ONE Gas, Inc. Q1 FY2026 earnings call

• Delivered strong first quarter results with adjusted EPS growing 6% y/y despite warm winter. - Safety remains a priority, won Safety Achievement Award for 9th consecutive year. - Financial performance strong with adjusted net income $133.4M in Q1 vs $120.1M last year. - Regulatory activities: Oklahoma Natural Gas filed rate change, Texas Gas Service filed gas reliability program, Kansas Gas Service to file GSRS in Q3. - Completed $170M capital projects this quarter, Western Farmers Project on track for 2028, 1.6-mile pipeline for El Paso facility commissioned. - Line locating activity up 8.5% y/y with damages down 2%, plan to insource Watch and Protect function in Oklahoma, using AI for efficiency with over 12,000 hours labor savings annually.

Adjusted EPS grew 6% year over year in the first quarter. Adjusted net income for the first quarter was $133.4 million, or $2.11 per diluted share, compared with $120.1 million, or $1.99, in the same period last year. Revenues increased ~$27 million from new rates. Depreciation and amortization expense was down 6% year over year, and interest expense was down 9%. Oklahoma Natural Gas filed an annual performance-based rate change application seeking a $28.7 million adjustment. Texas Gas Service made a gas reliability infrastructure program filing seeking a $36.9 million revenue increase. Kansas Gas Service has not made a 2026 gas system reliability surcharge filing yet.

Affirmed financial guidance with adjusted net income of $306 million to $314 million and adjusted earnings per diluted share of $4.83 to $4.95. 2026 guidance did not assume rate reductions. Board declared 68 cents per share dividend unchanged from previous quarter.

• Historically warm winter in service territory impacted earnings, though weather normalization mechanisms tempered impact. - Regulatory filings and changes could affect revenue and rates. - Weather events like winter storm could impact gas prices and operations.

Q: Hey, good morning. Thanks for the time today. I realize there are a lot of moving pieces with 2026, but I wanted to start there. You called out the weather, line locates, and the Kansas GSRS filing timing. I guess a shift around that last one in consideration of the new legislation. How does this kind of aggregate in terms of line of sight to 2026? I guess is the weather putting you in a hole that you have to overcome? I'm just curious about the moving pieces here and how you see them stacking up.

A: Hey, Rich, it's Chris. Yeah, you're right. I noted in my prepared remarks that weather normalization mechanisms, while effective, didn't fully mitigate the impact of, you know, the warmth that we experienced in the first quarter. You know, there are both structural things that will be recognized later in the year that derive from that weather, and there are discretionary decisions that we'll make around managing that. So, you know, if you look at the structural, for example, in Kansas, capacity release of some of the pipeline capacity that we maintain, in part due to how warm it was. We didn't need it in the moment, and we don't need it in terms of storage refill. We can sell that capacity. We share that capacity release with customers. You'd have to look back a decade or more to find a weather dynamic that rivals this and where you'd see that similar type of structural delayed benefit, but that's part of what is present in the back half of the year. And then also, if you recall, Rich, last year we accelerated some O&M projects into 2025 that had originally been planned in 2026. That affords us some flexibility and optionality as we think about managing 2026. We had contemplated a sleeve of projects that we could pull forward from 2027 into 2026. formally assumed we would do them. They're not time sensitive. There's not a safety related or integrity component to them. So we can defer those projects and create somatic capacity in that way. Rich, this is Sid. You also mentioned Curtis's reference to the Watch and Protect program. You'll recall that we've had great success in sourcing line locating. and seen an improvement not only in performance, but significant savings. We're running that same play with watch and protect, and so it may feel counterintuitive to speak to the plan that we have to address the impact of weather. But I think it's important to continue those programs that we know are accretive both in the short term and the long term. They're investments that have a meaningful return. And so we'll continue to make those, but we wanted to be very clear and open with the support for our guidance because we have confidence in the plan and our ability to execute that over the course of the year.

Q: Yeah, Rich, this is Curtis. When we talk about late stage, that means we're literally talking about final contract terms and final needs of our customers, final design, final understandings of where they will be sourcing the gas supply from, because these are transport customers. They're not gas sales customers. So, in terms of the scale of those projects, I gave a sense of the magnitude overall. The one that we have announced that gives you a little bit of context, that's the largest one that we've ever announced. That's the Western Farmers project that we talked about at the end of last year. So other projects are more like the one that I mentioned in my prepared remarks that we've just signed that contract. It's not a large capital investment, but it's a meaningful contribution to our operations where we make that investment, it is very immediate accretive because it's not a large project to put into service. So that one would be maybe on the smaller scale of some of them that we're talking about. There was another part of Rich's question. The capital plan. The capital plan. So the way we think about that, Rich, or the way we give the guidance is In our five year plan in the earlier parts of the earlier years, the five year plan, those projects and those growth dollars are pretty specifically identified in what they're going to. Projects in the latter part of the year are there's several different options of those that will ultimately get commercialized, and so we think of those as filling in the bucket. Ultimately, is there the opportunity that those buckets may overrun with additional projects? Yes, that's a possibility. We'll just have to continue to see when customers decide to move forward with the projects and what the timing of that might be versus what we've assumed. And as that happens, we'll continue to update what that growth profile looks like.

Q: Hi, good morning, team. Good morning, Paul. Thank you for the time. Just to follow up on the prior question, could you quantify what that weather plus kind of the storage excess capacity in terms of like an EPS impact from all those kind of abnormal weather items in the quarter? And also, if you had the number, the benefit from that House Bill 4384 in the quarter as well?

A: Paul I don't i'd have to follow up with you, I mean we we broke out specifically for the Texas House bill the the non gap, you know the equity return component, but in terms of how much it impacted interest expense and depreciation I don't I don't have that offhand. TAB, Mark McIntyre: