Kim Cocklin - CEO, President and Director Bret Eckert - CFO and SVP Susan Giles - VP of IR.

Brian Russo - Ladenburg Thalmann & Company Charles Fishman - Morningstar Research Spencer Joyce - Hilliard Lyons.

Greetings, and welcome to the Atmos Energy Fiscal 2015 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’ll now turn the call over to our host, Ms.

Susan Giles, Vice President of Investor Relations. Thank you. You may begin..

Good morning, everyone. Thank you for joining us. Our speakers this morning are Kim Cocklin, President and CEO; and Bret Eckert, Senior Vice President and CFO. There are other members of our leadership team here to assist with questions as needed.

Our earnings release, conference call slide presentation and our Form 10-Q we filed last night are available on our Web site. To access these materials, please visit our Web site at atmosenergy.com. We will refer to just a few of the slides during this live call, but we'll take questions on any of them at the end of our prepared remarks.

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.

Please see Slide 20 for more information regarding the risks and uncertainties we consider in making these forward-looking statements and where to go to get more information on these risks and uncertainties. Now I'd like to turn the call over to our President and CEO Mr. Kim Cocklin.

Kim?.

Thank you very much, Susan, and good morning everyone. We certainly appreciate you joining us on the call this morning and your interest in Atmos Energy. Yesterday we did refer to second quarter consolidated net income of about $138 million or $1.35 per diluted share.

And for the first six months of our fiscal 2015, reported consolidated net income was about $235 million or $2.31 per diluted share. Our financial results reflect the continued successful execution of our strategy, which we began 3.5 years ago to grow by investing in our regulated assets.

Our strategy continues to be very simple, consistent, and transparent. We are on track to invest this year between $900 million to $1 billion of capital into the regulated assets as we strive to become the nation’s safest utility. Our strategy to grow by infrastructure investment was first implemented at the beginning of our fiscal 2012 year.

Since then our total return to shareholders through March 31 of 2015 has been 92.7%. The successful execution of our rate and regulatory strategy has continued to enhance the safety of our system and the reliability of our services.

Our regulators continue to support and encourage this goal to become the nation’s safest utility by providing us balanced rate treatment and very progressive regulatory policies.

The rate impact of the investment on residential customer bills remains very acceptable due to the continued low nature of natural gas prices and the exceptional performance of our gas supply management team.

Rate relief for our regulated distribution and pipeline operations combined generated about $41 million of margin in the current quarter, and $73 million of margin for the current six month period. Our liquidity and financial position as Bret will discuss, remains very strong.

Our debt capitalization ratio at March 31 was 46.1% and our liquidity remains strong with over $1 billion of capacity available from our facility. Yesterday our Board declared 126th consecutive quarterly cash dividend. The indicated annual rate for fiscal '15 is $1.56.

I’m going to turn the call over now to our CFO, Bret Eckert for a more detailed discussion of the results.

Bret?.

Thanks Kim, and good morning, everyone. Slide 2 and 3, detail reported net income and income excluding net unrealized margins for the three and six months period of fiscal years 2015 and 2014.

As Kim mentioned, reported earnings for the second quarter of fiscal 2015 were $138 million or $1.35 per diluted share compared with $133 million or $1.38 per diluted share one year ago. Excluding unrealized margins, earnings in the current quarter were $1.36 per diluted share versus $1.37 per diluted share last year.

On Slide 3, you can see reported earnings were $2.31 per diluted share compared with $2.34 last year. If you eliminate the unrealized gains in both years, earnings per diluted share were $2.27 this year compared to $2.26 one year ago.

Increased gross profit from regulatory outcomes and the favorable impact of colder than normal weather, more than offset the effect of weather that was warmer than the prior year and the increased level of pipeline maintenance spending. Slide 4 outlines gross profit and our regulated distribution business.

Rate increases lifted distribution gross profit by $26.1 million in the current quarter and $45.4 million for the current six months, reflecting the infrastructure improvements made during the last 12 to 18 months.

Additionally, results for the current quarter and current six months benefited from weather that was 15% colder than normal for the quarter and 10% colder than normal for the current six months. However, last year weather was 20% colder than normal in both periods.

As a result to the warmer weather versus a year-ago, distributions gross profit was $6 million lower in the growth and $8 million lower for the six months compared to the same period one year ago.

Customers in our regulated distribution operation benefited from weather normalization riders, which returned approximately $22 million to customers in the first six months of fiscal 2015 versus $35 million return in fiscal ’14. Slide 5 details gross profit and our regulated intrastate pipeline, APT for the three and six month period.

Increases from APT's annual GRIP filings increased rate by $15.3 million in the quarter and $27.8 million for the six months, from the filings approved in 2014 and 2015. Our non-regulated segment is detailed on Slide 14 and 15.

Gross profit decreased $14.7 million in the quarter and $17.2 million for the current six months in our non-regulated segment, primarily due to lower realized margins. The decreases in both the current period reflect the absence of gas price volatility experienced last year.

In the prior period, strong market demand caused by the extreme cold weather resulted in the acceleration of physical withdraws to capture gross margin. However, realized margins for gas delivery and related services increased by $5.4 million in the quarter and $3.7 million in the current six months.

Deliveries of natural gas decreased 12% in the quarter and 8% in the current six months, reflecting the impact of fewer deliveries to power generation customers and other marketers, as a result of the warmer weather during the current period compared to a year-ago.

However, in the prior year quarter, we incurred losses to meet peaking requirements to certain customers, which did not recur in the current year. As a result, per unit margins increased in both periods from $0.09 to $0.15 per Mcf in the quarter and from $0.10 to $0.12 per Mcf in the six months period.

Turning now to the expense side of the income statement. O&M increased by about $9 million in the quarter and $12 million for the year-to-date period, mainly due to higher levels of pipeline maintenance ride away and legal expenses, partially offset by lower incentive compensation expense compared to the prior period.

As expected, interest charges decreased by about $4 million in the quarter and by about $6.5 million in the current six months, primarily due to replacing the $500 of 10-year debt at an interest of 4.95%, with $500 million of 30-year note at an interest rate of 4.125% in October 2014. Details of our capital spending are presented Slide 6.

As you can see CapEx increased about $83 million in the current six-month period compared to one year ago. Close to 80% of our capital expenditures were associated with safety and reliability spending.

Moving now to our earnings guidance for fiscal 2015, as shown on Slide 17, we expect fiscal 2015 earnings per share to be within the previously announced range of $2.90 to $3.05 per diluted share, excluding unrealized margins at September 30, 2015.

Details on the slide are the expected contributions from a regulated and non-regulated operations as well as selected expenses for the year. None of which has changed since our first fiscal quarter report in early February of this year.

We expect a continued execution of our infrastructure and investment strategy coupled with constructive regulations to be the primary drivers for the year’s result. Slide 7 to 13 provides more detail on our rate cases. Our capital budget range has not changed and remains between $900 million and $1 billion for fiscal 2015.

Thank you for your time this morning. And now I’ll hand the callback over to Kim..

Thank you very much, Bret. Very, very good report. As you can see and as you have heard just we have had a very solid quarter and we have an exceptional and solid first half of the fiscal ’15 year. Our regulated rate release continues as the primary driver of our excellent financial results.

As of May 6, yesterday, rate outcomes and incremental deferrals have provided annual operating increases of about $59 million so far this fiscal ’15.

Rate actions that we have filed and pending, total requested increases of about $39 million and we expect to file another four to five cases by our fiscal year-end that in total would request $20 million, $25 million of additional increases. In late April, we did receive the proposal for decision in the Mid-Tex 2013 rate review mechanism filing.

And in that proposal for a decision, the hearing examiner recommended an increase for the Company of approximately $32.7 million, that compares to our request of $33.4 million. We anticipate a final decision which will be made by the Texas Railroad Commission by the end of June or early July. Our Company fundamentals are extremely sound.

Our performance is the result of organic growth as we continue to believe and investing in the safety and reliability of our system is the highest and best use of our capital.

We are resolute on that commitment that we made in 2012 and we haven’t wavered from any of our commitments to become the nation's safest utility and the capital investments that we are making to grow rate base by 9% to 10% and earnings per share of 6% to 8% on an annual basis. We very much appreciate your time this morning.

And now we will take any questions, comments, or suggestions that you might have.

Donna?.

Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] Our first question is coming from Brian Russo of Ladenburg Thalmann. Please proceed with your question..

Hi. Good morning..

Good morning..

Good morning, Brian..

Just on the guidance, the $2.90 to $3.05, that’s unchanged. But we have seen a lot of gas LBCs report good earnings due to the February cold weather.

And I’m just wondering, was that captured in your initial guidance and or why couldn’t we see anymore upside there?.

Well, you obviously our initial guidance of $2.90 to $3.05 is based on normal weather, but we are reaffirming our earnings to be within that $2.90 to $3.05 range. We did have obviously weather in the prior six-month period and we also had some weather in the current six-month period..

The reaffirmation of the guidance, as Bret said, would incorporate the results from February since they’re in the book and closed [indiscernible]..

Right. Okay, understood. And you mentioned the debt-to-capital I believe at the parent.

Could you talk about the debt-to-capital ratio at the regulated pipeline in Texas and the trends you see there?.

Yes, we are a consolidated cap structure entity, Brian. So we file on a consolidated cap structure basis. So on an overall cap structure basis; you’re at 54% equity, 46% debt roughly. Now that's -- in certain jurisdictions like Texas, short-term debt excluded.

So from that standpoint it should be closer to 57% or so equity, 43% debt when we looked at it from a regulated standpoint, but it varies by jurisdiction..

Okay.

And I may have missed this earlier, but can you just comment on the Texas economy in your service territory and are you seeing any slowdown there?.

We as a utility are not seeing any slowdown. We really are -- feel our -- we feel that we are a beneficiary actually at the lower energy prices in Texas.

And if you look at the overall economy in Texas, there have been several studies that indicate that there is probably no more than 2% to 4% of the overall economy that's impacted by what's transpired with the reduction in energy prices, but now you're seeing the recent uptick with West Texas coming back over $60.

So you'll see in even a ramp up in the activity out in the West. But again, it's been a non-factor for us and our business. We feel like it helped our customers and has reduced what they are paying at the pump for gas and given them a little bit more discretionary income.

Natural gas prices obviously help our visitors significantly and continue to provide us the room that is necessary to invest this capital and reflect it in the rate on a very quick basis than in Texas where the regulators have been very, very balanced and fair relative to the investment and the lag associated with that..

Okay, great. Thank you very much..

Thank you, Brian..

[Operator Instructions] Our next question is coming from Charles Fishman of Morningstar Research. Please proceed with your question..

Good morning. Just one question. Slide 14, third line down, other, the $16.8 million negative variance year-over-year.

And I see the comments on the right there, but can you explain the volatility driving that line? Is that from trading, from customers utilizing your storage more, what drives that line?.

It’s really just timing within the asset optimization line. We are still projecting that the non-regulated business will meet the provided -- previously announced guidance range of $10 million to $12 million. So you know it’s just the timing of when the realized positions come through..

Okay. So the volatility allows you to optimize purchases and sales and you are able to take advantage of that.

That’s what’s going on in that line?.

Yes and that’s driven by timing as well. Timing of when positions close within a quarter versus within the fiscal year..

Okay. Thank you. That was it..

Thank you. Our next question is coming from Spencer Joyce of Hilliard Lyons. Please proceed with your question..

Hey, good morning. Thanks for the good quarter we got this morning..

Thank you. Thanks for your shout out again, Spencer. It wouldn't be a call without you coming in..

Yes. That’s [indiscernible]..

How about that Derby winner too now?.

Yes, he's favored to keep winning a contrarian like me is going to go broke..

Well, it’s just like the Atmos stock; the favors just keep showing up. The fundamentals keep performing..

Yes. Yes, just one quick one here for me. I believe, Bret, you touched on weather a little bit and I tried to jot some notes down here. But I know we entered fiscal ’15 knowing we would have a bit of a headwind assuming normal weather.

And if I heard you correctly, the weather versus an average, if you will, was favorable over the first half of the fiscal year here, but we may still anticipate a slight headwind in -- excuse me, first half ’16 versus maybe first half ’15?.

Yes, I thought you would ask that question, Spencer. If you look at this, we announced last year, and last year’s results we had about $0.17 of weather. And about $0.12 of that came on the non-regulated side, with about nickel in the regulated side. Obviously, we budget normal weather.

We have again seen -- a lot of the numbers you looked in the release, you're comparing quarter-to-quarter and six months -- to six months and skew it when you compare it against normal. But if you look at it overall, probably on a year-to-date basis, last year at this point we probably had about $0.10 a weather.

You probably have $0.04 to $0.06 a weather in the six-month period of 2015..

Okay, perfect. Yes, that’s almost exactly what I was kind of basing on, but in any case, good quarter. That’s all I had. You folks travel safe..

Well, you too..

Thank you, Spencer..

[Operator Instructions] End of Q&A Ms. Giles, at this time I’d like to turn the floor back over to you for any additional or closing comments..

Thank you, Donna. Just to remind you all that a recording of this call is available for replay on our Web site through August 5, and we look forward to visiting with many of you at the AGA Financial Forum later this month. We appreciate your interest in Atmos and thank you for joining us this morning. Goodbye..