Good day, and welcome to the ONE Gas First Quarter Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey.

Thank you, Cole. Good morning, everyone, and thank you for joining us on our first quarter 2025 earnings conference call. This call is being webcast live, and a replay will be available later today. After our prepared remarks, we're happy to take your questions. Statements made during this call that might include ONE Gas' expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. Joining us on the call this morning are Sid McAnnally, President and Chief Executive Officer; Chris Sighinolfi, Senior Vice President and Chief Financial Officer; and Curtis Dinan, Senior Vice President and Chief Operating Officer. And now I'll turn the call over to Sid.

Thanks, Erin, and good morning, everyone. We're happy to be with you this morning to discuss our first quarter performance. We reported strong financial results yesterday, including net income of $119 million or $1.98 per diluted share. We achieved these results by executing our regulatory plan, managing O&M expenses, and continuing to add new customers. New rates that took effect at the end of last year allow us to recover investments in our system. These investments supported ongoing customer growth and enhanced system reliability. The value of those system investments was shown earlier this year as our system faced five named winter storms in January and February without any significant outages. Last quarter, we discussed how company-wide initiatives resulted in a faster pace of O&M expense moderation than we had expected. This quarter, our teams continued to focus on expense management, contributing to our positive financial results. We've taken the same disciplined approach to our procurement activities. Direct relationships with our suppliers and careful planning have strengthened our supply chain, and we expect to be largely insulated from material tariff impacts through 2025. In December, we shared our decision to derisk our five-year financial plan. Our plan includes an earnings per share CAGR of approximately 6% through 2029, matched with reduced capital intensity and related funding needs. This approach limits our financial risks while further strengthening our already robust credit profile. All of us at ONE Gas remain committed to our core mission to safely and reliably deliver natural gas to our customers. We support that commitment through programs that engage our employees and support our safety culture. For the eighth year in a row, our annual employee survey showed a higher level of engagement across our workforce; a highly engaged workforce drives performance and reinforces a culture of safety. We're honored to have recently received the American Gas Association Safety Award for having the lowest rate of significant injuries among our peers for the eighth consecutive year. This achievement is a testament to our coworkers' daily commitment to safety and excellence in serving our 2.3 million customers, and we are deeply grateful for their dedication. Now I'll ask Chris to discuss the details of our financial performance for the quarter. Chris?

Thanks, Sid, and good morning, everyone. As Sid noted, we had strong financial performance this quarter due to new rates taking effect late last year, cold weather underpinning strong customer demand, and our team's consistent management of expenses. We now expect to achieve the upper half of our stated guidance ranges, which include net income of $254 million to $261 million and earnings per diluted share of $4.20 to $4.32. Net income for the first quarter was $119.4 million or $1.98 per diluted share compared with $99.3 million or $1.75 in the same period last year. Weather across our service territories for the first quarter was 5% colder than normal and 16% colder than the first quarter last year. First-quarter revenues reflect an increase of approximately $52 million from new rates and $2 million from continued customer growth. First-quarter O&M expenses were approximately 2% higher than the first quarter last year. We still project a 4% CAGR in O&M expenses across the five-year plan. Our teams have done an excellent job managing these expenses. Other income net decreased by just under $3 million compared with the same period last year, primarily due to decreases in the market value of investments associated with our nonqualified employee benefit plan. Excluding amounts related to KGSS-1, interest expense in the first quarter was $4.7 million higher than the same period in 2024, which reflects the maturity of lower coupon notes in February and March 2024, the reopening of our 5.1% senior notes last August to issue an additional $250 million, and higher average commercial paper balances. We have forward sale agreements for 403,000 shares of our common stock with settlement by the end of 2025 at an average price of nearly $75 per share. Had all forward shares been settled at quarter end, we would have received net proceeds of approximately $30 million. We also have approximately $225 million of equity available for issuance under our at-the-market equity program. We continue to be opportunistic about issuing equity as we meet our remaining needs. Yesterday, the ONE Gas Board of Directors declared a dividend of $0.67 per share, unchanged from the previous quarter. And now, Curtis, I'll turn things over to you.

Thank you, Chris, and good morning, everyone. I'll start with an update on our regulatory activities. Oklahoma Natural Gas filed its annual performance-based rate change application in February, seeking a $41.5 million adjustment with rates expected to go into effect in late June. In all Texas service areas, we completed our annual capital recovery filings. For the Central Gulf region, we are requesting a $15.4 million revenue increase, and for the West North region, we are seeking an $8.2 million increase, both to be effective in June. In the Rio Grande Valley service area, we are requesting a $3.2 million increase to be effective in September. Finally, Kansas Gas Service requested an increase of $7.2 million pursuant to the Gas System Reliability Surcharge statute. The GSRS allows for the recovery of and a return on safety and system integrity-related investments between general rate cases. As Chris noted, it was quite cold this January and February with five named winter storms hitting our region. Our system performed well throughout the storms, thanks to careful planning and the dedication of our coworkers. Despite the cold weather, we completed $178 million worth of capital projects this quarter, relatively in line with the same period last year. Progress continues on the Austin System Reinforcement Project we discussed on last quarter's call. We've installed almost 24,000 feet of pipe and are on track to have the project in service during the fourth quarter of this year. We are also pleased to share news of an innovative new project with one of our customers in Austin. Texas Gas Service will supply natural gas for on-site power generation and construct an interconnection to receive renewable natural gas from the customer's facility. This project demonstrates the importance of natural gas and how the versatility of the natural gas system can support a customer's environmental and business goals. We have made progress on our own emissions goal, achieving a 51% reduction in leak-related emissions. Our safety-driven pipeline replacement plan has kept us on track to reach our 2035 goal of reducing emissions associated with mains and services by 55%, even as we grow our system. As Chris noted, our teams have done a great job managing O&M expenses. We continue to in-source line locating and completed that process in the outlying areas of Oklahoma during the first quarter. ONE Gas employees now perform about 40% of line locating services across our territories. Focusing on growth, we've installed nearly 8,000 new meters through April as new housing developments take shape. The major metropolitan areas in Texas and Oklahoma are leading this expansion; we are also setting new meters in Kansas, especially in the Wichita area. As we've noted in previous discussions, an influx of new residents has resulted in a shortage of available housing across our three states. We anticipate builders and developers will respond to the ongoing demand for new housing, and we are well positioned to provide natural gas service. We also continue to explore opportunities to serve power generation needs across our footprint. We are thoughtful in our approach to such opportunities and are particularly interested in projects that support our strategic initiatives, including system reinforcement and extending service to growing areas. Our active projects include generation at large advanced manufacturing facilities, lower power capacity areas, data centers, and serving grid-connected utility generation. Operator, we're now ready for questions.

Thank you. Our first question is from Julien Dumoulin-Smith with Jefferies. Your line is now open.

Hey, good morning team. Thank you guys very much for the time; appreciate it. Nicely done here.

Good morning, Julien.

Just follow-ups, if I can here. Hey, good morning. Just Chris, nicely done on the O&M here, real quickly. I mean, with O&M coming in at looks like a 1.9% year-over-year in 1Q, how do you think about the commentary about sub-4% here? And how do you think about it trending in a longer-term basis in that direction, right? I mean, certainly, in this inflationary environment, you guys continue to put up this kind of O&M is remarkable, but I just wanted to see how sustainable it is, if you will.

Good morning, Julien, thank you. If we go back to where we began our in-sourcing efforts mainly in Curtis' area a couple of years ago, we initially planned for a 5% compound annual growth rate in operations and maintenance expenses over five years. Due to our success, we indicated that this would be more front-end loaded as we engaged in these activities. We had to account for the inefficiencies of hiring while still paying contractors as we trained our internal staff. We managed to reduce that to a 4% figure, and as you noted, we've seen even better results. However, we remain cautious as Curtis and his team explore new areas for appropriate in-sourcing, considering the type and location of the work. You can expect us to continue focusing on this opportunity, but we still believe it will be more front-end loaded as we progress. Additionally, keep in mind that approximately 60% of our operations and maintenance costs are tied to labor and benefits, so we are influenced by competitive wage growth driven by the labor market moving forward.

Excellent. Thanks Chris. And maybe a little bit more of a question for Curtis here. It is a bill, HB 4384 in Texas, looks like an interesting depreciation tracker for gas LDCs here. Is that something that could be potentially meaningful for you all? And how do you think about that? I mean, just as you think about the legislative landscape recession, I mean, is that something that you guys would be notably watching here as an opportunity or anything else legislatively on the gas investment cycle in Texas?

Yes, Julien, thanks for the question. That is one that would be a benefit to us just as the 8.209 that you referenced is a benefit to us today on the types of investments that qualify under that one. So extending that out would help with overall recoveries that we receive and earlier returns on those projects than we experienced today. So that bill still has quite a ways to go, but we would see that as a positive. Some of the other bills that we're watching closely have to do with utility worker protections, strengthening the penalties if there's any incidents involving them during their work, and some other similar type of imminent domain legislation and things like that. But I would say more opportunistic in the way we're viewing these rather than something we're as concerned about.

Got it. And beyond just the notable improvement in recovery and lag, do you see this enabling kind of another step function in spending in any specific way as you think about Texas and that legislation?

I wouldn't say that. We look at several factors when we're setting our capital plans. First, what are the needs of our system as it relates to integrity spending? What are the opportunities with our customer development? And then thinking about what are the resources that are needed, whether those are financial resources or the physical resources to complete the work and what the impact is on the customer bill. So that's kind of the filter we run our capital through, and while this would have a positive impact on the returns of it, it wouldn't be of such a magnitude that it would change the answer to those first four filters.

Got it. All right. Excellent. Thank you all very much. Appreciate the time.

Thank you, Julien.

Our next question is from Bill Appicelli with UBS. Your line is now open.

Hi, good morning.

Good morning, Bill.

Just going back maybe to the O&M question, but also more broadly around the guide up within guidance for the year. Is that driven by the O&M tracking a little bit better than expected? Or any more color as to why the guide up to the range?

Hey Bill, this is Chris. It's a combination of things. If you were to look at first quarter, we had very strong margin predicated on strong customer demand given the weather profile. We've continued to see strong growth in the customer base. And then as you pointed out, we've performed better on the cost side of things than was originally embedded.

Okay. Great. Can you provide more details about the project in Austin, specifically regarding its size, scope, and your investment magnitude?

Yes. This is Curtis, Bill. In terms of investment dollars, it's not a significant investment. This project really highlights our approach to trying to tie strategic initiatives together. So a few years ago, we started working on this particular area of Austin, expanding our loop around the city because we saw growth happening and we needed to be able to get supply to different parts of that community. Building that trunk line put us near where we would have the opportunity to serve this customer. So while the customer wasn't on the map a few years ago, tying all of those things together and our commercial people continuing to stay active in the area has created that opportunity to serve it. So if you're just looking at the setting and a little bit of pipe that's related to directly serving this customer, it's not a lot of capital, but it's because of tying all these other projects together that enabled it. So that's really the strategy behind how we approach these types of projects. And we'll be able to say a little bit more about the project later as the customer is ready to do that.

Could you discuss the impact of tariffs and how they might be affecting your capital budget or other areas of your operations?

Yes, Bill, this is Sid. We were fortunate in that, let's go back to before COVID, we found that there was an economic advantage to having a more direct relationship with our suppliers and buying up in the production chain. There were some savings there. And so we put that into place, and it really served us well during COVID. We continue to follow that, and we believe it's going to give us some protection in '25 as we wait to see what the actual tariff environment is going forward, but we think we're fairly well insulated in terms of this year. And so no impact on performance is built into our guide.

Okay. All right. Perfect. That's it for me. Thank you.

You bet. Thank you.

We have a question from Christopher Jeffrey with Mizuho Securities. Your line is now open.

Hi, good morning everyone. And congratulations on the quarter. Maybe just to speak more to the impact of weather as far as higher sales volume and kind of what that means for working capital, inventory levels. And I noticed the interest expense quarter-over-quarter came down a bit. Was that more related to that working capital piece? Or are you seeing lower rates on your commercial paper? Thanks.

Hey, Chris, this is Chris. I'll maybe start in reverse order. Yes, the commercial paper rate came down given the Federal Reserve's last cut was in early December. And it takes a little bit of time for that to get fully profiled in. So there was a modest benefit. Certainly, on a quarter-over-quarter basis, there was a benefit in the average rate dynamic for commercial paper. You're right that with strong demand meant a significant amount of volume sold to customers, certainly a step change from the 16% weather dynamic improvement year-over-year in the quarter. And that does result in a bit more of working capital needs to service. We're starting to get, obviously, as we moved out of winter and then through April and early part of May paid off on those amounts. And so we see some reprieve from that. But you're right to note that the weather dynamic is supportive of a lot of the cornerstone elements of what we do, but it also entails more in the way of working capital financing needs to support it.

Great. Thanks, Chris. And then maybe just ask kind of one more on the O&M piece. As far as like the insourcing program, do you see kind of a timing that that program will be sunset? You kind of mentioned front-loaded O&M? Or do you see that more as kind of a recurring continuous program for the foreseeable future?

Chris, this is Curtis. And we do still have ongoing activities we're doing in the line locating area. The difference between today and two years ago when we really had to step into it in mass to get to a critical point is we can be more measured in the process. So in terms of the number of jobs that we create and the number of locates that we in-source, we can do it a little more slowly. So as we incur those front-end costs in advance of gaining the benefit of those efficiencies, it won't be as significant to us. But that program, we still have quite a ways to go just in that function. I mentioned we're at 40% company-wide; I don't know that our goal would be to get to 100% company-wide, but there's a balance related to it, but we still have plenty of opportunities to do that. The other thing I would mention is there are some other areas of activities that we do that we're continuing to evaluate. Are those functions that we should in-source? How would we go about it? What would be the pace of that and what's the upside to doing that? So I don't look for an early sunset to the different activities because I think our teams are pretty innovative in what they're looking at and finding new ways to bring things in-house, and that helps us from an efficiency standpoint and to manage our workforce and our compliance efforts better.

Great. Thanks, Curtis. Thanks a lot.

We have a question from Paul Fremont with Ladenburg. Your line is now open.

Congratulations on a great quarter. Just some clarification on O&M for this year. So you've talked about sort of it only increasing 2% in the first quarter. Where do you expect to end the year as a whole in the 4% range or maybe even in the 2% range?

Thank you for your comment, Paul. We appreciate the 4% number because, as Chris mentioned, we are aware of the impact of employee costs that we will incur throughout the year. We also expect to find additional opportunities, as Curtis highlighted. Furthermore, in addition to what Curtis said regarding efficiency opportunities, it's not only about lowering the costs associated with compliance activities. It also provides us with the flexibility to manage our workforce more effectively. When one area experiences downtime, we can redirect our employees to different compliance tasks. This results in an overall efficiency improvement. We are not projecting any specific figures that would lead us to guide below the 4% mark. We believe the 4% estimate accurately reflects the employee costs we anticipate and the efficiency investments we aim to pursue. However, as Chris noted, we will always strive to stay below that figure and continuously seek ways to improve our efficiency, which is ultimately our primary goal.

Thank you very much.

Thank you.

There are no additional questions at this time. So I'll pass the call back over to Erin Dailey for closing remarks.

Thank you all again for your interest in ONE Gas. We look forward to seeing many of you at the AGA Financial Forum in a couple of weeks. Our quiet period for the second quarter starts when we close our books in early July and extends until we release earnings on August 5th. We'll provide details about the conference call at a later date. Have a great day.

That concludes the ONE Gas First Quarter Earnings Conference Call and Webcast. You may now disconnect your line.