ONE Gas, Inc. — Q1 2024 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2024; comparisons are with Q1 2023. ONE Gas is a regulated natural-gas distributor serving approximately 2.3 million customers in Oklahoma, Kansas and Texas, with one reportable segment. The company notes that its business is seasonal and quarterly results are not necessarily indicative of full-year performance.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | $758.3 million | $1,032.1 million | Down 27% |
| Operating income | $145.9 million | $149.2 million | Down 2% |
| Net income | $99.3 million | $102.6 million | Down 3% |
| Diluted EPS | $1.75 | $1.84 | Down 5% |
| Operating cash flow | $108.3 million | $469.1 million | Down $360.8 million |
| Capital expenditures | $166.8 million | $151.0 million | Up 10% |
Natural-gas sales revenue fell $277.7 million, while cost of natural gas fell $282.8 million. Gas costs are generally passed through to customers without profit, so revenue and gas-cost movements largely reflect commodity costs rather than a comparable change in underlying utility profitability. Operating costs rose 5%; depreciation and amortization rose 7%. Management attributed lower operating income chiefly to $8.5 million of higher employee-related costs and $3.7 million of lower revenue from sales volumes, partly offset by $11.2 million of revenue from new rates. Weather was 2.7% warmer than the prior-year quarter; weather-normalization mechanisms mitigated its earnings effect. Total volumes delivered declined about 4%.
Cash and restricted cash totaled $21.5 million at quarter-end. Total current assets were $663.7 million and current liabilities were $1.404 billion. Commercial paper outstanding was $953.4 million at a 5.61% weighted-average rate; the company had no revolver borrowings and approximately $1.2 billion of remaining credit under its revolving facility. Total debt-to-capital was 53% (50% excluding non-recourse securitized debt), versus a 70% covenant limit; the company reported covenant compliance. It repaid $773 million of senior notes at maturity using commercial paper. Dividends declared were $0.66 per share in Q1; a further $0.66 per-share dividend was declared in May.
Material changes versus the prior period
- Revenue declined sharply, primarily with lower natural-gas sales and pass-through gas costs, while operating income and net income decreased more modestly.
- Operating cash flow was substantially lower, mainly because Q1 2023 included approximately $197 million of Texas Winter Storm Uri securitization proceeds. Q1 2024 also reflected working-capital movements.
- Debt maturities of $300 million and $473 million were repaid with commercial paper, increasing commercial-paper borrowings from $88.5 million at year-end to $953.4 million at March 31.
- Capital expenditures and asset-removal costs increased to $179.4 million from $164.6 million, primarily for system integrity and service extensions.
Outlook, regulatory matters and risks
- Management expects 2024 capital expenditures and asset-removal costs of approximately $750 million. The filing does not provide earnings or EPS guidance.
- Oklahoma Natural Gas requested a $31.8 million base-rate increase, a $2.4 million energy-efficiency incentive and a $12.8 million estimated EDIT customer credit for 2025; a hearing was scheduled for June 4, 2024.
- Kansas Gas Service requested a $58.1 million net base-rate increase, noting that $35 million is already being recovered through its GSRS. The application includes a proposed performance-based rate mechanism.
- Texas Gas Service requested GRIP increases of $8.6 million in West-North and $12.3 million in Central-Gulf, with requested effective dates in July and June 2024, respectively. These are requests, not stated approvals.
- Environmental and pipeline-safety requirements may entail added costs. Kansas MGP remediation costs are subject to recovery proceedings; $30.5 million was deferred at quarter-end, above the existing $15 million deferral cap, and the company expects to seek approval for excess amounts after remediation plans are approved. The MGP remediation reserve was $13.9 million.
- Management says litigation losses are not expected to be material. Key stated risks include regulatory cost recovery, access to capital and refinancing, interest rates, operating and labor costs, weather and gas supply, cybersecurity, and environmental and pipeline-safety regulation.
Important facts for investors to verify
- Progress and outcomes of the Oklahoma, Kansas and Texas rate proceedings, including timing and authorized returns or rate changes.
- Commercial-paper refinancing needs, borrowing costs and continued availability of the revolving credit facility.
- Whether operating cash flow and financing capacity support the planned $750 million capital program and dividend.
- Actual earnings and volume effects from weather, operating costs and new rates, given the seasonal nature of the business.
- Regulatory recovery of Kansas MGP remediation costs above the current deferral cap and any material changes in environmental or pipeline-safety obligations.