10-QPeriod: Q1 FY2019

ATMOS ENERGY CORP Quarterly Report for Q1 Ended Dec 31, 2018

Filed February 5, 2019For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported its financial results for the quarter ended December 31, 2018. While total operating revenues slightly decreased year-over-year, the company's adjusted net income showed a modest increase, driven by factors such as colder weather, positive rate outcomes in the pipeline segment, and the impact of the Tax Cuts and Jobs Act (TCJA) on its effective income tax rate. The company continued to invest heavily in its infrastructure, with capital expenditures increasing by 9% to support safety and reliability initiatives across its distribution and transportation systems. Financially, the company strengthened its balance sheet through significant external financing, including both debt and equity issuances, which were used to repay short-term debt and fund capital spending. Management highlighted a commitment to superior shareholder value, evidenced by an 8.2% increase in the quarterly dividend for fiscal year 2019. Despite the planned capital expenditures and ongoing regulatory proceedings, Atmos Energy maintained compliance with its debt covenants and saw its credit outlook improve to positive by Moody's.

Financial Highlights

44 data points
Beta

Revenue

$877.78M

61.0% Gross Margin

Net Income

$157.65M

18.0% Net Margin

EPS (Diluted)

$1.38

Total Assets

$12.62B

Cash & Equivalents

$218.20M

Free Cash Flow

$164.68M

Financial Statements
Beta
Revenue$877.78M
Cost of Revenue$342.17M
Gross Profit$535.62M
Operating Income$236.46M
Interest Expense$27.85M
Net Income$157.65M
EPS (Basic)$1.38
EPS (Diluted)$1.38
Shares Outstanding (Basic)113.80M
Shares Outstanding (Diluted)113.83M

Key Highlights

  • 1Adjusted net income increased by 4% to $157.6 million, or $1.38 per diluted share, compared to $152.2 million, or $1.40 per diluted share in the prior year period (after adjusting for the TCJA benefit in the prior year).
  • 2Capital expenditures increased by 9% to $416.4 million, with over 80% allocated to enhancing the safety and reliability of distribution and transportation systems.
  • 3The company raised approximately $1.35 billion in external financing, comprising $600 million in senior notes and approximately $750 million in common stock, to support its capital program and repay short-term debt.
  • 4The quarterly dividend was increased by 8.2% for fiscal 2019, signaling confidence in sustained financial performance and improved cash flows.
  • 5Moody's improved Atmos Energy's outlook from stable to positive, citing regulatory construct improvements and balanced fiscal policy, while S&P maintained a stable outlook.
  • 6The company successfully navigated multiple regulatory proceedings, implementing five regulatory actions that resulted in a $22.4 million increase in annual operating income.

Frequently Asked Questions

Net income for the three months ended December 31, 2018 was $157.6 million, or $1.38 per diluted share, a decrease from $314.1 million, or $2.89 per diluted share, in the same period of 2017. However, when adjusting for a one-time non-cash income tax benefit related to the Tax Cuts and Jobs Act (TCJA) in the prior year, adjusted net income increased by 4% to $157.6 million ($1.38 per diluted share) in the current period compared to $152.2 million ($1.40 per diluted share) in the prior year period. The decrease in reported net income was primarily due to the absence of the significant one-time tax benefit recognized in the prior year.

Atmos Energy continued to prioritize investments in safety and reliability, with capital expenditures increasing by 9% to $416.4 million for the quarter. Over 80% of this spending was directed towards improving its distribution and transportation systems. The company funded these expenditures through a combination of internally generated cash flows ($164.7 million from operations) and significant external financing, including $600 million in senior notes and approximately $750 million from common stock issuances. These funds were also used to repay short-term debt.

The TCJA, enacted in December 2017, led to a reduction in the federal statutory income tax rate from 35% to 21%. In the prior year's comparable quarter, Atmos Energy recognized a significant non-cash income tax benefit of $161.9 million related to the remeasurement of deferred taxes. For the current quarter, the lower tax rate positively impacted adjusted net income by reducing the effective income tax rate. The company is actively working with regulators across its jurisdictions to incorporate the TCJA's effects into customer rates, with approvals received in several areas to return excess deferred taxes to customers.

Atmos Energy's Board of Directors approved an 8.2% increase in the quarterly dividend for fiscal year 2019, reflecting confidence in the company's sustained financial performance and improved cash flows. The company's credit profile also strengthened, with Moody's improving its outlook to positive from stable, citing regulatory improvements and fiscal policy, while Standard & Poor's maintained a stable outlook. These factors are crucial for managing borrowing costs and ensuring access to capital markets.