Greetings, and welcome to the ATO Fourth Quarter Earnings Conference Call. At this time, all participants in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Meziere, Vice President of Investor Relations and Treasurer. Thank you, sir. You may begin.

Thank you, Maria. Good morning, everyone, and thank you for joining our fiscal 2022 fourth quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared discuss future expectations, please keep in mind that some of our discussion 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 39 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin.

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy and are glad you joined us this morning. As tomorrow's Veterans Day, I would like to take this opportunity to thank you and to say thank you to those who served in our own forces and approximately to the 300 of our Atmos Energy teammates as part of the nearly 20 million Americans who have bravely served our country. Thank you for your service. Yesterday, we reported earnings per share of $5.60, which represents the 20th consecutive year of earnings per share growth. Chris will provide some additional color around our financial results later in the call. I will begin today's call with a review of our fiscal 2022 accomplishments, provide an update on key pipeline projects, and we'll close with some thoughts about fiscal 2023. Our success in fiscal 2022 was once again reflected by the commitment and ongoing effort of all 4,800 Atmos Energy employees. I've said it before, and I will say it again, they are the heart and soul of Atmos Energy and provide the foundation for the sustained long-term success of our company. Fiscal 2022 was our 11th year of executing our proven investment strategy of operating safely and reliably, while we modernize our natural gas distribution, transmission and storage systems. Over that 11-year period, we invested over $15 billion in modernizing and expanding our natural gas systems, replacing approximately 6,300 miles of distribution pipeline, approximately 440,000 steel service lines and over 1,200 miles of transmission pipeline. That same 11-year period, we added nearly 400,000 customers, including over 62,000 customers during fiscal 2022. And we continue to see strong natural gas demand from new and expanding industrial customers. In fiscal 2022, we added approximately 50 new industrial customers with an estimated…

Thank you, Kevin, and good morning, everyone. As Kevin mentioned, fiscal 2022 diluted earnings per share was $5.60, which represents a 9.4% increase over fiscal 2021. Our performance reflects the continued execution of our proven strategy of modernizing natural gas distribution, transmission and storage systems, recovering our cost timely and financing our operations in a balanced manner. We also continue to experience strong customer growth, and we saw a significant improvement in our bad debt expense, both of which offset lower customer consumption and increased O&M spending. Slides four through six provide some details summarizing our financial performance for the fiscal year. Consolidated operating income increased $220 million from rate adjustments implemented in fiscal 2021 and fiscal 2022. These adjustments were primarily driven by safety liability and system expansion spending. Approximately 68% of this increase is recognized in our distribution segment. We continue to see robust customer growth in our distribution segment, which increased operating income by an additional $15 million. This growth offset a $17 million decrease in consumption, most of which occurred during the second fiscal quarter. Additionally, we experienced a $31 million increase in consolidated O&M expense. O&M, excluding bad debt expense, increased $56 million, primarily driven by increased pipeline maintenance activities in both of our segments and employee-related costs compared with the prior year. This increase was partially offset by a $25 million decrease in bad debt expense as we were able to perform collection activities for our full fiscal year. In comparison, in the prior year, we resumed collection activities late in our third fiscal quarter. This decrease also reflects the exceptional work of our customer service team in assisting customers with their bills. During fiscal 2022, we arranged only $34 million of funding to help 67,000 customers with their monthly bill. As a result,…

Thank you, Chris. As you heard this morning, we have taken several steps to mitigate execution risk in fiscal 2023. As I mentioned in my opening remarks, our procurement team has done an excellent job of sourcing the materials needed to support our capital spending program in fiscal 2023. Our gas supply team has us well positioned for the upcoming heating season. And as Chris noted, our fiscal year 2023 financing costs are known, and we have hedged a significant portion of our financing needs beyond FY 2023. I'm very excited about our direction and long-term sustainability of Atmos Energy. The foundation has been set with a proven safety-driven accompanied with organic growth that yield 6% to 8% fully regulated earnings per share. Commensurate dividend per share growth supported by a strong financial profile. We operate in a diversified and growing jurisdictional footprint that is supportive of our natural gas investment and natural gas infrastructure. 98% of our rate base is situated in six or eight states that have passed legislation in support of energy choice. We have constructive regulatory mechanisms that support the necessary capital investments to modernize our natural gas distribution, transmission and storage systems. We have a long runway of work to support the planned $15 billion in capital spending over the next five years. And as you can see on slide 16 and 17, this spending will support the replacement of 5,000 to 6,000 miles of distribution and transmission pipe or about 6% of our total system. We also plan to replace between 120,000 and 170,000 steel service lines, which is expected to reduce our inventory by approximately 20%. Focusing on long-term sustainability has always been a part of our strategy and is reflected in the vital role we play in every community. That is delivering safe, reliable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future. We appreciate your time this morning, and now we'll open the call for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Richard Sunderland with JPMorgan. Please proceed with your question.

Hi good morning and thank you for the time today. Starting on the O&M side, your 2023 guidance implies a higher step-up relative to the 3% and 3.5% target. What are the drivers of the higher near-term O&M inflation? And then maybe more broadly, how do you think about O&M as a lever to manage customer bill impact overall?

Yes, I'll start and then hand it over to Chris. As we've moved out of the pandemic and moving forward, we continue to work with our vendors, our contractors. We've got long-term contracts in place. Some of those have been updated to reflect inflationary costs here recently. All of those are included in the numbers that we've laid out in the 2023 and the five-year plan there. Additionally, such things as line locating, leak survey, we've incurred some additional costs there. But again, all within the parameters laid out there, and we think we have ourselves well positioned to have an understanding of those costs as we continue to move forward. And as far as levers going forward, we have the same opportunity for levers that we had as we were in the pandemic. It's been like travel, even though we're back and trying to find our new normal on a day-to-day basis here, we're not fully traveling to all events or activities that we did pre-pandemic, taking advantage of the technology such as Teams or Zoom meetings, those sort of things that are out there. And some of the things that Chris outlined in our strategy, financing strategy and some of the outcomes there are all things that fold into reducing that O&M as well and trying to keep cost tamping down on a going-forward basis. So Chris, any additional thoughts?

Yes. The only other thing that Kevin, I would add is, and Rich, you've heard us talk about this before the last couple of years in terms of levers. We are -- a lot of this O&M spending or virtually all of it is focused on safety, maintenance and compliance. And so we have the opportunity to continue to expand those types of activities. There is a little bit of inflation in the numbers, as Kevin alluded to, but we are not a just-in-time safety or compliance company. So, we're looking forward in 2023 to kind of staying ahead of the curve, if you will, on those type of activities. So if there is, in fact, a need to pull in a lever, as Kevin alluded to, again, we have that opportunity. So that's really what's driving it. There is really no -- anything new or different in the underlying activities. We're just seeing higher activities across the entire system, as Kevin mentioned. Line locating, we continue to do, enhanced leak survey activities, but we're also seeing a little bit of cost increases through inflation as well.

Got it. That's very helpful color. And just a quick follow-up on that front. So I understand your point about some of these vendor contracts rolling in at higher inflationary costs, is this a trend you expect to continue into 2024? How do you see that kind of moderating over time to get back to the 3% to 3.5% outlook?

Yes, we continue to have conversations with our contractors and service providers as well. Right now, I think we're well positioned. I don't want to try and peer into a crystal ball to see what's out there. But again, we're very comfortable with what we have into our plan. As it sits today, the conversations we're having with our contractors, vendors, suppliers on cost as they see them going forward and that we've accurately captured those at this point.

Got it. That makes sense. And just quickly switching gears, several months until Texas securitization proceeds, if I heard you correctly in the script, just any color on the process from who you are and what you're watching for on this front?

Yes, Richard, we're obviously in close contact with the Texas financing authority. There's a lot of questions that we and all the participating utilities are having and the process is moving along as quickly as they can. And I said within the next few months -- so we were hoping before the end of the calendar year to potentially slip into early 2023. But again, we're working diligently alongside our other participating utilities and the TPFA to get this wrapped up as quickly as possible.

Understood. Thank you for the time today.

Thank you.

Thank you.

Our next question is from Gabe Moreen with Mizuho. Please proceed with your question.

Hey good morning everyone. I'm just wondering if you could give us an update on sort of the customer growth outlook going forward here, whether you've seen any signs of changes given, I guess, the slowdown in the housing market? And whether you think you're going to be in that 1.5% to 2% annual range from a customer growth standpoint?

Thank you. Obviously, the existing housing market with the increased interest rates, we see some slowdown across our service territory for that. But the new home market, according to our builders, our developers, our folks on the ground across our service territories and the feedback we're getting has been less of an impact, if you will, than the existing home market. Even though we anticipate some decrease as we head into the first part of the year, some of that giving just a winter time period itself, some of that being an impact from the inflation. But what we're being told is there is a significant backlog of homes under construction today with approved buyers that have already locked in interest rates out there. And just to give you some example here, according to Texas Workforce Commission, just a couple of months ago, some of the data they're putting out, the Metroplex in particular, is experiencing pre-pandemic job growth with new hires exceeding 100,000 annually. The Austin area as well is seeing about 40,000 annual job growth. Unemployment in our service territories continues to remain low. And again, our builders and developers have a backlog of folks wanting qualified and ready to purchase homes. So good news to hear that our service territory, even with the inflationary environment we're currently in, continue to see strong job growth, strong economic growth. And our builders and developers are able to keep up with that demand.

Great. And then speaking of interest rates and kind of locking them in, kudos for locking in interest rates for some time on new instruments. I'm just curious in the current interest rate environment, whether you're going to continue to lock in interest rates in anticipation of debt issuance down the line? And then I guess a related question to the minimum book tax. You talked about that potentially hitting kind of towards the end of the five-year plan. Does that change at all the financing plans given the interest expense is tax deductible, would you shift a little bit more? Or to try to, I guess, minimize cash taxes, appreciating that, that's not for several years?

Sure. Yes. Gabe, all the credit goes to -- Dan is here, his treasury team for locking in those rates, and we had the opportunity. We continue to look for opportunities to hedge interest rates. Obviously, in a rising price environment right now -- or rate environment, excuse me, it's challenging, but it's something that we will continue to look at, certainly month in and month out, as we continue to watch where the Fed is going with rate increases. With respect to the corporate minimum tax that cash need and therefore, the related financing is already assumed in the current five-year plan. We're expecting that tax to hit sometime in the next four to five years. The size of the impact is still a little bit TBD as we look at where the final rules around depreciation, how repairs are handled, that type of thing. But we have made some assumptions in that plan and it's reflected in our financing needs.

Great. Thank you.

Our next question comes from David Arcaro with Morgan Stanley. Please proceed with your question.

Hey good morning. Thanks so much for taking my question. Wondering if you could talk just a little bit more about the customer bill outlook here? And whether you think there could be any increased pressure to manage rate increases going forward? Are there steps that you're looking at to take just to manage that outlook?

Yes, I'll start. Again, it all begins first with our gas supply team and their ability to go out and get reliable, securable supply. And I think, Dan, for us, if you look at the major components of the bill, that's the commodity portion. You look at what's driving that upstream today. You're currently just short of 800 total rigs working in the U.S. today, about half of that over in the Permian. You look at where we sit today at Waha, it's $2 and some change. Right now, the forward look on that April out is in the $2 range. Even on the NYMEX, you look forward, there's a four handle out there. So all to say, I think the outlook in current conditions as we kind of work ourselves through this heating season forward. looks good for the commodity price to mitigate some as well on the customer bill. The other thing that I think is important for us to think about when it comes to affordability out there are the actions that our team, our public affairs team and our local corporate communications team do day in and day out at the state level and the federal level, advocating for light heat [ph] funding and state funding for energy assistance agencies out there. And just to give you an example, this year, our team was able to help almost 70,000 customers gain access to $34 million. So there's a lot of components that go into it. It's being able to secure reliable gas at a reasonable price. It's the ability to get customers the help when they need it. It's also the messaging to customers about what we're seeing. We released now three communications to our customers advising them of ways they can conserve on their energy bill as well.

Got it. Thanks for that. Very helpful. And then wondering if you could comment on the NTSB report that was published last month related to the gas incident from a year ago? And just what initiatives are being undertaken internally in response to that?

Yes, we'll let the NTSB report standby itself. We're not going to comment on the NTSB report. We are a party to the investigation. We work closely with them and other parties to the investigation. I'll point you to our operational and report as well that's filed with NTSB, it outlines all of our safety initiatives, findings as well.

Okay, got it. Thanks. And just one quick follow-up on the tax side of things. Is there a cash tax level that you're expecting in the near term or for 2023 just as kind of a starting point as to what cash tax rate you're experiencing under the current business?

Yes, in fiscal 2022, we were, I've got to say, a very minimal cash taxpayer, both from a federal and state perspective, very low double digits. We anticipate that to be similar for fiscal 2023 through 2025. And I said 2026, 2027, that's when we expect in that four to five-year period when the ANT [ph] will kick in.

Perfect. Okay, thanks so much.

Thank you.

[Operator Instructions] Our next question comes from Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

Hey good morning team. Thank you for the time. Hope you guys are well? Just if I could go back to where Rich started at the top of the Q&A here. If I recall back last quarter, you guys said several months on the tax securitization issue. Can you talk about the -- just what that delay has been? And ultimately, what hoops need to be crossed here in terms of bringing this to finality? I get that there's probably a lot of administrative considerations, a lot of coordination with the state here. But just in terms of practically bringing this securitization to a close on the $2.2 billion, how do you think about what's driven a little bit of this delay ultimately? And your level of confidence that you'll be able to get this thing resolved ahead of the March timeline, which admittedly is well in excess of the next several months.

Yes, I'll start and then hand it over to Chris. Again, we have great confidence in the process that the legislature laid out that the Railroad Commission has approved and that the TPFA is going through now. Our role now is just supporting with questions -- answers to questions that the groups have. We're not sitting at the table or anything like that. We are just responding to Q&A or information request that sort of thing at this point. So again, we remain very confident in the process and the ability of the teams to get the answers they need to move forward. So, Chris, anything additional?

I think it's pretty well said, Kevin. And just as a reminder, too, a securitization of this nature, I think, is new for the state. And so they're just making sure all the and -- all the Is are dotted and all the Ts are crossed.

Got it. Right. So it's truly sort of administrative in execution in terms of the shift in time line? It seems like it and driven by the state more than you guys?

Yes, absolutely.

Got it. Excellent. Thank you. And then if I can go back to the conversation on O&M as well. Obviously, pressure across the industry, you guys highlighting it in your 2023 numbers. If I can overlay that with the regulatory strategy as it exists today. I mean, as you think about your ability to earn your returns and just accelerate time lines on any kind of regulatory proceedings here, is that shifting anything at all? Obviously, you have a plethora of associated mechanisms across your portfolio of utilities. But can you speak a little bit to the extent to which this is shifting and/or accelerating some time line for recovery? Again, obviously, this in tandem with your elevated level of spending. I'm just curious if you can comment on that.

Yes. Again, Julien, I'll start, and Chris can add any comments. If you look at our mechanisms, most of our mechanisms are annual in nature. So they're on prescribed time lines, filing dates, orders on the back end of those sort of things. Those are prescribed. We're going to continue to follow those. Our projects are well laid out as you've seen. You hope for a long time now and how we like to go through planning our fiscal year and then the subsequent four years after that to get to our five-year plans. The only thing that's moving forward or backward is our safety and reliability investments depending on what we see from a need, a growth need, a compliance need, a safety need, those sort of things are levers for us to move things forward or backward to meet the growing demand on our customer system or safety on our system.

Yes, and the one thing, Julien, I want to add to that, too, is that with our -- the regulatory strategy, the annual mechanisms, it's a smaller increase, if you will, each year. It also gives us the opportunity to stay in regular contact with our regulatory partners to -- so they understand what we're doing from a total spend perspective. And that's a part of the strategy as well is keeping them well informed of what's going on in our operations, what we're seeing from a safety, maintenance, compliance perspective so that when we do have the other filing in front of them, they're aware of what's included in that filing.

Got it. Excellent. Thank you gentlemen. Appreciate it.

Thank you.

Thank you.

It appears that there are no further questions at this time. I would now like to turn the floor back over to Dan Meziere for closing comments.

Thank you. We appreciate your interest in Atmos Energy and thank you for joining us. A recording of this call will be available for replay on our website through December 31st, 2022. Have a good day.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.