Susan Giles - Vice President, Investor Relations Kim Cocklin - Chief Executive Officer Mike Haefner - President and Chief Operating Officer Bret Eckert - Senior Vice President and Chief Financial Officer.

Brian Russo - Ladenburg Thalmann Spencer Joyce - Hilliard Lyons Charles Fishman - Morningstar Stephen Byrd - Morgan Stanley Mark Levin - BB&T Capital Markets.

Greetings, and welcome to the Atmos Energy First Quarter 2016 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 would now turn the conference over to Ms.

Susan Giles, Vice President, Investor Relations. Thank you Ms. Giles, you may now begin..

Thank you, Manny, and good morning, everyone. Thank you all for joining us. This call is being webcast live on the Internet. Our earnings release and conference call slide presentation and Form 10-Q are all available on our website at AtmosEnergy.com.

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 17, and more fully described in our SEC filings. Our first speaker this morning is Mr. Bret Eckert, Senior Vice President and CFO of Atmos Energy. .

Thank you, Susan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Reported net income for the quarter was $103 million, or $1.00 per diluted share, compared with $98 million or $0.96 one year ago.

Excluding unrealized margins in both periods net income was $96 million or $0.93 per diluted share compared to $93 million or $0.91 last year. Slides 3 and 4 provide financial highlights for our regulated operations for the three month period. The continued pursuit of our infrastructure investment strategy drove our quarter-over-quarter growth.

Rate released through our regulated distribution and pipeline operations combined generated about $24 million of incremental margin in the first quarter of fiscal 2016.

About $14 million of this amount came from our regulated distribution segment with about $7 million in our Mid-Tex division and the remainder from our Mississippi and West Texas divisions. The remaining $10 million came from the regulated pipeline segment primarily as the result of new rates from the approved 2015 GRIP filing.

Additionally our weather normalization mechanisms, which over about 97% of utility margins, [worked its design] insulating both the company and our customers during atypical weather. We experienced a 21% quarter-over-quarter decrease in regulated distribution sales volumes due to the weather that was 29% warmer than last year’s quarter.

However, gross profit decreased just $1.1 million. Focusing now on our spending as expected consolidated O&M increased by about $6 million quarter-over-quarter mainly due to incremental pipeline maintenance spending, as well as increased administrative expense in our regulated operations.

Capital expenditures increased by $30 million in the first quarter compared to one year ago, despite the particularly challenging weather conditions in Texas during the quarter, which slowed several regulated distribution projects during the period.

However, spending in our regulated pipeline segment increased as we continued to enhance and fortify our Bethel and Tri-City storage fields. These efforts will improve our ability to reliably deliver gas to our North Texas customers and serve the peak day requirement of the Mid-Tex division and ATT’s other LDC customers.

We remain on track to achieve our capital budget target of $1 billion to $1.1 billion for fiscal 2016 as detailed on Slide 15.

Moving now to our earnings guidance for fiscal 2016, we still expect fiscal 2016 earnings per share to be in the previously announced range of $3.20 to $3.40 per diluted share, excluding unrealized margins at September 30, 2016 and that is shown on Slide 12.

The expected contribution from our regulated and non-regulated operation as well as estimates for selected expenses for the year remain unchanged since we announced fiscal 2016 projections last November, and we expect the continued execution of our infrastructure investment strategy coupled with constructive regulation to be the primary driver for this year’s results.

Looking at slide 13, we anticipate annual operating income increases of between $100 million to $125 million from implemented rate outcomes this year. Thank you for your time and now I will hand the call to our CEO, Kim Cocklin, for closing remarks.

Kim?.

Thank you, Bret. Excellent report. We have reported a very solid start to this fiscal 2016 and are very encouraged with the expectations for the full year. Without question the weather event this past quarter presented a number of challenges.

Our West Texas division endured a record blizzard, while our Mid-Tex division encountered a series of deadly tornadoes and record rainfall in the Dallas-Fort Worth Metroplex.

The devastating weather in Texas tested the reliability of our system and the good news is that the capital improvements we have made to our distribution system and the extensive training of our field employees proved to be both valuable and effective while operating safely and reliably during these challenging conditions.

We also achieved very solid progress in the [rates] this first quarter. In Kansas, a settlement was reached and supported by all parties that will benefit our customers over the long term and there is now pending action before the Kansas Corporation Commission.

In Colorado, we received approval for a Systems Safety and Integrity Rider, which is a forward-looking infrastructure investment mechanism effective January 1 of this year for a three year term. And in Mississippi we have a system integrity rider, which is also a forward-looking infrastructure mechanism.

These important changes continued to demonstrate that fair and balanced regulation will continue to support our journey to becoming the nation’s safest utility with an annual capital investment of over $1 billion.

Rate outcomes have provided annual operating increases of about $12 million and we have filed cases now pending which seek about $33 million of annual operating income increases. We expect to make between 12 to 15 more filings this fiscal year, which will request between $90 million to $100 million of additional operating income increases.

Slide 14 provides a summary of our expected fiscal ’16 rate filings. We are off to a solid start and our performance continues the track record of meeting our commitments to invest in our regulated assets, growing our rate base and earnings and maintaining an unwavering attitude to strive to become the nation’s safest utility.

Year-over-year our weighted average cost of gas has decreased, which will continue to help and alleviate any upward rate pressure associated with our increased capital spending. Our balance sheet remains very healthy and our credit ratings are strong. Our debt capital ratio at December 31 was essentially flat year-over-year at 49.6%.

We remain focused on spending between $1 billion to $1.4 billion of capital annually through fiscal 2020. We believe our internal capital investment opportunities will enable rate based growth, which would generate earnings per share growth of 6% to 8% through fiscal 2020.

Yesterday our board declared our 129th consecutive quarterly cash dividend of $0.42. The indicated annual dividend rate for fiscal ’16 is $1.68, which is a 7.7% increase over last year.

With projected earnings per share growth of 6% to 8% coupled with our dividend yield we are committing to delivering total shareholder return in the 9% to 11% range through fiscal ’20. Thank you for your time and now we will open the call up for questions.

Manny?.

[Operator Instructions] Our first question is from Brian Russo of Ladenburg Thalmann. Please go ahead..

Hi, good morning..

Good morning Brian..

Good morning..

I noticed that the rate base slide and the financing need slide is, as you mentioned, consistent with the assumptions laid out at your analyst conference in November, and I am just curious was there any impact to bonus depreciation since the assumptions in November or did November capture your outlook for bonus depreciation?.

Brian, this is Bret Eckert. The impact of the extension of bonus at the 50% level really doesn’t have any significant impact on us in ’16 or really over the five-year plan..

And why is that exactly?.

It has a small impact from a cash basis percentage. But outside of that the impact on rate base is very small..

Okay, and then also just on the rate base slide, if you just take your rate base plus CapEx minus depreciation it seems like that calculation is higher than the illustrated assumptions in your annual rate base growth through 2020 and I was just wondering what other adjustments are included in that adjusted for taxes?.

Yes, I think that it is mainly just timing Brian, you take it at a period end or you are taking on cases that are in progress or approved rate base that is already approved. I think you're just seeing the timing of annual rate making when you have got fiscal year-end at September 30, and you have rate filings throughout the year..

Got it, understood.

And the debt-to-cap ratio at 49.6% that seems lower than maybe what the assumption is for the full year or the trend in the debt-to-cap ratio and I'm just curious is it just the seasonality of the retained earnings?.

Yes, it is really just the seasonality as your short-term debt balances are higher at the end of December than they are at the end of September. That really is just the timing and then as collections come in as you go through the winter heating season that balance comes back down. So really it is driven by timing.

Everything that we discussed with regard to our financing plan is consistent with what we have laid out in November..

Okay, great.

And then lastly I noticed in the non-reg segment unit margins increased to $0.12 per Mcf versus $0.10, is that sustainable?.

I think when you look at the guidance of the $14 million to $19 million we reaffirmed, the same guidance that we provided in November and so, I would still expect the earnings to come in at that range. Some of it is timing as you go throughout the year, but nothing has changed from our previous income projections for them..

Okay, great. Thank you very much..

Thank you. The next question is from Spencer Joyce of Hilliard Lyons. Please go ahead..

Hi, good morning guys and Susan as well. Congrats on a nice quarter..

Good morning Spencer..

It is good to hear your voice. Thank you..

Yes. Merry Christmas. Happy New Year. It has been a while. Just a couple of quick ones here from me, first I know Kim you mentioned a couple of special or not special weather items from the first quarter here.

Would it be safe to assume there was a bit of additional O&M expense housed in the first quarter and maybe for projecting kind of 2Q ’17 maybe we will see a little bit of a give back or perhaps a pullback in the growth rate there?.

I think, Spencer it is Bret, a little of that is just timing. We did have an increase as expected in O&M in the quarter. The O&M projected range that we provided back in November still holds today. So a lot of that is just going to be timing of spend.

We did have some wet weather in some of our jurisdictions that impacted capital and O&M a little bit but on a full year basis we expect it to come in at the levels that we previously provided..

Okay, perfect.

And then more broadly, I know you all had been fairly steadfast in relaying that you are fairly insulated from a lot of the malaise that we have seen in the oil and gas markets and even in Texas I know the direct exposure of the economy to energy is fairly small, but can you just hold our hand a little bit more there and let us know kind of how you are doing in the context of what it feels like it could be a tougher economic environment there in Texas?.

Hi Spencer this is Kim. No, we really don't expect – we haven't noticed any changes particularly in Texas and the other major metropolitan areas that we are servicing and Louisiana and Mississippi, let us say Kentucky, Tennessee, Colorado, Kansas, even around the Blacksburg area, I mean everything continues to be better than what is being reported.

I think there is a whole lot of information coming out of the financial channels right now that everybody expecting kind of a rocky ’16 for the stock market, and that a lot of that is driven by what is happening according to them in China and then some of the energy prices bouncing around, but we continue to be a significant beneficiary of lower energy prices and a strong dollar.

We are controlling everything that we can control and so I think the other thing is the Fed probably is going to push back any kind of increase on the rate as well. So, I think that is going to bode well for utilities. So I think you are certainly in the right space and you are certainly right on target having Atmos as your top pick in 2016..

So far, so good..

Damn right. I mean, yes, you are all about it. You have been right for a good while now for the last three years..

It is a good thing I'm on a call now. I'm blushing a bit. But all right, again nice quarter and we will talk soon..

Thank you..

Thank you, Spencer..

Thank you. The next question is from Charles Fishman of Morningstar. Please go ahead..

Thank you.

Just as a follow-up to that last question, I realized the insulation you have from commodity prices, but does the volatility help your non-regulated segment at all?.

Go ahead Mike..

This is Mike Charles. Our non-reg segment really – primarily is focused on our delivered gas business, where they are really managing the aggregation of supply in the pipeline and storage contracts to get gas to municipalities, other LDCs and small industrial. So it is really not – we are really not affected by that and we run a flat book.

We don’t take any risk. In the market we get a little bit of lift out of our facility, but it is just – it is miniscule..

Okay.

So maybe the lower earnings from non-regulated quarter-to-quarter which I realize is just one quarter is really more volume driven than anything else, correct?.

It is just timing..

Yes, it is just timing..

Okay. .

Charles, that business is all about managing risk and we are not about to try to take advantage of any volatility, we are going to run a flat book and as Bret said, and we continue to emphasize at every meeting we have with analysts, they are plugged in at about $14 million to $19 million of net income this year and every year till 2020.

We are not encouraging them to grow, but we are encouraging them to be a value added service provider to the smaller municipalities, commercial industrial customers that need energy management expertise, which is what they bring to the table and have done so each and every year, demonstrated by their performance in the Masteo customer survey where they have came in at number one or number two the last five years.

So we are very proud of that fact. But they do provide an extremely valuable service to the smaller customers that are situated behind our, the distribution utilities that we serve in eight states. And again it is energy management expertise for those people that don't have it on staff..

And then Kim, just as a macro view of the industry, we saw a similar company in Salt Lake did acquire an announced acquisition earlier this week, at a price that was somewhat lower than some of the other premiums we have seen.

Do you have any thoughts as far as the industry that we have reached the peak of maybe some of the multiples already?.

No, I don’t think so. I think you guys are better versed at looking at some of the parts than some of us, but if you – you got to factor in the business model that is being pursued in some of the parts of any that resides in the portfolio.

So there is a difference I think between a peer regulated natural gas utility where 95% of the earnings are coming from distribution and intrastate pipeline in Texas versus other folks that may have a little bit more spread out with the non-regulated or they may have some MLP eligible assets in the form of an interstate pipeline or some midstream operations or even regulated production..

Okay. That is all I have. Thank you. That was quite helpful..

Great. Thank you..

Thank you. The next question is from Stephen Byrd of Morgan Stanley. Please go ahead..

Hi, good morning..

Good morning..

Good morning Stephen..

Stephen Byrd:.

, :.

Hi Stephen, it is Bret Eckert, as we reaffirm, we still expect that regulatory outcomes on an annualized basis will be $100 million to $125 million in fiscal ’16, we continue to really focus on the execution of our capital spend and continuing to partner with our regulators in our annual filing.

A lot of what we have got now is just continued execution. Kim highlighted the new mechanisms last year that we got in Tennessee, in Mississippi. We had a new mechanism in Colorado for infrastructure that went into effect on 1st January and then he commented on what we are doing in Kansas.

And so, it is just the continued effort of what you have seen in previous years to be able to always focus on finding ways to continue to reduce regulatory lag, but things are continuing to progress as we expected..

I mean, we are measuring this in baby steps and very incremental byte-sized pieces Stephen and I think, the resolution that we achieved with our customers and the staff and now that is being reviewed before the KCC in Kansas is something that we think is a very positive step in the right direction and then as Bret said, we pointed out the forward-looking infrastructure mechanism in Colorado and Mississippi both identified for capital.

So I mean we feel very good and I mean every filing that we make we are trying to educate the staff and the regulators that we are talking to about the continued need to reduce lag in order to facilitate the investment in this journey to safety that we are on right now.

I think we are spending about three times – the depreciation rate is only – can only be done as long as you have a manageable lag process that we are continuing to focus on. So we feel good and we are going to continue to try to do better..

That makes perfect sense.

My last question, I think I have got a good sense for the answer, but I feel compelled to ask it anyway just following up on the M&A environment that we are seeing, it is clear that there is still a lot of capital available, there is still likely to be strong valuations for really high quality, high growth companies, I am just curious in terms of your reaction to the continued pace of M&A activity, how do you think about that in the context of your own company versus your own standalone growth plans?.

Well, I mean, we have been in the camp that we thought the M&A activity would not slow down and it started to heat up at the end of ’15 and it has just continued through ’16 and I think you are going to see a continuation of that activity in this pace.

I mean I think that the companies that remain on the board have to be extremely attractive and have some very good business models and bring to the table some platforms that don't exist for some of these – for some of the folks that are going up and down the shopping isles at the present time. So, we have got a great plan.

We have got a great strategy. I mean I think there is a lot of good companies out there like us as well.

You have got to have a better handle on it than we do, I mean, you've got to think please don't grow to the sky and the multiples that where the companies are trading seem to be extremely rich, but we continue to represent that we are an attractive opportunity for prudent investors with just the metrics that we are throwing out and that we are committed to deliver and that the results that we are putting forth justify putting this in your portfolio..

Well said, very much understood. Thank you..

Thank you, Stephen..

Thank you. Our next question is from Mark Levin of BB&T. Please go ahead..

Hi guys. Very solid quarter and a very difficult market environment. Just a quick question and it maybe just entirely too early to answer it, but I will throw it out there anyway.

The $3.20 to $3.40 guidance that you reaffirmed, maybe you can, having gone through at least one quarter give us some idea of how you feel about that range, it is reasonably wide, maybe there are two or three factors that you think are critical towards getting to the upper end and the two or three factors that could lead you to the lower end of the range?.

Hi Mark it is Bret. I mean, you heard earlier yes, we did reaffirm that guidance of $3.20 to $3.40, we would look potentially to look totighten that guidance later in the year, butwe absolutely remain on track. As you said, the first quarter was a solid first quarter.

It came in right in line with our expectation and we still remain very well positioned to achieve that $3.20 to $3.40 guidance range..

This is a difficult market environment and we are up a bit above 10% year-to-date, we will take it..

I know you guys are doing everything you can. Great….

We are [battling] fast and furious, [Indiscernible]..

Absolutely. All right, well thank you guys and congratulations on a good quarter..

Thank you Mark..

Thank you. We have no further questions at this time. I would like to turn the conference back over to management for any closing comments..

I just want to say that a recording of the call is available for replay on our website through May 4. And again we appreciate your interest and thank you for joining us. Bye-bye..