Third Quarter Earnings Conference Call

Hello, everyone. Thank you for joining us and welcome to Atmos Energy Corporation's Fiscal 2026 Third Quarter Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Dan Mazier, Vice President of Investor Relations and Treasurer. Dan, please go ahead.

Thank you, Lucas. Good morning, everyone, and thank you for joining our fiscal 2026 third 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 32 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin.

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year-to-date fiscal 26 net income of $1.2 billion dollars or seven dollars 33 cents per diluted share and we reaffirmed our earnings per shared guidance in the range of eight dollars 40 cents to eight dollars 50 cents our capital expenditures for the fiscal year total 3.1 billion dollars with over 87 percent of these investments focused on enhancing the safety and reliability of our distribution transmission and underground storage system across our service territories we continue to see steady diversified customer growth for the 12 months ending june 30 2026 we added nearly 51 000 new customers with nearly 39 000 of those new customers located here in texas and during the third quarter we added 600 commercial customers and over 2500 commercial customers fiscal year today additionally we added five new industrial customers during the third quarter and 12 new industrial customers fiscal year to date. The 12 new industrial customers are anticipated to use approximately 950,000 MCF per year once they are fully operational. That is volumetrically equivalent to adding 18,000 residential customers. This continued demand from all customer classes demonstrates the value and vital road natural gas plays in economic development across our Atmos Energy Service territory. The Texas Workforce Commission reported that Texas once again added jobs at a faster rate than the nation over the last 12 months ending June 2026. And in 2026, Texas added three Fortune 500 companies, bringing the total number of Fortune 500 companies to 57, the most in the nation, and the highest level in Texas since 2010. In APT, we continue to work to 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's system. APT is currently working on two separate projects to the southeast of the DFW Metroplex that will install a total of 29 miles of 36-inch pipelines to connect two adjacent compressor stations to our Tri-City storage facility. These projects enhance system reliability and capacity for gas transported from the Hainesville and Cotton Valley shale place to our Bethel and Tri-City storage facilities, all to support the growing DFW Metroplex. To the east of the Metroplex, we began construction of a bilateral compressor station in Carthage, Texas that will increase the capacity of our 36-inch Line S2 pipeline. Finally, we are working on the final phase of the WA Loop project to support growth in the northwestern portion of the Metroplex. This final phase will install 15 miles of 36-inch pipe, and it will complete a 92-mile 36-inch pipeline loop. All of these projects are currently scheduled to be placed into service by the end of the calendar year. This month, APT will submit its annual Rider-Rev tariff, seeking to reflect $160 to $165 million in revenue credits for LDC customers on the system between November 1, 2026 and October 31, 2027. If this amount is approved as filed, these customers will have received over $300 million in savings through the Rider-Rev mechanism from November 2023 through October 2027. Our customer support associates and service technicians continue to provide exceptional customer service, achieving customer satisfaction action ratings in excess of 97% for the first nine months of this fiscal year. Finally, during the first nine months of the fiscal year, our customer advocacy team helped nearly 49,000 customers receive about $16.2 million in funding assistance. I'll now turn the call over to Chris for his update.

Thank you, Kevin. And thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the first nine months of the fiscal year was $7.33, which represents a 14.5% increase over the prior year period. Our year-to-date results include $132 million, or $0.63, from the impact of Texas House Bill 4384, $71 million is recognized in our distribution segment, and the remaining $61 million is recognized at APT. In addition to the impact of Passville 4384, I wanted to highlight a few other drivers of our financial requirements for the fiscal year-to-date period. Rate increases in both of our operating segments told $227 million. Operating income increased by an additional $41 million due to residential and commercial customer growth and increased customer load. APT's through system revenues, Net of Rider Rev, increased to about $34 million, or 16 This increase continues to reflect the significantly higher spreads realized during Fiscal 26, compared with Fiscal 25, that we have been discussing this entire fiscal year. During the first nine months of Fiscal 26, the spreads to be captured to average $4.66 compared with $1.77 in the prior period, reflecting rising associated gas production, constrained takeaway capacity, and lower demand due to uncibly warm weather during the past winter heating season. Finally, consolidated O&M decreased $14 million, reflecting higher employee compliance and safety related spending in our distribution segment, higher maintenance spending at APT, all offset by the impact of the implementation of the House Bill 4384 deferrals. From a regulatory perspective, since the beginning of the fiscal year, we have implemented $396 million in annualized operating income increases. Of this amount, $260 million was implemented during our third and fourth fiscal quarters. Currently, we have seven filings in progress, seeking nearly $334 million in annualized operating income increases. We expect to implement most of this amount in the first quarter. Our equity capitalization as of June 30th was 60%, and we do not have any short-term debt outstanding. At quarter end, we had $4.6 billion in available liquidity to support our operations. This includes approximately $937 million in net proceeds available under existing forward sale agreements, which is expected to satisfy the remainder of our anticipated Fiscal 26 equity needs and a significant portion of our anticipated equity needs for Fiscal 27. As we reported last night, we reaffirmed our Fiscal 26 earnings for sure guidance in the range of $8.40 to $8.50. APT's through system business during the third fiscal quarter was in line with our expectations. Beginning in June, spreads have narrowed significantly now that additional takeaway capacity has come online, some sooner than expected. Additionally, O&M spending in fiscal 26 is trending slightly higher. We now expect fiscal 26 O&M, excluding bad debt expense, to be in the range of 875 million to 885 million. Finally, we remain on track to spend approximately $4.2 billion in capital expenditures for fiscal 26. We appreciate your time this morning and your interest in Atmos Energy. We'll now open up the call for questions.

We will now begin the question and answer session. If you would like to ask a question, press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Konstantin Ledniff with Wells Fargo Securities. Konstantin, please go ahead.

Good morning. This is Whitney Metellemore here for Konstantin. Thanks for taking the question.

Good morning.

Great quarter. Given we are a quarter short of the year, do you anticipate to be in the top end of guidance? Do you anticipate any offsets to the strong year-to-date performance in 4Q? And maybe just a quick question around APT. Given where WAHA has been trading, are contributions still moving in the same direction, or do you anticipate some narrowing?

Yeah, well, good morning again. As you mentioned, we've reaffirmed our guidance in the range of $8.40 to $8.50. As I mentioned, APT's performance in the third quarter was in line with our expectations, but as I also highlighted, we are seeing significantly narrower spreads beginning in the latter half of the third quarter and continuing through today as a result of additional takeaway capacity coming online, some of which was coming online sooner than expected. A couple of different pipes expected to go online in the fourth quarter of the calendar year, and they came on one in late June and one here in late July and they're beginning to ramp up which has had a causing and compression of the spread so all in all we are standing by our 840 to 850 range for EPS for fiscal 26 and we will see where the fourth quarter takes us in terms of spread opportunities and other operational factors for the remainder of fiscal year got it okay and just to squeeze a tiny question given the strength and fiscal year 26 do you feel you can carry some flex into fiscal year 27 just from an o m and cost perspective that will be all thank you if i understand your question correctly it's you know in terms of uh if you're talking about apt we certainly had mentioned before that we will continue to reflect in our base plan That we will roll forward in the fall, you know, an amount coming from APT3 system business in line with the benchmark that we have established at roughly $107 million with respect to O&M. You know, in our five-year guidance that we have out there right now, we anticipate a 4% O&M increase per year, and we'll refresh that when we roll forward the five-year plan later this fall.

Sounds good. Thank you.

Your next question comes from the line of Richard Sunderland with Truist Securities. Richard, please go ahead.

Hey, good morning, and thanks for the time today. You know, I actually want to follow up on some of those APT questions. Just last quarter, I think it was an 8 to 12 cent range for 2H uptick you guys had spoken Looks like you captured most of that this quarter, but is 8 to 12 cents still the right range to be thinking about, you know, over that period, meaning for the balance of the year on 4Q.

Yeah, Rich, thanks for the call, or thanks for the question this morning. As you mentioned, we did pick up the 8 cents in the third quarter. With the tightening of the spreads, you know, I would say we're probably going to be in the lower end of that range at this point in that 8 to 12. So we'll see. Again, we'll have to continue to see what happens with maintenance on some of this, you know, this takeaway capacity, where the summer heat load is going, or winter cooling load, excuse me, and we'll just see where we go from that, but I think the lower end of that range is more appropriate.

Okay, that's helpful context, and then I also wanted to follow up on ONN, and I just, I think, ask, you know, sort of in a similar way, right, like you took up the low end of the range, 10 million, I realize it's relatively modest, but is that reflective of any activities kind of getting pulled forward into 26 from 27 or is that you know more around line locates other kind of external drivers just curious to parse that a little bit and think about kind of 26 versus 27 onn activity yeah as typical at this time of year it's more related to

ongoing activity across the metroplex and other areas with the growth that we're seeing line non-locate activities, ongoing compliance and maintenance activities in that area, but that's what we normally see around this time of the year.

Great. I'll leave it there. Thank you.

Thank you.

Your next question comes from the line of Julian DeMillan-Smith with Jeffries. Julian, please go ahead.

Hey, guys. Luke Fenker on for Julian. Nicely done in the quarter. I just wanted to ask on Rule 7-7-102, you know, just given the benefits we've seen of late can we expect uh can we expect it's like maybe remain a discrete earnings benefit in 27 or does it increasingly roll into texas recovery from here i just want to get a sense of how that's trending yeah well thanks for the question luke good morning you know fiscal 26 is a step year change as a result of the implementation of 77 102 and as we've said going forward we expect that you know year over year to be more in line with what we've experienced in the past but respect to rule 8209.

And so, as we said at the end of the second quarter, we are anticipating launching a 6% to 8% earnings for share growth off of our current range or guidance range of $8.40 to $8.50. So, that reflects that. It's more of a moderation effect going forward now that we've got a full year's impact of the rule under a bell at this point.

Awesome. Thank you. And then maybe you just wanted to see the latest timing and your confidence level around the mid-tech cities, RRM, and maybe like how you see yourself positioned on customer bill affordability in Texas more broadly?

Yeah, if you look at our deck that's out there, particularly our May investor deck, I think it's slides 18 through 21 or 22. We have good information out there about affordability, both from a customer bill perspective where we remain the lowest bill in the house. You want to look at it on an energy comparison basis, kilowatt to kilowatt, BTU to BTU. Across our service territories, we range from 2% to 4% lower than electricity on a household basis. Then you're going to look at wallet share both from a low income and a median income perspective. We range from 1% to 1.2% of the wallet, with on the electric side ranging at about 2 to almost 3 times wallet share. So we think our team continues to do an excellent job of keeping affordability top of mind, focusing on things we can control, and being an efficient provider.

Awesome. I'll leave it there. Thanks, guys. All the best.

A reminder that if you would like to ask a question, please press star 1 to raise your hand. Your next question comes from the line of Dylan Lipner with Mizuhu. Dylan, please go ahead.

Everybody, congrats on a good quarter here. just kind of wanted to get back to waha you know if waha now back in positive territory and additional takeaway capacity expected to come online over the next several quarters how are you guys thinking about how this is going to impact apt's earning power and utilization in the near term well as we said chris chris just highlighted uh where we think we're going to be on the guidance he gave before at the lower end of the 8 to 12 cent range again we budget the benchmark for Rider-Ref, and we'll continue to monitor what we see over the next few months as we head into the fall and the heating season. Definitely no crystal balls here. We're not going to try and guess what's going to be going on in that period. We'll just have to see what the rest of the summer cooling load looks like, and then as we move into the fall, does winter and fall show up early and cause a spike in demand? What does that look like? So, again, pretty much back to basics as we do every year, year in and year out. We're going to budget the benchmark, and then we'll see what comes our way from there.

Now, I appreciate the color.

Thank you.

One last reminder that if you would like to ask a question, please press star one to raise your hand. There are no further questions at this time. I will now turn the call back to Dan Mazier for closing remarks. Dan, please go ahead.

We appreciate your interest in Atmos Energy and thank you again for joining us this morning. The recording of this call is available for replay on our website through September 30th, 2026. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.