Atmos Energy Corporation (NYSE: ATO) — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2020, ended March 31, 2020. Atmos Energy is a regulated natural gas distributor serving more than three million customers across eight states, with pipeline and storage operations. The interim financial statements were reviewed by the independent auditor, not audited.
Financial performance
Amounts below are in millions of dollars, except per-share data. Quarter means the three months ended March 31; six-month figures are year to date.
| Metric | Quarter 2020 | Quarter 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Operating revenue | $977.7 | $1,094.6 | $1,853.2 | $1,972.4 |
| Operating income | $331.4 | $297.7 | $584.2 | $534.1 |
| Net income | $239.6 | $214.9 | $418.3 | $372.5 |
| Diluted EPS | $1.95 | $1.82 | $3.42 | $3.21 |
| Operating margin | 33.9% | 27.2% | 31.5% | 27.1% |
- Quarterly revenue declined about 11%, while operating income rose about 11% and net income rose about 12%. For the six months, revenue fell about 6%, while operating income increased about 9% and net income increased about 12%. Revenue declines largely reflected lower gas costs and lower distribution volumes; purchased gas costs are generally passed through to customers.
- Distribution operating income increased $24.6 million for the quarter and $35.4 million for the six months, mainly from rate adjustments and customer growth, partly offset by higher depreciation, property taxes, employee costs and maintenance.
- Pipeline and storage operating income rose $9.2 million for the quarter and $14.7 million for the six months, primarily due to rates from the prior-year GRIP filing; higher depreciation and system-maintenance costs partly offset the gains.
- Cash from operations was $633.8 million, compared with $560.8 million in the prior-year period. Capital expenditures were $994.7 million, up 28%; more than 80% funded distribution and transmission safety and reliability work. Investing cash outflow was $991.2 million. Financing activities provided $653.0 million, and cash ended the period at $320.1 million.
- At March 31, long-term debt was $4.33 billion and short-term debt was $199.9 million. Shareholders’ equity was $6.30 billion; equity was 58.2% of capitalization as defined in the company’s capitalization table. The company reported a 44% debt-to-capitalization ratio under its credit-agreement definition and compliance with debt covenants.
- Quarterly dividends were $0.575 per share, versus $0.525 a year earlier. The board had increased the fiscal 2020 dividend rate by 9.5%.
Changes, outlook and risks
- Rates and investment: Eight regulatory actions implemented in the first half were expected to increase annual operating income by $59.2 million. Management reported 13 ratemaking efforts in progress seeking a combined $219.3 million annual operating-income increase. The detailed table lists $170.0 million of pending distribution requests; the filing separately describes a $49.3 million APT GRIP request. Requested amounts are not assured outcomes.
- COVID-19: The company said the pandemic had not materially affected results through March 31, as mitigation measures began late in the quarter. It suspended nonpayment disconnects and waived certain fees; subsequent regulatory orders in Louisiana, Mississippi, Texas and Virginia allowed deferral of certain extraordinary COVID-19 costs, including bad debt, as regulatory assets. The company warned that effects on demand, collections, costs, staffing, counterparties, liquidity and capital-market access remained uncertain. It voluntarily delayed some Texas rate changes until September 1, 2020 and said this would not materially affect fiscal 2020 results.
- Liquidity and financing: Management reported approximately $2.0 billion of liquidity at March 31, including cash and funds available through equity forward sales. April financing actions included a $200 million two-year term loan and new or amended revolving credit facilities. Management reported approximately $2.9 billion of liquidity at April 30, including cash and equity-forward-sale availability. It expected funding to be sufficient for working capital and the capital program, while noting access to financing depends on market conditions.
- Capital markets and debt: The company issued $800 million of senior notes in October 2019 and received $791.7 million net proceeds. It also received $258.0 million from settling equity forward sales during the six-month period. Remaining forward agreements represented potential proceeds of $418.6 million at March 31. Moody’s upgraded its senior unsecured rating to A1 with a stable outlook; S&P’s outlook was stable.
- Other items: Adoption of the new lease standard recorded $231.3 million of right-of-use assets and lease liabilities, with no material income-statement or cash-flow effect. The annual goodwill impairment assessment found no impairment. The NTSB was investigating a 2018 Dallas residential gas incident involving one fatality and four injuries; management said litigation and other matters were not expected to have a material adverse effect, while acknowledging outcomes are uncertain.
- Seasonality and risks: Management cautioned that first-half results are not indicative of full-year fiscal 2020 results. Key risks include regulatory outcomes and recovery timing, COVID-19 and customer credit, pipeline safety and integrity costs, adverse economic or weather conditions, access to capital, interest rates, gas-supply availability, cyber threats and concentration of operations in Texas. No specific full-year earnings guidance was provided in the supplied filing text.
Important facts for investors to verify
- Progress and final allowed returns from pending rate filings, particularly the distinction between the $170.0 million detailed distribution requests and the separate $49.3 million APT filing.
- COVID-19 effects on commercial and industrial demand, bad debts, deferred costs and regulatory recovery as the pandemic continues.
- Whether capital spending remains financeable from operating cash, debt and equity sources, and how planned equity-forward settlements affect share count and per-share results.
- Pipeline integrity and maintenance spending, including developments in the Dallas incident investigation and any related liabilities.
- Operating cash generation relative to the elevated capital program, debt levels, covenant headroom and credit ratings.