Atmos Energy Corporation (ATO) Q2 2025 Earnings Call Transcript

Atmos Energy Corporation (NYSE: ATO) Q2 2025 Earnings Call dated May. 08, 2025

Corporate Participants:

Dan Meziere — Vice President of Investor Relations and Treasurer

Kevin Akers — President and Chief Executive Officer

Christopher T. Forsythe — Senior Vice President and Chief Financial Officer

Analysts:

Richard Sunderland — Analyst

Fei She — Analyst

Unidentified Participant

Paul Fremont — Analyst

Christopher Jeffrey — Analyst

Ryan Levine — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Atmos Energy Corporation Fiscal 2025 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions]. As a reminder, today’s call is being recorded.

I will now hand today’s call over to Dan Meziere, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Dan Meziere — Vice President of Investor Relations and Treasurer

Thank you, Tameka. Good morning, everyone, and thank you for joining our fiscal 2025 second quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris 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 29 and are more fully described in our SEC filings.

With that, I will turn the call over to Kevin Akers, our President and CEO. Kevin?

Kevin Akers — President and Chief Executive Officer

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday we reported year-to-date fiscal ’25 net income of $837 million or $5.26 per diluted share. We updated our fiscal ’25 earnings per share guidance to a range of $7.20 to $7.30. 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 across 1,400 communities in eight states.

For the quarter, we continue to experience robust growth driven by continually favorable employment trends in Texas. For the 12 months ended March 31, 2025, we added nearly 59,000 new customers, with almost 46,000 of those new customers located in Texas. The Texas workforce commission reported in April that 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 ending March, adding nearly 192,000 jobs, representing a 1.4% annual growth rate.

Commercial customer growth remains solid as well with approximately 850 customers connecting to the system during the second quarter and nearly 2,000 customers connecting to the system fiscal year to date. Industrial demand for natural gas in our service territories also remains strong. During the second quarter, we added nine new industrial customers with an anticipated annual load of approximately 8 Bcf once they are fully operational.

Fiscal year-to-date, we’ve added 20 new industrial customers with an anticipated annual load of approximately 11 Bcf once they’re fully operational. On a volumetric basis, that is equivalent to adding approximately 204,000 residential customers. This growth continues to highlight the value of and vital role natural gas plays in economic development across our service territories.

In APT, we continue our work on several projects that will enhance the safety, reliability, versatility and supply diversification of our system as well as support the continued growth we are seeing in the local distribution companies behind APT system. During the quarter work started on phase 2 of APT’s Line WA loop. This project will install approximately 44 miles of 36 inch pipe to the west of Fort Worth to support growth in the northwestern portion of the DFW Metroplex. This phase is expected to be completed by the end of the calendar year.

Work continues on APT’s Bethel to Groesbeck project as well. As a reminder, this project will install approximately 55 miles of 36 inch pipe from our Bethel Storage facility to our Groesbeck Compressor station to provide additional pipeline capacity to the growing DFW Metroplex and to the Interstate 35 corridor. This project is scheduled to be placed in service late calendar year 2025. APT completed two more interconnect projects during the quarter fiscal year-to-date, APT has added over 1 bcf of additional gas supply that will enhance supply reliability and versatility to support APT’s LDC customers.

During the second quarter, our customer support associates and service technicians once again received a 98% satisfaction rating from our customers, reflecting 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 six months of the fiscal year. Through those efforts, the team helped nearly 32,000 customers receive over $10 million in funding assistance.

Our results for the first half of fiscal ’25 reflect the hard work and dedication of all Atmos Energy employees as we continue to safely deliver reliable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future.

I will now turn the call over to Chris for his update.

Christopher T. Forsythe — Senior Vice President and Chief Financial Officer

Thank you, Kevin, and good morning, everyone. Thank you for joining us today. As Kevin mentioned, diluted earnings per share for the first six months of the fiscal year was $5.26 represents a 6.7% increase over the prior year period. Operating income increased to $1.1 billion or 14.6% for the first six months of the fiscal year. I’ll highlight a few key drivers for our financial performance.

Rate Increases in both of our operating segments sold $185 million. Residential commercial customer growth in our distribution segment combined with higher industrial load increased operating income by an additional $14.4 million. Revenues in our Pipeline and Storage segment increased $11.4 million reflecting a 10% increase in volumes transported across our system combined with wider spreads between the Waha header and the western end of APT system and delivered points on the Eastern end and Southern end of its system.

APT also experienced an $8 million increase due to higher capacity contracted by tariff based customers due to their growing peak day demand. Consolidated O&M expense increased $74 million. This increase is driven by several factors. Employee related costs increased approximately $27 million primarily due to increased headcount overtime to support company growth. Additionally, bad debt expense increased $15 million. As a reminder, we recognize a $14 million non-recurring reduction in bad debt expenses last fiscal year resulted from a regulatory change in how we recover our bad debt expense in Mississippi.

We also experienced a $14 million increase in O&M associated with higher levels of line locating, pipeline inspection and system monitoring activities. Finally, we experienced a $9.4 million increase in APT system safety and integrity expense which is offset by a corresponding increase in revenue resulting in no impact to operating income. From a regulatory perspective, we have implemented approximately $153 million in annualized regulatory outcomes and we currently have over $389 million in progress. Of this amount, we anticipate implementing between $175 million and $180 million in annualized operating income increases in fiscal ’25 with remainder expected to be implemented in the first quarter of fiscal ’26.

Included in this amount is $39.2 million requested in our West Texas general rate case. On April 25, administrative law judge issued a proposal for decision with the following key recommendations. A 9.8% return on equity actual capital structure which reflects a 60.97% equity layer approval of a rate base totaling $1.2 billion approval to capitalize cloud computing costs as assets recovered over a 15 year period, which effectively treats these costs as a capital expenditure rather than O&M line item and the authorization of two regulatory asset trackers.

The first is a system safety integrity regulatory asset that will allow us to defer O&M incurred after June 30th of 2024 in excess of $3.5 million related to system safety integrity regulations adopted by Rail Commission and Vesa. These costs will be considered for recovery in a future rate filing. The second provides for regulatory asset or liability treatment to capture the effects of changes in federal and state income taxes, including the corporate alternative minimum tax.

The proposal for decision is scheduled to be considered by the railroad commission on May 13. If approved as filed, the settlement would result in a $30.6 million increase in annual operating income. In our Mid-Tex division the two general rate cases we filed last fall for the ATM Cities Coalition and our environs customers were consolidated into one general rate case during our second fiscal quarter. As a reminder, this consolidated case represents approximately 15% of the Mid-Tex division’s customer base.

On April 30th we filed with the administrative law judge a proposed settlement on this consolidated case. The key terms of the proposed settlement, ROE capital structure and the accounting treatments I just described are the same as what is included in the West Texas proposal for decision. Additionally, the recommendation includes approval of rate base allocable to these customers, approximately $1.1 billion. If the administrative law judge recommends a settlement for approval, we anticipate the settlement will be scheduled for consideration by the rail commission on June 10.

If approved as filed, the settlement will result in a $6.7 million increase in annual operating income. Additionally, we expect the railroad commission will also consider APT’s 2024 GRIP filing for $77.2 million at its June 10 meeting. Finally, in Kentucky, we completed a hearing this week before the public service commission regarding our general rate case. We anticipate a final order during our fiscal fourth quarter.

Our balance sheet and financial position continue to remain strong. Our equity capitalization as of March 31st was 61% and we did not any short-term debt outstanding. During the second quarter, we extended our four credit facilities holding $3.1 billion. At quarter end, we had $5.3 billion in available liquidity to support our operations. Included in this amount is $1.7 billion of net proceeds available from our ATM activities which is expected to satisfy the remainder of our anticipated fiscal ’25 equity needs and all of our anticipated equity needs for fiscal ’26.

Our fiscal year-to-date performance gives us confidence to increase our fiscal ’25 earnings per share guidance from a range of $7.05 to $7.25 to a new range of $7.20 to $7.30. We expect the remaining contribution to fiscal 2025 earnings per share to be recognized somewhat evenly by quarter in the back half of the fiscal year. The increase of our guidance largely reflects the strength of APT’s through system business during the first half of the fiscal year and our expectations for this part of APT’s business for the remainder of the fiscal year.

As a reminder, following a strong fiscal ’24 performance, we entered fiscal ’25 assuming a return to more normalized through system marketing conditions as a result of increased takeaway capacity in the Permian Basin. Now we currently expect APT through system business to perform just slightly less than the prior year. However, the timing of these revenues in fiscal ’25 is expected to be different than in fiscal ’24. Through March 31, about half of the expected contribution for fiscal 2025 from this portion of APT’s business has already been recognized.

In the prior year, nearly 80% of APT’s through system business was recognized in the second half of the fiscal year. Additionally, we anticipate our ad valorem taxes to be lower than planned and have increased our O&M spending to stay ahead of compliance work to further enhance the safety and reliability of our system.

We will also perform some additional maintenance this summer to prepare for the upcoming winter heating season. We now anticipate our O&M excluding bad debt expense to be in the range of $860 million to $880 million. A significant portion of the year-over-year increase has already been recognized, we anticipate O&M in the back half of fiscal ’25 to be just slightly higher than in the same period in the prior year.

Finally, our capital spending guidance remains on track be approximately $3.7 billion. We appreciate your time this morning and your interest in Atmos Energy. We’ll now open up the call for questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question is from the line of Richard Sunderland with JPMorgan.

Richard Sunderland

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

Kevin Akers

Good morning.

Christopher T. Forsythe

Good morning.

Richard Sunderland

Appreciate all the commentary here. I wanted to start with guidance. It sounds like APT through system activity certainly contributing to some of the upside here. Is the higher guidance for 2025 a fair base to think about growth going forward? Or does some of that normalization that you had originally anticipated for ’25 need to be factored in for growth for ’26 and beyond?

Christopher T. Forsythe

Yeah, it’s a good question, Richie. So we’ll still figure looking at what will happen for the rest of the summer. As you know, conditions are very volatile in the market right now. And as we set our fiscal ’26 plans, we’ll take a snapshot of market conditions, probably late summer, early fall, prior to us releasing our fiscal ’26 guidance, an updated five year plan to really reflect what we think will be truly reflective of that business for the next fiscal year.

Richard Sunderland

Okay, got it. Sounds like more to come. Again, similarly on the O&M, it seemed like some of the higher O&M for ’25 is a pull forward from ’26. Is that a fair characterization? How are you thinking about the higher O&M this year and any efforts to de risk ’26 on that front?

Christopher T. Forsythe

Yeah. A couple of things, there’s certainly an opportunity to pull forward as I described with the lower than plan expense needs to be our expectations also we’ve talked many, many times, we are not a just in time company from an O&M for spending perspective. So if we have opportunities to further stay ahead of our compliance deadlines or if we see opportunities, coming out of the winter heating season this last six months to get ready for the next six months, will perform some additional maintenance in the summer months when our crews and folks are available.

So it’s a little bit of both. It’s just kind of opportunistic based on the operating conditions of the system at this point in time as well as taking advantage of opportunities to pull forward a little bit from future periods.

Kevin Akers

Yeah. The only thing I’ll add to that is that again with the blessing we have of being in growth properties right now, we had an increase in the number of line locates from the previous year and we’ll continue to see that probably going forward just given the economic conditions that I discussed earlier in my remarks. So that’s the other part of that O&M, if you will, is sometimes with growth people don’t see that you’ll have increased line locating expense as well.

Richard Sunderland

Got it. That’s very helpful. Just a quick follow-up on the O&M discussion there. You it sounded like in the Texas GRCs that there is some retroactive component to the reg asset tracker you were referencing. I may not be understanding all the puts and takes there, but just wanted to clarify if you get the final orders in line with settlement, is that upside from that retroactive component? And I mean upside versus ’25 guidance to be clear.

Christopher T. Forsythe

At this point, we reflected in our guidance, our expectations for O&M but the cloud computing treatments as well as the SSI in our current guidance.

Richard Sunderland

Great. Thank you so much for the time.

Christopher T. Forsythe

Thank you.

Operator

Your next question comes from the line of Nick Campanella with Barclays.

Fei She

Hi, good morning team. This is actually Fei for Nick today and thanks for taking my question. I just want to quickly follow-up on financing, seems like year-to-date equity issuance is slightly higher than year-to-date 2024. Again I think with higher capital plan, higher rate base growth. Can you update us on the equity financing for the rest of the year if there is any changes from the messaging from last quarter, and also kind of seeing the interest rate swap to be in a similar spot as last quarter. Just generally can you speak to the strategy managing the costs over there as well? Thanks.

Christopher T. Forsythe

Sure. This is Chris, Fei. So I mean our financing strategy hasn’t changed since prior quarter or for the last several years we’ll continue to finance the corporation in a balanced fashion using a combination of equity and long-term debt with equity coming through the ATM. We talked about having $1.7 billion on the page now that’s been priced to reflect our equity needs, our anticipated equity needs for fiscal ’25 as well as 2026. And we’ll draw that down as the cash needs of the corporation, dictate when we need to use that.

Additionally from a long-term debt perspective, the swap that we have in place that’s again tied to our anticipated debt issuance in the fall for anticipating a 30 year issuance at this point in time. So at this point we don’t see any changes in executing that particular debt transaction and utilizing that swap for the benefit of our customers.

Fei She

Got it. That’s very helpful. And I just want to follow-up on economic development and seeing the tremendous growth in Texas driven by C&I customers. Could you talk about first of all, definitely generally need a gas need in the region and obviously you’re adding large quantity of new gas demand each quarter. I guess at this point is there any pipeline of projects you’re working on or if there’s any quantifiable backlog that you can discuss? I’ll leave it there.

Kevin Akers

Yeah, I’m not sure about your question about backlog. We don’t have a backlog per se. I talked about the two high priority projects for APT, the WA Loop and Bethel to Groesbeck project right now. Additionally we’re finishing up work on our third Salt Dome Cavern that’s part of our integrity maintenance program we anticipate that to be wrapping up sometime in the next nine to 12 month period that’s out there. Everything else is all scheduled work that we have lined out on a one, three and five year basis according to either reliability, supply, versatility and/or our risk model, safety concerns or direction that way. As we have in our slide deck, we point to 85% investment on capital for safety and reliability for the fiscal year-to-date period.

Fei She

Understood. That’s helpful color. Thanks again.

Kevin Akers

Thank you.

Operator

[Operator Instructions] Your next question is from the line of Julien Dumoulin-Smith with Jefferies.

Unidentified Participant

Hey. This is [Indecipherable] on for Julien. Just really quick legislatively, I’m just wondering what are some of the key bills you guys are monitoring and what potential benefits or implications do they carry for your business? Like for example, we noticed there’s HB-4384 regarding the standalone depreciation tracker for gas LDCs. Do you see that as a potential benefit for your business? Just any color on that firm would be helpful. Thank you.

Kevin Akers

Yeah, we continue to monitor all the sessions across our eight states. We have two that are currently closed or concluded their session, Mississippi and Kentucky. Don’t want to get too far ahead of the work that’s continued to go going on across our legislative bodies right now. But we do see some bills out there that have our interest right now. But we think it needs to go through the final steps of the legislative process and then if they’re related to the utility side of the business, they’d have to go to that particular jurisdiction’s commission to see how it folds into either tariffs or rules or action upon for that company. So don’t want to get too far out in front of what the legislature is going to do for the remaining session. But again we’re keeping an eye on everything that’s out there.

Unidentified Participant

Thank you. That’s very clear. And maybe just another housekeeping question. So since you raised FY25 EPS guidance, so the new guidance midpoint is now $7.25, should we use the new EPS guidance midpoint as the new EPS base?

Christopher T. Forsythe

Okay, when you say new EPS base, what do you name there?

Unidentified Participant

Is for calculating the five year CAGR?

Christopher T. Forsythe

At this point, I think that’s a pretty fair assumption.

Unidentified Participant

Got it. Thank you.

Operator

Your next question is from the line of Paul Fremont with Ladenburg Thalmann.

Paul Fremont

Thank you very much. Congratulations on a strong quarter and my question has been answered. Thank you.

Christopher T. Forsythe

Thank you.

Operator

Your next question is from the line of Christopher Jeffrey with Mizuho Securities.

Christopher Jeffrey

Hi, everyone. Congrats on [Indecipherable]

Kevin Akers

We can’t hear you on this end.

Christopher Jeffrey

Sorry. Is that better?

Kevin Akers

That’s better. Thank you.

Christopher Jeffrey

Okay. Just to couple quick ones from me, I just noticed the timing for the Colorado rate case expectation got pushed back a bit. Just any kind of thoughts on timing there and expectations for when you get to that case?

Kevin Akers

No, that’s something we’re always looking at what we have going on in the jurisdiction, what we have going on in other jurisdictions, ongoing conversation with our regulatory jurisdiction. So I wouldn’t read a lot into that at this point.

Christopher Jeffrey

Great. And then maybe just on the West Texas, the cloud computing costs that you mentioned, Kevin, in the opening remarks, just kind of expectations for that to be implemented more wholesale across Texas or any other states. Does that kind of change how you’re approaching thinking about those types of costs within rate base?

Christopher T. Forsythe

I would just kind of view this as a continuation of our ongoing regulatory strategy of seeking to reduce lag where we can. Oftentimes, we’ll start with an individual jurisdiction who will include something into their regulatory construct. We then try to seek to replicate that in other states to the best of our ability. So we’ll see where the Railroad Commission’s vote comes down next week, and then after that from the May 13th for West Texas, then again for Mid-Tex on June 10th, and then we’ll see if it makes sense for us to bring that to other jurisdictions within the enterprise.

Christopher Jeffrey

Got it. Thanks. And just to clarify, so that would be the first jurisdiction that type of cost is included.

Christopher T. Forsythe

Correct.

Christopher Jeffrey

Great. All right. Well, thanks again. Have a great day.

Christopher T. Forsythe

Thank you.

Operator

Your next question is from the line of Ryan Levine with Citigroup.

Ryan Levine

Good morning, everybody. Just a quick one. In terms of APT expansion projects, the business continues to grow pretty materially. What are the underlying growth assumptions that embed the expansion projects that you have underway and what conditions would merit further expansion or upside to your existing plan?

Kevin Akers

It’s all part of our planning process. Again, it’s based on what the city models are and what they’re seeing for growth, population increases across the service territories, what we’re seeing for demand, anticipated capacity requirements off of that growth. We put those in our models, then try and forecast out when we expect that demand to show up and make sure we have the pipe and the supply already there to meet those anticipated demands. That’s something we go through several times a year and then reaffirm again with our customers what their NVQs are as we head into winter, then post winter on APT we’ll review what actual NVQs they achieved and we’ll reset those go forward basis. That drives our modeling for the next several years.

Ryan Levine

So given the winter is largely behind us, has that refresh already occurred for this calendar year so that we wouldn’t expect any material changes until a review post winter 2026 of expansion opportunities?

Kevin Akers

The review is ongoing at this point. We continue to have conversations with those LDCs behind our city gate there on APT and we’ll look to make sure those are reset prior to heading into next heating season, if any adjustments at all are required.

Ryan Levine

Okay, great. Thanks for taking the questions.

Kevin Akers

Sure.

Operator

At this time, there are no further questions. I will now hand today’s call back over to the presenters for closing remarks.

Dan Meziere

We appreciate your interest in Atmos Energy, and thank you again for joining us today. The recording of this call is available for replay on our website through June 30th. Have a good day.

Operator

[Operator Closing Remarks]