Atmos Energy - Earnings Call - Q3 2025

Executive Summary

• Atmos Energy delivered a steady Q3 FY25 with modest beats: EPS $1.16 vs $1.146 consensus and revenue $838.8M vs $823.0M consensus, helped by regulatory outcomes, customer growth, and stable APT throughput; management raised FY25 EPS guidance to $7.35–$7.45 from $7.20–$7.30, citing a ~$0.10 uplift from new Texas legislation (HB 4384) effective June 20, 2025.*
• Year-to-date, EPS reached $6.40 on $1.0B net income; capex YTD $2.6B (≈86% on safety/reliability); equity capitalization ~60% and liquidity ~$5.5B, underscoring a strong balance sheet to fund ~$3.7B FY25 capex.
• Regulatory momentum continues: ~$170M in annualized regulatory outcomes implemented in Q3 and $351M YTD (press release cited $321.8M YTD), with ~$229M in progress; timing favors continued 2025–26 earnings visibility.
• Long-term algorithm intact: management reiterated 6–8% annual EPS growth and sees improved cash flow benefiting financing flexibility; $1.7B in existing equity forward proceeds largely covers FY25–26 equity needs.
• Key near-term stock catalysts: the HB 4384 deferral benefit realization into Q4, the Abilene data center load ramp (APT rider revenue share), and continued rate implementations into FY26.

What Went Well and What Went Wrong

What Went Well

• Guidance lifted again: FY25 EPS guidance raised to $7.35–$7.45 (from $7.20–$7.30 in Q2 and $7.05–$7.25 in Q1), driven by TX legislation benefits, APT through-system expectations for Q4, and improved collections.
• Demand and growth: YTD added ~58k new residential customers (~45k in Texas) and 22 new industrial customers (anticipated ~3.4 Bcf annual load when fully operational), reinforcing structural growth in Texas and across LDCs.
• Capital and liquidity: ~$5.5B liquidity, $1.7B forward equity capacity pre-funded, recent $500M 10-year notes at 5.2%, and weighted average debt cost ~4.17% with ~17-year average maturity support the capex plan.

Quoted: “Our third quarter results reflect the hard work and dedication… while safely and reliably operating our natural gas distribution, transmission, and storage systems” — Kevin Akers, CEO.

What Went Wrong

• O&M inflationary pressures: Consolidated O&M up ~$85M YTD from higher labor, line locate, pipeline inspection, system monitoring, and bad debt; management still targets FY25 O&M ex-bad debt of $860–$880M, implying tighter Q4 control.
• APT through-system normalization: After strong 1H, management expects FY25 through-system contribution roughly in line with FY24 and a more “normal” environment for FY26, limiting upside from spreads/volumes.
• Data inconsistency on YTD regulatory outcomes: The press release cited $321.8M implemented YTD vs CFO’s $351M on the call; though both signal solid rate momentum, the discrepancy may require follow-up for modeling precision.

Transcript

Operator (participant)

Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's Atmos Energy Corporation Fiscal twenty twenty five Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Thank you. I would now like to turn the call over to Dan Mazier, Vice President of Investor Relations and Treasurer. Dan?

Daniel Meziere (VP - IR & Treasurer)

Thank you, Greg. Good morning, everyone, and thank you for joining our fiscal twenty twenty five third quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer and Chris Forsyth, 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 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 Akers, our President and CEO. Kevin?

Kevin Akers (President, CEO & Director)

Thank you, Dan. Good morning, everyone, and thank you for joining us today. Yesterday, we reported year to date fiscal twenty twenty five net income of $1,000,000,000 or $6.4 per diluted share. And we updated our fiscal twenty twenty five earnings per share guidance to a range of $7.35 to $7.45 This performance continues to reflect the commitment, dedication, focus and effort of all Atmos Energy employees to successfully modernize our natural gas distribution, transmission, and storage systems while safely providing reliable natural gas service to 3,400,000 customers in 1,400 communities across eight states. The Texas Workforce Commission reported in July that the seasonally adjusted number of employees reached 14,300,000.

Texas again added jobs at a faster rate than the nation over the last twelve months ending June, adding over 198,000 jobs representing a 1.4 annual growth rate. We also continue to see the value and vital role that natural gas plays in economic development across our service territories. For the twelve months ended 06/30/2025, we added nearly 58,000 new residential customers with almost 45,000 of those new customers located here in Texas. Commercial customer growth remained solid as well with approximately five seventy five new customers connecting to the system during the second quarter and over 2,500 new customers connecting to the system fiscal year to date. Industrial demand for natural gas in our service territories also remained strong.

During the third quarter, we added three new industrial customers. In fiscal year to date, we've added 22 new industrial customers with an anticipated annual load of approximately 3.4 Bcf once they are fully operational. On a volumetric basis, this load is comparable to adding approximately 67,000 residential customers. During the third quarter, ADT entered into a contract to transport natural gas to a customer that will generate on-site power to serve a data center in the Abilene area. The data center is expected to be fully operational by the end of the calendar year.

And at that time, we anticipate APT will provide approximately 30 Bcf of gas annually to support this data center. As a reminder, revenues earned from this contract are included in APT's rider rev mechanism. Therefore, 75% of this revenue will benefit APT's LDC customers. Our consistent performance reflects the vital role we play in every community that is safely delivering reliable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. During the third quarter, our customer support associates and service technicians received a 97% satisfaction rating from our customers, reflecting once again the exceptional customer service they provide each and every day.

Our customer advocacy team and customer support agents continued their outreach efforts to energy assistance agencies and customers during the first nine months of the fiscal year. Through those efforts, the team helped over 48,000 customers receive nearly $17,500,000 in funding assistance. Additionally, Atmos Energy has been named twenty twenty five's most trusted brands by data analytics and advisory firm, Eskom. Eskom surveyed residential natural gas customers, electric and combination customers of the 148 largest US utility company. Atmos Energy placed first among all 40 utilities in the South Region and received the highest score by any utility in any region nationwide.

Before turning the call over to Chris, I want to briefly comment on recent Texas legislation, House Bill forty three eighty four, that became effective on 06/20/2025. At a high level, this legislation authorizes a gas utility to defer for future recovery as a regulatory asset post in service carrying costs, depreciation and ad valorem taxes associated with the unrecovered gas gross plant for noneligible a 02/2009 capital investments such as new customer growth and system expansion. This legislation also instructs the Railroad Commission to adopt rules to implement section one zero four dot three zero two of the utilities code as added by this act no later than February after the effective date of this act. Before the passage of this legislation, approximately 45% of our total capital spending qualified for Rule 8.209 treatment. Applying the language of this legislation means that approximately 80% of our capital spending is eligible for Texas deferral treatment.

We believe most of the new capital covered by this legislation is associated with APT. We are currently in the process of updating our fiscal twenty six capital budget in a five year plan, and we will provide a full update to the five year plan during our fourth quarter earnings call in November. As I turn the call over to Chris, I want to share that our hearts and prayers continue to be with our teammates, families, and neighbors in the San Angelo, Kerrville, Ingram, Burnet, and other communities that were tragically impacted by the floods. No words can fully comfort you and the community for your loss, But please know that we, as your teammates, friends, and neighbors, stand alongside you in support and are here to lend a helping hand. Chris, over to you.

Christopher Forsythe (SVP & CFO)

Thank you, Kevin, and good morning, everyone. Yesterday, we announced fiscal year to date diluted earnings per share of $6.4 compared to $6 per diluted share in the prior year period. Our third quarter and fiscal year to date financial results continue to be driven by regulatory outcomes reflecting increased safety and reliability spending, customer growth and strong through system revenues at APT. Regulatory outcomes in both of our segments increased operating income by $322,000,000 Residential customer growth and rising industrial load in our distribution segment increased operating income by an additional $22,000,000 Revenues in our pipeline and storage segment increased $12,500,000 primarily due to increased throughput. Approximately $11,000,000 of this increase was recognized during the first six months of the fiscal year.

As we discussed during our second quarter call, we expected the contribution from APT's TruSystem business in fiscal twenty twenty five to be comparable to what we experienced in fiscal twenty twenty four, with most of this contribution realized during the first half of the fiscal year. APT's third quarter was in line with our expectations and we continue to believe the contribution of APT's TruSystem business in fiscal twenty twenty five will be in line with fiscal twenty twenty four. ATT also experienced a $12,500,000 increase due to higher capacity contracted by tariff based customers due to their increased peak day demand. Consolidated O and M increased $85,000,000 This increase is primarily due to higher employee related costs, increases in line locate, pipeline inspection and system monitoring activities and higher bad debt expense. As a reminder, we recognized a $14,000,000 non recurring reduction in bad debt expense in the 2024 resulting from a regulatory change in how we recover our bad debt expense in Mississippi.

As expected, O and M in the third fiscal quarter trended higher than the prior year quarter, but we still expect fiscal twenty twenty five O and M excluding bad debt expense to be in the range of $860,000,000 to $880,000,000 Assuming the midpoint of this range, we anticipate O and M in our fourth fiscal quarter will trend approximately $10,000,000 lower than the prior year's fourth quarter. Consolidated capital spending increased 22 to $2,600,000,000 with 86% dedicated to improving the safety and reliability of our system. This increase reflects higher safety and reliability spending and higher spending to support customer growth in both of our segments. We remain on track to expand approximately 3,700,000,000 this fiscal year. During our third fiscal quarter, we implemented approximately $170,000,000 in annualized regulatory outcomes including the West Texas General Rate Case, APT's annual grip filing, annual filings for the City Of Dallas and Tennessee and the Kentucky General Rate Case.

Fiscal year to date, we have implemented $351,000,000 in annualized regulatory outcomes. And currently, have $229,000,000 in annualized outcomes in progress. Of this amount, approximately $2.00 $5,000,000 is associated with our annual RRN filing in Mid Tex and a general rate case in Mississippi. We anticipate implementing new rates from these filings in the '26. Our financial position continues to remain strong.

We finished our third fiscal quarter with an equity capitalization of 60% and approximately $5,500,000,000 of liquidity. This amount includes $1,700,000,000 in net proceeds available under existing forward sale agreements that fully satisfy our anticipated fiscal twenty twenty five and fiscal twenty twenty six equity needs and a portion of our fiscal twenty twenty seven equity needs. In June, we issued 500,000,000 in ten year notes with a coupon of 5.2%. As a result, our overall weighted average cost of debt as of June 30 stands at 4.17% and our debt profile remains very manageable with a weighted average maturity of approximately seventeen years. Turning now to our guidance, we anticipate the impact of adopting the new Texas legislation will increase our expected earnings per share in the 2025 by approximately $0.10 Additionally, updated guidance range includes our expectations for APT's through system business during the fourth quarter and an improvement in our past due collections experience.

Therefore, as we reported last night, we have updated our fiscal twenty twenty five earnings per share guidance to a new range of $7.35 to $7.45 from the prior range of $7.2 to $7.3 Looking forward to '26, as Kevin mentioned, we are still working through our five year plan. As of today, we believe earnings per share will continue to grow in a range of 6% to 8% annually. We will provide a full update to our fiscal twenty twenty six earnings per share guidance and a full update to our five year plan for our fiscal fourth quarter earnings call in November. We appreciate your time this morning and we will now open up the call to questions.

Operator (participant)

Great. Thank you so much.

All right. Looks like our first question today comes from the line of Richard Sunderland with JPMorgan. Richard, please go ahead.

Richard Sunderland (Equity Research - North American Utilities & Power)

Hi, good morning. Thank you for the time today.

Kevin Akers (President, CEO & Director)

Good morning.

Christopher Forsythe (SVP & CFO)

Good morning.

Richard Sunderland (Equity Research - North American Utilities & Power)

I just want to start with that zero one zero dollars increase from the Texas legislation that you called out. Is that that essentially a half year's impact of the legislation that you're you're booking all in four q? Or how do we think about that $0.10 relative to the total uplift potential from the legislation?

Kevin Akers (President, CEO & Director)

Yes. This is Chris. So the $0.10 reflects the impact of legislation beginning June 20 when the legislation became effective through the end of fiscal twenty twenty five, so effectively one quarter.

Richard Sunderland (Equity Research - North American Utilities & Power)

Okay. Okay. Understood. That's helpful. And then I wanted to parse the through system commentary a little bit more.

I know you'd said flat to '24 levels. Could you remind us what you'd originally expected in 2025 on that front? I guess I'm just trying to think of the puts and takes of the Texas benefit relative to the through system activities and how that might impact growth at '26? Thank you.

Christopher Forsythe (SVP & CFO)

As we think about on the through system business, we really didn't as we talked about a year ago, we had anticipated spreads that were probably more in line with historical norms. Obviously, the first quarter, quarter and a half of this fiscal year with some of the takeaway capacity that had been delayed into late last year into early this year, that drove spreads. We also saw some volumes. As we think about fiscal twenty twenty six, as we sit here today we're anticipating probably a more normal operating environment both from a throughput and a spread perspective. And we'll adjust as we move through the fiscal year based upon what happens with the market.

Kevin Akers (President, CEO & Director)

Yes. I'll just add to that again. Think it's little early to start trying to see out there a crystal ball at 26% is going to be. I think if you look right now, we've to get through the rest of the summer cooling load, see where production continues to be at that point. We'll know more as we get closer to our updated five year plan what that may look like.

Richard Sunderland (Equity Research - North American Utilities & Power)

Great. Thanks for the time today.

Kevin Akers (President, CEO & Director)

Thank you.

Christopher Forsythe (SVP & CFO)

Thank you.

Operator (participant)

Thanks, Richard. All right. Looks like our next question comes from the line of Christopher Jeffrey with Mizuho Securities. Christopher, please go ahead.

Christopher Jeffrey (Equity Research Senior Associate)

Hi. Good morning, everyone. Just wanted to follow-up on the project discussed in the Abilene area with the data center. Just curious if you could kind of size up how big of a capital outlay that would be, whether you're seeing other potential projects like that in, you know, throughout the system.

Kevin Akers (President, CEO & Director)

Again, as we said on our previous calls, we continue to get inquiries in almost every state that we have right now, and they they continue to go back and forth. Some of them are are stand alone. Some of them are grouped together. But again, we'll we'll continue to report on those once we have signed contracts and agreements to deliver natural gas service. But inquiry continues to be strong across the service territory.

It's a matter of when those projects actually are signed and and ready to break ground on those. As we move into the rest of the the calendar year and into next year, we'll see how the load continues to develop on those. That that particular project there in Abilene, Again, we may have a little bit more additional clarity on growth of that load as we finish up our five year plan.

Christopher Jeffrey (Equity Research Senior Associate)

Great. Thank you, Kevin. Then maybe just a point of clarification. You mentioned, I think, 45% total spending previously qualified for $2.00 9,000,000 and that moves up to 80%. Is that just in Texas?

Or are you talking about Atmos as a whole entity?

Kevin Akers (President, CEO & Director)

Yes. The 80% was Atmos as a whole entity, if you will. And again, as I said in my comments, we believe the majority of that increase is reflected through APT's investment. Again, going back to the growth that we mentioned in the call and continue to mention quarter over quarter, that's showing up and requires system investment and expansion as well as new supply points, expansion of storage, all those sort of investments on APT side to support the LDCs behind its system.

Christopher Jeffrey (Equity Research Senior Associate)

Got it. I guess just to follow-up on that point, it seems like looking at the change in guidance on Slide 13, most of the increase is coming from the distribution segment. So is the should we think of the increase from the tax benefit at APT or at or at distribution?

Christopher Forsythe (SVP & CFO)

When you say the the tax benefit, Chris, which benefit are you referring to?

Christopher Jeffrey (Equity Research Senior Associate)

Sorry, the legislation benefit, HB4385.

Christopher Forsythe (SVP & CFO)

Yes. I think right now it's roughly the way the we're forecasting our fourth quarter assets placed into service. It's probably two thirds distribution, one third APT for the fourth quarter.

Christopher Jeffrey (Equity Research Senior Associate)

Okay, great. Thanks everyone.

Operator (participant)

Thanks Christopher. And our next question comes from the line of Nick Campanella with Barclays. Nick, please go ahead.

Nicholas Campanella (Director)

Hi, good morning.

This is for Nick today and thanks for taking the time. I just have a quick clarification on the $0.10 So it sounds like we should annualize that. Just wondering how should we think about that, lumping that into the $6.06 to, 6 to 8%, annual CAGR, going into long term? Thanks.

Christopher Forsythe (SVP & CFO)

Yeah. It may be a little bit too simple to to, you know, just take 10¢, multiply by four, because what's predicated on how the when the deferrals start is when assets are placed in the service. So we have to think about what you know, for each one of our projects, both in distribution and APT or the timing or closings, if you will, placing those assets in the service vis a vis when they will be all be reflected in the rates. So as we talked about, we're modeling that impact, going forward, which is why we are had a full update on FY '26 as well for one year plan and the five year plan when we roll that update that in November.

Nicholas Campanella (Director)

Understood. That's helpful. And maybe just a follow-up, based off a stronger or more robust operating cash flow. I guess, how does that affect your thoughts on financing the future growth? And do you see any possibility to moderate external equity needs?

I mean, I understood you're mostly secured for 2025, 2026, but just wondering how should we think about that? Thanks.

Christopher Forsythe (SVP & CFO)

Yes, Faye, we'll continue to finance the corporation or operating cash flow needs in a balanced fashion using a blended mix of equity and long term debt. And again, what you see the increase in the operating cash flow, that was something we anticipated in developing the five year plan. And when we established the financing targets in that five year plan a year ago, that was contemplated.

Nicholas Campanella (Director)

Got it. Thanks for the colors. Appreciate it.

Operator (participant)

Thanks, Nick. And the last call for questions. Going once, going twice. Okay. There are no further questions.

So I will now turn the call back over to Dan Mazier for closing remarks. Dan?

Daniel Meziere (VP - IR & Treasurer)

We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. A recording of this call is available for replay on our website. Have a good day.