Atmos Energy Corporation (ATO) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to Atmos Energy Corporation's Fiscal 2026 Third Quarter Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Dan Meziere, Vice President of Investor Relations and Treasurer. Dan, please go ahead.

Thank you, Lucas. Good morning, everyone, and thank you for joining our fiscal 2026 third 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 32 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin.

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year-to-date fiscal '26 net income of $1.2 billion or $7.33 per diluted share. And we reaffirmed our earnings per share guidance in the range of $8.40 to $8.50. Our capital expenditures for the fiscal year totaled $3.1 billion, with over 87% of these investments focused on enhancing the safety and reliability of our distribution, transmission and underground storage system. Across our service territories, we continue to see steady diversified customer growth. For the 12 months ending June 30, 2026, we added nearly 51,000 new customers with nearly 39,000 of those new customers located here in Texas. And during the third quarter, we added 600 commercial customers and over 2,500 commercial customers fiscal year-to-date. Additionally, we added 5 new industrial customers during the third quarter and 12 new industrial customers fiscal year-to-date. The 12 new industrial customers are anticipated to use approximately 950,000 Mcf per year once they are fully operational. That is volumetrically equivalent to adding 18,000 residential customers. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development across our Atmos Energy service territory. The Texas Workforce Commission reported that Texas once again added jobs at a faster rate than the nation over the last 12 months ending June 2026. And in 2026, Texas added 3 Fortune 500 companies, bringing the total number of Fortune 500 companies to 57, the most in the nation at the highest level in Texas since 2010. In APT, we continue to work to 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 company behind APT system. APT is currently working on 2 separate projects to the Southeast of the DFW Metroplex that will install a total of 29 miles of 36-inch pipeline to connect 2 adjacent compressor stations to our Tri-City storage facility. These projects enhance system reliability and capacity for gas transported from the Haynesville and Cotton Valley shale plays to our Bethel and Tri-City storage facility, all to support the growing DFW Metroplex. To the east of the Metroplex, we began construction of a bilateral compressor station in Carthage, Texas that will increase the capacity of our 36-inch line S2 pipeline. Finally, we are working on the final phase of the WA loop project to support growth in the northwestern portion of the Metroplex. This final phase will install 15 miles of 36-inch pipe, and it will complete a 92-mile 36-inch pipeline loop. All of these projects are currently scheduled to be placed into service by the end of the calendar year. This month, APT will submit its annual Rider REV tariff seeking to reflect $160 million to $165 million in revenue credits for LDC customers on the system between November 1, 2026, and October 31, 2027. If this amount is approved as filed, these customers will have received over $300 million in savings through the Rider REV mechanism from November 2023 through October 2027. Our customer support associates and service technicians continue to provide exceptional customer service, achieving customer satisfaction ratings in excess of 97% for the first 9 months of this fiscal year. Finally, during the first 9 months of the fiscal year, our customer advocacy team helped nearly 49,000 customers receive about $16.2 million in funding assistance. I'll now turn the call over to Chris for his update.

Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the first 9 months of the fiscal year was $7.33, which represents a 14.5% increase over the prior year period. Our year-to-date results include $132 million or $0.63 on the impact of Texas House Bill 4384, $71 million is recognized in our distribution segment and the remaining $61 million is recognized at APT. In addition to the impact of House Bill 4384, I wanted to highlight a few other drivers of our financial performance for the fiscal year-to-date period. Rate increases in both of our operating segments totaled $227 million. Operating income increased by an additional $41 million due to residential and commercial customer growth and increased customer load. APT's through-system revenues, net of Rider REV, increased about $34 million or $0.16. This increase continues to reflect significantly higher spreads realized during fiscal '26 compared with fiscal '25 that we've been discussing this entire fiscal year. During the first 9 months of fiscal '26, the spreads we captured averaged $4.66 compared with $1.77 in the prior year period, reflecting rising associated gas production, constrained takeaway capacity and lower demand due to unseasonably warm weather during the past winter heating season. Finally, consolidated O&M decreased $14 million, reflecting higher employee compliance and safety-related spending in our distribution segment, higher maintenance spending at APT, all offset by the impact of the implementation of the House Bill 4384 deferrals. From a regulatory perspective, since the beginning of the fiscal year, we have implemented $396 million of annualized operating income increases. Of this amount, $260 million was implemented during our third and fourth fiscal quarters. Currently, we have 7 filings in progress, seeking nearly $334 million in annualized operating income increases. We expect to implement most of this amount in the first quarter of fiscal '27. Our equity capitalization as of June 30 was 60%, and we do not have any short-term debt outstanding. At quarter end, we had $4.6 billion in available liquidity to support our operations. This includes approximately $937 million in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated fiscal '26 equity needs and a significant portion of our anticipated equity needs for fiscal '27. As we reported last night, we reaffirmed our fiscal '26 earnings per share guidance in the range of $8.40 to $8.50. APT's through-system business during the third fiscal quarter was in line with our expectations. Beginning in June, spreads have narrowed significantly now that additional takeaway capacity has come online, some sooner than expected. Additionally, O&M spending in fiscal '26 is trending slightly higher. We now expect fiscal '26 O&M, excluding bad debt expense be in the range of $875 million to $885 million. Finally, we remain on track to spend approximately $4.2 billion in capital expenditures for fiscal '26. We appreciate your time this morning and your interest in Atmos Energy. We'll now open up the call for questions.

[Operator Instructions] Your first question comes from the line of Constantine Lednev with Wells Fargo Securities.

This is [indiscernible] for Constantine. Great quarter. Given we are a quarter short of the year, do you anticipate to be in the top end of guidance? Do you anticipate any offsets to the strong year-to-date performance in 4Q? And maybe just a quick question around APT. Given where Waha has been trading, are contributions still moving in the same direction or do you anticipate some narrowing?

Yes. As we mentioned, we've reaffirmed our guidance in the range of $8.40 to $8.50. As I mentioned, APT's performance in the third quarter was in line with our expectations. But as I also highlighted, we are seeing a significantly narrower spreads beginning in the latter half of the third quarter and continuing that through today as a result of additional takeaway capacity coming online, some of which was coming online sooner than expected. A couple of different pipes expected to go online in the fourth quarter of the calendar year, and they came on one in late June and one here in late July. And they're beginning to ramp up, which has had a -- causing the compression of the spread. So all in all, we are standing by our $8.40 to $8.50 range for EPS for fiscal '26, and we will see where the fourth quarter takes us in terms of spread opportunities and other operational factors for the remainder of the fiscal year.

Got it. Okay. And just to squeeze a tiny question. Given the strength in fiscal year '26, do you feel you can carry some flex into fiscal year '27 just from an O&M and cost perspective? That will be all.

If I understand your question correctly, in terms of -- if you're talking about APT, we certainly had mentioned before that we would continue to reflect in our base plan that we will roll forward in the fall an amount coming from APT's through-system business in line with the benchmark that we have established at roughly $107 million. With respect to O&M in our 5-year guidance that we have out there right now, we anticipate a 4% O&M increase per year, and we'll refresh that when we roll forward the 5-year plan later this fall.

Your next question comes from the line of Richard Sunderland with Truist Securities.

I actually want to follow up on some of those APT questions. Just last quarter, I think it was an $0.08 to $0.12 range for 2H uptick you guys had spoken to. It looks like you captured most of that this quarter, but is $0.08 to $0.12 still the right range to be thinking about over that period, meaning moving for the balance of the year on 4Q?

Yes, Rich, thanks for the call. Thanks for the question this morning. As you mentioned, we did pick up the $0.08 in the third quarter with the tightening of the spreads. I would say that we're probably going to be in the lower end of that range at this point in that $0.08, $0.12. So we'll see. And again, we'll have to continue to see what happens with maintenance on some of this takeaway capacity where the summer heat loads going or winter -- cooling load, excuse me, and we'll just see where we go from that. But I think the lower of that. But I think the lower of that range is more appropriate.

Okay. That's helpful context. And then I also wanted to follow up on O&M. And just, I think, I ask sort of in a similar way, right? Like you took up the low end of the range, $10 million. I realize it's relatively modest, but is that reflective of any activities kind of getting pulled forward into '26 from '27? Or is that more around line locates, other kind of external drivers? Just curious to parse that a little bit and think about kind of '26 versus '27 O&M activity.