Atmos Energy Corporation Reports Earnings for Fiscal 2019 Third Quarter; Reaffirms Fiscal 2019 Earnings Guidance

Atmos Energy Corporation (NYSE: ATO) today reported consolidated results for its third quarter ended June 30, 2019.

• Consolidated net income for the three months ended June 30, 2019 was $80.5 million or $0.68 per diluted share, compared with consolidated net income of $71.2 million, or $0.64 per diluted share for the same period last year.

• Capital expenditures rose 10 percent to $1,199.2 million for the nine months ended June 30, 2019, with approximately 87 percent of that spending related to system safety and reliability investments.

• Fiscal 2019 earnings expected to be at the higher end of the tightened range of $4.25 to $4.35 per diluted share. Capital expenditures are expected to remain in the previously announced range of $1.65 billion to $1.75 billion in fiscal 2019.

• The company's Board of Directors has declared a quarterly dividend of $0.525 per common share. The indicated annual dividend for fiscal 2019 is $2.10, which represents an 8.2% increase over fiscal 2018.

For the nine months ended June 30, 2019, consolidated net income was $453.0 million or $3.88 per diluted share, compared with consolidated net income of $564.3 million, or $5.09 per diluted share for the same period last year. Adjusted net income for the nine months ended June 30, 2018, which excludes a one-time income tax benefit related to the TCJA of $165.5 million, or $1.49 per diluted share, was $398.8 million, or $3.60 per diluted share.

“We remain focused on deploying new technologies and building scale in our operations as we increase our capital investment to enhance the safety and reliability of our system,” said Mike Haefner, chief executive officer of Atmos Energy Corporation. “With most of our significant rate activities for the fiscal year concluded and strong visibility into the remainder of the year, we maintain our outlook for fiscal 2019 earnings to be in the range of $4.25 to $4.35 per diluted share,” Haefner concluded.

Results for the Three Months Ended June 30, 2019

Operating income declined by $2.1 million to $122.2 million for the three months ended June 30, 2019 compared to the prior-year quarter due to higher operating expenses. Increased Contribution Margins driven by positive rate case outcomes, customer growth in our distribution segment and higher margins in our pipeline and storage segment were offset by lower consumption, higher operation and maintenance and depreciation expenses in the current-year quarter.

Distribution Contribution Margin increased $0.8 million to $305.4 million for the three months ended June 30, 2019, compared with $304.6 million in the prior-year quarter. Contribution Margin reflects a net $7.1 million increase in rates, primarily in our Mid-Tex and West Texas divisions and a $2.9 million increase from customer growth, primarily in our Mid-Tex division. These increases were partially offset by a net $3.8 million decrease in consumption.

Pipeline and storage Contribution Margin increased $22.2 million to $149.3 million for the three months ended June 30, 2019, compared with $127.1 million in the prior-year quarter. This increase is attributable to a net $16.5 million increase in rates, due to the GRIP filings approved in fiscal 2018 and 2019, and a net increase of $4.5 million due to wider spreads and positive supply and demand dynamics in the Permian Basin.

Operation and maintenance expense for the three months ended June 30, 2019, was $164.5 million, compared with $143.7 million for the prior-year quarter. This $20.8 million increase was primarily driven by increased pipeline maintenance and related activities and higher employee and training costs in the current-year quarter.

Results for the Nine Months Ended June 30, 2019

Operating income increased $19.0 million to $656.3 million for the nine months ended June 30, 2019, compared to $637.3 million in the prior-year period, which primarily reflects positive rate outcomes, customer growth in the distribution business and higher volumes and margins in our pipeline and storage segment, partially offset by higher operation and maintenance, depreciation and property tax expenses in the current-year period.

Distribution Contribution Margin increased $20.2 million to $1,194.1 million for the nine months ended June 30, 2019, compared with $1,173.9 million in the prior-year period. Contribution Margin reflects a net $23.8 million increase in rates, primarily in the Mid-Tex, Mississippi, West Texas and Louisiana divisions. In addition, customer growth increased $10.6 million, primarily in our Mid-Tex division. These increases were partially offset by decreases of $8.7 million in pass-thru taxes and consumption of $4.7 million, primarily in our Mid-Tex division.

Pipeline and storage Contribution Margin increased $46.8 million to $419.9 million for the nine months ended June 30, 2019, compared with $373.1 million in the prior-year period. This increase is primarily attributable to a net $33.3 million increase in revenue from GRIP filings approved in fiscal 2018 and 2019. In addition, transportation revenues and volumes increased Contribution Margin by a net $9.4 million due to wider spreads and positive supply and demand dynamics impacting the Permian Basin.

Operation and maintenance expense for the nine months ended June 30, 2019 was $452.6 million, compared with $432.0 million for the prior-year period. This $20.6 million increase primarily reflects increased pipeline maintenance and related activities, higher employee and training costs, and software license fees in the current-year period, partially offset by the absence of costs incurred for the Northwest Dallas outage in the prior-year period.

Capital expenditures increased $110.7 million to $1,199.2 million for the nine months ended June 30, 2019, compared with $1,088.5 million in the prior-year period, due to continued spending for infrastructure replacements and enhancements.

For the nine months ended June 30, 2019, the company generated operating cash flow of $808.9 million, a $226.4 million decrease compared with the nine months ended June 30, 2018. The period-over-period decrease is primarily attributable to working capital changes, particularly in our distribution segment resulting from the timing of payments for natural gas purchases and deferred gas cost recoveries.

Our equity capitalization ratio at June 30, 2019 was 60.2%, compared with 56.7% at September 30, 2018. The increase primarily reflects the effects of our fiscal 2019 financing activities and lower short-term debt at June 30, 2019.

Outlook

The leadership of Atmos Energy remains focused on enhancing system safety and reliability through infrastructure investment while delivering shareholder value and consistent earnings growth. Atmos Energy expects fiscal 2019 earnings to be at the higher end of the range of $4.25 to $4.35 per diluted share. Capital expenditures for fiscal 2019 are expected to range between $1.65 billion and $1.75 billion.

Conference Call to be Webcast August 8, 2019

Atmos Energy will host a conference call with financial analysts to discuss the fiscal 2019 financial results on Thursday, August 8, 2019, at 10:00 a.m. Eastern Time. The domestic telephone number is 877-407-3088 and the international telephone number is 201-389-0927. Mike Haefner, President and Chief Executive Officer and Chris Forsythe, Senior Vice President and Chief Financial Officer will participate in the conference call. The conference call will be webcast live on the Atmos Energy website at www.atmosenergy.com. A playback of the call will be available on the website later that day.

Forward-Looking Statements

The matters discussed in this news release may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this news release are forward-looking statements made in good faith by the company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this news release or in any of the company's other documents or oral presentations, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan,” “projection,” “seek,” “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this news release, including the risks and uncertainties relating to regulatory trends and decisions, the company's ability to continue to access the credit and capital markets and the other factors discussed in the company's reports filed with the Securities and Exchange Commission. These factors include the risks and uncertainties discussed in Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018 and in subsequent filings with the Securities and Exchange Commission.

Although the company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. The company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

The historical financial information in this news release utilizes certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP). Specifically, the company uses Contribution Margin, defined as operating revenues less purchased gas cost, to discuss and analyze its financial performance. Its operations are affected by the cost of natural gas, which is passed through to its customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees, along with hedging settlements. These costs are reflected in the income statement as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, the company believes Contribution Margin is a more useful and relevant measure to analyze its financial performance than operating revenues. The term Contribution Margin is not intended to represent operating income, the most comparable GAAP financial measure, as an indicator of operating performance, and is not necessarily comparable to similarly titled measures reported by other companies.

In addition, the enactment of the TCJA required the company to remeasure its deferred tax assets and liabilities at its new federal statutory income tax rate as of December 31, 2017, which resulted in the recognition of a non-cash income tax benefit during the nine months ended June 30, 2018. Due to the non-recurring nature of this benefit, the company believes that net income and diluted earnings per share before the one-time, non-cash income tax benefit, provides a more useful and relevant measure to analyze its financial performance than net income and diluted earnings per share in order to allow investors to better analyze the company's core results and allow the information to be presented on a comparative basis to the prior year. Accordingly, the discussion and analysis of the company's financial performance will reference adjusted net income and adjusted diluted earnings per share, which is calculated as follows:

		Nine Months Ended June 30
		2019				2018				Change
		(In thousands, except per share data)
Net income		$	453,000			$	564,317			$	(111,317	)
TCJA non-cash income tax benefit		—				(165,522		)		165,522
Adjusted net income		$	453,000			$	398,795			$	54,205
Diluted net income per share		$	3.88			$	5.09			$	(1.21	)
Diluted EPS from TCJA non-cash income tax benefit		—				(1.49		)		1.49
Adjusted diluted net income per share		$	3.88			$	3.60			$	0.28

About Atmos Energy

Atmos Energy Corporation is the nation’s largest fully regulated, natural gas-only distributor of safe, clean, efficient and affordable energy. As part of our vision to be the safest provider of natural gas services, we are modernizing our business and our infrastructure while continuing to invest in safety, innovation, environmental sustainability and our communities. An S&P 500 company headquartered in Dallas, Atmos Energy serves more than 3 million distribution customers in over 1,400 communities across eight states and manages proprietary pipeline and storage assets, including one of the largest intrastate natural gas pipeline systems in Texas. Find us online at http://www.atmosenergy.com, Facebook, Twitter, Instagram and YouTube.

This news release should be read in conjunction with the attached unaudited financial information.

Atmos Energy Corporation
Financial Highlights (Unaudited)
Statements of Income		Three Months Ended June 30
(000s except per share)		2019				2018
Operating revenues
Distribution segment		$	444,944			$	535,488
Pipeline and storage segment		149,198				127,633
Intersegment eliminations		(108,404		)		(100,876		)
		485,738				562,245
Purchased gas cost
Distribution segment		139,518				230,887
Pipeline and storage segment		(96		)		561
Intersegment eliminations		(108,096		)		(100,562		)
		31,326				130,886
Contribution Margin		454,412				431,359
Operation and maintenance expense		164,545				143,748
Depreciation and amortization		97,700				90,671
Taxes, other than income		69,965				72,620
Total operating expenses		332,210				307,039
Operating income		122,202				124,320
Other non-operating income (expense)		1,645				(3,330		)
Interest charges		19,592				23,349
Income before income taxes		104,255				97,641
Income tax expense		23,789				26,448
Net income		$	80,466			$	71,193
Basic net income per share		$	0.68			$	0.64
Diluted net income per share		$	0.68			$	0.64
Cash dividends per share		$	0.525			$	0.485
Basic weighted average shares outstanding		118,075				111,851
Diluted weighted average shares outstanding		118,430				111,851

			Three Months Ended June 30
Summary Net Income by Segment (000s)			2019				2018
Distribution			$	32,398			$	35,344
Pipeline and storage			48,068				35,849
Net income			$	80,466			$	71,193

Atmos Energy Corporation
Financial Highlights, continued (Unaudited)
Statements of Income		Nine Months Ended June 30
(000s except per share)		2019				2018
Operating revenues
Distribution segment		$	2,341,668			$	2,595,571
Pipeline and storage segment		419,318				375,051
Intersegment eliminations		(302,821		)		(299,776		)
		2,458,165				2,670,846
Purchased gas cost
Distribution segment		1,147,598				1,421,698
Pipeline and storage segment		(544		)		1,906
Intersegment eliminations		(301,887		)		(298,841		)
		845,167				1,124,763
Contribution Margin		1,612,998				1,546,083
Operation and maintenance expense		452,572				431,952
Depreciation and amortization		290,537				268,426
Taxes, other than income		213,546				208,400
Total operating expenses		956,655				908,778
Operating income		656,343				637,305
Other non-operating expense		(1,846		)		(8,054		)
Interest charges		74,390				82,162
Income before income taxes		580,107				547,089
Income tax expense (benefit)		127,107				(17,228		)
Net income		$	453,000			$	564,317
Basic net income per share		$	3.89			$	5.09
Diluted net income per share		$	3.88			$	5.09
Cash dividends per share		$	1.575			$	1.455
Basic weighted average shares outstanding		116,485				110,707
Diluted weighted average shares outstanding		116,673				110,707

			Nine Months Ended June 30
Summary Net Income by Segment (000s)			2019				2018
Distribution			$	318,976			$	429,686
Pipeline and storage			134,024				134,631
Net income			$	453,000			$	564,317

Atmos Energy Corporation
Financial Highlights, continued (Unaudited)
Condensed Balance Sheets		June 30,				September 30,
(000s)		2019				2018
Net property, plant and equipment		$	11,340,596			$	10,371,147
Cash and cash equivalents		46,163				13,771
Accounts receivable, net		285,433				253,295
Gas stored underground		106,014				165,732
Other current assets		65,924				46,055
Total current assets		503,534				478,853
Goodwill		730,419				730,419
Deferred charges and other assets		306,549				294,018
		$	12,881,098			$	11,874,437
Shareholders' equity		$	5,641,996			$	4,769,951
Long-term debt		3,529,135				2,493,665
Total capitalization		9,171,131				7,263,616
Accounts payable and accrued liabilities		206,500				217,283
Other current liabilities		494,932				547,068
Short-term debt		74,942				575,780
Current maturities of long-term debt		125,000				575,000
Total current liabilities		901,374				1,915,131
Deferred income taxes		1,280,307				1,154,067
Regulatory excess deferred taxes		709,974				739,670
Deferred credits and other liabilities		818,312				801,953
		$	12,881,098			$	11,874,437

Atmos Energy Corporation
Financial Highlights, continued (Unaudited)
Condensed Statements of Cash Flows		Nine Months Ended June 30
(000s)		2019				2018
Cash flows from operating activities
Net income		$	453,000			$	564,317
Depreciation and amortization		290,537				268,426
Deferred income taxes		120,220				139,852
One-time income tax benefit		—				(165,522		)
Other		9,649				18,007
Changes in assets and liabilities		(64,478		)		210,216
Net cash provided by operating activities		808,928				1,035,296
Cash flows from investing activities
Capital expenditures		(1,199,199		)		(1,088,472		)
Proceeds from the sale of discontinued operations		4,000				3,000
Debt and equity securities activities, net		(4,041		)		(7,857		)
Other, net		3,839				6,105
Net cash used in investing activities		(1,195,401		)		(1,087,224		)
Cash flows from financing activities
Net decrease in short-term debt		(500,838		)		(202,968		)
Proceeds from issuance of long-term debt, net of premium/discount		1,045,221				—
Net proceeds from equity offering		593,731				395,092
Issuance of common stock through stock purchase and employee retirement plans		14,128				15,850
Settlement of interest rate swaps		(90,141		)		—
Repayment of long-term debt		(450,000		)		—
Cash dividends paid		(181,982		)		(160,007		)
Debt issuance costs		(11,254		)		—
Other		—				(1,518		)
Net cash provided by financing activities		418,865				46,449
Net increase (decrease) in cash and cash equivalents		32,392				(5,479		)
Cash and cash equivalents at beginning of period		13,771				26,409
Cash and cash equivalents at end of period		$	46,163			$	20,930

		Three Months Ended June 30								Nine Months Ended June 30
Statistics		2019				2018				2019				2018
Consolidated distribution throughput (MMcf as metered)		76,192				82,448				404,370				386,783
Consolidated pipeline and storage transportation volumes (MMcf)		181,292				180,371				517,188				484,456
Distribution meters in service		3,284,722				3,249,780				3,284,722				3,249,780
Distribution average cost of gas		$	3.35			$	4.68			$	4.06			$	5.27

 

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