Atmos Energy Q3 2024 Earnings Report

Atmos Energy EPS Results

• Actual EPS: $1.08
• Consensus EPS: $1.05
• Beat/Miss: Beat by +$0.03
• One Year Ago EPS: $0.94

Atmos Energy Revenue Results

• Actual Revenue: $701.55 million
• Expected Revenue: $924.75 million
• Beat/Miss: Missed by -$223.20 million
• YoY Revenue Growth: N/A

Atmos Energy Announcement Details

• Quarter: Q3 2024
• Date: 8/7/2024
• Time: After Market Closes
• Conference Call Date: Thursday, August 8, 2024
• Conference Call Time: 10:00AM ET

Atmos Energy (NYSE:ATO) (NYSE: ATO) is a U.S.-based natural-gas utility that primarily focuses on the regulated distribution of natural gas. Headquartered in Dallas, Texas, the company operates through local distribution systems to deliver natural gas to residential, commercial, industrial and electric generation customers. Atmos’s core activities include pipeline operations, gas distribution, system maintenance and reliability programs designed to ensure safe and continuous service to its customers.

The company’s services encompass gas delivery, system integrity and maintenance, storage and transmission connections, and customer-facing programs such as billing, conservation initiatives and energy-efficiency offerings. Atmos emphasizes safety, infrastructure investment and emergency response capabilities as part of its operational priorities, maintaining networks of mains, service lines, meter facilities and related assets to support year-round demand for heating and industrial use.

Atmos Energy serves customers across multiple U.S. states, with a footprint concentrated in the South and portions of the Midwest. The utility model under which Atmos operates is largely regulated at the state level, with revenues and rates governed by public utility commissions. This regulatory structure shapes its capital investment plans, service expansion and customer rate frameworks.

As a publicly traded company on the New York Stock Exchange under the symbol ATO, Atmos is governed by a board of directors and managed by an executive leadership team focused on operational reliability, regulatory compliance and long-term infrastructure investment. The company’s strategic priorities typically include maintaining service reliability, upgrading aging infrastructure and pursuing efficiency improvements to support customers and communities it serves.

Atmos Energy Q3 2024 Earnings Call Transcript

Key Takeaways

• Fiscal Q3 YTD diluted EPS rose to $6.00 from $5.33 a year ago, driven by regulatory outcomes and customer growth, with strong system revenues at Atmos Pipeline-Texas (APT) boosting results.
• Regulatory decisions added $238 million to operating income, customer growth and industrial load contributed another $18 million, and pipeline storage segment values rose by $19 million year-over-year.
• Excluding a one-time $14 million bad debt adjustment, consolidated O&M increased 3% with Q4 trending higher; full-year O&M is forecast at $800–820 million, while YTD capital spending hit $2.1 billion (80%+ for safety and reliability) on track for a $3.1 billion FY24 total.
• Financial strength remains solid with 61% equity capitalization, approximately $4.3 billion liquidity (including $551 million in forward sale proceeds), a 4.1% average cost of debt and a 17-year weighted average maturity.
• FY24 EPS guidance is now expected at the high end of $6.70–6.80 (excluding $0.17 of one-offs), and management anticipates 6–8% EPS growth through FY28.

Presentation

[Operator]

Thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 2024 Q3 Earnings Conference Call. All lines have been placed on mute to prevent any background noise, and 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 1 on your telephone keypad. If you would like to withdraw that question again, press star 1. Thank you. I would now like to turn the conference over to Dan Meziere, Vice President of Investor Relations and Treasurer. Dan, you may begin.

[Dan M. Meziere, VP of Investor Relations and Treasurer at Atmos Energy Corporation]

Great. Thank you, Krista. Good morning, everyone, and thank you for joining our fiscal 2024 Q3 earnings call. With me today are Kevin Akers, President and Chief Executive Officer, and Chris Forsyth, 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.

[Dan M. Meziere, VP of Investor Relations and Treasurer at Atmos Energy Corporation]

With that, I will turn the call over to Chris Forsyth, our Senior Vice President and CFO. Chris?

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

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, compared to $5.33 per divided share in the prior year period. Our Q3 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 at APT, particularly during the fiscal Q3, 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.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

$11 million of this amount, derived from the mechanism, was realized during our fiscal . Several of pipelines coming out of Permian experienced planned and unplanned maintenance. This reduction in takeaway capacity, coupled with robust associated natural gas production, widened the spreads between the Waha header on the western end of APT system and delivery points in the eastern and southern ends of the system. We expect spreads to remain elevated through the end of our fiscal year. Excluding the $14 million one-time bad debt adjustment we reported in Mississippi in the Q1, consolidated O&M increased by a net $16 million, or about 3%.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

This increase is primarily due to higher employee-related costs, insurance premiums, IT software, and maintenance costs, partially offset by a $15 million decrease in O&M at our pipeline storage segment, primarily due to the timing of inline inspection work. As expected, O&M in the fiscal Q3 trended higher than the prior year quarter, and we anticipate O&M spending in the fiscal Q4 to trend higher as well as we continue to focus our spending on compliance, maintenance, and system monitoring. We still expect fiscal 2024 O&M to be in the range of $800 million-$820 million. Consolidated capital spending increased to $2.1 billion, with 80%+ dedicated to improving the safety and reliability of our system. Spending our distribution segment has increased due to higher safety and reliability spending and higher spending to support customer growth.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

Spending in 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 fiscal Q2, we implemented about $213 billion in annualized regulatory outcomes, including all of this year's 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 and integrity mechanism, seeking a $19 million increase in revenues.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

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 Railroad Commission of Texas, resulting in no impact to operating income. Our financial position continues to remain strong. We finished our fiscal Q3 with an equity capitalization of 61% and approximately $4.3 billion of liquidity. This amount includes $551 million in net proceeds available under existing forward sale agreements that will fully satisfy our anticipated fiscal 2024 equity needs and most of our anticipated fiscal 2025 needs. In June, we completed a $325 million senior unsecured debt offering, tapping our existing 10-year, 5.9% senior notes.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

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 Q4 of the fiscal year, we now believe our fiscal 2024 earnings per share guidance will be at the higher end of our reaffirmed earnings per share guidance range of $6.70-$6.80. Our anticipated financing plan for fiscal 2024 is complete. All regulatory outcomes that can impact fiscal 2024 have been implemented. As I mentioned ago, we anticipate spreads for APT's through system business will remain elevated, which will modestly contribute to our Q4 results.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

We have a reasonably clear line of sight into the system compliance, maintenance, and monitoring we will be performing in the Q4. As a reminder, our guidance range includes two items totaling $0.17 that we will exclude when we initiate our fiscal 2025 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 2024 results by $0.10. Additionally, the one-time Mississippi bad debt adjustment represented $0.07. We continue to anticipate 6%-8% earnings per share growth from the adjusted EPS amount through fiscal 2028. Thank you for your time today, and I will turn the call over to Kevin for his update and some closing remarks. Kevin?

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

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 ended June 30, 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 employed 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 in our service territories also remains strong. During the Q3, we added 10 new industrial customers with an anticipated annual load of approximately 2 Bcf once they are fully operational.

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Fiscal year to date, we have added 32 new industrial customers with an anticipated annual load of approximately 6 BCF once they are fully operational. On a volumetric basis, the 6 BCF of anticipated industrial load is equal to adding approximately 110,000 residential customers. During the first 9 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.

[Operator]

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

[Sei Shi, Analyst at Barclays]

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 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.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

Yeah, well, this is Chris. Good morning, and thanks for joining us. You know, we typically issue between $600 million 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.

[Sei Shi, Analyst at Barclays]

That's great. That's great. Thanks for the colors. Very helpful. Maybe just quickly turning to O&M execution for 2025. You raised the midpoint guidance by $20 million last quarter. 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% and 3.5% annual increase guidance? Thanks.

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Yeah, this is Kevin. Good morning. Glad to have you join us today. You know, again, we're, we're working through the remainder of fiscal 2024 right now and anticipate it'll be the same items as we move into 2025. And we'll have additional detail and color as we get to our November call on 2025. 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 2025.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

Yeah, and Sei, I'll add to that, too, is that, you know, as, as I said at the end of my prepared remarks, we're still anticipating 6%-8% EPS growth off of the adjusted EPS amount for fiscal 2024. 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 that we're still guiding to that 6%-8% growth target.

[Sei Shi, Analyst at Barclays]

Great. That's very helpful. Thanks for the colors. I'll leave it there.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

Great.

[Operator]

Your next question comes from the line of Richard Sunderland with J.P. Morgan. Please go ahead.

[Richard Sunderland, Analyst at JPMorgan]

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

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

Morning. Good morning.

[Richard Sunderland, Analyst at JPMorgan]

... Looking at 2024 results, you've called out the $0.17 of one-offs. I'm curious how we should think about the rest of the business into 2025. If does everything else continue into 2025 other than APT spread benefit, meaning take the $6.80 top end, less $0.17, and maybe back out another roughly $0.10 for the spread pickup?

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Yeah, I think you're on target there. Yeah, Rich, you know, backing out the $0.17 off of whatever you wanna assume for the outcome for fiscal 2024. You know, APT, you know, we will have some spread activity next year, but we just can't predict it. And so I wouldn't necessarily discount too far off of what you the two one-time items when you're starting your 7% or 8% or 9%, whatever you wanna do on the growth target for fiscal 2025, because we will have some activity. It's just this year, particularly in the Q3, we saw some elevated spreads. And then as you commented, you know, it's expected to reverse back to the mean, which means we'll still have some activity there.

[Richard Sunderland, Analyst at JPMorgan]

Okay, great. That's really helpful. And I guess one quick follow-up on that spread opportunity. I know you, 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?

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

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

[Richard Sunderland, Analyst at JPMorgan]

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

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Thank you.

[Operator]

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

[Ryan Levine, Analyst at Citi]

Good morning.

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Good morning.

[Ryan Levine, Analyst at Citi]

Just to follow up on... hi, everybody. To follow up on the APT spread dynamics, what are you assuming for the Matterhorn in-service date with the current 2024 guidance? And are you assuming that the spread remains wide for the remaining portion of your fiscal year?

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Yeah, as Chris said, you know, 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, you know, 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. 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 why APT exists, and that's to serve the customers behind it, the LDCs behind it.

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

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 that would impact the spreads any further than what we're currently seeing today at this point.

[Ryan Levine, Analyst at Citi]

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

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

No, that's all. That's set in the rate case itself on a go forward. So the next time that'll potentially be looked at would be in the next-

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

About five years.

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

About five years in the next required filing.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

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 you know, $106.9 million is the target we're looking at.

[Ryan Levine, Analyst at Citi]

Okay. 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?

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Yeah, as we've 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. 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.

[Ryan Levine, Analyst at Citi]

Thank you for the time.

[Kevin P. Akers, President and CEO at Atmos Energy Corporation]

Thank you.

[Christopher T. Forsythe, SVP and CFO at Atmos Energy Corporation]

Thank you.

[Operator]

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

[Dan M. Meziere, VP of Investor Relations and Treasurer at Atmos Energy Corporation]

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.

[Operator]

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

Participants

Executives

• Christopher T. Forsythe, SVP and CFO
• Dan M. Meziere, VP of Investor Relations and Treasurer
• Kevin P. Akers, President and CEO

Analysts

• Richard Sunderland, Analyst at JPMorgan
• Ryan Levine, Analyst at Citi
• Sei Shi, Analyst at Barclays