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Operator: Thank you for standing by. My name is Amy, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the Atmos Energy Corporation Fiscal 2024 Fourth Quarter Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the call over to Dan Meziere, Vice President of Investor Relations and Treasurer. You may begin.

Daniel Meziere: 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 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 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. The factors that could cause such material differences are outlined on Slide 37, and are more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers.

Kevin Akers: Thank you, Dan, and good morning, everyone. We appreciate your joining us and your interest in Atmos Energy. As Monday is Veterans Day, I would like to take this opportunity to thank those who have served in our armed forces. Approximately 300 of our Atmos Energy teammates are a part of the more than 18 million Americans, who bravely served our country. Thank you for your service, and thank you to those currently serving this great nation. Fiscal ’24 marked Atmos Energy’s 40th anniversary as an independent company. All 5,200 of us here at Atmos Energy proudly serve our customers and our communities as we continue to be guided by the simple values of our founding Chairman, Charles K. Vaughan of honesty, integrity and good moral character.

Yesterday, we reported earnings per share of $6.83, which represents the 22nd consecutive year of earnings per share growth. Fiscal ’24 also represents the 40th 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 ’24 capital investment of over $2.9 billion, supported the modernization of our systems through the replacement of over 850 miles of distribution and transmission pipe and replacement of more than 55,000 service lines. Additionally, we continue to enhance the safety, reliability, versatility and supply diversification of APT system by placing into service our line PC on the southern end of APT system, as well as Phase 1 of the Line WA Loop to the west of Fort Worth and Phase 3 of 4 for Line S2 to the east of the DFW Metroplex.

And we’ve completed the well integrity inspections on our Bethel Salt dome cavern #2. We expect base gas and working gas injection to be completed next month, providing the availability of all three salt dome caverns for this winter season. Our capital investment also supported natural gas service to fuel the strong economic development we continue to see across our service territories. In fiscal ’24, we added over 59,000 new residential and commercial customers with over 46,000 of those new customers located in Texas. The housing market in the DFW Metroplex remains strong. For the 12 months ended September 30th, new home closing 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 at over 14.3 million. Texas again added jobs at a faster rate than the nation over the last 12 months, adding nearly 327,000 jobs from September 2023 through September 2024. In addition to this robust residential customer growth, we saw solid commercial and industrial growth. 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 8.4 Bcf of gas annually. This usage is equivalent to adding over 160,000 residential customers on a volumetric basis.

Over the last five years, we added nearly 300,000 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 1.2 million residential customers. This growing natural gas demand from all customer classes continues to demonstrate the vital role natural gas has in 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 community, 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 57,000 customers in receiving almost $23 million in energy assistance funding.

I am very proud of our Atmos Energy team and their many accomplishments in fiscal ’24. Their exceptional work has us well positioned for fiscal ’25 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 communities, our customers, policymakers and regulators, our five year plan contemplates $24 billion of capital investment. 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.

At APT, 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-2 project to the east of the DFW Metroplex, continuation of the Line WA Loop project to the west of the DFW Metroplex, and adding capacity to move additional gas from our Bethel, Salt down 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 to 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 ’24 financial results, our fiscal ’25 guidance and our updated five year plan through fiscal ’29. And then we will open the call for questions. Chris?

Christopher Forsythe: Thank you, Kevin, and good morning, everyone. Our fiscal ’24 earnings per share of $6.83 increased 12% over fiscal ’23. As a reminder, these results include $0.17 from the one-time benefits we have discussed previously, an unplanned property tax reduction in Texas and lower than planned bad debt expense in Mississippi resulting from a regulatory change in how we recover uncollectible accounts. Excluding these one-time items, earnings per share increased 9.2% in fiscal ’24. Our performance continues to reflect in the successful execution of our operating, regulatory and financing strategies. In fiscal ’24, we implemented $376 million in annualized operating income increases. These outcomes combined with outcomes received in fiscal ’23 increased operating income by over $300 million.

Strong customer growth combined with rising industrial load in our Distribution segment increased operating income an 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 boosters in activities. About half of this increase was recognized during our fourth fiscal quarter. During this time, WAHA pricing is negative for 63% of the trading days. These market conditions were primarily 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 fourth quarter market conditions were the primary reason, why our fiscal ’24 results exceeded the updated guidance range we provided in August.

Consolidated O&M, excluding bad debt expense, increased $65 million. This increase is largely driven by higher employee related costs due to additional headcount to support growth and higher costs associated with increased line locating activities, system monitoring, training and administrative costs. 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 increased rate base by approximately 13% to an estimated $19 billion as of September 30th. Capital spending in our Distribution segment increased $322 million primarily as a result of increased system modernization and customer growth spending. Capital spending in our Pipeline & Storage segment decreased about $191 million primarily due to the timing of cash payments for pipeline system and safety and reliability work in Texas, that had been completed during the fiscal year.

Finally, we completed $1.2 billion of long-term financing. We 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. Looking forward, we have initiated our fiscal ’25 earnings per share guidance range of $7.05 to $7.25. Assuming the midpoint of this guidance range, this implies 7.4% growth in fiscal ’24 earnings per share, excluding the previously mentioned one-time item. And we have initiated fiscal ’25 capital spending guidance for approximately $3.7 billion Additionally, Atmos Energy’s Board of Directors approved a 164th quarterly cash dividend with an indicated fiscal ’25 annual dividend of $3.48, 8.1% increase over fiscal 2024.

Finally, we rolled forward our five year plan in fiscal ’29. Our strategy remains unchanged. We will continue to focus on system modernization through disciplined capital spending, take time of 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. We anticipate the execution of this five year plan 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 ’29 to be in the range of $9.15 to $9.55. As Kevin mentioned, we’ve included approximately $24 billion in our current five year plan. This level of spending is expected to support rate base growth of about 13% to 15% per year.

By the end of fiscal ’29, we anticipate rate base to increase from approximately $19 billion today to approximately $37 billion in fiscal ’29. From a revenue perspective, we continue to execute our normal regulatory strategy of implementing approximately 20 rate filings per year. We have assumed no changes to our ROEs or regulatory mechanisms, nor have we assumed the implementation of new cost recovery mechanisms in this cycle plan. Since the beginning of the fiscal year, we have implemented $149 million of annualized operating income increases in our Distribution segment, $116 million is related to the implementation of our two annual rate review mechanisms in Texas and $27 million related to the implementation of our two annual rate filings in Mississippi.

Currently, we have three filings pending seeking about $77 million. Included in this filed for amount is approximately $40 million related to a system-wide general rate case in our West Texas distribution. This is a required filing affecting all customers in our West Texas division based on a settlement we reached in 2020. Additionally, we are required to refresh our rates upon five years of GRIP filings for portions of our West Texas division. We anticipate filing two similar cases in our Mid Texas Division during our first quarter, where just our cities will recover our costs through GRIP. Additionally, we have filed a general rate case in Kentucky seeking approximately $34 million. We anticipate completing all of these general rate cases in late spring of 2025.

From a margin perspective, we’ve also assumed normal weather, market conditions and modest customer growth in both of our segments in this five year plan. Additionally, we have assumed a 6% decrease in the oil and gas costs included in the customer bill, primarily due to lower commodity costs, partially offset by higher storage and transportation costs. Finally, we have assumed the contribution from APT’s three system business to normalize for fiscal ’24 levels. Additional takeaway capacity is now in place, which should moderate spreads, and we will have the full year effect of the higher revenue benchmark in APT’s wider breadth mechanism. On the cost side, we have assumed 4% annual O&M inflation, excluding bad debt expense. This inflation assumption is driven by increased spending for compliance-based activities to address system safety, system monitoring and employee costs.

As we’ve discussed before, we are not a just in time compliance company, meaning that, we will look to accelerate compliance related work within the five year plan as system conditions dictate or if other opportunities arise. For fiscal ’25, we anticipate O&M, excluding bad debt expense, to range from $840 million to $860 million, Approximately $20 million of the year over year increase relates to the amortization of APT’s system safety and integrity mechanism. As a reminder, this new mechanism was approved in APT’s last general rate case and is a flow through mechanism for costs incurred to address new federal and safety regulated regulations, meaning, 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.

APT made its first SSI filing earlier this calendar year, seeking recovery of approximately $19 million in eligible SSI costs. This filing was approved in October, and revenues and O&M were adjusted effective November 1st to recover these costs over a 12 month period. Turning now to our financing plan. This 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 beginning in fiscal ’27. 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. As a reminder, this incremental financing is included in our earnings per share guidance for fiscal ’25 through fiscal ’29.

Following the completion of our $650 million long-term debt issuance in October, our weighted average cost of debt is 4.1% and our weighted average maturity was 18.1 years with our next material refinancing not scheduled until June of 2027. From an equity perspective, we anticipate meeting all of our needs through our ATM program. As of September 30th, we have priced $1.4 billion which fully satisfies our fiscal ’25 equity needs and a significant portion of our anticipated fiscal ’26 equity needs. This recent financing activity has substantially reduced our existing shelf registration statement and exhausted our ATM program. Once we receive the necessary regulatory approval, 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.

In closing, like Kevin, I am very excited for the long-term outlook for Atmos Energy. Our operational and financial performance in fiscal ’24 has laid the foundation for sustained success into fiscal ’25 and beyond. 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 in our growing service territories. We appreciate your time this morning, and we will now open up the call for questions.

Operator: Thank you. [Operator Instructions] Your first question comes from the line of Fei She with Barclays. Your line is now open.

Fei She: Hi. Good morning, team. Thanks very much for taking my questions, and congrats on another strong year of execution. First, I just wanted to quickly touch on financing, for some further clarity. If I recall previously, you target $600 million to $800 million a year through ATM to support your capital program. So now you have the $8 billion shelf registration you plan to file at $1.7 billion ATM you’re renewing. First, I guess, how should we think about the run rate going forward? And also, could you, just discuss a little bit of about how should we think about financing this higher capital plan outside of ATM program? Thanks.

Christopher Forsythe: Thank you. So again, we have an incremental $15 billion financing assumption in this five year plan. Again, we want to maintain the current strength of our balance sheet. If you want to assume 50% is equity, 50% is long-term debt and then you take that 50% assumption. And generally, relatively over the next five years that’s about what the equity need will be, feel a little bit lower in fiscal ’25, it will ramp up a little bit in ’26 and beyond. But I think that’s how you can think about it from a modeling perspective. In terms of just broader financing, this increased CapEx program, we do believe that, we were able — we will be able to satisfy 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 balance sheet.

Fei She: That’s great, really helpful. And if I can quickly touch on just the financing side of the equation regarding interest cost, as we roll forward to ’25, obviously, you covered $300 million for fiscal — for that year. And I guess going forward and deeper into the plan, how should we think about doing more interest rate swaps, and kind of maintaining the current debt-to-capitalization ratio in the five year plan?

Christopher Forsythe: Yes. I’ll take the second question first on the debt-to-capitalization. We’re very comfortable with where that debt-to-capitalization is at this point and we tend to maintain that going forward. And in terms of the interest rate hedging, it has proven to be very successful for us in the last several years, save our customers a lot of money. Dan and his team will continue to look for opportunities to lock in hedges at a point in time where we think it’s appropriate to lock in that cost to drive cost stability going forward in the five year plan and also for the benefit of customers. So it’s something we’ll consider doing, just again as we — as market conditions continue to evolve.

Operator: Your next question comes from the line of Richard Sunderland with JPMorgan. Your line is now open.

Richard Sunderland: Hi. Good morning and thank you for the time today. So starting on the CapEx side, given, it’s a pretty staggering race here to your five year plan, could you parse some of the factors underpinning the higher pace of system investment? I know you gave some color at a high level on sort of 80% for safety and reliability, what have you, but I’m curious you can give a little bit more specificity around growth, change in replacement rates, anything else driving that higher level?

Christopher Forsythe: Yes. I appreciate your question. I’ll point you back to what we talked about earlier, particularly around the 60, almost 60,000 new customers this past fiscal year. That’s been pretty close over the last several fiscal years. Again, we’re seeing robust growth on the residential, commercial and industrial side that continues to happen year in year out. We continue to look at the housing starts, the market stability here in Texas, as we talked about with the Texas Workforce Commission highlighting the employment growth that continues to occur year in year out here. That’s all driving the demand on our system. Again, we need to be out in front of that growth, have it in place for the anticipated winter needs and fueling those commercial industrial demand as well.

Those are part of what’s driving that growth fortification. But the other part of it, again, is driven by what our risk models or risk factor tells us on a go forward with our pipe replacement program. So just as we’ve done in the previous years, we’re going to look to those models to guide us to where and when to replace pipe. That’s what’s rolled out through the five year plan there along with meeting the expectations of demand and growth, whether it’s on distribution as well as on APT system as well. You heard the two or three projects we talked about there of completing Line S-2, WA Loop, Bethel to grow Spec that we’ve talked about before as well as some of the work we’re doing on storage, all in this capital investment plan that we’ve laid out.

Richard Sunderland: Great. Very clear. Thank you. And then, turning again to some of the numbers in this update, comparing the 13% to 15% rate base growth versus your 6% to 8% EPS growth guidance. The numbers seem to imply you, should be at or above the top end of the earnings range. I realize there is equity dilution, but I’m curious what is keeping the CAGR at 6% to 8%. Is there any reason you should not be at the top end or higher?

Christopher Forsythe: Again, we look at our plan with a very conservative eye. There are still a lot of things as you know just coming out of an election, what’s going on around the world, that we’ll continue to take in our decision and thinking as we move forward there. But again, we believe, that’s our comfortable range, as we’ve executed upon over the last several years. And given where we set today, we think that’s very comfortable on a go forward basis for us.

Kevin Akers: Yes. I’ll also add to that. We’ve also increased the O&M CAGR, if you will, from 3.5% to 4%. That’s also a kind of a modifying effect on the earnings per share growth vis-a-vis the rate base growth.

Operator: Thank you. The next question comes from the line of Christopher Jeffrey with Mizuho Securities. Your line is now open.

Christopher Jeffrey: Hi. Good morning, everyone. Thanks for taking the questions. Maybe just one from me on the ’25 guide, kind of, off of 2024, you’d mentioned in your comments about the strong benefits from the WAHA spread. Just kind of how you’re thinking about that year-over-year, and kind of versus this year’s level? Thanks.

Kevin Akers: Yes. Again, as Chris said in his comments, we’ve got a new Rider Rep benchmark that’s out there approximately $107 million going into this year. Spreads did mitigate somewhat coming out of the summer period. We’ll continue to look and see how weather affects that. But on a go forward, we look for things to normalize to a certain extent from what we saw earlier this summer period. That’s how we will approach it on a go forward is more on a normalized basis. Again, most of that or all of that demand on APT is for the LDC customers behind the pipes that are out there. So anything we’ll do, we’ll have to be on off-peak within the summer period when maintenance isn’t occurring out there. So we’ll look to that again back on a normalized basis.

Christopher Jeffrey: Got it. Thanks. And then Chris, you had mentioned, about taking the O&M from 3.5% to 4%. Just curious, maybe what you’re seeing there? Is that related at all to the SSI rider at APT? And kind of, is there any maybe cadence if that’s front-loaded, back-loaded or kind of consistent? Thanks.

Christopher Forsythe: Yes, certainly between ’24 and ’25, we’ll have a step up because of the SSI rider. We had roughly $6 million or $7 million flow through in fiscal ’24. We’re looking for closer to $20 million to $25 million in 2025. Again, it’s offset in the margin line item. But, we’re also just planning for just increased compliance related spending, system surveys, system monitoring, more real time monitoring in the system. You’ve heard us talk about our AMLD units, we have 16 now that are on the system that we’re using in all eight of our states to monitor our system a lot more closely. And then, just we have employee cost as our population or our customer growth continues, we’ll have the key to add service technicians and the like to make sure, we’re properly serving those growing needs.

Kevin Akers: Yes. Additionally, the thing I’ll add there is our line locates with this growing base, particularly here in the Texas region. We continue to grow the number of line locates that we continue to do as well as the rest of the infrastructure is driving that locates. And what I mean by that, as you have water, sewer infrastructure being put in with growing population and all of those leads for us to drive, locate and procted our assets as well.

Operator: Your next question comes from the line of Paul Zimbardo with Jefferies. Your line is now open.

Paul Zimbardo: Hi. Good morning, team. I had a couple of questions. One big, one small. The first, I’ll start with the bigger one. There’s a new very large potential natural gas customer that Entergy has talked about, like 2.3 gigawatts of combined cycle in Northern Louisiana. It looks like you’re the local gas utility there. Just any way you could frame potential, whether it’s kind of the local or broader capital needs related to that? And just how you’re thinking about some of these lumpier economic development activities you’re tracking across your footprint would be helpful.

Christopher Forsythe: Yes. I don’t have any specifics that we could share at this point, on the Louisiana customer. But, in general, as we talked about large industrial loads over a period of time, we work with both our state economic development group, chambers of commerce, and local communities on sourcing and citing of these particular customers, what is best for them, what may benefit their energy demand for natural gas, how it’s located to either our distribution or transmission assets. And then, we’ll work with the customer on timing over a period of years, when they anticipate ramping up their usage that way. But, we continue to see steady inquiries as you heard quarter-after-quarter as described from various aspects of the industrial sector, whether it’s metals, whether it’s healthcare, whether it’s distilling, various factors continue to drive the growth on the industrial side.

Paul Zimbardo: Okay. Great. That potential customer in Northern Louisiana, is that something that could be upside to the plan or we should kind of think about that within the scope of your capital guidance you put out?

Christopher Forsythe: Again, we have a lot of customers across our territory looking and siding on a daily basis. We generally don’t talk about those, until we have certainty around contractual obligations, ready to serve needs, those sort of things. Right now at this point, we’re not at a point where we can discuss any particulars that aren’t at that state of process.

Paul Zimbardo: Okay. Understood. And then, the smaller one. Just in terms of 2025 guidance and interest, it looks like it ticks down a little bit versus the balances up, the weighted cost of debt is up. Just, is that a function of lower short-term rates on commercial paper? Just any other dynamics there we should be cognizant of? Thank you.

Christopher Forsythe: That’s really the influence of, ATBC or capitalized interest. As our spending goes up, we do have a higher portion of our capitalized interest. Again with an all in weighted average cost of 4.1 ticked up very slightly, I mean, less than 5 or 10 basis points year-over-year. It’s relatively flat. And then you’ve got the increased capitalized interest component, which is driving the net interest expense down a bit.

Operator: Thank you. [Operator Instructions] Your next question comes from the line of Ryan Levine with Citigroup. Your line is now open.

Ryan Levine: Good morning. Thanks for taking my questions. Good morning. What’s your assumption for bad debt expense and how does that impact the outlook? It looked like that was excluded from the 4% O&M guide. Is there any lumpiness to that with some of the changes to how that’s being accounted for?

Kevin Akers: No. Really no changes anticipated. It was a little bit skewed this year obviously with the change in how we record our collect or uncollectible accounts in Mississippi. We’re kind of beginning to normalize into more of a pre-pandemic state in terms of that debt expense. It’s always going to rise a bit as a function of revenue going up a bit. But, as we continue to work our comprehensive collection strategy of not only just working with customers around energy assistance, offering them installment plans, levelized billing and alike. We anticipate that to be fairly flat year-over-year in the five year plan.

Ryan Levine: Okay. And then what are you assuming for population growth or customer count growth in the Texas market in particular? And then, how sensitive is your outlook to that forecast?

Christopher Forsythe: Yes. I would say, we’ve assumed a growth rate that is in line with what we’ve experienced here over the last couple of years. You heard Kevin talk early in the call about just continued growth from a residential perspective, certainly and then the knock on commercial impact, that we’ve just assumed basically recent trends that will continue going forward in this five year plan.

Ryan Levine: And then last question. In terms of the 4% O&M guidance, how lumpy is that throughout the forecast time period? Are there periods that are higher than that and others that are lower than that, or any color you can share?

Kevin Akers: No. I think year over year it’s going to be, I would say, fairly gradual 4% every year. You might have a little bit of lumpiness within quarters, as we move work around to address the system needs, operational constraints so on and so forth. But year-over-year, we expect that to be fairly level at 4% per year.

Operator: There are no further questions at this time. Mr. Meziere, I turn the call back over to you.

Daniel Meziere: We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. A recording of this call is available for replay on our website through December 31st. Have a great day.

Operator: Thank you. This concludes today’s conference call. You may now disconnect.