10-QPeriod: Q3 FY2021

ATMOS ENERGY CORP Quarterly Report for Q3 Ended Jun 30, 2021

Filed August 4, 2021For Securities:ATO

Summary

Atmos Energy Corporation (ATO) reported its fiscal third-quarter results for the period ending June 30, 2021. The company demonstrated solid performance driven by its regulated natural gas distribution and pipeline segments. Operating revenues saw a significant increase, reflecting positive rate outcomes and customer growth, particularly in the distribution segment. This growth was partially offset by increased operating expenses, including bad debt expense related to pandemic-era collection policies and higher depreciation. A notable event impacting the company was Winter Storm Uri, which resulted in substantial unexpected natural gas costs. Atmos Energy secured significant debt financing to cover these costs and is actively working with regulatory bodies in Kansas and Texas to establish mechanisms for cost recovery, which is expected to be recorded as a regulatory asset. While the storm led to a downgrade in credit ratings, the company's liquidity remains strong, and it continues to execute its capital expenditure program focused on safety and reliability.

Financial Highlights

45 data points
Beta

Revenue

$605.55M

85.7% Gross Margin

Net Income

$102.41M

16.9% Net Margin

EPS (Diluted)

$0.78

Total Assets

$19.32B

Cash & Equivalents

$524.62M

Free Cash Flow

$243.78M

Financial Statements
Beta
Revenue$605.55M
Cost of Revenue$86.87M
Gross Profit$518.68M
Operating Income$133.39M
Interest Expense$20.96M
Net Income$102.41M
EPS (Basic)$0.78
EPS (Diluted)$0.78
Shares Outstanding (Basic)131.36M
Shares Outstanding (Diluted)131.49M

Key Highlights

  • 1Total operating revenues increased by 22.8% to $605.6 million for the three months ended June 30, 2021, compared to $493.0 million in the prior year period.
  • 2Net income for the three months ended June 30, 2021, was $102.4 million, a decrease of 12.9% from $117.8 million in the same period last year, with diluted EPS remaining at $0.78.
  • 3For the nine months ended June 30, 2021, net income increased by 15.1% to $616.8 million, or $4.77 per diluted share, compared to $536.1 million, or $4.37 per diluted share, in the prior year.
  • 4Capital expenditures for the nine months ended June 30, 2021, totaled $1.4 billion, with over 85% invested in improving safety and reliability of distribution and transportation systems.
  • 5Long-term debt increased significantly to $7.1 billion as of June 30, 2021, from $4.5 billion as of September 30, 2020, largely due to financing for Winter Storm Uri costs.
  • 6The company recorded a substantial $2.1 billion regulatory asset for incremental costs related to Winter Storm Uri in Kansas and Texas.
  • 7Shareholders' equity increased to $7.8 billion as of June 30, 2021, from $6.8 billion as of September 30, 2020, reflecting retained earnings and equity issuances.

Frequently Asked Questions

Winter Storm Uri caused unprecedented market pricing for natural gas, leading to approximately $2.3 billion in aggregated gas purchases. Atmos Energy has recorded a $2.1 billion regulatory asset for these incremental costs and secured $2.2 billion in debt financing to cover them. This event led to credit rating downgrades and negative outlooks from S&P and Moody's.

For the three months ended June 30, 2021, operating revenues increased by 22.8% to $605.6 million. However, net income decreased by 12.9% to $102.4 million, with diluted EPS remaining stable at $0.78. The decrease in net income was influenced by various factors including increased operating expenses and the impact of regulatory adjustments related to the tax benefit recognized in the prior year.

Atmos Energy is investing approximately $1.4 billion in capital expenditures for the nine months ended June 30, 2021, with over 85% dedicated to enhancing the safety and reliability of its distribution and transportation systems. The company is funding these investments through a combination of internally generated cash flows, long-term debt, and equity financing. They also maintain significant liquidity through commercial paper programs and revolving credit facilities.

The company is actively engaged in regulatory proceedings to recover costs and adjust rates. During the nine months ended June 30, 2021, they implemented proceedings resulting in a $139.6 million increase in annual operating income. Several rate case filings and formula rate mechanisms are in progress, seeking further increases in annual operating income to recover capital investments and ensure a fair rate of return.