Participants

Daniel Meziere; Vice President - Investor Relations, Treasurer; Atmos Energy Corp

Kevin Akers; President, Chief Executive Officer; Atmos Energy Corp

Christopher Forsythe; Chief Financial Officer, Senior Vice President; Atmos Energy Corp

James Ward; Analyst; Jefferies LLC

Richard Sunderland; Analyst; J.P. Morgan Securities LLC

David Arcaro; Analyst; Morgan Stanley Co. LLC

Fei She; Analyst; Barclays Capital Inc.

Ryan Levine; Analyst; $Citigroup Inc(C-N)$.

Presentation

Operator

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Atmos Energy Corporation Fiscal 2025 First Quarter Earnings Conference Call. (Operator Instructions)
I would now like to turn the conference over to Dan Meziere, Vice President, Investor Relations and Treasurer. Please go ahead.

Daniel Meziere

Thank you, Regina. 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 27 and are more fully described in our SEC filings.
I will 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 are truly the heart and soul of Atmos Energy.
Yesterday, we reported first quarter net income of $352 million or $2.23 per diluted share. In our first fiscal quarter, capital spending was $891 million to support continued system modernization and growth across our service territory. Customer growth continues to be solid as for the 12 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 12 months, adding nearly 284,000 jobs in calendar 2024, representing a 2% annual growth rate. Commercial customer growth remains solid as well with nearly 1,100 commercial customers connecting to the system during the first quarter.
And we added 11 new industrial customers which went 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 36-inch Line S-2 project was placed into service in December 2024, and we are now flowing additional supply from the Haynesville and Cotton Valley shale play for the east side of the growing Dallas-Fort Worth Metroplex. APT's Bethel to Groesbeck project has started. This project will install approximately 55 miles of 36-inch pipe from our Bethel storage facility to our Groesbeck compressor station, which will provide additional pipeline capacity to transport gas from our Bethel storage facility to the growing DFW Metroplex and the Interstate 35 corridor.
To enhance supply reliability and system versatility, APT completed two interconnect projects during the quarter, one on our Line S-2 near [Carthage] and the second near a growing service territory outside of Austin. Our customer support associates and service technicians satisfaction ratings remained high for the quarter at 98%. And our customer advocacy team and customer support agents continue their outreach efforts to energy assistance agencies and customers during the first quarter, helping over 16,000 customers receive $4 million in funding assistance.
Our employees' focus on customer service and process improvements was recognized in December, when for the third consecutive year, J.D. Power ranked Atmos Energy number 1 in customer satisfaction among midsized gas utilities in the Midwest. Atmos Energy is well positioned to continue safely delivering reliable and efficient natural gas to homes, businesses and industry that fuel our energy needs now and in the future.
I'll now turn the call over to Chris for his update.

Christopher Forsythe

Thank you, Kevin, and good morning, everyone. As Kevin mentioned, our fiscal '25 first quarter diluted earnings per share was $2.23, 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 was driven by several factors. Rate increases in both of our operating segments totaled $69 million. Residential commercial customer growth, combined with higher industrial loads, 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 to the first half of the first quarter due to maintenance and some unplanned outages 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&M driven by several factors. [Bad debt expense] increased $15 million. As a reminder, we recognized a $14 million nonrecurring reduction in bad debt expense in the prior year quarter resulting from a regulatory change in how we recover our bad debt expense in [site]. Employee-related costs increased approximately $11 million, primarily due to increased headcount to support company growth and higher overtime and standby costs driven by increased service work. We also experienced an $8 million increase in compliance and safety-related spending associated with increased [lease survey work] within our distribution segment, and time of the in-line inspection work in our pipeline, storage and other segments.
Finally, we experienced a $5 million increase in APT's system [safety and integrity] 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 to operating income.
We are 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 filings in Mississippi. Currently, we have seven filings in progress seeking approximately $126 million of annualized operating income increases. Included in this [filed form] is approximately $90 million in Texas 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 the settlement we reached in 2020.
Additionally, we require refresher rates following five years of grid volumes from portions of our West Texas division. During the first fiscal quarter, we filed two new cases in our Mid-Tex divisions seeking $20 million as the five-year grid filing cycle had ended for these jurisdictions. And in January, we filed our annual filing mechanism with the City of Dallas seeking a $30 million increase in annualized operating income. Finally, we have a general rate case in progress in Kentucky seeking 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 filings this fiscal year seeking approximately $300 million in annualized operating income increases.
During the quarter, we completed over $1 billion of long-term debt and equity financing, highlighted by the $650 million long-term debt financing we completed in October 2024. Additionally, we sold $380 million of equity forward agreements. Our equity capitalization as of December 31 was 60%, and we did not have any short-term debt outstanding. We offset $5.2 billion in available [equity]. This includes approximately $1.5 billion of net proceeds available under existing forward sales agreements, which is expected to satisfy the remainder or anticipated fiscal '25 equity needs and almost all of our anticipated equity needs for fiscal '26.
Our first quarter results have positioned us well to achieve fiscal '25 earnings per share 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.

Question and Answer Session

Operator

(Operator Instructions) Julien Dumoulin-Smith, Jefferies.

James Ward

You've got James Ward here, on for Julien. How is everyone?

Kevin Akers

Good to hear from you.

James Ward

Terrific. We're looking for a little bit more color. Pardon me, I'm a bit under the weather. So hopefully, I'm still clear enough to hear. But essentially, what we're looking for is a bit more color on sort of the higher CapEx plan announced last quarter looking at rate lags, earned ROE trajectory moving forward. It's a little more strategic, a little bit more high level. Just looking to get some incremental color as we sort of build in some of those the potential of what could be into our models, the art of the possible, so to speak, as our leader here likes to say. Additional color would be great.

Kevin Akers

Yes. 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 programs continue to be out in front of the growth that we just talked about on this call as well. We also heard some of the interconnects on this call that APT is putting into place, as well as some of the storage enhancements that we have going out there. So it's a continuation of what we had in 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 a continuation of the same strategy.

James Ward

Got you. Got you. I just wanted to clarify that. That's very helpful. I think you kind of covered most of what we'd actually set here as questions in the prepared remarks. So we really appreciate you guys giving that color. Anything else you could speak to just on the customer growth target? I know you addressed it initially, but just anything -- more color on sort of large-scale industrial and generation projects and so on? That would be our follow-on and I'll hop back in the queue.

Kevin Akers

Okay. Thank you. Yes, as we said on this call here, we continue to see good growth across all sectors, residential, commercial and industrial. On the industrial side, 11 new coming on this quarter alone, with about 2 to 2.5 Bcf of anticipated load there. We continue to have prospects. But again, we're not going to 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 going to be a customer.
But again, the economy, feedback from builders, developers, commercial developers as well continues to be strong across the entire service territory. So again, it's a continuation of what we've seen in the last several years and continue to hear from those folks that things are looking positive across our service territory.

Operator

Richard Sunderland, J.P. Morgan.

Richard Sunderland

Thank you for the time today. Within that $1.5 billion under the equity forward for '25 and most of '26, how much equity should we be modeling for 2025 specifically? And should we assume that ATM is ratable?

Christopher Forsythe

So we've traditionally talked about, again, equity -- equity long-term debt being issued in a balanced fashion throughout the fiscal year. So we have traditionally run in the $600 million to $800 million range. I think that's a good range to plan on for fiscal 2025. It will -- in terms of drawing it down, we talked about drawing down the $380 million in the first quarter. For the remainder of the fiscal year, it's just dependent on our cash flow needs and just where we see our balance sheet on any given point in time during the year. So we'll try to do it around those needs. It could be ready to work in 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 million to $800 million is helpful for '25, but then basically, as we roll forward through the years in your plans, so you're expecting that number to tick up annually? Is that the right way to think about it?

Christopher Forsythe

Yes, that's correct. As the capital continues to grow, kind of going back to be grid -- now the other question, we got $24 billion. In the five-year plan, we're about $3.7 billion this year. That will continue to grow somewhat ratably over the next few years. And the long-term financing will grow commensurately with that, again, in a balanced fashion using our long-term debt equity, with equity being through the ATM method.

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?

Kevin Akers

Yes. As we had talked about, we saw that spread widen early in the quarter and then come back to more normal, what we've traditionally seen this time of the year. And we'll just have to keep an eye on it as we move forward. It's going to 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. So again, I think we're just going to 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.

Operator

David Arcaro, Morgan Stanley.

David Arcaro

Let me see. We had a question on the power plant side of things. Maybe we've been hearing more about microgrids and new gas-fired power plants looking for long-term contracts for gas supply. So I guess I was wondering, are any of those 11 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 take the middle part of your question there first. No, these 11 are not new power facilities. They 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 supporting the medical industry.
As we've seen with those larger industrial loads, we continue to have inquiries across all eight states. But again, I don't want to 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, we'll continue to work with economic development, chambers of commerce, customers that want to talk about, think about or seek opportunities for natural gas supply in various locations, and we'll continue to answer their questions and wait until we get to an actual signature on a contract.

David Arcaro

Okay. Understood. That makes sense. And then maybe on the rate cases in Texas, I guess, Mid-Tex 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

Yes, David, I would characterize these rate cases, again, coming to the end of the five-year GRIP cycle or being stipulated by a prior settlement, just really focused on the, I'm going to call it, the blocking and tackling of the regulatory mechanisms and refresh the ROE cap structure. We've got a couple of items where we're asking for various riders, seen some SSI or what other utilities in the state have previously received. So these are not maybe potentially new to Atmos, but certainly not new in terms of concepts that had been discussed within the regulatory framework in Texas. So again, our team is doing a great job in working through the regulatory process. And as I mentioned, we're hopeful to have all these wrapped up by the end of the spring.

Operator

Fei She, Barclays.

Fei She

Congrats on another successful quarter. I just really have one follow-up regarding balance sheet to support both capital plan and the credit metrics. Could you comment on the Moody's 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 of this year you reported and the color you just provided on equity plan on an annualized basis, how should we think about FFO debt metric going forward?

Christopher Forsythe

Sure. Yes, this is Chris. So as you mentioned, Moody's has put us on the negative outlook back April of last year. They typically take about 12 months to refresh their outlook and their whole management process. We've been in communication with them on a regular basis since April, provided, obviously, updates certainly what we provided to the investment community around the new five-year plan, taking a look at the FFO 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, as we think about our financing strategy, we really like the equity capitalization where it is today. It's benefited us many, many times over the last five years through pandemics, economic volatility, winter storm era and the like. And we feel like that's a very comfortable position to be in. And so we're -- we'll see where Moody's comes out on that, but we have factored in various alternatives that within our planning cycle depending on how the rating shakes out. But ultimately, if it's a one notch downgrade, perhaps, it probably should not have much of an impact on our financing cost at all.

Fei She

Perfect. Appreciate it.

Operator

(Operator Instructions) Ryan Levine, Citi.

Ryan Levine

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

Kevin Akers

Yes, Ryan. We continue to watch that. I'll start with saying that 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 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 going to 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 are all made here or parts brought here 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 with our 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 costs, can you remind us around the regulatory mechanisms across your service territory for recovery on the capital side?

Kevin Akers

Yes. Again, we have annual mechanisms in just about every jurisdiction. The only place we'll have traditional cases are the ones Chris mentioned today, like Kentucky, like a Virginia or Kansas, those would be the ones where we 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 show itself as we continue to move forward.

Ryan Levine

And then on the similar vein in terms of federal announcements around [Star gain] and some potential developments in [Abilene], the extent there's added growth in generation and gas consumption in that region, would that have any impact on your business?

Kevin Akers

Well, again, if a customer wants to sign a contract and come on to our system, they'd more likely be on the APT system. And as you know, we have that 75/25 sharing mechanism with the customers behind APT system. And that would be on available capacity on an interruptible basis. So we would share of any upside that would come through from that customer being on with those customers at a 75% rate.

Operator

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

Daniel Meziere

We appreciate your interest in Atmos Energy and thank you again for joining us this morning. A recording of this call will be available for replay on our website through March 31. Have a great day.

Operator

Everyone, that will conclude today's call. Thank you all for joining. You may now disconnect.