Q2 2020 Earnings Call
This time, all participants are to listen only mode.
A question answer session will follow the formal presentation.
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It's not my pleasure to introduce your host Dennis here, Vice President Treasurer for Atmos energy. Thank you you may begin.
Thanks, Doug.
Good morning, everyone and thank you for joining US this call is being webcast live on the Internet.
Our earnings release and conference call Slide presentation, which we were reference in our prepared remarks are available at Atmos energy Dot com under the Investor Relations tab.
As we reviewed these financial results then discuss future expectations. Please keep in mind that some of our discussion may contain forward looking statements within the meaning of the security Sac and the Securities Exchange Act.
Forward looking statements and projections could differ materially from actual results.
The factors that could cause such material differences are outlined on slide 32 or more fully described in our FCC filings.
Our first speaker is Kevin acres, President and CEO with Atmos energy cabin.
Thank you Dan Good morning, everyone. We appreciate you joining us and your interest in Atmos Energy I Hope you and your families are safe and healthy as we continue to navigate our way through this challenge together.
I take this opportunity to recognize and thank our everyday heroes.
Those who are helping our country battle. This pandemic, our first responders healthcare workers law enforcement officials grocery store employees truck drivers delivering our nation supplies.
No serving in our branches of the military and all the central services providers working to support our communities.
Thank you for what you're doing to help all we are eternally grateful.
Also want to thank a 4800 atmos energy everyday heroes as they continue to provide our customer safe and reliable natural gas service I'm extremely proud of their dedication and commitment to keeping our 3.1 million customers. A 14 had her communities and themselves healthy insight.
After synergies commitment to safety paired with our culture have let us during unique times and this will be no different.
In early February our Chief Information Officer, let a team effort to assess each as our companywide remote work capabilities, including our two customer support centers.
Gas supply.
Our two gas control centers are shared service functions and over 200 operational service centers across or eight states service territory.
Through their efforts a mid March when local and state government started issuing shelter in place orders.
We were ready to transition every facet of our business to like fully remote work environment.
Today, we have over 95% of our employees working remotely it continues to perform at the highest level.
As an example of their outstanding effort.
Well the massive April our customer service agents satisfaction scores were 97.6%.
And our service technician satisfaction scores were 97.4% truly outstanding work that Ti.
In addition, our risk management and compliance committee, along with senior leaders from across the company focused on several operational scenario planning exercise its in early March.
These exercises based on current world in U.S. situations.
We're focused on maintaining the safety of our customers communities and employees as we continue to provide reliable natural gas service.
Specific areas of focus where emergency response.
Just a maintenance and compliance work, including pipe replacement line locating.
System inspections, that's wells the ability to remotely train employees.
The sad working remotely you will see employees doing our part to reduce the spread of the fires practicing social business as.
Right face coverings, while working in our communities.
We're working and smaller construction crews.
We believe the above implemented practices for our employees and our contractors along with using CDC guidelines to design safety protocols, well things such as self temperature and system screening.
Yeah, that's position to continue providing safe and reliable natural gas service.
Using the safety practices and protocols mentioned above under shelter in place orders, we have been able to safely performed distribution and transmission pipeline system work.
This work includes maintenance and compliance activities pipe replacement line locating and system inspections.
In preparing our work plans practices and protocols, we worked with a regulatory agencies.
Local and state officials emergency management.
The American gas association and industry peers across our service territory.
We greatly appreciate their leadership in ongoing support as we all work together with a health and safety of our employees customers and community.
Our culture atmosphere has gotten us in the past.
Guiding us during this challenging time.
And we'll continue to got us into the future as we look to be at our best.
The best in others and make a difference.
Making a difference for local food banks and communities across our eight states. They helped keep meals on tables to our donation of $1.5 million.
Looking at our best.
Mr Energy employees partnered with many nonprofit agencies schools hospitals throughout our service territory. The feel lunch bags for children provide meals for health care heroes in first responders or by donating much needed plasma.
Making a difference for our customers by temporarily suspending disconnections for non payment and wave late payment and start reconnect fees. During these challenging times. So customers continue to have safe and reliable natural gas service, where he water heat and cooking.
I'm extremely proud about 4800 employees and how they're atmosphere as Sean so brightly upon our neighbors in our communities.
Also making a difference we closely worked with our regulators to develop solutions to the mutual benefit of our customers and the company.
I have elected to defer implementation of new rates were approximately 32% of our customers in Texas from our fiscal third quarter two at least September 1st of this year.
Additionally, we have received regulatory orders and four states covering approximately 80% of our customers to defer any cold at 19 related costs, including bad debt expense.
In April we executed $900 million in new financing arrangements to further solidify our liquidity.
As of April Thirtyth, our liquidity was $2.9 billion and our balance sheet remains very strong.
Now I would like to turn the call over to Chris where financial update and I will return shortly with a few closing remarks.
Thank you Kevin and good morning, everyone last night reported fiscal 2022nd quarter diluted earnings per share of $1.95 cents compared to $1.82 cents per diluted share in the prior year quarter.
Year to date diluted earnings per share for $3.42 compared with $3.21 per diluted share of the prior year period.
As Kevin mentioned in his opening remarks mitigation efforts to slow the spread of Kevin Knight team began to impact or service territories. During the last two weeks of March.
Therefore, we do not experienced material impact and Kogan 90 during the first six months of the fiscal year.
Consolidated operating income during the six months ended March 31 rose over 9% to $584 million.
I will touch in a few of the highlights now.
Rate increases in both her operating segments, driven by increased safety reliability capital spending totaled $83 million.
Customer growth no distribution segment contributed incremental Eaton half million dollars as we continued to benefit and the strong population growth and sell the river several of our service areas, most notably in the DFW Metroplex.
For the 12 months ended March 31st we experienced 1.5% net customer growth in our north, Texas distribution business and 1.2% net customer growth across her age they footprint.
Consolidated all one m. increased $12 million for 4.2%, primarily driven by higher employee information technology costs and pipeline to maintenance activities.
Period over period increased also reflects well integrity work that incurred during our first fiscal quarter.
Slides five and six provides additional details for the period over period changes to operating income reach for segments.
Consolidated capital spending can six month period grew 28% to $995 million, 87% directed towards safety reliability spending to Modernisers system.
Because of our designation as in the Central service provider and the measures we have taken to protect our employees and contractors, we still believe or fiscal 2020 capital spending range between 1.85 $1.95 billion.
Fiscal second quarter is the busiest regulatory filing period for fiscal year year to date, we have implemented $58 million annualized operating regulatory outcomes.
And currently we had about $215 million in progress.
Of this amount we currently anticipate an approximate $100 million annualize regulatory outcomes by the end of the fiscal year slides 21 to 31 provide details for all of these filings slide 20 outlined your plane activities for the major that's from here.
Maintaining the strength for balance sheet and a strong liquidity position continues to be one of our primary financial objectives and it has served us well during this uncertain time.
During the second quarter, we filed a $4 billion shelf registration statement and we filed the new $1 billion ATM program.
Also in the second quarter, we executed New board sales agreements were approximately 1.6 million shares with anticipated proceeds of $180 million.
As of March 31st we had about $419 million and cash available under equity forward arrangements with this activity, we have priced Oliver anticipated equity needs for fiscal 2020 any portion of fiscal 2021.
Additionally, the strength of our balance sheet supports from tier one commercial paper rating as a result, we've been able to maintain reasonable access to the commercial paper markets.
As of March 31st we had about $200 million outstanding commercial paper.
The second quarter equity capitalization was 58.2% and we had approximately $2 billion liquidity under a credit facilities and equity forward agreements.
Kevin mentioned in his opening remarks, we took action in April to increase our liquidity for possibly $2.9 billion.
We accomplish this through the execution of a 200 million dollar to your term loan and three new 364 day credit facilities totaling $700 million.
The net proceeds from the term loan reuse repay all outstanding commercial paper Backstopped by our primary $1.5 billion credit facility.
This facility is fully available and in place through September 2023.
Additional details regarding our liquidity can be found on slide 10.
We believe this liquidity position the strength of our balance sheet and $3 billion available under our shelf registration statement gives us the financial flexibility to support our operations as we move forward.
Looking forward towards the second half the fiscal year, we're certainly aware that the economies of the service areas. We serve have been impacted by the cobot 19 pandemic.
And recent economic dead reflects rising unemployment in each of our states.
However, based on what we know today, we still expect earnings per share in the range of $1.58 cents $4.73.
We considered a number of factors in our valuation first our winter heating seasons complete we typically earn approximately 70% of or distribution revenues during the first half for fiscal year.
Our distribution segment, although we're not only to coupled we believe there are factors that mitigate revenue risk for this segment. These factors are summarized on slide 14.
Residential revenues comprised approximately 60% of this segment's revenues during the second half the fiscal year.
And residential bills record lowest during this time.
Additionally, we collect a significant portion of our revenues excluding gas cost with the base charge, which partially insulates us from a volume metric risk for most of our service territories. The base charge represents large portion of a customer's bill by the middle of our third fiscal quarter.
We typically experience a declining volumes during April however, given that able to shoulder month, it's difficult for us we identify of changes in volumes are weather related well representative under a lot of underlying economic activity.
Therefore, we have provided some sensitivity information by custom class on slide 14.
Additionally, the right designing various annual buying mechanisms in or distribution segment and support our ability to recover our cost timely.
Slide 15 summarizes various aspects of a rate designed by state.
Most of these mechanisms are well understood by you ever I wanted to highlight that since March 31st while regulars, Louisiana, Mississippi, Texas, Virginia has issued orders to the Bercow, good 19 related costs, including bad debt expense into a regulatory asset for consideration for future covered.
These orders cover approximately 80% of our customers.
Finally, as Kevin mentioned in his opening remarks were approximately 32% ever customers in Texas, including the city of Dallas, We voluntarily delayed implementation of new rates that were scheduled to go into effect during our fiscal third quarter two at least September 1st.
Distillate implementations will not had a material impact fiscal 2020 financial performance due at the time of year fees rates would have been implemented.
And our pipeline and storage segment revenues earned primarily through demand sees as you're aware before so the segments predominately driven by ABT.
Over 80% of ABTS revenues are earned from delivery services toward North, Texas distribution company in a few other ldcs under a straight fixed variable rate design.
The remainder of Eightys revenues relate to its through system business and other ancillary pipeline services.
As a reminder, APC only keeps 25% of revenues earned from these activities under its rate design.
And the Kevin 19 regulatory asset order issued by the Texas for Commission also applies to ABT.
Finally coming on in perspective, we have deferred some discretionary spending to future periods as remains focused on the health and safety of our employees Slide 17, and 18 provides additional details around her guidance.
Thank you for your time this morning, I'll now turn the call back over to Kevin for some closing remarks.
As you can see we have a robust risk management process that has served us extremely well during this pandemic and we'll continue to get us as we navigate our way through.
As you just heard we have continued to execute at the highest levels on all facets of our business.
Our year to date results were in line with our expectations.
Our balance sheet a strong.
And we have further enhanced our liquidity and as we stated earlier, we continued our system maintenance a compliance work, including pipe replacement line locating and system inspections.
Our leadership team and all 4800 employees were prepared to operate in this environment as a developed in our service area and have continued to adjust and adapt as new information or local and state orders were issued.
We were early to transition to remote work.
And we will be very intentional about reopening our offices.
As you have heard orders to shelter in place began in mid March but that was being issued in April across our service territory.
Therefore, we have not yet seen material impacts to our business. Additionally, six of our eight states have now lifted the shelter in place orders and have begun phased reopening plans.
Over the next quarter, we anticipate having further information and results available to assess any operational financial impact.
Our focus remains the same the health and safety of our employees customers and communities as we execute our proven investment strategy and continue delivering safe reliable affordable inefficient natural gas to homes business as an industry to fuel our energy needs now and in the future.
With that we'll open up for questions operator.
Thank you ladies and gentlemen at this time, we will be conducting a question answer session.
Back to ask a question you May press star one on your telephone keypad a confirmation total indicate your line is any question Q.
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Our first question comes on the line of Iga Zimmer Garstka with Youve. Yes. Please proceed with your question.
Good morning.
Could you. Please provide more color on that re up for Capex range, which factors could potentially push you to the lower end of the range.
Yeah with respect to the Capex range or $1.85 billion to $1.95 billion.
Again, we are essential service provider our crews are working.
Using pressing sold station dozens and so to the extent that a regulatory authority were to come in and change there doesn't our designation as essential service provider ask us to stop or slow down for whatever reason as they navigate through the endemic.
That could be a factor that could drive us towards lower into that range.
As seen in terms of covet can you provide some sensitivities what is the impact that youre actually including.
2020 guidance.
Well as I said April is a shoulder months for unless we have certainly mild submitted some potential outcomes, but we really can't see yet what what is driving the declining volumes.
Typically see in April if its seasonality or if it's true underlying economic activity. So we put those sensitivities out there for everyone to use in their modeling.
Sure.
And my other questions have you seen any delays from Pcs on your pending or expected filings.
No. We haven't we as I mentioned, we have $215 million in progress at this point in time. This is our busy filing period of the year.
A lot large into those filings were filed right at the in March for the first part of April and we are working through the discovery process with our intervenors saw in due course, once working really well from home.
So informations flowing back and forth.
For a large number about.
Roughly $100 million of that filing for including 250 million is not scheduled to be implemented until October 1st and those are our Texas Aram filing so were very early and the process and we have another $50 million or so.
No that was filed for Louisiana, that's got a to be implemented.
On July 1st and at this time, though we have no indication many delays.
Thank you and stay safe.
Thank you I guess.
Our next question comes from the line of Virginia. So currently with Bank of America. Please proceed with your question.
Hey, good morning, I hope everyone does stay in safe and healthy out there I appreciate that you Ritchie question.
Yes, just had a.
Question on the own M. guidance.
It was reduced to essentially flat out look for 2020.
It is principally in response to coded and can you kind of discuss worthy.
Cost cuts are coming from and how you're thinking about aluminum over the forecast period.
Sure, Yes, I love. It is koby related we're focused on the health and safety of our employees. So to the extent that we don't have to outperform compliance related work.
In order to keep those employees out of the community limits are actually exposure to it.
Poison the community, we decided to pull back on some of that discretionary I want to them. So that's typical work like.
Encroachment right way maintenance, we've done a really good job over the years keeping up with allow that works. So they gave us some flexibility should refer that to future periods and other types of work began to noncompliance related inline inspection and other non compliance related pipeline maintenance activities. So.
You see the guidance range on page 18, you pro and as you noted as.
Flat flattish to last year, and we'll just continue to monitor.
Our own young and really the entire organization, but the operations the organization as we move through to the next six months.
Got it that's very helpful. Linear so for long term forecasts are you still expecting the two and half at 3% or is that something less than that.
At this point given what we know we're holding to the tune to have to 3.5% we again.
We're going to come through out the pandemic.
At some point this work that we're deferring we'll have to be completed.
So for now we're holding to that.
Okay got it that's that's very helpful and.
Sorry, if I missed that but did you explicitly reaffirm your 2020 guidance I know you said it was unchanged, but just curious if you.
Explicitly reaffirming that I mean, it seems like minimal sales impact as best we can tell you have all the regulatory mechanisms in place I just wanted to make sure.
Lender send you correctly here on 2020 sure sure I mean, you can see it in our earnings release, it's in the title and it says its retargeting again based on what we know today, we believe the Ranger well 50 export 73 as appropriate.
Yeah, that's very helpful. I appreciate it.
Our next question comes on line of Charles Fishman with Morningstar. Please proceed with your question.
Thank you.
You have a unique regulatory framework in Texas on the distribution with the municipalities in the Railroad Commission when you made the statement Kevin that.
With respect to the.
Treatment of the.
Deferral with respect to any cobot 19 related costs.
Is that similar to how the state commissions work.
And how that's going to be treated or is there any unique factors just because of the.
Different regulatory framework you have then in Texas.
No I don't think theres any uniqueness to where it's very similar as it does in the other jurisdictions will incur those cost and then our next falling Noel well take those under consideration and reviews. So we're just like our other jurisdictions.
So the municipalities actually.
Dave you that order or was that on it the railroad Commission how does that work.
That was that was through the railroad commission that okay.
Yep.
Which is the ultimate regulator for the distribution.
That is correct. Okay, and then I heard you talk about 2020 Capex are you also reaffirming though the the tend to $11 billion a capex during 2020 and 2024.
As we said well we've been able to continue our capital work through this program designate as essential service provider.
We've we anticipate continuing to be able to do that and at this point don't see anything out there that would defer our capital strategy that we had in place right now.
Okay. That's all I had thanks, guys they say.
Thank you.
Our next question comes on the line of Ryan Levine with Citi. Please proceed with your question.
Good morning, and what do you.
Then.
Good morning, and would you be able to comment on what you're seeing in the labor market within your service territory and how that affects any of your your hiring or or a spending programs.
Sure I already mentioned, we are glad Kevin.
Well right now, it's as Chris and I said in our opening remarks, we've been able to do the work that we need to get done two to maintain the safety reliability of our system, both on the distribution and transmission side.
When coupled with our employees under contract employees believe we have the appropriate staff levels at this point.
There there are some impacts as you would imagine from the oil fields at this point.
On the unemployment numbers, but we believe we are fully staffed and operational continue to do the things we need to do on a daily basis.
Okay, and then in terms of just practical implementation as some of your spending programs you mentioned that.
And we practice or additional social distancing in order to implementing the projects I mean, what does that mean in practice.
Does that mean you need to you it takes a little longer to do their jobs are you. Just can you kind of just delineate what what the practical patients.
Yeah. For example, our main replacement we would have a larger crew that would go out and work on the main and service lines at the same time, well, we've chosen to do now let's break those into smaller cruise wearing their face mask, social distancing driving separate vehicles to.
The project.
Sometimes and working as best they can.
Remotely from each other until they have to get into dance and inspect and then we have a separate crew that'll come in later and work on the service lines. We don't have all of those employees at up one side at one time.
That's fair I have any changes in the cost profile or.
Yeah, what are the financial implication to the new social this thing.
No it does not affect that costing at all.
Okay. Thank you.
As a reminder, ladies and gentlemen, it is star one to ask your question.
Next question comes on the line of Insoo Kim with Goldman Sachs. Please proceed with your question.
Thank you.
First question is regarding just your.
Language and around the guidance and your ability to that.
That range site, you gave a lot of details, which definitely I appreciate but just coming.
When I think about how good you guys are situated on your.
This profile and your.
Point that the bulk of the distribution revenues have already been arent through March as well at all the regulatory mechanisms what what concerns do you have I just to touch that just the length of how long were going to be in this current situation that you think could.
Potentially impacted to a downside are you at are you seeing some economic deterioration already in some of your jurisdictions as a result of climate.
But can you restate that second part area I think you broke up a little bit your last just asking.
Are you seeing any initial signs of economic deterioration at many of your jurisdictions.
I'm not at this point as we said the our personal month of operation was April.
Those bills are just now going out and we'll have some more information as those come come through in the next few weeks on into later into my first part of June.
But.
Excuse me as a.
As we've said with the shelter in place orders across our states.
A lot of businesses have been able to continue to operate we seen construction continued a strong leasing a lot of road work continue to go on some of the restaurants have continued to be opened without the Andrew dining but have continued to provide pickup in carry out type service. So we've seen a lot of activity, even though there are some shelter in place and.
We're just waiting to see how that plants out as we go through these phase three openings and get a look at some of those bills to see if those loads picked up or maintain what they normally would've been.
Understood and.
And then regarding your flatten went on guidance for the year.
That I assume that's excluding the only them.
Not set our relate to call the 19 in jurisdictions that you're allowed to differ.
From bank of statement.
Yes, it does add to this point.
Yeah, we're closing out the the books for April right now so we'll have a clear are lucky here in the coming days as to what that spend is but to your point.
Anything that leads koger related or incremental although over and above or run rates would be considered for regulatory asset treatment.
Understood. Thank you very much and stay safe everyone.
Thank you.
There are no further tons in the queue I'd like to hand, the call back to management for closing remarks.
We appreciate your interest an atmosphere energy and thank you for joining us a recording of this call is available for replay on our website through August six have a good day.
Ladies and gentlemen, this does conclude todays teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.
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