residential customer growth and rising industrial load in our distribution segment increased operating income by an additional $18 million. Revenues in our pipeline storage segment increased $19 million, period over period. $11 million of this amount, the Denver Ride Direct Mechanism, was realized during our third fiscal quarter. Several of the pipelines coming out of the Permian experience planned and unplanned maintenance. This reduction in takeaway capacity, coupled with robust associated natural gas production, Widest spreads between the Waha header on the western end of APT system and deliver points in the eastern and southern end zone system. We expect spreads to remain elevated through the end of our fiscal year. Excluding the $14 million one-time VAT debt adjustment we reported in Mississippi in the first quarter, consolidated O&M increased at net $16 million, or about 3%. This increase is primarily due to higher employment-related costs, insurance premiums, IT software and maintenance costs, partially offset by a $15 million decrease in O&M in our pipeline and storage segment, primarily due to the timing of in-line inspection work. As expected, O&M in the third fiscal quarter trended higher than the prior year quarter, and we anticipate O&M spending in the fourth fiscal quarter to trend higher as well, as we continue to focus our spending on compliance, maintenance, and system monitoring. We still expect fiscal 24 O&M to be in the range of $800 million to $820 million. Consolidated capital spending increased to $2.1 billion, with 80% plus dedicated to improving the safety and reliability of our system. Spending on our distribution segment has increased due to higher safety and reliability spending and higher spending to support customer growth. Spending on our pipeline and storage segment is lower than the prior year due to timing. We remain on track to spend approximately $3.1 billion this fiscal year. Since the end of our second fiscal quarter, We implemented about $213 million in annualized regulatory outcomes, including all of this year's Texas GRIP filings and our annual filings for the City of Dallas, Louisiana, and Tennessee. Year-to-date, we have completed $380 million in annualized regulatory outcomes. Currently, we have an additional $182 million in annualized outcomes in progress. Additionally, we made our first filing under APT's new System Safety an integrity mechanism seeking a $19 million increase in revenues. This new mechanism was approved in APT's last general rate case as a floating mechanism for costs incurred to address new federal and state safety-related regulations, meaning we will recognize the revenue and related O&M costs after review and approval by the Texas Federal Commission, resulting in no impact to operating income. Our financial position continues to remain strong. We finished our third fiscal quarter with an equity capitalization of 61% and approximately $4.3 billion in liquidity. This amount includes $551 million in net proceeds available under existing forward sale agreements that will fully satisfy our anticipated fiscal 24 equity needs and most of our anticipated fiscal 25 needs. In June, we completed a $325 million senior unscrewed debt offering, capping our existing 10-year 5.9% senior notes. As a result, our overall weighted average cost of debt as of June 30 stands at 4.1%, and our debt profile remains very manageable with a weighted average maturity of approximately 17 years. As we head into the fourth quarter of the fiscal year, we now believe our Fiscal 24 Earnings for Share guidance will be at the higher end of our reaffirmed Earnings for Share guidance range of $6.70 to $6.80. Our anticipated financing plan for Fiscal 24 is complete. All regulatory outcomes that can impact fiscal 24 have been implemented. As I mentioned ago, we anticipate spreads for APTs through system business will remain elevated, which will modestly contribute to our Q4 results, and we have a reasonably clear line of sight in the system compliance, maintenance, and monitoring we will be performing in the fourth quarter. As a reminder, our guidance range includes two items totaling 17 cents that we will exclude when we initiate our fiscal 25 guidance in November. The first item is the Texas property tax benefit that we've been discussing all fiscal year, which would favorably impact fiscal 24 results by $0.10. Additionally, the one-time Mississippi bad debt adjustment represented $0.07. We continue to anticipate 6% to 8% earnings for sure growth from the suggested EPS amount through fiscal 28. Thank you for your time today, and I will turn the call over to Kevin for his update and some closing remarks. Kevin?

Thank you, Chris. Good morning, everyone, and thank you for joining us today. We continue to benefit from solid economic growth in our service territory. For the 12 months into June 30th, we added 57,000 new customers with nearly 45,000 of those new customers located in Texas. The Texas Workforce Commission reported in July that the seasonally adjusted number of employees reached 14.2 million. Texas again added jobs at a faster rate than the nation over the last 12 months ending June. adding over 267,000 jobs, representing a 1.9% annual growth rate. Industrial demand for natural gas and our service territories also remains strong. During the third quarter, we added 10 new industrial customers with an anticipated annual load of approximately 2 BCF once they are fully operational. Fiscal year to date, we have added 32 new industrial customers with an anticipated annual load of approximately six BCF once they are fully operational. On a volumetric basis, the six BCF of anticipated industrial load is equal to adding approximately 110,000 residential customers. And during the first nine months of the fiscal year, our customer support agents and customer advocacy teams continued their outreach efforts to energy assistance agencies and customers helping over 47,000 customers receive nearly $19 million in funding assistance. Our consistent performance reflects the vital role we play in every community, safely delivering reliable and efficient natural gas to homes, businesses, and industries to fuel our energy needs now and in the future. We appreciate your time this morning, and we will now open the call to questions.

If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw that question, again, press star 1. Your first question comes from the line of, say, she with Barclays. Please go ahead. Hi.

Good morning, team. Thanks for taking my questions. I just want to first quickly touch on financing. Could you just further discuss the equity needs for 25 and 30? definitely given 25 largely done with forward instruments and the recent renewal on ATM, just how does that better facilitate the equity needs in 2025? Thanks.

Yeah, well, this is Chris saying good morning and thanks for joining us. We typically issue between six and $800 million a year in equity through the ATM program that we have. And as I mentioned a few minutes ago, we have $551 million priced at the end of June, of which that amount will basically mostly satisfy our fiscal 2025 needs. So I think that hopefully that will give you enough color to update your models.

That's great. That's great. Thanks for the colors. Very helpful. Maybe just quickly turning to O&M execution for 25. You raised the midpoint guidance by 20 million last quarter. And I guess things are on track for this year. Could you talk about going forward what are some of the key items you're focusing on O&M execution and how are you benchmarking with the 3.5% annual increase guidance? Thanks.

Yeah, this is Kevin. Good morning. Glad to have you join us today. Again, we're working through the remainder of fiscal 24 right now and anticipate it will be the same items as we move into 25 and we'll have additional detail and color as we get to our November call on 25. But again, the drivers around O&M continue to be hydrostatic testing, line locating, integrity regulations, marker ball placement on difficult or hard to locate lines, those sort of things. And then looking for opportunities as we move forward to enhance those or pull things forward when we have the ability to do that. So again, the same items that we're focused on this year. We anticipate seeing again in 25.

Yeah, and I'll add to that, too, is that, you know, as I said at the end of my prepared remarks, we're still anticipating 6% to 8% EPS growth off of the adjusted EPS amount for fiscal 24. So that's the overall theme to take away from. We'll have some puts and takes on the O&M, as Kevin mentioned, but we're still guiding to that 6% to 8% growth target.

Great. That's very helpful. Thanks for the color, so I'll leave it there.

Your next question comes from the line of Richard Saunderson with the JP Morgan. Please go ahead.

Hi, good morning. Thank you for the time today. Morning. Good morning. Looking at 24 results, you've called out the 17 cents of one-offs. I'm curious how we should think about the rest of the business into 25. Does everything else continue into 25 other than APT spread benefit, meaning take the 680 top end and

less 17 cents and maybe back out another roughly 10 cents for the spread pickup yeah i think you're on target there yeah rich is you know backing up 17 cents off of uh whatever you want to assume for the outcome for fiscal 24 you know apt um you know we will have some spray activity next year but we just can't predict it and um so i wouldn't necessarily discount uh too far off of what you had the two one-time items when you're starting your 7% or 8% or 9%, whatever you want to do on the growth target for fiscal 2025, because we will have some activity. It's just this time this year, particularly in the third quarter, we saw some elevated spreads. And as you commented, you know, it's expected to revert back to the mean, which means we'll still have some activity there.

Okay, great. That's really helpful. And I guess one quick follow-up on that spread opportunity. I know you referenced in the script kind of a continuation into 4Q. Is that already contemplated in the higher-end guidance language, or is that potential upside, depending on how that materializes?

No, that's all contemplated in the guidance that we've updated here this morning.

Great. Very clear and very helpful. Thank you for the time. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Your next question comes from the line of Ryan Levine with Citi. Please go ahead.

Good morning. Good morning. Hi, everybody. To follow up on the APT spread dynamics, what are you assuming for the Matterhorn in-service date with the current 24 guidance? And are you assuming that the spread means ride for the remaining portion of your fiscal year?

Yeah, as Chris said, again, we don't anticipate any further maintenance this year on the upstream segments of APT there that would impact the spreads right now. They've mitigated from the highs we've seen over the last quarter somewhat. And look, going forward, definitely Matterhorn will be coming on, I think, if you read some of the documentation from the upstream folks sometime in September, October, early fall, that'll be coming on. We'll just have to watch and see what that does for the dynamics out there. And then as we normally get into the shoulder motion winter period, demand will drive it further from there on the spread impact. But again, I always like to remind here, while APT exists, and that's to serve the customers behind it, the LDCs behind it, and then when we have opportunity, we'll move that gas across our system. So right now, again, we don't anticipate any further maintenance upstream demand. that would impact the spreads any further than what we're currently seeing today at this point.

Okay. And then a follow-up on that. Given the strong performance this fiscal year on APT, does that have any implications for resetting the bar on which you get the sharing mechanism in future time periods?

No, that's set in the rate case itself on a go forward. So the next time that will potentially be looked at would be in the next five years in the next required filing. Yeah.

So as a reminder, that bar was set at $106.9 million. And so that's the benchmark we have to achieve to begin sharing over and above that amount. And, of course, it works the other way, too, if we fall short. But $106.9 is the target we're looking at.

Okay, and last question for me, to the extent that there is new gas generation or infrastructure built in your service territory, do you see any opportunities on the LDC side to maybe build some infrastructure to support the movement of gas associated with some of the gas generation that may be coming?

Yeah, as we talked about on previous calls, there's always that opportunity out there, but let's remember the power generators that we currently have behind APT system. We're one of several suppliers to them so they can move or flex between suppliers at their will out there so we wouldn't be a sole supplier. And we'll just continue to keep an eye on that over the next few years and see how that develops. But again, we would be one of several suppliers or inputs into those facilities.

Thank you for the time. Thank you.

And that concludes our question and answer session, and I will now turn the conference back over to Dan for closing remarks.

Thanks. We appreciate your interest in Atmos Energy, and thank you again for joining us today. A reminder, a recording of this call is available for replay on our website. Have a great day.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.