Atmos Energy Corporation — Q1 FY2022 Form 10-Q
Business context and period: The filing covers the three months ended December 31, 2021, the first quarter of fiscal 2022. Atmos Energy operates regulated natural-gas distribution businesses across eight states and pipeline and storage operations, serving more than three million customers. Interim results are seasonal and management cautions they are not indicative of full-year results.
Key financial metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Operating revenue | $1,012.8 million | $914.5 million | +10.7% |
| Operating income | $275.9 million | $298.8 million | −7.7% |
| Net income | $249.2 million | $217.7 million | +14.5% |
| Diluted EPS | $1.86 | $1.71 | +8.8% |
| Cash dividends per share | $0.680 | $0.625 | +8.8% |
| Operating cash flow | $61.8 million | $157.1 million | −$95.2 million |
| Capital expenditures | $684.2 million | $456.8 million | +$227.4 million |
Operating margin was approximately 27.3%, versus 32.7% a year earlier; net margin was approximately 24.6%, versus 23.8%. The effective tax rate fell to 5.9% from 23.1%, principally reflecting increased customer refunds of excess deferred taxes and related tax effects.
At December 31, 2021, cash was $264.0 million, total assets were $20.55 billion, shareholders’ equity was $8.29 billion, and long-term debt was $5.56 billion. Including current maturities, reported debt was approximately $7.96 billion. Current assets of $3.27 billion were below current liabilities of $3.43 billion. Management reported approximately $3.1 billion of total liquidity, including cash and amounts available under equity forward sale agreements; it also had $2.5 billion of committed revolving credit facilities, with no commercial-paper or revolving-facility borrowings outstanding.
Material changes versus the prior comparable period
- Net income rose despite lower operating income. Management attributed the earnings increase primarily to rate outcomes and customer growth, with the substantially lower effective tax rate also contributing.
- Operating income declined in both segments. Distribution operating income fell $19.1 million, including the effect of $28.8 million more in excess-tax refunds to customers; pipeline and storage operating income fell $3.9 million, including $10.0 million of additional excess-tax refunds.
- Distribution sales volumes fell to 69,545 MMcf from 88,861 MMcf, while distribution customer meters increased to 3.41 million from 3.37 million. Pipeline transportation volumes also declined.
- Operating cash flow decreased, mainly because of working-capital timing, including gas-cost recoveries. Investing cash outflow increased with higher capital spending.
- Debt and equity financing supported the capital program: the company issued $600 million of 2.85% senior notes due 2052 and settled forward equity sales for net proceeds of $261.9 million. Equity capitalization was 51.0%, or 59.0% excluding financing related to Winter Storm Uri.
Outlook, commentary, risks and unusual items
- Capital program and liquidity: Capital expenditures were $684.2 million; more than 85% was directed to distribution and transmission safety and reliability. Management said available liquidity was expected to fund working capital and the capital program for the remainder of fiscal 2022 and expected continued access to financing on reasonable terms. No specific full-year earnings or EPS guidance is provided.
- Rates: Rate actions implemented during the quarter were reported to increase annual operating income by $24.9 million; excluding excess-tax refunds, management reported rate outcomes of $68.5 million. Proceedings seeking approximately $22.0 million of annual operating-income increases were in progress at quarter-end; some listed filings were subsequently approved with 2022 effective dates.
- Winter Storm Uri: The company had recorded a $2.1 billion regulatory asset for extraordinary gas costs and carrying costs. Texas regulators issued a financing order on February 8, 2022 authorizing securitization over a period of up to 30 years. Proceeds are intended to repay $2.2 billion of notes issued to finance the costs; the timing depends on bond issuance and other conditions. Kansas securitization remained subject to regulatory proceedings.
- Debt after quarter-end: On January 14, 2022, Atmos issued $200 million of 2.625% notes due 2029 and used the proceeds to repay its $200 million floating-rate term loan on January 18.
- Credit and operating risks: S&P and Moody’s ratings remained investment grade, but both outlooks were negative. The filing cites risks from regulation and rate recovery, pipeline safety and integrity, weather and gas supply, commodity and interest-rate exposures, capital-market access, cyber threats, and economic conditions. The NTSB was investigating a 2021 worksite accident involving two fatalities; related civil actions were filed. A separate Texas proceeding sought $1.6 million in administrative penalties related to a 2018 incident. Management did not expect litigation and other matters to materially harm results, but outcomes remain uncertain.
- Management reported compliance with debt covenants and effective disclosure controls as of December 31, 2021. The interim financial statements received an independent accountant’s review, not an audit.
Important facts for investors to verify
- Progress, timing, final recovery terms and customer-bill effects of Texas and Kansas Winter Storm Uri securitizations, and the repayment of related financing.
- Whether pending rate proceedings deliver the requested increases, and how tax-refund provisions affect reported operating income and future earnings.
- Whether operating cash generation improves as gas-cost working-capital timing normalizes, given the scale of capital spending and ongoing financing needs.
- Pipeline and worksite investigation developments, related claims or penalties, and any effect on safety costs, insurance or liabilities.
- Credit-rating outlooks and access to debt and equity markets, including the implications of the large current maturity balance and planned infrastructure investment.