Atmos Energy Corporation (ATO) Q3 2026 Earnings Report, Transcript and Summary

Hello, everyone. Thank you for joining us, and welcome to Atmos Energy Corp. Fiscal 26 Third Quarter Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. I will now hand the conference over to Daniel Meziere, Vice President of Investor Relations and Treasurer. Daniel? Please go ahead.

Thank you, Lucas. Good morning, everyone, and thank you for joining our fiscal 26 third quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer and Christopher T. 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. 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. With that, I will turn the call over to Kevin.

Thank you, Daniel, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year to date fiscal 26 net income of $1.2 billion or $7.33 per diluted share. And we reaffirmed our earnings per share guidance in the range of $8.40 to $8.50. Our capital expenditures for the fiscal year totaled $3.1 billion with over 87% of these investments focused on enhancing the safety and reliability of our distribution transmission, and underground storage system. Across our service territories, we continue to see steady diversified customer growth. For the 12 months ending 06/30/2026 we added nearly 51 thousand new customers with nearly 39 thousand of those new customers located here in Texas. And during the third quarter, we added 600 commercial customers and over 2.5 thousand commercial customers fiscal year to date. Additionally, we added 5 new industrial customers, during the third quarter, and 12 new industrial customers fiscal year to date. The 12 new industrial customers are anticipated to use approximately 950 thousand MCF per year once they are fully operational. That is volumetrically equivalent to adding 18 thousand residential customers. This continued demand from all customer classes demonstrates the value and vital role natural gas plays in economic development across our Atmos Energy service territory. The Texas Workforce Commission reported that Texas once again added jobs at a faster rate than the nation over the last 12 months ending June 2026. And in 2026, Texas added 3 Fortune 500 companies, bringing the total number of Fortune 500 companies to 57. The most in the nation at the highest level in Texas since 2010. In APT, we continue to work to enhance the safety, reliability, versatility, and supply diversification of our system as well as support the continued growth we are seeing in the local distribution companies behind APT system. APT is currently working on 2 separate projects to the Southeast of the DFW Metroplex that will install a total of 29 miles of 36 inch pipeline to connect 2 adjacent compressor stations to our Tri City storage facility. These projects enhance system reliability and capacity for gas transported from the Haynesville and Cotton Valley shale plays to our Bethel and Tri City storage facility. All to support the growing DFW Metroplex. To the east of the Metroplex, we began construction of a bilateral compressor station in Carthage, Texas. That will increase the capacity of our 36 inch line s 2 pipeline. Finally, we are working on the final phase of the WA loop project to support growth in the northwestern portion of the Metroplex. This final phase will install 15 miles of 36 inch pipe that will complete a 92-mile 36 inch pipeline loop. All of these projects are currently scheduled to be placed into service by the end of the calendar year. This month, APT will submit its annual Rider REV tariff seeking to reflect $160 million to $165 million in revenue credits for LDC customers on the system between November 1, 2026, and October 31, 2027. This amount is approved as filed These customers will have received over $300 million in savings through the Rider REV mechanism from November 2023 through October 2027. Our customer support associates and service technicians continue to provide exceptional customer service achieving customer satisfaction ratings in excess of 97% for the first 9 months of this fiscal year. Finally, during the first 9 months of the fiscal year, our customer advocacy team helped nearly 49 thousand customers receive about $16.2 million in funding assistance. I will now turn the call over to Christopher for his update.

Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, earnings per share for the first 9 months of the fiscal year was $7.33 which represents a 14.5% increase over the prior year period. Our year to date results include $132 million or $0.63 on the impact of Texas House Bill 4.38 thousand. $71 million was recognized in our distribution segment and the remaining $61 million was recognized at APT. In addition to the impact of House Bill 4.38 thousand, I wanted to highlight a few other drivers of our financial performance for the fiscal year to date period. Rate increases in both of our operating segments totaled $227 million. Operating income increased by an additional $41 million due to residential and commercial customer growth and increased customer load. APT's through system revenues, net of Rider REV, increased about $34 million or $0.16. This increase continues to reflect the significantly higher spreads realized during fiscal 26 compared with fiscal 25 that we have been--we have been discussing this entire fiscal year. The first 9 months of fiscal 26, the spreads we captured averaged $4.66 compared with $1.77 in the prior year period. Reflecting rising associated gas production, constrained takeaway capacity, and lower demand due to unseasonably warm weather during the past winter heating season. Finally, consolidated O&M decreased $14 million reflecting higher employee compliance and safety related spending in our distribution segment higher maintenance spending at APT, all offset by the impact of the implementation of the House Bill 4.38 thousand deferrals. From a regulatory perspective, since the beginning of the fiscal year, we have implemented $396 million in annualized operating income increases. Of this amount, $260 million was implemented during our Q3 and Q4 fiscal quarters. Currently, have 7 filings in progress, seeking nearly $334 million in annualized operating income increases. We expect to implement most of this amount in the first quarter of fiscal 27. Our equity capitalization as of June 30 was 60%, and we do not have any short term debt outstanding. At quarter end, we had $4.6 billion in available liquidity to support our operations This includes approximately $937 million in net proceeds available under existing forward sale agreements which is expected to satisfy the remainder of our anticipated fiscal 26 equity needs and a significant portion of our anticipated equity needs for fiscal 27. As we reported last night, we reaffirmed our fiscal 26 earnings per share guidance in the range of $8.40 to $8.50. APT's through system business during the third fiscal quarter was in line with our expectations. Beginning in June, spreads have narrowed significantly now that additional takeaway capacity has come online some sooner than expected. Additionally, O&M spending in fiscal 26 is--is trending slightly higher. We now expect fiscal 26 O&M excluding bad debt expense, to be in the range of $875 million to $885 million. Finally, we remain on track to spend approximately $4.2 billion in capital expenditures for fiscal 26. We appreciate your time this morning and your interest in Atmos Energy. We will now open up the call for questions.

We will now begin the question-and-answer session. If you would like to ask a question, press 1 to raise your hand. To withdraw your question, press 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Constantine Lednev. With Wells Fargo Securities. Constantine, please go ahead.

Good morning. This is Whitney here for Constantine. Thanks for taking the questions. Morning. Great quarter. Given we are a quarter short of the year, do you anticipate to be in the top end of guidance? Do you anticipate any offsets to the strong year to date performance in 4Q? And maybe just a quick question around APT. Given where Waha has been trading, are contributions still moving in the same direction, or do you anticipate some narrowing?

Yeah. Well, good morning again. As we have mentioned, we have reaffirmed our guidance in the range of $8.40 to $8.50. As I mentioned, APT's performance in the third quarter was in line with our expectations. But as I also highlighted, we are seeing a significantly narrower spreads beginning in the latter half of the third quarter and continuing that through today. As a result of additional takeaway capacity coming online, some of which was coming online sooner than expected. A couple of different pipes expected to go online in the fourth quarter of the calendar year, and they came on 1 in late June and 1 here in late July. And they are beginning to ramp up. We just had causing a compression of the spread. So all in all, we are standing by our $8.40 to $8.50 range for EPS for fiscal 26, and we will see where the fourth quarter takes us in terms of spread opportunities and other operational factors for the remainder of the fiscal year.

Got it. Okay. And just to squeeze a tiny question, given the strength in fiscal year 26, do you feel you can carry some flex into fiscal year 27 just from an O&M and cost perspective. That will be all. Thank you.

If I understand your question correctly, in terms of if you are talking about APT, we certainly had mentioned before that we will continue to reflect in our base plan that we will roll forward in the fall, an amount coming from APT through-system business in line with the benchmark that we have established at roughly $107 million.

With respect to O&M, you know, in our 5 year guidance that we have out there right now, we anticipate a 4% O&M increase per year, and we will refresh that when we roll forward when we roll forward the 5 year plan later this fall. Analyst (Whitney): Sounds good. Thank you.

Your next question comes from the line of Richard Sunderland with Truist Securities. Richard, please go ahead.

Hey. Good morning, and thanks for the time today. I actually want to follow-up on some of those APT questions. Just last quarter, I think it was an $0.08 to $0.12 range for 2H uptick you guys had spoken to. Looks like you captured most of that this quarter, but is $0.08 to $0.12 still the right range to be thinking about over that period, meaning for the balance of the year on 4Q?

Richard. Thanks for the call this or thanks for the question this morning. As you mentioned, we did pick up the $0.08 in the third quarter with the tightening of the spreads. I would say we are probably going be in the lower end of that range at this point. In that age 12. So we will see. Again, we will have to continue to see what happens with maintenance on some of this, you know, this takeaway capacity, where the summer heat load is going or winter cooling load. Excuse me. And we will just see where we go from that. But I think the lower that range is more appropriate. Okay. that is helpful context.

And then, you know, I also wanted to follow-up on O&M and I just--I think I asked, sort of in a similar way. Right? Like, you took up the low end of the range, $10 million. I realize it is relatively modest, but is that reflective of any activities kind of getting pulled forward into 2026 from 2027? Or is that more around line locates, other kind of external drivers? Just curious to parse that a little bit and think about kind of 2026 versus 2027 O&M activity.

John Kevin Akers: As is typical at this time of year, it is more related to ongoing activity across the Metroplex and other areas with the growth that we are seeing, line locate activity,. Ongoing compliance and maintenance activities in that area, but that is what we normally see around this time of the year.

Great. I will leave it there. Thank you. Thank you.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies. Julien, please go ahead.

Hey, guys. Luke on for Julien. Nicely done in the quarter. I just wanted to ask on Rule 7.7.102. Just given the benefits we have seen of late, can we expect it to, like, maybe remain a discrete earnings benefit in 2027, or does it increasingly roll into Texas recovery from here? Just want to get a sense of how that is trending.

Yeah. Well, thanks for the question, Luke. Good morning. You know, fiscal 26 is a step year of change as a result of the implementation of 7.7.102. And as we have said going forward, we expect that year over year to be more in line with what we have experienced in the past with respect to, say, Rule 8.209 So as we said at the end of the second quarter, you know, we are anticipating launching a 6% to 8% earnings per share growth off of our current range or guidance range of $8.40 to $8.50. So that reflects that. it is more of a moderation effect going forward now that we have got a full year's impact of the rule under our belt at this point.

Awesome. Thank you. And then maybe just wanted to see the latest on timing and your confidence level around the Mid-Tex cities RRM. Maybe, like, how you see yourself positioned on customer bill affordability in Texas more broadly?

Yeah. If you look in our deck that is out there, particularly our May investor deck, I think it is slides, 18 through 21 or 22. We have good information out there about affordability. Both from a customer bill perspective where we remain the lowest bill in the house. If you want to look at it on a energy comparison basis kilowatt to kilowatt, BTU to BTU. Across our service territories, we range from 2% to 4% lower. Than electricity. On a household basis. Then if you are going to look at wallet share, both from a low income and a median income perspective. We range from 1% to 1.2% of the wallet with on the electric side ranging at about 2x to almost 3x wallet share. So we think our team continues to do an excellent job of keeping affordability top of mind focusing on things we can control and being an efficient provider.

Awesome. I will leave it there. Thanks, guys. All the best.

Reminder that if you would like to ask a question, please press 1 to raise your hand. Your next question comes from the line of Dylan with Mizuho. Dylan, please go ahead.

Analyst (Dylan): Hi, everybody. Congrats on a good quarter here. Just kind of wanted to get back to Waha. You know, if Waha now back in positive territory and additional capacity expected to come online over the next several quarters. How are you guys thinking about how this is going to impact APT's earning power and utilization in the near term?

Well, as we have said, Chris just highlighted where we think we are gonna be on the guidance he gave before. At the lower end of the $0.08 to $0.12 range. Again, we budget the benchmark for rider rep. And we will continue to monitor what we see over the next few months as we head into the fall and the heating season. Definitely no crystal balls here. We are not going to try and guess what is gonna be going on in that period. We will just have to see what the rest of the summer cooling load looks like. Then as we move into the fall, does winter and fall show up early and cause a spike in demand? What does that look like? So, again, pretty much back to basics as we do every year, year in and year out. We are going to budget the benchmark and then we will see what comes our way from there.

Gotcha. No. I appreciate the color. that is all I got. Thank you.

1 last reminder that if you would like to ask a question, please press 1 to raise your hand. There are no further questions at this time. I will now turn the call back to Daniel Meziere for closing remarks. Daniel, please go ahead.

We appreciate your interest in Atmos Energy. And thank you again for joining us this morning. A recording of this call is available for replay on our website through September 30, 2026. Have a good day.

This concludes today's call. Thank you for attending. You may now disconnect.