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

Joe Zu - Avon Capital Advisors Brian Russo - Ladenburg Thalmann Charles Fishman - Morningstar.

Greetings and welcome to the Atmos Energy Third 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 like to turn the conference over to your host, Ms.

Susan Giles, VP of Investor Relations. Thank you Ms. Giles, you may begin..

Thank you, Tim, and good morning, everyone. Thank you all for joining us. This call is being webcast live on the Internet. Our earnings release, conference call slide deck, and the 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 differences are outlined on Slide 22 and more fully described in our SEC filings. Additionally, we will refer to non-GAAP financial measures. Slides 2, 3 and 17 provide information regarding these financial measures. Our first speaker is Bret Eckert, Senior Vice President and CFO of Atmos Energy.

Bret?.

Thank you, Susan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. We had a strong quarter from both a financial and operational perspective, which has positioned us well to achieve our earnings guidance of $3.25 to $3.35 per diluted share.

Slides 2 and 3 summarize our net income and diluted earnings per share. As you can see, diluted earnings per share, excluding mark-to-market gains, increased to $0.67 during the quarter and to $2.98 for the current nine months.

Positive rate outcomes in our regulated businesses continue to drive our growth for the three-month and nine-month period, and offset the negative of weather that was 25% warmer than last year's winter heating season.

Rate relief for our regulated distribution of pipeline operations combined generated about $18 million of incremental margin in the quarter and about $66 million for the current nine months. Additionally, over the last 12 months, we experienced customer growth, primarily in our Colorado, Louisiana, North Texas and Tennessee service areas.

Our average customer count has increased to about 0.75% or 1% during this period, which contributed incremental margin of about $1.5 million for the three months and $4.9 million for the nine months ended June 30, 2016. As I mentioned, weather was 25% warmer than the prior nine-month period, and negatively impacted each segment of our business.

In the distribution segment, sales volumes decreased 19% period-over-period. However, our weather normalization mechanisms, which cover about 97% of utility margins, worked as designed to limit the negative impact of lower consumption due to the warmer weather and gross profits at just $3.6 million.

Year-to-date, our regulated intrastate pipeline experienced a period-over-period decrease in through-system volume and lower storage and blending fees due to the warmer weather, which negatively impacted gross profit by about $4 million.

And year-to-date in our non-regulated segment, we experienced larger settlement losses and net long financial position, primarily in our second quarter, as prices fell due to the lower demand driven by warmer weather. However, we saw this trend reverse in the third quarter, as this segment realized gains on net short position.

Focusing now on our spending, consolidated O&M rose about $5 million in the quarter and $11 million in the current nine months, primarily due to increased pipeline maintenance spending related to safety, and the timing of spending period-over-period.

Capital spending increased by about $129 million in the first nine months compared to one year ago, primarily due to planned increases of spending in both of our regulated segments.

About two-thirds of this increase was incurred in our regulated pipeline segment, but we continue to enhance and fortify our Bethel and Tri-City storage facilities, and to improve our ability to reliably deliver gas to the Mid-Tex division and APT's other [LBC] customers.

We now expect fiscal 2016 CapEx to be at the top end of our previously announced range, approximating $1.1 billion. Moving now to our earnings guidance for fiscal 2016, we continue to expect fiscal 2016 earnings per diluted share to range between $3.25 and $3.35, excluding net unrealized margins at September 30, as shown on Slide 17.

The expected contribution from our operating segments, as well as estimates for selected expenses for the year, are also highlighted on Slide 17. Planned O&M spending lagged during the third quarter, as a result of wet weather experienced in our Texas jurisdiction.

However, we expect to catch up with our planned maintenance work in the fourth quarter, and to put us back on track to our forecasted O&M range of $550 million to $565 million for the full fiscal year.

I would like to finish with an update on our aftermarket equity program, which was introduced last November as an integral part of our financial plans through 2020. We issued about 1.4 million shares under the program during the current quarter and received $98.7 million in net proceeds. The proceeds will help fund our robust capital spending needs.

Thank you for your time and now, I will hand the call back to our CEO, Kim Cocklin, for closing remarks.

Kim?.

Thank you very, very much, Bret, excellent report, and good morning to everybody. As you've heard, we recorded another strong quarter, and we remain on very solid footing as we approach the end of our fiscal 2016 year.

The successful execution of our rate strategy during the fiscal year has generated an increased operating income of about $119 million.

And during the fourth quarter, we expect some very limited regulatory activity with filings which remain pending, or that we expect to file, but we do - we have successfully achieved our commitment to generate annual operating income increases in the $100 million to $125 million range for fiscal 2016.

And during the quarter, S&P did cite the time we recover our invested capital is the primary reason to upgrade our senior unsecured debt rating to an A from A minus with a stable outlook. And with our annual investment of $1 billion to $1.4 billion through fiscal 2020, we continue to demonstrate our commitment to safety and reliability.

So we remain very steadfast to deliver the execution of our financial and operating plans, and our results do validate our commitment of growing earnings per share by 6% to 8% and providing a total return in the 9% to 11% range. We've had a great quarter. We thank you for your time and we will open it up for questions now, Tim..

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the Joe Zu of Avon Capital Advisors. Please proceed with your question..

Hey, good morning.

How are you?.

Joe Zu, very good.

How are you doing?.

I'm doing great. Thank you, Kim..

Great. Good to hear from you..

Good to hear from you, too. Just a big picture for you, Kim.

With the Oncor deal being done, how do you look at the [indiscernible] acquisition landscape, especially in my favorite state of Texas?.

Yes, the overall landscape for acquisitions or - the acquisition of….

The overall landscape..

Well, I think - we have been talking about Oncor and NextEra and the activity in Texas for some time, and it wasn't a surprise to most people that NextEra had moved in after the [hunt] proposal got hung up in the regulatory arena on the restructure proposal that they had.

So I think that NextEra is going to be pretty successful in their attempts to bring that to a successful close. I think the activity seems to have slowed down somewhat. There are fewer and fewer companies to choose from.

I still think that the electrics are looking to add gas platforms to their strategy, and it seems to be something that has been well received by the market. If you look at the performance of those that have picked up gas utilities and where they were trading, what they paid, and now where their stock price is, so it's anybody's guess. Money is cheap.

We'll have to see as we talk, Joe - many times what happens with this election year and who successfully comes out as the President and who is running the legislature, as well But I hate upon on the question but I don't know - I don't have a specific answer on what kind of activity is going to continue in that space, or in our space..

Great. Well, thank you very much, Kim, and congratulations on the quarter..

Thank you, Joe Zu. It is good to hear from you. We look forward to seeing you..

Same here. Thank you..

Our next question comes from the line of Brian Russo with Ladenburg Thalmann. Please proceed with your question..

Good morning..

Good morning, Brian..

I realize adjusting the CapEx to the high end is really only a $100 million increase, but maybe if you could just elaborate on what is driving that?.

To you want me to take that one question?.

Yes..

Brian, this is Mike.

How are you doing today?.

Good, thanks..

Good. Yes, the big driver falls in a couple of categories. We have new infrastructure mechanism in Colorado, so we are spending some money there to start replacing that higher-risk infrastructure. The other big driver is really our growth in Texas and Louisiana, and also public improvement projects.

Lastly, I would say we've got a start on some projects, and we're getting a start on some projects, this year that we need to complete in the first quarter of next year, so that is really what is driving the incremental or the – coming in at the top end of that range..

Got it.

And the $1 billion to $1.4 billion forecasted annually for the next several years, do you think there is a bias towards the high end of that or it is too early to tell?.

I think we will continue to support the $1 billion to $1.4 billion, continuing to drive it at 9% to 10% rate base growth..

Okay. Great. And lastly, you guys always got a lot of open regulatory dockets, et cetera, and you've outlined many in the presentation.

Maybe you could just comment on one or two that are more meaningful contributors to the annual margin, or any of these settled cases or pending cases that are just noteworthy?.

Well, you know, of the $119 million implemented year-to-date that are in the book that we put out there, so much of that now is driven by annual mechanisms or infrastructure mechanisms that don't require a full case. We've got the Kentucky PRP filing that went earlier this month on file.

Those rates should go into effect in the first quarter of the next fiscal year. And then, we will have a couple of more filings coming in Mississippi with the stable growth [rider] and the stable rate filing, both of those will go before the end of this fiscal year, and expected outcomes in the first quarter of next fiscal year. So we remain on track.

As Kim said, we anticipated $100 million to $125 million, we came in and implemented at the higher end of that range, and the level of investment that we are talking about and the continued increase in capital spending we anticipate will continue to support that level of increases..

What remains pending really, Brian, is some very limited filings that are those that we do expect to file as well, and if you look at the information that was provided for this presentation, there's a pretty good summary of what is out there and what remains.

But the big-ticket items have been already settled and in the books, and so we are really focusing on fiscal 2017 filings right now and beyond..

Great. Thank you..

[Operator Instructions] Our next question comes from the line of Charles Fishman of MorningStar. Please proceed with your question, Mr. Fishman..

Just a quick question.

When you referred to growth as one of the reasons bumping this year's CapEx, that is customer growth, I assume?.

Yes..

Okay, and is that Dallas driving that or….

We have had growth in Dallas, in the mountain towns of Colorado near – in our Olathe area in Kansas, as well as in Tennessee, south of Nashville, and even in Louisiana. We are looking at an estimate of about 12% year-over-year growth in new customers.

We have had, trailing 12 months, about 23,000 new customers added across the system at a growth of about 0.75%..

12%, that is fantastic..

That is new growth not net, it's not net, it is new customers, and that is a year-over-year increase, so that is not 12% of all customers..

Okay, got it. Thank you. That was it. End of Q&A.

There are no further questions in the audio portion of the conference. I would now like to turn the conference back over to management for closing remarks..

I just want to remind you all that a recording of this call is available for replay on our website through November 8. We appreciate your interest in Atmos Energy, and thank you for joining us this morning..