Atmos Energy Corporation — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the three months ended December 31, 2022. Comparisons are with the three months ended December 31, 2021, unless stated otherwise. Atmos is a regulated natural gas distributor and pipeline and storage operator serving approximately 3.3 million customers in eight states. Interim results are seasonal and are not necessarily indicative of full-year performance.
Financial and operating performance
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Operating revenue | $1,484.0 million | $1,012.8 million |
| Operating income | $321.2 million | $275.9 million |
| Net income | $271.9 million | $249.2 million |
| Diluted earnings per share | $1.91 | $1.86 |
| Operating cash flow | $188.9 million | $61.8 million |
| Capital expenditures | $795.7 million | $684.2 million |
- Revenue increased 46.6%, while net income rose about 9%. The filing attributes the earnings increase mainly to favorable rate outcomes, partly offset by higher operating expenses.
- Operating margin, calculated as operating income divided by revenue, was approximately 21.6%, versus 27.3% in the prior-year quarter. Revenue includes pass-through gas costs; those costs generally do not directly affect operating income.
- Operating cash flow less capital expenditures was negative $606.8 million. The company funded investment with operating cash and external financing.
- At December 31, cash was $171.6 million; long-term debt was $6.552 billion and current maturities of long-term debt were $2.201 billion. Total debt, including current maturities and finance leases, was approximately $8.753 billion. Debt-to-total-capitalization under credit agreements was 48%; the company reported a 52.9% equity capitalization ratio, or 60.0% excluding financing issued for Winter Storm Uri.
- Reported total liquidity was approximately $3.4 billion: cash, $754.9 million available from equity forward sales, and $2.494 billion of undrawn credit-facility capacity. The company reported no commercial paper outstanding at quarter-end and compliance with debt covenants.
- The quarterly dividend was $0.74 per share, up from $0.68; the board increased the fiscal 2023 dividend rate by 8.8%.
Material changes and business drivers
- Distribution-segment operating income increased $41.3 million to $231.8 million. Higher rate adjustments contributed $57.5 million, with additional benefit from customer growth and industrial load; higher depreciation, property taxes, and operating and maintenance costs partly offset the gains.
- Pipeline and storage operating income increased $4.1 million to $89.4 million. Rate adjustments and higher through-system activity were partly offset by higher inspection, depreciation, property-tax, and other costs.
- Distribution sales volumes rose to 100,078 MMcf from 69,545 MMcf, and the average gas cost per Mcf sold rose to $8.81 from $7.14. The filing identifies weather, customer demand, and pass-through gas costs as relevant factors.
- Interest expense rose to $36.8 million from $19.9 million, primarily reflecting debt issued in fiscal 2022 and fiscal 2023. The company issued $800 million of senior notes in October 2022 and settled equity forward sales for $220 million during the quarter.
- Operating cash flow improved by $127.1 million, primarily due to working-capital timing, including payments for gas purchases and deferred gas-cost recoveries, and the effects of prior rate outcomes. Capital spending increased $111.5 million.
Outlook, risks, and unusual items
- Management said available liquidity was expected to fund working-capital needs and the capital program for the remainder of fiscal 2023. The filing does not provide a full-year earnings or EPS guidance range.
- On March 9, 2023, $2.2 billion of long-term notes associated with Winter Storm Uri were due. Texas securitization proceeds were not expected to be available before maturity; management anticipated using a syndicated bank term loan, credit-facility borrowings, and cash. This refinancing and securitization timing is a key liquidity consideration.
- The company had recorded a $2.126 billion regulatory asset for Winter Storm Uri costs and carrying costs. Kansas had authorization to securitize $118.5 million, with issuance expected in fiscal 2023; Texas customer-relief bond authorization covered approved costs, with proceeds intended to repay debt used to finance storm gas costs.
- Rate actions implemented or approved in the quarter were expected to increase annual operating income by $111.8 million. Pending or recently approved filings represented approximately $18.8 million of requested annual operating income as of December 31; some had later approval dates or effective dates.
- Principal disclosed risks include regulatory decisions and cost recovery, pipeline safety and integrity, natural-gas supply and price volatility, severe weather and other hazards, capital-market access and interest rates, cyber and technology risks, climate-related regulation, and concentration of operations in Texas. Management did not identify material changes to the prior annual report’s risk factors.
- Management believed ordinary-course litigation and environmental matters would not have a material adverse effect, though outcomes are uncertain. Two service-center leases expected to commence in fiscal 2023 would add $48.1 million of future lease payments.
Important facts for investors to verify
- How the March 2023 $2.2 billion maturity was refinanced, and the timing and terms of the Texas Winter Storm Uri securitization.
- Whether authorized and pending rate increases are implemented as expected, and whether recovery keeps pace with the company’s substantial safety and reliability investment.
- Capital-spending plans, funding mix, leverage, and liquidity after the Uri-related refinancing and future investment.
- Drivers of quarterly volume growth and the effects of weather, gas prices, customer collections, and working-capital timing on future results and cash flows.
- The interim financial statements were reviewed, not audited; the independent accountant reported no material modifications needed for GAAP conformity.