Q4 2024 Atmos Energy Corp Earnings Call
Thank you for standing by my name is Amy and I will be your conference operator for today at this time I would like to welcome everyone to the Atmos Energy Corporation fiscal 'twenty 'twenty four fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad to enter the queue.
If you would like to withdraw your question again press the star and the number one.
It is now my pleasure to turn the call over to Dan Ms Ear, Vice President Investor Relations and Treasurer, you may begin.
Thank you Amy.
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.
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 our 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.
Factors that could cause such material differences are outlined on slide 37 and are more fully described in our SEC filings.
I'll now turn the call over to Kevin.
Thank you Dan and good morning, everyone. We appreciate your interest in Atmos energy.
As Monday is veterans day, I would like to take this opportunity to thanks.
Served in our armed forces.
Approximately 300 of our Atmos energy teammates who are a part of them more than 18 million Americans, who bravely served our country. Thank.
Thank you for your service.
Thank you to those currently serving this great nation.
Fiscal 'twenty four marked atmos energy's 40th anniversary as an independent company, all 5200 atmosphere at Atmos energy proudly serve our customers and our communities.
As we continue to be got it by the simple values of our founding chairman Charles K Vaughan.
Honestly integrity and good more character.
Yesterday, we reported earnings per share of $6 83.
Which represents the 22nd consecutive year of earnings per share growth.
Fiscal 'twenty four also represents the 14th consecutive year of dividend growth.
Our fiscal year results reflect the focus and dedication of the entire Atmos energy team and their continued successful execution of our proven strategy of operating safely and reliably while we modernize our natural gas distribution transmission and storage systems.
Our fiscal 'twenty for capital investment of our $2 $9 billion supported.
Supported the modernization of our systems through the replacement of over 850 miles of distribution and transmission pipe and replacement of more than 55000 service lines.
Additionally, we continue to enhance the safety reliability versatility and supply diversification of Apt's system by placing into service our line PC on the southern end of Apt's system as well as phase one of the line <unk> loop to the.
West of Fort worth in phase, three or four or line as to the east of the DFW Metroplex.
And we completed the well integrity inspections on our Bethel Salt dome cavern number two.
We expect base gas and working gas injections to be completed next month, providing the availability of all three salt dome cavern.
This winter season.
Our capital investment also supported in natural gas service to field, a strong economic development, we continue to see across our service territories.
In fiscal 'twenty four we added over 59000, new residential and commercial customers with over 46000 of those new customers located in Texas.
36,000 of those new customers located in Texas.
The housing market in the DFW Metroplex remained strong for the 12 months ended September 30, New home closings set a record high with a nearly 1% increase over the prior 12 month period, driven by the strength of the Texas economy.
The housing market in the DFW Metroplex remains strong. For the 12 months ended September 30th, new home closings set a record high with a nearly 1% increase over the prior 12-month period, driven by the strength of the Texas economy.
And according to the Texas Workforce Commission. The state continued its streak of record employment for the 12 months ended September the seasonally adjusted number of employed reached a new record high and over $14 3 million.
And according to the Texas Workforce Commission, the state continued its streak of record employment. For the 12 months ended September, the seasonally adjusted number of employed reached a new record high at over 14.3 million.
Texas again added jobs at a faster rate than the nation over the last 12 months, adding nearly 327000 jobs from September 2023 through September 2024.
Texas, again, added jobs at a faster rate than the nation over the last 12 months, adding nearly 327,000 jobs from September 2023 to September 2024.
In addition to this robust residential customer growth, we saw solid commercial and industrial growth.
In addition to this robust residential customer growth, we saw solid commercial and industrial growth.
In fiscal 'twenty four we added nearly 3500, new commercial customers, a 19% increase over the prior fiscal year.
In Fiscal 24, we added nearly 3,500 new commercial customers, a 19% increase over the prior fiscal year.
And we added 39 industrial customers, which when fully operational are anticipated to consume approximately eight four bcf of gas annually.
And we added 39 industrial customers which when fully operational are anticipated to consume approximately 8.4 BCF of gas annually. This usage is equivalent to adding over 160,000 residential customers on a volumetric basis.
This usage is equivalent to adding over 160000 residential customers on a volumetric basis.
Over the last five years, we added nearly 300000 residential and commercial customers.
Over the last five years, we have added 225 industrial customers with an estimated annual load of 63 Bcf when fully operational.
Again on a volumetric basis. This is equivalent to adding nearly one 2 million residential customers.
This growing natural gas demand from all customer classes continues to demonstrate the vital role natural gas has an economic development across our service territories.
Our customer support associates and service technicians continue to be at their best and inspire trust with our customers and in our communities through their exceptional customer service.
They once again received a 98% satisfaction rating from our customers.
And during the fiscal year, our customer advocacy team assisted over 57000 customers and receiving almost $23 million in energy assistance funding.
I'm very proud of our Atmos energy team and there are many accomplishments in fiscal 'twenty for their exceptional work has us well positioned for fiscal 'twenty five and beyond.
As you know we operate in a diversified and growing service territory that is supportive of natural gas and our investment in natural gas infrastructure to supply the growing economy and meet the growing energy demand as a reminder, 96% of our rate base is located in six of our eight states that have passed legislation in.
Support of energy choice.
To meet the expectations of our community our customers policymakers and regulators, our five year plan contemplates $24 billion of capital investment that.
That investment will support the continued modernization of our natural gas distribution transmission and storage systems.
As well as support the growing natural gas demand across our jurisdictions with over 80% of that investment focused on safety and reliability.
And at <unk>, we will remain focused on safety reliability versatility and supply diversification, while fortifying our system to support the growth of the LDC located behind our pipeline.
This includes the completion of the final phase of our line S. II project to the east of the DFW Metroplex.
<unk> of the line <unk> loop project to the west of the DFW Metroplex.
And adding capacity to move additional gas from our Bethel Salt dome facility towards Central Texas.
The strength of our balance sheet available liquidity and regulatory mechanisms will continue to support the vital role we play in every community of safely delivering reliable and efficient natural gas to homes businesses and industries that fuel our energy needs now and into the future.
I will now turn the call over to Chris for some additional color around our fiscal 'twenty four financial results, our fiscal 'twenty five guidance and our updated five year plan through fiscal 'twenty nine and then we will open the call for questions. Chris. Thank you, Kevin and good morning, everyone. Our fiscal 'twenty four earnings per share of $6 83 increase.
Chris: 12% over fiscal 'twenty three.
As a reminder, these results include <unk> 17 from the onetime benefits. We have discussed previously an unplanned property tax reduction in taxes and lower than planned bad debt expense in Mississippi, resulting from a regulatory change and how we recover uncollectible accounts.
Putting these onetime items earnings per share increased nine 2% in fiscal 'twenty four.
Our performance continues to reflect the successful execution of our operating regulatory and financing strategies in.
In fiscal 'twenty, four we implemented $376 million annualized operating income increases.
These outcomes combined with outcomes received in fiscal 'twenty, three increased operating income by over $300 million.
Chris: Strong customer growth environment rising industrial load in our distribution segment increased operating income and additional $25 million and rising peak day demand requirements from Apt's LDC customers, resulting in a $15 million increase in operating income.
Finally, we saw a $39 million increase from Apt's through system activities about half of this increase was recognized during our fourth fiscal quarter.
During this time, while our pricing was negative for 63% of the trading days.
These market conditions were primary driven by unplanned maintenance on certain pipelines and delays in new takeaway capacity coming online both of which caused spreads to widen more than we had anticipated. These.
Chris: These fourth quarter market conditions were the primary reasons why our fiscal 'twenty four results exceeded the updated guidance range. We provided in August.
Consolidated O&M, excluding bad debt expense increased $65 million.
This increase was largely driven by higher employee related costs due to additional head count to support growth and higher costs associated with increased line loaded line locating activities system monitoring training and administrative costs.
Chris: Consolidated capital spending increased 5% or $131 million to $2 9 billion with 83% dedicated to improving the safety and reliability of our system.
This spending increase rate base by approximately 13% to an estimated $19 billion as of September 30.
Capital spending in our distribution segment increased 322 million primary as a result of increased system modernization and customer growth spending.
Chris: Capital spending in our pipeline and storage segment decreased about $191 million.
Chris: Primarily due to the timing of cash payments for pipeline system safety and reliability work in Texas to have it completed during the fiscal year.
Chris: Finally, we completed $1 2 billion in long term financing.
Chris: Finished the fiscal year with an equity capitalization of 61% and approximately $4 8 billion of available liquidity, which leaves us well positioned to support our future operations.
Chris: Looking forward, we have initiated our fiscal 25 earnings per share guidance range of $7 five to $7 25.
Chris: Assuming the midpoint of this guidance range. This implies seven 4% growth from fiscal 'twenty four earnings per share. Excluding the previously mentioned one time items.
Chris: And we have initiated fiscal 'twenty five capital spending guidance for approximately $3 7 billion.
Chris: Additionally, <unk> board of directors approved a 164 quarterly cash dividend with an indicated fiscal 'twenty five annual dividend of $3 48.
Chris: 881% increase over fiscal 'twenty four.
Finally, we rolled forward, our five year plan to fiscal 'twenty nine or.
Chris: Our strategy remains unchanged.
Chris: Continue to focus on system monetization and disciplined capital spending to a timely recovery of our costs through our various regulatory mechanisms and maintain a strong balance sheet by financing our operations using a balance of equity and long term debt.
Chris: We anticipate the execution of this five year plan, we will continue to support 6% to 8% annual earnings per share growth and annual dividends per share growth. We anticipate earnings per share in fiscal 'twenty nine to be in the range of $9 15.
Speaker Change: The $9 55.
Speaker Change: As Kevin mentioned, we have included approximately $24 billion in our current five year plan. This level of spending is expected to support rate based growth of about 13% to 15% per year by the end of fiscal 'twenty nine we anticipate rate base increase for approximately $19 billion today.
Speaker Change: 137 billion in fiscal 'twenty nine.
Speaker Change: From a revenue perspective, we continue to execute our normal regulatory strategy of implementing approximately 20 rate filings per year.
Speaker Change: We've assumed no changes to our ROE our regulatory mechanism.
Speaker Change: Nor have we assumed the implementation of new cost recovery mechanisms in this five year plan.
Speaker Change: Since the beginning of the fiscal year, we have implemented $149 million of annualized operating income increases in our distribution segment.
Speaker Change: $116 million related to the implementation of our two annual rate review mechanisms in Texas.
Speaker Change: $27 million related to the implementation of our two annual rate filings in Mississippi.
Speaker Change: Currently we have three filings pending seeking about $77 million included in this filed for Mt is approximately $40 million related to a system wide general rate case, our west Texas distribution.
Speaker Change: This is a required filing affecting all customers in our West Texas Division based on a settlement we reached in 2020.
Speaker Change: Additionally, a required refresher rates following five years of grip filings for portions of our West Texas Division we.
Speaker Change: We anticipate filing to similar cases in our mid Tex Division during our first quarter for just our cities will recover our costs through grip.
Speaker Change: Additionally, we get file a general rate case in Kentucky, taking approximately $34 million, we anticipate completing all of these general rate cases in late spring of 2025.
Speaker Change: Our margin perspective, we've also assumed normal weather market conditions and modest customer growth in both of our segments in this five year plan.
Speaker Change: In addition, we have assumed a 6% decrease in the oil and gas costs included into customer Bill primarily due to lower commodity costs, partially offset by higher storage and transportation costs.
Speaker Change: Finally, we have assumed the contribution from Apt's through system business to normalize in fiscal 'twenty four levels.
Speaker Change: Additional takeaway capacity is now in place, which should moderate spreads and we will have the full year effect of the higher revenue benchmarking Apt's rider Rev mechanism.
Speaker Change: On the cost side, we have assumed 4% annual O&M inflation, excluding bad debt expense.
Speaker Change: This inflation assumption is driven by increased spending for compliance based activities that address system safety.
Speaker Change: Monitoring and employee costs.
Speaker Change: As we've discussed before we're not a just in time compliance company.
Speaker Change: We will look to accelerate compliance related work within the five year plan assistant conditions dictate or if other opportunities arise.
Speaker Change: For fiscal 'twenty, five we anticipate O&M, excluding bad debt expense to range of $840 million to $860 million approximately $20 million of the year over year increase relates to the amortization of Apt's systems safety and integrity mechanism.
Speaker Change: As a reminder, this new mechanism was approved Apt's last general rate case and was flow through mechanism for cost incurred to addressing federal and state safety regulated Redwood regulations meeting, we recognize the revenue and related O&M costs. After review and approval by the Texas Railroad Commission, resulting in no impact to operating income.
Speaker Change: <unk> made its first Ssi filing earlier this calendar year seeking recovery of approximately $19 million of eligible Ssi costs.
Speaker Change: This filing was approved in October and revenues and O&M were adjusted effective November one to recover these costs over 12 month period.
Speaker Change: Turning now to our financing plan this.
Speaker Change: <unk> five year plan includes approximately $15 billion of incremental long term financing to support our operations and cash needs, including the expected impact of the corporate minimum income tax corporate minimum tax beginning in fiscal 'twenty seven.
Speaker Change: We will continue to use a combination of long term debt and equity to preserve the strength of our balance sheet and minimize the cost of financing for our customers and overall financing risk.
Speaker Change: As a reminder, this incremental financing is included in our earnings per share guidance for fiscal 'twenty five through fiscal 'twenty nine.
Speaker Change: Following the completion of our $650 million long term debt issuance in October our weighted average cost of debt is four 1% and a weighted average maturity was $18 one years with our next material refinancing not scheduled until June of 2027.
Speaker Change: From an equity perspective, we anticipate meeting all of our needs through our ATM program as of September 30, we are priced $1 4 billion.
Speaker Change: Which fully satisfies our fiscal 'twenty five equity needs and a significant portion of our anticipated fiscal 'twenty six equity needs.
Speaker Change: This recent financing activity has substantially reduced our existing shelf registration statements and exhausted our ATM program.
Speaker Change: Once we receive the necessary regulatory approvals, we intend to file for a new three year $8 billion shelf agreement and a new $1 $7 billion ATM program to support our anticipated financing needs.
Speaker Change: In closing like Kevin I am very excited for the long term outlook for <unk> and synergy are operational and financial performance in fiscal 'twenty. Four has laid the foundation for sustained success into fiscal 'twenty five and beyond.
Speaker Change: The successful execution of this plan will continue to support 6% to 8% fully regulated earnings per share growth and commensurate dividends per share growth, while maintaining a strong financial profile all of which supports our ability to meet our customers' needs and expectations and our growing service territories.
Speaker Change: We appreciate your time this morning, and we will now open up the call for questions.
Speaker Change: Thank you the floor is now open for questions. So at this time I would like to remind everyone in order to ask a question. Please press star and then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
Speaker Change: Your first question comes from the line of Stacy <unk> with Barclays. Your line is now open.
Speaker Change: Hi, good morning team, thanks, very much for taking my questions and congrats on another strong year of execution.
Speaker Change: Thank you first I just.
Speaker Change: First I just wanted to quickly touch on financing for some further clarity.
Speaker Change: If I recall previously you targeted $600 million to $800 million a year through ATM to supports our capital program. So now you have the $8 billion shelf registration you plan to file at $1 seven ATM, you're renewing first I guess, how should we think about that run rate going forward.
Speaker Change: And also could you just discuss a little bit a.
Speaker Change: A little bit about how should we think about financing this higher capital plan outside of the ATM program. Thanks.
Speaker Change: Okay well. Thank you. So again, we have an incremental 15 billion dollar financing assumption in this five year plan again, we want to maintain the current strength of our balance sheets. If you want to assume 50% is equity 50% is as long term debt and then you take that 50% assumption and generally ratably over the.
Speaker Change: Our next five years, that's about what the equity need will be.
Speaker Change: Little bit lower in fiscal 'twenty, five that will ramp up a little bit in 2006 and beyond but I think thats. How you can think about it from a modeling perspective and in terms of just broader financing. This increased our Capex program. We do believe that we were able we will be able to satisfy the.
Speaker Change: The equity needs through the ATM program as well as the continued issuance of long term debt in order to preserve and maintain the strength of our balance sheet.
Speaker Change: That's great really helpful and if I could.
Speaker Change: If I can quickly touch on just the funding and financing side of equation regarding interest cost.
Speaker Change: As we roll forward to 'twenty, five obviously, you cover $300 million.
Speaker Change: For fiscal <unk>.
Speaker Change: For that year, and I guess going forward and deeper into the plan how should we think about doing more interest rates swaps and kind of maintaining the current debt to equity.
Speaker Change: Debt to capitalization ratio.
Speaker Change: Five year plan.
Speaker Change: Yes, so I'll take the second question first on the debt to capitalization that we're very comfortable with where that debt to capitalization is at this point and we intend to maintain that going forward and in terms of interest rate hedging and has proven to be very successful for us in the last several years save our customers a lot of money.
Speaker Change: Dan and his team will continue to look for opportunities to.
Speaker Change: To lock in hedges at.
Speaker Change: At a point in time, where we think it's appropriate to lock in that cost to provide cost stability going forward in the five year plan and also for the benefit of customers.
Speaker Change: Something we will consider doing.
Speaker Change: Because again as we as market conditions continue to evolve.
Speaker Change: Great I appreciate all the colors here and I'll leave it there. Thanks again.
Speaker Change: Thank you.
Speaker Change: Your next question comes from line of Richard Sunderland with Jpmorgan. Your line is now open.
Speaker Change: Hi, good morning, it's taken some time today.
Speaker Change: Good morning.
Speaker Change: On the Capex side, given it's a pretty staggering rigs here to your five year plan could you push some of the factors underpinning the higher paying some system investments.
Speaker Change: You gave some color at a high level on Chile to 80% for safety and reliability with AD budgets and since you gave a little bit more specificity around gross change in replacement rates anything else driving that higher level.