Atmos Energy Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

There are 5 speakers on the call.

Operator

you for standing by. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 24 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the call over to Dan Mazier, Vice President of Investor Relations and Treasurer.

Operator

Dan, please go ahead.

Speaker 1

Thank you, Greg. Good morning, everyone, and thank you for joining our fiscal 2024 Q2 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.

Speaker 1

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?

Speaker 2

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year to date fiscal 2024 net income of $743,000,000 or $4.93 per diluted share. And we updated our fiscal 2024 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 3,400,000 customers in 1400 communities across our 8 states. For the quarter, we continue 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.

Speaker 2

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 44.7% during the 1st calendar quarter of 24 compared to the Q1 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 employed reached a new record high at over 14,100,000. 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.

Speaker 2

Industrial demand for natural gas in our service territories also remains strong. During the Q2, 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 remains solid as well, with over 900 customers connecting to the system during the Q2 and over 2,000 customers connecting to the system fiscal year to date.

Speaker 2

This growth continues to highlight the value and vital role natural gas plays in economic development across our service territory. 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 system. Work continues on the 4th and final phase of our Line S-two project. This phase will replace the existing 14 inches 20 inches pipelines with 40 miles of 36 inches pipeline. As a reminder, this project brings supply from the Haynesville and Cotton Valley shale place to the east side of the growing DFW Metroplex.

Speaker 2

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 Q2, 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 1st 6 months of the fiscal year.

Speaker 2

Through their efforts, the team helped nearly 34,000 customers receive over $12,000,000 in funding assistance. Recently, the American Customer Satisfaction Index ranked Atmos Energy 1st in customer satisfaction. This is the 2nd consecutive year we have reached this ranking. For the 2nd year in a row as well, we have seen recognition on Newsweek's list of Most Trustworthy Companies in America, And we also appeared in the 1st Newsweek Excellence 1,000 Index, which identifies models of corporate responsibility across more than 25 industries. Finally, for the 4th consecutive year, we were named on the Forbes list of America's Best Midsized Employers and this year we are ranked 1st among all companies in the utility industry.

Speaker 2

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.

Speaker 1

Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the 1st 6 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 $950,000,000 or 28% for the 1st 6 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 $192,000,000 Residential commercial customer growth in our distribution segment combined with higher industrial load increased operating income by

Speaker 2

an initial

Speaker 1

$12,000,000 Revenues in our pipeline and storage segment increased $8,000,000 period over period due to wider spreads between the Waha Header on the western end of APT system and delivery points on the eastern and southern ends of its system. Consolidated O and M expense decreased $13,000,000 primarily driven by the one time bad debt adjustment we recorded in Mississippi in the Q1. Excluding this impact O and M was essentially flat period over period. Finally, operating income was favorably impacted by approximately $15,000,000 from the legislative change in taxes to reduce property tax expenses that we discussed last quarter. This amount approximates $0.07 From a regulatory perspective fiscal year to date we have implemented approximately $170,000,000 in annualized regulatory outcomes and we currently have over $350,000,000 in progress.

Speaker 1

Of this amount, we anticipate implementing $170,000,000 to $180,000,000 in fiscal 2024 with remainder in the Q1 of fiscal 2025. Our balance sheet and financial position remains strong. Our equity capitalization as of March 31 was 61% and we did not have any short term debt outstanding. During the Q2, we expanded our available liquidity through the renewal of our 4 credit facilities. We now have $3,100,000 available from these facilities, a $600,000,000 increase over what was provided by our former credit facilities.

Speaker 1

At quarter end, we had $4,200,000,000 in available liquidity to support our operations. Included in this amount is $890,000,000 in net proceeds available from our ATM activities, which is expected to satisfy the remainder of anticipated fiscal 2024 equity needs and a significant portion of our anticipated equity needs for fiscal 2025. 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 $1,000,000,000 ATM program. Our fiscal year to date performance gives us confidence to increase our fiscal 2024 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 for the 22nd consecutive year.

Speaker 1

We expect the remaining contribution to fiscal 2024 earnings per share to be recognized somewhat evenly by quarter in 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 2025 earnings per share guidance in November, we will exclude the effect of both non recurring items. And we anticipate 6% to 8% earnings per share growth from this adjusted earnings per share amount. In addition to the one time tax, property tax and bad debt expense adjustments, I'd like to highlight a few additional items reflected in our revised guidance.

Speaker 1

From a revenue perspective, the winter heating season is over and approximately 70% of our distribution segment revenue has been recognized. Additionally, the most significant regulatory filings impacting fiscal 2024 has been or will soon be completed. This gives us 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 fiscal year, we anticipated residential customer growth slows somewhat due to higher mortgage rates.

Speaker 1

However, that trend was not as pronounced as we had anticipated. Finally, we're anticipating higher throughput revenues at APT net of the rider road benchmark as spreads are expected to remain higher than we had originally anticipated. Partially offsetting these positive trends, we have increased our O and M range $780,000,000 to $800,000,000 to a new range of $800,000,000 to $820,000,000 inclusive of the Mississippi bad debt expense adjustment. As we said before, we are not a just 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.

Speaker 1

Since most of the spending will be incurred in the back half of fiscal year, we anticipate O and M for the 3rd fiscal 4th quarters to trend higher than the prior year's 3rd fiscal 4th quarters. Also included in this revised range is approximately $7,000,000 for amortization of some regulatory assets after they're approved in the APT case in December. This increased amortization expense does not impact operating income as we're reflecting an offsetting amount through rates. In addition to operating our earnings per share guidance, we have increased our capital spending guidance from approximately $2,900,000,000 to approximately 3,100,000,000 dollars 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 housing market in North Texas that Kevin mentioned has modestly increased our gross spending.

Speaker 1

We appreciate your time this morning and your interest in Natna Synergy. We'll now open up the call for questions.

Operator

Thank

Speaker 3

you.

Operator

It looks like our first question comes from the line of Richard Sunderland with JPMorgan. Richard, please go ahead.

Speaker 3

Hi, good morning. Can you hear me?

Speaker 2

Sure can. Good morning.

Speaker 3

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 roll forward of the growth rate at year end ex those non recurring items. Just for the sake of clarity, could you quantify again what those items are? And so just 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 4 basis.

Speaker 3

Am I summarizing that correctly?

Speaker 1

You are. So just to kind of reemphasize on the Texas property tax adjustment, we're anticipating that impact to be $0.10 to $0.11 Additionally, the Mississippi bad debt adjustment was about $0.07 So when we initiate our fiscal 2025 guidance, wherever we land on a GAAP basis, we'll back off the $0.10 to $0.11 and the $0.07 and that will be the rebased or adjusted earnings per share from which we will launch our fiscal 'twenty five guidance. And as I mentioned, we're anticipating 6% to 8% growth off of that adjusted amount.

Speaker 3

Okay, got it. Very helpful there. Thank you. And then just to parse the 2024 guidance changes a little more finally. 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.

Speaker 3

So is the balance of the change relative to the $0.10 to $0.11 on the Texas side? Is it the customer growth and consumption in 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 2025 that you're kind of illuminating today?

Speaker 1

Okay. So lots of impact there. So I think again on the $0.10 to $0.11 on the Texas property tax that was really related to we're receiving the final valuations in 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 as a result of a regulatory change and how we recover those costs.

Speaker 1

And so again, that will going forward that impact will no longer be reflected in our P and 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 2023. So we had effectively recognized that expense in the past that we were then allowed to reallocate back to our over 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 going forward in terms of trends, we will update our fiscal 2025 guidance here in the fall and we'll see what happens this summer with spreads and with customer growth, mortgage interest rates and all that will be fully reflected in our 2025 guidance which we will launch later this fiscal year or later this calendar year.

Speaker 3

Okay, got it. Well, thanks for running through all of that. I'll leave it there. Thank you.

Speaker 1

Thank you, Richard.

Operator

Thank you, Richard. And our next question comes from the line of Christopher Jeffrey with Mizuho. Christopher, please go ahead.

Speaker 4

Hi, everyone. Thanks. Maybe picking up on one of the other guidance items that was updated. I think the CapEx guidance went up about $200,000,000 Apologies, if you touched that in the call already, but any kind of color there as to what kind of the spread between distribution and pipeline or anything else to call out?

Speaker 2

Yes. It's a little hard to understand your question there, but I think, though, Jean, you're asking about the spreads on the pipeline. Obviously, at different times throughout the year, there'll be maintenance on various other takeaway capacity. That's what we've seen over the last few weeks 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 Couple 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.

Speaker 2

And Chris mentioned those in his remarks as well. So we expect that to clear up later toward the summer period.

Speaker 4

All right. Thank you, Kevin. So one of my questions was about spreads on the pipeline. So maybe to clarify my last question, the CapEx guide for 2024 increased from the last update. I was just hoping for color on what's driving the increase and which businesses?

Speaker 2

Yes, as we normally do, what drives our CapEx is our safety and reliability investment. And again, Chris mentioned in his remarks that we had 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 timeframe on 2025.

Speaker 3

Okay, great.

Speaker 4

Thank you.

Operator

All right. Thank you. And one last call for questions. And it looks like there are no further questions. So at this point, I will turn the call back over to

Speaker 1

Dan? We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. A recording of this call is available for replay on our website through June 30. Have a great day.

Operator

Thanks, Dan. And again, ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.

Powered by Quartr
Earnings Conference Call
Atmos Energy Q2 2024
00:00 / 00:00