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Ladies and gentlemen, thank you for standing by, and welcome to the Atmos Energy Corporation Fiscal 2025 Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. I will now hand today's call over to Dan Meziere, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Tamika. Good morning, everyone, and thank you for joining our fiscal 2025 second 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 29 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. Yesterday, we reported year-to-date fiscal '25 net income of $837 million or $5.26 per diluted share. We updated our fiscal '25 earnings per share guidance to a range of $7.20 to $7.30. 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 3.4 million customers across 1,400 communities in 8 states. For the quarter, we continued to experience robust growth driven by continually favorable employment trends in Texas. For the 12 months ended March 31, 2025, we added nearly 59,000 new customers with almost 46,000 of those new customers located in Texas. The Texas Workforce Commission reported in April that seasonally adjusted number of employees reached a new record high at over 14.3 million. Texas again added jobs at a faster rate than the nation over the last 12 months ending March adding nearly 192,000 jobs, representing a 1.4% annual growth rate. Commercial customer growth remained solid as well with approximately 850 customers connecting to the system during the second quarter and nearly 2,000 customers connecting to the system fiscal year-to-date. Industrial demand for natural gas in our service territories also remained strong. During the second quarter, we added 9 new industrial customers with an anticipated annual load of approximately 8 Bcf once they are fully operational. Fiscal year-to-date, we've added 20 new industrial customers with an anticipated annual load of approximately 11 Bcf once they're fully operational. On a volumetric basis, that is equivalent to adding approximately 204,000 residential customers. This growth continues to highlight the value and vital role natural gas plays in economic development across our service territories. In APT, we continue our work on several projects that will enhance the safety, reliability, versatility and supply diversification of our system as well as support the continued growth we are seeing in the local distribution companies behind APT system. During the quarter, work started on Phase 2 of APT's Line WA Loop. This project will install approximately 44 miles of 36-inch pipe to the west of Fort Worth to support growth in the northwestern portion of the DFW Metroplex. This phase is expected to be completed by the end of the calendar year. Work continues on APT's Bethel to Groesbeck project as well. As a reminder, this project will install approximately 55 miles of 36-inch pipe from our Bethel storage facility to our Groesbeck compressor station to provide additional pipeline capacity to the growing DFW Metroplex and to the Interstate 35 corridor. This project is scheduled to be placed in service late calendar year 2025. APT completed 2 more interconnect projects during the quarter. Fiscal year-to-date, APT has added over 1 Bcf of additional gas supplies that will enhance supply reliability and versatility to support APT LDC customers. During the second quarter, our customers support associates and service technicians once again received a 98% satisfaction rating from our customers, reflecting the exceptional customer service they provide each and every day. Our customer advocacy team and customer support agents continue their outreach efforts to energy assistance agencies and customers during the first 6 months of the fiscal year. Through those efforts, the team helped nearly 32,000 customers receive over $10 million in funding assistance. Our results for the first half of fiscal '25 reflect the hard work and dedication of all Atmos Energy employees as we continue to safely deliver reliable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. I will now turn the call over to Chris for his update.

Thank you, Kevin, and good morning, everyone. Thank you for joining us today. As Kevin mentioned, diluted earnings per share for the first 6 months of the fiscal year was $5.26 represents a 6.7% increase over the prior year period. Operating income increased to $1.1 million or 14.6% for the first 6 months of the fiscal year. I'll highlight the key drivers of our financial performance. Rate increases in both of our operating segments totaled $185 million. Residential commercial customer growth in our distribution segment, combined with higher industrial load, increased operating income by an additional $14.4 million. Revenues in our Pipeline and Storage segment increased $11.4 million, reflecting a 10% increase in volumes transported across our system, combined with wider spreads between the Waha Header and the Western end of APT system and delivered points on the Eastern end and southern end of its system. APT also experienced an $8 million increase due to higher capacity contracted by tariff-based customers due to their growing peak day demand. Consolidated O&M expense increased $74 million. This increase was driven by several factors. Employee-related costs increased approximately $27 million primarily due to increased headcount and overtime to support company growth. Additionally, bad debt expense increased $15 million. As a reminder, we recognized a $14 million nonrecurring reduction in bad debt expense last fiscal year, resulted from a regulatory change on how we recover our bed debt expenses specific. We also experienced a $14 million increase in O&M associated with higher levels of line locating, pipeline inspection and system monitoring activities. Finally, we experienced a $9.4 million increase in APT system safety and integrity expense, which is offset by a corresponding increase in revenue, resulting in no impact to operating income. From a regulatory perspective, we have implemented approximately $153 million in annualized regulatory outcomes and we currently have over $389 million in progress. Of this amount, we anticipate implementing between $175 million and $180 million of annualized operating income increases in fiscal '25 with the remainder expected to be implemented in the first quarter of fiscal '26. Included in this amount is $39.2 million requested in our West Texas general rate case. On April 25, the administrative law judge issued a proposal precision with the following key recommendations. A 9.8% return on equity, actual capital structure, which reflects a 60.97% equity layer, approved over rate base totaling $1.2 billion, approval capitalized cloud computing costs as fixed assets recovered over a 15-year period, which essentially treat these costs as a capital expenditure rather than O&M line items and the authorization of 2 regulatory asset trackers. The first is the system safety integrity regulatory asset that allow us to defer O&M incurred after June 30, 2024, in excess of $3.5 million related to system, safety, integrity regulations adopted by Rail Commission and Vesa. These costs will be considered for recovery in a future rate filing. The segment provides for regulatory asset or liability treatment that capture the effects of changes in federal and state income taxes, including the corporate alternative minimum tax. The proposed precision is scheduled be considered by the Railroad Commission on May 13. If approved as filed, the settlement would result in a $30.6 million increase in annual operating income. In our Mid-Tex division, the 2 general rate cases we filed last fall for the ATM Cities Coalition and our environs customers were consolidated into 1 general rate case during the second fiscal quarter. As a reminder, this consolidated case represents approximately 15% of the Mid-Tex division's customer base. On April 30, we filed with the administrative law judge, a proposed settlement on this consolidated case. The key terms of the proposed settlement, ROE, capital structure and the accounting treatments I just described and the same as what is included in the West Texas disposal decision. Additionally, the recommendation includes approval of rate base allocable to these customers and approximately $1.1 billion. If the Ministry of Law Judge recommends a settlement for approval, we anticipate the settlement to be scheduled for consideration by the Rail Commission on June 10. If approved as filed, the segment will result in a $6.7 million increase in annual operating income. Additionally, we expect the Rail Commission will also consider APT's 2024 GRIP line for $77.2 million at its June 10 meeting. Finally, in Kentucky, we completed here in this week before the Public Service Commission regarding our general rate case. We anticipate a final order during our fiscal fourth quarter. Our balance sheet and financial position remains strong. Our equity capitalization as of March 31 was 61%, and we do not any short-term debt outstanding. During the second quarter, we extended our 4 credit facilities totaling $3.1 billion. At quarter end, we had $5.3 billion in available liquidity to support our operations. Included in this amount is $1.7 billion of net proceeds available from our ATM activities which is expected to satisfy the remainder of our anticipated fiscal '25 equity needs and all of our anticipated equity needs for fiscal '26. Our fiscal year-to-date performance gives us confidence to increase our fiscal '25 earnings per share guidance from a range of $7.05 to $7.25 to a new range of $7.20 to $7.30. We expect the remaining contribution to fiscal 2025 earnings per share to be recognized somewhat evenly by quarter in the back half of the fiscal year. The increase of our guidance largely reflects the strength of APT's through-system business during the first half of the fiscal year and our expectations for this part of APT's business for the remainder of the fiscal year. As a reminder, following a strong fiscal '24 performance, we entered fiscal '25, assuming a return to more normalized through-system marketing conditions as a result of increased takeaway capacity in the Permian Basin. Now we currently expect APT through-system business performed just slightly less than the prior year. However, the timing of these revenues in fiscal '25 is expected to be different than in fiscal '24. Through March 31, about half of the expected contribution for fiscal 2025 from this portion of APT's business has already be recognized. In the prior year, nearly 80% of APT's through-system business was recognized in the second half of the fiscal year. Additionally, we anticipate ad valorem taxes to be lower than planned and has increased our O&M spending to stay ahead of compliance work to further enhance the safety and reliability of our system. We will also perform some additional makes this summer to prepare for the upcoming winter heating season. We now anticipate our O&M, excluding bad debt expense, to be in the range of $860 million to $880 million. A significant portion of the year-over-year increase has already been recognized, and we anticipate O&M in the back half of fiscal '25 to be just slightly higher than in the same period in the prior year. Finally, our capital guidance -- capital spending guidance remains on track to be approximately $3.7 billion. We appreciate your time this morning and your interest in Atmos Energy. I'll now open up the call for questions.

[Operator Instructions] Your first question is from the line of Richard Sunderland with JPMorgan.

Appreciate all the commentary here. I wanted to start with guidance. It sounds like APT through-system activity certainly contributing to some of the upside here, is the higher guidance for 2025 a fair base to think about growth going forward? Or does some of that normalization that you had originally anticipated for '25 need to be factored in for growth for '26 and beyond?

Yes. It's a good question, Rich. So we'll still figure looking at what will happen for the rest of the summer. As you know, conditions are very volatile in the market right now. And as we set our fiscal '26 plans, we'll take a snapshot of market conditions, probably late summer, early fall, prior to us releasing our fiscal '26 guidance and updated 5-year plan to really reflect what we think will be truly reflective of that business for the next fiscal year.

Okay. Got it. Sounds like more to come. Again, similarly on the O&M, it seemed like some of the higher O&M for '25 is a pull forward from '26. Is that a fair characterization? How are you thinking about the higher O&M this year and any efforts that derisk '26 on that front?

Yes. A couple of things. There's certainly an opportunity to pull forward as I described with the lower-than-planned expense vis-a-vis our expectations also, we've talked many, many times, we are not a just-in-time company from an O&M spending perspective. So if we have opportunities to further stay ahead of our compliance deadlines or if we see opportunities coming out of the winter heating season this last 6 months, you need to get right for the next 6 months, we'll perform some additional maintenance in the summer months when our crews and folks are available. So it's a little bit of both. It's just kind of opportunistic based on the operating conditions of the system at this point in time as well as taking advantage of opportunities to pull forward a little bit from future periods.

Yes. The only thing I'll add to that is that, again, with the lesson we have of being in growth properties right now, we had an increase in the number of line located from the previous year. And we'll continue to see that probably going forward, just given the economic conditions that I discussed earlier in my remarks. So that's the other part of that O&M, if you will, sometimes with growth, people don't see that you'll have the increased line locating expense as well.

Got it. That's very helpful. Just a quick follow-up on the O&M discussion there. It sounded like in the Texas GRCs that there is some retroactive component to the reg asset tracker you were referencing. I may not be understanding all the puts and takes there. But just wanted to clarify, if you get the final orders in line with settlement, is that upside from that retroactive component and I mean, upside versus '25 guidance, to be clear.

At this point, we reflected in our guidance, our expectations for O&M and both the cloud computing treatments as well as the SSI current guidance.

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

This is actually Fei for Nick today. I just want to quickly follow up on financing. It seems like year-to-date equity issuance slightly higher than year-to-date 2024. Again, I think with higher capital plan, higher rate base growth, can you update us on the equity financing for the rest of the year, if there is any changes from the messaging from last quarter? And also kind of seeing the interest rate swap to be in a similar spot as last quarter. Just generally, can you speak to the strategy, managing the costs over there as well?

Sure. This is Chris. So I mean, our financing strategy hasn't changed since prior quarter or really for the last several years, we'll continue to finance the corporation in a balanced fashion using a combination of equity long-term debt with equity coming through the ATM. We talked about it had a $1.7 billion on the page now that's been priced to reflect our equity needs -- our anticipated equity for fiscal '25 as well as 2026. And we'll draw that down as the cash needs via corporation dictate when we need to use that. Additionally, from a long-term debt perspective, you know the swap that we have in place That's, again, tied to our anticipated debt issuance in the fall for anticipating a 30 year issues at this point in time. So at this point, we don't see any changes in executing that particularly that transaction, and utilizing that swap for the benefit of our customers.

Got it. That's very helpful. And I just want to follow up on economic development, and seeing the tremendous growth in Texas driven by C&I customers. Could you talk about, first of all, definitely generally need a gas need in the region. And obviously, you're adding a large quantity of new gas demand each quarter. I guess at this point, is there any pipeline of projects you're working on or if there's any quantifiable backlog that you can discuss? I'll leave it there.

Yes. I'm not sure about your question on backlog. We don't have a backlog per se. I talked about the 2 high-priority projects for APT, the WA Loop and Bethel to Groesbeck project right now. Additionally, we're finishing up work on our third salt-dome cavern as part of our integrity maintenance program. We anticipate that to be ramping up sometime in the next 9 to 12-month period that's out there. Everything else is all scheduled work that we have lined out on a 1-, 3- and 5-year basis according to the reliability, supply versatility and/or our risk model safety concerns or direction that way. Now, as we have in our slide deck, we point to 85% investment on capital for safety, reliability for the fiscal year-to-date period.

[Operator Instructions] Your next question is from the line of Julian Dumoulin, Jefferies.

This is Park on for Julian. Just really quick, legislatively, just wondering what are some of the key builds you guys monetary and what potential benefits or implications do they carry for your business? Like, for example, we noticed there's HB-4384 regarding the standalone depreciation tracker for gas LDCs, do you see that as a potential benefit for your business? Just any color on that 1 would be helpful.

Yes. We continue to monitor all the sessions across our 8 states. We have 2 that are currently closed or concluded their session Mississippi and Kentucky. Don't want to get too far ahead of the work that's continued to going on across our legislative bodies right now. But we do see some builds out there that have our interest right now, but we think it needs to go through the final steps of the legislative process. And then if they're related to the utility side of the business, they have to go to that particular jurisdictions commission to see how it falls into either tariffs or rules or action upon for that company. So I don't want to get too far out in front of what the legislature is going to do for the remaining session. But again, we're keeping an eye on everything that's out there.

That's very clear. And maybe just another housekeeping question. So since you raised the FY '25 EPS guidance, so the new guidance midpoint is now $7.25, should we use the new EPS guidance midpoint as the new EPS base?

When you say new EPS base, what do you mean there?

Is for calculating the 5-year CAGR?

At this point, I think that's a pretty fair assumption.

Your next question is from the line of Paul Fremont with Landenberg Bauman.

Congratulations on a strong quarter, and my question has been answered.

Your next question is from the line of Christopher Jeffrey with Mizuho Securities.

Congrats on a quarter…

We can't hear you on this end.

Sorry, is that better?

That's better.

Okay. So just A couple of quick ones from me. I just noticed the timing for the Colorado rate case expectation got pushed back a bit. Just any kind of thoughts on timing there and expectations for when you get to that case?

No, that's something we're always looking at. What we have going on in the jurisdiction where we have going on in other jurisdictions, ongoing conversation with our regulatory jurisdiction. So I wouldn't read a lot into that at this point. .

Great. And then maybe just on the West Texas, the cloud computing costs that you mentioned, Kevin, in the opening remarks, just kind of expectations for that to be implemented more wholesale across Texas or any other states? Does that kind of change how you're approaching thinking about those types of costs within rate base?

I just kind of view this as a continuation of our ongoing regulatory strategy or seeking to reduce lag where we can. Oftentimes, we'll start with an individual jurisdiction who will includes something into the regulatory construct. We then try to seek to replicate that in other states to the best of our ability. So we'll see where the rail commissions vote comes down next week. And then after that, from the May 13 for West Texas and again from Mid-Tex on June 10. And then we'll see if it makes sense for us to bring that to other jurisdictions within the enterprise.

Got it. And just to clarify, so that would be the first jurisdiction that that type of cost is included.

Correct.

Your next question is from the line of Ryan Levine with Citigroup.

Just a quick one. In terms of APT expansion projects, the business continues to grow pretty materially. What are the underlying growth assumptions that embed the expansion projects that you have underway? And what conditions would merit further expansion or upside to your existing plants?

It's all part of our planning process. Again, it's based on what the city models are and what they're seeing for growth population increases across the service territories, what we're seeing for demand anticipated capacity requirements off of that growth. We put those in our models and then try and forecast out when we expect that demand to show up and make sure we have the pipe and the supply already there to meet those anticipated demands. That's something we go through several times a year and then reaffirm again with our customers what their NVQs are as we head into winter, then post winter on APT will review what actual NVQs they achieved and will reset the go-forward basis, that drives our modeling for the next several years.

So given the winner is largely behind us, has that a refresh already occurred for this calendar year, so that we wouldn't expect any material changes until a review post winter 2026 of expansion opportunities?

The review is ongoing at this point. We continue to have conversations with those LDCs behind our city gate there on APT, and we'll look to make sure those are reset prior to heading into next heating season, if any adjustments at all are required.

At this time, there are no further questions. I will now hand today's call back over to the presenters for closing remarks.

We appreciate your interest in Atmos Energy, and thank you again for joining us today. A recording of this call is available for replay on our website through June 30. Have a good day.