Q4 2019 Earnings Call
Only mode. A question answer session will follow the formal presentation.
No one should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Jennifer Hills, Vice President of Investor Relations. Thank you you may begin.
Thank you Dave Good morning, everyone and thank you for joining this call is being webcast live on the Internet earnings release, a conference call Slide presentation, which we will reference in our prepared remarks available at energy Dot com under the Investor Relations tab.
We view these financial results into the future expectations. Please keep in mind that some of our discussion may contain forward looking statements within the meaning of the Securities Act and the Securities Exchange Act.
Forward looking statements and projections could differ materially from actual result.
Factors that could cause such material differences are outlined on slide 54 or more fully described.
The filing a first the earthquake sports by senior Vice President and CFO .
Correct.
Thank you Jennifer and good morning, everyone. Appreciate you joining us and your interest in Atmos energy yesterday, we reported fiscal 2019 net income of $511 million $4.35 per diluted share.
This represents 17th consecutive year of rising earnings per share.
Slide six and seven to provide details of the year over year changes to operating income for each of our segments I will touch on a few of the fiscal year highlights.
So it made a contribution margin Roosevelt fiber sad about $95 million.
Rate increases driven by increased safety reliability capital spending.
By the incremental $80 million virtually all of these increases were not Texas, Louisiana and Mississippi jurisdictions.
As we've discussed over the last couple of quarters pipeline and storage segment benefited from the supply demand dynamics that impacted pricing in the Permian basin over the last 12 to 18 months, we were able to capture a portion of the widest waha, indicating spread resulting at 12 million dollar increase over fiscal 2018.
As expected new merchant pipeline came online mid summer.
Oh narrower spread opportunities in the back half fourth quarter.
Finally, our distribution southern continued to experience solid touched for growth.
Over the last 12 months or distribution segment, adding that 37000 customers a 1.2% increase over last year.
Consolidated operating expenses, Rosa parks, and 6%, reflecting higher depreciation expense associated with increased capital spending in her own and spending attributed to increased pipeline integrity and maintenance activities higher employee costs.
As we discussed last quarter, if that's what 29 team we increased service related headcount or mid Tex division to support the growth in or DFW market.
Additionally, we continue to roll out.
Oh, well out of it bad weeks surface technologies.
All of this role what has modestly increased or own M. It plays an important role and our ability to identify and mitigate risk.
Finally, we continue to increase the training by two employees to further enable them to operate or system safely and reliably.
Consolidated capital spending increased 15% to $1.7 billion, 87% of her spending directed towards investments to improve the safety reliability of our system.
Our ability to support this level of capital spending is due in part the various regulatory mechanisms, we haven't place to minimize regulatory lag.
During fiscal 2019 over 85% upper capital spending began to earn a return within six months of the test group that.
The topics just like implementing $117 million, an annualized operating income increases.
23 regulatory proceedings.
Since September Thirtyth. We then it's not an additional $57 million through six regulatory proceedings were filed in the back half that's what 29 cheap.
As of today, we've got four pounds pending speaking about $6 million.
Slide 39 to 53 summarize it regulatory activities, but that's were 29 tea.
[noise] our ability to sports is lot <unk> capital spending is also predicated on our ability to attract the necessary long term financing to Thunder ongoing capital expenditure program well make any the strength of our balance sheet. During the fourth quarter. We continue to utilize equity Ford agreements executed under our ATM helped me or fits what 2020 equity needs.
We issued 1.4 million shares at an average price or $108.70.
Additionally, we sell for degree Thats, a $1.1 billion.
What made shares from net proceeds or possibly $100 million.
As of September 30, 29 chain, we had about 463 million remaining under equity board arrangements.
This issuance completed that very busy financing year, we're able to successfully raised over $2 billion of debt and equity financing.
In the process would reduce or where the average cost of debt, but once you weren't percent 4.5 acre sad and increased a weighted average maturities from 16 years to 22 years, helping to ensure our customers benefit from the current low interest rate environment for years to calm.
Andrew equity capitalization increased 230 basis points to 59% as of September Thirtyth.
We finished the fiscal year with approximately $1.6 billion to liquidity under our credit facility and that bring forward agreements details refinancing activities, including our every board arrangement. That's what's your financial profile problem slide nine to 11.
Looking forward, that's what 2020 for represent the ninth year executing or operating plan to modernize or distribution transmission storage systems are quite as summarized on slide 13, we expect fiscal 2020 earnings per share to be in the range at $4.58 to $4.73 per diluted share with about 68% of earnings coming.
From our distribution segment.
That's what 2024, we anticipate earnings per share in the range of $5.90 $6.30 per diluted share.
Slide 14, 15 present, some of the detail supporting our fiscal 2020 guidance.
Oh My name is expected to be in line with fiscal 2019.
Our own that we'll continue to be focused on especially activities that address system safety and compliance <unk>.
These activities include enhanced leak survey.
Integrity work continued record establishment and retention.
Also includes spending worked to help us.
As a baseline of understanding of our system for citizens New integrity management rules go into effect on July one of 2020.
As we've discussed in the past we have then it takes babies are girls for a few years they've requested that activity in our future on that projections.
As a result, similar to last years five year plan, we can to just say, oh and inflation of 2.5%, 3% to 5% annually.
Depreciation will rise due to the high level of capital spending.
Interest expense was lower as we produced a weighted average cost of debt expect to capitalize more interested if you do see.
Well, we expect our effective tax rate to be between 20%, 22% in fiscal 2020 inclusive of the impact of amortizing or access deferred tax liabilities.
Excluding this amortization, we anticipate the effective tax rate to range from 23% 25%.
Fiscal 2020 capital spending it's actually to rise about 12% range between $1.85 billion to $1.95 billion with approximately 86% of the spending dedicated to safety reliability spending approximately 73, good set of the spending will be allocated toward distribution segment.
Almost 90% of our consolidated capital spending is such a big earning a return within six months or the test period ends.
Continued spending for system replacement monetization will be the primary driver for the anticipated increase in capital spending net income earnings per share in fiscal 2024 as you can see on slide 17, we suspect capital spending to increase 7% to 8% per year fiscal 2019 spend levels for toll of $10 billion to $11 billion.
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This level spending is expected to approximately four times depreciation and going.
This should result in rate base growth about 12% to 14% per year.
This translates into an estimated rate base, a $17 billion to $18 billion in fiscal 2024.
About $9 billion at the end of fiscal 2019 as you can see on slide 18.
Annual funding mechanisms will be the primary beams, which would recover capital spending.
These mechanisms enable us to more efficiently deploy capital and generates returns necessary to attract new capital needed to financial investment.
And these mechanisms for do say smaller impact to our customer Bill will provide the regular rate adjustments that support our system modernization efforts, we've assumed no material changes these mechanisms to fiscal 2024.
In fiscal 2020, we anticipate completing filings for 160 million to $180 million, an annualized regulatory outcome that impact fiscal years 2020 and 2021.
Moving to slide 20, and live or financial performance for fiscal 2019 adversaries board of directors approved or 144th consecutive quarterly cash dividend yesterday.
Indicated annual dividend, but that's what 2020 is $2.30.
And a half percent increase over fiscal 2019.
We continue to expect dividends per share to grow in line with earnings per share of over the next five years and we will continue to target a payout ratio of approximately 50% as it strikes the right balance between using funds to invest in the monetization of our system, providing returned to our shareholders who support our operating plans with their investments.
This five year plan continues the financing strategy that we've been executing over the last few years it balances the interest of our customers and our investors, while preserving our strong credit metrics that minimize the cost of financing for our customers.
Based on our spending assumptions, we anticipate the need to raise between 5.5 billion is $6.5 billion incremental long term financing over the next five years.
The strength of our balance sheet enables us to use that crude next long term debt equity financing in order to maintain a balanced capital structure, they targeted equity capitalization ratio ranging from 50% to 60% inclusive of short term debt.
This strategy is summarized on slide 21, and consistent our plans our financing plan has been fully reflected in our earnings per share guidance through fiscal 2024.
In October we got off to a great start towards executing this plan with the issuance of $800 million in long term debt.
We issued a mix of tenure and third year notes that cheap at weighted average cost of debt of 3.18% in this offer.
As a result, or overall weighted average cost of debt decreased another 26 basis points to 4.32%.
From an equity perspective, we announced during fiscal 2018 that we did not receive the need for discrete equity issuance in fiscal 2020.
The equity forwards, we executed during fiscal 2019 or expected to satisfy substantial portion or equity needs for the fiscal year. We expect to remain raised the remaining equity needs with this between 22 or ATM program.
In closing the execution of our operating plans to modernize their system through disciplined capital spending time with recovery those investments through our various regulatory mechanisms balanced long term financing support our ability to grow earnings per share in dividends per share, 6% to 8% at least in fiscal 2024 and.
And as you can see on slide 22, and 23 the execution of this plan will also keep us from bills affordable, which helped to sustain this plan for the long term.
Thank you for your time this morning, I'll now turn the call over to Kevin his prepared remarks.
Thank you Chris fiscal 2019 was the eighth consecutive year successfully executing our proven investment strategy focused on operating safely and reliably.
While we modernize our natural gas distribution transmission and storage system.
Our 70000 miles of distribution pipeline.
And 5700 miles of intrastate pipeline provide safe and reliable service to our customers every day.
In addition to achieving our financial targets for fiscal 2019, we continue to modernize our system.
In fiscal year 2019, as you saw on slide 27, our team replaced about 775 cents 770 miles of distribution pipe.
120 miles of transmission pipe.
53000 service lines across the United States in which we operate.
We continue to utilize technology to modernize our business.
Fiscal 2019, we deployed new technology called locus, Matt.
That allows us to digitally capture asset data as they complete our project.
This technology is helping us to scale, our operation and improve the quality and timeliness of our asset data collection requirement.
At the end of fiscal 2019. This rollout was about 50% complete and on track to be fully implement by the end of fiscal 2020.
We also continued our systematic rollout of advanced leak detection technology to enhance our ability to monitoring system keeps the public say and to help us prioritize the pipe replacement work.
And our customer support centers, we completed the implementation of new technology that we referred to as skills based routing.
Skills based routing matches, a color to that customer support associate best suited to handle their need by using predictive analytics within our S&P system.
Our electronic billing continues to be one of the highest in the industry at 43%.
Based on a 2019 American Gas Association Edison Electric Institute Benchmarking survey.
Our penetration for electronic billing was rated number one for gas only utility and number four for all gas electric in combination utility.
We increased our electronic billing penetration about 2.4% in fiscal year 2019.
Also in fiscal year 2019, our Spanish account center was released along with an upgrade to our integrated voice response system.
These are just a few examples of the many initiatives we have in progress or completed as we modernize our system and our business.
As you know our vision is to be the safest provider of natural gas services and training is key to part of that vision. In 2019, we provided nearly 288000 hours at our Charles K Bond Center and surpassed the 1.3 million Mark in total training hours since the facility.
Then in 2010. This training is critical to our success because it helps us work smarter and safer.
We also completed our pipeline safety management system assessment and are working on our high level road map or dressing gap.
Well, we have had components of a safety management system, including procedures and policies and practices for years.
The safety management system formalize is what we're doing and adds another layer of rigor and discipline, where the identification and assessment of rip.
It is an integral part supporting our vision of being the safest provider of natural gas services.
Our employees continue to provide exceptional customer service at every opportunity.
Customers give us a 98% satisfaction rating for both our contact center agents and our service technician.
These men and women are the heart that's all in the face of Atmos energy I'm extremely proud of them and how well they represented each and every opportunity.
In addition to providing safe and reliable service an exceptional customer service.
Our employee support the communities, where we live in more in fiscal 2019, I'm proud to say that we donated nearly $5 million to various charitable called the as well. It's helped our most vulnerable customers gain access to nearly $6 million a funny to help pay their heating bills.
By all measures fiscal 2019 was another successful year Paramus energy I'm very excited about the future of Atmos energy and I look forward to executing the ninth year of our successful strategy as we maintain our focus on our vision of being the safest provider of natural gas services.
This straightforward focused improvement strategy benefits all stakeholders as we strive to safely providing excellent customer service in an environmentally responsible manner.
The $10 billion to $11 billion capital spending plan over the next five years, we'll continue to be in the areas that system modernization.
System fortification customer growth and technology, then improve safety drives efficiency and build scale.
Over 85% of these investments will be focused on safety reliability.
Then if that bar risk based capital allocation strategy.
Continued emphasis will be placed on living industrial then a bomb material such as bare steel vintage plastic and cast iron.
And this pipeline, Texas investments in addition to safety will focus on reliability fortifying our ability to meet the growing demand, particularly here in our North Texas service territory.
At the end of the five year investment period, our say system will be significantly more modern as you can see on slide 27, we anticipate this level still owning will support the replacement of 5000 to 6000 miles of distribution and transmission pipe or about 6% to 8% of our total system.
Included in this amount is the replacement of our last 400 miles of cast iron and our system by the end up 2021.
And the replacement of all bare steel main outside of our mid Tex Division.
We also plan to replace between 200000 and 300000 steel service line, which is expected to reduce our inventory by 29%.
And 75% of our system will be equipped with my wireless meter reading by the end of this period.
Finally, this level replacement is expected to reduce methane emissions from our system by 10% to 15% over the next five years.
We continue to fine tune, our planning and forecasting capabilities, incorporating lessons learned and new requirements to ensure the work is done right and to further improve our ability to execute on our strategy.
We have a proven track record of managing and growing these investments in a safe and responsible manner, because where employees and our leaders.
They have displayed the skills experience training and habit technology to execute this strategy exceptionally well.
Management Committee leads the execution. This strategy is committee is supported by seven divisional leadership team each comprised of a president and Vice President.
Presenting operational and financial areas of responsibility and a strong centralized shared service team.
It's somewhat unique structure helps us to ensure a strong governance in executional oversight at the local level and it also serves to internally develop a wide number of people for potentially more senior roles in the company.
Our management team is supported by to engage board of directors.
The board of directors possesses a strong balance of experience to provide deep insight strong governance and management oversight with a fresh perspective.
Fiscal 2019, we further strengthened our board oversight with the establishment other corporate responsibility in sustainability Committee.
This committee now monitors the current and emerging yet GE landscape, where issues that could materially affect our business and oversees all of our E.S.G. efforts.
Together this positions Atmos energy for sustained success in the future as we continue to provide safe reliable efficient and affordable natural gas service, two or 3 million customers and over 1400 community.
Well as we continue working in sync with our regulators to advance safety and reliability.
Our culture atmosphere is the secret sauce that supports that hamper, but the necessary foundation for our continued success in our ability to execute consistently.
Now 20 years old atmosphere to establish the longstanding guiding principles of our culture. Today. These principles are inspire trust. The it's your Beth bring out the best in others make a difference and focus on the future.
Reflect the values beliefs and behaviors, we embraced as a company.
In closing I would like to thank our 4700 employees for their dedication to safely operating our system, providing exceptional customer service and forgive me back to the community where they live in work each and every day. They are the heart and soul of our company and the biggest reason Amis energy will be successful for the long term.
We appreciate your time this morning, and now we will take any questions you may have.
Thank you, ladies and gentlemen, we will now be conducting the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation timely indicate that your line isn't the question Q you May press Star appeal, if you'd like to remove your question from the Q for participants easing speaker equipment, and maybe necessary to pick up your handset.
For pressing the Sarkies one moment, please let me pull for questions.
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Once again, ladies and gentlemen, thank you my question at this time, Please press star one on your telephone keypad.
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It appears we have no questions at this time, so I'd like to pass the floor back over to missiles for any additional concluding comments.
Thank you for joining us today, a recording of this call is available for replay on our website through February 2020, we appreciate your interest and Atmos energy give out.