10-QPeriod: Q1 FY2018

ATMOS ENERGY CORP Quarterly Report for Q1 Ended Dec 31, 2017

Filed February 6, 2018For Securities:ATO

Summary

Atmos Energy Corporation's (ATO) fiscal Q2 2018 filing for the period ending December 31, 2017, demonstrates robust financial performance, driven by strong growth in its distribution and pipeline segments. The company reported a significant increase in net income and earnings per share, largely attributable to positive rate outcomes and the beneficial impact of the Tax Cuts and Jobs Act of 2017 (TCJA). Capital expenditures remain a key focus, with substantial investments directed towards modernizing and enhancing the safety and reliability of its infrastructure, funded through a combination of operating cash flows and equity issuances. The company's strategic capital investments are supported by regulatory mechanisms designed to reduce lag time in cost recovery, ensuring timely returns on invested capital. The TCJA's reduction in the federal corporate tax rate has provided a one-time non-cash tax benefit and will ultimately lead to rate adjustments for customers, managed through regulatory liabilities. Atmos Energy is actively working with regulators to implement these changes and maintain its desired capital structure, aiming for an equity-to-capitalization ratio between 50% and 60%.

Financial Highlights

42 data points
Beta

Revenue

$889.19M

Net Income

$314.13M

35.3% Net Margin

EPS (Diluted)

$2.89

Total Assets

$11.26B

Cash & Equivalents

$54.75M

Free Cash Flow

$173.24M

Financial Statements
Beta
Revenue$889.19M
Operating Income$242.08M
Interest Expense$31.51M
Net Income$314.13M
EPS (Basic)$2.89
EPS (Diluted)$2.89
Shares Outstanding (Basic)108.56M
Shares Outstanding (Diluted)108.56M

Key Highlights

  • 1Net income for the quarter surged to $314.1 million, a substantial increase from $125.0 million in the prior year period, reflecting strong operational performance and favorable tax impacts.
  • 2Earnings per share (EPS) from continuing operations rose to $2.89, compared to $1.08 in the prior year, demonstrating improved profitability on a per-share basis.
  • 3Total operating revenues increased to $889.2 million, up from $780.2 million year-over-year, primarily driven by growth in the distribution and pipeline segments.
  • 4Capital expenditures for the three months ended December 31, 2017, totaled $383.2 million, with 82% allocated to improving system safety and reliability.
  • 5The company reported a one-time, non-cash income tax benefit of $161.9 million related to the Tax Cuts and Jobs Act of 2017 (TCJA), significantly boosting net income for the period.
  • 6Shareholders' equity increased to $4.56 billion, up from $3.90 billion in the prior fiscal year-end, indicating a strengthening balance sheet.
  • 7The company successfully completed six regulatory proceedings, resulting in a $17.1 million increase in annual operating income, and had further proceedings underway.

Frequently Asked Questions

The significant increase in net income to $314.1 million was primarily driven by a combination of strong operational performance in the distribution and pipeline segments, leading to higher operating income, and a substantial one-time, non-cash income tax benefit of $161.9 million resulting from the Tax Cuts and Jobs Act of 2017 (TCJA). Favorable rate outcomes from regulatory proceedings also contributed positively.

Atmos Energy is funding its capital expenditure program, which was $383.2 million for the quarter and is expected to range between $1.3 billion and $1.4 billion for fiscal 2018, through a combination of internally generated cash flows and external financing. In this quarter, operating cash flows provided $173.2 million, and the company also issued $400 million of common stock, with net proceeds used to repay short-term debt, fund capital spending, and for general corporate purposes.

The TCJA reduced the federal statutory income tax rate from 35% to 21%. For Atmos Energy, this resulted in a remeasurement of its deferred tax liabilities, leading to a $161.9 million one-time, non-cash income tax benefit recognized in the current period. A significant portion of the tax savings ($746.2 million) has been recorded as a regulatory liability to be returned to utility customers through rate adjustments. The company is working with regulators to implement these rate changes, which will affect future revenues.

Atmos Energy aims to maintain an equity-to-capitalization ratio between 50% and 60%. As of December 31, 2017, its total-debt-to-total-capitalization ratio was 44%. The company utilizes a mix of long-term debt, a commercial paper program, and revolving credit facilities for its financing needs. The equity issuance in the quarter was used to reduce short-term debt and support capital spending, helping to maintain a balanced capital structure and support its credit ratings.