Greetings, and welcome to the Atmos Energy's Second Quarter Earnings Conference Call. Please note that this conference is being recorded. I will now turn the conference over to our host, Dan Meziere, Vice President of Investor Relations and Treasurer. Thank you. You may begin.

Thank you, Diego. Good morning, everyone, and thank you for joining our fiscal 2022 second quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussions might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 33 and are more fully described in our SEC filings. With that, I will turn the call over to Chris Forsythe, our Senior VP and CFO. Chris?

Thank you, Dan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Last night, we reported fiscal '22 second quarter net income of $325 million or $2.37 per diluted share compared to $297 million or $2.30 per diluted share in the prior year quarter. Year-to-date, earnings were $574 million or $4.24 per diluted share compared with earnings of $514 million or $4.01 per diluted share in the prior year period. Consolidated operating income decreased to $661 million for the 6 months ended March 31. As a reminder, beginning in the second quarter of fiscal '21 and through the end of last fiscal year, we reached an agreement with regulators in various states to begin refunding excess deferred tax liabilities, generally over a 3- to 5-year period. These refunds reduced revenues throughout the fiscal year when those revenues are billed. The corresponding reduction in our interim annual effective income tax rate was recognized in the prior year when those agreements were completed. In fiscal '22, the corresponding reduction in the effective tax rate was recognized at the beginning of the fiscal year. Therefore, period-over-period changes in revenues and income tax expense may not offset with the minimum periods. However, they will substantially offset by the end of the fiscal year. Excluding the impact of these refunds, operating income for the 6 months ended March 31 increased $62 million or 9% to $743 million. Slides 4 and 5 summarize the key performance drivers for each of our operating segments, the 3 and 6 months ended March 31. I will focus on some of the key drivers underlying our year-to-date performance. Rate increases in both of our operating segments driven by increased safety and reliability capital spending totaled $120 million with approximately 77% coming from our distribution segment. Continued robust customer growth in our distribution segment increased operating income by an additional $11 million. These increases were partially offset by a $17 million decrease in consumption. Most of this decrease occurred during the second fiscal quarter, where we observed that residential consumption on a per heating degree day basis was approximately 6% lower than the prior year quarter. We attribute this decrease primarily to customer conservation in response to the current inflationary environment, including the increased cost of natural gas included in customer bills. As a reminder, our weather normalization mechanisms substantially offset changes in weather as measured on a heating degree day basis. However, they do not adjust for changes in customer behavior. Additionally, we experienced a $27 million increase in consolidated O&M expense. $20 million of this increase occurred during the first fiscal quarter as we performed more pipeline maintenance activities in this year's first fiscal quarter compared to the prior year. Consolidated capital spending increased 41% or $344 million to $1.2 billion, that's 87% dedicated to improving the safety and reliability of our system while reducing methane emissions. This increase primarily reflects increased system modernization, system integrity, and system expansion spending to meet the growing natural gas demand in our service territories. We remain on track to spend $2.4 billion to $2.5 billion in capital expenditures this fiscal year. We are also on track with our regulatory filings. To date, we have completed $74 million of annualized regulatory outcomes excluding refunds of excess deferred tax liabilities. And we currently have about $270 million in progress. Slides 20 through 32 summarize those outcomes. And Slide 17 outlines our planned filings for the remainder of the fiscal year. During the second quarter, we completed our planned financing activities for fiscal '22. In January, we issued $200 million of long-term debt through a tap of our existing 10-year 2.625% notes due September 2029. The net proceeds were used to pay off our $200 million term loan that was scheduled to mature in April. Additionally, we fully priced our remaining equity needs for fiscal '22 and a significant portion of our fiscal '23 equity needs. During the second quarter, we executed forward sales agreements under our ATM program for approximately 4.7 million shares for $500 million. And we settled forward agreements on 3.5 million shares for approximately $322 million in net proceeds. As of March 31, we have approximately $450 million of net proceeds available under existing forward sales agreements. Our second quarter activities exhausted a $1 billion ATM program we established in June of 2021, and we established a new $1 billion ATM program at the end of March. We finished the second quarter with an equity capitalization ratio of 61%, excluding the $2.2 billion of interim winter storm financing and total liquidity of approximately $3.5 billion. Additional details of our financing activities, including our equity forward arrangements, as well as our financial profile can be found on Slide 8 to 11. During the second quarter, we continued to make progress in securitization. In March, the Kansas Corporation Commission approved our gas and other related costs incurred during Winter Storm Uri with no disallowances. We plan to file our application for a financing order during our third fiscal quarter. And in Texas, the Texas Public Financing Authority continues its work on the statewide securitization program, and we still anticipate the securitization transaction will be completed by the end of our fiscal year. I'll close my portion of our prepared remarks with a few comments on our fiscal '22 earnings per share guidance, which we tightened to a range of $5.50 to $5.60 per diluted share. Earnings for the first half of the fiscal year were in line with our expectations. With approximately 70% of our distribution revenues earned for the fiscal year and the fact we're heading into the summer months, we believe any potential change in customer behavior in the second half of the fiscal year will not have a material impact on revenue. Additionally, customer growth for the first 6 months of the fiscal year were stronger than we had planned, and we expect that trend to continue into the second half of the fiscal year. In our Pipeline and Storage segment, our straight fixed variable rate design for substantially all of the segment's revenues drives clarity into the second half of the fiscal year. Additionally, we were seeing spreads widen, which is expected to provide a modest increase in APT's through system revenue. Finally, we have completed our fiscal '22 financing program, including pricing all of our equity needs for the remainder of the fiscal year which removes one more variable. Slides 13 through 14 provide additional details around our guidance. Thank you for your time today. I will now turn the call over to Kevin Akers for his update and some closing remarks. Kevin?

Thank you, Chris, and good morning, everyone. As you heard, the first 6 months of the fiscal year were in line with our expectations, which leaves us well positioned for another successful fiscal year. This performance reflects a commitment, dedication, focus, and effort of all 4,700 Atmos Energy employees, as we continue to successfully modernize our natural gas distribution, transmission, and storage systems, while safely providing reliable natural gas service to our 3.4 million customers across 1,400 communities in 8 states. During the first half of the fiscal year, we continued to experience strong customer growth, as you just heard from Chris. For example, for the 12 months ended March 31, 2022, we added over 57,000 new customers, which represents a 1.8% increase. We added nearly 1,800 commercial customers during the first 6 months of this fiscal year. And we added 15 new industrial customers that we anticipate using nearly 5 Bcf of natural gas annually when at full capacity. On a volumetric basis, that 5 Bcf of annual industrial customer usage is equivalent to adding nearly 85,000 residential customers to our system. We're very proud of our efforts for these new customers coming onto our system. As Chris mentioned, our capital spending has increased about $344 million over the prior year period, and we remain on track to achieve our capital spending target of $2.4 billion to $2.5 billion. Through our system modernization efforts, we are on track to replace 800 to 1,000 miles of pipe and 20,000 to 30,000 steel service lines, all of which supports our goal of reducing methane emissions 50% by 2035 from 2017 levels for EPA reported distribution and maintenance services. That also includes APT's integrity work on projects like our Line X Phase 2 replacement, which is under construction and includes 63 miles of 36-inch pipeline anticipated to be completed later this calendar year. As a reminder, we placed Phase 1 into service in Q1 of this fiscal year. That phase replaced 64 miles of 36-inch pipeline. Additionally, construction has begun on Phase 2 of our Line S-2 replacement project. This 18-mile 36-inch project is expected to be completed late this calendar year. Again, as a reminder, we placed 22 miles of 36-inch completed in Phase 1 into service in Q1 of this fiscal year. This modernization work is a significant component of our comprehensive environmental strategy that focuses on reducing our Scope 1, 2, and 3 emissions and environmental impact from operations in the 5 key areas of operations, fleet, facilities, gas supply, and customers. During the second quarter, we added another RNG facility that will provide renewable natural gas for transportation across our system. That facility has the potential to flow up to 0.5 Bcf a year. As you know, we are currently transporting approximately 8 Bcf a year and we are evaluating nearly 30 opportunities that could further expand these transportation opportunities. As I mentioned on previous calls, we completed our first zero-net energy home in partnership with the Greeley-Weld Habitat for Humanity in Evans, Colorado. Zero Net Energy homes use high-efficiency natural gas appliances, rooftop solar panels, and insulation to produce more energy than it consumes at a very affordable cost, approximately $50 per month for the combined gas and electric bill for the Evans, Colorado home. We are now partnering with local Habitat for Humanity organizations in each of our 8 states to construct additional zero-net energy homes. Currently, our home in Dallas is under construction. And on April 27, we held the dedication for our zero-net energy home in Taylor, Texas. Additionally, in Jackson, Mississippi on April 28, Atmos Energy and Habitat for Humanity Capital earlier held a groundbreaking ceremony for Mississippi's first zero net energy home. And in Lubbock, 3 homes are scheduled to begin construction in early September of this year. These zero net energy homes demonstrate the value and vital role natural gas plays in helping customers reduce their carbon footprint in an affordable manner, providing these families with a natural gas home that is environmentally friendly and cost-efficient is just one way Atmos Energy fuels safe and thriving communities. Our customer support organization and technology support team continue to innovate and look for ways to improve our customer service and offer convenient channels for our customers to communicate with us as well as to make payments. For example, over 31% of our customers are enrolled in recurring auto draft, which is about 8% higher than the industry average. We also see continuous growth in our electronic bill delivery channels with nearly 50% of our customers enrolled in E-bill. We continue our outreach to customers to make them aware of our flexible payment plans as well as provide contact information for local, state, and federal energy assistance programs. For the first 6 months of this fiscal year, our customer support associates, our energy assistant specialists, and coordinators through our customer advocacy team helped nearly 44,000 customers receive $15 million in energy assistance. It is through heartfelt caring efforts like that, that we provide the satisfaction ratings for these employees that exceed 97%. These activities and initiatives reflect how we are focused on the long-term sustainability of Atmos Energy as we serve a very vital role in every community by delivering reliable, efficient, and abundant natural gas to homes, businesses, and industries to fuel our energy needs now, and into the future. We believe our focus on long-term sustainability combined with executing our proven investment, regulatory, and financial strategies continues to support our ability to grow earnings per share and dividends 6% to 8% annually through fiscal 2026. We appreciate your time and interest in Atmos Energy this morning, and we will now open the call for questions.

Our first question comes from Nicholas Campanella with Crédit Suisse.

So a lot of detail. Thanks for the update. Just on the financing side of things, your cost of equity has improved since the start of your fiscal year. And I know you're largely set on '22 equity needs now and you gave us a lot of detail around the forward program. But just any thoughts on why not do more now and take this off the table for kind of future years? And is it just that you guys are being just fairly formulaic? And how you execute here? And just any thoughts on out your equity?

Yes. A couple of things there, Nick. First, we are under our ATM program for a number of quarters now, have been executing forward arrangements. So we may very well take advantage of the current pricing environment to establish pricing for our fiscal '23 and beyond. As I indicated, fiscal '22 is fully priced for the remainder of our fiscal year. So that's an opportunity that we'll take a look at here in the third and fourth quarter to take advantage of the current pricing environment to build on what we've already established with our fiscal '23 work that we executed through the end of March.

All right. Great. No, that's helpful. And then, I guess, just a broader question on inflation. Everyone is dealing with it. Just on the gas side, just every day we look at the strip, it's up. And how is that kind of translating to broader customer bills? Do you feel comfortable if we remain at these levels? And if we're at a structurally higher kind of commodity environment through your 5-year plan, just confidence level in executing on this rate base trajectory?

Yes, Nick, it's Kevin. Your question touches on a couple of important points. Firstly, as I mentioned in my opening remarks, our team is highly focused on affordability and how we can assist. Our customer service and advocacy teams are actively reaching out to energy assistance organizations to secure funds and connect customers with those resources. Additionally, we proactively communicate with our customers. For instance, last winter, we sent out around 1.5 million notices via phone calls, text messages, and emails to alert customers about colder weather approaching. We also provide weather tips, energy efficiency advice, and conservation information through various channels, including social media. We aim to stay engaged and informed with our customers regarding costs while also guiding them to our energy assistance programs and where they can find help. We pride ourselves on being an efficient operator, and we're committed to maintaining that. You've seen our efforts following the Uri event, and we will continue to monitor gas prices in the coming months while keeping our customers informed whenever possible. And to the second part of your question there, I think where you were heading regarding our capital investment program over the 5-year horizon, I think as you can see in our slide deck right now, we run somewhere between 85% to 90% of our capital investments focused on safety and reliability. That needs to continue and will continue as we continue our strategy to modernize our system for the safe delivery of natural gas, as well as, as you just heard me mention, the growth out there to support that high growth rate, particularly when we're adding 57,000 new customers over the past 12 months. So we've got to continue to meet that strong demand for natural gas across our service territory that we anticipate will continue going forward, as we talk to builders and developers out there. Even with interest rates at 5% right now, they're continuing to see strong demand as well. So that's what we're going to focus on: how we help the customer, how we can connect the customer to the right assistance organization, maintain our focus on O&M where we can, and then continue to invest in our system.

Our next question comes from Insoo Kim with Goldman Sachs.

First, just more on detail for the quarter. I saw on the pipeline side, the O&M year-over-year was up a decent bid. On the distribution side, down year-over-year. Is this just more timing between the quarters? And I know from a guidance perspective for the year, it doesn't seem like much has changed. But just curious on some clarity there.

Insoo, this is Chris. Yes, certainly, it's all about the timing of the work on the pipeline; those are long lead time projects that require planning well in advance. So it's mainly a timing issue there. As for the distribution side, we observed a slightly lower bad debt expense in our current fiscal second quarter compared to the previous year. So those are really the two main factors behind the variances you mentioned.

Okay, I understand. For my second question, I’m curious about your observations. Over the past couple of years, we’ve discussed the evolving narratives regarding the future of gas, and it seems that the latest narrative has shifted to a more positive outlook for the sector, particularly in terms of energy security. Have you noticed any changes on the ground, such as customer growth or demand for gas in your various regions? Was there ever a significant negative impact from this narrative over the last couple of years? You mentioned that customer growth or demand is stronger than expected, so I’m wondering if that is related to these thoughts.

Yes. Thank you, Insoo, for your question. As you know, we've continued to have strong growth. We're very proud of our service territories. We believe they are the best in the country. We're fortunate with the states and support politically, the economic development chambers, and their hard work that bring these sort of customers into the communities we serve today. But we've seen strong support for natural gas for a long time throughout our history. I think you could also see that through the customer advocacy and customer choice builds that we have in 6 of our 8 states; we get very good support from a regulatory perspective, the political perspective, and the community perspective. So I think we've always been in a strong supporting natural gas environment. I think the thing that has changed lately is the conversation that the general public is now seeing and wanting to feel around energy security. Natural gas in our industry has always been there behind the scenes, delivering, transporting, and storing natural gas to meet those winter demands, especially as you go back to Uri and how well some of our distribution and transmission systems performed during that piece of it. We've always kind of been out of sight, out of mind. But with the unfortunate geopolitics that are going on now, the war in Ukraine, energy has been thrust to the forefront. And I think those are the things we're hearing: people are wanting to know that natural gas is going to be there. It's a viable choice for them, it's abundant, and they're talking to us about national energy security and how they can have that in their community. So those are the sort of things we're hearing now. And as I said, we're very fortunate and blessed and appreciative of our jurisdictions and their support for natural gas.

Our next question comes from Julien Dumoulin-Smith with Bank of America.

Maybe just staying with this inflationary focus. I mean what's your view on inflation's impact on your CapEx budgets? How are you thinking about that just vis-a-vis some of the latest pressures we're seeing across the industry? What percentage of your CapEx is exposed to material labor, for instance, obviously, that is perhaps disproportionately inflationary? And what's locked in contracted labor where perhaps you may not see that? But on balance, is there an upward bias in your CapEx budget on that alone effectively?

Yes, Julien, let me start here, and Chris certainly can add some color if he wants to get into percentages or not. But as we've talked about this before, I couldn't be any prouder of our procurement team, our operations team, our engineering teams, all working collectively as we've come through the last year or so, the pandemic inflationary discussions were picking up. We were seeing some of the signs out there. They were very active. You heard us talk about going from a 3-month to 6-month inventory of materials and pipe. You've also heard us continue to talk about that we have 95% to 100% of our pipe on the ground for the remainder of this fiscal year's steel needs. And that we are already beginning identification and getting steel pipe to the mills for '23 and identifying costs as far out as '24 in those project needs. So all to say for us, our team has been very proactive about identifying the types of materials, whether it's pipe, valves, fittings, those sorts of things, plastic, steel, increasing our inventory, increasing our lead time on that, so we're not just in time. Yes, we've seen some increases in steel pipe, especially from a couple of years ago or 3 years ago. But we think we're doing everything we can to take advantage of current pricing now to lock that in, as I said, as we buy out into the future for those sorts of things. Really, the only pressures we've seen right now from a supply chain perspective are on the technology side and occasionally on some meters, but it corrects itself over time as our team continues to work through our vendors and suppliers to get additional supplies into our warehouses. So I hope that helps answer your question.

Yes, I agree. Kevin, I want to highlight that we have contracted labor involved in our capital projects. We maintain ongoing communication with them, and many of these contractors have been with us for a long time. Throughout the years, we have collaborated to manage their cost pressures and needs. This approach has allowed us to handle costs in manageable increments instead of keeping them low for an extended period and then rushing to catch up. Our long-term relationships with these contractors enable us to gradually incorporate any higher costs over time, helping to alleviate the inflationary effects on our capital expenditures.

Got it. But not ready to quantify in aggregate, but maybe you do see some of these inflationary pressures that could fall through. And maybe to clarify that further, even to the extent of which you do, would you perhaps defer some of these investments in order to keep your budget flat? Or is there an argument that would just be made you move forward with the projects despite some modest inflation?

We haven't seen anything right now, Julien, that hadn't already been contemplated in the numbers that we've discussed here to date.

All right. Excellent. And so just one other, please go for it.

No, that's all I had.

Okay. Excellent. Regarding the transportation and RNG aspect, you mentioned around 30 projects or opportunities. Can you elaborate on what that could represent in terms of capital opportunities?

Yes, Julien, we've mentioned before that we're not currently investing in the upstream side. Our focus is on investments around the sales meter, whether it's related to digesters, landfills, biomass, or sewer gas capture. We're primarily involved in receiving processed gas and transporting it for our customers. Currently, our evaluations are focused on nearby systems, and any capital investment we consider at this time would be modest, likely just extending a short distance to a facility. Essentially, we're not investing upstream right now; our role is to transport that RNG on behalf of others. Correct. Helping our customers where we can reduce their carbon footprint and be the conduit. That's why we have the 72,000 miles of pipeline system we have today: to move that gas around and be part of that environmental equation to get that gas to the customers.

And there are no further questions at this time. I'll turn the floor back to Dan Meziere for closing remarks.

We appreciate your interest in Atmos Energy, and thank you all for joining us. A recording of this call is available for replay on our website through June 30. Have a good day.