Atmos Energy Corporation

Thank you for standing by. At this time, I would like to welcome everyone to the Atmos Energy Corporation fiscal 2026 first 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Dan Mazur, Vice President of Investor Relations and Treasurer. You may begin.

Thank you, Jeannie. 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 further 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 29 and are more fully described in our SEC filing. I will now turn the call over to Kevin.

Thank you, Dan. Good morning, everyone, and thank you for joining us today. I want to begin today's call by thanking every one of our Atmos Energy employees for their preparation, focus, and dedication to safely providing natural gas service to our customers and communities during the very challenging weather conditions of winter storm burn. And for their dedication throughout the year to execute upon our system modernization strategy as we continue our journey toward our vision to be the safest provider of natural gas services. During Winter Storm Fern, all segments of our business, distribution, transmission, Atmos Pipeline Texas, our underground storage systems, gas supply plans, and our customer support operations all performed very well and to design expectations. I am very proud of our team and their efforts. I'd also like to thank the first responders, emergency responders, and emergency management services teams across our service territory for what they do every day for our community. Yesterday, we reported fiscal 2026 first quarter net income of $403 million or $2.44 per diluted share. Our first quarter capital expenditures totaled $1 billion, but over 85% of these investments focused on enhancing the safety and reliability of our distribution, transmission, and underground storage systems. As a reminder, we re-based our fiscal 2026 guidance to reflect the passage of Texas House Bill 4384. As we stated on our November earnings call and in our investor material, our re-based fiscal 2026 earnings per share guidance is in the range of $8.15 to $8.35 per share. Additionally, we rebased the fiscal 2026 annual dividend to $4 per share, and we plan to grow our dividend in line with our earnings per share growth of 6% to 8% annually. Moving to our Atmos pipeline Texas division, we achieved several project milestones during the first quarter. We completed the installation of approximately 55 miles of 36-inch pipeline from APT's Bethel storage facility to our gross bed compressor station. This provides additional pipeline capacity to transport gas from our Bethel storage into the growing DFW Metroplex and the Interstate 35 corridor between Waco and Austin. We continue to work on phase two of APT's Line WA Loop project as we have placed 13 miles of this project into service. As a reminder, this project is designed to install approximately 44 miles of 36-inch pipeline to the west of Fort Worth to support growth in this area of the DFW Metroplex. The remaining 31 miles is expected to be placed in service this spring. In addition to the enhanced supply capacity of those projects, We completed a project that more than doubles the takeaway capacity at our Bethel salt dome storage facility, providing additional peak day deliverability into the APT system for our LDC customers. Finally, we enhanced APT supply optionality, reliability, and system versatility with the completion of two interconnect projects, adding 700,000 MCF per day of additional natural gas supply to the APT system. Across our service territories, we continue to see steady customer growth. For the 12-month ending December 31, 2025, we added nearly 54,000 new customers with approximately 42,000 of those new customers located here in Texas. And during the first quarter, we added over 1,100 commercial customers and three new industrial customers. This continued demand from all customer classes demonstrates the value and vital role natural gas plays, and economic development across our service territory. The Texas Workforce Commission reported that at the end of December that the seasonally adjusted number of employees was 14.3 million. Texas once again added jobs at a faster rate than the nation over the last 12 months ending December 2025. Our customer support associates and service technicians continue to provide exceptional customer service, achieving customer satisfaction ratings of 98% for the quarter. And our customer advocacy team and customer support agents continued their outreach efforts to energy assistance agencies and customers during the first quarter. Through those efforts, the team helped over 11,000 customers receive nearly $3 million in funding assistance. Recently, our team's customer service efforts were recognized by J.D. Power and Escalant. In December, the J.D. Power 2025 Gas Utility Residential Customer Satisfaction Study ranked Atlas Energy number one in customer satisfaction in the South and Midwest among large utilities. This is Atlas Energy's fourth consecutive year to receive this honor for the Midwest region. And in January, Atlas Energy was named an Escalant 2025 Utility Customer Champion in both the South and Midwest regions. More than 96% of our customers are located in these two regions, and we are very proud of our entire team for their ongoing focus and dedication to providing exceptional customer service. Congratulations and thank you all. I'll now turn the call over to Chris for his update.

Thank you, Kevin, and good morning, everyone. We appreciate you joining us this morning. Our fiscal 26 first quarter diluted earnings per share of $2.44 represented a 9.4% increase over the prior year quarter. Our first quarter results include $35 million, or $0.16, in the impact to Texas House Bill 4384. $20 million was recognized in our distribution segment, and the remaining $15 million is recognized at APT. Our first quarter performance was also influenced by several other factors. Rate increases in both of our operating segments hold $68 million. Operating income increased by an additional $24 million due to residential commercial customer growth and increased customer load. Finally, APTs through system revenues, net of writer revenues, increased about $7 million. During the quarter, APTs through system volumes declined approximately 2 BCS, as it performed more maintenance during this quarter compared to the prior year quarter. However, spreads widened significantly to an average of $3.99 compared to $1.56 in the prior year quarter due to rising associated gas production, constrained takeaway capacity, and lower demand due to unseasonally warm weather during the first quarter. Partially offsetting these increases was a $23 million increase in consolidated O&M expense. We experienced a $12 million increase in compliance and safety related spending associated with increased leak survey work in our distribution segment and the timing of maintenance work at APT that I mentioned a moment ago. Additionally, employee-related costs increased approximately $5 million, primarily due to increased headcount to support company growth and higher overtime and standby costs driven by increased service work. From a regulatory perspective, since the beginning of the fiscal year, we have implemented $123 million in annualized operating income increases in our distribution segments. Currently, we have five filings in progress seeking approximately $81 million in annualized operating income increases. We plan to make an additional filing this fiscal year, seeking approximately $400 million in annualized operating income increases. During the quarter, we completed over $1 billion of long-term debt and equity financing, highlighted by the $600 million long-term debt financing we completed in October 2025. Additionally, we settled $472 million in equity forward agreements. Our equity capitalization as of December 31st was 60%, and we do not have any short-term debt outstanding. We also had $4.6 billion in available liquidity. This amount includes approximately $1.1 billion in net proceeds available under existing foreign sale agreements, which is expected to satisfy the remainder of our anticipated fiscal 26 equity needs and a portion of our anticipated equity needs for fiscal 27. Our first quarter performance is well positioned to achieve a rebased fiscal 26 earnings per share guidance in the range of $8.15 to $8.35 per share. and we remain on track to achieve a capital spending plan of $4.2 billion. Thank you for your time this morning. I will now open the call for questions.

At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. And your first question comes from Julian DeMolen Smith with Jefferies. Please go ahead.

Hey, good morning, team. Nicely done, I got to say, as always. And thank you for the time. Maybe just to kick things off, you just commented in your remarks and in the queue here about the $35 million benefit for the quarter. Can you talk a little bit about how we should think about that ratably through the year here and just ultimately what that might imply as you think about an annualized benefit relative to the guidance you guys give? It seems like it puts you guys in a good place. I'd love to get your thoughts.

Yeah, good morning, Julian. Thank you for joining us this morning. And yes, we're off to a good start for the fiscal year. As we talked about before, The influence or the impact of the deferrals under House Bill 4384 will be influenced by the timing of our spending, the timing of project closings, and the underlying operational activities of the company. So right now, off to a good start, $35 million quarter over quarter, and we are still holding firm right now on our earnings per share guidance of 815 to 835, and we'll see what the second quarter brings for us.

Got it. But just putting that a little bit further, would you assume that that's a good run rate, at least for the purposes of this year? I know it's capex timing driven. Any reason why you wouldn't, for the purpose of our conversation, start to do that, or at least do some kind of ratio relative to capex against annualized targets?

I think it's going to depend upon the flow of spend in the quarter. As we've had here the last couple of weeks, it's a very busy quarter. Operationally focused around supporting winter storm firms or construction activities were down a little bit. Obviously, we're now beginning to ramp that back up. And I think it'd be dangerous to say, take 35 and multiply by 4. As a reminder, year over year, we did have the impact of the House Bill 4384 in the fourth quarter last year. So I would probably steer clear of just going too strong at this point and just saying 35 times 4 moving forward.

Yeah, no, no, fair enough. And then just as it pertains to the winter storm, I mean, obviously, folks are zeroed in on and sort of cognizant of the impact to customers. How do you think about the preliminary financial impacts here, if you can break that down a little bit? I mean, obviously, there's important capital consideration, and ultimately, there's a few other moving pieces. Do you care to elaborate a little bit further, just given the history?

Yeah, Joey, I... Maybe rephrase your question because I'm not quite following you the way you're talking about gas costs.

Yeah, I was thinking about the, just the balance sheet and the earnings impact from the winter storm in the last couple weeks cumulatively.

Yeah, so let's start with the winter storm itself. It was very significant. As you saw the icing across all of the country, I think 40 states were impacted at one point by the storm. But the storm was not nearly as significant as URI. I think the upstream supply, as we reported, and I think you'll hear from some of the other folks that do upstream of us, supply performed very well. We had minimal supply issues, and what we did have, we were able to backfill with storage itself to keep a steady and reliable supply of natural gas flowing. And with that, we had an exceptional gas supply plan laid out from base load to peaking contracts to some spot purchases to our storage supply. Again, I don't think you're going to see the impact, as you did in URI, both on the operational nor a financing from gas supply costs related to Winter Storm Furnace.

All right. That's great. All right. Well, look, I'll leave it there. Thank you guys very much. I appreciate the time today.

Thank you. Thanks, Uri.

Your next question comes from the line of David Acara with Morgan Stanley. Please go ahead. Hey, thanks so much. Good morning.

Good morning. I was wondering if you could maybe touch on what you're hearing maybe on the ground and in some of your regulatory proceedings going on with regard to affordability pressures. Is this an issue that you're seeing migrate into the gas LDC space? Is it coming up politically surrounding the cost of natural gas? What are you seeing on the ground right now?

It's always a part of what we talk about with our commissions. It's always top of mind for us. And I'll point you back to our deck in slides 15 through 17, I believe, that's in the deck there and how we look at the metrics around portability. But it's always a topic we continue to have with our regulators. They understand the need for our investment just as it helped us get through Winter Storm Fern. You have to start these things year in advance in prepping your system, putting on additional supply upstream of that, increasing your capacity on your pipelines, bringing on more additional supply points. All those go into that equation for reliability on a go-forward basis for our customers. But again, it's more the conversation. We're not getting any sort of negative feedback or impression from our regulators. at this point as they understand the need to maintain reliability and safety across the system.

Okay, got it. Understood. I wanted to check in to see whether you're seeing any inflection or meaningful projects on the gas power side of things, either major power plants moving forward or what we're seeing is onsite power using natural gas at data centers at pretty high So are you seeing more activity or opportunities there?

As we said before, we continue to get inquiries around large loads, whether they're data centers themselves or additional power generation. We'll share more about those once we have a signed contract. We don't want to get out in front and have to walk any of that sort of load back at this point. We continue to get inquiries. Our engineering, our operations teams continue to investigate those, respond to those data requests. But when we have something to report, we'll bring those forward. And as you know, APT already serves some PowerGen facilities across its transmission footprint as well today.

Okay, great.

Thanks so much. Your next question comes from the line of Jeremy Tonette with JP Morgan. Please go ahead.

Hey, good morning. This is Eli on for Jeremy. Wanted to start on the, yeah, good morning. The special election that was, that was just recently happened in Texas. There was a Democrat seat, I believe that flipped. Is there any impact overall? Or, I mean, how do you guys kind of see that outcome in relation to the business? Thanks.

Yeah, we're apolitical. We work with R's and D's and I's or anybody to share our stakeholder strategy, why we do the things we do, why it's important for our communities, why natural gas is important for our customers, why it's important for economic development. And we've been around for 43 years now. And we've been through many administration changes, both at the federal, state, and city level, county level as well. And again, we see ourselves as an essential energy source for our communities, and we'll work with anybody that is in public office today or has an interest in what we do.

Awesome. And then, you know, maybe just shifting to the Mississippi rate case outcome and kind of the process going forward, you know, how do you adjust your plan for outcomes in that jurisdiction going forward?

Well, one, and I'll let Chris follow up here in a second, there's not an adjustment to plan. Remember, we say in our November call when we lay out our five-year plan and we update it every quarter, Chris and I both mentioned it on this call, 85-plus percent of our investment goes towards safety and reliability. That does not change our plan. It is all driven by the needs of our system, the growth on our system, the demand across our system, the safety across our system. That's what drives our plans out there. And that's what's going to continue to fuel our, our plans in the state of Mississippi.

Yeah, I would add to that Jeremy. I mean, since the outcome, we've been in regular dialogue with the commission 1st, working to implement the tariff. That to reflect the, the order that came out late last year. Tariff was filed in early. In early January, we're expecting a decision potentially today on that. Including that tariff is also a request for deferral-like mechanisms as well as other opportunities to potentially mitigate or reduce lag going forward. We still have an annual filing mechanism in the state. It's now on a historical test basis. So we're evaluating and modeling the impact of shifting that from the forward look back to historical look And you've also, you've probably seen in the public notice in early January, we filed a public notice of our intent to appeal the decision to the state Supreme Court in Mississippi. And we are working through that process as we speak. So a lot going on. We're taking it to evaluate, but it's also stepping back at a bigger picture. Mississippi is roughly 5% of business. So we believe you've got the ability to absorb whatever outcome comes through in our plans going forward.

Great. Thanks for the call. I'll leave it there.

Thank you. Your next question comes from the line of Fei Shi with Berkeley. Please go ahead.

Hey, good morning. It's actually Nick Campanella on. I hope you can hear me.

Yeah, we can hear you, Nick.

yeah hey hope everything's well so um i just wanted to ask just the um the 21 cent uh texas benefit in the quarter is that something that we can annualize or just how would you how would you kind of frame that against the 40 cent uh guide that you originally uh pointed to yeah so nick uh so the impact on the quarter was approximately 16 cents and as i was chatting with julian at the top of the call yeah we had

If to say that you can simply take a run right, multiply by three or four to get through that because the underlying operations are impacting the timing of this referral. So we said a few minutes ago, we'll just take it quarter by quarter as we work through this first year of implementation and we'll see where the second quarter brings us and we'll have an update for you at that point.

OK, OK. And then I just wanted to make sure I was just directly understanding the benefit. You know, it's kind of a similar benefit than what was booked in fourth quarter last year. Like, would it be kind of like three times the benefit given, you know, you did about $1 billion of the $4 billion of CapEx this quarter? Is that the right way to go through this?

Yeah, I mean, again, 25% through the year. A lot needs to occur between now and then operationally. As Kevin talked about, we've been focused the last couple of weeks on winter operations, which has put a capital on the back burner. So as we come through that right now, when we get back up to speed, we'll see what the impact is on referrals. But again, I would caution against just taking a simple number and multiplying by three or four at this point in time.

Okay, okay. Thanks for clarifying. And then just, you know, you kind of brought up the strength and spreads. Is there a way to, you know, explicitly quantify what the margin benefit was from WAHA spread this quarter?

Well, quarter over quarter, we attributed about $7 million operating income increase as a result of those activities.

Thank you.

Again, if you would like to ask a question, press star, then the number one on your telephone keypad. And your next question comes from Ryan Levine with Citi. Please go ahead.

Good morning. Given the recent storm for an increase in gas demand in your service areas, do you see incremental opportunities to add gas storage? And please give us some updated color around that opportunity.

Yeah, good morning, Ryan. As you've heard us talk about before, we have 15 storage fields placed across Kentucky, Kansas, Mississippi, and here in Texas. Additionally, we have third party contract storage, and then we have storage as part of our upstream interstate pipeline capacity as well. That's something our gas supply team and our operations team look at post winter. We'll do a rigorous review of system performance, gas supply plan performance, and overlay that with a third-party consulting engineering firm to overlay with customer growth and demand expectations. And then we'll evaluate how that may impact additional needs for gas supply, where those may need to come in, and any future needs for storage. But it's something we always continue to look at based on past performance historical weather, and customer growth across the system.

Okay. Thanks for taking my question.

There are no further questions at this time. I will now turn the call back over to Dan Mazur for closing remarks.

We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. Have a good day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.