10-QPeriod: Q2 FY2019

ATMOS ENERGY CORP Quarterly Report for Q2 Ended Mar 31, 2019

Filed May 7, 2019For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported solid financial results for the six months ended March 31, 2019, with an increase in adjusted net income of 14% compared to the prior year, reaching $327.4 million. This growth was driven by effective rate outcomes, customer expansion in its distribution segment, improved margins in the pipeline and storage segment, and the beneficial impact of the Tax Cuts and Jobs Act (TCJA) on its effective tax rate. The company continued its significant investment in infrastructure modernization, with capital expenditures totaling $777.6 million for the period, primarily focused on enhancing the safety and reliability of its distribution and transportation systems. Atmos Energy successfully managed its financing needs, completing approximately $2 billion in external financing through debt and equity issuances to fund its capital program and refinance existing debt. The company also announced an 8.2% increase in its quarterly dividend, reflecting its sustained financial performance and confidence in future cash flows.

Financial Highlights

45 data points
Beta

Revenue

$1.09B

56.9% Gross Margin

Net Income

$214.89M

19.6% Net Margin

EPS (Diluted)

$1.82

Total Assets

$12.67B

Cash & Equivalents

$108.35M

Free Cash Flow

$396.14M

Financial Statements
Beta
Revenue$1.09B
Cost of Revenue$471.68M
Gross Profit$622.97M
Operating Income$297.68M
Interest Expense$26.95M
Net Income$214.89M
EPS (Basic)$1.83
EPS (Diluted)$1.82
Shares Outstanding (Basic)117.58M
Shares Outstanding (Diluted)117.76M

Key Highlights

  • 1Adjusted net income increased by 14% to $327.4 million for the six months ended March 31, 2019, driven by positive rate outcomes, customer growth, and improved segment margins.
  • 2Capital expenditures increased 12% to $777.6 million for the six months ended March 31, 2019, with over 80% dedicated to improving safety and reliability of its infrastructure.
  • 3The company successfully raised approximately $2 billion in external financing through debt and equity offerings to support capital expenditures and refinance debt.
  • 4Atmos Energy repaid $450 million in senior notes that matured in March 2019 and managed its short-term debt effectively.
  • 5The distribution segment's Contribution Margin increased by $15.3 million and $19.3 million for the three and six-month periods ending March 31, 2019, respectively, benefiting from rate adjustments and customer growth.
  • 6The pipeline and storage segment's Contribution Margin saw increases of $15.2 million and $24.5 million for the three and six-month periods ending March 31, 2019, respectively, driven by rate adjustments and favorable market dynamics.
  • 7The company's Board of Directors increased the quarterly dividend by 8.2% for fiscal 2019, demonstrating confidence in its financial health and future prospects.

Frequently Asked Questions

The primary drivers of adjusted net income growth were positive rate outcomes from regulatory proceedings, customer growth in the distribution segment, improved contribution margins in the pipeline and storage segment due to wider spreads and favorable supply/demand dynamics, and the impact of the Tax Cuts and Jobs Act (TCJA) on the company's effective income tax rate.

Atmos Energy funded its capital expenditures primarily through internally generated cash flows and external financing. For the six months ended March 31, 2019, this included approximately $2 billion in long-term debt and equity financing, such as senior note issuances and common stock offerings, as well as forward sale agreements.

Atmos Energy is heavily investing in modernizing its natural gas distribution and transmission systems, with over 80% of recent capital spending focused on safety and reliability. The company utilizes regulatory mechanisms such as formula rate mechanisms and infrastructure programs that aim to reduce regulatory lag and allow for timely recovery of these investments through customer rates.

The TCJA resulted in a lower federal statutory income tax rate, which reduced Atmos Energy's effective tax rate and consequently lowered its income tax expense. While a non-cash income tax benefit was recognized in the prior year period due to the remeasurement of deferred taxes, the ongoing lower tax rate continues to positively impact the company's net income and adjusted net income.