10-QPeriod: Q3 FY2020

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2020

Filed August 5, 2020For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported strong financial performance for the nine months ended June 30, 2020, with net income increasing to $536.1 million ($4.37 per diluted share) from $453.0 million ($3.88 per diluted share) in the prior year. Excluding a non-recurring $21.0 million income tax benefit from a Kansas tax law change, adjusted net income was $515.1 million ($4.20 per diluted share), up from $453.0 million ($3.88 per diluted share) in the prior year. This growth was primarily driven by positive rate outcomes and customer growth in the distribution segment, which contributed $375.7 million in net income for the period. The company also experienced a significant increase in capital expenditures to $1.4 billion, largely focused on improving safety and reliability of its infrastructure. The company maintained a solid financial position, with an equity capitalization of 58.8% and over $2.9 billion in total liquidity as of June 30, 2020. Management highlighted its ability to manage the impacts of COVID-19 while continuing essential services and maintaining a safe work environment. The company's capital spending program is supported by regulatory mechanisms that allow for timely recovery of investments, reducing regulatory lag. The board of directors also increased the quarterly dividend by 9.5% for fiscal year 2020, reflecting sustained financial performance and improved cash flows.

Financial Highlights

46 data points
Beta

Revenue

$493.00M

94.7% Gross Margin

Net Income

$117.79M

23.9% Net Margin

EPS (Diluted)

$0.96

Total Assets

$14.87B

Cash & Equivalents

$208.06M

Free Cash Flow

$261.71M

Financial Statements
Beta
Revenue$493.00M
Cost of Revenue$26.07M
Gross Profit$466.92M
Operating Income$139.03M
Interest Expense$19.58M
Net Income$117.79M
EPS (Basic)$0.96
EPS (Diluted)$0.96
Shares Outstanding (Basic)123.03M
Shares Outstanding (Diluted)123.03M

Key Highlights

  • 1Net income increased by 18.3% to $536.1 million for the nine months ended June 30, 2020, compared to $453.0 million for the same period in 2019.
  • 2Diluted earnings per share rose to $4.37 from $3.88 year-over-year for the nine-month period.
  • 3Adjusted net income (excluding a non-cash income tax benefit) increased to $515.1 million, demonstrating core operational strength.
  • 4Capital expenditures increased by 17% to $1.4 billion for the nine months ended June 30, 2020, primarily invested in safety and reliability of distribution and transportation systems.
  • 5The company maintained a strong equity capitalization of 58.8% and over $2.9 billion in total liquidity as of June 30, 2020.
  • 6The Board of Directors increased the quarterly dividend by 9.5% for fiscal year 2020.
  • 7Despite some revenue decline in the non-residential distribution segment due to COVID-19, overall operating income in the distribution segment increased due to favorable rate adjustments and cost management.

Frequently Asked Questions

The primary drivers for the increase in net income were positive rate outcomes and customer growth in the distribution segment, along with effective management of operating expenses. The company also benefited from a non-recurring income tax benefit of $21.0 million due to a change in Kansas tax law.

While Atmos Energy continues to operate as an essential business, COVID-19 led to a 12% decrease in non-residential revenue in the distribution segment and a halt in collection activities during the third quarter, impacting service order revenues. However, the company implemented cost-saving measures, including reductions in overtime, travel, and deferred pipeline maintenance, and obtained regulatory approval in several states to defer COVID-19 related expenses as a regulatory asset.

Atmos Energy is investing approximately $1.4 billion in capital expenditures for the nine months ended June 30, 2020, primarily focused on improving the safety and reliability of its infrastructure. The company utilizes regulatory mechanisms that allow for timely recovery of these investments, reducing regulatory lag and ensuring a reasonable return on investment.

As of June 30, 2020, Atmos Energy had over $2.9 billion in total liquidity. This is supported by internally generated cash flows, a $1.5 billion commercial paper program, approximately $2.2 billion in revolving credit facilities, and an at-the-market equity sales program. The company aims to maintain an equity-to-total-capitalization ratio between 50% and 60%.