Atmos Energy Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2023 (second quarter of fiscal 2023; fiscal year ends September 30). Atmos is a regulated natural gas distribution and pipeline and storage company serving more than 3.3 million customers across eight states. Financial statements are unaudited; the independent accountant performed an interim review, not an audit.
Financial performance
| Metric | Three months ended March 31, 2023 | Six months ended March 31, 2023 | Prior-year comparison |
|---|---|---|---|
| Operating revenue | $1.541 billion | $3.025 billion | Quarter: down 6.6%; six months: up 13.6% |
| Operating income | $422.6 million | $743.8 million | Quarter: up 9.7%; six months: up 12.5% |
| Net income | $357.7 million | $629.5 million | Quarter: up 10.1%; six months: up 9.6% |
| Diluted EPS | $2.48 | $4.40 | Prior year: $2.37 and $4.24, respectively |
| Cash dividends per share | $0.74 | $1.48 | Prior year: $0.68 and $1.36, respectively |
For the six-month period, operating margin was approximately 24.6% and net margin approximately 20.8%, calculated as operating income and net income divided by revenue. Purchased gas costs are generally recovered from customers through rate mechanisms, so revenue changes do not directly translate into operating income changes.
Six-month operating cash flow was $2.893 billion, compared with $640.5 million a year earlier. The increase primarily reflects $2.02 billion received from the Texas customer rate-relief securitization, not a comparable increase in recurring cash generation. Capital expenditures were $1.415 billion, up from $1.190 billion. Ending cash was $95.2 million.
At March 31, 2023, long-term debt was $6.553 billion; there was no short-term debt outstanding. Debt represented 39.1% and equity 60.9% of capitalization. The company reported approximately $3.3 billion of total liquidity, including cash, available equity forward-sale proceeds, and undrawn credit facilities. Its debt-to-capitalization covenant ratio was 40%, against a 70% maximum; the company reported compliance with its covenants.
Changes and drivers
- Second-quarter revenue fell $108.8 million year over year, mainly reflecting lower distribution gas sales revenue and lower distribution sales volumes; distribution operating income nevertheless increased $24.0 million, led by rate adjustments.
- For the six months, distribution operating income rose $65.3 million and pipeline and storage operating income rose $17.6 million. Management attributed growth principally to rate increases associated with safety and reliability investment, partly offset by higher depreciation, property taxes, maintenance and other operating costs.
- Six-month interest expense increased to $74.1 million from $48.8 million, primarily due to debt issuance. The quarterly dividend was raised 8.8% for fiscal 2023.
- Texas’s $3.5 billion customer rate-relief bonds were issued by a separate financing corporation, not Atmos. Atmos received $2.02 billion and derecognized related Texas regulatory assets without an earnings impact; proceeds helped repay a temporary term loan.
Outlook, risks and unusual items
- Management said available liquidity was expected to be sufficient for working capital and the fiscal 2023 capital program, and expected to continue accessing financing on reasonable terms. No specific earnings or EPS guidance is provided in the filing.
- Atmos reported $115.1 million of annual operating-income increases from ratemaking actions implemented or approved during the first six months. At March 31, it had $213.9 million of listed ratemaking requests in progress; separately, an Atmos Pipeline-Texas GRIP filing sought $84.9 million. Management’s executive summary cites $298.9 million in total efforts in progress.
- Management highlighted regulatory approvals and timely cost recovery, capital-market access, safety and pipeline integrity, weather, gas supply and prices, customer affordability, cybersecurity, climate-related regulation, and concentration in Texas among risks that could affect results. It cautioned that six-month results are not indicative of full-year results because of seasonality.
- Kansas had $89.1 million of Winter Storm Uri regulatory assets at period-end, with securitization expected in fiscal 2023; recovery timing and regulatory outcomes remain relevant. The company said ordinary-course litigation and environmental matters were not expected to have a material adverse effect, while noting outcomes are uncertain.
- The filing reported no material changes to previously disclosed risk factors or internal controls. Goodwill was assessed as not impaired.
Important facts for investors to verify
- Reconcile the $213.9 million of listed ratemaking efforts with management’s $298.9 million total, including the separate $84.9 million pipeline GRIP request.
- Assess how much of the unusually high operating cash flow reflects the one-time Texas securitization proceeds versus ongoing operations.
- Track approval and timing of pending rate actions and Kansas Winter Storm Uri securitization, and the extent of recoverable costs.
- Monitor capital spending, financing needs, interest expense, share issuance under the ATM and forward-sale programs, and access to credit markets.
- Compare future operating performance against the filing’s seasonality caveat and the reported increases in maintenance, depreciation, property taxes and bad-debt expense.