Greetings, and welcome to the Atmos Energy Fourth Quarter 2021 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 conference is being recorded. It is now my pleasure to introduce your host, Dan Meziere, Vice President of Investor Relations and Treasurer. Thank you, sir. Please go ahead.

Thank you, Diana. Good morning, everyone, and thank you for joining us. 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. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure. As we review these financial results and discuss future expectations, please keep in mind that some of our discussions 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 37 and more fully described in our SEC filings. I will now turn the call over to Kevin.

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy and are glad you could join us this morning. On this Veterans Day, I would like to take just a moment to say thank you to those who have served our own forces. Nearly 300 of our Atmos Energy teammates are part of the more than 20 million Americans who bravely serve our country, so that we may live freely. Thank you for your service. Yesterday, we reported earnings per share of $5.12, which represents the 19th consecutive year of earnings per share growth. Chris will provide some additional color around our financial results later in this call. I will begin today's call with a review of our fiscal '21 accomplishments, provide an update on key pipeline projects, and we'll close with some thoughts about fiscal '22. Our success in fiscal '21, once again, reflects the commitment and ongoing effort of all 4,700 employees at Atmos Energy. I've said it before and I'll say it again, they are the heart and soul of Atmos Energy and provide the foundation for the sustained long-term success of our Company. I'm extremely proud of their commitment to keep our 3.2 million customers, our 1,400 communities, themselves and their families healthy and safe. As you've heard us say, fiscal '21 was our 10th year executing our proven investment strategy of operating safely and reliably while we modernize our natural gas distribution, transmission, and storage systems. And over that 10-year period, we invested nearly $13 billion in modernizing and expanding our natural gas systems, replacing approximately 5,500 miles of distribution pipeline, 394,000 steel service lines, and 1,100 miles of transmission pipeline. And over that same 10-year period, we added nearly 350,000 customers. As I said during our second quarter earnings call,…

Thank you, Kevin, and good morning, everybody. Our fiscal '21 diluted earnings per share of $5.12, representing 8.5% increase over adjusted diluted earnings per share of $4.72 reported in the prior year. As a reminder, our fiscal 2020 GAAP results included a one-time non-cash income tax benefit of $21 million or $0.17 per diluted share related to the enactment of new tax legislation in Kansas. As we entered fiscal 21, we conservatively planned for lower non-residential revenues while planning to execute our normal O and M program. Though nonresidential sales volumes declined 10% period-over-period during the first quarter and early into the second quarter, we carefully manage our O&M spending focusing on compliance-related activities. Non-residential sales volumes rebounded sooner than we anticipated, which created the opportunity to expand our O&M spending in the second half of the fiscal year. Additionally, the timing difference between the impact of refunding excess deferred taxes on our revenues and deferred income tax expense contributed about a penny to fiscal 21 results. As a result, actual earnings-per-share slightly exceeded the higher-end of our guidance range. Taking a closer look, consolidated operating income rose approximately 10% to $905 million. Slides 5 and 6 provide details of the year-over-year changes to operating income for each of our segments. I will touch on a few of the fiscal year highlights. Rate increases in both of our operating segments driven by increased safety and reliability capital spending totaled $207 million. We continue to benefit from strong customer growth and most of our jurisdictions, resulting in a $19 million increase in distribution operating income. During fiscal '21, we added 51,000 new customers, which represents a 1.6% increase over the last 12 months. Sales volumes for our commercial customers recovered fiscal '21, rising almost 6% over last year. Service order revenue…

Thank you, Chris. Looking forward, I'm very excited about the direction and long-term sustainability of our Company. The foundation has been set with a proven safety driven strategy accompanied with organic growth that yield, as Chris said, 6% to 8% fully regulated earnings per share commensurate dividend per share growth, supported by a strong financial profile. We operate in a diversified and growing jurisdictional footprint that is supportive of the investment in natural gas infrastructure. 97% of our rate basis situated in 6 of our 8 states that have passed legislation in support of energy choice. The constructive regulatory mechanisms in our jurisdiction support the necessary capital investments to modernize our natural gas distribution, transmission, and storage systems. We have a long runway of work to support the planned $13 billion to $14 billion in capital spending over the next 5 years as you can see on Slide 16 and 17. That spending will support replacement of 5,000 to 6,000 miles of distribution and transmission pipe, or about 6% to 8% of our total system. We also plan to replace between 100,000 to 150,000 steel service lines, which is expected to reduce our inventory by approximately 20%. This level of replacement work is expected to reduce methane emissions from our system by 15% to 20% over that 5-year period. Additionally, you've heard us discuss the growth in our jurisdiction. 8 of the 11 fastest-growing counties we serve are in the DFW Metroplex and to the north of Austin. Additionally, our Middle Tennessee, service territory ranks among the fastest growing areas in the U.S. as well, and we continue to see industrial customers in our footprint choose natural gas. In fiscal '21, we added approximately 45 new industrial customers with an estimated annual load of between 10 to 12 BCF a year once they are fully online, and these customers are from various industry, manufacturing, food processing, hospitals and distilleries. Focusing on the long-term sustainability has always been a part of our strategy as reflected in the vital role we play every day in our communities. Delivering safe, reliable, and efficient natural gas to homes, businesses, and industries to fuel our energy needs now and into the future. We appreciate your time this morning, and we'll now open the call for questions.

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Hey, it's actually Kody Clark on for Julien. Good morning.

Good morning, Kody. How are you?

Good morning, Kody.

Good. So first on the delta between the 11% to 13% rate base growth and the 6% to 8% EPS growth. I know there's a good deal of equity contemplated in plan, so definitely cognizant of the dilution there, but low like regulatory lag, given the recovery mechanisms that you have across your jurisdiction, so I'm wondering if there are any other drivers of that delta that you would call out.

Yes. At this time, it really is just the financing plan that we've assumed over the next five years as you point out, it's the equity component. But again, that's factored into the 6% to 8% earnings per share growth that we highlighted on the call this morning.

Got it. Okay. And then building off that question a little bit. I'm wondering how you would characterize where you see yourself in that 6% to 8% long-term EPS growth range. Is it more towards the midpoint or top 10? I'm asking because the past couple of year-end updates I've seen you performed well during the year, rebase off that strong number and then reiterate the 6 to 8% growth after that. So are you being a little bit conservative or how would you think about that?

When you look at the ranges that we've put out this morning, the $5.40 to $5.60 for fiscal '22, and then the $7 to $7.40 in fiscal 2026. If you take the midpoint of both of those ranges and kind of do the math and that implies about a 7% annual growth rate per year.

Okay. And then last one if I can just sneak it in that. We've seen the market multiple for gas utilities decline relative to the electric peers throughout the year, and at the same time has seen some healthy transaction multiples for some of the gas utilities. So how are you thinking about potentially monetizing an asset or assets to offset the ATM equity needs. I know you've stated in the past thing you'd like your business mix, but wondering if that has changed at all.

I'll start on that, Kody, and then Chris can certainly jump in if he wants to. Again, as you said, we've been very proud of our assets. We continue to be very proud of them. You look at the results here. You talked about the diversified growth that we just mentioned on our call here, the mechanisms, the regulatory relationships that we have out there, our involvement in the communities. We're very proud of the asset mix we have today. So we're not contemplating at this point anything, but continuing the excellent operation of those assets.

Great. That's all I had.

Kody, I’ll add…

Okay. Very good.

Thank you. Our next question is coming from Richard Sunderland of JPMorgan. Please go ahead.

Hi. Good morning. Thanks for taking my questions here. Just wanted to start with this Permian highway project. Does it create incremental base and takeaway or just better connectivity to the Permian highway pipeline?

Well, that project you're talking about where we are connecting up in the Permian highway project, that's just to meet the growing demand of that Austin corridor down there to feel that diversification of a load as well for us. So, that's what we're looking to do. We're connecting to that Permian Highway project to bringing that supply up from the Sal instead of moving gas around from the north or bringing it over from Katy at this point. So for us, again, it's another supply optionality to meet the growing corridor that we have down there, and then some supply diversification.

Understood. And then I realized the entire five-year capital plan is up year-over-year. But is there anything notable in the 2022 CapEx step-up or just any color there?

Well, I think nothing that steps up again. We go through a very rigorous and robust planning process each year that looks at the one, three, and five-year projects levels that are out there. As you've heard us say before, we take a long look at the projects and how I meet integrity management goals, compliance goals, but we also look at it from that growth perspective, what has been the band going to be out in the future and how do we meet that demand? So I think that's all contemplated within this. That's why we spiked out those projects. So I think this is just a further iteration of meeting the supply needs to demand and diversification that we continue to talk about.

Great. Thank you for the color.

Thank you. Our next question is coming from Insoo Kim of Goldman Sachs. Please go ahead.

Thank you. My first question is on just general gas hedging. I know that the salt dome is coming on and that's going to help just the storage capacity but whether it's in Texas or other regions, you're following what the hedging rules are that the commissions of those states put on limited to that, but just whether it's a result of Uri or some other spikes we're seeing in the current winter season, any dialogue with any of the commissions on potentially changing the hedging strategy?

Yes, I'll start out and then see if Chris wants to add any color. We have dialogue every year with our commissions, as you know, laying out what our anticipated gas supply plan is for that year, how we perform the following year. We're open to that feedback. But right now, both our commissions, our gas supply teams are very comfortable with the plans we've been able to put together. And you heard that combined with our storage opportunity, our base load purchases, those sort of things, how well they have us positioned going into this winter heating season. So we'll continue those dialogues, continue those conversations, we'll continue to meet with our jurisdictions at the end of each winter season and work collaboratively with each of those jurisdictions as they see it going forward.

Got it. And my second question, the proposed methane fee that's in the reconciliation package. I think more on the upstream and midstream side of things, but just curious on your thoughts or whether it's direct or indirect, any potential impact or ramifications you see for your utilities or just the gas LDC industry in general?

There's still a lot of moving parts and pieces to that legislation. A lot of conversation is still going on at the federal level with that. And quite frankly, as they continue to do that, we'll monitor that. But I think the thing is you've heard us say before that the United States, as we sit here today, is among the top five producers in natural gas. We're among the top five and proven reserves in the world today. And for us to continue to have the economic growth, the economic stability, and security that we need from an energy perspective and a national perspective, we're going to need to have a continued diversified energy portfolio. And we believe natural gas certainly brings that to the table with the flexibility, reliability, and abundance it provides everybody. We just outlined through today's update how natural gas plays a key role in that. So we'll continue to monitor that, but we will look for a diversified energy portfolio to continue to meet the demands of the U.S.

Got it. We'll leave it there. Thank you, both.

Thank you. Our next question is coming from Stephen Byrd of Morgan Stanley. Please go ahead.

Hey, good morning.

Good morning.

Hey, Steve.

Hey. So a lot of topics have been covered. I wanted to touch on two things. Maybe first, just back on the natural gas pricing impact, that Slide 25, I think is quite constructive to your point, we don't see big shocks. Are there dynamics though, whether it's in 1 jurisdiction, where the impact is greater or an assumption that could change, it could cause that fairly modest increase in '22, for example, to be a little bit different, or worse for any jurisdiction, or I guess, my bottom line question is, what kinds of shocks could cause that to be different, or is it really hard to envision that?

Go ahead, Kevin.

Go ahead. I'm sorry.

Well, I don't foresee anything that could impact us at this point, those are averages as you know, that we put out there, we continue to look for diversification across our pipes as you heard us mentioned earlier, we're across 37 pipelines, multiple basins. So we tried to blend in as much diversification and flexibility as we can within our systems. We have these annual mechanisms that tend to level out, increases over time, and I think for conservative on those gold bars there on 25, as you've heard us say before, we're looking way out into the future on some of those prices, and as outlook today, while hard at cash basis is $3.98 Katy to $4.40 and I believe the non-Maxx is at $4.91 today. So I think again, with the great work, our gas supply team does, where our assets are located on multiple pipes, availability of storage, that sort of thing, we're in a really good position. Chris, anything you want to add? Yes, I'd say, too as we saw about what could potentially move the needle in terms of pricing, and it's again, it's weather patterns. It sums in the pricing dynamics that Kevin just described. Also, just customer usage and to all that's very, very difficult to predict and trying to estimate or come up with a true impact, and again, with an 8-state footprint that covers a fairly significant geographical difference that you could have weather patterns that impact the eastern portion of the U.S. that are completely there from Texas and what we might experience in Colorado. So really, it's, I think, pretty challenging for us to say across the 8-state footprint if there is a trade key driver to watch out for. I think it's going to be a combination of all of the items you just mentioned; pricing, the basins that we have access to. They're very highly liquid basins. So we were able to have a good keen eye on what that pricing situation customer usage, as well as just general weather patterns.

That's really helpful, and then shifting over to financing, I am going to step back a little bit on this question. Atmos is in a really interesting situation. You have perhaps the fastest growth rate in terms of your rate base among companies we cover. We love the growth outlook. What's interesting is that the amount of equity needed compared to your market cap is high, and the value of the stock, the PE multiple of the stock is dramatically lower than what we're seeing in private asset sales, including not just sales of a 100%, but just selling a minority stake, we've seen dramatically higher valuations. So I guess the math my suggests that a sale of a minority stake at the kinds of multiples we've been seeing on other situations would be dramatically less dilutive than this kind of volume of equity issuance that we're looking at over the next 5 years. How do you all kind of think about the possibility of selling non-controlling minority stakes, potentially much higher valuations than just where your own stock is trading? How do you-all think about that?

It's a challenge for us because we don't have the holding Company structure like many of our peers do. So when you look at each of our divisions or each of our states, that's all under one corporate umbrella. So we can't do a minority sale for a single jurisdiction. The way we're structured today, it would have to be a partial assets sale or a certain geographic region that we would have to exit, and as you heard Kevin talk earlier with Kody, we're very happy with the assets that we have, the jurisdiction footprints. We do see the dislocation between what the private market is a place of evaluation on versus what we're seeing from the public traded perspective and we think again to the public and trade perspective, the fact that 97% of our asset base is located in jurisdictions that are supportive of natural gas, both from a policy perspective, the regulatory perspective, the fact that we have very strong customer growth is currently being a little bit underappreciated, and that's where we just need to continue to remind those investors that we are very well-positioned in the country to capture the growth experienced in our jurisdictions and have jurisdictions that have strong support natural gas.

Yes. Chris, I'll just add you've got 19 years of EPS growth and 38 years of consecutive dividend increases all support our strong position as well as what Chris had about our regulatory jurisdiction. So we're going to continue to operate and do the things we do within our strategy. We've outlined, we think it's solid. We think it fits our jurisdictions well. So really believe we are in a good position going forward, not only for our customers but our communities and all stakeholders.

Understood. Thank you very much.

Thank you. [Operator Instructions] Our next question is coming Ryan Levine of Citi. Please go ahead.

Good morning.

Good morning.

Hey, Ryan.

Hey. What are the drivers of where you would fall in the 22% range for EPS? Can you talk about some of the pluses or minuses that may determine the outcome?

Key pluses or minuses obviously will be the execution of the regulatory strategy. Customer usage patterns, whether although we are [Indiscernible] normalized, 97% of our jurisdictions, we can see a little bit of that weather year-over-year, and just timing of O&M spending as we continue our ongoing system safety and compliance work, those are the key drivers that we generally point to when we're talking about where we can fall within the 6% to 8% range.

On the O&M point, think you're assuming 3%, 8% to 3.5% O&M cost inflation in your '22 outlook, what underpins that? Seeing some more robust inflation figures more recently, can you elaborate on what's driving that assumption?

Sure. It's the ongoing expansion of our compliance work. You've heard us talk before that we're in a mode now, doing more compliance work every year rather than holding back and waiting for another rate case to occur. So as we continue to look at the rule making that's happening at the federal and the state level, we work to try to get ahead of that, so that when it comes time for a compliance deadline to have met, we're getting there. Well in advance on when that deadline is and we're also just looking at the system needs and what we want to be doing from a safety perspective. So when talked about advanced leak detection technologies and further expanding that across our footprint, as well as just ongoing hydrotesting at inline inspection work on our large-scale distribution in some of transmission lines to make sure that better system is operating as safely as it possibly can.

Okay, and then from the federal legislation, what do you view as the impact to Atmos more broadly?

Are you referring to the infrastructure bill there, Ryan?

The infrastructure bill and potential tax reform or tax changes.

On the infrastructure bill itself, as you know, it's very comprehensive, we're still working our way through it, but some of the things that we've seen that we are focusing in on our incentives in there for high-efficiency natural gas appliances, systems that regard hydrogen research and development, as well as there's some, I think, $500 million or so over the next 5-year increase for low heat. That's in there as well. The rest of it at this point, we're still working our way through the detailed piece of that with, with our peer companies and with the American Gas Association.

Okay, and then last question for me. Are you talking to any of your regulators within your few jurisdictions about rate-basing electrolyzers within the LDC?

Short answer is no.

I appreciate it. Thank you.

Thank you. At this time, I would like to turn the floor back over to management for closing comments.

Thank you. We appreciate your interest in Atmos Energy and thank you for joining us today. The recording of this call is available for replay on our website through January 6, 2022. Have a good day.