Atmos Energy's Enduring Legacy

Atmos Energy Corporation (ATO) is a leading natural gas distribution and pipeline company that has consistently delivered solid financial performance and shareholder value over the years. With a rich history spanning more than a century, Atmos Energy has established itself as a trusted provider of clean, reliable natural gas to millions of customers across the United States.

Atmos Energy's roots can be traced back to 1906 when it was founded as Lone Star Gas Company, a small natural gas distributor in Dallas, Texas. Over the decades, the company has undergone a series of strategic acquisitions and expansions, cementing its position as a major player in the natural gas industry. In 1988, Lone Star Gas Company merged with Energas Company, becoming one of the largest natural gas companies in Texas. The company adopted its current name, Atmos Energy Corporation, in 1993, reflecting its growing footprint and diversified operations beyond Texas.

Throughout the 1990s and 2000s, Atmos Energy continued its expansion by acquiring natural gas distribution companies in Louisiana, Kentucky, Tennessee, Virginia, and Colorado, among other states. Despite facing challenges such as regulatory changes and the costs associated with upgrading and maintaining its extensive pipeline network, Atmos Energy has successfully navigated these obstacles through prudent financial management and a focus on operational excellence.

Today, Atmos Energy operates an extensive network of natural gas distribution and transmission pipelines across eight states, serving over 3.3 million residential, commercial, public authority, and industrial customers. The company's distribution segment is responsible for the safe and efficient delivery of natural gas to customers, while its pipeline and storage segment focuses on the transportation and storage of natural gas. Atmos Energy's vast infrastructure includes underground storage facilities and other essential components to ensure reliable natural gas delivery to homes, businesses, and industries.

Solid Financial Performance

Atmos Energy's financial performance has been consistently strong, with the company reporting solid results in recent years. In the fiscal year ended September 30, 2023, the company reported total revenue of $4.28 billion, a 2% increase from the previous year. Net income for the year stood at $885.86 million, or $6.10 per diluted share, up from $774.40 million, or $5.60 per diluted share, in the prior fiscal year. Operating cash flow for fiscal year 2023 was $3.46 billion, with free cash flow of $653.77 million.

For the most recent quarter (Q3 2024), Atmos Energy reported revenue of $701.55 million, representing a 5.9% year-over-year increase. Net income for the quarter was $165.56 million, a 20.2% increase compared to Q3 2023. Operating cash flow for the quarter stood at $411.19 million, while free cash flow was negative $302.42 million due to higher capital expenditures. The increase in revenue and net income was driven by positive rate outcomes, improved safety and reliability spending recovery, and customer growth.

Liquidity

The company's balance sheet remains robust, with a debt-to-equity ratio of 0.64 as of June 30, 2024. Atmos Energy's strong liquidity position, with $674.62 million in cash and cash equivalents and $3.1 billion in available credit facilities, provides the necessary financial flexibility to support its ongoing capital investment program and growth initiatives. The company also has a $1.5 billion commercial paper program. Atmos Energy's current ratio stands at 1.73, with a quick ratio of 1.57, further underlining its solid financial position.

Driving Growth Through Capital Investments

Atmos Energy's commitment to infrastructure modernization and system reliability is evident in its consistent capital spending. In the fiscal year ended September 30, 2023, the company invested $2.81 billion in property, plant, and equipment, with a focus on improving the safety and reliability of its distribution and transmission systems.

These strategic investments have enabled Atmos Energy to expand its natural gas delivery capabilities, enhance system resilience, and better serve its growing customer base. The company's robust capital expenditure program is expected to continue, as it remains dedicated to maintaining its extensive network of pipelines and modernizing its infrastructure to meet the evolving energy needs of its customers.

Regulatory Oversight and Ratemaking Processes

Atmos Energy operates in a highly regulated industry, with its natural gas distribution and pipeline operations subject to oversight by various state and federal regulatory authorities. The company's ability to recover its investments and earn a reasonable rate of return is largely dependent on the outcomes of its ratemaking proceedings.

Atmos Energy has a track record of successful rate case filings and the implementation of regulatory mechanisms, such as the Gas Reliability Infrastructure Program (GRIP) in Texas and the Annual Rate Mechanism (ARM) in Tennessee, which help mitigate regulatory lag and provide more timely recovery of its capital investments. These regulatory strategies have been instrumental in supporting the company's financial performance and ensuring the continued reliability and affordability of its natural gas services.

Navigating Challenges and Seizing Opportunities

Like any business, Atmos Energy faces a range of challenges and risks, including fluctuations in natural gas prices, regulatory changes, and the potential impact of extreme weather events on its operations. However, the company's experienced management team, robust risk management practices, and diversified geographic footprint have enabled it to navigate these challenges effectively.

Moreover, Atmos Energy is well-positioned to capitalize on the growing demand for clean-burning natural gas as a preferred energy source. The ongoing shift towards natural gas in power generation, as well as the increasing adoption of natural gas for residential and commercial heating, presents significant growth opportunities for the company. The natural gas distribution industry is expected to see a compound annual growth rate (CAGR) of 5-7% through 2028, driven by increasing demand for clean energy sources and continued infrastructure investments.

Business Segments and Performance

Atmos Energy operates through two main reportable segments:

1. Distribution Segment: This segment comprises the company's regulated natural gas distribution and related sales operations in eight states. For the nine months ended June 30, 2024, the distribution segment reported operating revenues of $3.33 billion and operating income of $789.79 million, representing a 23.6% increase in operating income compared to the same period in 2023.

2. Pipeline and Storage Segment: This segment consists primarily of the regulated pipeline and storage operations of Atmos Energy's Atmos Pipeline-Texas (APT) division and the company's natural gas transmission operations in Louisiana. For the nine months ended June 30, 2024, the pipeline and storage segment reported operating revenues of $685.34 million and operating income of $380.57 million, representing a 38.7% increase in operating income compared to the same period in 2023.

Future Outlook and Guidance

Atmos Energy has reaffirmed its fiscal year 2024 earnings per share (EPS) guidance range of $6.70 to $6.80, with expectations to be at the higher end of this range. The company continues to anticipate 6% to 8% EPS growth on an adjusted basis through fiscal year 2028.

For fiscal year 2024, Atmos Energy reported diluted EPS of $6.00 year-to-date, compared to $5.33 per diluted share in the prior year period. The company's fiscal year 2024 guidance includes two items totaling $0.17 that will be excluded when initiating fiscal year 2025 guidance in November: a $0.10 Texas property tax benefit and a $0.07 one-time Mississippi bad debt adjustment.

Atmos Energy expects its anticipated financing plan for fiscal year 2024 to be complete and anticipates that elevated spreads for its Atmos Pipeline Texas (APT) business will modestly contribute to Q4 fiscal year 2024 results.

Conclusion

Atmos Energy's rich history, solid financial performance, and strategic investments in infrastructure have positioned the company as a leader in the natural gas industry. With its commitment to safety, reliability, and customer service, Atmos Energy continues to deliver value to its shareholders and play a vital role in the communities it serves. As the demand for clean, affordable energy sources grows, Atmos Energy is poised to capitalize on these trends and maintain its steady growth trajectory in the years to come.