Ladies and gentlemen, thank you for standing by and welcome to the Atmos Energy Corporation Fiscal 2025 Second Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star followed by the number 1. As a reminder, today's call is being recorded. I will now hand today's call over to Dan Mezzer, Vice President of Investor Relations and Treasurer. Please go ahead, sir.

Thank you, Tamika. Good morning, everyone, and thank you for joining our fiscal 2025 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 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 29 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers, our President and CEO. Thank you, Dan, and good morning, everyone.

We appreciate your interest in Atmos Energy. Yesterday we reported year-to-date fiscal 25 net income of $837 million, or $5.26 per diluted share. year. We updated our fiscal 25 earnings per share guidance to a range of $7.20 to $7.30. This performance continues to reflect the commitment, dedication, focus and effort of all Atmos Energy employees to successfully modernize our natural gas distribution, transmission and storage systems while safely providing reliable natural gas service to 3.4 million customers across 1,400 communities in eight states. For the quarter, we continued to experience robust growth driven by continually favorable employment trends in Texas. For the 12 months ended March 31, 2025, we added nearly 59,000 new customers with almost 46,000 of those new customers located in Texas. The Texas Workforce Commission reported in April that seasonally adjusted number of employed reached a new record high at over 14.3 million. Texas again added jobs at a faster rate than the nation over the last 12 months ending March adding nearly 192,000 jobs representing a 1.4 percent annual growth rate. Commercial customer growth remains solid as well with approximately 850 customers connecting to the system during the second quarter and nearly 2,000 customers connecting to the system fiscal year to date. Industrial demand for natural gas in our service territories also remains strong. During the second quarter we added nine new industrial customers with an anticipated annual load of approximately 8 BCF once they are fully operational. Fiscal year today, we've added 20 new industrial customers with an anticipated annual load of approximately 11 BCF once they are fully operational. On a volumetric basis, that is equivalent to adding approximately 204,000 residential customers. This growth continues to highlight the value and vital role natural gas plays in economic development across our service territories. In APT, we continue our work on several projects that will enhance the safety, reliability, versatility, and supply diversification of our system, as well as support the continued growth we are seeing in the local distribution companies behind APT systems. During the quarter, work started on Phase 2 of APT's Line WA Loop. This project will install approximately 44 miles of 36-inch pipes to the west of Fort Worth to support growth in the northwestern portion of the DFW Metroplex. This phase is expected to be completed by the end of the calendar year. Work continues on APT's Bethel to Grow spec project as well as a reminder this project will install approximately 55 miles of 36 inch pipe from our bethel storage facility to our grow spec compressor station to provide additional pipeline capacity to the growing dfw metroplex and to the interstate 35 corridor this project is scheduled to be placed in service late calendar year 2025. apt completed two more interconnect projects during the quarter. Fiscal year to date, APT has added over one BCF of additional gas supply that will enhance supply reliability and versatility to support APT LDC customers. During the second quarter, our customer support associates and service technicians once again received a 98% satisfaction rating from our customers, reflecting the exceptional customer service they provide each and every day. Our customer advocacy team and customer support agents continue their outreach efforts to energy assistance agencies and customers during the first six months of the fiscal year. Through those efforts, the team helped nearly 32,000 customers receive over $10 million in funding assistance. Our results for the first half of fiscal 25 reflect the hard work and dedication of all Atmos Energy employees as we continue to safely deliver reliable and efficient natural gas to homes, businesses, and industries to fuel our energy needs now and in the future. I will now turn the call over to Chris for his update.

Thank you, Kevin. Good morning, everyone. As Kevin mentioned, diluted earnings per share for the first six months in the fiscal year was $5.26, which represents a 6.7% increase over the prior year period. Operating income increased to $1.1 billion, or 14.6%, for the first six months of the fiscal year. I'll highlight a few key drivers for our financial performance. Rate increases in both of our operating segments were $185 million. Residential commercial customer growth in our distribution segment, combined with higher industrial load, increased operating income by an additional 14.4 million dollars. Revenues in our pipeline and storage segment increased 11.4 million dollars reflecting a 10 percent increase in volumes transported across our system combined with wider spreads between the Waha header and the western end of APT's system and delivered points on the eastern end and southern end of its system. APT also experienced an eight million dollar increase due to higher capacity contracted by tariff-based customers due to their growing peak day demand. Consolidated owner expense increased $74 million. This increase is driven by several factors. Employee-related costs increased approximately $27 million, primarily due to increased headcount and overtime to support company growth. Additionally, bad debt expense increased $15 million. As a reminder, we recognize a $14 million non-recurring reduction in bad debt expense last fiscal year resulted from a regulatory change in how we recover our vetted expenses. We also experienced a $14 million increase in O&M associated with higher levels of line locating, pipeline inspection, and system monitoring activities. Finally, we experienced a $9.4 million increase in APT system safety and integrity expense, which is offset by a corresponding increase in revenue resulting in no impact to operating income. From a regulatory perspective, we have implemented approximately $153 million in annualized regulatory outcomes. And we currently have over $389 million in progress. Of this amount, we anticipate implementing between $175 and $180 million in annualized operating income increases in Fiscal 25, with the remainder expected to be implemented in the first quarter of Fiscal 26. Included in this amount is $39.2 million requested in our West Texas general rate case. On April 25th, the administrative law judge issued a proposal for decision with the following key recommendations. A 9.8% return on equity, actual capital structure, which reflects a 60.97% equity layer, approval of a rate-based tolling $1.2 billion, approval of capitalized cloud computing costs as fixed assets recovered over a 15-year period, which essentially treat these costs as a capital expenditure rather than an O&M line item. and the authorization of two regulatory asset trackers. The first is the System Safety Integrity Regulatory Asset that will allow us to defer O&M incurred after June 30, 2024 in excess of $3.5 million related to System Safety Integrity Regulations adopted by the Rail Commission and VINSA. These costs will be considered for recovery in a future right filing. The second provides for regulatory asset or liability treatment to capture the effects of changes in federal and state income taxes including the corporate alternative minimum tax. The proposal for decision is scheduled to be considered by the Railroad Commission on May 13th. If approved as filed, the settlement would result in a $30.6 million increase in annual operating income. In our mid-tax division, the two general rate cases we filed last fall for the ATM Cities Coalition and our Environs customers were consolidated into one general rate case during in our second fiscal quarter. As a reminder, this consolidated case represents approximately 15% of the Mid-Tex Division's customer base. On April 30th, we filed with the Administrative Law Judge a proposed settlement on this consolidated case. The key terms of the proposed settlement, ROE, capital structure, and the accounting treatments I just described are the same as what is included in the West Texas. Additionally, the recommendation includes approval of a rate base allocable to these customers and approximately $1.1 billion. If the administrative law judge recommends a settlement for approval, we anticipate the settlement will be scheduled for consideration by the Royal Commission on June 10th. If approved as filed, the settlement will result in a $6.7 million increase in annual operating income. Additionally, we expect the Royal Commission will also consider ATT's 2024 grit filing for $77.2 million at its June 10th meeting. Finally, in Kentucky, we completed a hearing this week before the Public Service Commission regarding our general rate case. We anticipated a final order during our fiscal fourth quarter. Our balance sheet and financial position continued to remain strong. Our equity capitalization as of March 31st was 61%, and we did not any short-term debt outstanding. During the second quarter, we extended our four-credit facilities, holding $3.1 billion. dollars. At quarter end we had 5.3 billion dollars in available liquidity to support our operations. Included in this amount is 1.7 billion dollars in net proceeds available from our ATM activities which is expected to satisfy the remainder of our anticipated fiscal 25 equity needs and all of our anticipated equity needs. Our fiscal year today performance gives us confidence to increase our fiscal 25 earnings for sure guidance from a range of seven dollars and five to $7.25 to a new range of $7.20 to $7.30. We expect the remaining contribution to fiscal 2025 earnings per share to be recognized somewhat evenly by quarter in the back half of the fiscal year. The increase of our guidance largely reflects the strength of APT's through system business during the first half of the fiscal year and our expectations for this part of APT's business for the remainder of the fiscal year. As a reminder, following a strong fiscal 24 performance, we entered Fiscal 25 assuming a return to more normalized through system marketing conditions as a result of increased takeaway capacity in the Permian Basin. Now we currently expect APT's through system business to perform just slightly less than in the prior year. However, the timing of these revenues in Fiscal 25 is expected to be different than in Fiscal 24. Through March 31st, about half of the expected contribution for Fiscal 2025 from this portion of APT's business has already been recognized. In the prior year, nearly 80 percent of ATT's three system business was recognized in the second half of the fiscal year. Additionally, we anticipate our add the warm taxes to be lower than planned and have increased our O&M spending to stay ahead of compliance work to further enhance the safety and reliability of our system. We have also performed some additional maintenance this summer to prepare for the upcoming winter heating season. We now anticipate our O&M, excluding bad debt expense, to be in the range of 860 to 880 million dollars a significant portion of the year-over-year increase has already been recognized we anticipate on them in the back half of fiscal 25 to be just slightly higher than the same period in the prior year finally our capital guidance capital spending guidance remains on track to be approximately 3.7 billion dollars we appreciate your time this morning and your interest in thatness energy well now open up the call for questions at this time if you would like ask a question press star followed by the number one on your telephone keypad if your question has been answered and you would like to remove yourself from the queue press star followed by the number

one your first question is from a line of richard southernland with jpmorgan hey good morning thank you for the time today good morning good morning appreciate all the commentary here wanted to start with guidance it sounds like apt through system activity certainly contributing to some of the upside here is the higher guidance for 2025 a fair base to think about growth going forward or the some of that normalization that you had originally anticipated for 25 need to be factored in for growth for 26 and beyond yeah it's a good question richie so we'll we'll still figure uh

looking at what will happen for the rest of the summer as you know conditions are very volatile in the market right now and as we set our fiscal 26 plans we'll take a snapshot of marketing conditions probably late summer early fall prior to us releasing our fiscal 26 guidance an updated five-year plan to really reflect what we think will be truly reflective of that business Okay, got it.

It sounds like more to come. Again, similarly on the O&M, it seemed like some of the higher O&M for 25 is a pull forward from 26. Is that a fair characterization? How are you thinking about the higher O&M this year and any efforts to de-risk 26 on that front?

Yeah, a couple of things. There's certainly an opportunity to pull forward, as I described, with the loads and plan and the warm expense, these to be our expectations. Also, we've talked many, many times. We are not a just-in-time company from an O&M for spending perspective, so if we have opportunities to further stay ahead of our compliance deadlines, or if we see opportunities coming out of the winter heating season this last six months, to get ready for the next six months will perform some additional maintenance in the summer months when our crews and folks are available. So it's a little bit of both. It's just kind of opportunistic based on the operating conditions of the system at this point in time, as well as taking advantage of opportunities to pull forward.

Yeah, the only thing I add to that is that again with the blessing we have of being in growth properties right now, we had an increase in the number of line locates from the previous year, and we'll continue to see that probably going forward just given the economic conditions that I discussed earlier in my remarks. So that's the other part of that O&M, if you will, is sometimes with growth people don't see that you'll have increased line locating expenses.

That's very helpful. Just a quick follow-up on the O&M discussion there. It sounded like in the Texas GRCs that there is some retroactive component to the reg asset tracker you were referencing I may not be understanding all the puts and takes here but just wanted to clarify if you get the final orders in line with settlement is that upside from that retroactive component and I mean upside versus 25 guidance to be clear at this point we reflect in your guidance our expectations for O&M and both the cloud computing treatments as well as the SSI in our current guidance thank you so much for the time thank you your next question

comes from the line of Nick Caponella with Barclays.

Hi, good morning, team. This is actually Faye for Nick today, and thanks for taking my question. I just want to quickly follow up on financing. It seems like year-to-date equity issuance is slightly higher than year-to-date 2024. Again, I think with higher capital plan, higher rate-based growth, can you update us on the equity financing for the rest of the year, if there is any changes from the messaging from the from last quarter and also kind of seeing the interest rate suave uh to be in a similar spot this last quarter uh just generally can you speak to the strategy managing the costs over there as well thanks sure so this is chris faye so i mean our financing strategy hasn't changed uh since prior quarter or really for the last several years we'll continue to finance the corporation in a balanced fashion using a combination of a equity long-term debt equity coming through the ATM.

We talked about having $1.7 billion on the page now just in price to reflect our equity needs, our anticipated equity needs for fiscal 25 as well as 2026. And we'll draw that down as the cash needs of the corporation, you know, dictate when we need to use that. Additionally, from a long-term debt perspective, you know the swap that we have in place that's again tied to our anticipated debt issuance in the fall for anticipating a 30-year issuance at this point in time so at this point we don't see any changes in executing that particular debt transaction and utilizing that swap for the benefit of our customers got it that's very helpful and i just want to follow up on economic development and seeing the tremendous this growth in Texas, driven by C&I customers, could you talk about, first of all, definitely generally a gas need in the region, and obviously you're adding large quantity of new gas demand

each quarter. I guess at this point, is there any pipeline of projects you're working on, or if there's any quantifiable backlog that you can discuss? I'll leave it there.

Yeah, I'm not sure about your question about backlog. We don't have a backlog per se. I talked about the two high priority projects for APT, the WA Loop and Bethel to grow spec project right now. Additionally, we're finishing up work on our third Salt Dome Cavern. That's part of our integrity maintenance program. We anticipate that to be wrapping up sometime in the next nine to 12 month period that's out there. Everything else is all scheduled work that we have lined out on a one three and five year basis according to either reliability supply versatility and or our risk model safety concerns or direction that way as we have in our slide deck we point to 85 investment on capital for safety reliability for the fiscal year today understood understood that's helpful caller thanks again thank you As a reminder to ask a question, press star one on your telephone keypad.

Your next question is from the line of Julian DuMont Smith with Jeffries.

Hey, this is Spark for Julian. Just really quick, legislatively, I'm just wondering what are some of the key bills you guys are monitoring and what potential benefits or implications do they carry for your business? Like, for example, we noticed there's HB 4384 regarding the standalone depreciation tracker for gas LDCs. Do you see that as potential benefits for your business? Does any color on that front would be helpful? Thank you.

Yeah, we continue to monitor all the sessions across our eight states. We have two that are currently closed or concluded their session, Mississippi and Kentucky. Don't want to get too far ahead of the work that's continued to go on going on across our legislative bodies right now but we do see some bills out there that have our interest right now but we think it needs to go through the final steps of the legislative process and then if they're related to the utility side of the business they'd have to go to that particular jurisdictions commission to see how it folds into either tariffs for that company so don't want to get too far out in front of what the legislature is going to do for the remaining session. But again, we're keeping an eye on everything that's out there.

Thank you. That's very clear. And maybe just another housekeeping question. So since you raised the FY25 EPS guidance, so the new guidance midpoint is now $7.25, should we use the new EPS guidance midpoint as the new EPS base.

EPS base? What do you mean there?

It's for calculating the five-year CAGR.

At this point, I think that's a pretty safe stop.

Got it. Thank you.

Your next question is from the line of Paul Fremont with Lindenburg-Falman.

Thank you very much. Congratulations on a strong quarter and my question has been answered.

Thank you. Thank you. Your next question is from the line of Christopher Jeffrey with Mizuho Securities.

We can't hear you on this end.

Sorry, is that better?

That's better.

Just a couple quick ones from me. I just noticed the timing for the Colorado rate case expectation got pushed back a bit. Just any kind of thoughts on timing there and expectations for when you get to that case?

No, that's something we're always looking at. what we have going on in the jurisdiction, what we have going on in other jurisdictions, ongoing conversation with our regulatory jurisdictions. So I wouldn't read a lot into that at this point.

And then maybe just on the West Texas, the cloud computing costs that you mentioned, Kevin, in the opening remarks, just kind of expectations for that to be implemented more wholesale across Texas or any other states.

Does that kind of change how you're approaching I would just kind of view this as a continuation of our ongoing regulatory strategy of seeking to reduce lag where we can. Oftentimes, we'll start with an individual jurisdiction who will include something into their regulatory construct. We then try to seek to replicate that in other states to the best of our ability. So, we'll see where the Railroad Commission's vote comes down next week. and then after that um from the may 13th for west texas and again for mid-tex uh on june 10th and then we'll see if uh if it makes sense for us to to bring that to other jurisdictions uh within the enterprise got it thanks and just to clarify so that would be the first jurisdiction that that well thanks again have a great day thank you your next question is from the line of ryan levine with citigroup um good morning everybody i just a quick one hey just a quick one in terms of

apt expansion projects you know the business continues to grow um pretty materially what are the underlying growth assumptions that embed the expansion projects that you have underway and and what conditions would merit further expansion or upside to your existing plan it's all part of our planning process again it's based on what the city models are and what what they're seeing for growth of population increases across the service territories what we're seeing for demand anticipated capacity requirements off of that growth we put those in our models then try and forecast out when we expect that demand to show up and make sure we have the pipe and the supply already there to meet those anticipated demands. That's something we go through several times a year and then reaffirm again with our customers what their MDQs are as we head into winter. Then post-winter on APT we'll review what actual MDQs they achieved and will reset the go-forward basis. That drives our modeling for the next several years.

So given the winter is largely behind us, you know, has that refresh already occurred for this calendar year so that we wouldn't expect any material changes until a review post winter 2026 of expansion opportunities?

The review is ongoing at this point. we continue to have conversations with those LDCs behind our city gate there on APT and we'll look to make sure those are reset prior to heading into next heating season if any adjustments at all are required.

Okay great thanks for taking my questions.

At this time there are no further questions. I will now hand today's call back over to the presenters for closing remarks.

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

This does conclude today's call. Thank you for joining. You may now disconnect your lines.