Q4 2024 ONE Gas Inc Earnings Call
Speaker Change: Good day and welcome to the OneGAUS four quarter and year-end 2024 earnings conference call and webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Miss Dailey.
Erin Dailey: Thank you, Adam. Good morning and thank you for joining us to discuss our fourth quarter and year-end 2024 financial results. 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.
Erin Dailey: A reminder that statements made during this call that might include OneGAS expectations or predictions should be considered forward-looking statements.
Erin Dailey: 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.
Erin Dailey: Actual results could differ materially from those projected in any forward-looking statement. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.
Speaker Change: Joining me on the call this morning are Sid McAnally, President and Chief Executive Officer.
Sid McAnally: Chris Sighinolfi, Senior Vice President and Chief Financial Officer, and Curtis Dinan, Senior Vice President and Chief Operating Officer. And now I'll turn the call over to Sid.
Thanks, Erin, and good morning, everyone.
Sid McAnally: I'd like to start this morning by acknowledging and thanking our co-workers who have been working in heavy snow, ice, and wind chills as low as 25 degrees below zero to keep our customers safe and warm.
Sid McAnally: As always, our team in the field is rising to the challenge and remains committed to our primary objectives, providing natural gas service and prioritizing the safety and well-being of our customers and communities. They have our support and our respect.
Sid McAnally: We're pleased to report that 2024 marked another successful year for OneGas.
Sid McAnally: We've once again delivered earnings and capital execution as projected in our guidance. Thanks to physical conservatism and planning, our strong execution has allowed us to perform at expected levels.
Sid McAnally: Last quarter, we raised the midpoint of our EPS guidance from $3.85 to $3.90, as company-wide initiatives produced a faster pace of O&M expense moderation than we had expected, and short-term interest rates dropped faster than our plan had forecast.
Sid McAnally: We've met or exceeded the midpoint of our year-ahead EPS guidance for the 11th consecutive year, every year since our company separated from One Oak in 2014.
Sid McAnally: Alongside strong financial performance, we've also made significant strides in modernizing and reinforcing our distribution system.
Sid McAnally: We completed our cast iron replacement plan in 2019, eliminating the most leak-prone pipe from our system. 2024 marks another milestone, as we finished our bare steel service line replacement program in Kansas.
Sid McAnally: These projects have made our system safer and helped us reduce leak-related emissions by over 50% in 2005.
Robust customer growth continues.
Sid McAnally: There is still a need for new housing in Kansas, Oklahoma, and Texas, which, together with focused economic development, is driving increased demand for natural gas across our region, a demand we are well positioned to meet.
Sid McAnally: We are also exploring opportunities to supply natural gas for power generation, addressing the needs of data centers, industrial applications, and electric providers seeking a reliable power source.
Sid McAnally: Now I'll turn it over to Chris to discuss financial details for the quarter and the year. Chris?
Chris Sighinolfi: Thanks, Sid, and good morning, everyone. As Sid noted, with solid fourth quarter results, we surpassed the full-year EPS guidance midpoint we revised higher last quarter.
Chris Sighinolfi: Gap net income for the fourth quarter was $77 million, or $1.34 per diluted share, compared with $71 million and $1.27 in the same period in 2023.
Chris Sighinolfi: For the full year, gap net income was $223 million, or $3.91 per diluted share, compared with $231 million and $4.14 in 2023.
Chris Sighinolfi: Although weather across our service territory in the fourth quarter was approximately 24% warmer than normal, the impact on earnings was not material due to the effective weather normalization mechanisms we have in each of our three states.
Chris Sighinolfi: Fourth quarter revenues reflect an increase of $24.6 million from new rates, thanks to the work of our teams in successfully executing our regulatory strategy.
Excluding Amounts Related to KGSS1, Depreciation and Amortization Expense.
Chris Sighinolfi: With $4.7 million higher year over year, reflecting an increase in net property plant and equipment due to our elevated level of capital investment.
Chris Sighinolfi: Other income net decreased $4.6 million compared with the same quarter 2023, primarily due to a $1.1 million unrealized decrease in the market value of investments associated with our non-qualified employee benefit plans.
Chris Sighinolfi: Comparatively, in the fourth quarter last year, these investments experienced a $3.2 million increase in value.
Chris Sighinolfi: Excluding amounts related to KGSS1, interest expense in the quarter was $10.4 million higher year over year, primarily reflecting higher rates on long-term debt issuances over the past year and higher commercial paper balances.
Chris Sighinolfi: We benefited from the rate cuts instituted by the Federal Reserve last fall, as we had not factored in any rate cuts in 2024.
Chris Sighinolfi: and magnitude of additional rate action from the Federal Reserve, our 2025 guidance does not assume any additional rate cuts occur. While we would be pleased to see interest rates decrease even further this year, our forecasts do not assume this will happen.
Chris Sighinolfi: In December, we settled approximately 3.16 million shares of our common stock under our at-the-market equity program and forward contracts for net proceeds of $246 million.
Chris Sighinolfi: As planned, we also amended our forward sale agreements to extend the maturity date on the remaining shares to December 31, 2025.
Chris Sighinolfi: We utilize the proceeds to pay down short-term debt, which is how we fund construction work-in-progress and gas storage purchases, and for other general corporate purposes.
Chris Sighinolfi: and $45.4 million of short-term investments stemming from our equity settlements, which were used to pay down additional CP in the first days of the new year.
Chris Sighinolfi: 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.
Chris Sighinolfi: 2024 cash flow metrics were several hundred basis points above our respective downgrade threshold at both agencies, and our financial plan supports similar performance going forward.
Chris Sighinolfi: Our capital expenditures and asset removal costs for the fourth quarter were $190 million, bringing our total for the year to $762 million, compared with $729 million in 2023.
Chris Sighinolfi: The increase is primarily attributable to system integrity projects and the extension of service to new areas to further customer growth.
Chris Sighinolfi: As of year-end, the authorized rate base was approximately $5.4 billion, and we estimate our average rate base for 2025 will be approximately $5.8 billion.
Chris Sighinolfi: In January, the One Gas Board of Directors declared a dividend of 67 cents per share, an increase of one cent from the prior quarter.
And lastly, we reiterate our 2025 financial guidance.
including net income of $254 million to $261 million.
Chris Sighinolfi: Earnings per diluted share of $4.20 to $4.32. And capital expenditures and asset removal costs of approximately $750 million.
With that, Curtis, I'll turn it over to you.
Curtis Dinan: Thank you, Chris, and good morning, everyone. I'll begin with an update on regulatory activity.
Curtis Dinan: As a reminder, our regulatory efforts over the past two years enable us to leverage interim mechanisms as we work to recoup our system investments and other cost increases.
Curtis Dinan: Texas Gas Service made Gas Reliability Infrastructure Program filings for all customers in the Central Gulf and West North service areas in February.
Curtis Dinan: For the Central Gulf Region, we are requesting a $15.4 million revenue increase. And for the West North Region, we are seeking an $8.2 million increase, both to be effective in June.
http://TheBusinessProfessor.com
Curtis Dinan: The Texas GRIP filings allow us to annually seek recovery of the capital investments we are making in our system.
Curtis Dinan: The PBR mechanism allows us to seek recovery of both capital investments we are making in the system and O&M increases without having to file a full rate case.
Sighinolfi, Robert McAnnally, Curtis Dinan, Erin Dailey, Unknown Executive
Switching to an update on commercial activity.
Curtis Dinan: We installed just over 23,000 new meters in 2024, continuing to add customers at a healthy rate. We also continued to secure new business and entered this year with a solid pipeline of future meter sets.
Curtis Dinan: As we have discussed on the past several calls, the growth is occurring in step with economic development in all three states.
Curtis Dinan: We anticipate seeing a similar pace of residential growth in the coming year, and our capital plan is designed to meet that demand while continuing to invest in the safety and reliability of our system.
Curtis Dinan: We are experiencing a significant increase in requests from businesses seeking natural gas for base load and backup power generation for data centers and industrial load.
Curtis Dinan: These applications have a need for a reliable and economic energy source, and natural gas fits that need.
Curtis Dinan: The generation opportunities are in addition to the manufacturing growth we are experiencing along the I-35 corridor.
Sighinolfi, Robert McAnnally, Curtis Dinan, Erin Dailey, Unknown Executive
Moving on to Operations.
Speaker Change: 2024 Capital Execution finished strong. We completed over $750 million worth of capital investment projects over the year, with approximately $180 million dedicated to serving our growing customer base.
Speaker Change: As Sid stated, our co-workers have once again provided excellent customer service to our customers in the face of extreme weather conditions.
Speaker Change: In addition to the storm blanketing Kansas, Oklahoma, and Texas this week, winter storms brought extreme cold, ice, and record snowfalls to our service territory this January.
Speaker Change: As of this morning, our system continues to perform well with no significant service disruptions.
Speaker Change: The dedication of our teams has kept our customers safe and warm despite frigid temperatures.
Speaker Change: I want to sincerely thank each of them for their commitment to safety and ensuring that our customers are taken care of during these winter events.
Speaker Change: The investments we've made since Winter Storm Uri and continue to make
Speaker Change: including increasing our storage capacity to over 60 BCF, implementing system reinforcements, and diversifying our gas supply portfolio have enhanced our system reliability and allowed us to mitigate the impact of price fluctuations on our customers.
Speaker Change: An example of the investments we're making is the Austin System Reinforcement Project, where we broke ground this month.
Speaker Change: This project will bring a new source of supply and further leverage our storage contracts to support increased natural gas demand in the Austin market for decades.
Our available winter peak capacity will increase by approximately 25%.
Sid McAnally: And now I'll turn it over to Sid for closing remarks.
Thank you both.
Sid McAnally: In December, we detailed our 2025 and 5-year financial outlooks, highlighting the stability of our growth and the de-risking of our financial plan.
Sid McAnally: We will continue to strategically manage O&M while maintaining safe operations and delivering excellent customer service.
Speaker Change: Our financial plan also fosters the ongoing customer growth that Curtis mentioned while maintaining the reliability and affordability our customers enjoy.
Speaker Change: As we begin 2025, we renew our commitment to create long-term value for all of our stakeholders.
Speaker Change: We're fortunate to operate in a region where natural gas is highly valued and in demand. And as the Austin System Reinforcement Project demonstrates, we're building the infrastructure and providing the energy to meet that growing demand.
Speaker Change: The dedication of our 3,900 co-workers drives our success, and I am privileged to work alongside them every day.
Speaker Change: Thank you all for joining us this morning. Operator, we're now ready for questions.
Speaker Change: Thank you. If you'd like to ask a question, please signal by pressing star one 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 your equipment. Again, that's star one to ask a question. We will pause for a moment to allow everyone an opportunity to signal for questions.
Speaker Change: Our first question comes from Julian DeMeline-Smith from Jeffreys. Julian, your line is open, please go ahead.
Thank you. Thank you. Thank you.
Speaker Change: Hi guys, it's Dave Lord, Dr. Julian. How are you? Good morning, James. Good, thank you. Good to hear from you this morning.
Go to Beadaholique.com for all of your beading supply needs!
Speaker Change: Good morning. Likewise, it's another one of those busy Thursdays. I think there's about nine companies that all had to get in the mix today. So we wanted to make sure that we had a presence here on on your call. We had some questions for you around
Speaker Change: Thank you for that. We have some questions. You mentioned in the prepared remarks around
Speaker Change: potential upside around an opportunity set akin to data centers. I guess I'm using that tangentially because it's not the direct capacity that you'd be building, but it's obviously integral to, you know, their functioning and to them choosing to locate in the area. What we're trying to understand is the three year rule. So we've been told by
Speaker Change: sign the deal and announce it's going to be about three years until the data center is finished. And that's where they would look to line up when they would have
Speaker Change: Generation Online, Transmission Lined Up, etc. Are you hearing similar for the opportunities that you're looking at? Or how should we think about if something were to come to fruition, when it might fit into your capital plan? Thank you.
Speaker Change: James, thank you for the question. Before asking Curtis to speak specifically to data centers, I want to just highlight the fact that we are fortunate to be in states, particularly Oklahoma and Texas, that have robust economic development.
Opportunities and are well funded to pursue those opportunities
Curtis Dinan: Electric generation, we're just seeing a broad range of opportunities presented to us, and it gives us the opportunity to be selective in what we choose to pursue. Curtis?
Speaker Change: James, what I would say about those is the the opportunity set, the time frame of the opportunity set varies. There are some that are a little bit quicker than what you described and
Speaker Change: then there's some in the situation closer to what you described. And I think the difference is, and it fits with the type of opportunities we're pursuing,
Speaker Change: Those that are in and around our system where we can leverage
Speaker Change: the system that we already have, as well as future plans we have around other growth opportunities or investments we're making in the system. So for us, it's more of a opportunity to get the,
Speaker Change: Investments that line up several of our objectives, not just the single opportunity to serve a data center, industrial load, or something of that nature.
Thank you. Thank you.
Drop it.
Speaker Change: The next question comes from Christopher Jeffrey from Mizuho. Christopher, your line is open, please go ahead.
Christopher Jeffrey: Morning, everyone. Thanks for taking my question. Maybe just shifting more towards the first quarter and 2025. We had some warm weather in 4Q.
Christopher Jeffrey: The weather has gotten, you know, significantly colder in one cue just kind of curious the impact on your working capital
Christopher Jeffrey: as far as monetizing storage and potentially lowering that or addressing the commercial paper balance and kind of maybe where the commercial paper balance compares to your expectations originally with the 25 guide.
Christopher Jeffrey: Yeah, thanks, Chris. You'll note, as I detailed in the prepared remarks, we were
Christopher Jeffrey: a little bit elevated at the end of the year relative to what we had discussed last fall and
Christopher Jeffrey: A primary component of that is the dynamic you spoke about, 24% warmer than normal weather dynamic in the fourth quarter meant we did not liquidate as quickly the storage inventories that we had contemplated.
Christopher Jeffrey: In addition, you'll note we're a little bit higher than the $750 million capital budget at 762. And then I did denote, hopefully you picked up on it, the short-term investments that were used to settle CP in the early days of January.
Christopher Jeffrey: If you think about storage inventory, we began this year about 500 basis points wide of our plan, but with the cold weather, you know, it was very cold in January. It's been very cold so far, colder than normal.
Speaker Change: Great. Thank you, Chris. And then maybe just touching on O&M, kind of came in pretty solid for 4Q at about 2, 2.5%.
Speaker Change: Just kind of curious, like, any updated thoughts on 25 kind of, you know, versus that 4% number you've thrown out for the for the longer term plan?
http://TheBusinessProfessor.com
Curtis Dinan: Chris, this is Curtis and what I would say is we came in better in the fourth quarter. We just achieved some of the goals that we had for some of the initiatives that we've talked about on the past several calls and so we were a little bit ahead of schedule and that helped us in the fourth quarter.
Speaker Change: At this point, our guidance for 2025 and what's included in the five-year, we don't have a change to either of those numbers.
Great. Thanks, guys. Have a great day, everyone.
https://www.youtube.com.au
Speaker Change: The next question comes from Paul Fremont from Leydenburg. Paul, your line is open. Please go ahead.
Oh, great. Congratulations on a good fourth quarter.
Speaker Change: Can you give us a sense of where you would expect to end this year within the guidance range that you've given out? I know that you had originally talked about sort of wanting to be at the high end of your FortisX.
Speaker Change: Does that apply to the range that you've given for this year as well?
Thank you.
http://TheBusinessProfessor.com
Chris Sighinolfi: Hi Paul, this is Chris. No, not specifically. I do think...
Speaker Change: to take note of what Sid mentioned in his prepared remarks around the historical performance of the company would be worthwhile. You know, Sid had noted.
Speaker Change: That's I think as much as I would point you to in terms of specificity around the range.
Speaker Change: You're right to highlight that over the five year plan, we were pretty explicit about the plan calling for the absolute high end of that range over the 25 to 29 period.
Sighinolfi, Robert McAnnally, Curtis Dinan, Erin Dailey, Unknown Executive
Speaker Change: versus a 345. Does that impact at all the prospects for data center development in the area or in the opportunities that you're seeing?
https://www.youtube.com
Speaker Change: Paul, this is Curtis and it does not. These are independent of those projects. The inquiries that we're getting are really around
Speaker Change: Providing gas to run base load generation initially and maybe over the long term transmission lines get built but that's not that's not the initial focus of these projects and what the requests are for service.
Speaker Change: The opportunities we're responding to are not contingent upon that. They're in developed areas where it's not waiting on the decision you're referencing.
http://TheBusinessProfessor.com
Great, thank you.
Thanks for the question, Paul.
Speaker Change: This concludes the question and answer session. I would now like to hand it back to the OneGaz team for closing remarks.
Speaker Change: Thank you all again for your interest in OneGap. 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 the conference call at a later date. Have a great day.
Speaker Change: This concludes the OneGAS fourth quarter and year-end 2024 Earnings Conference Co-ed webcast. You may now disconnect.