ONE Gas Q1 2025 Earnings Report

ONE Gas EPS Results

• Actual EPS: $1.98
• Consensus EPS: $1.85
• Beat/Miss: Beat by +$0.13
• One Year Ago EPS: $1.75

ONE Gas Revenue Results

• Actual Revenue: $935.19 million
• Expected Revenue: $882.31 million
• Beat/Miss: Beat by +$52.88 million
• YoY Revenue Growth: +23.30%

ONE Gas Announcement Details

• Quarter: Q1 2025
• Date: 5/5/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 11:00AM ET

ONE Gas (NYSE:OGS), together with its subsidiaries, operates as a regulated natural gas distribution company in the United States. The company provides natural gas distribution services to approximately 2.3 million customers in Oklahoma, Kansas, and Texas. It serves residential, commercial, and transportation customers. The company was founded in 1906 and is headquartered in Tulsa, Oklahoma.

ONE Gas Q1 2025 Earnings Call Transcript

Key Takeaways

• ONE Gas reported first quarter net income of $119.4 million or $1.98 per diluted share, up from $99.3 million or $1.75 a year ago, driven by new regulatory rates, 5% colder weather, customer growth and disciplined expense management.
• The company’s O&M expense initiatives—including in-sourcing line locating and procurement efficiencies—kept first quarter O&M growth to 2% year-over-year and support a projected sub-4% O&M CAGR over the five-year plan.
• ONE Gas now expects to achieve the upper half of its full-year guidance, with net income of $254 million–$261 million and earnings per share of $4.20–$4.32.
• Regulatory activity is robust, with Oklahoma Natural Gas seeking a $41.5 million rate adjustment, Texas filings totaling $23.6 million in revenue increases and Kansas Gas Service requesting $7.2 million under its Gas System Reliability Surcharge statute.
• Safety and sustainability remain priorities: the company earned its eighth consecutive American Gas Association Safety Award for lowest peer injury rate and has cut leak-related emissions by 51%, on track for a 55% reduction by 2035.

Presentation

[Operator]

Good day, and welcome to the ONE Gas First Quarter Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Daly.

[Operator]

Please go ahead, Ms. Daly.

[Erin Dailey, Director of Investor Relations & Sustainability at ONE Gas]

Thank you, Cole. Good morning, everyone, and thank you for joining us on our first quarter twenty twenty five earnings conference call. This call is being webcast live and a replay will be available later today. After our prepared remarks, we're happy to take your questions. Statements made during this call that might include ONE Gas expectations or predictions should be considered forward looking statements and are covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended.

[Erin Dailey, Director of Investor Relations & Sustainability at ONE Gas]

Actual results could differ materially from those projected in any forward looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Joining us on the call this morning are Sid McInerney, President and Chief Executive Officer Chris Sighnolfi, Senior Vice President and Chief Financial Officer and Curtis Dinan, Senior Vice President and Chief Operating Officer. And now I'll turn the call over to Sid.

[Robert McAnnally, President & CEO at ONE Gas]

Thanks, Erin, and good morning, everyone. We're happy to be with you this morning to discuss our first quarter performance. We reported strong financial results yesterday, including net income of $119,000,000 or $1.98 per diluted share. We achieved these results by executing our regulatory plan, managing O and M expenses and continuing to add new customers. New rates that took effect at the end of last year allow us to recover investments in our system.

[Robert McAnnally, President & CEO at ONE Gas]

These investments supported ongoing customer growth and enhanced system reliability. The value of those system investments was shown earlier this year as our system faced five named winter storms in January and February without any significant outages. Last quarter, we discussed how company wide initiatives resulted in a faster pace of O and M expense moderation than we had expected. This quarter, our teams continued to focus on expense management contributing to our positive financial results. We've taken the same disciplined approach to our procurement activities.

[Robert McAnnally, President & CEO at ONE Gas]

Direct relationships with our suppliers and careful planning have strengthened our supply chain and we expect to be largely insulated from material tariff impacts through 2025. In December, we shared our decision to de risk our five year financial plan. Our plan includes an earnings per share CAGR of approximately 6% through 2029 matched with reduced capital intensity and related funding needs. This approach limits our financial risks while further strengthening our already robust credit profile. All of us at ONE Gas remain committed to our core mission to safely and reliably deliver natural gas to our customers.

[Robert McAnnally, President & CEO at ONE Gas]

We support that commitment through programs that engage our employees and support our safety culture. For the eighth year in a row, our annual employee survey showed a higher level of engagement across our workforce. A highly engaged workforce drives performance and reinforces a culture of safety. We're honored to have recently received the American Gas Association Safety Award for having the lowest rate of significant injuries among our peers for the eighth consecutive year. This achievement is a testament to our coworkers' daily commitment to safety and excellence in serving our 2,300,000 customers and we are deeply grateful for their dedication.

[Robert McAnnally, President & CEO at ONE Gas]

Now I'll ask Chris to discuss the details of our financial performance for the quarter. Chris?

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

Thanks, Sid, and good morning, everyone. As Sid noted, we had strong financial performance this quarter due to new rates taking effect late last year, cold weather underpinning strong customer demand and our team's consistent management of expenses. We now expect to achieve the upper half of our stated guidance ranges, which include net income of $254,000,000 to $261,000,000 and earnings per diluted share of 4.2 to $4.32 Net income for the first quarter was $119,400,000 or $1.98 per diluted share compared with $99,300,000 or $1.75 in the same period last year. Weather across our service territories for the first quarter was 5% colder than normal and 16% colder than the first quarter last year. First quarter revenues reflect an increase of approximately $52,000,000 from new rates and $2,000,000 from continued customer growth.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

First quarter O and M expenses were approximately 2% higher than the first quarter last year. We still project a 4% CAGR in O and M expenses across the five year plan. Our teams have done an excellent job of managing these expenses. Other income net decreased by just under $3,000,000 compared with the same period last year, primarily due to decreases in the market value of investments associated with our non qualified employee benefit plan. Excluding amounts related to KGSS-one, interest expense in the first quarter was $4,700,000 higher than the same period in 2024, which reflects the maturity of lower coupon notes in February and March 2024, the reopening of our 5.1% senior notes last August to issue an additional $250,000,000 and higher average commercial paper balances.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

We have forward sale agreements for 403,000 shares of our common stock with settlement by the end of twenty twenty five at an average price of nearly $75 per share. Had all forward shares been settled at quarter end, we would have received net proceeds of approximately $30,000,000 We also have approximately $225,000,000 of equity available for issuance under our at the market equity program. We continue to be opportunistic about issuing equity as we meet our remaining needs. Yesterday, the ONE Gas Board of Directors declared a dividend of $0.67 per share, unchanged from the previous quarter. And now Curtis, I'll turn things over to you.

[Curtis Dinan, Senior VP & COO at ONE Gas]

Thank you, Chris, and good morning, everyone. I'll start with an update on our regulatory activities. Oklahoma Natural Gas filed its annual performance based rate change application in February, seeking a $41,500,000 adjustment with rates expected to go into effect in late June. In all Texas service areas, we completed our annual capital recovery filings. For the Central Gulf region, we are requesting a $15,400,000 revenue increase.

[Curtis Dinan, Senior VP & COO at ONE Gas]

And for the West North Region, we are seeking an $8,200,000 increase, both to be effective in June. In the Rio Grande Valley service area, we are requesting a $3,200,000 increase to be effective in September. Finally, Kansas Gas Service requested an increase of 7,200,000 pursuant to the Gas System Reliability Surcharge statute. The GSRS allows for the recovery of and a return on safety and system integrity related investments between general rate cases. As Chris noted, it was quite cold this January and February with five named winter storms hitting our region.

[Curtis Dinan, Senior VP & COO at ONE Gas]

Our system performed well throughout the storms, thanks to careful planning and the dedication of our coworkers. Despite the cold weather, we completed $178,000,000 worth of capital projects this quarter, relatively in line with the same period last year. Progress continues on the Austin system reinforcement project we discussed on last quarter's call. We've installed almost 24,000 feet of pipe and are on track to have the project in service during the fourth quarter of this year. We are also pleased to share news of an innovative new project with one of our customers in Austin.

[Curtis Dinan, Senior VP & COO at ONE Gas]

Texas Gas Service will supply natural gas for on-site power generation and construct an interconnection to receive renewable natural gas from the customer's facility. This project demonstrates the importance of natural gas and how the versatility of the natural gas system can support a customer's environmental and business goals. We have made progress on our own emissions goal, achieving a 51% reduction in leak related emissions. Our safety driven pipeline replacement plan has kept us on track to reach our 02/1935 goal of reducing emissions associated with mains and services by 55% even as we grow our system. As Chris noted, our teams have done a great job managing O and M expenses.

[Curtis Dinan, Senior VP & COO at ONE Gas]

We continue to in source line locating and completed that process in the outlying areas of Oklahoma during the first quarter. '1 Gas employees now perform about 40% of line locating services across our territories. Focusing on growth, we've installed nearly 8,000 new meters through April as new housing developments take shape. The major metropolitan areas in Texas and Oklahoma are leading this expansion. We are also setting new meters in Kansas, especially in the Wichita area.

[Curtis Dinan, Senior VP & COO at ONE Gas]

As we've noted in previous discussions, an influx of new residents has resulted in a shortage of available housing across our three states. We anticipate builders and developers will respond to the ongoing demand for new housing and we are well positioned to provide natural gas service. We also continue to explore opportunities to serve power generation needs across our footprint. We are thoughtful in our approach to such opportunities and are particularly interested in projects that support our strategic initiatives, including system reinforcement and extending service to growing areas. Our active projects include generation at large advanced manufacturing facilities and lower power capacity areas, data centers and serving grid connected utility generation.

[Curtis Dinan, Senior VP & COO at ONE Gas]

Operator, we're now ready for questions.

[Operator]

Thank Our first question is from Julien Dumoulin Smith with Jefferies. Your line is now open.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Hey, good morning, team. Thank you guys very much for the time. Appreciate it. Nicely done here.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Good morning, couple of

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

follow ups, if I can here. Hey, good morning, Seth. Just Chris, nicely done on the O and M here real quickly. I mean, you with O and M coming in at what looks like a 1.9% year over year in 1Q. How do you think about the commentary about sub-four percent here?

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

And how do you think about it trending in a longer term basis in that direction, right? I mean, certainly, in this inflationary environment, you guys continue to put up this kind of O and M is remarkable, but I just wanted to see how sustainable it is, if you will.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

Good morning, Julien. Thank you for that. If you revisit where we started in our efforts around in sourcing of activities primarily in Curtis' vertical, a couple of years ago, We we had at that time a 5% CAGR in o and m expenses planned over the five year period. And based on the success of that, and we had communicated at the time it would be more front end loaded as we did those activities and we had to incubate the inefficiencies of bringing people in while still paying contractors as we trained our internal staffing. We we were able to migrate that down to a 4% number.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

We've, as you pointed out, achieved a number better than that, but we're still cautious about the opportunities that Curtis and his team continue to probe new areas to continue to in source where it's appropriate to do so both in terms of the type of work and the area of the work. And so you may look to us, Julian, to continue to push that opportunity. We still would say it's more front end loaded as we do that work. And then I'd just remind you that about 60% of our O and M is labor and benefits related. And so we're still subjected to what the labor market dictates as a competitive wage growth number going forward.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Excellent. Hey, thanks, Chris. And maybe a little bit more of a question for Curtis here. I think there's a bill HB 4,384 in Texas. Looks like an interesting depreciation tracker for gas LDCs here.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Is that something that could be potentially meaningful for you all? And how do you think about that? I mean, just as you think about the legislative landscape recession, is that something that you guys would be notably watching here as an opportunity or anything else legislatively on the gas investment cycle in Texas?

[Curtis Dinan, Senior VP & COO at ONE Gas]

Julien, thanks for the question. That is one that would be a benefit to us just as the 8.209 that you referenced is a benefit to us today on the types of investments that qualify under that one. Extending that out would help with overall recoveries that we receive and earlier returns on those projects than we experienced today. So we that that bill still has quite a ways to go, but we would see that as a positive. Some of the other bills that we're watching closely have to do with utility worker protections, strengthening the penalties to if there's any incidents involving involving them during their work and some other similar type imminent domain legislation and things like that.

[Curtis Dinan, Senior VP & COO at ONE Gas]

But I I would say more opportunistic in the way we're viewing these rather than something we're as concerned about.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Got it. And beyond just the the notable improvement in recovery and lag, do you see this enabling kind of another step function in spending in any specific way as you think about Texas and that legislation?

[Curtis Dinan, Senior VP & COO at ONE Gas]

I I wouldn't say that. You know, we we look at several factors when we're setting our our capital plans. First, what what are the needs of our system as it relates to integrity spending? What are the opportunities with our customer development, and then thinking about what are the resources that are needed, whether those are financial resources or the physical resources to complete the work, and what's the impact on the customer bills. So that's kind of the filter we run our capital through.

[Curtis Dinan, Senior VP & COO at ONE Gas]

And while this would have a positive impact on the returns of it, it wouldn't be of such a magnitude that it it would change the answer to those first four filters.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Got it. All right. Excellent.

[Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group]

Well, thank you all very much. Appreciate the time. See you soon, all right?

[Robert McAnnally, President & CEO at ONE Gas]

Thank you, Julien. You bet.

[Operator]

Our next question is from Bill Apicelli with UBS. Your line is now open.

[Bill Appicelli, Executive Director, Head of North America Power & Utilities Research at UBS Group]

Hi, good morning.

[Robert McAnnally, President & CEO at ONE Gas]

Good morning, Bill.

[Bill Appicelli, Executive Director, Head of North America Power & Utilities Research at UBS Group]

Just going back maybe to the O and M question, but also more broadly around the guide up within guidance for the year. Is that driven by the O and M tracking a little bit better than expected? Or any more color as to why the guide up into the range?

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

Hey, Bill, this is Chris. It's a combination of things. If you were to look at first quarter, we had very strong margin predicated on strong customer demand given the weather profile. We've continued to see strong growth in the customer base. And then as you pointed out, we've performed better on the cost side of things than was originally embedded.

[Bill Appicelli, Executive Director, Head of North America Power & Utilities Research at UBS Group]

Okay, great. And then maybe just on that project that you mentioned in Austin, I mean, can you just any more color around the size or scope of the project and magnitude of investment for you?

[Curtis Dinan, Senior VP & COO at ONE Gas]

Yeah. This is Curtis, Bill. In terms of investment dollars, it's not a significant investment. This this project really highlights our approach to trying to tie strategic initiatives together. So, a few years ago, we started working on, in this particular area of Austin, expanding our loop around the city because we saw growth happening, and we needed to be able to get supply to different parts of that community.

[Curtis Dinan, Senior VP & COO at ONE Gas]

Building that trunk line put us near where we would have the opportunity to serve this customer. So while the customer wasn't on the map a few years ago, tying all of those things together and our commercial people continuing to stay active in the area has created that opportunity to serve it. So if you're just looking at the setting and a little bit of pipe that's related to directly serving this customer, it's not a lot of capital, but it's because of tying all these other projects together that enabled it. So that that's really the strategy behind how we approach these these types of projects. And we'll be able to say a little bit more about the project later as as the customer is ready to do that.

[Bill Appicelli, Executive Director, Head of North America Power & Utilities Research at UBS Group]

All right. Perfect. And then just lastly for me on the maybe you could just speak to tariff impact and to the degree that's having an influence on the capital budget or any other aspects of your operations?

[Robert McAnnally, President & CEO at ONE Gas]

Yeah. Bill, this is Sid. We were fortunate in that let's go back to before COVID. We found that there was an economic advantage to having a more direct relationship with our suppliers and buying up in the production chain. There were some savings there.

[Robert McAnnally, President & CEO at ONE Gas]

And so we put that into place, it really served us well during COVID. We've continued to follow that, and we believe it's going to give us some protection in '25 as we wait to see what the actual tariff environment is going forward. But we think we are fairly well insulated in in terms of this year, and so no impact on performance built into our guide.

[Bill Appicelli, Executive Director, Head of North America Power & Utilities Research at UBS Group]

Okay. Alright. Perfect. That's it for me. Thank you.

[Robert McAnnally, President & CEO at ONE Gas]

You bet. Thank you.

[Operator]

We have a question from Christopher Jeffrey with Mizuho Securities. Your line is now open.

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Hi, good morning everyone and congratulations on the quarter. Maybe just to speak more to the impact of weather as far as higher sales volume and kind of what that means for working capital inventory levels. And I noticed the interest expense quarter over quarter came down a bit. Was that more related to that working capital piece? Are you seeing lower rates on your CP?

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Thanks.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

Hey, Chris. This is Chris. I'll maybe start in reverse order. Yes, the CP rate came down given the Federal Reserve's last cut was in early December and it takes a little bit of time for that to get fully profiled in. So there was a modest benefit.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

Certainly on a quarter over quarter basis, there was a benefit in the average rate dynamic for commercial paper. You're right that with strong demand meant significant amount of volume sold to customers, certainly a step change from the 16% weather dynamic improvement year over year in the quarter. And that does result in a bit more of working capital needs to service. We're starting to get, obviously, as we moved out of winter and in through April and May paid off on on those amounts, and so we see some reprieve from that. But you're right to note that the weather dynamic is supportive of a lot of the sort of cornerstone elements of what we do, but also entails more in the way of working capital financing needs to support it.

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Great. Thanks, Chris. And then maybe just kind of one more on the O and M piece. As far as like the in sourcing program, do you see kind of a timing that that program will be sunset? You kind of mentioned front loaded O and M.

[Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities]

Or do you see that more as kind of a recurring continuous program for the foreseeable future?

[Curtis Dinan, Senior VP & COO at ONE Gas]

Chris, this is Curtis. And, we do still have ongoing activities we're doing in the line locating area. The the difference between today and two years ago when we really had to step into it in mass to get to a critical point is we can be more measured in the process. So in terms of the number of jobs that we create and the the number of locates that we in source, we we can do it a little more slowly. So as we incur those front end cost in in advance of gaining the benefit of those efficiencies, it it won't be as significant to us.

[Curtis Dinan, Senior VP & COO at ONE Gas]

But that program, we we still have quite a ways to go just in that function. I mentioned we're at 40% company wide. I don't know that our goal would be to get to 100% company wide, but there's a balance related to it. But we still have plenty of of, opportunity to do that. The other thing I would mention is there are some other areas of activities that we do that, we're continuing to evaluate.

[Curtis Dinan, Senior VP & COO at ONE Gas]

Are those functions that we should in source? How would we go about it? What would be the pace of that, and what what's the upside to doing that. So, I don't look for an early sunset to the different activities, because I I think we're our teams are pretty innovative in what they're looking at and finding new ways to bring things in house and that helps us from an efficiency standpoint and to manage our workforce and our compliance efforts better.

[Christopher Sighinolfi, Senior VP & CFO at ONE Gas]

Great. Thanks, Curtis. Thanks, everyone.

[Operator]

We have a question from Paul Fremont with Ladenburg. Your line is now open.

[Paul Fremont, Managing Director at Ladenburg Thalmann]

Thank you very much and congratulations on a great quarter. Just some clarification on O and M for this year. So you've talked about sort of it only increasing 2% in the first quarter. Where do you expect to end the year as a whole? In the 4% range or maybe even in the 2% range?

[Robert McAnnally, President & CEO at ONE Gas]

Paul, this is Sid. Thank you for the comment. We like the 4% number because, to Chris' point, when you think about the impact of employee costs, we know that we're going to bear those costs through the year. We also anticipate that we'll have other opportunities, as Curtis just spoke to. And I'd add to Curtis' answer about those efficiency opportunities, it's not just about reducing the cost of compliance activities, It's also giving us the flexibility to deploy our workforce in a more efficient way so that when we have downtime in one area, we can shift the focus of our employee base to other compliance activities.

[Robert McAnnally, President & CEO at ONE Gas]

So it really is an efficiency gain. We're not assuming numbers, specific numbers that would cause us to guide below the 4%. So the 4% is there because we believe that it competently speaks to employee costs that we know are coming and additional efficiency investments that we think we'll have the opportunity to make. But as Chris said, we will always seek to be below that number. We'll always seek to be more efficient.

[Robert McAnnally, President & CEO at ONE Gas]

So that's our goal at the end of the day.

[Paul Fremont, Managing Director at Ladenburg Thalmann]

Thank you very much.

[Robert McAnnally, President & CEO at ONE Gas]

Thank you.

[Operator]

There are no additional questions at this time, so I'll pass the call back over to Erin Daley for closing remarks.

[Erin Dailey, Director of Investor Relations & Sustainability at ONE Gas]

Thank you all again for your interest in ONE Gas. We look forward to seeing many of you at the AGA Financial Forum in a couple of weeks. Our quiet period for the second quarter starts when we close our books in early July and extends until we release earnings on August 5. We'll provide details about the conference call at a later date. Have a great day.

[Operator]

That concludes the ONE Gas first quarter earnings conference call and webcast. You may now disconnect your line.

Participants

Executives

• Erin Dailey, Director of Investor Relations & Sustainability
• Robert McAnnally, President & CEO
• Christopher Sighinolfi, Senior VP & CFO
• Curtis Dinan, Senior VP & COO

Analysts

• Julien Dumoulin-Smith, Research Analyst at Jefferies Financial Group
• Bill Appicelli, Executive Director, Head of North America Power & Utilities Research at UBS Group
• Christopher Jeffrey, Equity Research Senior Associate at Mizuho Securities
• Paul Fremont, Managing Director at Ladenburg Thalmann