Greetings and welcome to the Atmos Energy Fiscal 2016 Year End Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this call is being recorded. It is now pleasure to introduce your host Ms. Susan Giles, Vice President of Investor Relations for Atmos Energy. Thank you. You may begin.

Thank you, Donna, Good morning, everyone. And thank you all for joining us. This call is being webcast live on the Internet. Our earnings release and conference call slide presentation are available on our website at atmosenergy.com. 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 more fully described in our SEC filings. Additionally, we will refer to certain non-GAAP financial measures during our discussion. Slides 2, 3 provide information regarding these financial measures. Our first speaker is Bret Eckert, Senior Vice President and CFO of Atmos Energy. Bret?

Thank you, Susan, Good morning, everyone. We do appreciate you joining us, as well as you continued interest in Atmos Energy. My remarks will primarily focus on the financial results for the full fiscal year. Slide three and four summarize our net income and earnings per share. Yesterday, we reported earnings of $3.38 per diluted share for fiscal 2016, representing the 14th consecutive year of increased earnings per share. Earnings excluding unrealized margins were $349 million or $3.37 per diluted share in 2016, compared with $316 million or $3.10 per share last year. Results for 2016 include a 5 million or $0.05 per diluted share, income tax benefit as a result of adopting new accounting guidance for stock based compensation. As expected our regulated operations drove all of our earnings growth during 2016. Rate increases lifted regulated margins $87 million during 2016 with almost 80% coming from our Texas utilities and our regulated pipeline APT. Slide eight to 17 provide more detail on the results of our rate filings in 2016. These increases more than offset the negative effect of weather that was 25% warmer than the prior year. In the distribution segment we experienced a 17% decrease in sales volumes due to weather. However, with our weather normalization mechanisms covering about 97% of utility margin the impact to gross profit was only about $3.4 million. And APT experienced a 4% year-over-year decrease in consolidated throughput and lower storage and blending fees which negatively impacted gross profit by about $4 million. Additionally, we saw our average distribution customer count increased about seven to tenth to 1%, primarily in our Louisiana, North Texas and Tennessee service areas, which contributed $6.6 million in incremental gross margin. O&M spending increased year-over-year, driven by a $26 million increase in the regulated business and we…

Very much, Bret. As you heard fiscal '16 for Atmos was remarkable year on many counts and the financial performance followed, as a result of the very strong performance, our Board of Directors authorized a 7.1% increase for our quarterly dividend. The fiscal '17 indicated dividend rate is now $1.80, an increase of $0.12 per share. This is our 33rd consecutive year of increasing the dividend and supports our commitment, provide an attractive return to our investor while continue to successfully execute our infrastructure investment strategy. Our shareholders experienced a 31% total shareholder return on their investment for the fiscal '15 year, compared to peer group average of about 24%. Our liquidity financial position and balance sheet remained exceptionally strong. Our debt to capital ratio was 48.5% at September 30, 2016. Last month we increased our credit facility from $1.25 billion to $1.5 billion and retained the $250 million according feature. This facility was extended to September 25, 2021 with all other terms remaining substantially the same. During fiscal '16 we launched the aftermarket equity offering and issued 1.4 million shares for $98.6 million in net proceeds. Also during the year, Standard & Poor's upgraded our corporate credit rating from A with stable outlook. I'd like to comment on the sale of our non-regulated gas delivery business. Texas-based CenterPoint Energy is an excellent fit for this business and for the phenomenal employees that are engaged in it. CnterPoint provides the scale and capabilities that will enable growth in this business. Our decision was driven by our long-term vision of becoming the safest natural gas utilities. This vision directs all of our investment of time, energy and capital to our regulated businesses with much of that investment focused on replacing and modernizing our utility and pipeline assets. The proceeds in this transaction will be redeployed to fund infrastructure investment in the regulated business. Most importantly, upon completion of the transaction Atmos Energy will become a fully regulated pure play natural gas utility. Our growth continues to be driven by our focus and well executed rates and regulatory strategy. For fiscal '17 we anticipate receiving annual increases from implemented rate activity in the $90 million to $110 million range. Our CapEx spending budget of $1.1 billion to $1.25 billion in fiscal '17 will enhance the value of a rate base, which is expected to support our earnings per share growth of 6% to 8%. We remain committed to delivering dependable, long-term financial success. Our earnings growth, plus the dividend will support our projected total return to shareholders of 9% to 11%. We recognized the growth, along with consistency and predictability are important as we move into fiscal '17. Thank you very much for your time and attention and interest this morning. We're ready to take any questions that have. Donna?

Thank you. [Operator Instructions] Our first question is coming from Brian Russo of Ladenberg Thalmann. Please proceed with your question.

Hi, good morning.

Morning, Brian.

Just want to get your thoughts on your forecasted EPS CAGR of 6% to 8%, as noted in the slide presentation, '16 CAGR over '15 was 8.9%. And it seems that over the last several years you have consistently reached the high end of the range or the range or exceeded that range, and I just want to get your thoughts…

Your observation Brian, very astute.

I mean, so I would imagine there seems to be a bias towards the higher end of the range, given past performance?

Past performance is no guarantee of future performance or whatever that SEC disclaimer is.

Understood. Can you remind us what the base year is or does it just kind of roll forward each year when you update the CAGR?

So our base year – our base year related to that plan was our '16 through '20 plan. And so we're building that off, you know it came out with the five year plan when we launched it last year. So…

Okay. So we should use the $3.37 of '16 as a base year for the five year plan?

Maybe base it off the 305 that we actually launched off of in '15, so when you put this '16 to '20 plan out, I'd say put guidance down, we launched it off the weather adjusted 305 for 2015.

Okay. Got it. And the sale of the marketing business, if I recall correctly, I've been assuming about a $27 million EBITDA run rate. The sale price is $40 million plus working capital. Could you disclose for us what the working capital is to try to get a better feel for what the multiple was that the sale was at – the sale was at?

Well, you're starting with the wrong EBITDA number.

Okay.

We retained some of the assets about two thirds of revenues that were generated are retained by us with assets that are traditionally characterized as regulated operations. And they were - those are intrastate pipeline and storage facilities that we owned and that were relied upon by the marketing group to serve certain of the customers behind our city gate customers. And those are customer that not being transferred with the sale. So about one third of the operations are gone….

Okay. So one third of $27 million of estimated EBTIDA?

Correct.

Okay. Got it. Understood.

And working capital is just a wash.

Okay.

We are not paying anything to working capital. They are just reimbursing us for what the working capital amount is.

Okay. Understood. And then could you just talk a little bit about the new pending gas infrastructure compliance regulations that I think are going to be implemented maybe next year?

Are you talking about Trump plan or what you talking about?

No, I was just hearing from other companies that there is incremental gas infrastructure compliance being contemplated by the regulatory agency?

I guess that stems us…

Yes, Brian this Mike Haefner. That’s still working its way through, expected earliest implementation date will be 2018. And as we've said before, we always welcome fair balance, safety regulations because it really drives incremental investment in our system.

Okay. Great. And then just on slide…

Hold on, I think its important to recognize that we're not relying on the promulgation or issuance of any new regulations to support our capital budget going forward. The 1.1 to 1.25 is essentially the amount that we need to spend in order to – get to the point that we want to get to with the current regulatory structure in place. So nothing we have in our guidance for this year through 2020 is based on a hope or prayer or something that you know might or might not occur in '17 and it also bakes in to the equation you know the sale of marketing and what has been so, what's and retained.

Understood. And then just on slide 25, as always, you've got an active regulatory calendar and I'm just wondering are there any one or two of these filings that we should be more focused on as the gross margin driver that you have outlined of rate recovery in 2017?

Yes, I mean, Brian. This is Bret, I mean if you look at slide 25 and you go back to slide 8, and slide 8 details the key regulatory outcome that we got in '16. But you know the majority of the – over 80% of our investment is in Texas, Louisiana and Mississippi. And so those rate outcomes continue to drive earnings. The RMM in Texas that we've got in mid Tex in 2016, those rates won't affect June 1, so that’s the timing each year those rate impacts go in. And in Louisiana it varies between the trans-log mechanism going in the 1st of April and LDS going in the 1 of July. So you look at Texas, Louisiana and Mississippi, those are the largest pieces of what the drives our rate.

I mean, the real the only case you got to concern yourself with is APT, that’s the rate filing that we're going to make probably on January 7th, all this other stuff is formulaic, I mean, its pretty much settlements that we make on an annual basis, the RRMs and stuff and those will be reported. But filing of the APT case is really the one that you know want to watch and its really not going to have effect in '17 or not very little effect in '17. So you'll have plenty of opportunity to react to anything that comes out that case, that maybe unanticipated but we're not expecting anything, we're filing as we talked about with you and everybody else we're filing that case down the middle of the fairway we're not proposing any unique or new features or relying on any policy program, regulations that are not in place already. So that’s the one and it will filed in January and you along with everybody else will get ample information surrounding that case.

Got it. Okay. And then just lastly, the capital markets activity that you guys laid out in your presentation. Is that consistent with the prior disclosure?

Yes.

Excellent. Thank you.

Thank you, Brian.

[Operator Instructions] Our next question is coming from Spencer Joyce of Hilliard Lyons Please proceed with your question.

Hi. Good morning, guys. Congrats on a nice year. And it looks like your Cowboys have started to imitate ATO? But just a couple of quick ones for me. First one, housekeeping one for you, Bret. I believe you said this, but the marketing will be discontinued ops when we see Q1 results, correct?

Correct

Okay. And that means that the guidance ranges, particularly O&M, are all the ex the AEM?

That’s correct, they are all from continued operations.

Okay, perfect. Then just a second one. A little more broadly, we are several years now from the major sales and footprints shifts that we saw related to Illinois and Missouri, et cetera, et cetera. Kim, can you just talk about several years down the road here or how you feel about the current footprint of the to be100% regulated company?

We're excited about it, we've been focusing for the last five years and really that – the marketing company and the assets that we sold to deliver gas business that we sold is an excellent business and its an excellent hit for CenterPoiint, energy, great group of employees, you've been in their offices you know they do a wonderful job and it brings I think a new market to CenterPoint that they are going benefit and they are going to grow that business. I mean, for the last five years now when you constrained the business because of the appetite that we had or the little appetite we had risk and we continue to try to mitigate as much risk as possible and emphasize for as much money as we could into the regulated side of business. So been said, you know we're going to be the largest pure play, a hundred percent regulated natural gas utility that’s traded on the exchange and we think that you know we bring a very compelling opportunity to a - lot of a lot of funds and we're very excited about the remaining portfolio and we're very comfortable with what, we have that it’s a great possibility, we're little bit ahead of the curve and – little bit of hedge start on the Trump infrastructure, the administration that’s going to be or emphasizing infrastructure, we think that's going to be great, for a country, great for our business for sure and we're going to continue to try lead the way there. So you know people have been asking about the non-regulated company and a lot of one-on-one just comprised a lot, us conversation and it really has been a very, very minor part of our portfolio less than 5%. So you know it will – we'll able to talk all about our regulated operations and the opportunity that they present and we think that we're in a extremely balanced regulatory jurisdictions right now we have really, really good customer base. We continue to work on trust and credibility with the customers, with the regulators, with the politicians and with those folks that represent the customers as well. So we're excited about future.

Absolutely. Fantastic color there. I know you mentioned the Marketing had taken up a large portion of the conversation. I know just from a publishing and a modeling standpoint, it will be nice to be able to set that to the side, even though definitely some good guys and gals over there?

Outstanding people.

All right. Again, great year and we will talk soon.

Okay. Thanks.

Thank you. At this time there are no additional questions in queue.

Great. Thank you, Donna. And just to remind are a recording of this call is available for replay on the website through February the 6. Again, we appreciate your interest in Atmos and thank you for joining us. Good-bye.