Greetings, and welcome to Atmos Energy First Quarter 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Hills, Vice President, Investor Relations.

Thank you, and good morning, everyone, and thank you for joining us for. This call is being webcast live on the internet. Our earnings release and conference call slide presentation are available on our website at atmosenergy.com. As we review these financial results and discuss future expectations, please keep in mind that some of our discussions might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 21 and are more fully described in our SEC filings. Our first speaker is Chris Forsythe, Senior Vice President and CFO at Atmos Energy. Chris?

Thank you, Jennifer, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported fiscal 2019 first quarter earnings of $158 million, a $1.38 per diluted share, compared with adjusted earnings of $152 million or $1.40 per diluted share in the prior-year quarter. Fiscal 2018 adjusted earnings and diluted earnings per share, excluding $152 million, a $1.49 per diluted share benefit as a result of implementing tax reform last year. Also, yesterday, the board of directors approved the 141st consecutive quarterly cash dividend of $0.525, which represents an indicated annual dividend of $2.10 per share for fiscal 2019, an 8.3% increase over fiscal 2018. Slides 4 and 5 provided details of the quarter-over-quarter changes to operating income for our distribution and pipeline storage segments. I'll touch on a few of the highlights. Contribution margin in our distribution segment grows a net 1% or about $4 million, strong consumption driven by colder weather in October and November when most of weather normalization mechanisms were not yet in effect, contributing an incremental $7.7 million. Weather was 20% colder quarter-over-quarter with most of our service areas experiencing colder-than-normal conditions. Solid customer growth continued, primarily in our Mid-Tex Division, although in the last 12 months, our distribution segment added a net 36,000 customers, which represents a 1.1% net customer growth. This growth contributed an incremental $3.7 million of contribution margin. The implementation of tax reform into customer bills more than offset rate increases that were implemented in the prior fiscal year and the first quarter, resulting in net $7.3 million decrease in customer rates. However, this had no material impact to the segment's net income as a result of the corresponding reduction in our effective income tax rate. Operating expenses rose 3.5%. Higher employee-related costs, depreciation and ad valorem tax expenses…

Well, thank you, Chris, for the update on the quarter. And it was a very good quarter, and thank you, for those of you, who are joining us this morning. As you can see from our fiscal first quarter results, we're off to a very good start to the year. We remain on track to meet our investor -- investment spending goals and our earnings growth targets. The 8.7% increase in capital spending during the first quarter demonstrates our team's consistent, predictable execution of our safety investment strategy. In order to sustain this strategy for the long term, which includes increasing our capital spending from $9 billion, over the past 10 years, to go in $9 billion to $10 billion over the next 5 years, our team is constantly looking for ways to improve. In the first quarter, we began rolling out new advanced asset data collection technology to field employees and contractors. During construction, crews will collect GPS locations, material, construction methods, operator qualification data for newly constructed pipeline. This will transform the process of asset data collection, data verification, project closings and the transfer of that key data to back-end systems that are used to support operations, maintenance, damage prevention, integrity management and our compliance programs. With thousands of capital projects completed each year, innovations like this that lie at the intersection of emerging technology, business process change and most importantly, our employees, are certainly game changers on our safety journey. This rollout will continue through this year 2019 and also through 2020. This transformational technology is the one example of the many initiatives underway inside the company to scale our capabilities, capture efficiencies and enable our very talented employees to do what they do best, which is investing in safety and serving our customers and members of…

[Operator Instructions]. Our first question is from Christopher Turnure with JP Morgan.

It was helpful that you quantify the impact of wider basis spreads at APT on the quarter. Certainly, good to see that number. It's difficult to do, but could you maybe take a crack at talking about how sustainable that might be throughout 2019 and maybe into 2020?

Chris, good morning, by the way, and thanks for being on and for your question. As we've said in the past, it's difficult to predict really beyond the current quarter. We do know that there is additional pipeline capacity expected to come on into service at the end of calendar year. And so we would expect that, that would normalize pricing a little bit. And as you know and a lot of our transport opportunities are opportunistic, as we serve primarily our firm supply customers, which would be the LDCs in our -- on system industrials. And as we get into the summer months, as we saw in the last -- or summer -- last summer, we do an awful lot of maintenance on the pipeline when we're in the off-peak season. So we're not going to get into the prediction for the rest of the year. We're happy we gotten off to a good start and had this opportunity. And again, as you know and others know, that three quarters of any benefits beyond the Rider REV benchmark flow back to our care of customers, which is -- creates yet another opportunity to keep customers' bills low.

Okay. So at least for the first quarter, fair to say, that you're running a little bit ahead of maybe the plan that you had introduced back in November?

Yes.

Yes.

Okay. And then switching gears. I believe, legislation was introduced or at least was being discussed in Texas, to increase oversight of the Railroad Commission. Could you give us any thoughts you have on that, maybe probability of success there, what that might entail or any other legislation that you're keeping your eyes on this session?

Yes. Chris, there is -- each legislative session, there is legislation that is advanced. And we engage with those legislators, as we are here in Texas. I think, in Texas, this time, it's gotten a little more publicity. But, I mean, the starting point is we all share the same objective, which is pipeline safety and also further acceleration or acceleration of our infrastructure modernization and aging infrastructure replacement. So we don't -- we expect -- we're in discussions right now, trying to find good solutions that are supportive of our strategy and also meet the interest of all other parties. But, again, the general theme is focused on accelerated replacement of infrastructure, which we have been doing and certainly continue to. And then also more visibility and transparency around leak, as leaks appear and mapping of those leaks in Texas, as you may know, we refile every 6 months a leak report with the Railroad Commission and it provides an awful lot of that information. But I think the net of it is, it's very early in the session right now. And, I mean, we're pretty confident at this point in time that things will progress under normal pace and not have any significant impact to it.

Our next question is from Charles Fishman with Morningstar Incorporated.

Two questions. First, and it's probably my misunderstanding. I thought, in the Dallas settlement, you had agreed to a 50% equity cap. And yet I notice on Slide 12, you're requesting the 60%. Is that just -- was that just for that 1 settlement last year? Or I guess, my understanding was that what you were going to use going forward, but, obviously, that's not the case. Can you talk about that?

Sure, Charles. This is Chris. Yes. When we reached at the settlement with the City of Dallas last February, we agreed to reduce our ROE down to 9.8% and increase the equity cap up to 58%. So that's where we are. We also had a similar cap with our Mid-Tex and West Texas RRM mechanisms in Texas that we established about a year ago at this time. So at this point -- and we do have a 15% of our customers, as I mentioned, where we have a stated intent in progress, they're currently at 10.5% and 55% ROE. We are currently preparing to go to Austin, in the first step part of March to have that case heard out at this point. But -- and settlement discussions are still ongoing. But the lion share of the state, as we've said, at 98 -- 9.8% equity -- or ROE and 58% equity cap.

Okay. But maybe I'm still misunderstanding this. On Slide 12, if I look at the first two filings, one, the filings ones you intent to file. You show an authorized capital structure on the third bullet point on each one of 60% equity. So how does -- why is that 60%? And then it was 58% before.

Right. Yes. The requested capital structure is -- under the law, we had to file based on where we ended the test year-end. So we ended it right at 59.7% with all the financing activities that we had in the quarter. So that will just be a point of discussion when we go through the process. And we're actually beginning to close the discovery process right now.

So it sounds like the 58% is not really a hard cap, it's subject to discussion at each round?

Generally, we try to hear the terms, but given where we were at the end of -- at the test year-end, we had to file based on where our equity capitalization was. And remember, City of Dallas is on a 13-month average as well. So it looks a little bit different vis-à-vis at the test year-end of September 30. So -- and we will get it worked out and the negotiations.

Okay. Second question, I noticed on the queue that regulatory excess deferred taxes, let's say, they were $740 million at the end of your '18 fiscal year. They are now at about $718 million, so a $22 million drop during the quarter. I realize Virginia is not in there yet and I realize every jurisdiction has little different amortization schedule. But is that, from a modeling standpoint, as an analyst, that was $22 million, maybe $25 million per quarter is how we'll see that liability going down over the next few years? Is that reasonable?

Yes, that sounds about right. I mean, if you go to Slide 20, if you want to try to get a little bit more details in terms of modeling, we have provided the provisional amortization periods by jurisdiction. And if you wanted to get into approximation of the excess deferred taxes by jurisdiction, you can kind of do it somewhat pro rata based upon our rate base and then you can use the amortization periods, provided on Slide 20, to the deck, to help with the modeling on that. Again, it's really difficult right now to -- it's being folded in jurisdiction by jurisdiction. For example, as I mentioned, Mississippi and Tennessee just started, the Tennessee was in mid-October, Mississippi was in the first of November, West Texas and Mid-Tex RRMs were in October, so I understand the modeling could be a little bit challenging. But I think the information on Slide 20 is ought to give you a pretty good indication of how that's going to flow back. And at the end of the day with -- it's actually fully implemented and embraced, we expect our customers to benefit more than $125 million per year. So that's inclusive of the 21% rate as well as the flow back of the excess deferred taxes.

I'm probably too lazy to do it jurisdiction by jurisdiction. I guess, I was looking for an easy way out. But it sounds like if I do like $100 million per year realizing that once we get Virginian in there, that's probably close?

And Virginia is very small. I -- so if you do the $740 million, it's about $25 million , that may be a good way to start, if you're doing some high-level model.

[Operator Instructions]. Our next question is from Ryan Levine with Citi.

Would you be able to comment on the current labor availability within your service territory? And that's -- how that's evolved over the last few quarters? And if there's any [indiscernible] governor to some of the acceleration of the CapEx programs?

Yes, I mean, it's a good question and it's something that we've commented around before. We haven't seen a change in the labor market in the last year or so. But it is a constraint for us that we are growing and working with our contractors, so that they can grow their crews. And big issue is not just finding people, but it's people with appropriate qualification to work on our system safely. I mean, we've kind of baked in what we think they're capable of doing in our estimates in terms of pipe replacement that we're able to complete each year, and that's something that we watch very closely. But again, we haven't -- it is a constraint. We factored it into our plans. We believe, we have. And we haven't really seen a change in those mark conditions kind of year-over-year. So we're pretty comfortable right now with what we're seeing.

Okay. And then second question, is there any update that you're able to communicate around the NTSB investigations and the time line for any type of conclusion?

Really, there is nothing new for us. I mean, we initially expected the factual report, which would be the first piece that would come out to be somewhere in the end of this first calendar quarter or second calendar quarter. But with the government shutdown, we're not sure what the impact that will have on that. I know they got pretty backed up and there were a number of other investigations that they've had to start up once they got back. So we really don't have any information either way. And -- but, again, the sequence is a factual report typically will come out and then sometime after that would be there safety recommendations.

Okay. So this is considered a nonessential government agency. So this is safe to assume that no work was done during the shutdown?

Yes.

There are no more questions at this time. I would like to... go head, Jenn.

Thank you, everyone, for joining us this morning. A recording of this call is available for a replay on our website through May 9, 2019. We appreciate your interest in Atmos Energy, and thank you for joining us. Goodbye.