Greetings and welcome to the Atmos Energy Second Quarter Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Meziere, Vice President and Treasurer for Atmos Energy. Thank you. You may begin.

Thanks, Doug. Good morning, everyone. And thank you for joining us. This call is being webcast live on the Internet. 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. Our first speaker is Kevin Akers, President and CEO of Atmos Energy. Kevin?

Thank you, Dan. And good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. I hope you and your families are safe and healthy as we continue to navigate our way through this challenge together. I want to take this opportunity to recognize and thank our everyday heroes, those who are helping our country battle this pandemic: our first responders, health care workers, law enforcement officials, grocery store employees, truck drivers delivering our nation's supplies, those serving in our branches of the military and all essential services providers working to support our communities. Thank you for what you are doing to help all of us. We are eternally grateful. I also want to thank our 4,800 Atmos Energy everyday heroes as they continue to provide our customers safe and reliable natural gas service. I'm extremely proud of their dedication and commitment to keeping our 3.1 million customers of 1,400 communities and themselves healthy and safe. Atmos Energy's commitment to safety paired with our culture have led us during unique times, and this will be no different. In early February, our Chief Information Officer led a team effort to assess and test our company-wide remote work capabilities, including our 2 customer support centers, gas supply, our 2 gas control centers, our shared service functions and over 200 operational service centers across our 8-state service territory. Through their efforts, by mid-March when local and state governments started issuing shelter-in-place orders, we were ready to transition every facet of our business to a fully remote work environment. Today, we have over 95% of our employees working remotely and continuing to perform at the highest levels. As an example of their outstanding effort, for the month of April, our customer service agent satisfaction scores were 97.6%, and our service technician…

Thank you, Kevin, and good morning, everyone. Last night, we reported fiscal 2020 second quarter diluted earnings per share of $1.95 compared to $1.82 per diluted share in the prior year quarter. Year-to-date, diluted earnings per share were $3.42 compared with $3.21 per diluted share in the prior year period. As Kevin mentioned in his opening remarks, mitigation efforts to slow the spread of COVID-19 began to impact our service territories during the last 2 weeks of March. Therefore, we did not experience a material impact from COVID-19 during the first 6 months of the fiscal year. Consolidated operating income during the 6 months ended March 31 rose over 9% to $584 million. I will touch on a few of the highlights now. Rate increases in both our operating segments, driven by increased safety and reliability capital spending, totaled $83 million. Customer growth in our distribution segment contributed incremental $8.5 million as we continue to benefit from the strong population growth in several of our service areas, most notably in the DFW Metroplex. For the 12 months ended March 31, we experienced 1.5% net customer growth in our North Texas distribution business and 1.2% net customer growth across our 8-state footprint. Consolidated O&M increased $12 million or 4.2% primarily driven by higher employee and information technology costs and pipeline and maintenance activities. The period-over-period increase also reflects well integrity work that incurred during our first fiscal quarter. Slides 5 and 6 provide additional details of the period-over-period changes to operating income for each of our segments. Consolidated capital spending for the 6-month period grew 28% to $995 million, with 87% directed towards safety and reliability spending to modernize our system. Because of our designation as an essential service provider and the measures we have taken to protect our employees and…

As you can see, we have a robust risk management process that has served us extremely well during this pandemic and will continue to guide us as we navigate our way through. As you just heard, we have continued to execute at the highest levels on all facets of our business. Our year-to-date results were in line with our expectations. Our balance sheet is strong, and we have further enhanced our liquidity. And as we stated earlier, we have continued our system maintenance and compliance work, including pipe replacement, line locating and system inspections. Our leadership team and all 4,800 employees were prepared to operate in this environment as it developed in our service areas and have continued to adjust and adapt as new information or local and state orders were issued. We were early to transition to remote work, and we will be very intentional about reopening our offices. As you have heard, orders to shelter in place began in mid-March with others being issued in April across our service territory. Therefore, we have not yet seen material impacts to our business. Additionally, 6 of our 8 states have now lifted their shelter-in-place orders and have begun phased reopening plans. Over the next quarter, we anticipate having further information and results available to assess any operational or financial impact. Our focus remains the same: the health and safety of our employees, customers and communities as we execute our proven investment strategy and continue delivering safe, reliable, affordable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. With that, we'll open up for questions. Operator?

[Operator Instructions] Our first question comes from the line of Aga Zmigrodzka with UBS.

Could you please provide more color on the reaffirmed CapEx range? Which factors could potentially push you to the lower end of the range?

Yes. With respect to the CapEx range, we're $1.85 billion to $1.95 billion. Again, we are an essential service provider. Our crews are working using -- practicing safe social distances. So to the extent that a regulatory authority were to come in and change our designation as an essential service provider, ask us to stop or slow down for whatever reason as they navigate through the pandemic, that could be a factor that could drive us towards the lower end of that range.

Can you discuss what you're seeing in terms of COVID-19? You provided some sensitivities. What is the impact that you're actually including in your 2020 guidance?

Well, as I said, April is a shoulder month for us. We have -- we've certainly modeled some potential outcomes. But we really can't see yet what is driving the decline in volumes that we typically see in April, if it's seasonality or if it's a true underlying economic activity. So we put those sensitivities out there for everyone to use in their modeling and in their evaluation.

And my last question is have you seen any delays from PUCs on your pending or expected filings?

No, we haven't. We -- as I mentioned, we have $215 million in progress at this point in time. This is our busiest filing period of the year. A large number of those filings were filed right at the end of March or the first part of April, and we are working through the discovery process with our intervenors in due course. Everyone's working really well from home. So information is flowing back and forth. For a large number, about roughly $100 million of that filing, and exclusive of $215 million, is not scheduled to be implemented until October 1. And those are our Texas RRM filings. So we're very early in the process. We have another $15 million or so that was filed for Louisiana. That's scheduled to be implemented on July 1. And at this time, we have no indication of any delays.

Our next question comes from the line of Richie Ciciarelli with Bank of America.

I hope everyone's staying safe and healthy out there. I appreciate you guys taking my question. Yes. Just had a question on the O&M guidance, reduced -- essentially flat outlook for 2020. Is this principally in response to COVID? And can you kind of discuss where these cost cuts are coming from? And how you're thinking about O&M over the forecast period?

Sure. Yes, a lot of it is COVID related. We're focused on the health and safety of our employees. So to the extent that we don't have to perform compliance-related work in order to keep those employees out of the community or limit our actual exposure to it, we've got employees in the community, we decided to pull back on some of that discretionary O&M. So that's typical work like encroachment, right of way maintenance. We've done a really good job over the years by keeping up with a lot of that work. So they gave us some flexibility to defer that to future periods and other types of work, be it noncompliance-related in-line inspection and other noncompliance-related pipeline maintenance activity. So we see the guidance range on Page 18 for O&M. As you noted, it is flat to flattish to last year. And we'll just continue to monitor our O&M and really the entire organizational -- the operations of the organization as we move through the next 6 months.

Got it. That's very helpful. And you're still -- for long-term forecast, are you still expecting the 2.5% to 3%? Or is it something less than that now?

At this point, given what we know, we're holding to the 2.5% to 3.5%. Again, we're going to come through the pandemic. And at some point, this work that we're deferring will have to be completed. So for now, we're holding to that.

Okay. Got it. That's very helpful. And sorry if I missed it, but did you explicitly reaffirm your 2020 guidance? I know you said it was unchanged. But just curious if you explicitly reaffirmed it. Because I mean, it seems like minimal sales impact, as best as we can tell, you have all the regulatory mechanisms in place. I just wanted to make sure we understand you correctly here on 2020.

Sure. Sure. I mean you can see it in our earnings release. It's in the titling. It says it's reaffirmed. And again, based on what we know today, we believe the range of $4.58 to $4.73 is appropriate.

Our next question comes from the line of Charles Fishman with Morningstar.

You have a unique regulatory framework in Texas on the distribution with the municipalities and the Railroad Commission. When you made the statement, Kevin, that -- with respect to the treatment of the asset deferral with respect to any COVID-19-related cost, is that similar to how the state commissions work and how that's going to be treated? Or is there any unique factors just because of the different regulatory framework you have in Texas?

No, I don't think there's any uniqueness to it. It works very similar as it does in the other jurisdictions. We'll incur those costs and in our next filing, we'll take those under consideration and review. So we're just like our other jurisdictions.

So the municipalities actually gave you that order? Or was that done at the Railroad Commission? How did that work?

That was through the Railroad Commission that...

Okay. Which is the ultimate regulator for the distribution?

That is correct.

Okay. And then I heard you talk about 2020 CapEx. Are you also reaffirming, though, the $10 billion to $11 billion of CapEx between 2020 and 2024?

As we said, well, we've been able to continue our capital work through this program designated as an essential service provider. We anticipate continuing to be able to do that and at this point, don't see anything out there that would defer our capital strategy that we have in place right now.

Our next question comes from the line of Ryan Levine with Citi.

Would you be able to comment on what you're seeing in the labor market within your service territory and how that impacts any of your hiring or spending programs?

Sure. I mentioned that we are -- go ahead, Kevin.

Well, right now, as Chris and I said in our opening remarks, we've been able to do the work that we need to get done to maintain the safety and reliability of our system, both on the distribution and transmission side and coupled with our employees and our contract employees, believe we have the appropriate staff levels at this point. There are some impacts, as you would imagine, from the oil fields at this point on the unemployment numbers. But we believe we are fully staffed and operational, continue to do the things we need to do on a daily basis.

Okay. And then in terms of just practical implementation of some of your spending programs, you mentioned that you practice -- or additional social distancing in order to implementing the projects. I mean what does that mean in practice? Does that mean you need to -- takes a little longer to do the jobs? Or you just -- can you kind of just delineate what the practical implications are?

Yes. For example, on our main replacement, we would have a larger crew that would go out and work on the main and service lines at the same time. What we've chosen to do now is break those into smaller crews, wearing their face masks, social distancing, driving separate vehicles to the project at some times and then working as best they can remotely from each other until they have to get in the ditch and inspect. And then we have a separate crew that will come in later and work on the service line. So we don't have all those employees up one side at one time.

Does that drive any changes in the cost profile? Or what are the financial implications of this new social distancing?

No, it does not affect that costing at all.

[Operator Instructions] Our next question comes from the line of Insoo Kim with Goldman Sachs.

My first question is regarding just your language and around the guidance and your ability to hit that range. You gave a lot of details, which definitely I appreciate. But just coming, when I think about how you guys are situated on your business profile and your point that the bulk of the distribution revenues have already been earned through March as well as all the regulatory mechanisms, what concerns do you have, I guess, besides the -- just the length of how long we're going to be in this current situation that you think could potentially impact you to the downside? Are you seeing some economic deterioration already in some of your jurisdictions as a result of COVID?

Can you restate that second part there? I think you broke up a little bit, your last part.

I was just asking, are you seeing any initial signs of economic deterioration in any of your jurisdictions?

Not at this point. As we said, the -- our first full month of operation was April. Those bills are just now going out. And we'll have some more information as those come through in the next few weeks on into -- later into May and first part of June. But as we have said, with these shelter-in-place orders across our states, a lot of businesses have been able to continue to operate. We've seen construction continue to go on. We've seen a lot of road work continue to go on. Some of the restaurants have continued to be open without the in-room dining but have continued to provide pickup and carry out-type service. So we've seen a lot of activity even though there's some shelter in place. And we're just waiting to see how that plans out as we go through these phased reopenings and get a look at some of those bills to see if those loads picked up or maintained what they normally would have been.

Understood. And then regarding your plant O&M guidance for the year, does that -- I assume that's excluding the O&M costs that are related to COVID-19 in jurisdictions that you're allowed to defer from the income statement?

Yes. It does. And to this point, we're closing out the books for April right now. So we'll have a clearer look here in the coming days as what that spend is. But to your point, anything that is COVID-related or incremental over and above our run rates would be considered for regulatory asset treatment.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

We appreciate your interest in Atmos Energy and thank you for joining us. A recording of this call is available for replay on our website through August 6. Have a good day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.