Q4 2021 Atmos Energy Corp Earnings Call

November 11, 2021

Greetings and welcome to the Atmos Energy fourth quarter 2021 earnings Conference call. At this time all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you would like to ask a question, please press star one on your telephone keypad.

If anyone 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 Dan Meziere, Vice President of Investor Relations and Treasurer. Thank you, sir. Please go ahead.

Thank you, Donna. Good morning, everyone and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer, and Chris Forsythe, Senior Vice President and Chief Financial Officer.

Good morning, everyone and thank you for joining US with me today are Kevin Akers, President and Chief Executive Officer, and Chris Forsythe, Senior Vice President and Chief Financial Officer.

Our earnings release and conference call slide presentation, which we'll reference in our prepared remarks are available at atmosenergy.com under the Investor Relations tab.

Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure.

As we review these financial results and discuss future expectations, please keep in mind that some of our discussions 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 37, and more fully described in our SEC filings. I will now turn the call over to Kevin.

Thank you Dan and good morning, everyone. We appreciate your interest in Atmos energy and are glad you could join us this morning. Honest veterans day, I would like to take just a moment to say thank you to those who served our armed forces.

Honest veterans day, I would like to take just a moment to say thank you.

So those are served our armed forces.

Nearly 300 of our Atmos Energy teammates are part of the more than 20 million Americans, who bravely served our country. So that we may live freely. Thank you for your service. Yesterday, we reported earnings per share of $5.12, which represents the 19th consecutive year of earnings per share growth. Chris will provide some additional color around our financial results later in this call.

Thank you for yourselves.

Yesterday, we reported earnings per share of $5.12, which represents the 19th.

year of earnings per share growth. Chris will provide some additional color around our financial results later in this call.

I will begin today's call with a review of our fiscal '21 accomplishments. Provide an update on key pipeline projects. And we'll close with some thoughts about fiscal '22.

Provide an update on key pipeline projects.

And we'll close with some thoughts about fiscal 'twenty two.

Our success in fiscal '21 once again reflects the commitment and ongoing effort of all 4700 employees at Atmos Energy. I've said it before and I'll say it again, they are the heart and soul of Atmos Energy.

I've said, it before and I'll say it again, they are the heart and soul of Atmos energy.

And provide the foundation for the sustained long term success of our company. I'm extremely proud of their commitment to keep our 3.2 million customers, our 1400 communities in cells and their families healthy and safe.

<unk> thousand 1400 communities.

In cells and their families healthy and safe.

As you've heard us say fiscal '21 was our 10th year executing our proven investment strategy of operating safely and reliably, while we modernize our natural gas distribution, transmission and storage systems.

Operating safely and reliably while we modernize our natural gas distribution transmission and storage systems.

And over that 10 year period, we invested nearly $13 billion in modernizing and expanding our natural gas systems, replacing approximately 5500 miles of distribution pipeline, 394000 steel service lines, and 1100 miles of transmission pipeline. And over that same 10 year period, we added nearly 350000 customers.

394000 at steel service lines, and 1100 miles of transmission pipeline.

And over that same 10 year period, we added nearly 350000 customers.

As I said during our second-quarter earnings call, those investments provided our natural gas systems the reliability and resiliency necessary to meet the gas demand of our human needs customers during Winter Storm.

Our fiscal '21 capital investment of $2 billion supported the modernization of our distribution and transmission systems through the replacement of over 930 miles of distribution pipe. The replacement of more than 38000 steel service lines. And over 175 miles of transmission pipeline. All to further and enhance system safety and reliability.

The replacement of more than 38000 steel service lines. And over 175 miles of transmission pipeline. All to further and enhance system safety and reliability.

And over 175 miles of transmission pipeline.

All to further and enhance system safety and reliability.

Additionally, we installed approximately 230000 wireless meter reading devices. And now have nearly 1.9 million wireless devices on our system.

And now have nearly one 9 million wireless devices on our system.

The above mentioned capital investments also helped us make progress towards reducing methane emissions, 80% by 2035 for EPA reported distributions maintenance services.

To the end of fiscal '21 we have achieved an approximate 20% reduction. I want to take this opportunity to highlight and thank our procurement team for their focus and dedication as well as their continued outstanding efforts to ensure the necessary materials.

I want to take this opportunity to highlight and thank our procurement team.

their focus and dedication as well as their continued outstanding efforts to ensure the necessary materials.

And resources are available for our distribution, transmission and storage projects. Just as they did throughout the past decade, their strategic planning efforts have us well-positioned for continued execution upon our strategy in fiscal '22. For example, throughout the pandemic, we have increased our inventory levels and coordinated with vendors as well as pipe mills to have our steel pipe requirements ready and available a job site for the upcoming fiscal year's projects.

<unk> mission and storage projects.

Just as they did throughout the past decade, their strategic planning efforts have us well positioned for continued execution.

upon our strategy in fiscal '22. For example, throughout the pandemic, we have increased our inventory levels and coordinated with vendors as well as pipe mills to have our steel pipe requirements ready and available a job site for the upcoming fiscal year's projects.

Now I wanted to provide you an update on a few of our larger Atmos pipeline, Texas project and highlight their value in safety, reliability versatility and supply diversification that those projects bring to APT and its customers. We are nearly 60% complete with the development of AP teams third salt dome storage cavern projected battle. This project will be placed in service in late '22 and will provide an additional five to six BCF of cavern storage capacity.

And highlight their value and safety reliability versatility and supply diversification that those projects bring to a P T and its customers.

We are nearly 60% complete with the development of a P teams third salt dome storage cavern projected battle.

This project will be placed in service in late 'twenty, two and we will provide an additional five to six bcf of cavern storage capacity.

We are also nearing completion of 63 miles of 36-inch pipeline as part of our launch ex phase one integrity replacement project. And we've already begun phase two which includes an additional 63 miles of 36-inch pipeline.

And we've already begun phase two which includes an additional 63 miles of 36 inch pipeline.

We anticipate being completed sometime in late '22. As a reminder, line ex rents from [Waha] to Dallas and is key to providing reliable service to the local distribution companies behind APT system, as well as transportation customers that moved gas from [Waha to Katy.]

As a reminder line ex rents from Walhalla, Dallas and is key to providing reliable service to the local distribution companies behind a P. T system as well as transportation customers that moved gas from wall holiday Katy.

Also nearing completion is the first phase of three phases of our line S2 projects. Line S2 to bring supply from the Haynesville and Cotton Valley shale plays to the east side of the growing DFW metroplex. Our phase one project replaces 21 miles of 14-inch pipeline with 36 inch pipeline.

Of our line S two projects.

S to bring supply from the Haynesville and Cotton Valley shale plays to.

To the east side of the growing DFW metroplex.

Our phase one project replaces 21 miles of 14 inch pipeline with 36 inch pipeline.

We anticipate this phase to be in service by this calendar year-end. In phase two of line S2 which is approximately 17 miles of 36-inch pipeline. Is now underway with completion expected in late '22. And the final phase of this 36 inch 90 miles total project is expected to be completed in late '23.

Phase two of line is too.

It's approximately 17 miles of 36 inch pipeline.

Is now underway with completion expected in late 'twenty two.

And the final phase of this 36 inch 90 miles total project.

expected to be completed in late '23.

Again, this project will provide additional supply from the shale place east of the growing Dallas Fort Worth Metroplex. To support the forecasted growth and increased supply diversity to the north of Austin, and Williamson County, Texas,

To support the forecasted growth and increased supply diversity to the north of Austin, and Williamson County, Texas.

we have begun work on a 22 mile 36-inch line that will connect the southern end of APT system with the 42 inch Permian Highway line that runs from Waha of [KT.]

With the 42 inch Permian Highway line that runs from warlord of Kt.

This line is currently expected to be in service by December of '22. As you have heard in my previous update, our customer service agents and service technicians continue providing exceptional customer service during these challenging times.

As you have heard in my previous update our customer service agents and service technicians continue providing exceptional customer service during these challenging times.

During fiscal year '21, our agents and technicians received a 98% satisfaction rating from customers. Thank you team for taking exceptional care of our customers every day.

Thank you team for taking exceptional care of our customers every day.

Our strategic focus on digital build delivery and payment options is yielding benefits us over 48% of our customers are receiving electronic bills, while the utility industry average is around 28%.

And 79% of the total payments we received as of September 30 were electronic methods of payments such as bank drafts, credit cards and online banking.

During fiscal '21 we provided approximately 217000 hours of training and. And we onboarded nearly 400 new employees through our Atmos essentials classes. All of this activity was completed virtually. I'm very proud of our technical training and operations teams.

And we on boarded nearly 400 new employees.

Through our Atmos essentials classes.

All of this activity was completed virtually I'm very proud of our technical training and operations teams.

In fiscal '21, we integrated our various safety and business process improvement initiatives into a comprehensive environmental strategy focused on reducing our scope one, two and three emissions.

And environmental impact from our operations in the following five key areas, operations fleet, facilities, gas supply and customers.

<unk> gas supply and customers.

Our efforts in fiscal '21 to reduce emissions and our environmental impact included such things as our ongoing distribution, transmission and underground storage system modernization programs mentioned earlier. It also included the installation of gas cloud imaging capabilities at APT trial city storage field.

our ongoing distribution, transmission and underground storage system modernization programs mentioned earlier. It also included the installation of gas cloud imaging capabilities at APT trial city storage field.

It also included the installation of gas cloud imaging capabilities.

At a P T trial city storage field.

And we will complete the remaining installation of that equipment at APT fields in fiscal '22. We will also deploy additional wellhead fixed based or gas cloud imaging detection technologies at our distribution storage fields in fiscal '22.

We will also deploy additional wellhead fixed based or gas cloud imaging detection technologies.

At our distribution storage fields in fiscal 'twenty two.

We developed a plan to replace our nomadic devices with no bleed or locally devices. We expanded advanced leak detection technology and developed a strategy to capture methane emissions from pipeline maintenance activities.

We expanded advanced leak detection and protection technology.

<unk> developed a strategy to capture methane emissions from pipeline maintenance activities.

We've continued our [RMG] strategy of identifying customers, who wish to use our system to transport the RMG they produce. We increased the amount of [RMG] transported across our system to approximately 8 BCF a year.

<unk> eight Bcf a year.

And we are evaluating nearly 30 opportunities at this time that could further expand these transportation opportunities. In fiscal '22 we will begin transitioning our light-duty vehicle fleet to gasoline and hybrid vehicles into CNG for heavy-duty vehicles.

And physical 'twenty, two we will began transitioning our light duty vehicle fleet.

Gasoline and hybrid vehicles into C N G for heavy duty vehicles.

In September, we completed our first zero net energy home in partnership with the Greeley Weld habitat for humanity in Evans, Colorado. This home uses high-efficiency natural gas appliances, rooftop solar panels and insulation to produce more energy than it consumes at a very affordable cost of approximately $50 a month for a combined gas and electric bill.

In partnership with the Greeley Weld habitat for humanity and Evans, Colorado.

This home uses high efficiency natural gas appliances rooftop solar panels.

insulation to produce more energy than it consumes at a very affordable cost of approximately $50 a month for a combined gas and electric bill.

We are currently developing two more of these type homes in Texas. Projects like these demonstrate the value of using all energy sources to reduce carbon emissions. And this summer we joined the low carbon resources initiative.

Projects like these demonstrate the value of using all energy sources to reduce carbon emissions.

And this summer we joined the low carbon resources initiative.

As a reminder, this joint research and development effort between the gas Technology Institute and the Electric Power Research Institute is working to accelerate commercial deployment of low and zero-carbon technologies.

Finally, we are nearing the completion of a fuel cell at one of our data facilities to generate low carbon electricity.

This fuel cell will be powered with natural gas and is anticipated to substantially reduce the carbon footprint from that facility.

To wrap up fiscal '21, 4700 employees through our feeling safe and thriving communities initiatives made a difference in the lives of others this year. All about supporting schools and students with books meals and snacks.

Made a difference in the lives of others this year.

All about supporting schools and students with books meals and snacks.

We honored our community heroes and health care workers by providing them with meals that they were working. We planted trees working community gardens, we hosted utility fares, energy assistance blitzes to share the warmth to over 9000 customers as we donated $3 million of financial support.

Utility fares energy assistance blitzes.

share the warmth to over 9000 customers as we donated $3 million of financial support.

And for nearly 300 local food banks and shelters. The financial and volunteer resources of our team provided translated into nearly 8 million meals for our neighbors in need across 1400 communities.

The financial and volunteer resources of our team provided translated into nearly 8 million meals for our neighbors in need across 1400 communities.

I am very proud of our team because of their investment of time, talent and resources, we are making a difference in our community. Our successful fiscal '21 has us well-positioned as we move into the second decade of our strategy.

Talent and resources, we are making a difference in our community.

Our successful fiscal 'twenty, one has us well positioned as we move into the second decade of our strategy.

I will now turn the call over to Chris who will provide some additional color around our fiscal '21 financial results and discuss our fiscal '22 guidance.

As well as our updated five year plan through fiscal '26. I will then return with some closing remarks. Chris, over to you.

I will then return with some closing remarks, Chris.

Chris over to you.

Thank you, Kevin and good morning, everybody. Our fiscal '21 diluted earnings per share of $5.12, representing 8.5% increase over adjusted diluted earnings per share of $4.72 reported in the prior year. As a reminder, our fiscal 2020 GAAP results included a one-time noncash income tax benefit of $21 billion or 17 cents per diluted share related to the enactment of new tax legislation in Kansas.

Income tax benefit of $21 billion or <unk> 17 per diluted share related to the enactment of new tax legislation in Kansas as.

As we entered fiscal '21, we conservatively planned for lower nonresidential revenues, while planning to execute our normal O&M program.

Nonresidential sales volumes declined 10% period over period during the first quarter and early into the second quarter, we carefully manage our O&M spending focusing on compliance-related activities.

Nonresidential sales volumes rebounded sooner than we anticipated, which created the opportunity to expand our O&M spending in the second half of the fiscal year.

Additionally, the timing difference between the impact of refunding excess deferred taxes on our revenues and deferred income tax expense contributed about a penny to fiscal '21 results. As a result, actual earnings per share slightly exceeded the higher end of our guidance range.

Taking a closer look, consolidated operating income rose approximately 10% to $905 million. Slides five and six provide details of the year over year changes to operating income for each of our segments. I'll touch on a few of the fiscal year highlights.

I'll touch on a few of the fiscal year highlights.

Rate increases in both of our operating segments, driven by increased safety and reliability capital spending totalled $207 million.

We continued to benefit from strong customer growth in most of our jurisdictions, resulting in a $19 million increase in distribution operating income.

During fiscal '21 we added 51000, new customers, which represents a 1.6% increase over the last 12 months.

Sales volumes for our commercial customers recovered in fiscal '21 rising almost 6% over last year. Service order revenue in our distributions seven declined about eight and a half million dollars. Primarily due to the waiver of our customer service fees for disconnections every connections.

Service revenue in our distributions seven declined about eight and a half million dollars.

Primarily due to the waiver of our customer service fees for Disconnections every connections. Additionally.

Additionally, our bad debt expense increased about $18 million year over year. Both collection activities resume in the third quarter and we continued to offer flexible payment arrangements, help customers find financial assistance and remain in close contact with our regulators. We continue to believe this bad debt will be recovered over time.

Bold collection activities resume in the third quarter and we continued to offer flexible payment arrangements help customers find financial assistance and remain in close contact with our regulators. We continued to believe this bad debt will be recovered over time.

Consolidated O&M expense, excluding bad debt, increased $31 million with a focus on system safety, including enhanced leak surveys, pipeline integrity work and continued records establishment and retention. Additionally, line locate requests increased over 9% as a result of increased economic activity and the effects of our third-party damage awareness efforts.

<unk> line locate requests increased over 9% as a result of increased economic activity and the effects of our third party damage awareness efforts.

Capital spending increase to $2 billion with 88% of our spending directed towards investments to modernize the safety reliability and environmental performance of our system.

In fiscal '21, over 90% of our capital spending began to earn a return within six months of the test period end.

We accomplish this by implementing $226 million in annualized operating income increases, excluding the amortization of excess deferred tax liabilities.

Since the end of fiscal year, we have reached agreement to a rec waiters to implement an additional $69 million annualized operating income during our first quarter, our fiscal 2022 first quarter.

As of today, we have four filings pending seeking about $22 million, slides 27 to 36 summarize our regulatory activities. During fiscal '21, we completed over $1.2 billion of long term debt and equity financing to support our ongoing operations. We've always satisfied our fiscal '21 equity needs or ATM equity sales program.

During fiscal '21, we completed over $1.2 billion of long term debt and equity financing to support our ongoing operations. We've always satisfied our fiscal '21 equity needs or ATM equity sales program.

We've always satisfied our fiscal '21 equity needs or ATM equity sales program.

Under that program, we issued approximately 6 million shares under forward agreements for $578 million. And we settled approximately 6 million shares for net proceeds of $607 million. As of September 30th, we had approximately $300 million remaining under existing equity forward arrangements that will satisfy a significant portion of our fiscal '22 equity needs.

Two equity needs.

This equity financing complemented the $600 million long term debt financing we issued last fall.

Additionally, we improved our fiscal financial flexibility during fiscal '21.

During the second quarter, we renewed, extended and increased liquidity under our credit facilities. Our primary five year $1.5 billion dollar facility was extended to March of 2026 and retained the $250 million accordion feature.

And for your place or expiring 364 day $600 million credit facility with a new $900 million 3-year credit facility with a $100 million accordion feature.

Three year credit facility with a $100 million accordion feature.

We now have $2.5 billion available under four credit facilities. The financial flexibility these facilities provide improves our ability to respond to unforeseen events such as Winter Storm Uri.

Actual flexibility these facilities provide improves our ability to respond to unforeseen events such as winter storm hearing.

Additionally, we issued a new $5 billion shelf registration statement and a new $1 billion ATM program to support our financing plans for fiscal '22 and beyond.

Additionally, during the fourth quarter, we mitigated future interest rate risk by executing $875 million of forward starting interest rate swaps. Currently, we have 1.85 billion in swaps to support our future long term debt financing needs.

Finally, our treasury team did an outstanding job in outstanding for $2.2 billion and cost-effective interim financing to pay for the gas costs incurred during Winter Storm Uri, all of which preserved our ability to continue supporting our operational needs.

As a result of these financing activities, our equity capitalization, excluding the $2.2 billion of Winter Storm financing was 60.6% as of September 30th.

Additionally, we finished the fiscal year with approximately $2.9 billion of total liquidity.

The strength of our balance sheet and liquidity, we're just well positioned as we move into fiscal '22. Details of our financing activities and financial profile can be found on slides 9 through 12.

Details of our financing activities and financial profile can be found on slides nine through 12.

We've also fair to winter operations for the next fiscal year. You heard Kevin discuss that our procurement team is mitigate supply chain inflation risk in our operations. Our gas supply chain has also done an excellent job preparing our gas supply strategy for the upcoming winter heating season.

Our proprietary contracted storage is over 95% full. At a weighted average cost of gas of approximately $3. Additionally, we are physically and financially hedged about one-third of our expected purchase requirements at approximately $4.

The weighted average cost of gas or approximately three $3. Additionally.

Additionally, we are physically and financially hedged about one third of our expected purchase requirements and approximately $4.

Through the use of storage and hedge purchases, we've stabilized prices for Fox, we have a more normal winter usage in the mid $3 range.

The remainder of our anticipated gas supply needs we satisfied through a combination of baseload purchases that first month prices, peaking contracts and spot purchases when needed.

Today, we have transportation capacity on 37 pipelines across our eight-state footprint, which provides our gas supply team access to a wide variety of producing basins to ensure supply reliability and competitive natural gas prices for our customers.

As a reminder, all the gas costs we incur are recovered through purchase gas cost mechanisms generally over 12 months and the process journey involves a weighted average approach, which helps us move the impact on customer bills.

Finally, we've been actively communicating with their customers about how they can mitigate the potential impact of higher gas prices and energy conservation. As well as the various ways we can help them with their bills through installment plans, budget billing locating energy assistance agencies.

As well as the various ways, we can help them with their bills installment plans budget billing locating energy assistance agencies.

Looking forward to fiscal '22 will begin in the second decade of pursuing our safety-focused organic growth strategy.

Yesterday, we initiated our fiscal '22 earnings per share guidance in the range of $5.40 to $5.60.

Consistent with prior years, we expect about two thirds of our earnings will come from our distribution segment. Details surrounding our fiscal '22 guidance can be found on slides 20 and 21.

<unk> surrounding our fiscal 'twenty two guidance can be found on slides 20 and 21.

Also yesterday Atmos Energy's board of directors approved a 152nd consecutive quarterly cash dividend. The indicated annual dividend for fiscal '22 it's $2 and 72%, 8.8% increase over fiscal '21.

The indicated annual dividend for fiscal 'twenty, two it's $2 and 72% eight 8% increase over fiscal 'twenty one.

Finally, fiscal '22 capital spending is expected to rise about 25% and is expected to be in the range of $2.4 to $2.5 billion. Most of this increase will be incurred APT, which represent approximately one-third of our capital spending in fiscal '22, as a result of the project work that Kevin described a few minutes ago.

Over 90% of our fiscal '22 capital spending is expected to begin earning return within six months of the test period end.

Slide 19 summarizes the key themes I'm underlying our fiscal '22 five year plan.

Over the next five years, we anticipate earnings per share will grow 6% to 8% per year. By fiscal '26 we anticipate earnings per share to be in the range of $7 $7.40. We also anticipate dividends per share to increase annually in line with earnings per share.

We also anticipate dividends per share to increase annually in line with earnings per share.

Continued spending for system replacement and modernization environment improvements in system expansion will be the primary driver for the anticipated increase in capital spending, net income and earnings per share through fiscal '26.

Over the next five years, we anticipate total spending of approximately $13 billion to $14 billion. This level of spend is expected to support rate base growth of about 11% to 13% per year. This translates into an estimated rate base of $21 billion to $23 billion in fiscal '26. Up from about $12 billion at the end of fiscal '21.

This level of spend is expected to support rate base growth of about 11% to 13% per year.

This translates into an estimated rate base of $21 billion to $23 billion in fiscal 'twenty six.

From about $12 billion at the end of fiscal 'twenty one.

From an O&M perspective, we continue to focus on compliance-based activities and address system safety. For fiscal '22 we anticipate O&M to range from $690 million to $710 million. When we've assumed O&M inflation of 3% to 3.5% annually through fiscal '26.

For fiscal 'twenty, two we anticipate O&M to range from $690 million to $710 million.

We've assumed O&M inflation of three to three 5% annually through fiscal 'twenty six.

In addition to the spending plans I outlined, we have assumed approximately $600 million excess deferred tax refunds over the next five years will flow back to customers.

As a result, we expect our effective tax rate in fiscal '22 to be between 9% and 11%. This rate assumes no tax changes that are currently be considered at the federal level.

This rate assumes no tax changes that are currently be considered at the federal level.

From a financing perspective, we will continue to follow the financing strategy that we've been executing in the last few years to preserve the strength of our balance sheet.

Excluding securitization, we anticipate the need to raise between $7 and $8 billion of incremental long term financing over the next five years.

The strength of our balance sheet able just to use a crude mix of long term debt and equity financing to target a 50% to 60% equity capitalization ratio inclusive of short term debt.

This financing plan has been fully reflected in our earnings per share guidance to fiscal '26. In October we completed a $600 million 30 year senior note issuance with a coupon of 2.85%.

October we completed a $600 million 30 year senior note issuance with a coupon of 285%.

After factoring in a favorable settlement of forward starting interest rate swaps, the effective rate on this issuance is 2.58%. And our debt profile remains very manageable with a weighted average maturity of 19 years, excluding the $2.2 billion of incremental winter storm financing.

And our debt profile remains very manageable with a weighted average maturity at 19 years, excluding the $2 2 billion of incremental winter storm financing.

Finally, as I previously mentioned, we have hedged a substantial portion of our anticipated long term debt needs to mitigate interest rate risk.

From an equity perspective, utilizing our ATM program continued to use our continues to be our preferred method for raising equity.

And as I mentioned earlier, the equity forwards we executed during fiscal '21 will satisfy a significant portion of our expected equity needs for fiscal '22.

And we expect to raise our remaining fiscal '22 equity needs through our ATM program. Regarding securitization, we have made substantial progress in the last few months.

Regarding securitization, we have made substantial progress in the last few months yes.

Yesterday, the borough condition of Texas unanimously issued a final determination that regulatory asset that'd be securitized under the statewide program.

The final over stipulated that all of our gas and storage costs prudently incurred are fully recoverable. The next step is for the railroad commission to issue a financing order.

Step is for the railroad commission to issue a financing order.

Following the issuance of the financing order, the Texas public financing authority has up to 180 days to complete the securitization transaction.

Upon receipt of the securitization funds, we will repay the $2.2 billion of winter storm financing we issued last March. In Kansas, we filed a securitization application in mid-September.

Kansas, We filed a securitization application in mid September.

We're currently responding to various questions. The procedural schedule has been set with full proceeding is expected to begin in January.

Finally, annual filing mechanisms to be the primary means to which we recover careful spending.

These mechanisms enable us to more efficiently deploy our capital spend and generate the returns necessary to attract the capital we need to finance our investments.

And these mechanisms produce a smaller impact to customer bills. While providing the regular rate adjustments that support our system modernization efforts. We've assumed no material changes these mechanisms through fiscal '26.

The regular rate adjustments that support our system modernization efforts.

We've assumed no material changes these mechanisms through fiscal 'twenty six.

In fiscal '22, we anticipate completing filings from $215 million to $225 million annualized regulatory outcomes that will impact fiscal years, '22 and '23.

Impacts fiscal years, 'twenty, two and 'twenty three.

The execution of this plan to modernize our system through disciplined capital spending, timely recovery of those investments through our various regulatory mechanisms and balanced long-term financing all supports our ability to grow earnings per share and dividends in the 6% to 8% range annually through the fiscal 2026. And as you can see on slide 25. The execution of this plan will also keep customer bills affordable and help us sustain this plan for the long term. Thank you for your time this morning. I will now turn the call back to Kevin for his closing remarks, Kevin.

Timely recovery of those investments through our various regulatory mechanisms and balanced long term financing all sports our ability to grow earnings per share and dividends in the 6% to 8% range annually through the fiscal 2026 and as you can see on slide 25. The execution of this plan will also keep customer bills affordable.

help us sustain this plan for the long term. Thank you for your time this morning. I will now turn the call back to Kevin for his closing remarks, Kevin.

Thank you for your time. This morning, I will now turn the call back to Kevin for his closing remarks, Kevin.

Thank you Chris.

Looking forward I'm very excited about the direction and long term sustainability of our company.

The foundation has been set with a proven safety driven strategy accompanied with organic growth at yields as Chris said, 6% to 8% fully regulated earnings per share commensurate dividend per share growth supported by a strong financial profile.

We operate in a diversified and growing jurisdictional footprint that is supportive of the investment in natural gas infrastructure.

97% of our rate base is situated in six of our eight states that have passed legislation in support of energy choice.

The constructive regulatory mechanisms in our jurisdictions support the necessary capital investments to modernize our natural gas distribution transmission and storage systems.

We have a long runway of work to support the planned $13 billion to $14 billion in capital spending over the next five years as you can see on slide 16 and 17.

That spending will support the replacement of 5000 to 6000 miles of distribution and transmission pipe or about 6% to 8% of our total system.

We also plan to replace between 100000 to 150000 steel service lines, which is expected to reduce our inventory by approximately 20%.

This level of replacement work is expected to reduce methane emissions from our system about 15% to 20%.

Over that five year period.

Additionally, you have heard us discuss the growth in our jurisdiction.

Eight of the 11th fastest growing counties. We serve are in the DFW metroplex and to the north of Boston.

Additionally, our middle Tennessee service territory ranks among the fastest growing areas in the U S as well.

And we continue to see industrial customers in our footprint choose natural gas. In fiscal '21, we added approximately 45 new industrial customers with an estimated annual load between 10 to 12 Bcf per year once they are fully online.

Between 10 to 12 Bcf per year once they are fully online and.

And these customers are from various industry manufacturing food processing hospitals and distilleries.

Focusing on the long term sustainability has always been a part of our strategy.

As reflected in the vital role we play every day in our communities.

<unk> safe reliable and efficient natural gas to homes.

Businesses and industries to fuel our energy needs now and into the future.

We appreciate your time this morning, and we'll now open the call for questions.

Thank you. The floor is now opened for questions. If you would like to ask a question. Please press star one on your telephone keypad at this time.

A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.

Once again, that is star one to register a question at this time. Our first question is coming from Julien Alan Smith of Bank of America. Please go ahead.

Our first question is coming from Julien.

Alan Smith of Bank of America. Please go ahead.

Hey, its actually Coty Clark on for Julien Good morning.

Hey, good morning, Saudi how are you good morning Kelly.

Good.

So first on the delta between the 11% to 13% rate base growth in the 6% to 8% EPS growth I know, there's a good deal of equity contemplated in implants are definitely cognizant of the dilution there, but you know low like regulatory lag given the recovery mechanisms that you have across your jurisdictions. So I'm wondering if there any other drivers.

Of that Delta that you would call out.

At this time it really is just the the financing plan that we've assumed.

Over the next five years as you point out it's the equity component, but again, that's factored into the 6% to 8% earnings per share growth that we highlighted on the call. This morning.

Got it Okay, and then building off that question a little bit I'm wondering how you would characterize where you see yourself in that 6% to 8% long term EPS growth range or is it more towards the midpoint or top and I'm asking because you know the past couple of year end updates from senior performed well during the year rebase off that strong number.

And then reiterate the 6% to 8%.

Gross after that so are you being a little bit conservative or how would you.

How would you think about that.

When you look at the ranges that we put out this morning.

The $5 40 to $5 60 for fiscal 'twenty, two and then the seven to 740 in fiscal 2026, if you take the midpoint of both of those ranges and kind of do the math that implies about a 7% annual growth rate per year.

Okay, and then last one if I can just.

And given that we've seen the market multiple for gas utilities declined relative to the electric peers throughout the year and at the same time of seeing some healthy transaction multiples for some of the gas utilities. So how are you thinking about potentially monetizing an asset or assets to offset the the ATM equity needs. I know you stated in the Paas.

Do you feel like your business mix, but wondering if that has changed at all.

I'll I'll start on that coding and then Chris can certainly jump in and he wants to again as you said we've.

We've been very proud of our our assets we continue to be very proud of them and you look at the results here you talked about the diversified growth that we just mentioned on our call here the mechanisms.

The regulatory relationships that we have out there our involvement in the communities. We're very proud of the asset mix we have today.

We're not contemplating at this point to anything but continuing the excellent operation of those assets.

Great.

Okay.

Okay very good.

Okay.

Thank you. Our next question is coming from Richard Sunderland of J P. Morgan. Please go ahead.

Okay.

Hi, Good morning, Thanks for taking my questions here just wanted to start with this Permian Highway projects does it create incremental basin takeaway or just better connectivity to the Permian Highway pipeline.

Well that that project, you're talking about where we're connecting up with the Permian Highway project. That's that's just meet the growing demand of that Austin corridor down there too.

To feel that diversification of load as well for us so.

That's what we're looking to do we're connecting to that Permian Highway project, bringing that supply up from the south instead of moving gas around from the north or bring it over from from Kt at this point so for US again, it's another supply optionality to meet the growing corridor that we have down there and some supply diversification.

Understood and then it was the entire five year capital plan is up year over year, but is there anything notable in the 'twenty to 'twenty, two capex step up or just any color there.

Well I think nothing that steps up again, we go through a very rigorous and robust planning process each year that looks at the one three and five year projects levels that are out there as you've heard us say before we take a long look at the projects to not only meet integrity.

<unk> goes compliance goes but we also look at it from that growth perspective, what has been the band gonna be out in the future and how do we meet that demand. So I think that's all contemplated within this that's why we spiked out those projects. So I think this is just a further iteration of meeting the supply needs to demand and diversification that we continue.

To talk about.

Great. Thank you for the color.

Thank you. Our next question is coming from in Soo Kim of Goldman Sachs. Please go ahead.

Thank you. My first question is on just general gas hedging I know.

Vessel cellphone, that's coming on and Thats going to help just the storage capacity, but whether it's in Texas or other regions. You are following what the hedging.

Rules are that the commissions of the states.

Put on you are limited to that but just whether it's a result of urea or.

Some of the spikes were seeing in the current winter season any.

Dialogue with any of the commissions on potentially changing the hedging strategy.

Yeah, I'll start out and then see if Chris wants to add any color. We have dialogue every year with our commissions as you know laying out what our anticipated gas supply plan is for that how we perform the following year.

We're open to that feedback, but right now both our commissions are gas supply chains are very comfortable with the plans we've been able to put together and you heard that combined with our storage opportunity our baseload purchases those sort of things how well they have is positioned going into this winter heating season. So.

Well continue those dialogues continue those conversations will continue to meet with our jurisdictions at the end of each winter season, and work collaboratively with each of those jurisdictions as they see fit going forward.

Yeah.

Got it and my second question the proposed methane fee. That's in the reconciliation package I think more on the upstream and midstream side of things, but just curious on your thoughts or whether it's direct or indirect any.

Potential impact of ramifications you see for your utilities are just the Caf LTC industry in general.

You know, there's still a lot of moving parts and pieces to to that legislation a lot of conversations still going on.

So at the federal level with that and quite frankly as they continue to do that we'll monitor that but I think the thing as you've heard us say before is that you know the.

The United States as we sit here today is among the top five producers in natural gas were among the top five and proven reserves in the world.

Today and for us to continue to have the economic growth economic stability and security that we need from an energy perspective in a national perspective, we're going to need to have a continued diversified energy portfolio and we believe natural gas certainly brings that to the table with the flexibility reliability and abundant.

It provides everybody we just outlined through.

Today's update how natural gas plays a key role in that so we'll continue to monitor that but we we would look for a.

Diversified energy portfolio to continue to meet the demands.

Of the of the U S.

Got it.

We'll leave it there thank you both.

Thank you. Our next question is coming from Stephen Byrd of Morgan Stanley. Please go ahead.

Morning.

Good morning.

Hey, so a lot of topics have been covered I wanted to touch on two things first just back on the natural gas pricing impact that slide 25, I think as you know it's quite constructive to your point. It doesn't you know we don't see big shocks are there dynamics, though whether it's in.

One jurisdiction, where the impact is greater or an.

That could change it could cause that.

Sort of fairly modest increase in 'twenty. Two for example to be a little bit different or a worse for any jurisdiction or just you know I guess my bottom line question is just sort of.

What kinds of shocks could cause that to be different or is it really hard to envision that.

Yes.

I can go.

Go ahead, Kevin go ahead I'm sorry.

Well I don't.

I don't foresee anything that that could impact us at this point those are averages as you know that we put out there.

We continue to to look for diversification across our pie says you heard us mentioned earlier across 37 pipelines multiple basins. So we try to blend in as much diversification and flexibility as we can within our systems.

We have these annual mechanisms that tend to level out increases over time, and I think we're conservative on those gold bars. There on 25 as you've heard us say before were looking way out into the future.

On some of those prices and as I look today.

Wall Hot of cash basis was $3 98, since Kt to 440 and I believe the Nymex is at $4 91 today. So.

I think again with the great work our gas supply team does where are our assets are located on multiple pipes availability of storage that sort of thing.

In a really good position.

Chris anything you want to add.

Yeah, I'd say too is we've talked about you know what what could potentially move the needle in terms of pricing and it's again, it's weather patterns. It's obviously the pricing dynamics that Kevin just described.

So just customer usage and.

So all that is very very difficult to predict and and trying to estimate or come up with.

True impact and again with our eight state footprint that covers a fairly significant geographical difference that you can have weather patterns that impacts the eastern portion of the U S that are completely different from Texas, and what we might experience in Colorado. So really it's I think pretty challenging for us to say across the eight state footprint. If there was a true key driver too.

Watch out for I think it's gonna be a combination.

Of all of the items, you just mentioned pricing the basins that we have access to their very highly liquid basins. So we were able to have a keen eye on what that pricing situation customer usage as rolla, just general weather patterns.

That's really helpful and then shifting over to financing Oh, I'm going to step back a little bit on this question you know atmos isn't a really interesting situation you have perhaps.

Perhaps the fastest growth rate in terms of your your rate base among companies we cover we loved the growth outlook.

What's interesting is that the amount of equity needed compared to your market cap is high and you.

The value of the stock the multiple of the stock is dramatically lower than what we're seeing in sort of private asset.

Cost of sales, including not just sales of 100%, but sort of just selling a minority stake we've seen dramatically higher valuations. So I guess, the the math might suggest that sort of a sale of a minority stake at the kinds of multiples. We've been seen on other situations would be dramatically less dilutive than than this kind of volume effect.

Issuance there that we're looking at over the next five years, how do you all kind of think about the possibility of of selling Noncontrolling minority Stakes.

Sensory much higher valuations than just where your own stock is trading how do you. How do you all think about that.

Sure I mean, that's a challenge for us because we don't have the holding company structure like many of our peers do so when you look at each of our divisions are each of our states. That's all under one corporate umbrella. So we can't do a minority sale for a single jurisdiction. The way we're structured today it would have to be a partial asset sale.

Or.

A certain geographic region that would have we would have to exit in <unk>.

You heard Kevin talk earlier.

Cody, we're very very happy with the assets that we have the jurisdictional footprints.

We do see the dislocation between what the what the private market is willing to.

Place evaluation on versus what we're seeing from the publicly traded perspective, and we think again to be from a company perspective.

The fact that 97% of our asset base is located in jurisdictions that are supportive of natural gas both from a policy perspective, a regulatory perspective.

The fact that we have very strong customer growth is currently being a little bit underappreciated and then that's where we just need to continue to to remind those investors that we are very well positioned in the country to capture the growth experienced in our jurisdictions and have jurisdictions that have strong support from natural gas.

Yes.

Yeah, Chris I would just add you've got 19 years of consecutive EPS growth and <unk>.

38 years of consecutive dividend increases all support our strong position as well as what Chris said about our regulatory jurisdictions. So we're going to continue to operate and do the things we do within our our strategy. We've outlined we think it's solid.

It fits our jurisdictions well so.

Really believe we are in a good position going forward not only for.

For our customers, but our communities and all stakeholders.

Understood. Thank you very much.

Yeah.

Thank you once again Thats star one if you would like to register a question at this time. Our next question is coming from Ryan Levine of Citi. Please go ahead.

Good morning.

Hey, Ryan.

Okay. What are the drivers of where you would fall in the 22 range for EPS can you talk about some of the pluses or minuses that may determine the outcome.

A key pluses or minuses, obviously will be the execution of our regulatory strategy.

Customer usage patterns.

Weather, although we are.

W are weather normalized EBIT.

7% of our jurisdiction. So we can see a little bit of a weather visit year over year.

And just timing of O&M spending as we continue our ongoing.

System safety and compliance work, but those are the key drivers that we generally point to when.

When we're talking about where we could fall within the 6% to 8% range.

On the O&M point, it looks like you're assuming three 8% to 3.5% O&M cost inflation in your 'twenty two.

Look what underpins that and you know we're seeing some more.

More robust inflation figures more recently.

Can you kind of elaborate on whats driving that assumption.

Sure. It's just sneak ongoing expansion of our FERC compliance work you know you've heard us talk before that.

We're in a boat Gal.

Doing a more compliance work every year rather than holding back in.

And waiting for another rate case to occur so as we continue to look at the rulemaking, that's happening at the federal and the state level.

We work to try to get ahead of that so that.

When it comes time for a compliance deadline to be met where we're getting there well in advance of when that deadline is and we're also just looking at just the system needs and what we won't be doing from a safety perspective, So we talked about it last advanced leak detection.

Technologies, and further expanding that across our footprint.

As well as just ongoing hydro hydro testing of inline inspection work on our distribution on a large scale distribution in some of our training by our transmission lines to.

To make sure that but our system is operating as safely as it possibly can.

Okay.

And then in the federal legislation.

What do you view as the impact of Atmos more broadly.

Okay.

I mean are you are you referring to the infrastructure build there Ryan the infrastructure Bill and potential tax tax reform.

Changes.

Yeah on the infrastructure Bill itself as you know, it's very comprehensive we're still working our way through it but some of the things that we've seen that way.

We are focusing in on our incentives in there for our high efficiency natural gas appliances.

Systems that that regard hydrogen hydrogen research and development.

As well as there's some I think 500 million or so over the next five year increase for law. He that's in there as well the rest of it you know at this point, we're still working our way through the detailed piece of that.

With our peer companies and with the American Gas Association.

Okay, and then last question for me.

Are you talking to any of your regulators in any of your jurisdictions about rate basing electrolyze theirs.

Within the obesity.

Short answer is no.

Okay. Appreciate it thank you.

Thank you at this time I'd like to turn the floor back over to management for closing comments.

Thank you we appreciate your interest in Atmos energy and thank you for.

Joining us today, a recording of this call is available for replay on our website through January six 2020 to have a good day.

Yeah.

Yes.

Uh huh.

Yes.

Okay.

Yes.

Yeah.

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