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Thank you for standing by. At this time, I'd like to welcome everyone to the Atmos Energy Corporation Fiscal 2024 First Quarter Earnings Conference Call. All lines will be placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. And now, I'd like to turn the call over to Dan Meziere, Vice President of Investor Relations and Treasurer. Please go ahead.

Thank you, Adam. Good morning, everyone, and thank you for joining us – for joining our fiscal 2024 first 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 26 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?

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. I want to begin today's call by thanking all 5,000 Atmos Energy employees for their exceptional effort and dedication to serving our customers under very challenging weather conditions recently. And thank you for all that you do for our customers and our communities every day. You are truly the heart and soul of Atmos Energy. Our first quarter results reflect that effort, dedication and focus as we continue modernizing our natural gas distribution, transmission and storage systems on our journey to be the safest provider of natural gas services. Yesterday, we reported fiscal 2024 first quarter net income of $311 million or $2.08 per diluted share and our first fiscal quarter capital spending was $770 million to support continued system modernization and growth across our service territories. For the 12 months ended December 31, 2023, we added over 58,000 new customers with over 44,000 of those located here in Texas. And the Texas Workforce Commission reported in January that the seasonally adjusted number of employees reached a new record high at over $14.1 million. Texas once again added jobs at a faster rate than the nation over the last 12 months, adding nearly 370,000 jobs in calendar 2023, representing a 2.7% annual growth rate. Additionally, we added 11 new industrial customers, which when fully operational, we anticipate consuming approximately 2.5 Bcf of gas annually, that is volumetrically equivalent to 45,000 residential customers. Commercial customer growth remained solid as well with over 1,000 commercial customers connecting to the system during the first quarter. This growing demand from all of our customer classes demonstrates the value and vital role natural gas plays in economic development 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 are seeing in the local distribution companies behind APT system. During the quarter, we placed in service line PC which connected the southern end of APT system with a 42-inch Kinder Morgan Permian Highway line that runs from Waha to Katy. Our 22-mile 36-inch line PC supports the current demand and forecasted growth to the north of Austin in both Williamson and Travis Counties located in Texas as well as increases supply diversity in this service area. Additionally, we placed in service Phase 3 of our 4-phase 104-mile line S2 project. As a reminder, line S2 brings supply from the Haynesville and Cotton Valley shale place to the east side of the growing Dallas-Fort Worth Metroplex. This third phase replaced 22 miles a 14-inch and 20-inch pipeline with 36-inch pipeline. The final phase of this project is scheduled to be completed by the end of this calendar year. And we completed the first phase of our Line WA Loop project, 24 miles of 36-inch pipeline. This multiphase project will fortify APT system that serves the Dallas-Fort Worth Metroplex by installing approximately 80 miles of 36-inch transmission pipeline. Our customer support associates and service technicians continued their exceptional customer service and once again received a 98% satisfaction rating from customers during the first quarter. Our customer advocacy team and customer support agents continued their outreach efforts to energy assistance agencies and customers during the first quarter. Through those efforts, the team helped nearly 17,000 customers received over $5 million in funding assistance. As a reminder, during fiscal 2023, our energy assistance teams helped over 60,000 customers receive over $29 million of financial assistance to help with their monthly bill. Before I turn the call over to Chris, I want to comment on an incident that the National Transportation Safety Board is investigating. The incident occurred at a Jackson, Mississippi residents on January 24 and resulted in one fatality. Atmos Energy is working with the National Transportation Safety Board and other federal and state regulators to help determine possible causes. We want to thank the first responders and emergency responders for their support and assistance. Our hearts, our thoughts and our prayers have been and continue to be with the family. I will 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, our fiscal 2024 first quarter earnings per share was $2.08, which represents an 8.9% increase over the $1.91 per share reported in the prior year quarter. Consolidated operating income increased to $399 million or 24% in the first quarter. This performance was driven by several factors. Rate increases in both of our operating segments totaled $84 million. Residential commercial customer growth, combined with higher industrial loads increased operating income by an additional $6 million. Consolidated O&M expense decreased $19 million, primarily driven by lower bad debt expense. In December, the Mississippi Public Service Commission modified how we recover uncollectible customer accounts. Previously, we have recovered these costs through a stable rate filing over a 12-month period. Effective April of 2022, we will now recur these costs for purchased gas cost mechanism over 24-month period, which will benefit our customers. As a result of this change, we reduced our bad debt expense by $14 million during the first quarter. Additionally, with this change, we now collect the bad debt portion of our uncollectible accounts through our purchased gas cost recovery mechanisms 88% of our customer base. O&M decreased an additional $5 million, primarily due to the timing of in-line inspection work at APT that we highlighted last fiscal year. Finally, operating income was favorably impacted by a legislative change in Texas to reduce property tax expenses. In the summer of 2023, the Texas legislature voted to allocate $18 million of the state's budget surplus to offset property taxes assessed on residential commercial property owners for calendar years 2023 and 2024. This legislation became effective during our first fiscal quarter after voters approved the legislation in November. In fiscal 2024, we expect this legislation will reduce our property tax expense by $20 million to $22 million. We recognize approximately $6 million of this impact during the first quarter. This reduction was not reflected in the fiscal 2024 earnings per share guidance we issued in November. We continued to execute our annual regulatory filing strategy. To date, we have implemented $167 million in annualized regulatory outcomes. This amount includes the $27 million associated with APT’s general rate case that was approved in December. We currently have about $61 million in progress and plan to make additional filings this fiscal year seeking $340 million to $370 million in annualized operating income increase. During the quarter we completed over $1.1 billion of long-term debt and equity financing, highlighted by the $900 million long-term debt financing we completed in October 2023. Additionally, we settled $254 million in equity forward agreement. This financing provides the necessary funding for our operations, while maintaining the strength of our balance sheet and overall financial profile. Our equity capitalization as of December 31 was 60% and we did not have any short-term debt outstanding. We also had $3.2 billion in available liquidity. This amount includes approximately $433 million of net proceeds available under existing foreign sale agreements, which is expected to satisfy the remainder of our anticipated fiscal 2024 equity needs and a portion of our anticipated equity needs for fiscal 2025. Our weighted average cost of debt is 4.1% and our weighted average maturity is approximately 18 years, with our next significant refinancing scheduled for June of 2027. And we continue to expect to have limited exposure to floating interest rates in fiscal 2024. Finally, we have $900 million in forward starting interest rate swaps in place to hedge portions or anticipated long-term debt issuances in fiscal 2025 and fiscal 2026. As a reminder, the effective weighted average treasury rate of these swaps is 1.54%. In closing, we are off to a good start for the fiscal year. The execution of our operational, financial and regulatory plans by our employees positions us well to sustain our success. We continue to expect fiscal 2024 earnings per share to be in the range $6.45 and $6.65 per share, inclusive of the favorable impact of the property tax legislation changes in Texas. Thank you for your time this morning. I will now open the call up for questions.

[Operator Instructions] Your first question comes from the line of David Arcaro with Morgan Stanley. Your line is open.

Hey, good morning. Thanks so much for taking my questions. Hope you’re doing well.

Good morning, David.

Let’s see. I might have missed the details here. Could you just elaborate a bit on that property tax impact and the change? What EPS impact does that have for the full year this year? And did you say it’s not currently embedded in the EPS guidance?

Yes. The property tax impact for the full fiscal year is expected to be between $20 million and $22 million pre-tax after taking into consideration the properties – the expected tax rates we put in our investor deck and the range of the share weighted average shares we have out there, we’re anticipating that impact between – to be between $0.09 and $0.11. And currently that is reflected in our current guidance. It was not reflected in our guidance previously.

Okay, got it. Understood. Thanks for that color. Let’s see. Wanted to get your color on growth in customer additions. It sounds like you’ve continued to see strong customer additions in the quarter. I guess, what are your expectations for that continuing, just given what you’re seeing in building activities and the economic backdrop in your service territories?

Yes. In our conversations with our builders and developers, obviously we’re still in the winter period, so connections on existing housing will continue through this period, but would anticipate that activity picking back up as you head into spring and construction picking back up. But again, if you look at some of the studies that have been out there for quite a while, we’ve referenced on other calls, one in particular, there’s an anticipated 1 million additional people projected to come to the Metroplex by 2028. So we think that’ll definitely impact housing, which is already low on an existing home sale on the current market basis. I think the inventory right now is currently around two months or so. We’re told they like to keep that somewhere north of about four to five months worth of inventory, so we could see the builders again trying to meet that demand, picking things back up in the spring as we head into that construction season. And again, we continue to see good diversified growth across the territory, particularly on the industrial side, with those 11 that we added this previous quarter, coming from fertilizer industry, vegetable oils, concrete, asphalt plants, a good mixture of a lot of things across all eight states.

Got it. That’s helpful color. I appreciate that. And then maybe just one more for me. I was wondering what your expectations are ahead of just a couple of the general rate cases you have later this year West Texas and MidTex. Just curious if there are any major things that you need to address, maybe out of the ordinary in those rate cases that would cause it to be a big ask or more contentious than usual?

No, there’s nothing contentious or unusual. And as a reminder, these general rate cases are being filed because those jurisdictions are under our grit mechanism. Here in Texas, we have five consecutive filings that we have to make before we going back in to basically refresh and reset equity capitalization ROEs and the like. So we expect these to be fairly down the middle type of filings with nothing out of the ordinary unusual, and we’re planning to make those filings sometime later this calendar year.

Okay. That makes sense. Thanks so much.

Thank you.

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Hey, good morning, guys. Thanks for the time. Appreciate it. Well done here. Look, just to follow-up on the first question. With respect to the tax change here, I mean, just are there other offsets? Do you think about this as being an opportunity to accelerate some work that you might have been contemplating for future periods here? Or is this kind of – really kind of expected to drop to the bottom line, if you will?

Yes, that’s a good question, Julien. I mean, at this point, we’re sitting here in the middle of the winter heating season, which we’re beginning to think about what we look like going into the summer months in terms of compliance work and other activities that’s still all under evaluation right now. And we’ll have a better update for you in May.

Right. Okay. Yes, fair enough. I get it. You’re not quite in the prime season. You got latitude here, curious to see what happens. To that end, though, if we can just – I know we’ve talked about the O&M backdrop a few different times since we’re talking about here. What are you seeing in terms of just as you plan ahead on this front, just being able to hold the line on the variety of different new customer costs and other factors that have driven up the inflationary bucket of late. I know that this inflation conversation is impacting over your peers. How are you thinking about that today here, especially within that range?

Yes, Julien, I mean, again, we stand by what we have out there in our deck and what we’ve talked about before in our 3% to 3.5% range that’s out there. Obviously, we have folks out on the system ensuring reliability this past winter storm with Heather, which I think we did an exceptional job of continuing to serve our customers out there in that historic winter storm. So we’ll continue to evaluate opportunities, whether those are hydrostatic tests on APT, compliance work across the system. So at this point, we’re still comfortable with the range we have out there and where we set the first quarter into the fiscal year.

Yes. All right. Well, guys, and just one quick follow-up here, if I can, since you mentioned, we’re still here in the sort of winter season. Obviously we saw winter dynamics play themselves out in recent weeks across some of your – a good chunk of your service territory. Any considerations about how your system performed and/or commentary about how that positions you? Again, I get that a lot of this is ultimately just servicing your customers here and flow throughs, numerous set of riders across your jurisdictions. But any commentary about the experience in recent weeks, obviously in sharp contrast to some prior years here.

Yes, as I said at our opening, very proud of all 5000 Atmos Energy employees. I think we did an exceptional job with this winter storm. The severity that it came in, I think depending on where you want to look at for heating degree day data, it was some 78% colder than normal in some locations, 200% colder than last year. So again, this takes a sustained period of investment in infrastructure improvement across your system. Obviously we did a lot of projects from last year, but we've been at this now for over 12 years. Improving our infrastructure, that's what allows us to be able to serve during these historic periods when they come in. You just can't do that overnight. I think our team's done a good job of identifying opportunities throughout the years and executing on those projects, but also very proud of our product. Look, for that week, I think we set a record across the country at a 174 Bcf of natural gas, with a peak of 72 Bcf for residential and commercial. So again, very proud of natural gas and what it does. And I think if you look at the energy output for that week, according to EIA, natural gas, petroleum and coal consumed 85% of the energy demand for that period. So very proud of what we continue to do as an industry.

Excellent. Well, we'll leave it there. Thank you, sir. Appreciate it.

Thank you.

Your next question comes from the line of Richard Sunderland with JPMorgan. Your line is open.

Hi, good morning and thank you for the time today. I'd like to circle back on the property tax item one more time, if I could, just to be clear on that benefit. Is what you quantified the full amount of the benefit, or is that net of any reserves for return to customers? How are you thinking about that latter portion?

Yes. That number is the benefit relative to our guidance for fiscal 2024. We don’t have I mean, what will happen is for accounting purposes; we recognize the impact in this fiscal year. Over the next couple two and a half years, we'll return that benefit back to our customers through our various mechanisms here in Texas. So it's really a temporary timing difference, if you will, but it does impact our financial results for fiscal 2024. And as I mentioned earlier, we'll have an update on what we think that will impact us for the full fiscal year later this fiscal year – I guess primarily in our next call.

Okay, understood. Very helpful color there. Thank you. And then just turning to the Fort Worth incident, I was curious if you could talk a little bit about the site status. Just seen some media headlines around debris removal. Any current color there would be helpful. Also, who is currently investigating?

The site, I believe has been turned over according to the articles that we're seeing. The information that's been related to us back to the owners of it, I believe, and they're in charge of the removal at this point. And obviously you've seen our statements out there, our press release that our system has been tested and was not involved.

Great. Thank you very much.

Thank you.

Your next question comes from the line of Nick Campanella with Barclays. Your line is open.

Hey everyone, thanks for taking my question and sorry to ask about property taxes, but I just wanted to triple check what's the negative offset to that $0.09 to $0.11 property tax in the guide for 2024?

Well, right now, Nick, as we talked about a couple of minutes ago, we're still in the middle of the winter heating season. We need to see how our margins hold up as we move into January, February, March. We still evaluating our O&M needs for the fiscal year. So we felt it was prudent to maintain the guidance in this range at this point and provide a more thorough update once we get through the winter heating season.

Hey, I really appreciate that. And then Chris, I know you said in your prepared remarks you're fully priced for 2024 equity needs. How much is remaining left to do for 2025 before you've kind of taken care of that fully?

Yes, we still have ways to go on that for legal reasons, I can't say precisely how much it's been priced, but under the terms of the agreements that we have in place. But we will just continue to stay ahead of our equity needs through the ATM throughout this fiscal year in preparation for FY 2025.

Got it. And then just one last one for me. I know that the LDC M&A market continues to be active and there's potentially even processes going around in states that are either adjacent or in your current territories. I’m just – can you just remind everyone what your kind of – your message is around M&A and your philosophy there? Thank you.

Sure. Be glad to. Again, we've talked about our growth on every call here for several years now. We continue to grow at close to 2% or above 2%, particularly in our Mid-Tex Division there. So we have that mechanism with good organic growth. You couple that with the rate construct that we have, where we start to earn on 90% of our investment in six months, 99% in 12 months. It's hard for us to see any sort of deal that could compete with the growth and regulatory construct that we have. So we're very proud of our systems, what we do, our relationships, our execution on that. So at this point we are continuing to focus on and remain dedicated to system modernization.

All right. Can't say I expected a different answer. So that's very much in line. Thank you so much. Have a great day.

Thank you.

[Operator Instructions] And our next question comes from the line of Ryan Levine with Citi. Your line is open.

Hi, everybody.

Morning.

Is there any color you could share around what you're seeing in the legislative sessions and across your service territories? Is there any bills that are being proposed that you're watching closely or that could have an impact on your business or outlook?

All right. I think it's still very early in a session. Those just really kicked off in some of our jurisdictions. We'll continue to monitor those, but at this point we'll let them go about their required activity and duties and we'll continue to monitor.

Okay. And then in terms of the pipelines or LDC network itself, are you seeing any jurisdictions that are looking to rerate some types that may be classified as transmission to distribution or anything along those lines?

No, we're not is the short answer to the question? Again, I believe those are all business decisions based upon the regulations at the federal level and the state level.

Okay. Appreciate that. Thank you.

Your next question comes from the line of Gabriel Moreen with Mizuho Securities. Your line is open.

Hi, this is Chris Jeffrey on for Gabe. Just one quick one on the O&M side. Just seemed like there was a change in the bad debt expense treatment that came through on the quarter. Wondering, is that all kind of realized now? Or will that continue to flow through future periods? And was that contemplated in the original guide?

Yes, so the – I’m sorry property [ph] tax, too many questions are property tax on the bad debt expense that $14 million or so that we referenced, that was basically the impact for this fiscal year. We had hoped that that would come through. So that was basically reflecting in our guide.

Great. Thanks. That's it for me.

I will now turn the call back over to Dan Meziere for closing remarks.

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