Atmos Energy Corporation

on your telephone keypad. To withdraw your question, press star 1 again. I would now like to turn the conference over to Dan Mazur, Vice President, Investor Relations, and Treasurer. Please go ahead.

Thank you, Regina. Good morning, everyone, and thank you for joining us. 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 our 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 27 and are more fully described in our SEC filings. I'll now turn the call over to Kevin.

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. I want to begin today's call by thanking all 5,300 Atmos Energy employees for their focus and dedication to safely serving our customers during very challenging weather conditions. And thank you for all that you do every day for our customers and our community. You are truly the heart and soul of Atmos Energy. Yesterday, we reported first quarter net income of $352 million, or $2.23 per diluted share. And our first fiscal quarter capital spending was $891 million to support continued system modernization and growth across our service territory. Customer growth continued to be solid as for the 12 months into December 31st, 2024, we added over 59,000 new customers with over 46,000 of those located here in Texas. The Texas Workforce Commission reported in January that the seasonally adjusted number of employees reached a new record high at over 14.3 million. Texas once again added jobs at a faster rate than the nation over the last 12 months. adding nearly 284,000 jobs in calendar 2024, representing a 2% annual growth rate. Commercial customer growth remains solid as well, with nearly 1,100 commercial customers connecting to the system during the first quarter. And we added 11 new industrial customers, which when fully operational, we anticipate utilizing 2.3 BCF of gas annually. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development and fueling the energy demand across our service territory. In APT, we completed several projects that will enhance the safety, reliability, versatility, and supply diversification of our system and support the continued growth we see in the local distribution companies behind the APT system. The final phase of our 36-inch line S2 project was placed into service in December 2024, and we are now flowing additional supply from the Haynesville and Cotton Valley Shell Plays to the east side of the growing Dallas-Fort Worth Metroplex. APT's Bethel to Grow Spec project has started. This project will install approximately 55 miles of 36-inch pipe from our Bethel Storage Facility to our gross bed compressor station, which will provide additional pipeline capacity to transport gas from our Bethel storage facility to the growing DFW Metroplex and the Interstate 35 corridor. To enhance supply reliability and system versatility, APT completed two interconnect projects during the quarter, one on our line F2 near Carthage and the second near our growing service territory outside Austin. Our customer support associates and service technicians' satisfaction ratings remain high for the quarter at 98%. And our customer advocacy team and customer support agents continue their outreach efforts to energy assistance agencies and customers during the first quarter, helping over 16,000 customers receive $4 million in funding assistance. Our employees focus on customer service and process improvements It was recognized in December when, for the third consecutive year, J.D. Power ranked Atmos Energy number one in customer satisfaction among midsize gas utilities in the Midwest. Atmos Energy is well-positioned to continue safely delivering reliable and efficient natural gas to homes, businesses, and industry to fuel our energy needs now and in the future. I'll now turn the call over to Chris for his update.

Thank you, Kevin, and good morning, everyone. As Kevin mentioned, our fiscal 25 first quarter diluted earnings per share was $2.23, which represents a 7.2% increase over the prior year quarter. Consolidated operating income increased 15% to $459 million in the first quarter. This performance is driven by several factors. Rate increases in both of our operating segments totaled $69 million. Residential commercial customer growth, combined with higher industrial load, increased operating income by an additional $10 million. Finally, APT's through-system revenues increased by $8 million, driven by both an increase in throughput and spreads. These market conditions were largely driven by capacity constraints experienced primarily during the first half of the first quarter due to maintenance and some unplanned outages on various pipelines. Since that time, spreads have returned to more normal historical norms for this time of the year. Partially offsetting these increases was a $41 million increase in consolidated O&M, driven by several factors. Bad debt expense increased $15 million. As a reminder, we recognize a $14 million non-recurring reduction in bad debt expense in the prior year quarter, resulting from a regulatory change in how we recover our bad debt expense in Mississippi. Employee-related costs increased approximately $11 million, primarily due to increased headcount to support company growth and higher overtime and standby costs driven by increased service work. We also experienced an $8 million increase in compliance and safety-related spending associated with increased leak survey work within our distribution segment and time of the inline inspection work in our pipeline storage and other segments. Finally, we experienced a $5 million increase in APTs system safety and integrity expense, which is offset by a corresponding increase in revenue as a result of APT's new system safety and integrity mechanism. Therefore, this increase had no impact to operating income. We are off to a good start from a regulatory perspective. Since the beginning of the fiscal year, we have implemented $152 million in annualized operating income increases in our distribution segment. Of this amount, $117 million relates to the implementation of our two annual rate revenue mechanisms in Texas, and $28 million relates to the implementation of our two annual filings in Mississippi. Currently, we have seven filings in progress seeking approximately $126 million in annualized operating income increases. Included in this final four amount is approximately $90 million in taxes from four filings. The first is a $40 million system-wide general rate case in our West Texas distributions that we filed last fall. As a reminder, this is a required filing that affects all of our customers in West Texas based on the settlement we reached in 2020. Additionally, we are required to refresh our rates following five years of grid fines for portions of our West Texas division. During the first fiscal quarter, we filed two new cases in our Mid-Tex division seeking $20 million as the five-year grid filing cycle had ended for these jurisdictions. And in January, we followed our annual filing mechanism with the City of Dallas, seeking a $30 million increase in annualized operating income. Finally, we have a general rate case in Congress in Kentucky, seeking approximately $34 million. These filings are proceeding as planned, and we anticipate completing all of them by late spring of 2025. We plan to make additional findings this fiscal year, seeking approximately $300 million in annualized operating income increases. During the quarter, we completed over $1 billion of long-term debt and equity financing, highlighted by the $650 million long-term debt financing we completed in October 2024. Additionally, we settled $380 million in equity forward agreements. Our equity capitalization as of December 31st was 60%, and we did not have any short-term debt outstanding. We also had $5.2 billion in available liquidity. This includes approximately $1.5 billion in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated fiscal 25 equity needs and almost all of our anticipated equity needs for fiscal 26. Our first quarter results have positioned us well to achieve the fiscal 25 points per share in the range of $7.05 to $7.25. And we remain on track to achieve our capital spending plan of $3.7 billion. Thank you for your time this morning. I will now open up the call for questions.

At this time, I'd like to remind everyone, in order to ask a question, simply press star followed by the number one on your telephone keypad. We'll take our first question from the line of Julian DeMullen Smith with Jefferies. Please go ahead.

Hi, guys. Good morning. You've got James Ward here on for Julian. How is everyone?

Good morning. Thank you. Good to hear from you.

Tad Piper- terrific and we were looking for a little bit more color pardon me i'm a bit under the weather, so hopefully i'm still clear enough to hear but. Tad Piper- Essentially, what we're looking for is a bit more color on so the higher complex plan announced less last quarter. Tad Piper- Looking at rate legs earned our week trajectory moving forward a little more strategic a little bit more high level just looking to get some incremental color as we sort of build in some of those. you know, the potential of what could be into our models. The art of the possible, so to speak, as our leader here likes to say.

Yeah, let's start with the first part of your question there around the capital plan for this year. As we said at our last quarterly call, that reflects the growth across our system, our system modernization strategy, supporting our pipeline replacement programs, continue to be out in front of the growth that we just talked about on this call as well. We also heard some of the interconnects on this call that APT is putting into place, as well as some of the storage enhancements that we have going out there. So it's a continuation of what we had the last several years, more of a roll forward, if you will, as we continue to identify projects and growth areas across the system or areas that need additional system modernization. So a continuation of the same strategy.

Gotcha. Gotcha. Just wanted to clarify there. That's very helpful. I think you kind of covered most of what we've actually set here as questions and prepared remarks. So we really appreciate you guys giving that color. Anything else you could speak to just on the customer growth target? I know you addressed it initially, but just anything. more color on sort of large scale industrial and generation projects and so on. That would be our follow on and we'll hop back in the queue.

Okay, thank you. Yeah, as we said on this call here, we continue to see good growth across all sectors, residential, commercial, industrial. On the industrial side, 11 new coming on this quarter alone with about two to two and a half BCF of anticipated lows there. We continue to have prospects, but again, we're not going to get into the depth of the prospects until we have actual customers sign agreements with the company. We know for sure that they're going to be a customer. But again, the economy feedback from builders, developers, commercial developers as well continues to be strong across the entire service territory. So again, it's a continuation of what we've seen the last several years. and continue to hear from those folks that things are looking positive across our service territory.

Terrific. Thank you very much.

Our next question comes from the line of Richard Sunderland with JP Morgan. Please go ahead.

Hey, good morning. Thank you for the time today.

Good morning.

Within that $1.5 billion under the equity forward for 25 and most of 26 How much equity should we be modeling for 2025 specifically? And should we assume that ATM is ratable?

So, we've traditionally talked about, again, equity, equity, long term debt being issued in a balanced fashion throughout the fiscal year. So we have traditionally run in the 600 to 800Million dollar range. I think that's a good range to. Find out for fiscal 2025. It will, you know, in terms of drawing it down, we talked about drawing down to 380,000,000 in the first quarter. The remainder of the fiscal year, it just depends on our cash flow needs and just where we see our balance sheet on any given point in time during the year. So, we'll try to do it around those needs. It could be rateable, it could be a little bit more quarter specific, but it just depends on how the year goes in terms of cash flow.

Okay, got it. So, so the 600 800 is helpful for 25, but then basically, as we roll forward through the years in your plan, should we be expecting that number to take up annually? Is that the right way to think about it?

Yeah, that's that's correct. You know, as the, as the capital continues to grow, kind of going back to the other question, you know, we got 24Billion. Yeah, in the 5 year plan, we're about 3.7Billion this year that will continue to grow somewhat regularly over the next few years. And the long-term financing will grow conventionally with that, again, in a balanced fashion using long-term debt equity, with equity being through the ATM method.

Got it. Very clear. And then for APT spread benefit on the quarter, you're recognizing it's early in the year, but does this move you higher within the guidance range? Any other thoughts on sort of that benefit relative to guidance assumptions? Thank you.

Yeah, as we had talked about, we saw that spread wide and early in the quarter and then come back to more normal, what we've traditionally seen this time of year. And we'll just have to keep an eye on it as we move forward. It's going to depend on, again, what weather shows up the remainder of this heating season, what does the cooling load look like this summer, the power gen load, those sort of things. So again, I think we're just going to have to watch the market and see what it does as we head into the rest of the fiscal year right now and not try and predict or get too far out in front of that.

Fair enough. Thank you for the time today. Thank you. Thank you.

Our next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.

Oh, hey, thanks. Good morning. Good morning. Let me see. You had a question on the power plant side of things. We've been hearing more about microgrids and new gas-fired power plants looking for long-term contracts for gas supply. So I guess I was wondering, are any of those 11 new industrial customers, power plants, and then maybe more broadly, are you seeing more opportunities on the customer side of things from power generation?

Let's take the middle part of your question there first. No, these 11 are not new power facilities. There are a variety of industries from distilling to manufacturing, to battery plants, to automotive. Again, I think that's the strength of our service territories. We've got exceptional diversification of load from residential commercial, which we see a lot of here in Texas, to industrial through Kentucky, Tennessee, Virginia, Mississippi. So good balance across the system of large load and diversified load. As well, some of those industrial loads are more medical in nature as well, supporting the medical industry. As we've seen with those larger industrial loads, we continue to have inquiries across all eight states. But again, don't want to get into specifics or speculate at this point until we actually have customers that have signed a contract and are ready to make announcements at this point. Other than that, we'll continue to work with economic development, chambers of commerce, customers that want to talk about, think about, or seek opportunities for natural gas supply in various locations. And we'll continue to answer their questions and wait until we get to an actual signature on the contract.

Okay, understood. Yeah, thanks for that, Culler. That makes sense. And then maybe on the rate cases in Texas, I guess Mid-Tex and West Texas, just wondering if there's any anticipated areas of focus in terms of challenges or any issues that you think with getting the GRIP re-upped now that you're getting into the next iteration of those longer-term programs there.

Yeah, David, I would characterize these red cases, again, coming to the end of the five-year GRIP cycle or being stipulated by a prior settlement just really Focused on the, I'm going to call the blocking and tackling of the regulatory mechanisms of refresh. They are we cap structure. Yeah, we've got a couple of items where we're asking for various writers, the incentive or what other utilities in the state have previously received. So. Yeah, these are not maybe potentially new to atmosphere. Certainly not new in terms of concepts that had been. Discussed that within the regulatory framework in Texas. So, uh. Again, our team is doing a great job in working through the regulatory process, and as I mentioned, we're hopeful to have all these wrapped up by the end of the spring.

Okay. Got it. Good to hear. Thanks so much. I appreciate it. Thank you. Thank you.

Our next question comes from the line of with Barclays. Please go ahead.

Hi. Good morning, team. Thanks for taking my question, and congrats on another successful quarter. I just really have one follow-up regarding balance sheet to support both capital plan and the credit metrics. Could you comment on the Moody's rating outlook since it's been a year, almost a year, that we had the last credit update and with higher equity issuance just in the first quarter this year you reported and the colors you just provided on equity plan on an annualized basis. How should we think about FFO debt metric going forward? Thanks.

Sure, yeah, thanks. This is Chris. So, you know, as you mentioned, Moody's did put us on the negative outlook back in April of last year. They typically take about 12 months to refresh their outlook and their whole management process. We've been in communication with them on a regular basis since April, provided them, you know, obviously updates, certainly what we provided to the investing community around the new five-year plan, taking a look at the FFO to depth. And we'll see where they come out probably by the end of March, early part of April, based upon the timing. But again, as we think about our financing strategy, we really like the equity capitalization where it is today. It's benefited us many, many times over the last five years through pandemics, economic volatility, winter storm Yuri and the like. And we feel like that's a very comfortable position to be in. And so we'll see where Moody's comes out on that. But we have factored in various alternatives within our planning cycle, depending on how the rating checks out. But ultimately, if it's a one-notch downgrade, perhaps, it probably should not have much of an impact on our financing costs at all.

Perfect. Thanks for the callers. Appreciate it.

Again, to ask a question, press star one on your telephone keypad, and our next question will come from the line of Ryan Levine with Citi. Please go ahead.

Good morning. Good morning. Given all the headlines at the federal level around tariffs, I wanted to hear your comments around impact of Chinese and potentially Mexican tariffs around O&M and CapEx. I assume it's small, but any color you could share.

Yeah, Ryan, we continue to watch that. I'll start with saying we're very pleased to see the support, both with some of the executive orders and through press conferences for the oil and natural gas industry, what we do, what the men and women of the oil and natural gas industry do every day to fuel this energy demand and provide for national security. Very proud of what our folks continue to do. It's good to see and hear that recognition. We continue to watch as executive orders come out. We continue to communicate with our key stakeholders at the federal level as well. On the tariff piece of it, to that part of your question, just saw recently where those were put on pause. So we're going to continue to work with our vendors and suppliers, manufacturers, to see which of any components that we currently have sourced are either fully made overseas or all made here or parts brought here and assembled here in the United States. So right now, I would say they'd probably be on the lower end, if at all, but we're continuing to work with our vendors and suppliers to put a handle on that and anticipate what that may look like as we go forward.

If there were to be an upward pressure on costs, can you remind us around the regulatory mechanisms across your service territory to allow for recovery on the capital side?

Again, we have annual mechanisms in just about every jurisdiction. The only place we'll have traditional cases are the ones Chris mentioned today, like Kentucky, like Virginia, or Kansas. Those would be the ones where we'd go in to recover any of those costs. uh should they show up but at this point again continue to work and identify with our suppliers and vendors if there is anything that would show itself as we continue to move forward thanks and then on the similar event in terms of federal announcements around stargate and some potential developments in avalene the extent there's added growth in

in generation and gas consumption in that region, would that have any impact on your business?

Well, again, if a customer wants to sign a contract and come on to our system, it would more than likely be on the APT system there. And as you know, we have that 75%, 25% sharing mechanism with the customers behind APT system, and that would be on available capacity on an interruptible basis. So we would share of any upside that would come through from that customer being on with those customers at a 75% rate.

Thank you.

And that will conclude our question and answer session. I will now hand the call back over to Dan Mazur for any closing remarks.

We appreciate your interest in Atmos Energy and thank you again for joining us this morning. The recording of this call will be available for replay on our website through March 31st. Have a great day.

Everyone that will conclude today's call. Thank you all for joining. You may now disconnect.