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Presentation

Daniel Meziere: Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer, and Christopher Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation 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 discussions 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 twenty-seven and are more fully described in our SEC filings. I’ll now turn the call over to Kevin.

Kevin Akers: Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Let’s begin today’s call by thanking all 5,300 Atmos Energy employees for their focus and dedication to safely serving our customers during very challenging weather conditions. And thank you for all that you do every day for our customers and our community. You’re truly the heart and soul of Atmos Energy. Yesterday, we reported first-quarter net income of $352 million or $2.23 per diluted share. Our first fiscal quarter capital spending was $891 million to support continued system modernization and growth across our service territory. Customer growth continued to be solid as for the twelve months ended December 31, 2024. We added over 59,000 new customers, with over 46,000 of those located here in Texas.

The Texas Workforce Commission reported in January that the seasonally adjusted number of employees reached a new record high at over 14.3 million. Texas, once again, added jobs at a faster rate than the nation over the last twelve months, adding nearly 284,000 jobs in calendar 2024, representing a 2% annual growth rate. Commercial customer growth remained solid as well, with nearly 1,100 commercial customers connecting to the system during the first quarter. We added eleven new industrial customers, which, when fully operational, we anticipate utilizing 2.3 bcf of gas annually. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development and fueling the energy demand across our service territories.

In APT, we completed several projects that will enhance the safety, reliability, versatility, and supply diversification of our system and support the continued growth we see from the local distribution companies behind the APT system. The final phase of our thirty-six-inch line s2 project was placed into service in December 2024. We are now flowing additional supply from the Haynesville and Cotton Valley shale play to the east side of the growing Dallas-Fort Worth metroplex. APT’s Bethel, the Grow Spec project has started. This project will install approximately fifty-five miles of thirty-six-inch pipe from our Bethel storage facility to our gross deck compressor station, which will provide additional pipeline capacity to transport gas from our Beville storage facility to the growing DSW Metroplex and the interstate thirty-five portal.

To enhance supply reliability and system versatility, APT completed two interconnect projects during the quarter. One on our line f2 near Carthage and the second near our growing service territory outside Austin. Our customer support associates and service technicians’ satisfaction ratings remain high for the quarter, at 98%. Our customer advocacy team and customer support agents continue their outreach efforts with energy assistance agencies and customers during the first quarter, helping over 16,000 customers to save $4 million in funding assistance. Our employees’ focus on customer service and process improvement was recognized in December when, for the third consecutive year, JD Power ranked Atmos Energy number one in customer satisfaction among mid-sized gas utilities in the Midwest.

Atmos Energy is well-positioned to continue safely delivering reliable and efficient natural gas to homes, businesses, and industry to fuel our energy needs now and in the future. I will now turn the call over to Christopher Forsythe.

Christopher Forsythe: Thank you, Kevin, and good morning, everyone. As Kevin mentioned, our fiscal 2025 first-quarter diluted earnings per share was $0.23, which represents a 7.2% increase over the prior year quarter. Consolidated operating income increased 15% to $459 million in the first quarter. This performance is driven by several factors. Rate increases in both of our operating segments totaled $69 million. Residential commercial customer growth combined with higher industrial load increased operating income by an additional $10 million. Finally, APT’s through-system revenues increased by $8 million driven by both an increase in throughput and spreads. These market conditions were largely driven by capacity constraints experienced primarily through the first half of the first quarter due to maintenance of unplanned additives on various pipelines.

Since that time, spreads have returned to more normal historical norms for this time of the year. Partially offsetting these increases was a $41 million increase in consolidated O and M. Driven by several factors. Net expense increased $15 million. As a reminder, we recognized a $14 million non-recurring reduction in added expense in the prior year quarter resulting from a regulatory change in how we recover our bad debt expenses slipping. Employee-related costs increased approximately $11 million primarily due to increased headcount to support company growth, and higher overtime and standby costs due to increased service work. We also experienced an $8 million increase in compliance and safety-related spending associated with increased leak service work within our distribution segment and time of the inline inspection work in our pipeline storage and other segment.

Finally, we experienced a $5 million increase in APT’s system safety and tariff expense, which is offset by a corresponding increase in revenue as a result of APT’s new system safety and integrity mechanism. Therefore, this increase had no impact on operating income. We got off to a good start from a regulatory perspective. Since the beginning of the fiscal year, we have implemented $152 million in annualized operating income increases in our distribution segment. Of this amount, $117 million relates to the implementation of our two annual rate revenue mechanisms in Texas, and $28 million relates to the implementation of our two annual finance filings in the Pacific. Currently, we have seven filings in progress, seeking approximately $126 million in annualized operating income increases.

Included in the filed format is approximately $90 million in taxes from four filings. The first is a $40 million system-wide general rate case in our West Texas distribution that we filed last fall. As a reminder, this is a required filing that affects all of our customers in West Texas, based on a settlement we reached in 2020. Additionally, we required refresher rates following five years of grid lines portions of our West Texas division. During the first fiscal quarter, we filed two new cases in our Mid Texas division, seeking $20 million as the five-year BRIC filing cycle had ended for these jurisdictions. And in January, we filed our annual filing mechanism with the Staview Dallas seeking a $30 million increase in annualized operating income.

Finally, we have a general rate case in progress in Kentucky for approximately $34 million. These filings are proceeding as planned, and we anticipate completing all of them by late spring of 2025. We plan to make additional funds this fiscal year seeking approximately $300 million in annualized operating income increase. During the quarter, we completed over $1 billion of long-term debt equity financing, highlighted by the $650 million long-term debt financing we completed in October 2024. Additionally, we settled $380 million in equity for an agreement. Directly capitalization as of December 31 is 60%, and we did not have any short-term debt outstanding. We also had $5.2 billion in available liquidity. This includes approximately $1.5 billion of net proceeds available under existing forward sales agreements, which is expected to satisfy the remainder of our anticipated fiscal 2025 equity needs and almost all of our anticipated equity needs for fiscal 2026.

Our first-quarter results have positioned us well to achieve fiscal 2025 in the range of $7.05 to $7.25. And we remain on track to achieve our capital spending plan of $3.7 billion. Thank you for your time this morning. I will now open up the call for questions.

Operator: We’ll take our first question from the line of Julien Dumoulin Smith with Jefferies. Go ahead.

James Ward: Hi, guys. Good morning. You’ve got James Ward here on for Julien. How is everyone?

Kevin Akers: Good morning. Thank you. Good to hear from you.

James Ward: Perfect. We are looking for a little more coverage. Pardon me, I’m a bit under the weather, so hopefully, I’m still clear enough to hear. But, essentially, what we are looking for is a bit more color on the higher CapEx plan announced last quarter, looking at rate lags, earned ROE trajectory moving forward. A little more strategic, a bit more high level. Just looking to get some incremental color as we sort of build in some of those. You know, the potential. Of what could be into our models. The art of the possible, so to speak. As our leader here likes to say.

Kevin Akers: Yeah. Let’s start with would be great. Yeah. Let’s start with the first part of your question there around the capital plan for this year. As we said, at our last quarterly call, that reflects the growth across our system, our system modernization strategy, supporting our pipeline replacement program, continuing to be out in front of the growth that we just talked about on this call as well. We also heard of the interconnects on this call that APT is putting in place, as well as some of the storage enhancements that we have going out there. So it’s a continuation of what we had the last several years, more of a roll-forward, if you will, as we continue to identify projects and growth areas across the system or areas that need additional system modernization. So continuation of the same strategy.

James Ward: Gotcha. Gotcha. Just wanted to clarify there. That’s very helpful. See here. I think you kind of covered most of what we’ve actually set here. As questions and prepared remarks. So we really appreciate you guys giving that color. Anything else you could speak to just on the customer quote, sorry? I know you addressed it. Initially, but just anything. Need more color on sort of large-scale industrial and generation projects and so on. That would be our follow-on. We’ll I’m back in the queue.

Kevin Akers: Okay. Thank you. Yeah. As as we said on on this call here, we continue to see good growth across all sectors. Residential, commercial, industrial. On the industrial side, eleven new coming on this quarter alone with about two to two and a half bcf anticipated load there. We continue to have prospects, but, again, we’re not gonna get into the depth of the prospects until we have actual customers sign agreements with the company and we know for sure that they’re gonna be a customer. Again, the economy, feedback from builders, developers, commercial developers as well continues to be strong across the entire service territory. So it’s again, it’s a continuation of what we’ve seen the last several years and continue to hear from those folks that things are looking positive across our services.

James Ward: Terrific. Thank you very much.

Operator: Our next question comes from the line of Richard Sunderland with JPMorgan. Please go ahead.

Richard Sunderland: Hey. Good morning. Thank you for the time today.

Kevin Akers: Good morning.

Richard Sunderland: Within that $1.5 billion under the equity forward for twenty-five and most of twenty-six. How much equity should we be modeling for twenty twenty-five specifically, and should we assume that ATM is ratable?

Christopher Forsythe: So if we traditionally talked about, again, equity, long-term debt being issued in a balanced fashion throughout fiscal year. So we have traditionally run in the $600 to $800 million range. I think that’s a good range to plan on for fiscal 2025. It will you know, in terms of drawing it down, we talked about drawing down $380 million first quarter. The remainder of the fiscal year, it would just depend on our cash flow needs, And just where we see our balance sheet on any given point time during the year. So we’ll try to do it, you know, around those needs. Could be ratable. It could be a little bit more quarter specific, but it just depends on how the year goes in terms of cash flow.

Richard Sunderland: Okay. Got it. So the $600 to $800 is helpful for twenty five, but then basically as we roll forward through the years in your plans, you’ll be expecting that number to tick up annually. Is that the right way to think about it?

Christopher Forsythe: Yeah. That’s that’s correct. You know, as the as the capital continues to grow, kinda going back another question, you know, we got twenty four billion Yeah. Again, the five-year plan grew about $3.7 billion this year. That will continue to grow, you know, somewhat ravely over the next few years. And the the long-term financing will grow commensurately with that, again, in a balanced fashion using a long-term debt equity. With equity being through the ATM, this.

Richard Sunderland: Got it. Very clear. And then for APT spread benefit on the quarter, you’re recognizing it’s early in the year, but does this move you higher within the guidance range? Any other thoughts on sort of that benefit relative to guidance assumptions? Thank you.

Kevin Akers: Yeah. As as we had talked about, we we saw that spread widen early in the quarter and then come back to more normal what we’re traditionally seeing this time of year. And we’ll just have to keep an eye on it as we move forward. It’s gonna depend on this. Again, what weather shows up the remainder of this heating season, what does the cooling load look like this summer, the power gen load, those sort of things. Again, I think we’re just gonna have to watch the market and see what it does as we head into the rest of the fiscal year right now and not try and predict or get too far out in front of that.

Richard Sunderland: Fair enough. Thank you for the time today.

Operator: Thank you. Our next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.

David Arcaro: Oh, hey. Thanks. Good morning.

Kevin Akers: Good morning.

David Arcaro: Let me see. You had a question on the power plant side of things. Maybe we’ve been hearing more about microgrids and new gas-powered power plants looking for long-term contracts for gas supply. I guess I was wondering, are any of those eleven new industrial customers power plants? And then maybe more broadly, are you seeing more opportunities on the customer side of things from power generation?

Kevin Akers: Let’s let’s take the middle part of your questionnaire first. No. These eleven are not new power facilities. There are a variety of industries from distilling to manufacturing. Battery plants, to automotive, Again, I think that’s the strength of our service territories. We’ve got exceptional diversification of load from residential commercial, which we see a lot of here in Texas, to industrial through Kentucky, Tennessee, Virginia, Mississippi. A good balance across the system of large load and diversified load as well as some of those industrial loads are more medical in nature as well. So supporting the medical industry. As we we’ve seen with those larger industrial loads, we continue to have inquiries across all eight states.

But, again, don’t wanna get into specifics or speculate at this point until we actually have customers that have signed a contract and are ready to make announcements at this point. Other than that, continue to work with economic development chambers of commerce, customers that wanna talk about, think about, or seek opportunities for natural gas supply in various locations. We’ll continue to answer their questions and wait until we get to an actual signature on the contract.

David Arcaro: Okay. Understood. Yeah. Thanks for that color. That makes sense. And then maybe on the rate case in Texas and West Texas. Just wondering if there’s any anticipated areas of focus in terms of challenges or any issues that you think with getting the grip re-upped now that you’re getting into the next iteration of those longer-term programs there.

Christopher Forsythe: Yeah. David, I would characterize these rate cases again coming to the end of the five-year group cycle or being stipulated by a prior settlement just really focused on the I’m gonna call the blocking and tackling the regulatory mechanism to refresh the RWA, the cap structure, we’re asking for, you know, various riders seem to move to SSI or what other utilities in the state have previously received. So yeah, these are not maybe potentially new to Atmos, but certainly not new in terms of concepts. That have been discussed that within the regulatory framework in Texas. So again, our team is doing a great job in working through the regulatory process as I mentioned, we’re hopeful to have all of these wrapped up by the end of the spring.

David Arcaro: Okay. Got it. Good to hear. Thanks so much. I appreciate it.

Operator: Our next question comes from the line of Beshi with Barclays. Please go ahead.

Beshi: Hi, good morning team. Thanks for taking my question. I congrats on another successful quarter. I just really have one follow-up regarding balance sheet to support both rating outlook since it’s been a year almost a year that we had the last credit update. And with higher equity issuance, just in the first quarter this year, you reported and the colors you just provided on the equity plan on an annualized basis. How should we think about AFFO debt metric going forward? Thanks.

Christopher Forsythe: Sure. Yes. Hi. This is Chris. So, you know, as you mentioned, Moody’s has put us on the negative outlook back in April of last year. They typically take about twelve months to refresh their outlook and their whole management process. We’ve been in communication with them on a regular basis since April, providing them updates as sort of what we provided to the investment community around the new five-year plan. Take a look at the FFO to debt, and we’ll see where they come out probably by the end of March, early part of April. Based upon the timing. But again, you know, as we think about our financing strategy, we realize the equity capitalization for this day it’s benefited us many, many times over the last five years through pandemics, you know, but economic volatility, winter storm, Uri, and the like.

We feel like that’s a very comfortable position to be in. And so we’re see where Moody’s comes out on that, but we have factored in various alternatives within our planning cycle depending on how the rating checks out. But ultimately, you know, if it’s a one or one notch downgrade perhaps, it probably should not have much of an impact on financing cost at all.

Beshi: Perfect. Thanks for the colors. Appreciate it.

Operator: Our next question will come from the line of Ryan Levine with Citi. Please go ahead.

Ryan Levine: Good morning.

Kevin Akers: Good morning.

Ryan Levine: I guess given all the headlines at the federal level around tariffs, wanted to hear your comments around the impact of Chinese and potentially Mexican tariffs around O and M and CapEx. I assume it’s small, but any color you could share?

Kevin Akers: Yeah. Ryan, we continue to watch that. I’ll start with saying we’re very pleased to see the support both with some of the executive orders and through press conferences for the oil and natural gas industry. What we do what the men and women of the oil and natural gas industry do every day to fuel this energy demand and provide for national security. Very proud of of what our folks continue to do. It’s good to see and hear that recognition. We continue to watch as executive orders come out. We continue to communicate with our key stakeholders at the federal level as well. On the tariff piece of it, to that part of your question, just saw recently where those were put on pause. So we’re gonna continue to work with our vendors and suppliers, manufacturers, to see which of any components that we currently have sourced are either fully made overseas or all made here or parts brought here to and assembled here in the United States.

So right now, I would say they’d probably be on the lower end if at all, but we’re continuing to work vendors and suppliers. To put a handle on that and anticipate what that may look like as we go forward.

Ryan Levine: If there were to be an upward pressure on cost, you can you remind us around the regulatory mechanisms across your service territory to allow for recovery on the capital side?

Kevin Akers: Yeah. Again, we have annual mechanisms and just about every jurisdiction. One place will have traditional cases, like the ones Chris mentioned today. Like Kentucky, like Virginia. Or Kansas, those would be the ones where we’d go in to recover any of those costs should they show up. But at this point, again, continue to work and identify with our suppliers and vendors if there is anything that would would show itself.

Ryan Levine: Thanks. And then on the Sibor van, in terms of federal announcements around Stargate and Seven. Potential developments in the Abilene, the extent there’s consumption in that region. Would that have any impact on your business?

Kevin Akers: Well, again, if if a customer wants to sign a contract and come on to our system, it’d more than likely be on the APT system. There. And as you know, we have APT system. that seventy-five, twenty-five percent sharing mechanism with the customers. And that would be on available capacity on an interruptible basis. customer being on So we would share any upside that would come through from that with those customers at a seventy-five percent rate.

Ryan Levine: Thank you.

Operator: And that will conclude our question and answer session. I will now hand the call back over to Daniel Meziere for any closing remarks.

Daniel Meziere: We appreciate your interest in Atmos Energy, and thank you again for joining us this morning.