Atmos Energy Corporation — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023; comparative results are for the periods ended June 30, 2022. Atmos operates regulated natural-gas distribution, pipeline and storage businesses, serving more than 3.3 million customers in eight states.
Financial performance and condition
- Third quarter: Operating revenue was $662.7 million, down 18.8%; operating income was $169.3 million, up 9.5%; net income was $137.8 million, up 7.2%; diluted EPS was $0.94 versus $0.92. Operating margin (operating income/revenue) was 25.5%, versus 18.9%.
- Nine months: Revenue was $3.688 billion, up 6.0%; operating income was $913.1 million, up 12.0%; net income was $767.3 million, up 9.2%; diluted EPS was $5.33 versus $5.12. Operating margin was 24.8%, versus 23.4%.
- Cash flow and investment: Nine-month operating cash flow was $3.222 billion, compared with $929.3 million. Capital expenditures were $2.083 billion, up from $1.726 billion. Operating cash flow included $2.02 billion of Texas Winter Storm Uri securitization proceeds; the increase therefore does not represent operating improvement alone.
- Debt and liquidity: Long-term debt, net, was $6.554 billion; the balance sheet also included $89.0 million of securitized long-term debt and $6.0 million of current securitized maturities. No short-term debt was outstanding. The debt-to-capitalization ratio under credit agreements was 39%, and the company reported compliance with covenants. Management reported approximately $3.1 billion of liquidity, including cash, equity forward-sale proceeds and undrawn credit facilities.
- Other: Shareholders’ equity was $10.602 billion. Quarterly dividends were $0.74 per share, versus $0.68 a year earlier. The effective tax rate for the nine-month period was 11.0%, compared with 8.5%.
Material changes versus the prior period
- Nine-month earnings growth was attributed primarily to rate outcomes from safety and reliability investment. Distribution operating income rose $70.9 million and pipeline and storage operating income rose $26.6 million.
- Quarterly revenue fell mainly alongside lower distribution gas sales and lower average gas costs; gas costs are generally passed through to customers. Despite lower revenue, operating income increased, supported by rate adjustments.
- Operating expenses increased, including depreciation and property taxes associated with capital investment, maintenance and line-locate spending. Nine-month interest expense rose $30.5 million, principally reflecting debt issued in fiscal 2023.
- Capital spending increased, with management stating approximately 86% of nine-month expenditures went toward distribution and transmission safety and reliability.
- Atmos repaid $2.2 billion of notes at maturity using a temporary $2.02 billion term loan, cash and later securitization proceeds; the term loan was repaid in March. It also issued $800 million of senior notes and raised equity through forward sales. A Kansas subsidiary issued $95 million of securitized bonds.
Outlook, commentary and risks
- Management said available liquidity was expected to fund working capital and the capital program through the remainder of fiscal 2023 and expected continued access to financing on reasonable terms. The filing provides no explicit full-year EPS forecast.
- Management cited implemented or approved ratemaking actions expected to increase annual operating income by $248.6 million and ongoing efforts seeking $275.9 million. The detailed proceedings shown in the filing cover specific subsets of these company-wide amounts.
- Texas customer rate-relief bonds issued by a state financing entity raised $3.5 billion; Atmos received $2.02 billion to recover deferred costs. The bonds are not Atmos obligations. Customer charges were scheduled to begin October 1, 2023. Kansas securitization proceeds similarly supported recovery of Winter Storm Uri costs.
- Key disclosed risks include regulatory decisions and recovery timing, pipeline safety and integrity costs, natural-gas supply and price volatility, adverse weather, concentration in Texas, access to capital markets and interest rates, cybersecurity and technology disruptions, climate-related regulation, and customer affordability and collections. Litigation and environmental matters were described as not expected to have a material adverse effect, though excess losses above accruals were possible and not reasonably estimable.
- The filing notes that interim results are seasonal and not indicative of the full fiscal year. The independent accountant performed a review, not an audit, of the interim statements.
Important facts for investors to verify
- How much of the reported operating cash flow increase reflects recurring operations versus the $2.02 billion Texas securitization receipt.
- Progress, timing and final approved amounts for pending rate cases and formula-rate mechanisms, including the distinction between summary and detailed rate-action totals.
- Execution and funding of the elevated capital program, and the resulting depreciation, maintenance and financing costs.
- Debt and equity issuance needs, credit-facility availability, credit ratings and compliance with debt covenants.
- Customer-bill impacts and collection performance as Winter Storm Uri recovery charges take effect, alongside the continued recovery of deferred costs.