ATMOS ENERGY CORP Q4 FY2024 earnings call

• Thanked veterans and noted Atmos Energy's 40th anniversary as an independent company. - Fiscal '24 marked 22 consecutive years of earnings per share growth and 40 consecutive years of dividend growth. - Capital investment of over $2.9 billion in fiscal '24 supported system modernization, including replacing over 850 miles of pipe and 55,000 service lines. - Added over 59,000 new residential and commercial customers in fiscal '24, with strong growth in Texas. - Customer satisfaction rating was 98%, and the customer advocacy team assisted over 57,000 customers in receiving nearly $23 million in energy assistance funding.

In Fiscal '24, the Distribution segment saw growth driven by new customers and industrial load, contributing to operating income. The Pipeline & Storage segment was impacted by market conditions such as WAHA spreads. Fiscal '24 earnings per share were $6.83, a 12% increase over fiscal '23. Excluding one-time items, earnings per share grew 9.2%. The Distribution segment's strong customer growth and rising industrial load increased operating income by $25 million, while the Pipeline & Storage segment's peak day demand and boosters activities contributed to operating income changes.

• Fiscal '25 earnings per share guidance range of $7.05 to $7.25. - Fiscal '25 capital spending guidance approximately $3.7 billion. - Dividend increased 8.1% to an indicated fiscal '25 annual dividend of $3.48. - Five-year plan contemplates $24 billion in capital investment, with over 80% focused on safety and reliability, aiming for 6% to 8% annual earnings per share growth and dividend growth, with EPS in fiscal '29 expected to be in the range of $9.15 to $9.55.

• Market conditions such as unplanned pipeline maintenance and delayed takeaway capacity affecting WAHA spreads. - Regulatory changes and compliance costs, including potential impacts on O&M expenses.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.

Q: 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.

A: 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.

Q: 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?

A: 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.