Atmos Energy Corporation · NYSE:ATO
Atmos Energy — Q4 2020 Earnings Presentation
43 slides from Atmos Energy's earnings presentation, Nov 12, 2020
Slide 1: Analyst Call to Review Fiscal 2020 Financial Results & Fiscal 2021-2025 Outlook
Analyst Call to Review Fiscal 2020 Financial Results & Fiscal 2021-2025 Outlook November 12, 2020 10:00 a.m. Eastern
Slide 2: Fiscal 2020 Review
=TMOS energy. Fiscal 2020 Review
Slide 3: Fiscal 2020 Highlights
Fiscal 2020 Highlights Financial Performance Adjusted Diluted EPS of $4.72; 18th consecutive year of EPS growth 14% increase in capital spending to $1.9 billion; 88% allocated to safety and reliability spending Initiated Fiscal 2021 EPS guidance range of $4.90 - $5.10 8.7% increase in fisc
Slide 4: Consolidated Financial Results - Fiscal 2020
Consolidated Financial Results - Fiscal 2020 Three Months Ended Twelve Months Ended September 30 September 30 Segment Net Income 2020 2019 2020 2019 ($millions, except EPS) Distribution $ 20 $ 10 $ 395 $ 329 Pipeline & Storage $ 45 $ 48 $ 206 $ 182 Net Income $ 65 $ 58 $ 601 $ 511 Nonrecurring One T
Slide 5: Segment Operating Income Results
Segment Operating Income Results Twelve Months Ended September 30 2020 2019 Change ($millions) Distribution $ 528.2 $ 470.8 $ 57.4 Pipeline & Storage 295.9 275.3 20.6 Operating Income $ 824.1 $ 746.1 $ 78.0 Distribution Key Drivers Pipeline & Storage Key Drivers $86.8MM – Increase in rates $53.2
Slide 6: Segment Operating Income Results
Segment Operating Income Results Three Months Ended September 30 2020 2019 Change ($millions) Distribution $ 31.9 $ 23.7 $ 8.2 Pipeline & Storage 68.9 66.0 2.9 Operating Income $ 100.8 $ 89.7 $ 11.1 Distribution Key Drivers Pipeline & Storage Key Drivers $16.0MM – Increase in rates $13.3MM – Inc
Slide 7: Capital Spending
Capital Spending 88% Spent On Safety and Reliability $1,935.7 $1,693.5 September 2019 September 2020 $ millions As of November 11, 2020 7
Slide 8: Capital Spending Mix
Capital Spending Mix Safety & Reliability Investments Support Infrastructure Modernization $millions Fiscal 2020 YTD CapEx Repair and replace transmission and distribution $ 955 pipelines 2% 263 Service line replacement 10% 217 Pipeline integrity management projects 88% Install & replace measurement
Slide 9: Fiscal 2020 YTD Financing Recap
Fiscal 2020 YTD Financing Recap $1.0 billion of long-term debt financing issued $800 million in long-term debt issued in October 2019 • $300 million 2.625% 10-year senior notes • $500 million 3.375% 30-year senior notes $200 million term loan issued in April 2020 Equity needs satisfied throu
Slide 10: Strong Financial Foundation
Strong Financial Foundation Weighted Average Maturity ~19 Years $1,200 $950 $1,000 3.73% $750 $800 4.125% ($ millions) $600 $600 1.5% 4.30% $600 $500 $500 3.0% 4.15% $400 $300 5.5% $400 2.625% $150 $200 6.75% $200 2.29% 5.95% $200 $10 6.67% $0 As of November 11, 2020 10
Slide 11: Strong Financial Foundation: Credit Metrics
Strong Financial Foundation Improved Weighted Average Cost of Long-Term Debt Credit Metrics Remain Strong Net Long-Term Debt Interest Rate % $5,500 6.0 Strong Investment 5.2 $5,000 5.2 Grade Credit Ratings 4.7 5.0 $4,500 Standard & 4.2 Moody’s Poor’s $4,000 3.9 4.0 7 issues, 3.00% - 6.75% $3,500 • S
Slide 12: Strong Financial Foundation Further Enhanced
Strong Financial Foundation Further Enhanced Capitalization and Liquidity Profile Total Capitalization Liquidity Profile as of September 30, 2020 100% 5% $2,800 $345.2 40% $2,400 75% 36% $20.8 $2,000 $700.0 7 issues, 3.00% - 6.75% $1,600 ~ $2.6 billion Available 50% Liquidity at $1,200 9/30/20 60% $
Slide 13: Fiscal 2021 - 2025 Financial Outlook
Fiscal 2021 - 2025 Financial Outlook 13
Slide 14: Leading Natural Gas Delivery Platform
Leading Natural Gas Delivery Platform Eight-state distribution territory Business Mix Intrastate pipeline system Distribution ~66% Regulated distribution 68% Regulated Pipeline & pipeline Storage 29% ~34% 2020 Net Income Favorably positioned pipeline spans Diversified LDC platform in 8 states Texas
Slide 15: Safety Driven, Organic Growth Strategy
Safety Driven, Organic Growth Strategy Constructive Regulatory Mechanisms Support Efficient Conversion of Safety and Reliability Investments into Financial Results ~ $11 - $12 billion in capital Constructive rate mechanisms investment through 2025; >80% 6% - 8% Consolidated EPS growth that reduce re
Slide 16: Fiscal 2021E Guidance
Fiscal 2021E Guidance ($millions, except EPS) FY 2020 FY 2021E1 Distribution $ 395 $ 425 - 440 Pipeline & Storage 206 205 - 220 Total Net Income $ 601 $ 635 - 665 Average Diluted Shares 122.9 129.0 - 131.5 Adjusted Diluted EPS2 $ 4.723 $ 4.90 - $ 5.10 Capital Spending $ 1,936 $ 2,000 - $ 2,200 1. Ch
Slide 17: Fiscal 2021E Guidance
Fiscal 2021E Guidance Selected Expenses FY 2020 FY 2021E1 ($millions) O&M $ 630 $ 660 - 690 D&A $ 430 $ 470 - 480 Interest $ 84 $ 75 - 85 Adjusted Income Tax $ 1662 $ 175 - 185 Adjusted Effective Tax Rate 22.2%3 20% - 23%4 1. Changes in events or other circumstances that the Company cannot currently
Slide 18: Key Class Takeaways
Volume by Customer Key Class Takeaways Fiscal 2021 Budget Base Charge as a % of Revenue(1) Residential 65% Commercial 44% Industrial 24% Transport/Other 22% Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Total 58% Oct – Mar Apr – Sep ~70% of Total Year Revenue ~30% of Total Year Revenue FY21 Estima
Slide 19: Modernizing with Focus on Safety
Modernizing with Focus on Safety Next Five Years Replace 5,000 – 6,000 miles of Distribution Miles Replacement Rate distribution and transmission pipe 1,000 6% - 8% of total system 800 600 Eliminate all known cast iron by 400 end of CY2021 200 356 miles remaining 0 2013 2014 2015 2016 2017 2
Slide 20: Sustainable Financial Performance
Sustainable Financial Performance Execution Drives Annual 6% - 8% EPS & Dividend Growth Key Assumptions $7.00 $6.30 - $6.70 FY21 - FY25 capital spending rising 7% - 8% annually for a total of $11 - $12 billion $6.00 $4.90 - $5.10 $4.721 O&M expense inflation rate of $5.00 3.0% - 3.5% annually 7
Slide 21: System Modernization Driving Capital Spending
System Modernization Driving Capital Spending Consolidated 2021E Capital Expenditures of $2.0 billion - $2.2 billion ~90% of annual CAPEX begins to earn within 6 months from end of test year $ millions $3,000 $2,500 $2,000 7 issues, 3.00% - 6.75% $1,500 $1,000 8.50% 1 $500 $0 As of November 11, 2020
Slide 22: Capital Spending Drives Rate Base Growth
Capital Spending Drives Rate Base Growth Focused on enhancing system safety and reliability $ millions $19.0B - $21.0B $20,000 $18,000 $16,000 $14,000 $12,000 $10.7B 7 issues, 3.00% - 6.75% $10,000 $8,000 $6,000 $4.1B $4,000 8.50% 1 $2,000 $0 Distribution Pipeline * Estimated rate base at the end of
Slide 23: Constructive Rate Outcomes Support Continued Investment
Constructive Rate Outcomes Support Continued Investment Annualized Increases From Implemented Rate Activity $ millions $195-$215 $200 Customers and investors benefit from fair and reasonable regulation $160 Earning on ~90% of annual $150 CAPEX within 6 months of $117 test year end $104 7 issues,
Slide 24: Sustainable and Growing Dividend
Sustainable and Growing Dividend 37 Consecutive Years of Dividend Increases Dividend increased 8.7% for Fiscal 2021 The indicated annual dividend rate for Fiscal 2021 is $2.50 Long-term targeted payout ratio of 50% $2.50E $2.50 $2.00 7 issues, 3.00% - 6.75% $1.50 $1.00 8.50% 1 $0.50 $0.00 Note
Slide 25: Anticipated Financing Plans
Anticipated Financing Plans Fiscal 2021 – Fiscal 2025 Currently anticipate incremental long-term financing of $6.5 billion - $7.5 billion through fiscal 2025 Issuance of debt and equity securities to maintain a balanced capital structure with an equity-to-capitalization ratio in a target range o
Slide 26: Average Residential Bill Remains Affordable
Average Residential Bill Remains Affordable Average Monthly Customer Bill $68 $70 $60 2021E – 2025E $52 Assumptions $50 $48 Normal weather and consumption 7 issues, 3.00% - 6.75% $40 $11 - $12 billion of CAPEX spending $30 Average all-in gas $20 8.50% 1 cost of $4.50 to $5.50 per mcf $10 $0 As
Slide 27: Appendix
ATMOS Appendix
Slide 28: COVID-19 Key Financial Factors
COVID-19 Key Financial Factors 58% of distribution revenue1 is included in base charge >80% of APT revenues earned from LDC customers via Revenue demand charge 25% of APT through system revenue retained through Rider Rev Bad Debt Expense Regulatory asset treatment in 6 states2 Regulatory a
Slide 29: Regulatory Approaches to COVID-19
Regulatory Approaches to COVID-19 State Status Colorado Order received 9/3/20 Authorized deferral of incremental bad debt expense Order received 7/9/20 Authorized deferral of incremental bad debt expenses and foregone Kansas fee revenue that may arise from customer protections Kentucky Order receive
Slide 30: FY2021 Regulatory Accomplishments
FY2021 Regulatory Accomplishments Approved Annualized Key Rate Activity Operating Income Increases Through November 11, 2020 $millions $18.4MM Implemented $180 $ 10.6MM – Mississippi SIR $160 $ 5.9MM – Mississippi SRF $ 1.6MM – Kentucky PRP $140 $ 0.3MM – Virginia SAVE $120 $88.2MM Pendi
Slide 31: Key Regulatory Filings – Fiscal 2021E
Key Regulatory Filings – Fiscal 2021E Rate Filing Planned Timing Q1 Q2 Q3 Q4 October December January March April June July September Mid-Tex and WTX Cities – Mid-Tex (Dallas) – Anticipate Mid-Tex and WTX Cities – Mississippi – Anticipate Stable Completed Rate Review filing Dallas Annual Rate Review
Slide 32: Pipeline & Storage – Regulatory Update
Pipeline & Storage – Regulatory Update Atmos Pipeline - Texas Atmos Pipeline - Texas: Implemented 2019 GRIP on May 20, 2020 Authorized an annual operating income increase of $49.3 million Authorized ROE: 11.50%; ROR: 8.87% Authorized capital structure: 47% debt / 53% equity Authorized rate
Slide 33: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update Colorado - Kansas Division Kansas: Filed Gas Safety Reliability Surcharge filing (GSRS) on November 3, 2020 Requested an annual operating income increase of $1.7 million Requested ROE: 9.10%; ROR: 7.03% Requested capital structure: 44% debt / 56% e
Slide 34: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update Kentucky/Mid-States Division Kentucky PRP Rate Filing: Implemented annual Pipe Replacement Program (PRP) filing on October 1, 2020 Authorized an annual operating income increase of $1.6 million Authorized ROE of 9.65%; ROR of 7.49% Authorized capit
Slide 35: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update Louisiana Division Louisiana: Implemented Annual Rate Stabilization Clause (RSC) on July 1, 2020 Combined filing for Trans-La and LGS Authorized an increase in annual operating income of $14.8 million Authorized ROE of 9.80%; ROR of 7.57% Authori
Slide 36: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update Mid-Tex Division Mid-Tex Cities: 2019 Annual Rate Review Mechanism (RRM); Rates to be Implemented on December 1, 2020 Authorized an increase in annual operating income of $82.6 million Authorized ROE of 9.80%; ROR of 7.53% Authorized capital struct
Slide 37: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update Mid-Tex Division Mid-Tex Environs: Implemented 2019 GRIP on September 1, 2020 Authorized an increase in annual operating income of $4.4 million Authorized ROE of 9.80%; ROR of 7.97% Authorized capital structure of 40% debt / 60% equity Authorized
Slide 38: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update Mississippi Division Mississippi: Implemented Annual Stable Rate Filing (SRF) on November 1, 2020 Authorized an annual operating income increase of $5.9 million Authorized ROR: 7.81% Authorized rate base: $474.2 million Forward-looking components
Slide 39: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update West Texas Division West Texas ALDC: Filed 2020 Statement of Intent (SOI) on September 30, 2020 Requested an annual operating income increase of $8.4 million Requested ROE: 10.50%; ROR: 7.94% Requested capital structure: 41% debt / 59% equity Req
Slide 40: Distribution Operations – Regulatory Update
Distribution Operations – Regulatory Update West Texas Division West Texas ALDC: Implemented 2019 GRIP on September 1, 2020 Authorized an annual operating income increase of $5.9 million Authorized ROE: 10.50%; ROR: 8.57% Authorized capital structure: 48% debt / 52% equity Authorized rate
Slide 41: Regulatory Summary
Regulatory Summary Effective Date of Authorized Requested Authorized Requested Authorized Requested Authorized Requested Requested Date of Last Rate Operating Operating Rate Base Debt/ Meters Jurisdictions (1) Rate Base Rate of Rate of Return on Return on Debt/Equity Last Rate Filing Income Income $
Slide 42: Regulatory Summary (continued)
Regulatory Summary (continued) Effective Date of Authorized Requested Authorized Requested Authorized Requested Authorized Requested Requested Date of Last Rate Operating Operating Rate Base Debt/ Meters Jurisdictions (1) Rate Base Rate of Rate of Return on Return on Debt/Equity Last Rate Filing Inc
Slide 43: Forward Looking Statements
Forward Looking Statements The matters discussed or incorporated by reference in this presentation may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of