Atmos Energy Corporation · NYSE:ATO

Atmos Energy — FY2019 Earnings Presentation

54 slides from Atmos Energy's earnings presentation, Nov 7, 2019

  1. Slide 1: Analyst Call to Review Fiscal 2019 Financial Results & Fiscal 2020-2024 Outlook

    Analyst Call to Review Fiscal 2019 Financial Results & Fiscal 2020-2024 Outlook November 7, 2019 10:00 a.m. Eastern

  2. Slide 2: Fiscal 2019 Review

    =TMOS energy. Fiscal 2019 Review

  3. Slide 3: Fiscal 2019 Highlights

    Fiscal 2019 Highlights  Financial Performance  Diluted EPS of $4.35; 17th consecutive year of EPS growth  15% increase in capital spending to $1.7 billion; 87% allocated to safety and reliability spending  Initiated Fiscal 2020 EPS guidance range of $4.58 - $4.73  9.5% increase in fiscal 2020 i

  4. Slide 4: Consolidated Financial Results Fiscal 2019

    Consolidated Financial Results Fiscal 2019 Adjusted Net Income Increased 15% Year-over-Year Fiscal 2019 Fiscal 2018 ($millions, except EPS) Net Diluted Net Diluted Income EPS 2 Income EPS 2 Segment Net Income Distribution $ 329 $ 443 Pipeline & Storage 182 160 Net Income $ 511 $4.35 $ 603 $5.43 Adop

  5. Slide 5: Consolidated Financial Results Fiscal 2019 – Q4

    Consolidated Financial Results Fiscal 2019 – Q4 Net Income – Q4 Fiscal 2019 versus Q4 Fiscal 2018 Fiscal 2019 – Q4 Fiscal 2018 – Q4 ($millions, except EPS) Net Diluted Net Diluted Income EPS 2 Income EPS 2 Segment Net Income Distribution $ 10 $ 13 Pipeline & Storage 48 26 Net Income $ 58 $0.49 $ 39

  6. Slide 6: Distribution Segment Financial Results

    Distribution Segment Financial Results Key Drivers Year Ended 9/30 2019 2018 Change ($millions)  Contribution Margin increase:  $33.0MM – Increase in rates Contribution Margin $ 1,476.9 $ 1,443.2 $ 33.7  $12.8MM – Customer growth  ($2.3MM) – Lower consumption Operating Expenses  O&M increase: O

  7. Slide 7: Pipeline & Storage Segment Financial Results

    Pipeline & Storage Segment Financial Results Key Drivers Year Ended 9/30 2019 2018 Change ($millions)  Contribution Margin increase:  $46.5MM – Rate increases Contribution Margin $ 567.4 $ 505.7 $ 61.7  $12.2MM – Thru-system activities Operating Expenses  O&M increase: Operation & Maintenance 15

  8. Slide 8: Capital Spending Mix

    Capital Spending Mix Safety & Reliability Investments Support Infrastructure Modernization $millions Fiscal 2019 CapEx $ 769 Repair and replace transmission and distribution pipelines 3% $ 217 Service line replacement 10% $ 133 Fortifications 87% $ 128 Install & replace measurement & regulating equi

  9. Slide 9: Fiscal 2019 Financing Recap

    Fiscal 2019 Financing Recap  $2.2 billion of financing executed through September 30, 2019  $1.1 billion of debt issuances  $600 million 4.3% senior notes issued October 2018 to repay short-term debt  $450 million 4.125% senior notes issued March 2019 to refinance $450 million 8.5% notes  $1.2

  10. Slide 10: Strong Financial Foundation: Capitalization and Liquidity Profile

    Strong Financial Foundation Capitalization and Liquidity Profile Total Capitalization Liquidity Profile as of September 30, 2019 100% $2,400 ~ $1.6 billion 5% 7% Available $2,000 $463.4 Liquidity at 36% 9/30/2019 75% 36% $24.6 7 issues, 3.00% - 6.75% $1,600 $35.0 $1,200 50% $800 $1,500.0 59% $5.6 25

  11. Slide 11: Strong Financial Foundation: Weighted Average Maturity

    Strong Financial Foundation Weighted Average Maturity ~22 Years $950(1) $1,000 3.73% $750 $800 4.125% $600 4.30% $600 $500 $500 ($ millions) 3.0% 4.15% $300(1) $400 2.625% 5.5% $400 $150 6.75% $200 5.95% $200 $10 6.67% $0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 203

  12. Slide 12: Fiscal 2020 – 2024 Financial Outlook

    Fiscal 2020 – 2024 Financial Outlook 12

  13. Slide 13: Safety Driven, Organic Growth Strategy

    Safety Driven, Organic Growth Strategy Constructive Regulatory Mechanisms Support Efficient Conversion of Safety and Reliability Investments into Financial Results ~ $10 - $11 billion in capital Constructive rate mechanisms 6% - 8% Consolidated EPS growth investment through 2024 that reduce regulato

  14. Slide 14: Fiscal 2020E Guidance

    Fiscal 2020E Guidance ($millions, except EPS) FY 2019 FY 2020E2 Distribution $ 329 $ 385 - 400 Pipeline & Storage 182 175 - 190 Total Net Income $ 511 $ 560 - 590 Average Diluted Shares 117.5 122.3 - 124.7 Diluted EPS1 $ 4.35 $ 4.58 - $ 4.73 Capital Spending $ 1,693 $ $1,850 - $1,950 1 Since Atmos E

  15. Slide 15: Fiscal 2020E Guidance: Selected Expenses

    Fiscal 2020E Guidance Selected Expenses FY 2019 FY 2020E1 ($millions) O&M $ 630 $ 620 - 650 D&A $ 391 $ 425 - 435 Interest $ 103 $ 75 - 85 Income Tax $ 139 $ 145 - 160 Effective Tax Rate 21.4% 20% - 22%2 1 Changes in events or other circumstances that the Company cannot currently anticipate could ma

  16. Slide 16: Sustainable Financial Performance

    Sustainable Financial Performance Execution Drives Annual 6% - 8% EPS & Dividend Growth Key Assumptions $7.00  FY 20-24 capital spending rising $5.90 - $6.30 7%-8% annually for a total of $10 - $11 billion $6.00 $4.58 - $4.73  O&M expense inflation rate of $5.00 $4.35 2.5% - 3.5% annually 7 issues

  17. Slide 17: System Modernization Driving Capital Spending

    System Modernization Driving Capital Spending Consolidated 2020E Capital Expenditures of $1.85 billion - $1.95 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 6, 201

  18. Slide 18: Capital Spending Drives Rate Base Growth

    Capital Spending Drives Rate Base Growth Focused on enhancing system safety and reliability $ millions $17.0B - $18.0B $18,000 $16,000 $14,000 $12,000 $9.2B $10,000 7 issues, 3.00% - 6.75% $8,000 $6,000 $4.1B $4,000 8.50% 1 $2,000 $0 Distribution Pipeline * Estimated rate base at the end of each fis

  19. Slide 19: Constructive Rate Outcomes Support Continued Investment

    Constructive Rate Outcomes Support Continued Investment Annualized Increases From Implemented Rate Activity $ millions $200  Customers and investors benefit from fair and $160-$180 reasonable regulation  Earning on ~90% of annual $150 CAPEX within 6 months of $123 $117 test year end $104 7 issues,

  20. Slide 20: Sustainable and Growing Dividend

    Sustainable and Growing Dividend 36 Consecutive Years of Dividend Increases  Dividend increased 8.2% for Fiscal 2019  The indicated annual dividend rate for Fiscal 2020 is $2.30  Long-term targeted payout ratio of 50% $2.50 $2.30E $2.00 7 issues, 3.00% - 6.75% $1.50 $1.00 $0.50 8.50% 1 $0.00 '84

  21. Slide 21: Anticipated Financing Plans Fiscal 2020 – Fiscal 2024

    Anticipated Financing Plans Fiscal 2020 – Fiscal 2024  Currently anticipate incremental long-term financing of $5.5 billion - $6.5 billion through fiscal 2024  Issuance of debt and equity securities to maintain a balanced capital structure with an equity-to-capitalization ratio in a target range o

  22. Slide 22: Average Residential Bill

    Average Residential Bill Average Customer Bill Remains Affordable $70 $65 $62 $60 2020E – 2024E $49 Assumptions $50  Normal weather and consumption 7 issues, 3.00% - 6.75% $40  $10 - $11 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 of Nove

  23. Slide 23: Monthly Household Bills

    Monthly Household Bills Natural Gas Bills Lowest Among Residential Utilities Sources: • Natural Gas $50. F2019 Atmos Energy enterprise-wide average monthly residential bill • Water $116. Circle of Blue (www.circleofblue.org); 2019 average monthly residential bill of 30 major U.S. cities-does not inc

  24. Slide 24: Concluding Remarks

    TMOS energy: Concluding Remarks

  25. Slide 25: Leading Natural Gas Delivery Platform

    Leading Natural Gas Delivery Platform Eight-state distribution territory Business Mix Intrastate pipeline system Distribution ~64% Regulated distribution 68% Regulated Pipeline & pipeline Storage 29% ~36% 2019 Net Income Favorably positioned pipeline spans Diversified LDC platform in 8 states Texas

  26. Slide 26: Fiscal 2019 Highlights

    Fiscal 2019 Highlights  Established Corporate Responsibility & Sustainability Board Committee Governance  Adopted Pipeline Safety Management System  Seamless CEO transition  Replaced 770 miles distribution & 120 miles transmission pipe; 53,000 service lines Environment  Reduced methane emission

  27. Slide 27: Next Five Years - Safe System Even Safer

    Next Five Years - Safe System Even Safer  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 2021 200  428 miles remaining 0 2013 2014 2015 2016 2017 2018 2019 20E-24E

  28. Slide 28: Appendix

    ATMOS Appendix

  29. Slide 29: Distribution System

    Distribution System Miles of Pipe by Decade of Installation Unknown  ~ 70,000 Miles of Distribution 2,174 Main Pre-40's 7,242 40's 10,560  ~1,000 Miles of Transmission Main 50's 8,187 1,517  ~ 37% Installed Pre-1970 60's 5,560  Comprehensive Pipe 70's 10,279 Replacement Program Risk 80's 5,872 A

  30. Slide 30: Atmos Pipeline Texas Transmission System

    Atmos Pipeline Texas Transmission System APT Miles by Decade of Installation Pre-40's  ~ 5,700 Miles of Total 183 Transmission System 40's 942 473 50's  44% Installed Pre-1970 60's 698  Comprehensive Pipe 362 Replacement Program Risk 70's Assessment Factors Include: 80's 651  Population density

  31. Slide 31: Distribution Investment Outlook

    Distribution Investment Outlook  Anticipated CAPEX spend of ~$8 billion over 5 years  More than 80% of CAPEX is focused on safety and reliability  System safety  Enhance capacities  Service reliability  ~90% of capex earns within 6 months  ~8% annual growth rate  Key anticipated targets by 2

  32. Slide 32: Core Strategy - Infrastructure Modernization

    Core Strategy - Infrastructure Modernization  Safety & Reliability Continue to Drive Capital Investment Investment $10 $ Billions  >80% focused on system modernization $8 $10-$11  Continued focus on industry identified $5 materials $3 $6.4  Known cast iron eliminated by 2021 $0  Regulated stora

  33. Slide 33: Risk-Based Replacements - Distribution

    Risk-Based Replacements - Distribution Inventory of Pre-1970 Materials 35,000 30,800 30,000 25,700 25,000 Inventory Miles 20,000 23,500 20,000 15,000 10,000 5,000 7,300 5,700 0 2012 2018 Industry Identified Other Risk-Based Materials – Bare Steel, Materials Cast Iron, Vintage Plastics Source: 2018 D

  34. Slide 34: Focused Steel Service Lines Replacement

    Focused Steel Service Lines Replacement Replacing ~ 40,000 – 60,000 Steel Service Lines Annually Inventory of Steel Service Lines  New service lines use state of 1,167 1,200 the art material, construction and joining practices 1,000 835  Service lines are in close proximity to customer residence T

  35. Slide 35: Atmos Pipeline-Texas Investment Outlook

    Atmos Pipeline-Texas Investment Outlook  Anticipated CAPEX spend of ~$3 billion over five years  All CAPEX is focused on serving APT’s regulated customers  System modernization and versatility  Integrity management  Supply flexibility  Market growth  8% annual growth rate  All CAPEX is GRIP

  36. Slide 36: APT Major Capital Projects 2015-2025

    APT Major Capital Projects 2015-2025 2015-2025 APT Integrity, Fortification 9 W (LOOP) 10 & Growth Projects STORA 6 5 GE WORSHAM- WELLS WD 8 STEED HUB LAPAN PH. STORAGE STORAGE 1 1 WELLS DELIVERY 0 LAKE 3 DALLAS 7 W Abilene X 2 1 2 LINE X PHASES 1 & 2 STORAGE LINE S2 ALL 10 WELLS PHASES TRI-CITIES L

  37. Slide 37: Bethel Cavern Storage Projects

    Bethel Cavern Storage Projects Investment in Safety, Growth & Reliability Bethel Salt Caverns  Development of a third cavern at Bethel provides storage capacity to meet projected growth.  Third cavern is designed to add 5-6 Bcf of working gas capacity and 2bcfd withdrawal. In service late 2022. 

  38. Slide 38: Pipeline Integrity Management

    Atmos Pipeline - Texas Pipeline Integrity Management Approximate Percentage of APT Transmission Pipe Capable of In-Line Inspection 100% ~780 90% ILI Miles 99% 872 Upgraded 80% ILI 82% 75% Miles 70% Upgraded 60% 65% 61% 50% 50% 40% 30% 20% 10% 0% 2012 2019 2024E 36-inch Magnetic Flux Axial Flaw Detec

  39. Slide 39: FY2020 YTD Regulatory Accomplishments

    FY2020 YTD Regulatory Accomplishments Approved Annualized Key Rate Activity Operating Income Increases Through 11/6/2019  $56.8MM Completed– FY20 $millions $ 34.4MM – Mid-Tex RRMs $120 $ 7.6MM – Mississippi SIR $ 6.9MM – Mississippi SRF $ 4.9MM – West TX RRM $100 $ 2.9MM – Kentucky PRP $ 0.1M

  40. Slide 40: Aligned Regulatory Strategy Focused on Safety

    Aligned Regulatory Strategy Focused on Safety ~ 90% of Annual CAPEX Begins to Earn Within Six Months Regulatory Mechanism Recovery Method Service Territory Detail CapEx Rate Base Deferral/ Rate Base Infrastructure General Meters 2020E Jurisdiction Forward- Annual Filing % of Program Case (000s) ($MM

  41. Slide 41: Key Regulatory Filings – Fiscal 2020E

    Key Regulatory Filings – Fiscal 2020E Rate Filing Planned Timing Q1 Q2 Q3 Q4 October December January March April June July September Mississippi – Implemented Stable Atmos Pipeline Texas (APT) – Louisiana –Anticipate LGS Mississippi –Anticipate Stable Rate Filing (SRF) and System Anticipate filing

  42. Slide 42: Regulatory Update Mid-Tex Division

    Distribution Operations – Regulatory Update Mid-Tex Division  Mid-Tex ATM Cities: Implemented 2018 GRIP on September 26, 2019  Authorized an annual operating income increase of $6.6 million  Authorized ROE: 9.80%; ROR: 7.97%  Authorized capital structure: 40% debt / 60% equity  Authorized rate

  43. Slide 43: Regulatory Update Mid-Tex Division

    Distribution Operations – Regulatory Update Mid-Tex Division  Mid-Tex ATM Cities: Implemented Statement of Intent (SOI) on June 1, 2019  Authorized an increase in annual operating income of $2.1 million  Authorized ROE: 9.8%; ROR of 7.97%  Authorized capital structure: 40% debt / 60% equity  Au

  44. Slide 44: Regulatory Update West Texas Division

    Distribution Operations – Regulatory Update West Texas Division  West Texas Environs: Implemented 2018 GRIP on June 4, 2019  Authorized an annual operating income increase of $1.0 million  Authorized ROE: 9.8%; ROR: 7.97%  Authorized capital structure: 40% debt / 60% equity  Authorized rate bas

  45. Slide 45: Regulatory Update West Texas Division

    Distribution Operations – Regulatory Update West Texas Division  West Texas Environs: Implemented 2018 SOI on January 1, 2019  Authorized $0.8 million decrease in operating income  Authorized ROE: 9.8%; ROR: 7.97%  Authorized capital structure: 40% debt / 60% equity  Authorized system-wide rate

  46. Slide 46: Regulatory Update Louisiana Division

    Distribution Operations – Regulatory Update Louisiana Division  LGS: Implemented Annual RSC on July 1, 2019  Authorized $7.1 million increase in annual operating income  Authorized ROE: 9.8%; ROR: 7.79%  Authorized capital structure: 42% debt / 58% equity  Authorized rate base of $469.0 million

  47. Slide 47: Regulatory Update Mississippi Division

    Distribution Operations – Regulatory Update Mississippi Division  Mississippi: Implemented Annual System Integrity Rider (SIR) on November 1, 2019  Authorized an annual operating income increase of $7.6 million  Authorized ROR: 7.81%  Authorized rate base: $185.8 million  Serves approximately 2

  48. Slide 48: Regulatory Update Kentucky/Mid-States Division

    Distribution Operations – Regulatory Update Kentucky/Mid-States Division  Kentucky PRP Rate Filing: Implemented annual Pipe Replacement Program (PRP) filing on October 1, 2019  Authorized an annual operating income increase of $2.9 million  Authorized ROE of 9.65%; ROR of 7.49%  Authorized capit

  49. Slide 49: Regulatory Update Kentucky/Mid-States Division

    Distribution Operations – Regulatory Update Kentucky/Mid-States Division  Virginia Rate Filing: Implemented New SAVE Infrastructure Program on October 1, 2019  Authorized an annual operating income increase of $0.1 million  Authorized ROE: 9.20%; ROR: 7.43%  Authorized capital structure: 42% deb

  50. Slide 50: Regulatory Update Colorado - Kansas Division

    Distribution Operations – Regulatory Update Colorado - Kansas Division  Colorado: Filed System Safety and Integrity Rider (SSIR) on November 1, 2019  Requested a $2.1 million increase in annual operating income  Requested ROE: 9.45%; ROR: 7.55%  Requested capital structure: 44% debt / 56% equity

  51. Slide 51: Pipeline & Storage Regulatory Update Atmos Pipeline - Texas

    Pipeline & Storage – Regulatory Update Atmos Pipeline - Texas  Atmos Pipeline - Texas: Implemented 2018 GRIP on May 7, 2019  Authorized an annual operating income increase of $49.2 million  Authorized ROE: 11.50%; ROR: 8.87%  Authorized capital structure: 47.4% debt / 52.6% equity  Authorized r

  52. Slide 52: Regulatory Summary

    Regulatory Summary Effective Date of Authorized Requested Date of Last Rate Operating Operating Rate Base Requested Authorized Requested Authorized Requested Authorized Requested Last Rate Filing Income Income $ millions Rate Base Rate of Rate of Return on Return on Debt/ Debt/ Meters at Jurisdictio

  53. Slide 53: Regulatory Summary (continued)

    Regulatory Summary (continued) Date of Authorized Requested Effective Last Rate Operating Operating Rate Base Requested Authorized Requested Authorized Requested Authorized Requested Date of Last Filing Income Income $ millions Rate Base Rate of Rate of Return on Return on Debt/ Debt/ Meters at Juri

  54. Slide 54: 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

Atmos Energy — FY2019 Earnings Presentation on 6ix