Q1 2024 Atmos Energy Corp Earnings Call
David Brown: [music].
Thank you for standing by at this time I would like to welcome everyone to the Atmos Energy Corporate Corporation fiscal 2024 first quarter earnings Conference call. All lines will be placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time.
Simply press Star followed by the number one on your telephone keypad.
If you'd like to withdraw your question Press Star one again, thank you.
Now I'd like to turn the call over to Dan <unk>, Vice President of Investor Relations and Treasurer. Please go ahead.
Dan: Thank you Adam.
Morning, everyone and thank you for joining us for joining our fiscal 2024 first 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'll 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.
Our forward looking statements and projections could differ materially from actual results.
Dan: Factors that could cause such material differences are outlined on slide 26 and are more fully described in our SEC filings with that I will turn the call over to Kevin Akers, our president and CEO Kevin.
Kevin Akers: Thank you Dan and good morning, everyone. We appreciate your interest in Atmos energy.
Kevin Akers: I want to begin today's call by thanking all 5000, Atmos energy employees for their exceptional effort and dedication to serving our customers under very challenging weather conditions recently.
And thank you for all that you do for our customers and our communities. Every day you are truly the heart and soul of Atmos energy.
Our first quarter results reflect that effort that.
Kevin Akers: Dedication and focus as we continue modernizing our natural gas distribution transmission and storage systems on our journey to be the safest provider of natural gas services.
Yesterday, we reported fiscal 'twenty, four first quarter net income of $311 million or $2 eight per diluted share.
Our first fiscal quarter capital spending was $770 million to support continued system modernization and growth across our service territories.
For the 12 months ended December 31st 2023, we added over 58000, new customers with over 44000 of those located here in Texas.
Kevin Akers: And the Texas Workforce Commission reported in January.
Kevin Akers: The seasonally adjusted number of employed reached a new record high and over $14 1 million.
Texas once again added jobs at a faster rate than the nation over the last 12 months, adding.
Kevin Akers: Adding nearly 370000 jobs in calendar 2023, representing a two 7% annual growth rate.
Additionally, we added 11, new industrial customers, which when fully operational we anticipate consuming approximately two five bcf of gas annually.
That is volume metrically equivalent to 45000 residential customers.
Commercial customer growth remained solid as well with over 1000 commercial customers connecting to the system during the first quarter.
This growing demand from all of our customer classes demonstrates the value and vital role natural gas plays in the economic development across our service territories.
And a P. T. We completed several projects that will enhance the safety reliability versatility and supply diversification of our system and support the continued growth we're seeing in our local distribution companies behind a <unk> system.
During the quarter, we placed in service line PC, which connected the southern end of Apt's system with a 42 inch Kinder Morgan Permian Highway line that runs from <unk> to Katy.
Kevin Akers: Our 22 mile 36 inch line PC supports the current demand and forecasted growth to the north of Austin in both Williamson and Travis County, located in Texas.
As well as increases supply diversity in this service area.
Additionally, we placed in service bays three of our four phase 104 mile line as to project as.
As a reminder line as to bring supply from the Haynesville and Cotton Valley shale plays to the east side of the growing Dallas Fort worth Metroplex.
Kevin Akers: The final phase of this project is scheduled to be completed by the end of this calendar year.
And we've completed the first phase of our line W. A loop project.
24 miles of 36 inch pipeline.
This multi phase project will fortify apt's system that serves the Dallas Fort worth Metroplex by installing approximately 80 miles of 36 inch transmission pipeline.
Our customer support associates and service technicians continue their exceptional customer service and once again received a 98% satisfaction rating from customers during the first quarter.
Our customer advocacy team and customer support agents continue their outreach efforts to energy assistance agency and customers during the first quarter through those efforts. The team held nearly 17000 customers receive over $5 million in funding assistance.
As a reminder, during fiscal 'twenty three our energy assistance teams helped over 60000 customers receive over $29 million of financial assistance to help with their monthly bill.
Before I turn the call over to Chris I want to comment on an incident at the National Transportation Safety Board is investigating.
The incident occurred at Jackson, Mississippi residents on January 24, and resulted in one fatality.
Atmos energy is working with the National Transportation Safety Board and other federal and state regulators to help determine possible causes.
Want to thank the first responders and emergency responders for their support and assistance.
Our hearts, our thoughts and our prayers have been and continue to be with the family.
I will now turn the call over to Chris for his update.
Chris: Thank you Kevin and thank you to everyone for joining us this morning, as Kevin mentioned, our fiscal 'twenty four first quarter earnings per share was $2 eight.
Which represented eight 9% increase over the $1 91 per share reported in the prior year quarter.
Consolidated operating income increased to $399 million or 24% in the first quarter. This.
This performance was driven by several factors.
Rate increases in both of our operating segments totaled $84 million.
Chris: Central commercial customer growth combined with higher industrial load increase operating income an additional $6 million.
Solid in O&M expense decreased $19 million, primarily driven by lower bad debt expense.
In December the Mississippi Public Service Commission modified how would recover uncollectible customer accounts.
Previously we have recovered these costs were a stable rate filing over 12 month period.
Chris: With April of 2022, we will not recover these costs were purchased gas cost mechanism over 24 months period.
Chris: Benefit our customers.
As a result of this change reduced our bad debt expense by $14 million during the first quarter.
<unk> with this change we got to let the bad debt portion of our uncollectible accounts through the purchase gas gas.
Gas cost recovery mechanisms, 88% of our customer base.
O&M decrease an additional $5 billion I may due to the timing of inline inspection work at ADT that we highlighted last fiscal year.
Finally, operating income was favorably impacted by a legislative change in Texas to reduce property tax expense.
In the summer of 2023, the Texas legislature voted to allocate $18 billion of the state's budget surplus to offset property taxes assessed on residential commercial property owners for calendar years, 2023 and 2024.
This legislation became effective during our first fiscal quarter. After voters approved the legislation in November.
In fiscal 'twenty four we expect this legislation will reduce our property tax expense by $20 million to $22 million.
Recognize approximately $6 million of this impact during the first quarter.
This reduction was not reflected in the fiscal 'twenty four earnings per share guidance, we issued in November.
We continue to execute our annual regulatory bond strategy to date, we have estimated $167 million annualized regulatory outcomes.
This amount includes the $27 million associated with At&t's General rate case that was approved in December.
We currently have about $61 million in progress and plan to make additional filings this fiscal year, taking $340 million to $370 million annualized operating income increases.
During the quarter, we completed over $1 1 billion of long term debt and equity financing.
What about the $900 million long term debt financing, we completed in October 2023. Additionally.
Additionally, we settled $254 million of equity forward agreement.
This financing provides the necessary funding for our operations, while maintaining the strength of our balance sheet and overall financial profile for.
Our equity capitalization as of December 31 was 60%, but we do not have any short term debt outstanding. We also had $3 $2 billion and available liquidity.
This amount includes approximately $4 $33 billion in net proceeds available under existing forward sale agreements.
Which is expected to satisfy the remainder of our anticipated fiscal 'twenty for equity needs with a portion of our anticipated equity needs for fiscal 'twenty five.
Our weighted average cost of debt is four 1% and a weighted average maturity is approximately 18 years with their next refinancing set for June of 2027.
So we continue to expect to have limited exposure to floating interest rates in fiscal 'twenty four.
Finally, we have $900 million forward, starting interest rate swaps in place to hedge portions of our anticipated long term debt issuances in fiscal 'twenty five in fiscal 'twenty six.
Reminder, the effective weighted average weighted average treasure rate of these swaps was 154%.
In closing we are off to a good start for the fiscal year, the execution of our operational financial and regulatory plans by our employees positions us well to sustain our success.
We continue to expect fiscal 'twenty four earnings per share to be in the range of $6 45 and.
Chris: And $6 65 per share inclusive of the favorable impact of the property tax legislation changes in Texas.
Thank you for your time this morning, I will now open the call up for questions.
At this time I would like to remind everyone to ask a question Press Star then the number one on your telephone keypad. Your first question comes from the line of David Arcaro with Morgan Stanley. Your line is open.
Hey, good morning. Thanks, so much for taking my questions have you doing well good morning, David.
Let's see.
I might have missed the details here could you just elaborate a bit on that property tax impact and the change in <unk>.
PFS impact does that have for the full year. This year and did you say it is not currently embedded in the EPS guidance.
Yes, the property tax impact for the full fiscal year is expected to be between 20 and $22 million pre tax.
After you take into consideration the the property that you expect the tax rate you put it in our investor deck and the range.
Share weighted average shares we have out there and we're anticipating that impacted between <unk>.
Need to be between nine and 11.
And currently that is reflected in our current guidance. It was not reflected in our guidance previously.
Okay got it understood thanks for that color.
Speaker Change: Let's see you wanted to.
And Ah get your color on on growth in customer additions it sounds like you've continued to see.
Strong customer additions in the quarter I guess, what are your expectations for that continuing just given what youre seeing in in building activities in the economic backdrop in your service territories.
Speaker Change: Yes in our conversations with our builders and developers obviously, we're still in the winter period. So.
Actions on existing housing will continue through this period.
So I would anticipate that activity picking back up as you head into spring and construction picking back up but again, if you look at some of the studies that have been out there for quite a while and we've referenced on other calls one in particular, there is an anticipated 1 million additional people.
Projected to come to the Metro pledge by 2028. So we think that will definitely impact housing, which is already low on an existing home sale on the current market basis. Thank you.
Inventory right now is currently around two months or so we're told they like to keep that somewhere north of about 4% to five months' worth of inventory. So we can see the builders again trying to meet that demand picking things back up in the spring as we head into that construction season, and again, we continue to see good diversified growth across the territory.
On the industrial side with those 11 that we added.
Previous quarter coming from.
Fertilizer industry vegetable oils.
Speaker Change: Concrete asphalt plants, a good mixture of a lot of things across all eight states.
Got it that's helpful color.
Appreciate that and then.
Maybe just one more from me I was wondering what your expectations are ahead of just a couple of the general rate cases, you have later this year in West, Texas and mid Tex.
Just curious if there are any major things that you need to address.
Speaker Change: Many of you out of the ordinary in those rate cases that would cause it to be a big ask or more contention contentious than usual.
Now, David nothing contentious or unusual and as a reminder, these recent general rate cases are being file because those jurisdictions are under our grip mechanism here in Texas, we have five consecutive filings.
But we have to make before we going back into basically refresh a reset equity compensation or are we going to lives. So we expect these to be a.
Speaker Change: A fairly down the metal type of filings nothing out of the ordinary or unusual and there were probably to make those filings at sometime later this calendar year.
Okay that makes sense. Thanks, so much.
Thank you.
Speaker Change: Your next question comes from the line of Julien Dumoulin Smith with Bank of America. Your line is open.
Hey, good morning, guys. Thanks for the time I appreciate it well done here look and just to follow up on the first question.
With respect to the tax change there I mean are there other offsets do you think about this as being an opportunity to accelerate some.
Some work that you might've been constantly and for future periods here.
Or is this kind of really kind of expected to drop to the bottom line. If you will.
Yeah. That's a good question Julian I mean at this point, we're sitting here in the middle of the winter heating season, which we are beginning to think about what we look like in the <unk>.
Going into the summer months in terms of compliance for our other activities that stalled. So all undervaluation right now and we'll have a better update for you in may.
Right, Okay, Yes, fair enough I get you're not quite in the privacy you've got latitude here I'm curious to see what happens.
To that end, though I mean, if we can just I know you've talked about.
Backdrop, a few different times since we're talking about here.
What what are you seeing in terms of just as you plan.
On this front just being able to hold the line on Oh.
A variety of different new customer cost and other factors that have driven up the inflationary bucket of late I know that there's inflation conversations and in fact, a number of your peers. How are you thinking about that today here, especially within that range.
Speaker Change: Yes, Julien I mean again, we stand by what we have out there in our deck, what we've talked about before in our three to three 5% range Thats out there.
Obviously, we had folks out on the system, ensuring reliability. This past winter storm with other which I think we did an exceptional job of continuing to serve our customers out there in that historic winter storm. So.
We'll continue to evaluate opportunities whether those are hydrostatic test on <unk> compliance work across the system. So at this point, we're still comfortable with the range, we have out there and where we set the first quarter ended the fiscal year.
Alrighty, well guys and just one quick follow up here if I can since you mentioned you know we're still theory here in the winter season.
We saw.
Winter dynamics play themselves out in recent weeks across some of your Sir good Chuck of your service territory.
Any considerations about how your system performs and or commentary about how that positions you again I I get that a lot of this is ultimately just servicing your customers here and and and.
<unk>.
Numerous number a numerous set of riders across your jurisdictions, but any commentary about the experience in recent weeks, obviously in sharp contrast to some prior year Sir.
Yes, as I said are opening very proud of all 5000, Atmos energy employees I think we did an exceptional job with this winter storm the severity that it came in I think depending on where you want to look at for heating degree day data.
Some 78% colder than normal in some locations, 200% colder than last year. So again it is takes.
A sustained period of investment and infrastructure improvement across your system. Obviously, we did a lot of projects from last year, but we've been at this now for over 12 years, improving our infrastructure. That's what allows us to be able to serve during these historic periods. When they come in you just can't do that overnight.
I think our team has done a good job of identifying opportunities throughout the years and executing on those projects, but also very proud of our product look yes.
For that week I think we said.
Speaker Change: A record across the country at 174 Bcf of natural gas with a peak of 72 Bcf of residential and commercial so again very proud of natural gas and what it does and I think if you look at the energy output for that week. According to EIA natural gas.
Petroleum and coal consumed 85% of the energy demand for that period. So very proud of what we continue to do as an industry.
Excellent well, we'll leave it there. Thank you Sir appreciate it thank.
Thank you.
Your next question comes from the line of Richard Sunderland with Jpmorgan. Your line is open.
Yeah.
Hi, good morning, and thank you for the time today.
I'd like to circle back on the property tax item one more time, if I could just to be clear on that benefit is what you've quantified the full amount of the benefit or is that net of any reserves for return to customers. How are you thinking about that latter portion yes.
Yes that number is the benefits that relative to our guidance for fiscal 'twenty four we don't have.
And as for accounting purposes, we recognize the impact in this fiscal year over the next couple two and a half years overturn that benefit back to our customers.
As I mentioned earlier will have an update on what we think that will impact us for the full fiscal year. Later this fiscal year, primarily in our next call.
Okay understood very helpful color. There. Thank you and then just turning to the Fort worth incident I was curious if you could talk a little bit about the site status just skewed some media headlines around debris removal.
And at current color there would be helpful. Also who is currently investigating.
Decided I believe has been turned over according to the articles that were seeing in the information that's been relayed to us back.
Speaker Change: Back to the owners of it I believe.
And.
Speaker Change: They are in charge of the removal at this point and obviously you've seen our statements out there our press release that our system has been tested and was not involved.
Great. Thank you very much.
Thank you.
Your next question comes from the line of Nick Campanella with Barclays. Your line is open.
Hey, everyone. Thanks for taking my question and sorry to ask about property taxes, but I just wanted to triple check what what's the negative offset to that nine to 11.
Property taxes and the guide for.
24.
Well right now Nick as we talked about a couple of minutes ago, we're still in the middle of the winter heating season, we need to see how our margins hold up as we move into effect January February March we still evaluating our O&M needs for the fiscal year. So we felt it was prudent to maintain the guidance in this range at this point and provide a great.
Speaker Change: More thorough update once we get through the winter heating season.
Speaker Change: Hey, I really appreciate that and then Chris.
Chris I know you said in your prepared remarks, you priced.
You are fully priced for 'twenty for equity needs. How much is remaining left to do for 2025 before you.
Taken care of that fully.
Yes, we still have a ways to go on that.
Chris: <unk> reasons, I can't say precisely how much it's been priced but under the terms of the agreement that we have in place.
Chris: We will discontinue to stay ahead of all of our equity needs through the ATM.
Chris: This fiscal year in preparation for FY 'twenty five.
Got it.
Then just one last one for me I know that the LDC M&A market continues to be active and there's potentially even processes going around in states that are either adjacent or in your current territories. I'm. Just can you just remind everyone what youre kind of.
Your messages are around M&A and your philosophy there. Thank you.
Sure be glad to again, we've talked about our growth on every every call here for several years now we continue to grow at close to 2% are above 2%, particularly in our mid Tex Division. There. So we have that mechanism with good organic growth.
Chris: So you couple that with the right construct that we have where we start to earn on 90% of our investment in six months, 99% in 12 months, it's hard for us to see any sort of deal that could compete with the growth and regulatory construct that we have so we're very proud.
Our systems, what we do our relationships our execution on that so at this point, we are continuing to focus on and remain dedicated to.
System modernization.
Alright can't say I expected a different answer so that's very much in line. Thank you. So much have a great day.
Thank you.
As a reminder to ask a question press star one on your telephone keypad and our next question comes from the line of Ryan Levine with Citi. Your line is open.
Ryan Levine: Hi, everybody.
Good morning is there any color you can share around what youre seeing in the legislative sessions and cross your service territory is there any bills that are being proposed that you're watching closely that could have an impact on your business or outlook.
Ryan Levine: Alright, I think it's still very early in his session. Those just really kicked off in some of our jurisdictions, we'll continue to monitor those.
But at this point, we'll let them go about.
They are required activity and duties and we will continue to monitor.
Okay, and then in terms of the pipeline or LDC network itself are you seeing any jurisdictions that are looking to re rate.
Types that may be classified as transmission to distribution.
No. We're not is the short answer to the question again I believe those are all business decisions based upon the regulations at the federal level and the state level.
Okay I appreciate that thank you.
Okay.
Ryan Levine: Your next question comes from the line of Gabriel Moreen with Mizuho Securities. Your line is open.
Hi, This is Chris Jeffrey on for Gabe just one quick one on the O&M side.
Just seemed like there was a change in the bad debt expense treatment.
That came through on the quarter I'm wondering is that all kind of realized now or will that continue to flow through future periods and was that contemplated in the original guide.
Yes, so the profit I'm sorry in our property tax so many questions on projects that swing on the bad debt expense.
That $14 million or so that we've referenced that was basically the impact for this fiscal year.
Hope that that would come through so that was basically reflected in our guidance.
Great. Thanks, that's it for me.
Okay.
I will now turn the call back over to Dan <unk> for closing remarks.
We appreciate your interest in Atmos energy and again, thank you for joining us.
This call is available for replay on our website through March 31 have a great day.
Ladies and gentlemen that concludes today's call. Thank you all for joining for joining green Dot net.
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Okay.
Ryan Levine: Sure.
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Sure.
Sure.