Q4 2023 ONE Gas Inc Earnings Call
Operator: Sighinolfi, Curtis Dinan, Pierce II, Vedula Murti, Brian Russo, Paul Zimbardo, Brandon Lohse, Caron Lawhorn, ONE Gas Inc. Good day and welcome to the ONE Gas fourth quarter and year-end 2023 earnings conference call and webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Chris Sighinolfi. Please go ahead, Mr. Sighinolfi.
Good day and welcome to the one gas fourth quarter and year end 2020 earnings conference call and webcast.
Today's conference is being recorded.
At this time I would like to turn the conference over to Chris signals.
Go ahead Mr signals.
Christopher Paul Sighinolfi: Good morning, and thank you for joining us for our fourth quarter and year-end 2023 earnings conference. This call is being webcast live, and a replay will be available later today. After our prepared remarks, we are happy to take your questions. A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. However, actual results could differ materially from those projected in any forward-looking statement.
Good morning, and thank you for joining us on our fourth quarter and year end 2023 earnings Conference call. This call is being webcast live and a replay will be available later today.
After our prepared remarks, we are happy to take your questions a.
A reminder, that statements made during this call that might include one gas expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provisions of the private Securities Litigation Reform Act of 1095, The Securities Act at $19 33.
And the Securities and Exchange Act of $19 34, each as amended.
Actual results could differ materially from those projected in any forward looking statements for a discussion of factors that could cause actual results to differ please refer to our SEC filings joining.
Christopher Paul Sighinolfi: For a discussion of factors that could cause actual results to differ, please refer to our SEC filing. Joining me on the call this morning are Sid McAnally, President and Chief Executive Officer, and Curtis Dinan, Senior Vice President and Chief Operating Officer. Now I'll turn the call over to Sid. Thanks, Chris. And good morning, everyone.
Joining me on the call. This morning are Sid Mcannally, President and Chief Executive Officer, and Curtis Dinan, Senior Vice President and Chief operating Officer.
And now I'll turn the call over to Sid.
Chris and good morning, everyone.
Sid McAnally: This year, we celebrate 10 years as an independent company and 118 years since the founding of Oklahoma Natural Gas in 1906. We've experienced remarkable growth in the 10 years since our spinoff from One Oak, including the addition of 230,000 new customer meters, installing over 6,000 miles of new pipe across our system, and doubling our earnings per share. We've deployed best practices and lessons learned over our 118-year history to enhance our system, support customer growth, and reliably deliver the natural gas that our customers depend on. We've also invested in our workforce, allowing us to achieve excellence in both capital execution and safety, leading to six consecutive years of recognition by the American Gas Association for having the lowest rate of significant injuries amongst our peers.
This year, we celebrate 10 years as an independent company and 118 years since the founding of Oklahoma natural gas and $19 six we.
We've experienced remarkable growth in the 10 years since our spinoff from <unk>, Inc.
Including the addition of 230000, new customer meters installing over 6000 miles of new pipe across our system and doubling our earnings per share we.
We've deployed best practices and lessons learned over our 118 year history to enhance our system support customer growth and reliably deliver natural gas that our customers depend on.
We've also invested in our workforce, allowing us to achieve excellence in both capital execution and safety leading to six consecutive years of recognition by the American gas Association for having the lowest rate of significant injuries amongst our peers.
Sid McAnally: With service territories that continue to benefit from population in-migration, focused economic development, and access to affordable energy, we look forward to building upon our strong track record in the years and decades to come. Turning to our fourth-quarter results, we again delivered earnings and capital execution as projected in our guidance, despite the challenges posed by macroeconomic conditions. To put this achievement in context, when we became a stand-alone company 10 years ago, we deployed a total of $262 million in core capital. Last year, we spent over $725 million, almost three times our first year's total, to serve our customers and communities. Our teams also fulfilled our service commitment as we faced winter storm Jerry last month. Despite temperatures being colder than those experienced during winter storm Uri in 2021, our teams kept gas flowing to our 2.3 million customers. We experienced limited allergies affecting only 200 customers, with service restored to most within hours, and we did not have any vehicular accidents or severe injuries.
With service territories that continued to benefit from population in migration focused economic development and access to affordable energy. We look forward to building upon our strong track record in the years and decades to come.
Turning to our fourth quarter results, we again delivered earnings and capital execution as projected in our guidance. Despite the challenges posed by macro economic conditions.
To put this achievement in context, when we became a Standalone company 10 years ago, we deployed a total of $262 million in core capital last year, we spent over $725 million almost three times, our first year total to serve our customers and communities are.
Teams also fulfilled our service commitment as we faced winter storm Jerry last month.
Despite temperatures being colder than those experienced during winter storm Yuri in 2021, our teams kept gas flowing to our $2 3 million customers. We experienced limited outages affecting only 200 customers with service restored to most within hours and did not have any vehicular accidents or severe injuries.
Sid McAnally: This performance is a testament to the focus of our co-workers and to the investments we've made following winter storm Uri three years ago. With that, I'll turn it over to Chris to discuss financial details for the quarter and the year. Thanks, Sid.
This performance is a testament to the focus of our co workers and to the investments. We've made following winter storm Yuri three years ago.
With that I'll turn it over to Chris to discuss financial details for the quarter and the year Chris.
Thanks, Ed as Sid noted, we met our net income and EPS targets for the year, despite volatile macroeconomic conditions.
Christopher Paul Sighinolfi: As Sid noted, we met our net income and EPS targets for the year. Net income for the fourth quarter was $71 million, or $1.27 per diluted share, compared with $67 million and $1.23 in the same period in 2022. For the full year, net income was $231 million, or $4.14 per diluted share, compared with $222 million, or $4.08 in 2022. Although weather across our service territories in the fourth quarter was approximately 17% warmer than the prior year and 13% warmer than normal, the impact on earnings was not material due to our weather normalization mechanism.
Net income for the fourth quarter was $71 million or $1 27 per diluted share compared with $67 million and $1 23 in the same period in 2022.
For the full year net income was $231 million or $4 14 per diluted share compared with $222 million or $4 <unk>.
In 2022.
Though weather across our service territories in the fourth in the fourth quarter was approximately 17% warmer than the prior year and 13% warmer than normal the impact of earnings was not material due to our weather normalization mechanisms.
Christopher Paul Sighinolfi: Fourth quarter revenues reflect an increase of $15.6 million from new rates and $1.9 million from continued growth in our customer base. Fourth quarter O&M expenses were 6.6% higher than the fourth quarter last year, continuing the moderating trend we experienced throughout 2023 as the benefits of our insourcing efforts have begun to bear fruit. We expect this trend to continue, and as a reminder, we project operating expenses to grow by approximately 5% per year through 2028. Excluding amounts related to KGSS-1, depreciation and amortization expense was approximately $6.7 million higher than the prior year, reflecting an increase in net property, plant, and equipment as a result of our higher level of capital investment. Other income, net, increased $1.5 million compared to the same period last year, primarily due to a $3.2 million increase in the market value of investments associated with our non-qualified employee benefits. Excluding the amounts related to KGSS1, interest expense in the quarter was $1.5 million higher than the same period in 2022, which primarily reflects higher rates on commercial paper balances.
Fourth quarter revenues reflect an increase of $15 $6 million from new rates and $1 $9 million from continued growth in our customer base.
Fourth quarter O&M expenses were six 6% higher than the fourth quarter last year, continuing the moderating trend we experienced throughout 2023 as the benefits of our in sourcing efforts have begun to bear fruit.
We expect this trend to continue and as a reminder, project operating expenses to grow by approximately 5% per year through 2028.
Excluding amounts related to <unk> depreciation and amortization expense was approximately $6 $7 million higher than the prior year, reflecting an increase in net property plant and equipment as a result of our higher level of capital investment.
Other income net increased $1 $5 million compared to the same period last year, primarily due to a $3 $2 million increase in the market value of investments associated with our nonqualified employee benefit plans.
Excluding the amounts related to kgs is one interest expense in the quarter was $1 $5 million higher than the same period in 2022%, which primarily reflects higher rates on commercial paper balances.
Christopher Paul Sighinolfi: We took advantage of the decline in interest rates in December to issue $300 million of 5.1% senior notes due April 2029. We utilized the net proceeds from that offering to repay amounts outstanding under our commercial paper program and for general corporate purposes. In December, we settled approximately a million shares of our common stock under forward contracts for net proceeds of $79 million. We also amended the March 2023 forward sale agreement to extend the maturity date of 657,000 shares to December 31, 2024. As of December 31st, we had $89 million of commercial paper outstanding at a weighted average interest rate of 5.6%.
We took advantage of the decline in interest rates in December to issue $300 million.
A five 1% senior notes due April 2029, we utilized the net proceeds from that offering to repay amounts outstanding under our commercial paper program and for general corporate purposes.
In December we settled approximately 1 million shares of our common stock under forward contracts for net proceeds of $79 million. We also amended the March 2023 forward sale agreement to extend the maturity date of 657000 shares to December 31 2024.
As of December 31, we had $89 million of commercial paper outstanding at a weighted average interest rate of five 6%.
Christopher Paul Sighinolfi: Our capital expenditures and asset removal costs for the fourth quarter were $190 million, bringing our total for the year to $729 million, compared to $657 million in 2022. The increase is primarily attributable to system integrity projects and the extension of service to new areas. The authorized rate base was approximately $4.9 billion as of year end, and we estimate our average rate base for 2024 will be approximately $5.55 billion. Turning to our liquidity, we ended the year with approximately $1.1 billion of capacity under our $1.2 billion commercial paper program and no borrowings under our credit facility. In addition, we had forward sale agreements for approximately 3.56 million shares of our common stock with settlement by the end of 2024 at an average price of nearly $77 per share. Had all forward shares been settled at year end, we would have received net proceeds of approximately $273 million. At the end of the year, we also had approximately $225 million of equity available for issuance under our at-the-market equity program.
Our capital expenditures and asset removal costs for the fourth quarter were $190 million, bringing our total for the year to $729 million.
Compared to $657 million in 2022 the.
The increase is primarily attributable to system integrity projects and the extension of service to new areas.
Authorized rate base was approximately $4 $9 billion as of year end and we estimate our average rate base for 2024 will be approximately 555 billion.
Turning to our liquidity, we ended the year with approximately $1 $1 billion of capacity under our $1 2 billion commercial paper program and no borrowings under our commercial under our credit facility.
In addition, we had forward sale agreements for approximately 356 million shares of our common stock with settlement by the end of 2024 at an average price of nearly $77 per share.
All forward shares been settled at year end, we would have received net proceeds of approximately $273 million.
At the end of the year, we also had approximately $225 million of equity available for issuance under our at the market equity program.
Christopher Paul Sighinolfi: With forward sales executed last year, we have largely satisfied our equity needs for 2024. Our balance sheet remains strong. In December, S&P affirmed its A- credit rating and stable outlook. And earlier this month, Moody's affirmed its A3 rating and stable outlook. In January, the ONE Gas Board of Directors declared a dividend of 66 cents per share, an increase of one cent from the prior quarter.
With forward sales executed last year, we have largely satisfied our equity needs for 2024 are.
Our balance sheet remains strong in December S&P affirmed its AA minus credit rating and stable outlook and earlier this month, Moody's affirmed its <unk> rating and stable outlook.
In January the one gas board of directors declared a dividend of <unk> 66 per share an increase of <unk> <unk> from the prior quarter.
Christopher Paul Sighinolfi: And lastly, we affirm our 2024 financial guidance, including net income of $214 million to $231 million, earnings per diluted share of $3.70 to $4, and capital expenditures and asset removal costs of approximately $750 million. I'd also note that the market has been engaged in a spirited debate about the pace, timing, and magnitude of potential rate cuts from the Federal Reserve and has been reactive to speculation on that front. Our guidance is not predicated on any rate cuts occurring in 2024. While we would be pleased to see interest rates come down this year, our forecast did not assume that that would happen. With that, I'll turn it to Curtis.
And lastly, we affirm our 2024 financial guidance, including net income of $214 million to $231 million earnings per diluted share of $3 70 to $4 and capital expenditures and asset removal costs of approximately $750 million.
I'd also note that while the market has been engaged in a spirited debate about the pace timing and magnitude of potential rate cuts from the federal reserve and has been reactive to speculation on that front our.
Our guidance is not predicated on any rate cuts occurring in 2024.
While we would be pleased to see interest rates come down this year, our forecast did not assume that that would happen.
With that I'll turn it to Curtis.
Curtis L. Dinan: Thank you Chris and good morning everyone. I'll begin with an update on regulatory activity. In December, the Kansas Corporation Commission issued an order approving Kansas Gas Services' request for an $8 million increase pursuant to our gas system reliability surcharge filing. Those rates became effective in December.
Thank you, Chris and good morning, everyone I'll begin with an update on regulatory activity.
In December the Kansas Corporation Commission issued an order approving Kansas gas service's request for an $8 million increase.
To our gas system reliability surcharge filings.
Those rates became effective in December.
Curtis L. Dinan: We have also notified the Commission of our intent to file a full rate case. We anticipate making this filing on March 1. In June 2023, Texas Gas Service filed a rate case for all customers in the Rio Grande Valley service area based on a 2022 test. In January, the Railroad Commission approved a settlement reflecting an approximate $5.9 million rate increase, based upon a 9.7% authorized ROE and 59.1% equity capital, and new rates took effect that month.
We have also notified the commission of our intent to file a full rate case, we anticipate making this filing on March one.
In June 2023, Texas gas service filed a rate case for all customers in the Rio Grande Valley Service area based on a 2022 test year.
In January the Railroad Commission approved a settlement, reflecting an approximate $5 $9 million rate increase.
Upon a nine 7% authorized Roe.
And 59, 1% equity capital.
New rates took effect that month.
Curtis L. Dinan: And finally, Texas Gas Service made a Gas Reliability Infrastructure Program filing for all customers in the Central Gulf Service Area in February, requesting a $12.3 million revenue increase to be effective in June. Now, switching to an update on commercial activity. We added over 23,000 new connections in 2023, continuing the healthy customer growth we have seen over the past 10 years. We also continue to secure new business and again end the year with a solid backlog of future meter sets. As we have discussed on the past several calls, growth is occurring in step with economic development in all three states, and we expect it to continue. Moving on to Operation. We will finish strong in 2023 with capital execution.
And finally, Texas gas service made a gas reliability infrastructure program filing for all customers in the Central Gulf Service area in February.
Requesting a $12 $3 million revenue increase to be effective in June.
Switching to an update on commercial activity.
We added over 23000, new connections in 2023, continuing the healthy customer growth, we've seen over the past 10 years.
We also continued to secure new business and again ended the year with a solid backlog of future meter sets.
As we have discussed over the past several calls the growth is occurring in step with economic development in all three states and we expect it to continue.
Moving onto operations.
We finished strong in 2023 with capital execution, we completed over $725 million worth of capital investment projects over the year.
Curtis L. Dinan: We completed over $725 million worth of capital investment projects over the year, with approximately $175 million dedicated to serving our growing customer base and $525 million invested in increasing the safety and reliability of our system. As Sid mentioned, we were again tested last month when Winter Storm Jerry brought extreme cold, snow, and ice to our service territory. As with past winter storms Uri, Mara, and Elliot, our system, processes, and co-workers performed well with no significant service disruption. The lessons we learned from URI and the resulting investments we've made in our system, including added storage capacity, system reinforcements, and diversifying our gas supply portfolio, have enhanced our system reliability. In the years since URI, and using Austin as an example, we strategically invested in 19 system reinforcement projects, the last of which went into service just before Jerry hit last month. To illustrate the performance, we positioned compressed natural gas mobile units along points in our system that were previously stressed by extreme weather but never had to utilize them because the system performed so well.
With approximately $175 million dedicated to serving our growing customer base and $525 million invested in increasing the safety and reliability of our system.
As Sid mentioned, we were again tested last month when winter storm, Jerry brought extreme cold and snow and ice to our service territories.
As with past winter storms, Yuri Mara and Elliot our system processes and co workers performed well with no significant service disruptions.
The lessons, we learned from Uri and the resulting investments we've made in our system.
Including added storage capacity system reinforcements and diversifying our gas supply portfolio.
<unk> enhanced our system reliability.
In the year since Yuri and using Austin as an example.
We strategically invested in 19 system reinforcement projects the last of which went into service just before Jerry hit last month.
To illustrate the performance we position compressed natural gas mobile units are long points in our system that were previously stressed by extreme weather.
But never had to utilize them because the system performed so well in fact, we exceeded our previous peak day volumes and the Austin Metro area that were established during winter storm Yuri.
Curtis L. Dinan: In fact, we exceeded our previous peak day volumes in the Austin metro area that were established during winter storm Yuri. I want to sincerely thank our co-workers in the field, at our customer service centers, and those who support the work they do for their dedication to safety and ensuring that our customers were taken care of throughout the winter storm event. And now, I'll turn it over to Sid for his closing remarks. Thank you both.
I want to sincerely, thank our coworkers in the field at our customer service centers and those who support the work they do for their dedication.
<unk> safety and to ensure that our customers were taken care of throughout the winter storm event.
And now I'll turn it over to Sid for closing remarks. Thank you both.
Sid McAnally: In November, we detailed our 2024 and 5-year financial outlooks, once again discussing how altered macroeconomic conditions would impact our business in the near term and the actions our company is taking in response. As Chris noted, we've utilized forward sales to de-risk our equity needs and have maintained a strong balance sheet, giving us flexibility to fund the business. Curtis mentioned the upcoming rate case filing in Kansas, and we've spoken about how we will be diligent in executing regulatory proceedings to ensure that financial realities are appropriately captured in our rates. We're prepared to address near-term challenges posed by external financial conditions while pursuing opportunities to invest in the business.
In November we detailed our 2024 and five year financial outlook. Once again open handedly discussing how altered macroeconomic conditions would impact our business in the near term and the actions. Our company is taking in response as Chris noted we've utilized forward sales to derisk, our equity needs and maintain.
A strong balance sheet, giving us flexibility to fund the business.
Curtis mentioned the upcoming rate case filing in Kansas and we've spoken about how we will be diligent in executing regulatory proceedings to ensure that financial realities are appropriately captured in our rates.
We are prepared to address near term challenges posed by external financial conditions, while pursuing opportunities to invest in the business.
Sid McAnally: As we enter 2024, we will remain focused on safety, operational execution, and long-term value creation for our stakeholders. We're fortunate to operate in a region where people value natural gas, desire our services, and we're prepared to meet the demand created by our growing service territory. Our success is made possible by the commitment of each one of our 3,900 coworkers, and I'm grateful for their dedication to serving our customers. It's a privilege to work alongside them every day.
As we enter 2024, we will remain focused on safety operational execution and long term value creation for our stakeholders.
We are fortunate to operate in a region, where people value natural gas desire our services and we are prepared to meet the demand created by our growing service territory. Our success is made possible by the commitment of each one of our 3900 co workers and I'm grateful for their dedication to serving our customers. It's a privilege to work with.
Alongside them every day.
Operator: Thank you all for joining us this morning. Operator, we're now ready for questions. Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Thank you all for joining us this morning, operator, we're now ready for questions.
Thank you.
I'd like to ask a question. Please signal by pressing star one on your telephone keypad.
Using a speaker phone. Please make sure your mute function is turned off to one now your signal to reach our equipment.
Curtis L. Dinan: Again, press star 1 to ask a question. We will pause for a moment to allow everyone an opportunity to signal for questions. Our first question comes from Christopher Jeffrey with Mizuho Securities. Your line is open, please go ahead. Hi everyone, thanks for taking my question. Maybe just starting with the Kansas rate case, any early insights into special asks that you'll have, and maybe how you are viewing the cap structure, refinancing some of the upcoming debt going into that case. Chris, I think you hit on all the key items.
Again press Star one to ask a question.
We are closed for a moment to allow everyone an opportunity to signal for questions.
Our first question comes from Christopher Jeffrey with Mizuho Securities. Your line is open. Please go ahead.
Everyone. Thanks for taking my question, maybe just starting with the Kansas rate case any early insights into special asks that Youll have.
And maybe how you are viewing the cap structure refinancing some of the upcoming debt going into that case.
Chris I think you hit on all the key items, we're not prepared to talk about the details of what will be in that filing next week.
Curtis L. Dinan: We're not prepared to talk about the details of what will be in that filing next week, but the things that you mentioned, certainly, we had given signals that before we completed our most recent long-term debt financing, we wouldn't be prepared to go in for a filing. We completed that, as Chris mentioned earlier, and that was really the last point we needed to cross. So, again, we're preparing to file that next Friday and will be able to give a better update at that point. Okay. And then maybe just asking more specifically about the maturity coming up in March, the 473 note, just any expectations on how you guys are looking at refinancing that or whether you might kind of float through with some short-term debt in the shoulder season. Yeah, hi Chris, this is Chris.
But the things that you mentioned certainly we had given signals that before we completed our most recent long term debt financing we wouldn't be prepared to go in for a filing we completed that as Chris mentioned earlier and that was really the last point, we needed to cross and so again, we're preparing to file that next Friday, and we'll be able.
To give a.
Better update at that point.
Got it.
And then maybe just asking more specifically on the maturity coming up.
In March.
473.
No just any expectations on how you guys are looking at refinancing that or whether you might kind of flowed through with some short term debt in the shoulder season.
Yeah, Hi, Chris. This is Chris you are right, we had communicated in the wintertime and it still remains true that we were we anticipate rolling that onto commercial paper initially and then terming that out as we move through the year and there is the prospect obviously there.
Christopher Paul Sighinolfi: You're right, we communicated in the winter time, and it still remains true that we were, we anticipate rolling that onto commercial paper initially and then terming that out as we move through the year. You know, there's a prospect, obviously, that rates may come down later in the year based on the Pivot by the Federal Reserve in December, and so we look to take advantage of that if it proves to be effective. Got it. Thanks, everyone. As a reminder, if you'd like to ask a question, please press Star 1 on your telephone keypad now. We have no further questions. I'll now hand over to the management team for closing remarks. Thank you again for your interest in ONE Gas. We look forward to seeing many of you in New York in March. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in May. We'll provide details on that conference call at a later date. Have a great day. This concludes the ONE Gas fourth quarter and year-end 2023 earnings conference call and webcast. You may now disconnect.
Rates may come down later in the year based on the pivot by the Federal Reserve in December.
And so we look to take advantage of that if it's if it proves true.
Got it thank you Brian.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad now.
We have no further questions I'll now hand back to the management team for closing remarks.
Thank you again for your interest in one gas we look forward to seeing many of you in New York in March our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in May.
We'll provide details on that conference call at a later date.
Have a great day.
This concludes the <unk> fourth quarter and year end 2023 earnings conference call and webcast you may now disconnect.
Okay.
Okay.