Good morning, ladies and gentlemen. And welcome to the Atmos Energy Corporation Fiscal 2023 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Wednesday, February 08, 2023. And I would now like to turn the conference over to Dan Meziere, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Michell. Good morning, everyone. And thank you for joining our fiscal 2023 first 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 discussion 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 24 and more fully described in our SEC filings. With that, I will now turn the call over to Kevin Akers, our President and CEO. Kevin?

Thank you, Dan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy today. I want to begin today's call by thanking every one of our 4,800 Atmos Energy employees across all of our eight states for their exceptional effort and dedication to serving our customers under very challenging weather conditions during winter storms Elliott and Mara. Thank you for all that you do for our customers and our communities every day. You are truly the heart and soul of Atmos Energy. Our first quarter results reflect that effort, dedication, and focus as we continued modernizing our natural gas distribution, transmission, and storage systems on our journey to be the safest provider of natural gas services. Yesterday, we reported fiscal 2023 first quarter net income of $272 million or $1.91 per diluted share, and we reaffirmed our fiscal 2023 earnings per share guidance in the range of $5.90 to $6.10. Our Atmos Pipeline, Texas division achieved several project milestones during the first quarter. Our APT team completed filling the Cushing gas requirements at the Bethel 1B cavern and working gas is currently being injected, and debriding operations continue with a targeted completion date of April of this year. This third cavern provides additional support to APT's operations, as well as the local distribution companies behind APT systems, and adds over 6 Bcf of new working gas capacity. We completed the final portion of our 137-mile, 36-inch Line X integrity replacement project, as well as completed Phase 2 of our three-phase line S2 project. Line S2 brings supply from the Haynesville and Cotton Valley shale plays to the east side of the growing Dallas Fort Worth metroplex. The second phase will place 17 miles of 14-inch pipeline with 36-inch pipeline. The final phase of this project is anticipated to be in service late calendar 2024. These projects enhance the safety, reliability, versatility, and supply diversification of our system and support the continued growth we are seeing in the local distribution companies behind APT systems. According to the Texas Workforce Commission, the state continued a 14-month streak of record employment in December and added 650,000 jobs for the 12 months ending December. This strong employment trend continues to drive the growth in our Mid Tex and West Texas divisions where approximately 47,000 of our nearly 64,000 new customers were added for the same 12 months ending December period. Additionally, industrial demand for natural gas in our service territory remains strong. During the first quarter, we added 12 new industrial customers with an anticipated annual load of approximately 9 Bcf once they're fully operational. The largest of these new industrial customers is anticipated to use nearly 6 Bcf annually. Our procurement team continues to do an excellent job sourcing the materials needed to support our capital investment as we continue modernizing our natural gas distribution, transmission, and storage systems. We also maintain about six months of inventory for our distribution and transmission needs. And as we said before, we have ordered all of our anticipated steel pipe needs for FY 2023. Our customer advocacy team and customer support agents continue their outreach efforts to energy assistance agencies and to our customers during the first quarter. Through their work, the team helped nearly 17,000 customers receive over $6 million in funding assistance. As a reminder, during fiscal 2022, our energy assistance teams helped nearly 67,000 customers receive approximately $34 million in funding to help with their monthly bills. As you'll hear from Chris today, our fiscal 2023 financing costs are known. We have hedged a significant portion of our financing needs beyond fiscal year 2023, and our liquidity and balance sheet remain strong. Atmos Energy is well positioned to continue delivering safe, reliable, efficient and abundant natural gas to homes, businesses, and industries to fuel our energy needs now and in the future. I'll now turn the call over to Chris for his update. Chris?

Thank you, Kevin, and thank you everyone for joining us this morning. As Kevin mentioned, our fiscal ‘23 first quarter net income was $272 million or $1.91 per diluted share. Consolidated operating income increased to $321 million or 16% in the first quarter. Our first quarter performance largely reflects positive rate outcomes driven by system modernization spending, continued customer growth in our distribution segment, partially offset by higher O&M spending in both of our segments. Slide 5 summarizes the key performance drivers for each of our operating segments. Rate increases in both of our operating segments driven by increased safety and reliability spending totaled $79 million. Residential customer growth and increased industrial load increased operating income by an additional $5.5 million, and we saw a $5 million increase in APT’s system business due to water spreads driven by maintenance and some of the key takeaway pipelines in the Permian during the quarter. Consolidated O&M expense increased $26 million, driven by planned higher in-line inspection spending in APT, higher spending for third-party damage prevention activities on our distribution system, and increased employee and other administrative costs. Consolidated capital spending increased 16% to $796 million with 88% dedicated to improving the safety and reliability of our system. This increase primarily reflects higher spending at APT, in the project that Kevin discussed just a few minutes ago. We continue to execute our annual regulatory filing strategy. To date, we have implemented $115 million in annualized regulatory outcomes, and we currently have about $36 million in progress. Slides 19 through 23 summarize those outcomes, and Slide 16 outlines our planned filings for the remainder of the fiscal year. During the quarter, we completed over $1 billion of long-term debt and equity financing, highlighted by the $800 million long-term debt financing we completed in October 2022 and $200 million of settled equity forward agreements. As of December 31st, we have approximately $755 million of net proceeds available under existing forward sales arrangements that will fully satisfy our anticipated fiscal '23 equity needs and a significant portion of our anticipated fiscal '24 needs. Finally, to mitigate interest rate risk associated with our anticipated long-term debt financing needs beyond fiscal '23, we currently have about $1.35 billion in forward starting interest rate swaps to effectively set a portion of the treasury component of our total cost of financing at rates ranging from 1.8% to 2.2%. All of this gives us a clear line of sight into our anticipated financing costs of fiscal '23 and a portion of our costs beyond fiscal '23. Our equity capitalization as of December 31st, excluding the $2.2 billion of winter storm financing was 60%. Additionally, we finished the quarter with approximately $3.4 billion of liquidity. Additional details for financing activities as well as our financial profile can be found on Slides 7 through 10. Turning now to securitization. In Texas, the Texas Public Financing Authority and the Bond Review Board continue to work diligently to determine the best outcome for customers with respect to securitization. Additionally, in January, the Texas legislature signaled intent to provide funding to gas and other costs incurred during winter storm Uri that were deemed prudently incurred by the Texas Railroad Commission in November 2021. We are encouraged by these developments and continue to support their efforts. However, we do not anticipate receiving securitization funds for interim winter storm financing that matures on March 9th. We currently anticipate refinancing this debt through a combination of the syndicated bank term loan and utilization of our existing credit facilities and cash to minimize the cost to the customer while providing maximum flexibility to repay this debt once the securitization process is completed. Additionally, pursuant to an order issued by the Railroad Commission, we have deferred all carrying costs associated with the interim refinancing effective September 1st, and currently intend to defer carrying costs associated with the existing financing and new interim financing until the securitization process is complete. In Kansas, we received our financing order from the Kansas Corporation Commission in October 2022, and we are progressing well to securitize the approximately $90 million in gas and other costs incurred during winter storm Uri. We anticipate completing the securitization process this fiscal year. In closing, we are off to a good start to the fiscal year. The execution of our operational, financial, and regulatory plans in the first fiscal quarter positions us well to achieve our fiscal '23 earnings per share guidance in the range of $5.90 to $6.10. Details surrounding our fiscal '23 guidance can be found on Slides 12 and 13. Thank you for your time this morning. I will now open up the call for questions. Michelle?

Your first question comes from Nick Campanella of Credit Suisse.

I just wanted to ask about the recent move in gas prices. Can you kind of just talk about how that's affecting your financial plan or your hedging strategies at all here? Clearly, it should help with bill headroom as well. But maybe you can just give us some more color on what the recent move means?

Yes, I'll start a little bit on the supply side and then let Chris pick up on the hedging side, Nick. Yes, we continue to see good strong rate numbers. The forward look, particularly even out of the Waha area and the surrounding area being in the $2 to $3 handle, certainly looks good on a go forward basis. Our storage positions helped us with some of that hedge early on. I think we were all in storage at an average weight cost of $5.48. So I think we're well positioned for the remainder of this year. The forward curves continue to look good at this point as we move into the summer and fall of next year. And the supply continues to look good out there from the major producing basin. So Chris, anything else to add?

Just a couple of things, Nick. First off from a financing perspective, the $800 million long-term debt that we issued in October satisfies our anticipated long-term debt financing needs. Additionally, we do have full access to our credit facilities today, the operating credit facility, which supports our commercial paper program, a $1.5 billion program. We had no short-term debt as of December 31st, so we had ample liquidity there to support operations as well as gas supply. And then finally, just commenting on hedging to kind of follow from Kevin's point, our gas supply team sets that hedging program in advance of the winter heating season. And between the combination of storage that Kevin alluded to and the hedging programs, we had just under 50% of the cost locked in for this winter heating season. So to the extent that gas prices moderate for the other, say, 50% or so, that should have a positive impact on the customer bill.

And Chris, I know that you're already fully priced on '23 kind of equity needs here. How should we think about '24 and being opportunistic about further derisking the financial plan?

Of the $755 million, as I mentioned, Nick, that satisfies all of our needs and a substantial portion of our needs for '24. The ATM program continues to work very well for us. We'll continue to utilize that to layer in additional pricing if you will, on the equity needs for '24 with an eye towards just being opportunistic on pricing.

Your next question comes from David Arcaro of Morgan Stanley.

Could you comment on the investigation by the Railroad Commission into some of the service challenges that your system experienced during the winter weather in December? And just any initiatives or actions that you're pursuing on the back of that experience?

As you know, our team worked very hard going into this winter storm to prepare themselves and the system. However, we did have approximately 2,300 customers in a limited area of our service territory that experienced some service interruptions out of the 2.1 million, 2.2 million residential and commercial customers that we serve here in Texas. We have been working with the commission to provide them additional information and work with them as they wrap up their investigation, which we hope will occur here very soon.

I was wondering if you could elaborate a bit just on the plans for refinancing some of the floating rate notes that are coming due related to winter storm Uri costs? And just is there an EPS impact that you might anticipate from having to refinance those, just sort of waiting for the securitization process to get completed?

The short answer is no. As I mentioned in our prepared remarks, we've got planned hybrid securitization that will be a term loan, a syndicated term loan that we anticipate executing here in the next few weeks, along with utilizing some of our credit facilities and cash. With the regulatory asset order that the rail commission has granted, we are deferring all of those financing costs right now into that regulatory asset until securitization is complete. Then we'll address that with the commission for the appropriate recovery of those costs.

Your next question comes from Gabe Moreen of Mizuho Securities.

Maybe you can just talk to us broadly about how O&M is tracking relative to your expectations so far this year. Are you seeing any let up in pressures? I'm just curious on your thoughts there.

Yes, I'll start and then Chris can jump in. As you heard in Chris' remarks, most of the O&M we experienced in the first quarter is what we thought we would see. It's in the range that we've already laid out there. We certainly have seen increased expenses driven by the economic growth, which has driven new routes, new commercial businesses, and new infrastructure that increases locating expenses. As a matter of fact, our Texas number of load cases is up almost 10% compared to last year. Additionally, we had some extra in-line inspection work on the APT side and some additional pigging activity that we slowed during the COVID period but wanted to catch up on. So all things we anticipated occurring during the quarter, but we saw a lot more line locating expense just given the growth that we're experiencing. Chris, anything additional?

I think that's spot on, Kevin. I would just like to add that from an inflation perspective, the inflation we're experiencing is still well within the planning parameters that we outlined in our fiscal '23 guidance and our five-year plan on an overall basis.

If I could just follow up regarding a couple of large projects that have either wrapped up or are nearing completion. Can you maybe just talk about what's next in the queue from a larger project standpoint as you look at your system?

Those projects that I mentioned, Line X was an integrity project, which fortifies that line that comes out of Waha and runs west to east into Dallas, while the S2 is also an integrity and capacity project to bring in additional supply from the east. We'll continue to monitor our system and that growth. We still have, as I mentioned, the Bethel cavern 1B project, which will take us probably into 2026 to get all three caverns back in service at the same time. Just as a reminder, that's not only a capacity and need for the growth behind our systems; it's also an integrity project per commission rules where we have to perform integrity work on those caverns over 15 years. We'll continue to look at our storage as well as the larger pipe infrastructure to determine where that may need increasing or fortification moving forward.

Your next question comes from Richard Sunderland of JPMorgan.

I just wanted to follow up on the earlier discussion around the gas price dynamics. Curious for your thoughts on the duration of Waha weakness. We see a probability that in Waha, gas prices remain depressed until Matterhorn enters service in mid-'24. Any thoughts around the duration here and impact to customer bills relative to your outlook last quarter?

Our team continues to stay close with the producers and midstream processors to keep an eye on the situation, as well as new projects that are coming online. However, I think the other thing that we'll continue to work on is the tie-in to some of those lines, which gives us an opportunity to bring additional supply to our areas as those projects continue to build coming out of Waha and head east. Right now, we believe these prices and the conversations we're holding look good as we head into March. So right now, I don't see things changing in the short run based on the information we have. As we continue through this winter period, pulling on storage, preparing to inject for next season, pricing looks very positive. As I mentioned before, some prices are in the $2 range, which should have a very positive impact on our bills for next year.

Your next question will come from Ryan Levine at Citigroup.

Most of my questions were asked already, but I just want to follow up on one. In terms of the Mid Tex DAR proceeding, can you provide an update on that regulatory activity?

We made that DAR filing in mid-January. We're just now beginning to work through the early discovery process, and we anticipate implementing new rates under the DAR filing by the end of the fiscal year.

There are no further questions at this time. So I will turn the conference back to Dan Meziere for any closing remarks.

We appreciate your interest in Atmos Energy, and thank you again for joining us. A recording of this call is available for replay on our website through March 31, 2023. Have a great day.

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.