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Edited Transcript of ATO earnings conference call or presentation 8-May-19 1:00pm GMT

Q2 2019 Atmos Energy Corp Earnings Call

DALLAS Jun 17, 2019 (Thomson StreetEvents) -- Edited Transcript of Atmos Energy Corp earnings conference call or presentation Wednesday, May 8, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher T. Forsythe

Atmos Energy Corporation - Senior VP & CFO

* Jennifer P. Hills

Atmos Energy Corporation - VP of IR

* Michael E. Haefner

Atmos Energy Corporation - President, CEO & Director

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Conference Call Participants

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* Charles J. Fishman

Morningstar Inc., Research Division - Equity Analyst

* Christopher James Turnure

JP Morgan Chase & Co, Research Division - Analyst

* David Keith Arcaro

Morgan Stanley, Research Division - Research Associate

* Dennis Paul Coleman

BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD

* Ryan Michael Levine

Citigroup Inc, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Greetings and welcome to the Atmos Energy Second Quarter Fiscal 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jennifer Hills, Vice President of Investor Relations. Please go ahead.

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Jennifer P. Hills, Atmos Energy Corporation - VP of IR [2]

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Thank you, Kevin, and good morning, everyone. This is Jennifer Hills, Vice President of Investor Relations, and thank you for joining us. This morning, I am joined by Mike Haefner, President and CEO; and Chris Forsythe, Senior Vice President and CFO.

This call is being webcast live on the internet, and our earnings release and conference call slide presentation are available on our website at atmosenergy.com. under Our Company and Investor Relations. As we review these financial results and 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 27 and are more fully described in our SEC filings.

Our first speaker is Chris Forsythe, Senior Vice President and CFO of Atmos Energy. Chris?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [3]

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Thank you, Jennifer, and good morning, everyone. We appreciate your interest in Atmos Energy. Last night, we reported fiscal 2019 second quarter earnings of $215 million or $1.82 per diluted share compared to adjusted earnings of $175 million or $1.57 per diluted share in the prior year quarter. Adjusted earnings exclude a $4 million benefit related to the implementation of tax reform. Year-to-date, earnings were $373 million or $3.21 per diluted share compared with adjusted earnings of $327 million or $2.97 per diluted share. And adjusted earnings excluded a $166 million benefit related to the implementation of tax reform. Also yesterday, the Board of Directors approved our 142nd consecutive quarterly cash dividend of $0.525, which represents an indicated annual dividend of $2.10 per share in fiscal 2019, an 8.2% increase over fiscal 2018.

Our second quarter results were in line with our expectations. The recovery of the capital spending required to modernize our natural gas delivery network, continued customer growth and a planned increase in safety-related operating expenses were the primary drivers of the quarter's results. Slides 5 and 6 provide details of the period-over-period changes to operating income for each of our segments. I will touch on a few highlights.

In the second quarter, operating income in our distribution segment increased 8% to $229 million. Recovery provided by recent regulatory actions increased contribution margin by $24 million. Additionally, we continue to experience solid customer growth. Over the last 12 months, we added a net 37,000 new customers, which represents 1.2% growth. We continue to experience strong customer growth in several of our service areas, including the DFW Metroplex, the suburbs of Nashville and to the north of Austin and Olathe, Kansas, to the west of Kansas City. This growth added $4 million in contribution margin for the quarter and almost $8 million year-to-date. However, despite weather that was 9% colder than the prior year quarter, customer consumption declined due to varying weather patterns quarter-over-quarter, which reduced contribution margin by about $9 million.

Operating expenses decreased by about 1%. In the prior year quarter, we incurred $23 million related to customer assistance and other nonrecurring expenses related to the outage in Northwest Dallas. After adjusting for these expenses, operating expenses increased approximately 9%. More than half this increase reflects higher depreciation and ad valorem taxes driven by last year's capital spending. The remaining increase led to a planned increase in system integrity and maintenance work, such as digital mapping of legacy assets and work to mitigate and reduce third-party damage to our system. Additionally, we experienced higher labor and training costs as we have added service technicians and leak survey specialists to support our Mid-Tex operations in the DFW Metroplex.

Operating income in our pipeline and storage segment increased about 16% to $69 million during the second quarter. New rates from our last year's GRIP filing contributed $12 million of this growth. Additionally, APT continued to benefit from the supply and demand dynamics in the Permian basin. APTs through-system revenue increased about $1 million quarter-over-quarter and about $4.5 million year-to-date, net of the Rider REV mechanism. APT's tariff customers continue to benefit from this mechanism, while our distribution customers in Texas receive the benefit of low cost of gas produced in this region.

Operating expenses increased $6 million or about 9%. About half of this increase reflects higher depreciation expense as a result of last year's capital spending. Additionally, we plan for incremental pipeline integrity work, which was the primary driver for the remainder of the increase in operating expenses.

Consolidated capital spending increased 12% to $778 million year-to-date. About 84% of this spending was dedicated to safety and reliability projects. We remain on track to achieve our capital spending target of $1.65 billion to $1.75 billion for the fiscal year.

From a financing perspective, we had another busy quarter as we completed over $600 million of financing. We refinanced our $450 million 8.5% 10-year notes with 4.125% 30-year notes. As a result of the financing our overall cost of debt decreased to 4.6% and our weighted average maturities increased to 22 years.

Additionally, as most of you are aware, we moved to the S&P 500 from the S&P MidCap 400 in mid-February. We took advantage of this unplanned and unique liquidity event to issue 1.0 million shares through forward sales arrangements executed under our ATM program. The net proceeds of $159 million from these forward sales arrangements we'll use towards our equity needs for fiscal 2020 and will not be fully diluted until issued in fiscal 2020. These net proceeds, combined with the $245 million in net proceeds issued under forward sales arrangements during our November equity issuance, leaves us with just over $400 million to help fund our capital spending through March 31 of 2020, when all of these forward sales arrangements mature. Based on the execution of these forward arrangements, the remaining availability under our ATM program and our current capital spending outlook, we do not perceive a need for a discrete equity issuance through the end of fiscal 2020.

As a result of our financing activities this year, our equity and total capitalization was 60% and our short-term debt balance was 0 at quarter end. Including the $108 million in cash on-hand at the end of March and the $404 million in net proceeds available under the forward sales arrangements, we have approximately $2.1 billion of total available liquidity.

After resetting most of our regulatory mechanisms last year, our fiscal 2019 regulatory calendar has returned to a more traditional cadence. To date, we have implemented $86 million of annualized regulatory outcomes and have about $90 million in progress. Our annual filings in Texas, Louisiana and Mississippi are among the most significant of these filings.

Before I turn the call over to Mike, I wanted to comment on our fiscal 2019 earnings per share guidance. Yesterday, we narrowed our guidance to a range of $4.25 to $4.35 per diluted share. Slides 12 and 13 provide additional details of our updated guidance.

Earnings for the first half of fiscal year were in line with our expectations. We see potential for a modest uptick in APT contribution margins as a result of the supply-and-demand dynamics affecting the Permian Basin. However, as we have communicated before, summer months are focused on preparing APT for winter operations for the next fiscal year, and we do not expect the impact to be material.

Additionally, we have completed our fiscal 2019 financing program and we now have clarity on how those -- that financing will impact fiscal 2019 results.

Finally, during the first half of the fiscal year, we initiated several efforts that will further mitigate long-term risk. Following the incident in New England last fall, we are now assessing our low-pressure systems and implementing additional procedures to continue to safely manage these systems. Additionally, during the first half of the fiscal year, we initiated a multiyear effort to implement new leak detection technology. The preliminary results of the initial pilot efforts have been encouraging, and we'll continue to methodically implement this technology in certain of our jurisdictions during the second half of the fiscal year. And in the second half of the fiscal year, we are planning to run additional in-line inspections in our pipeline and storage segments to facilitate capital allocation decisions for fiscal 2020 and beyond.

Our performance for the first half of the fiscal year and the additional clarity we have for the second half of the fiscal year leaves us well positioned to meet our 6% to 8% earnings per share growth target for fiscal 2019.

I will now turn the call over to Mike for some closing remarks. Mike?

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [4]

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Thank you, Chris, for that great update on the quarter. Our results for the first half of the fiscal year reflect the ongoing disciplined execution of the investments we're making in safety and reliability of our system, while continuing to mitigate long-term risk. Capital spending increased 12% during the first 6 months of the fiscal year, which demonstrates our commitment to modernizing our system. As we plan to increase our spending 9% to 10% per year through fiscal 2023, we're also investing in our people and technology to support these higher spending levels. Last fall, we started to implement new technology that will digitally capture all the data we're required to collect and retain for compliance purposes. We've completed the rollout to about 20% of the nearly 1,000 company and contractor crews working on our system. We're on track to expand the rollout to about 50% of these crews by fiscal year-end. This is just one example of the various initiatives we have underway to build scale and efficiency to sustain our ability to invest in safety and reliability.

During the first half of the fiscal year, we also continued to find ways to mitigate risk for the long term. The increased O&M spending that Chris referred to in the second half of the fiscal year for low-pressure system assessment, systematic rollout of new leak survey technology and in-line inspections on our transmission system will help us implement new procedures and technology that will enhance our ability to safely operate our system and support our risk-based capital allocation program. This spending does not affect our anticipated 6% to 8% annual earnings per share and dividend per share growth through fiscal 2023.

Additionally, as Chris mentioned, our move to the S&P 500 created an unplanned and unique liquidity event to issue equity under forward sales arrangements through our ATM that will be used toward our fiscal 2020 equity needs. These are just a couple of examples of how we remain agile when conditions evolve to mitigate operational and execution risk for the long term. These equity forward arrangements, combined with the additional $1.8 billion of debt and equity financing, further strengthen our balance sheet and provide the capacity necessary to finance our capital spending plans over the next 5 years.

As we look toward the back half of the fiscal year, we have more clarity around our regulatory outcomes, our O&M spending and our financing costs. This clarity gives us the confidence to tighten our EPS guidance range to $4.25 to $4.35, which leaves us well positioned to meet our earnings per share growth targets for fiscal 2019.

In closing, I'd like to thank our employees for their continued outstanding efforts. Our highly qualified gas professionals come to work every day laser-focused on safety while providing excellent customer service, closely monitoring and maintaining our system and executing our capital spending program.

They're accomplishing these critical services while striving to improve every day as we deliver safe, reliable and affordable natural gas service for the nearly 3.3 million customers we serve in over 1,400 communities in our 8-state footprint.

We certainly appreciate your time this morning, and we'll take any questions you may have. Kevin?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is coming from Christopher Turnure from JPMorgan.

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Christopher James Turnure, JP Morgan Chase & Co, Research Division - Analyst [2]

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I wanted to make sure we were understanding kind of the equity situation correctly. Going back to last fall, my understanding was you guys priced around $750 million of equity, $150 million of which had a forward component to it that your message was you would pull down before, I think, the first half of fiscal '20. And then separately, you had a forward component to a $500 million ATM. So what exactly occurred this quarter? And kind of when is that going to hit your share count?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [3]

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Right. And so Chris, backing up to November, there was a $748 million total equity issuance, of which $500 million before costs were taken into the first quarter. $245 million was allocated to forward sales arrangements that expire in March of 2020. And our plan was to draw down to $245 million between January of 2019 and March 31 of 2020. When we had the opportunity presented to us that was unplanned when we moved to the S&P 500 in February, we issued $160 million under our ATM under forward sales arrangements. So we have a total of $404 million in total forward arrangements available to us through the end of March of 2020. And we'll take that down over that next -- basically, over the next 11 to 12 months based on our cash needs.

But again, all of this had been contemplated in our 6% to 8% earnings per share growth target for fiscal '19 and in the 5-year plan. And the forward arrangements that we took out in February are going to be applied against our fiscal 2020 equity needs. It will not be dilutive to fiscal '19.

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Christopher James Turnure, JP Morgan Chase & Co, Research Division - Analyst [4]

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Okay. Got it. I think I understand now, but there's still a lot in there. So the amount that you did in February was simply priced under the forward ATM, and you do not intend to pull that down during fiscal 2019?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [5]

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Correct.

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Christopher James Turnure, JP Morgan Chase & Co, Research Division - Analyst [6]

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And you are still kind of leaving the forward component of the $750 million from November as loose. You're not specifying when you'll pull that down, the [$150 million] you're talking about.

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [7]

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That's correct. We'll certainly start in -- towards the end of fiscal '19. The exact amount will be to be determined based on our cash flow projections and cash needs. But we have to utilize all of those equity -- all of that equity by the end of March of 2020 because the forward sales arrangements expire March 31 of 2020.

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Christopher James Turnure, JP Morgan Chase & Co, Research Division - Analyst [8]

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And then your comment on these actions covering you through fiscal 2020, just want to make sure that I'm understanding properly. You're committing that there will be no more equity issuances in the kind of normal course of business.

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [9]

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I'm committing that we will not have a discrete equity need such as a large-scale block trade that we've done the last couple of years. We -- the ATM remains available to us, and we intend to consider using that as we go forward as a part of our overall financing strategy and needs, honestly. And if you think back to our 5-year plan that we rolled out last fall, we had $5 billion to $6 billion of incremental financing needs, and we intend to satisfy those needs through a balance of long-term debt and equity. And so we're still executing towards that plan.

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Christopher James Turnure, JP Morgan Chase & Co, Research Division - Analyst [10]

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Okay. That's pretty clear. And then I guess, just as a second question, you mentioned gas basis in Texas is helping you guys at least a little bit here. Can you give us more detail on how you're thinking about that over the next 6 or 12 months? I think you said that you were making some preparations there in some way.

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [11]

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Yes. That's correct. And then in the summer months, as you know, Chris, we have to reduce pressure on the pipeline for maintenance work to get ready for winter operations. So we don't have as much opportunity to take advantage of those spreads. We do see some modest uptick. But between the fact that the pressures are going to be coming down on the system for maintenance work and the fact that we have Rider REV in place, where we only share in 25% of that upside, we do, like I said, do anticipate a modest uptick that we've contemplated in our guidance. But we don't anticipate that to be all that material in the grand scheme of things.

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [12]

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And Chris, as you look into 2020, the expectation is the Gulf Coast Express is expected to be in service in the October/November time frame. So we expect that to begin affecting spreads in the 2020 time frame. And the key is that our customers are benefiting from lower-cost gas and then also through the Rider REV mechanism with the -- in terms of their transport costs and gas costs.

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Operator [13]

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Our next question today is coming from Charles Fishman from Morningstar.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [14]

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Just going back to the equity, your guidance, the average diluted shares goes down a little bit. The net income guidance for '19 went down a little bit on the upper end. But -- correct me if I'm wrong -- what happened basically was you went out for the equity you needed and were able to get it at a little better pricing, and then that drove your diluted shares down? Or is it just a later -- are you issuing them at a later date? What basically drove the average diluted share quantity down?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [15]

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Generally, pricing. Generally, pricing.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [16]

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Okay. That's what I would have assumed. Okay. Second question, operational. Certainly, a tragic event in Boston in the fall. Final report isn't in, but it sounds like a low pressure event. That utility is putting in low-pressure sensing devices through their whole system. Is that something you already have? Is that something you're doing? Is that something you will be doing? Or what's the status as far as the Atmos system with respect to low-pressure sensing? Was it...

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [17]

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No. It's a good question, Charles. And I mean we've operated our low-pressure systems, I mean, for a long time, and we're constantly working on them. As Chris mentioned, we have been pretty proactive in terms of doing a full system evaluation -- design evaluation. And we've kind of reaffirmed and reviewed all of our procedures, recommunicated them. We've created geofencing in our GIS systems. So when there are line locates called that are anywhere near our low-pressure systems, we'll have individuals from the company there to monitor any construction or digging near our assets. And then this review of our system design will then guide our next set of actions, which may involve bifurcating those systems or providing -- putting other kind of technical solutions like slam-shut devices or additional releases on, based on the needs. So we're well along that process and we expect it -- we haven't seen anything that concerns us at this time.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [18]

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I suspect that technology is rapidly changing on this stuff. But do you have some device or some way of sensing a low-pressure event that has occurred -- or excuse me, I guess it was a high-pressure event in Boston, I had it backwards. Do you have the capability of sensing that now in most of your system?

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [19]

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Yes. Since the -- I mean, since the designs were put in -- the systems were put in over a longer period of time, there are various solutions to that. But yes, we have pressure sensors. We have pressure release devices as well. So we've got that type of protection in the system. And what we're doing now is just going back through and doing a comprehensive review and seeing if there are other interim -- or other steps we should take as it relates to low pressure.

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Charles J. Fishman, Morningstar Inc., Research Division - Equity Analyst [20]

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Yes. I guess the events that really drive you nuts is a contractor doing work that has nothing to do with your people. But obviously, that contractor could do something stupid that creates a problem for you. And that's, I would assume, is an ongoing issue that you have to address.

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [21]

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Yes. Certainly. 70% of our hazardous leaks are caused by third-party damage. It's a very significant focus of our efforts and advocacy, and it will continue to be. And as I mentioned, for the low-pressure systems, we've taken the steps to geofence them in this -- electronically -- within our GIS system so that as line locates come in, if we have anybody working near those systems, we're going to have somebody monitoring it.

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Operator [22]

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Our next question today is coming from Stephen Byrd from Morgan Stanley.

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David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [23]

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This is Dave Arcaro on for Stephen Byrd. Let's see. I had a quick question. So I was wondering just if there -- what are your latest thoughts following some of the commentary coming out of the Dallas City Council over the last couple of days with the rate request there? Does that change any -- your views of the overall process for that rate request?

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [24]

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Sure. Yes. I think what we're seeing is a normal part of the process, Dave. I mean earlier this year, we filed a $10.1 million rate increase request in accordance with the annual mechanism we agreed to early in 2017. That request is on the City Council agenda today. The city staff, we've been working with them and their consultants and representatives, and they've acknowledged efforts on both sides to try to reach an agreement. However, we haven't been able to do so in time for their needed approval. So the staff's recommended that the City Council deny the request. Now that denial would trigger an appeal process to the Railroad Commission, which we've been down that path before. And our plan is to continue to work with the city. We share common interests certainly in replacing aging infrastructure, and we've been investing for many, many years in Dallas. And we expect to reach agreement in some point in time in the future.

Our company has made $119 million of infrastructure improvements in the city of Dallas during that test year. And we also agreed to accelerate our cast-iron replacement at the city's request to 2021, getting the last of that removed in 2021 versus 2023. So maybe a longer answer than you were looking for, but it's, I think we're continuing to have discussions and we'll continue to move down a path to try to find a win-win solution.

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David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [25]

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Okay. Great. That's helpful. And I was just wondering your latest thoughts on -- expectations for the NTSB process.

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [26]

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Sure. We don't have much of an update. The Corps of Engineers completed soil samples. They were requested in the area. They were requested to do that by the NTSB. And in a public release in late February or early March, the NTSB indicated that their finding of fact -- their factual report would be expected in June. That -- so that's the next step that would come from them. And that would not, at that time, include any probable cause or safety recommendations. Those would be some time later and there's no time frame on them. In the meantime, we continue to work with the NTSB, and we continue to move forward on improvements in our processes around safety and in our safety -- investment in our system. So...

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David Keith Arcaro, Morgan Stanley, Research Division - Research Associate [27]

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Okay. Got it. That's helpful. And then maybe one last question. Wanted to clarify on the increased O&M expected this year for some of the low-pressure system investments. I was wondering how you anticipated getting recovery of those investments. It sounds like that's anticipated, but does that flow through mechanisms? Or how do you think about that?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [28]

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Yes. We will seek to recover those costs through the annual mechanisms that we have in the various jurisdictions. Again, it's safety, safety-related. I mean I think everyone's got a keen eye on what happened last fall, and all of our regulators have a commitment to safety. And we would seek to recover those costs in our next round of filings.

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Operator [29]

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Our next question is coming from Bryan Levine (sic) [Ryan Levine] from Citi.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [30]

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Just to follow up on the Permian-Waha-Katy basis movements. Is there a way to quantify exactly what the impact was for the first quarter -- or for the first calendar quarter given your sharing mechanism?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [31]

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In the first calendar quarter -- so year-over-year, we were up about $4.5 million. Quarter-over-quarter, we were up about $1 million. So it was about $3.5 million the first quarter, quarter-over-quarter, last fiscal year -- or sorry, last quarter.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [32]

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Okay. Great. And then in terms of going into the second quarter, are you seeing that directionally move up relative to this past quarter?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [33]

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Yes. As we look into our third and fourth fiscal quarters, we do see the opportunity for a modest uptick in those spreads but, as I indicated, with the maintenance work that we have planned for the pipe this summer, combined with the effect of the Rider REV mechanism and how we share -- 75% of that upside benefit flows back to the tariff customers on APT, we expect that impact to be modest for us.

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Ryan Michael Levine, Citigroup Inc, Research Division - Equity Analyst [34]

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Okay. And then last question. To the extent that you're able to comment, is there any update on the Georgetown incident?

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Michael E. Haefner, Atmos Energy Corporation - President, CEO & Director [35]

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Sure. And let me, for others on the call, the Georgetown situation is pretty much behind us right now. It goes back to February 20, and there was a leak reported. We responded and identified 2 leaks and repaired those leaks. And then what we identified was residual gas in the soil, that had migrated. And that led us to evacuate up to, at a peak, 85 structures that affected approximately 140 combined businesses and residents. And then we worked on getting that residual gas out of the soil. So all the evacuations have been lifted except for 1 business. And then during this process, we provided financial support and we've been processing any claims for affected businesses and residences. We've got business interruption insurance, we believe that will cover any costs that get into that territory. And we don't expect the impact -- so we don't expect the impact to be material on the year. But it's largely behind us. And I'll tell you what, our team did just an absolutely phenomenal job of responding to the situation there, working with the community and with all the regulators and city and state leaders. So...

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Operator [36]

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(Operator Instructions) Our next question is coming from Dennis Coleman from Bank of America.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [37]

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This may be a question that is a little more detailed than this, and I'm happy to take it off-line if you would like. But I wondered -- there's quite a big swing in cash flow. And I'm sort of working through the various statements trying to figure out where this is coming from. But is there a simple explanation with that drop of close to $200 million in cash flow for the 6 months?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [38]

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Right. Virtually all of that is the timing of our deferred gas cost recoveries. We were somewhat overrecovered last year, and we began working that balance down, returning those monies back to customers through the PGA. And that continued into this year. So that's virtually all of the decrease. And that was planned as we moved into fiscal '19.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [39]

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Okay. So that's all encompassed in the financing plans and whatnot? And same with...

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [40]

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Yes.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [41]

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So that will -- sort of this -- the 2019 run rate is more of what we should expect?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [42]

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Yes. It should level out now that -- after we've kind of got into a situation where, last year, we just moved a lot of volumes because it was cold. And this happens to us from time to time under those PGA mechanisms. And every jurisdiction has got a different time period in which those rates are reset, and so we're just working through that standard process. So we should be back to more of a -- I'm going to call it a "normal run rate" going forward.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [43]

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Okay. And then just to make sure I understand the equity forwards. Are you able to do sort of 5s and 10s on this? Or there -- does it have to be discrete draws? Or is there a one-time mechanism? And does -- are there any differences in that regard for the $160 million related to the S&P 500 move versus the prior forward?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [44]

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Well, a couple of things. We issued the forwards in February under the ATM program. So -- and we could -- you can go out and issue shares on a daily basis if you want. In the past, we've executed what I would call more of a regular-weight issuance, where we would take in those shares and they would become dilutive daily as we move forward. This forward -- or the ATM program that we set up last fall, we added a forward feature to it that gives us the ability to access the market on a daily basis and then basically allocate those shares under forward arrangements. So it could be a daily, it can be around an unplanned liquidity event like we did in February. It's all subject to the average daily trading volumes and kind of what -- and how ATM programs generally work. So we don't have any specifics around, "We have to target this, we have to target that." We'll just -- we'll look at the market conditions and we'll take advantage of pricing as we see it.

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Dennis Paul Coleman, BofA Merrill Lynch, Research Division - Global Head of High Grade Debt Research and MD [45]

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But when you actually call for the cash, are there any limits in that regard?

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Christopher T. Forsythe, Atmos Energy Corporation - Senior VP & CFO [46]

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No. No. The only limit we have is that we have to utilize all of the forwards and all of that cash, so those net proceeds under those arrangements, by March 31 of 2020 when those arrangements expire.

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Operator [47]

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Thank you. We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

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Jennifer P. Hills, Atmos Energy Corporation - VP of IR [48]

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Thank you for joining us today. A recording of this call is available for replay on our website through August 8, 2019. We appreciate your interest in Atmos Energy. And again, thank you for joining us. Goodbye.