Q3 2025 Atmos Energy Corp Earnings Call

Thank you for standing by. My name is Greg and I will be your conference operator. Today at this time, I would like to welcome everyone to today's Atmos Energy Corporation, fiscal 2025 third quarter earnings conference call.

Alliance. Excuse me, 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'd like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. Once again, star 1, and if you'd like to withdraw your questions simply press star 1 again thank you.

I would now like to turn the call over to Dan Mazer, vice president of investor relations and Treasurer Dan.

Thank you, Greg. Good morning, everyone, and thank you for joining our fiscal 2025 third quarter earnings call. With me today are Kevin Acres, President and Chief Executive Officer, and Christopher Forsythe, Senior Vice President and Chief Financial Officer.

Our earnings release and conference. Call slide presentation, which we will reference in our prepared. Remarks are available at atmosenergy.com under the investor relations tab.

As we review these Financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act.

Our forward-looking statements and projections could differ materially from actual results.

The factors that could cause such material differences are outlined on slide, 32 and are more fully described in our SEC filings with that. I will turn the call over to Kevin Acres, our president and CEO. Kevin. Thank you Dan, good morning, everyone and thank you for joining us today.

Yesterday, we reported year to date fiscal 25. Net income of 1 billion dollars or $6.40 per diluted share. And we updated our fiscal 25 erne per share. Guidance, to a range of $7.35 to $745, this performance continues to reflect the commitment, dedication, focus and effort of all Atmos Energy employees to successfully modernize our Natural Gas Distribution transmission and storage systems. While safely providing reliable natural, gas service to 3.4 million customers in 1400 communities across 8 States.

The Texas Workforce Commission reported in July, that the seasonally adjusted number of employed reached 14.3 million Texas. Again added jobs at a faster rate than the nation over the last 12 months, ending June adding over 198,000, jobs representing a 1.4% annual growth rate.

We also continue to see the value and vital role that natural gas plays in economic development across our service territory.

For the 12 months. Ended June 3rd 2025. We added nearly 58,000 new residential customers, with almost 45,000 of those new customers located here in Texas,

Commercial customer growth remained. Solid as well with approximately 575 new customers connecting to the system during the second quarter and over 2500 new customers connecting to the system fiscal year to date.

Industrial demand for natural gas in our service territories also remain strong.

During the third quarter, we added 3, new industrial customers.

And fiscal year to date, we've added 22 new industrial customers with an anticipated annual load of approximately, 3.4 BCF. Once they are fully operational.

On a volumetric basis. This load is comparable to adding approximately 67,000 residential customers.

And during the third quarter apt entered into a contract to transport natural gas to a customer that will generate on-site power to serve a data center in the abalene area.

The data center is expected to be fully operational by end of the calendar year.

And at that time, we anticipate at will provide approximately 30 BCF of gas annually to support this data center.

As a reminder, revenues earned from this contract, are included in, apt's writer rev mechanism.

Therefore 75% of this Revenue will benefit. Apt's LDC customers.

During the third quarter, our customer support Associates, and service technicians received, a 97% satisfaction rating from our customers reflecting. Once again the exceptional customer service they provide each and every day

Our customer advocacy team and customer support agents. Continue their Outreach efforts to energy assistance agencies and customers during the first 9 months of the fiscal year.

Through those efforts, the team helped over 48,000 customers receive nearly 17.5 million dollars in funding assistance.

Additionally, Atmos Energy has been named 2025. Most trusted Brands by data analytics, and advisory firm escalant

Escalant surveyed residential natural. Gas customers Electric in combination customers of the 148 largest US utility companies.

Atmos Energy placed first among all 40, UT in the South Region and received the highest score by any utility in any region Nationwide.

Before turning the call over to Chris, I want to briefly comment on recent Texas legislation,

House. Bill 4384 they became effective on June 20th, 2025

At a high level. This legislation authorizes a

utility to,

Defer for future recovery as a regulatory asset post inservice carrying costs depreciation and avalor taxes associated with the unrecovered gas, gross plant.

For non-eligible 8209 Capital Investments, such as new customer growth and system expansion.

This legislation also instructs the Railroad Commission to adopt rules to implement section 104.302 of the utilities code AS added by this act no later than 270 day after the effective date of this act.

Before the passage of this legislation, approximately 45% of our total capital spending qualified for Rule 8.209 treatment.

Applying the language of this legislation means that Approximately 80% of our Capital spending is eligible for taxes. Deferral treatment.

We Believe most of the new capital covered by this legislation is associated with apt.

We are currently in the process of updating our physical 26, capital budget, and a 5-year plan. And we will provide a full update to the 5-year plan. During our fourth quarter, earnings, call in November,

As I turn the call over to Chris, I want to share that our hearts and prayers continue to be with our teammates.

Families and Neighbors in the San Angelo Kerrville Ingram Bernard and other communities that were tragically impacted by the floods.

No worries can fully comfort you and the community for your loss.

So please know that we as your teammates friends and neighbors stand alongside you in support and are here to lend a helping hand.

Chris over to you.

Thank you, Kevin and good morning everyone yesterday. We announced 6 fiscal year today diluted earnings for share of $6.40 compared to $6 per diluted share in the prior period.

Our third quarter in fiscal year-to-date financial results continue to be driven by regulatory outcomes, reflecting increased safety and reliability, spending customer growth, and strong throughput system revenues at Atmos.

Regulatory outcomes in both of our segments, increase operating income by 322 million.

Residential customer growth and Rising industrial load in our distribution segment. Increased operating income by an additional 22 million.

Revenues in our Pipeline and storage submit increased 12.5 million primary due to increased throughput, approximately 11 million dollars. Of this increase was recognized during the first 6 months of the fiscal year.

As we discussed during our second quarter call, we expected the contribution from apps through system business in pistol. 25 to be comparable to what we experienced in this 2024. With most of this contribution realized during the first half of the fiscal year,

Apt's. Third quarter was in line with our expectations, and we continue to believe the contribution of apts through system business in fiscal. 25 will be in line with fiscal 24.

Apt also experience a 12.5 million dollar increase due to higher capacity, contracted by tariff face customers due to their increased Peak day, demand.

Consolidated onm, increased, 85 million, this increases by due to higher employee related costs increases in line location. Locate pipeline inspection and system monitoring activities and higher bad debt expense.

Are banned in expense in Mississippi.

As expected. I want him in deferred third, fiscal quarter, trended higher than the prior quarter, but we still expect fiscal 25 onm. In excluding bad to expense, to be in the range of 860 million to 880 million

Assuming the midpoint of this range, we anticipate onm, and our fourth fiscal quarter will Trend approximately 10 million dollars lower than the prior Year's fourth quarter.

Consolidated Capital spending increased 22% to 2.6 billion with 86% dedicated to improving the safety and reliability of our system.

This increase reflects higher safety reliability spending and higher spending to support customer growth for both segments. We remain on track to expand approximately $3.7 billion this fiscal year.

During our third fiscal quarter, we implemented approximately 170 million dollars in annualized regulatory outcomes, including the west Texas, General rate case, apt's annual grip, filing annual filings for the city of Dallas and Tennessee and the Kentucky General rate case,

Fiscal year. Today we have implemented. 351 million in annualized. Regulatory outcomes.

And currently, we have 220 million 229 million in annualized outcomes in progress.

Of this amount, approximately $205 million is associated with our annual RRN filing in mid-tech and a general rate case in Mississippi.

We anticipate implementing new rates from these filings in the first quarter of fiscal 26.

Our financial position continues to remain strong. We finish our third fiscal quarter, with an equity capitalization of 60% and approximately 5.5 billion dollars of liquidity.

This amount includes 1.7 billion in net. Proceeds available under existing Ford seller groups at fully satisfied or anticipated fiscal, 25 and fiscal 26, Equity needs and a portion of our fiscal 2027 Equity needs

In June, we issued 500 million in tenure notes with the coupon of 5.2%.

As a result, our overall weighted average cost of debt as of June period stands at 4.17% and our debt profile remains very manageable with the weighted average maturity of approximately 17 years.

Turning. Now to our guidance, we anticipate the impact of adopting. The new Texas legislation will increase or expected earnings per share in the fourth quarter of fiscal 25 by approximately 10 cents.

Additionally, our updated guidance range includes our expectations for apts through system business here in the fourth quarter and an improvement. In our past due collections of experience.

Therefore, as we reported last night, we have updated our fiscal, 25 earnings per share, guidance to a new range of 7.35 to 745 cents from the prior range of 7.20 to 7.30.

Looking forward to 26, as Kevin mentioned. We are still working through our 5-year plan. As of today, we believe earnings per share will continue to grow and a range of 6% to 8% annually.

We will continue to Pro. We will provide a full update to our fiscal 2026 earnings, re share guidance, and a full update to our 5 year plan. There are fiscal fourth quarter earnings, call in November,

We appreciate your time this morning and we will now open up the call to questions.

Great. Thank you so much. And at this time, I would like to remind everyone again in order to ask a question. Press star, then the number 1 on your telephone keypad. Once again star 1.

And we will pause. Just a moment to compile the Q&A roster.

All right, looks like our first question today, comes from the line of Richard Sunderland with JP Morgan Richard. Please go ahead.

Hi, good morning. Thank you for the time today.

Good morning. Good morning.

I just want to start with that uh 10 cent increase from the Texas legislation that you called out. Is that is that essentially a a half Year's impact of the legislation that you're you're booking all in 4 q or um how do we think about that 10 cents relative to the total uplift Potential from the legislation?

Yeah, it’d be, this is Chris. So the $0.10 reflects the, uh, the impact of the legislation, uh, beginning June 20th, when the legislation became effective, to uh, the end of fiscal 2025. So effectively, one quarter.

Okay. Okay. Understood that's that's helpful. Um, and then I wanted to parse the through system commentary a little bit more. I know. You said uh, flat to 24 levels. Could you remind us what you'd originally um, expected in 25 on that front? I guess I'm just trying to think of the the puts and takes of the Texas benefit relative to the through system activities and and how that might impact growth in 26. Thank you.

Probably more in much in line, with historical Norms, uh, obviously in the first, uh, quarter quarter and a half of this fiscal year, uh, with some of the, uh, takeaway capacity that had been delayed into, you know, late last year into early this year, you know, that drove spreads. We also saw some volumes as we think about fiscal 2026. Um, as we sit here today, we're anticipating probably a more normal, um, operating environment both from a throughput and a spread perspective. And we'll adjust as we move through the fiscal year. Based upon what happens with the market. Yeah, I just add to that again. I think it's a little early to start trying to, to see out through a crystal ball at 26 is going to be. I think, if you look right now, we got to get through the rest of the summer cooling load.

See where production continues to be at that point, we'll know more as we get closer to our updated 5-year plan of what that may look like.

Great. Thank you for the time today.

Thank you. Thank you.

Thanks Richard.

And again, folks, if you do have any questions today, uh, star 1 on your telephone keypad, once again, star 1.

All right, looks like our next question comes from the line of Christopher. Jeffrey with mizuho Securities, Christopher. Please go ahead.

Hi, good morning, everyone. Um just wanted to follow up on the project discussed in the Abilene area with the data center, just curious, if you could kind of size up, how big of a capital outlay that would be whether you're seeing other potential projects like that in, uh, you know, throughout the system.

Again, as we said on a previous calls, we continue to get inquiries in almost every state that we have right now and they, they continue to go back and forth. Some of them are are Standalone, some of them are grouped together but again, we'll, we'll continue to report on those once we have signed contracts and agreements to deliver natural gas service, but inquiry continues to be strong across the service territory. It's a matter of when those projects actually are signed and ready to break ground on those,

um, as we move, uh, into the rest of the calendar year. And into next year, we'll see how the low continues to develop on those uh, that that particular project there in abalene. And again we may have a little bit more additional Clarity on growth of that load. As we finish up a 5-year plan,

Great, thank you. Kevin. Uh let me just a point of clarification you mentioned. I think 45% total spending previously qualified qualified for 209 and that moves up to 80%, is that just in Texas, are you talking about Atmos as a whole entity?

Yeah, the 80% was Atmos as a whole entity if you will. And again, as I said in my comments we believe the majority of that increase is reflected through apts investment again, going back to the growth that we mentioned in the call and continue to mention quarter over quarter that that's showing up and requires, you know, system investment inspect in uh expansion as well as new Supply points expansion of storage. All those sort of this Investments on apt side to support the ldcs behind its system.

Got it. I I guess just to follow up on that point. It seems like you know looking at the change in guidance um on slide 13, most of the increases coming from the distribution segment. Um, so is the should we think of the increase from the tax benefit at apt or eighty or eighty distribution?

When you say the, the tax benefit Chris, which benefit are you referring to or sorry, the the legislation benefit HB 4385.

Yeah. And I think right now, it's roughly the way, the we're forecasting. Our fourth quarter, um, assets, placed in the service. Uh, it's probably 2/3. Uh, distribution 130 apt for the fourth quarter.

Okay, great. Thanks, everyone.

Thanks, Christopher.

And our next question comes from the line of Nick Campanella with Barclays Nick, please go ahead.

Hi, good morning. This is Stephanie today and thanks for taking, uh, taking the time. Uh, I just have a quick, uh, clarification on the 10 cents. So it sounds like, uh, we should annualize that just wondering, how should we think about that, uh, lumping that into the 6 6? Uh, 6 to 8%, uh, annual kegger, uh, going to the long term. Thanks.

Yeah, it may be a little bit.

Because what's predicated on, how the when the deferral start is when assets are placed in the service. So we have to think about what, you know, for each 1 of our projects, both in distribution and AP or the time, and we're closing, if you will place those assets in the service vcv when they will be offering reflecting integrates. So as we talked about, we're still modeling that impact going forward. Uh which is why we are uh have a full update on FY 26, um as well for 1 year plan, and the 5 year plan, when we roll that update that in November,

Understood that's helpful. Uh, and maybe just to follow up uh, based off a stronger or more robust. Operating cash flow. I guess. How does that affect your thoughts on financing the future growth? And do you see any possibility to moderate external Equity needs? I mean understood your your mostly secured for 2526, but just wondering, how should we think about that? Thanks.

Yeah, if a we'll, we'll continue to finance the corporation or operating cash flow needs in a balanced fashion. Using a blended mix of uh, equity and, uh, and long-term debt. And again, what you see, the increase in the operating cash flow, that was something we had anticipated in developing the 5-year plan. And, um, when we established, uh, the financing Targets in that 5-year plan a year ago, uh, that that was contemplated.

Got it. Thanks for the callers. Appreciate it.

Thanks Nick.

And the last call for questions again, star 1 on your telephone keypad star 1.

Going once, going twice.

Okay.

there are no further questions so I will now turn the call back over to Dan Mazer for closing remarks, Dan

We appreciate your interest and Atmos Energy and thank you again for joining us this morning. The recording of this call is available for replay on our website, have a good day.