Atmos Energy Corporation Q2 2023 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Atmos.
Energy Corporation fiscal 2023 second quarter earnings conference call, we will be beginning momentarily.
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Ladies and gentlemen, thank you for standing by and welcome to the Atmos Energy Corporation fiscal 2023 second quarter earnings Conference call I would now like to turn the call over to Dan <unk>, Vice President of Investor Relations and Treasurer. Please go ahead.
Thank you Monday.
Everyone. Thank you for joining our fiscal 2023 second quarter earnings call 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 will reference in our prepared remarks are available at Atmos energy Dot com under the Investor Relations tab.
As we review these financial results and discuss future expectations. Please keep in mind that some of our discussion might contain forward looking statements within the meaning of the Securities Act and the Securities Exchange Act.
Forward looking statements and projections could differ materially from actual results.
Factors that could cause such material differences are outlined on slide 32, and more fully described in our SEC filings with that I will turn the call over to Kevin Akers, our president and CEO Kevin. Thank.
Thank you Dan and good morning, everyone. We appreciate you joining us today and your interest in Atmos energy.
Yesterday, we reported year to date fiscal 2023, net income of $630 million or $4 40 per diluted share.
As you will hear from Chris results were in line with our expectation.
Positions us for another successful fiscal year.
This performance continues to reflect the commitment dedication focus and effort.
All 4800, Atmos energy employees, who successfully modernize our natural gas distribution transmission and storage systems, while safely providing reliable natural gas service to our three 4 million customers in 1400 communities across our eight states.
We also narrowed our fiscal 2023 earnings per share guidance to a range of $6.
To $6.10.
We continued to experience strong customer growth driven by robust employment trends in Texas.
For the 12 months ended March 31, we added 65000, new customers across the company with nearly 49000 of those new customers located in Texas and.
And according to the Texas Workforce Commission the state continued industry <unk>.
Record employment in March, adding 654000 jobs since January of 2022 to reach a series high civilian Labor Force, a 14.9 million people.
Industrial demand for natural gas in our service territory also remains strong.
During the second quarter, we added 18, new industrial customers with an anticipated annual load of approximately six bcf once they are fully operational.
Fiscal year to date, we've added 30, new industrial customers with an anticipated annual load of approximately 15 Bcf once they are fully operational.
On a volumetric basis that 15 Bcf of anticipated industrial load is equal to adding approximately 275000 residential customers.
To support that growth.
Just summarized we continue to enhance the safety reliability versatility and supply diversification of our system for example.
This pipeline, Texas Division, our team completed the injection of working gas in there.
Backup Catherine one B, our third salt dome cavern.
This third Catherine provides additional support to Apt's operations and the local distribution companies behind a P T system.
As well as over six Bcf.
New working gas capacity.
Work continues on phase three of our lines S. III project, which will replace 67 miles a 14 inch pipeline with 36 inch pipeline.
And as a reminder, this project brings supply from the Haynesville and Cotton Valley shale plays to the east side of the growing metroplex.
The final phase of this project is anticipated to be in service late 2024.
Later this calendar year, we expect to complete the remaining five miles of the 22 mile project, it'll install 36 inch pipeline connecting to the southern end of Apt's system with a 42 inch Permian Highway line that runs from warlord of Kt.
This new line will support the forecasted growth and increased supply diversity to the north of Boston in bulk Williamson and Travis counties in Texas.
Atmos Energy's comprehensive environmental strategy is focused on reducing our scope one two.
Two and three emissions and environmental impact from our operations in the following five key focus areas.
Operations fleet facilities gas supply and customers.
In the area of operations through our system modernization efforts.
We're on track to place 800 to 1000 miles of pipe this fiscal year and between 20030 thousand steel service lines.
And then the gas supply area. During the first six months of fiscal 2023, we added another RMG facility that will transport renewable natural gas across our system.
We now have seven flowing our LNG facilities directly connected to our system.
We've executed it.
Interconnect agreements with three additional RMG projects expected to begin flowing in calendar year 2023.
Once these projects are fully operational.
We anticipate to have eight to nine bcf of our LNG volumes across our system annually.
Finally, we are evaluating nearly 30 additional opportunity to connect our LNG facilities to our system.
As I mentioned on previous calls we are partnering with habitat for humanity in each of our eight states to build zero net energy homes for families in need.
Zero net energy homes use high efficiency natural gas appliances.
Rooftop solar panels and installation to produce more energy than they consume at an affordable cost.
During the first six months of fiscal 2023, we completed two homes, one in Owensboro, Kentucky and one in Jackson, Mississippi.
All eight homes have achieved home energy rating system or her scores of less than zero.
Which means the homes produce more energy than they consume.
These zero net energy homes demonstrates the value and vital role that natural gas play.
<unk> customers reduce their carbon footprint.
Portable manner.
Providing these families with the natural gas Holland is environmentally friendly and cost efficient. It's just one of the ways Atmos energy, you'll say and thriving communities.
Our customer service organization and technology support team continue to innovate and look for ways to improve our customer service.
And offer convenient channels for customers communicate with them and to make payments for.
For example, we see continuous growth in our electronic bill delivery channels, when nearly 52% of customers enroll in E mail.
And approximately 85% of customers pay electronically.
With over 33% of them and routing recurring auto draft.
Which is 10% higher than industry averages.
We're also fueling sites and thriving communities through our continued outreach efforts to energy assistance agencies and customers during.
During the first six months of the fiscal year.
Customer advocacy team and customer support agent helped over 35000 customers receive over $14 million.
Funding assistance.
The dedication and focus of our employees was recently recognized in an American customer satisfaction index energy utility study.
Conducted between January and December of last year.
According to their recently released study.
<unk> energy has been finished in first place, leading all energy utility providers with the highest customer satisfaction score.
We believe our focus dedication and effort combined with executing our proven investment regulatory and financing strategy positions us well to safely deliver reliable.
<unk> and abundant natural gas to homes.
This is an industry.
Our energy needs now and.
And in the future.
I will now turn the call over to Chris for his update.
Thank you Kevin and thank you to everyone who joined US. This morning as previously mentioned net income for the first six months of the fiscal year with $630 million or $4 <unk> per diluted share.
Year to date consolidated operating income increased $744 million or 13% while.
I'll touch on a few of the highlights of our year to date performance.
Fiscal 'twenty, two and 'twenty three regulatory outcomes increased operating income by $152 million.
Additionally, residential growth and rising industrial load in our distribution segment increased operating income by an additional $12 million.
And we saw a $7 million increase in apt's through system business.
Most of this increase occurred during our first fiscal quarter when spreads widen for some of the key takeaway pipelines in the Permian undergoing maintenance.
Consolidated O&M expense increased $57 million.
Distribution O&M increased $43 million driven largely by supporting our growing service towards service territory in Texas, where.
While we experienced a 10% increase in the number of line locate.
We're also seeing higher labor costs, all these third party services.
Additionally service order system wide have increased 11%.
Largely driven by customer growth increased service requests driven by higher natural gas prices and increased collection activities.
As a result of our internal labor costs have risen to fulfill these orders.
Finally, we experienced higher levels of bad debt expense due to higher customer bills.
Most of this increase was recognized during our second fiscal quarter.
The remaining $14 million increase is recognized in our pipeline and storage segment driven by the timing of inline inspection work compared to the prior year period and increased employee costs.
Slides five and six summarized the key performance drivers for each of our operating segments for the quarter and year to date periods.
Consolidated capital spending increased 19% or 2% and $25 million to $1 4 billion.
With 86% dedicated to improving the safety and reliability of our system.
This increase primarily reflects higher spending at ACC the project and the projects that Kevin discussed just a few minutes ago.
We continue to execute our annual regulatory filing strategy.
8 million to.
$160 million annualized regulatory outcomes.
And we have about $298 million annualized outcomes and progress.
We anticipate implementing about half of this amount during the second half of our fiscal year.
Slides 20 to 31 summarize these outcomes and slide 17 outlines our planned filings for the remainder of the fiscal year.
Our financial position continues to remain strong in early March we executed a $2 billion term loan to help repay our maturing $2 $2 billion in senior notes.
Later that month, the Texas public financing authority completed the statewide.
Securitization program and we used the proceeds from that program to pay off the term loan we no longer have meaningful exposure to floating rate interest debt.
We finished our second fiscal quarter with an equity capitalization of 69% and approximately $3 3 billion liquidity.
Included in this amount is $673 million in net proceeds available under existing forward sale agreements that will fully satisfy our anticipated fiscal 'twenty three equity needs.
Litigant portion of our anticipated fiscal 2014.
The strength of our financial profile was recognized by Moody's in March when they reaffirmed our credit ratings and outlook.
We continue to look for opportunities to mitigate interest rate risk associated with our anticipated long term debt financing needs beyond fiscal 'twenty three.
In March and April of this year, we executed $250 million in forward, starting a starting interest rate swaps.
We now have $1 $6 billion of swap essentially hedge portions of the charter component of our total cost of financing at rates ranging from 176% to 38%.
With this activity a substantial portion of our anticipated. This was 24 long term debt needs have now been hedged.
Finally in Kansas, we are still on track to complete our gas fall securitization this fiscal year.
Additional details of our financing activities and our financial profile can be found on slides nine through 11.
Our fiscal year to date performance gives us confidence to narrow our fiscal 'twenty three earnings per share guidance from $5 <unk> $6 10.
So the new guidance range of $6 $6 10.
We expect the contribution to fiscal 'twenty three earnings to be somewhat ratable by quarter in the back half of the fiscal year.
A few additional thoughts about our updated guidance.
The winter heating season is over and approximately 70% of our distribution segment revenue has been recognized.
Going into the fiscal year with elevated commodity cost, we anticipated lower customer consumption, primarily due to conservation IRA.
However, the consumption we saw during the winter heating season exceeded our expectations.
Additionally, the most significant regulatory filings impacting fiscal 'twenty, three and then a newly completed giving us better line of sight into the regulatory outcomes in the fiscal year.
O&M.
This increase was anticipated as we originally guided to an approximately five 5% increase over fiscal 'twenty two levels.
As I've mentioned, a few minutes ago, we are experiencing higher than planned spending to support our growing service territories, particularly in Texas.
There was what we did during the pandemic, we are working to offset some of these increases.
Assuming we achieve the midpoint of our updated guidance, we anticipate O&M for the remaining six months of the fiscal year to be in line with their level of spending in the back half of fiscal 'twenty two.
Finally, our expected cost of financing is now pretty clear securitization, Texas has been resolved and our expected long term debt financing for the fiscal year is now complete.
Further we are anticipating higher than planned ACDC, partly due to the timing of project closings within the fiscal year and remaining FY2023 equity needs have been fully priced.
Details surrounding our fiscal 'twenty three guidance can be found on slides 13 and 14.
Thank you for your time this morning, and we'll now open up the call for questions.
Okay.
The floor is now open for your questions to ask a question. This time. Please press star one on your telephone keypad, if at any point you'd like to withdraw from the queue. Please press star one again, we'll now take a moment to compile a roster.
Yes.
Okay.
Our first question comes from the line of Julien.
Smith from Bank of America. Please proceed.
Hey, good morning team. Thanks for the time I appreciate it.
Good morning, Julien here.
Hey, good morning. Thank you look nicely done guys I wanted to maybe kick things off quickly.
Texas Legislature youre looking at potentially using some of their surplus here potentially look at paying down some of the securitization here can you comment on that a little bit here what are your expectations any any nuances Darren and then ultimately.
Presume that this would effectively never had customer bills, but I just want to understand sort of the timing and mechanics as to how it's been collected how it looks like for you guys specifically.
Yeah from a technical basis, Julien that is correct, we continue to follow that as well as other legislation across our entire system.
So not going to try and predict or comment too much further on it than that at this point.
If there any questions or anything that comes up from the committees or those that are sponsoring that obviously, we're standing by and prepared to answer that for warm, but on a system wide basis on a legislative perspective things that have kind of been.
On a consistent theme if you will this year that being and damage prevention across all of our jurisdictions has been enhanced as well as some of our jurisdictions looking at energy efficiency programs at the state level as well. So we're very pleased with that and Additionally, I don't know if you've seen.
Out there but.
A couple more states have come on to approve all fuels our customer choice legislation, which provides about 24 stage I think now across the country that has done that as well as I think three three states right now have approved legislation for freedom to Cook.
And their particular jurisdiction. So that's a quick recap all across our territory on legislative auction.
Actually thank you bring it up maybe I guess I'd love to get your perspective on this Colorado has had some discussions of late across both the PUC and then also particularly on the legislative side on.
I suppose gas bills broadly.
Any any perspective there.
Where this could go I mean, it seems a little bit.
They lack specificity choice.
Well no no crystal ball here Julian I can tell you that for sure, but with that committee with ongoing committees, there and any legislature. When we're asked we will certainly participate will provide testimony will provide feedback where our expert opinion we're.
We're going to continue to watch that.
They stay close to it but also work with the PUC if they come up with any questions comments or open any dockets.
Certainly available to provide our feedback as well as our gas supply team that does a tremendous job each year in and out to make sure we get access to reliable supply for our customers.
Right and just going back quickly.
I am sure you alluded to it in your remarks.
On the O&M I mean, seemingly holding the line is fairly well here.
<unk> a consistently inflationary environment can you comment a little bit about what youre seeing out there I mean, obviously some of your peers had less success in managing their costs here can you comment a little bit about the clarity that you have in the line of sight here and just perhaps what that implies going forward as well.
Sure Julien this is Chris and good morning.
Yes, working back closer with our operations teams just kind of looking really line by line opportunities, where we could potentially defer items that are not compliance related or a safety related or with the system at risks similar to what we did during the pandemic a few levers there that we might be able to pull.
Additionally.
It just depends on timing of when contracts are executed in terms of locking in cost for a 12 to 18 month period, but we got in some contracts kind of at the early part of our fiscal year. So statements, but at that point, we had locked into some contracts. So we have a better line of sight at least in terms of labor cost with respect to some of these third party services.
Which leaves the variables. We are just the number of locations for example that we might have to manage them and we did some sensitivity work around that so those are just a couple of examples of how we're trying to look forward manager O&M within our within where.
What we're capable of doing well certainly providing a safe and reliable service on the system, Yeah, and I'll just close that Julian as Chris has said before and Ive said before on these calls.
Not adjust in time company when it comes to <unk>.
Charity work O&M work those safety related items on our ships system wed like to stay well in advance of that.
Does provide some additional flexibility for us when we need it certainly can speed things up or move things from one period to another so that's an additional leg.
<unk> we have.
Excellent. Thank you Tim best of luck.
Thank you I appreciate it.
Again as a reminder, the floor is now open for your questions to ask a question at this time. Please press star one on your telephone keypad.
Yeah.
Yes.
Okay.
I would now like to turn the call over to Dan <unk> for closing remarks.
We appreciate your interest in Atmos energy and thank you for joining us a recording of this call is available for replay on our website through June 32023 have a good day.
Thank you ladies and gentlemen, this does conclude today's call. Thank you for your participation you may now disconnect.
Yeah.
Yeah.
Yeah.
Okay.