Atmos Energy Q1 FY2026 Earnings Call - Rebased Guidance After Texas HB 4384; Q1 EPS $2.44 on $1B Capex Focused on Safety

Speaker 7: Thank you. I would now like to turn the call over to Dan Meziere, Vice President of Investor Relations and Treasurer. You may begin.

Dan Meziere, Vice President of Investor Relations and Treasurer, Atmos Energy: Thank you, Jeannie. Good morning, everyone, and thank you for joining us. 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 our financial results and discuss further 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. I will now turn the call over to Kevin.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Thank you, Dan. Good morning, everyone, and thank you for joining us today. I wanted to begin today’s call by thanking every one of our Atmos Energy employees for their preparation, focus, and dedication in safely providing natural gas service to our customers and communities during the very challenging weather conditions of Winter Storm Fern. For their dedication throughout the year to execute upon our system modernization strategy as we continue our journey toward our vision to be the safest provider of natural gas services. During Winter Storm Fern, all segments of our business, distribution, transmission, Atmos Pipeline-Texas, our underground storage systems, gas supply plans, and our customer support operations, all performed very well and to design expectations. I am very proud of our team and their efforts.

I would also like to thank the first responders, emergency responders, and emergency management services teams across our service territory for what they do every day for our community. Yesterday, we reported fiscal 2026 first quarter net income of $403 million or $2.44 per diluted share. Our first quarter capital expenditures totaled $1 billion, with over 85% of these investments focused on enhancing the safety and reliability of our distribution, transmission, and underground storage systems. As a reminder, we rebased our fiscal 2026 guidance to reflect the passage of Texas House Bill 4384. As we stated on our November earnings call and in our investor material, our rebased fiscal 2026 earnings per share guidance is in the range of $8.15-$8.35 per share.

Additionally, we rebased the fiscal 2026 annual dividend to $4 per share, and we plan to grow our dividend in line with our earnings per share growth of 6%-8% annually. Moving to our Atmos Pipeline-Texas division, we achieved several project milestones during the first quarter. We completed the installation of approximately 55 miles of 36-inch pipeline from APT Bethel Storage Facility to our Groesbeck Compressor Station. This provides additional pipeline capacity to transport gas from our Bethel storage into the growing DFW Metroplex and the Interstate 35 corridor between Waco and Austin. We continue to work on phase two of APT’s Line WA Loop project, as we have placed 13 miles of this project into service.

As a reminder, this project is designed to install approximately 44 miles of 36-inch pipeline to the west of Fort Worth to support growth in this area of the DFW Metroplex. The remaining 31 miles is expected to be placed in service this spring. In addition to the enhanced supply capacity of those projects, we completed a project that more than doubles the takeaway capacity at our Bethel Salt Dome storage facility, providing additional peak day deliverability into the APT system for our LDC customers. Finally, we enhanced APT supply optionality, reliability, and system versatility with the completion of two interconnect projects, adding 700,000 MCF per day of additional natural gas supply to the APT system. Across our service territories, we continue to see steady customer growth.

For the 12 months ending December 31, 2025, we added nearly 54,000 new customers, with approximately 42,000 of those new customers located here in Texas. During the first quarter, we added over 1,100 commercial customers and 3 new industrial customers. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development across our service territory. The Texas Workforce Commission reported that at the end of December, the seasonally adjusted number of employees was 14.3 million. Texas once again added jobs at a faster rate than the nation over the last 12 months, ending December 2025. Our customer support associates and service technicians continued to provide exceptional customer service, achieving customer satisfaction ratings of 98% for the 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 over 11,000 customers receive nearly $3 million in funding assistance. Recently, our team’s customer service efforts were recognized by J.D. Power and Escalent. In December, the J.D. Power 2025 Gas Utility Residential Customer Satisfaction Study ranked Atmos Energy number one in customer satisfaction in the South and Midwest among large utilities. This is Atmos Energy’s fourth consecutive year to receive this honor for the Midwest region. In January, Atmos Energy was named an Escalent 2025 utility customer champion in both the South and Midwest regions.

More than 96% of our customers are located in these two regions, and we are very proud of our entire team for their ongoing focus and dedication to providing exceptional customer service. Congratulations, and thank you all. I’ll now turn the call over to Chris for his update.

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Thank you, Kevin, and good morning, everyone. We appreciate you joining us this morning. Our fiscal 2026 first quarter diluted earnings per share of $2.44 represented a 9.4% increase over the prior year quarter. Our first quarter results includes $35 million, or 16 cents, in the impact of Texas House Bill 4384. $20 million was recognized in our distribution segment, and the remaining $15 million was recognized at APT. Our first quarter performance was also influenced by several other factors. Rate increases in both of our operating segments hold $68 million. Operating income increased by an additional $24 million due to residential commercial customer growth and increased customer load. Finally, APT’s through system revenues, net of Rider REV, increased about $7 million.

During the quarter, APT’s through system volumes declined approximately 2 Bcf, as it performed more maintenance during this quarter compared to the prior quarter. However, spreads widened significantly to an average of $3.99, compared to $1.56 in the prior year quarter, due to rising associated gas production, constrained takeaway capacity, and lower demand due to unseasonably warm weather during the first quarter. Partially offsetting these increases was a $23 million increase in consolidated O&M expense. We experienced a $12 million increase in compliance and safety-related spending associated with increased leak survey work in our distribution segment and the timing of maintenance work at APT that I mentioned a moment ago. Additionally, employee-related costs increased approximately $5 million, primarily due to increased headcount to support company growth and higher overtime and standby costs driven by increased service work.

From a regulatory perspective, since the beginning of the fiscal year, we have implemented $123 million in annualized operating income increases in our distribution segment. Currently, we have five filings in progress, seeking approximately $81 million in annualized operating income increases, and we plan to make an additional filing this fiscal year, seeking approximately $400 million in annualized operating income increases. During the quarter, we completed over $1 billion of long-term debt and equity financing, highlighted by the $600 million long-term debt financing we completed in October 2025. Additionally, we settled $472 million in equity forward agreements. Our equity capitalization as of December 31 was 60%, and we do not have any short-term debt outstanding. We own, say, $4.6 billion in available liquidity.

This amount includes approximately $1.1 billion in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated fiscal 2026 equity needs and a portion of our anticipated equity needs for fiscal 2027. Our first quarter performance has us well positioned to achieve our rebased fiscal 2026 earnings per share guidance in the range of $8.15-$8.35 per share, and we remain on track to achieve a capital spending plan of $4.2 billion. Thank you for your time this morning. I will now open the call for questions.

Speaker 7: At this time, I would like to remind everyone, in order to ask a question, press Star, then the number one on your telephone keypad. Your first question comes from Julien Dumoulin-Smith with Jefferies. Please go ahead.

Julien Dumoulin-Smith, Analyst, Jefferies: Hey, good morning, team. Nicely done, I got to say, as always, and thank you for the time. Maybe just to kick things off, you just commented in your remarks and in the queue here about the $35 million benefit for the quarter. Can you talk a little bit about how we should think about that ratably through the year here? And just ultimately, what that might imply as you think about, like, an annualized benefit relative to the guidance you guys gave? Seems like it puts you guys in a good place. I’d love to get your thoughts.

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Yeah. Good morning, Julian. Thank you, and thank you for joining us this morning. And yes, we are—we’re off to a good start for the fiscal year. You know, as we talked about before, the influence or the impact of the deferrals under House Bill 4384 will be influenced by the timing of our spending, the timing of project closings, and the underlying operational activities of the company. So it’s, you know, right now, off to a good start, $35 million quarter-over-quarter, and we are still holding firm right now on our earnings per share guidance of $8.15-$8.35, and we’ll see what the second quarter brings for us.

Julien Dumoulin-Smith, Analyst, Jefferies: Got it. But just to pin it down a little bit further, would you assume that that’s a good run rate, at least for the purpose of this year? I know it’s CapEx, timing driven. Any reason why you wouldn’t, for the purpose of our conversation, start to do that, or at least do some kind of ratio relative to CapEx against annualized targets?

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: I think it’s again dependent upon the flow of spend in the quarter, you know, as we’ve had here the last couple of weeks, a very busy operationally focused around, you know, supporting Winter Storm Fern. So construction activities were down a little bit. Obviously, and we’re now beginning to ramp that back up. And I think it’d be dangerous to say, take 35 and multiply by four. As a reminder, you know, year over year, we did have the impact of the House Bill 4384 in the fourth quarter last year. So,

Kevin Akers, President and Chief Executive Officer, Atmos Energy: ... I would probably steer clear of just going too strong at this point, just saying 35 times 4 moving forward.

Julien Dumoulin-Smith, Analyst, Jefferies: Yeah. No, no, fair enough. And then just as it pertains to the winter storm, I mean, obviously, folks are zeroed in on and sort of cognizant of the impact to customers. How do you think about the preliminary financial impacts here? If you can break that down a little bit. I mean, obviously, there’s working capital consideration, and then ultimately, there’s a few other moving pieces. Do you care to elaborate a little bit further, just given the history?

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Yeah, Jay, I maybe rephrase your question because I’m not quite following you there, where you’re talking about gas costs itself-

Julien Dumoulin-Smith, Analyst, Jefferies: Yeah. I was thinking about the-

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Got it

Julien Dumoulin-Smith, Analyst, Jefferies: ... just the balance sheet, and the earnings impact from the winter storm in the last couple of weeks cumulatively.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Yeah. So let’s start with the winter storm itself. It was very significant. As you saw, the icing across all of the country. I think 40 states were impacted at one point by the storm. But the storm was not nearly as significant as Uri. I think the upstream supply, as we reported, and I think you’ll hear from some of the other folks that do upstream of us, supply performed very well. We had minimal supply issues, and what we did have, we were able to backfill with storage itself to keep a steady and reliable supply of natural gas flowing. And with that, we had exceptional gas supply plan laid out from base load to peaking contracts to some spot purchases to our storage supply.

I don’t think you’re gonna see the impact, as you did in Uri, both on the operational nor a financing from gas supply costs related to Winter Storm Fern.

Julien Dumoulin-Smith, Analyst, Jefferies: All right. That’s great. All right, well, look, I, I’ll leave it there. Thank you guys very much. I appreciate the time today.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Thank you.

Nick Campanella, Analyst, Barclays: Thanks, Eli.

Speaker 7: Your next question comes from the line of David Arcaro with Morgan Stanley. Please go ahead.

David Arcaro, Analyst, Morgan Stanley: Hey, thanks so much. Good morning.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Good morning.

David Arcaro, Analyst, Morgan Stanley: I was wondering if you could maybe touch on what you’re hearing, maybe on the ground and in some of your regulatory proceedings going on with regard to affordability pressures. Is this an issue that you’re seeing, you know, migrate into the gas LDC space? Is it coming up politically surrounding the cost of natural gas? What are you seeing on the ground right now?

Kevin Akers, President and Chief Executive Officer, Atmos Energy: It’s always a part of what we talk about with our commissions. It’s always top of mind for us, and I’ll point you back to our deck in slides 15 through 17. I believe that’s in the deck there, and how we look at the metrics around affordability. But it’s always a topic we continue to have with our regulators. They understand the need for our investment, just as it helped us get through Winter Storm Fern. You have to start these things a year in advance in prepping your system, putting on additional supply upstream of that, increasing your capacity on your pipelines, bringing on more additional supply points. All those go into that equation for reliability on a go-forward basis for our customers. But, but again, it’s more the conversation.

We’re not getting any sort of negative feedback or impression from our regulators at this point, as they understand the need to maintain reliability and safety across the system.

David Arcaro, Analyst, Morgan Stanley: Okay, got it. Understood. Wanted to check in to see whether you’re seeing any inflection or meaningful projects on the gas power side of things, either major power plants moving forward or what we’re seeing is on-site power using natural gas at data centers at pretty high volume. So are you seeing more activity or opportunities there?

Kevin Akers, President and Chief Executive Officer, Atmos Energy: As we said before, we continue to get inquiries around large loads, whether they’re data centers themselves or additional power generation. We’ll share more about those once we have a signed contract. We don’t want to get out in front and have to walk any of that sort of load back at this point. But we continue to get inquiries. Our engineering, our operations teams continue to investigate those, respond to those data requests. But we’ll when we have something to report, we’ll bring those forward. And as you know, APT already serves some power gen facilities across its transmission footprint as well today, so.

David Arcaro, Analyst, Morgan Stanley: Okay, great. Thanks so much.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Mm-hmm.

Speaker 7: Your next question comes from the line of Jeremy Tonet with J.P. Morgan. Please go ahead.

Jeremy Tonet, Analyst, J.P. Morgan: Hey, good morning. This is Eli on for Jeremy. Wanted to start on the, Yeah, good morning. The special election that was, that was just recently happened in Texas, there was a, a Democrat seat, I believe, that flipped. Is there any impact overall, or, I mean, how do you guys kinda see that outcome, in relation to the business? Thanks.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Yeah, we’re apolitical. We work with R’s and D’s and I’s or anybody to share our stakeholder strategy, why we do the things we do, why it’s important for our communities, why natural gas is important for our customers, why it’s important for economic development. We’ve been around for 43 years now, and we’ve been through many administration changes, both at the federal, state, and city level, county level as well. Again, we see ourselves as an essential energy source for our communities, and we’ll work with anybody that is in public office today or has an interest in what we do.

Jeremy Tonet, Analyst, J.P. Morgan: Awesome. And then, you know, maybe just shifting to the Mississippi rate case outcome and kind of the process going forward, you know, how do you adjust your plan for outcomes in that jurisdiction going forward?

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Well, one, there’s—and I’ll let Chris follow up here in a second, there’s not an adjustment to plan. Remember, we say in our November call, when we lay out our five-year plan, and we update it every quarter, Chris and I both mentioned it on this call, 85%+ of our investment goes towards safety and reliability. That does not change our plan. It is all driven by the needs of our system, the growth on our system, the demand across our system, the safety across our system. That’s what drives our plans out there, and that’s what’s going to continue to fuel our plans in the state of Mississippi.

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Yeah, I would add to that, Jeremy. I mean, since the outcome, we’ve been in regular dialogue with the commission, first working to implement the tariff that to reflect the order that came out late last year. That tariff was filed in early January. We’re expecting a decision potentially today on that. Including that tariff is also a request for deferral-like mechanisms, as well as other opportunities to potentially mitigate to reduce lag going forward. We still have an annual filing mechanism in the state. It’s now on a historical test basis, so we’ve been evaluating and modeling the impact of shifting that from a forward look back to historical look.

We’ve also, you’ve probably seen it in the public notice. In early January, we filed a new public notice of our intent to appeal the decision to the Mississippi Supreme Court in Mississippi, and we are working through that process as we speak. So, a lot going on, a lot that we’re taking in to evaluate, but it’s also stepping back at a bigger picture, and Mississippi is roughly 5% of the business, so we believe we’ve got the ability to absorb whatever outcome comes through in our plans going forward.

Jeremy Tonet, Analyst, J.P. Morgan: Great. Thanks for the color. I’ll leave it there.

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Thank you.

Speaker 7: Your next question comes from the line of Nick Campanella with Barclays. Please go ahead.

Nick Campanella, Analyst, Barclays: Hey, good morning. It’s actually Nick Campanella on. Hope you can hear me.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Yeah, we sure can, Nick.

Nick Campanella, Analyst, Barclays: Thanks for... Yeah. Hey, hope everything’s well. So, I just wanted to ask, just the $0.21 Texas benefit in the quarter, is that something that we can annualize? Or just how would you kind of frame that against the $0.40 guide that you originally pointed to?

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Yeah. So Nick, so the impact on the quarter was approximately $0.16, and as I was chatting with Julien at the top of the call, you know, it’s difficult to say that you can just simply take a run rate, multiply by 3 or 4 to get through that, because the underlying operations are impacting the timing of this deferral. So, we said it a few minutes ago, we’ll just take it quarter by quarter as we work through this first year of implementation, and we’ll see where the second quarter brings us, and we’ll have an update for you at that point.

Nick Campanella, Analyst, Barclays: Okay. Okay. And then just, I just wanted to make sure I was just directly understanding this, that the benefit, you know, it’s kind of a similar benefit than what was booked in fourth quarter last year. Like, would it be kind of like three times the benefit, given, you know, you did about $1 billion of the $4 billion of CapEx this quarter? Just how does it...? Is that the right way to answer this?

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Yeah, I mean, again, $0.25 through the year. A lot needs to occur between now and then operationally. As you know, as Kevin talked about, we’ve been focused the last couple weeks on winter operations, which has put a, you know, capital on the back burner. So, as we come through that right now, as we get back up to speed, we’ll see what the impact is on the deferrals. But again, I would caution against just taking a simple number and multiplying by 3 or 4 at this point in time.

Nick Campanella, Analyst, Barclays: Okay. Okay, thanks for clarifying. And then just, you know, you kind of brought up the strength in spreads. Just is there a way to, you know, explicitly quantify what the margin benefit was from Waha spread this, this quarter?

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: Well, quarter-over-quarter, we attributed about $7 million operating income increase as a result of those, those activities.

Nick Campanella, Analyst, Barclays: Thank you.

Speaker 7: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from Ryan Levine with Citi. Please go ahead.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Good morning. Given the recent Storm Uri and increase in gas demand in your service areas, do you see incremental opportunities to add gas storage? And can you just give us some updated color around that opportunity set? Yeah, good morning, Ryan. As you’ve heard us talk about before, we have 15 storage fields placed across Kentucky, Kansas, Mississippi, here, and here in Texas. Additionally, we have third-party contract storage, and then we have storage as part of our upstream interstate pipeline capacity as well. That’s something our gas supply team and our operations team look at post-winter.

We’ll do a rigorous review of system performance, gas supply plan performance, and overlay that with a third-party consulting engineering firm to overlay with customer growth and demand expectations, and then we’ll evaluate how that may impact additional needs for gas, gas supply, where those may need to come in, and any future needs for storage. But it’s something we always continue to look at based on past performance, historical weather, and customer growth across the system.

Nick Campanella, Analyst, Barclays: Okay, thanks for taking my question.

Kevin Akers, President and Chief Executive Officer, Atmos Energy: Sure.

Speaker 7: There are no further questions at this time. I will now turn the call back over to Dan Meziere for closing remarks.

Chris Forsythe, Senior Vice President and Chief Financial Officer, Atmos Energy: We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. Have a good day.

Speaker 7: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.