Q1 2025 ONE Gas Inc Earnings Call
Good day and welcome to the ONE Gas First Quarter 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, Cole. Good morning everyone, and thank you for joining us on our first quarter 2025 Earnings Conference call.
If Call is being webcast live and a replay will be available later today, after I prepare to mark for happy to take your questions.
Erin Dailey: Statements made during this call that might include ONE Gas Expectations or Predictions
Erin Dailey: should be considered forward-looking statements and are covered by the safe harbor provisions of the private security's litigation reform act of 1995, the Security of the Act of 1933, and the Securities at an Exchange Act of 1934, each as amended.
Erin Dailey: Actual results could differ materially from those projected and any forward-looking statements.
Erin Dailey: For discussion of factors that could cause actual results to differ, please refer to our SEC filing.
Erin Dailey: Joining us on the call this morning are Sid McAnnally, President and Chief Executive Officer, Chris Ticknolfi, 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.
Erin Dailey: We're happy to be with you this morning to discuss our first quarter performance.
Erin Dailey: We reported strong financial results yesterday, including net income of $119 million or $1.98 per diluted share. We achieved these results by executing our regulatory plan, managing O&M expenses and continuing to add new customers.
Erin Dailey: New rates that took effect at the end of last year allow us to recover investments in our system.
These investments supported ongoing customer growth and enhanced system reliability.
Erin Dailey: The value of those system investments was shown earlier this year as our system faced five named winter storms in January and February without any significant outages.
Erin Dailey: Last quarter, we discussed how company-wide initiatives resulted in a faster pace of O&M expense moderation than we had expected.
Erin Dailey: This quarter, our teams continue to focus on expense management, contributing to our positive financial results.
We've taken the same disciplined approach to our procurement activities.
Erin Dailey: Direct relationships with our suppliers and careful planning have strengthened our supply chain and we expect to be largely insulated from material tariff impacts through 2025.
Erin Dailey: In December , we shared our decision to de-risk our 5-year financial plan.
Erin Dailey: Our plan includes an earnings per share keger of approximately 6% through 2029 matched with reduced capital intensity and related funding needs.
Erin Dailey: Disapproach limits our financial risks while further strengthening our already robust credit profile.
Speaker Change: All of us at one gas remain committed to our core mission, to safely and reliably deliver natural gas to our customers.
Speaker Change: We support that commitment through programs that engage our employees and support our safety culture.
Speaker Change: For the 8th year in a row, our annual employee survey showed a higher level of engagement across our workforce.
Speaker Change: A highly engaged workforce drives performance and reinforces a culture of safety.
Speaker Change: We are honored to have recently received the American Gas Association Safety Award for having the lowest rate of significant injuries among our peers for the 8th consecutive year.
Speaker Change: This achievement is a testament to our co-workers' daily commitment to safety and excellence in serving our 2.3 million customers and we are deeply grateful for their dedication.
Speaker Change: Now I'll ask Chris to discuss the details of our financial performance for the quarter. Chris?
Thanks, Sid, and good morning everyone.
Speaker Change: As said noted, we had strong financial performance this quarter due to new rates taking effect late last year, cold weather underpinning strong customer demand, and our team's consistent management of expenses.
Speaker Change: We now expect to achieve the upper half of our stated guidance ranges, which include net income of $254 to $261 million and earnings per diluted chair of $4.20 to $4.32.
Speaker Change: Net income for the first quarter was $119.4 million, or $1.98 per diluted share, compared with $99.3 million, or $1.75 in the same period last year.
Speaker Change: Whether across our service territories for the first quarter was 5% colder than normal and 16% colder than the first quarter last year. First quarter revenues reflect an increase of approximately $52 million from new rates and $2 million from continued customer growth.
Speaker Change: First quarter ONM expenses were approximately 2% higher than the first quarter last year. We still project a 4% Kager and ONM expenses across the five-year plan. Our teams have done an excellent job of managing these expenses.
Speaker Change: Other income, net, decreased by just under 3 million dollars compared with the same period last year, primarily due to decreases in the market value of investments associated with our non-qualified employee benefit plan.
Speaker Change: Excluding amounts related to KGSS1, interest expense in the first quarter was $4.7 million higher than the same period in 2024.
Speaker Change: which reflects the maturity of lower coupon notes in February and March, 2024, the reopening of our 5.1% senior notes last August to issue an additional $250 million.
and Higher Average Commercial Paper Balancing.
Speaker Change: We have forward sale agreements for 403,000 shares of our common stock with settlement by the end of 2025 at an average price of nearly $75 per share. Had all forward shares been settled at quarter-end, we would have received net proceeds of approximately $30 million.
Speaker Change: We also have approximately $225 million of equity available for issuance under our at-the-market equity program.
Speaker Change: We continue to be opportunistic about issuing equity as we meet our remaining needs.
Speaker Change: Yesterday, the ONE Gas Board of Directors declared a dividend of $0.67 per share unchanged from the previous quarter.
And now Curtis, I'll turn things over to you.
Thank you, Chris, and good morning, everyone.
I'll start with an update on our regulatory activities
Speaker Change: Oklahoma natural gas filed its annual performance-based rate change application in February , seeking a $41.5 million with rates expected to go into effect in late June .
Speaker Change: In all Texas service areas, we completed our annual Capitol Recovery Filing
Speaker Change: In the Rio Grande Valley Service Area, we are requesting a $3.2 million increase to be effective in September .
Speaker Change: Finally, Kansas Gas Service requested an increase of $7.2 million, pursuant to the gas system reliability surcharge statute.
Speaker Change: The GSRS allows for the recovery of and a return on safety and system integrity related investments between general rate cases.
Speaker Change: As Chris noted, it was quite cold this January and February , with five named winter storm
Speaker Change: Our system performed well throughout the storms thanks to careful planning and the dedication of our co-workers.
Speaker Change: Despite the cold weather, we completed $178 million worth of capital projects this quarter.
Relatively in line with the same period last year.
Speaker Change: Progress continues on the Austin System Reinforcement Project we discussed on last quarter's call.
Speaker Change: We've installed almost 24,000 feet of pipe and are on track to have the project in service during the fourth quarter of this year.
Speaker Change: We are also pleased to share news of an innovative new project with one of our customers in Austin.
Speaker Change: Texas Gas Service will supply natural gas for on-site power generation.
Speaker Change: and Construct an interconnection to receive renewable natural gas from the customer's facility.
Speaker Change: This project demonstrates the importance of natural gas and how the versatility of the natural gas system can support a customer's environmental and business goals.
Speaker Change: We've made progress on our own emissions goal, achieving a 51% reduction in leak-related emissions.
Speaker Change: Our Safety Driven Pipeline Replacement Plan has kept us on track to reach our 2035 goal of reducing emissions associated with mains and services by 55% even as we grow our system.
Speaker Change: As Chris noted, our teams have done a great job managing ONM expenses.
Speaker Change: One Gas employees now perform about 40% of line locating services across our territories.
Speaker Change: Focusing on growth, we've installed nearly 8,000 new meters through April as new housing developments take shape.
Speaker Change: The major metropolitan areas in Texas and Oklahoma are leading this expansion. We are also setting new meters in Kansas, especially in the Wichita area.
. . . . . .
David Arcaro,
Speaker Change: As we've noted in previous discussions, an influx of new residents has resulted in a shortage of available housing across our three states.
Speaker Change: We anticipate builders and developers will respond to the ongoing demand for new housing, and we are well positioned to provide natural gas service.
Speaker Change: We also continue to explore opportunities to serve power generation needs across our footprint.
Speaker Change: We're thoughtful in our approach to such opportunities and are particularly interested in projects that support our strategic initiatives, including system reinforcement and extending service to growing areas.
Speaker Change: Our active projects include generation at large advanced manufacturing facilities in lower power capacity areas.
Data Centers and Serving Grid-Connected Utility Generation
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
Speaker Change: If you're using a speaker phone, please make sure your mute function is turned off to allow your signal to reach our equipment Again, press star one to ask a question we'll pause here for a moment to allow everyone an opportunity to signal for questions
Speaker Change: Our first question is from Julian Dublin Smith with Jeffries. Your line is now open.
Julian Dublin-Smith: Hey, good morning, team. Thank you guys very much for the time. Appreciate it. Nicely done here. Good morning. Just follow-ups if I can here. Hey, good morning. Chris nicely done on the O&M here real quickly.
Julian Dublin-Smith: You, with Owen M. coming in at what looks like a 1.9% year over year and 1Q, how do you think about the commentary about 74% here? And how do you think about it trending in a longer term basis in that direction, right? I mean...
Julian Dublin-Smith: Certainly, in this inflation environment, you guys continue to put up this kind of O&M is remarkable, but I just wanted to see how sustainable it is if you will.
Speaker Change: Well, good morning, Julian. Thank you for that. You know, as if you revisit where we started in our efforts around in-sourcing activities, primarily in Curtis's vertical, a couple of year-to-go.
Speaker Change: We had, at that time, a 5% Kager in O&M expenses.
Speaker Change: Planned Over The Five-Year Period. And based on the success of that, and we had communicated at the time, it would be more front-and-loaded as we did those activities, and we had to incubate the inefficiencies of bringing people in while still paying contractors as we trained our internal staffing.
Speaker Change: We were able to migrate that down to a 4% number. As you pointed out...
Speaker Change: We've achieved a number better than that, but we're still cautious about the opportunities that Curtis and his team continue to probe new areas to continue to insource where it's appropriate to do so, both in terms of the type of work and the area of the work.
Speaker Change: And so you may look to us, Julian, to continue to push that opportunity today.
Speaker Change: We still would say it's more front-end loaded as we do that work and then I'd just remind you that about 60% of RLNM is labor and benefits related and so we're still subjected to what the labor market dictates as a competitive wage growth number going forward.
Speaker Change: Excellent. Hey, thanks, Chris. And maybe a little bit more of a question for Curtis here.
Curtis Dinan: I think there's a bill HB-4384 in Texas. Looks like an interesting depreciation tracker for gas
Speaker Change: Is that something that could be potentially meaningful for you all? And how do you think about that? I mean, just as you think about the the legislative landscape decision, is that something that you guys would be notably watching here as an opportunity or anything else legislatively on the gas investment cycle in Texas?
Speaker Change: Yeah, Jillian, thanks for the question. That is one that would be a benefit to us just as the 8.209 that you referenced is a benefit to us today on the types of investments that qualify under that one.
Speaker Change: Extending that out would help with overall recoveries that we receive and earlier returns on those projects than we experience today.
Speaker Change: We that bill still has quite a ways to go but we would see that as a positive
Speaker Change: Some of the other bills that we're watching closely have to do with utility worker protections.
Speaker Change: strengthening the penalties if there's any incidents involving them during their work.
Speaker Change: and some other similar type of imminent domain legislation and things like that but...
Speaker Change: I would say more opportunistic in the way we're viewing these rather than something we're as concerned about.
Speaker Change: Got it. And beyond just the the notable improvement in recovery and lag, GCS enabling kind of another step function in sending in any specific way, as you think about Texas.
And, and that was Fleshing.
Speaker Change: I wouldn't say that, you know, we look at several factors when we're setting our capital plans.
Speaker Change: First, what are the needs of our system as it relates to integrity spending, what are the opportunities with our customer development?
Speaker Change: and then thinking about what are the resources that are needed, whether those are financial resources or the physical resources to complete the work.
. . . .
Speaker Change: Got it. Alright, excellent. Look at us. Thank you all very much. Appreciate the time. See you soon, alright. Thank you, Juman.
You bet.
Speaker Change: Our next question is from Bill Apicelli with UBS. Your line is now open.
Sighinolfi, Curtis Dinan, Erin Dailey, Robert McAnnally, Unknown Executive
Hi, good morning.
Good morning, Bill.
Speaker Change: Just going back maybe to the ONM question, but also more broadly around the guide up within guidance for the year, is that driven by doing them tracking a little bit better than expected or any more color as to why the guide up into the range.
Speaker Change: Yeah, hey, Bill, this is Chris. It's a combination of things. If you were to look at first quarter, you know, we had very strong margin, predicated on strong customer demand given the weather profile. We've continued to see strong growth in the customer base. And then as you pointed out, we've performed better on the cost side of things and was originally embedded.
Speaker Change: Okay, great. And then maybe just that project that you mentioned in Austin, can you just any more color around the size or scope of the project and magnitude of investment for you?
Curtis Dinan: This is Curtis Bill. In terms of investment dollars, it's not a significant investment. This project really highlights our approach to trying to tie strategic initiatives together.
Curtis Dinan: So, a few years ago we started working on in this particular area of Austin, expanding our loop around the city because we saw growth happening and we needed to be able to get supply to different parts of that community.
Curtis Dinan: Building that trunk line put us near where we would have the opportunity to serve this customer So while the customer wasn't on the map a few years ago tying all of those things together and our commercial people continuing to stay active in the area has created that opportunity to serve it [inaudible]
Curtis Dinan: So if you're just looking at the setting and a little bit of pipe that's related to directly serving this customer it's not a lot of capital but it's because of tying all these other projects together that enable it [inaudible]
Curtis Dinan: So that's really the strategy behind how we approach these types of projects and we'll be able to say a little bit more about the project later as the customer is ready to do that.
Christopher Sighinolfi, David Arcaro, David Arcaro, David Arcaro,
Speaker Change: Perfect. And then, just lastly, for me, on the, maybe you could speak to the tariff impact and to the degree that's having an influence on the capital budget or any other aspects of your operations.
Yeah, Bill, this is said we were fortunate in that
Let's go back to before COVID Good.
Speaker Change: We've found that there was an economic advantage to having a more direct relationship with our suppliers and buying up in the production chain.
Speaker Change: There were some savings there and so we put that into place and it really served us well during COVID. We continue to follow that and we believe it's gonna give us some protection in 25.
Speaker Change: as we wait to see what the actual tariff environment is going forward but we think we're fairly well-insulated in terms of this year and so no impact on performance is built into our
Oka, hard, perfect. That's it for me. Thank you
You bet. Thank you
Speaker Change: We have a question from Christopher Jeffrey with Mizzouho Securities. Your line is now open.
Hi, good morning everyone, and congratulations on the quarter.
Speaker Change: Maybe just to speak more to the impact of weather as far as higher sales volume and kind of what that means for working capital and inventory levels. And I noticed that the interest expense quarter over quarter came down a bit. Was that more related to that working capital piece or are you seeing lower rates on that at your CP?
Thanks.
Speaker Change: Hey, Chris, this is Chris. I'll maybe start in reverse order. Yes, the CP rate came down given the Federal Reserve's last cut was in early December , and it takes a little bit of time for that to get fully profiled in. So there was a modest benefit, certainly on a quarter of a quarter basis that was a benefit in the average rate dynamic for commercial paper.
Speaker Change: We're starting to get, obviously, as we moved out of winter and in through April and early part of May paid off on those amounts and so we see some reprieve from that.
Speaker Change: But you're right to note that the weather dynamic is supportive of a lot of the sort of cornerstone elements of what we do, but it also entails more in the way a work capital financing needs to support it.
Speaker Change: Great. Thanks, Chris. And then maybe just have kind of one more on the ONMP as far as like the Enthorthing Program.
Speaker Change: Do you see kind of a timing that that program will be spun set? You kind of mentioned, you know, front loaded O&M or do you get more as kind of a recurring continuous program for the foreseeable future?
Speaker Change: Chris, this is Curtis, and we do still have ongoing activities we're doing in the line locating area. The difference between today and two years ago when we really had to step into it in mass to get to a critical point is we can be more measured in the process.
Speaker Change: So, in terms of the number of jobs that we create and the number of locates that we insource, we can do it a little more slowly so as we incur those front-end costs in advance of gaining the benefit of those efficiencies.
Speaker Change: It won't be as significant to us, but that program, we still have quite a ways to go just in that function. I mentioned we're at 40% company wide. I don't know that our goal would be to get to 100% company wide but there's a balance related to it.
But we still have plenty of opportunity to do that [inaudible]
Sighinolfi, Curtis Dinan, Unknown Executive
Speaker Change: How would we go about it? What would be the pace of that and what's the upside to doing that? So I don't look for an early sunset to
Speaker Change: The different activities because I think our teams are pretty innovative in what they're looking at and finding new ways to bring things in-house and that helps us from an efficiency standpoint and to manage our workforce and our compliance efforts better.
Great, thanks, Curtis, thanks a lot.
Speaker Change: We have a question from Paul Fremont with Laydenburg. Your line is now open.
Sighinolfi, Curtis Dinan, Erin Dailey, Robert McAnnally, Unknown Executive
Thank you very much and congratulations on the great quarter.
Speaker Change: Just some clarification on ONM for this year, so you've talked about sort of, it only increasing 2% in the first quarter, where do you expect to end the year as a whole, in the 4% range range, or maybe even in the 2% range?
Paul, this is said. Thank you for the comment. We-
Speaker Change: Like the 4% number, because to Chris' point, when you think about the impact of employee
Speaker Change: We know that we're going to bear those costs through the year.
Speaker Change: We also anticipate that we'll have other opportunities as Curtis just spoke to and not add to Curtis's answer about those efficiency opportunities. It's not just about reducing the cost of compliance activities. It's also giving us the flexibility to deploy our workforce in a more efficient way. We also anticipate that we'll have other opportunities in a more efficient way. We also anticipate that we'll have other opportunities in a more efficient way.
Speaker Change: So that when we have downtime in one area, we can shift the focus of our employee base to other compliance activities So it really is an efficiency gain. We're not assuming numbers.
Speaker Change: specific numbers that would cause us to guide below the 4%. So the 4% is there because we believe it is, it competently speaks to employee costs that we know are coming and additional efficiency
Speaker Change: that we think will have the opportunity to make, but as Chris said, we will always seek to be below that number, we'll always seek to be more efficient, so that's our goal at the end of the day.
Thank you very much.
Thank you.
Speaker Change: If there are any additional questions, please press star one on your telephone keypad.
Speaker Change: There are no additional questions at this time, so I'll pass the call back over to Erin Dailey for closing remarks.
Erin Dailey: Thank you all again for your interest in one gas. We look forward to seeing many of you at the H.A. Financial Forum in a couple of weeks.
Speaker Change: Our quiet period for the second quarter starts when we close our books in early July and extends until we release earnings on August 5th. We'll provide details about the conference call at a later date. Have a great day.
Speaker Change: That concludes the one gas first quarter earnings conference call on webcast you may now disconnect your line.