Yahoo Finance ONE Gas, Inc. (NYSE:OGS) Q1 2024 Earnings Call Transcript
ONE Gas, Inc. (NYSE:OGS) Q1 2024 Earnings Call Transcript May 7, 2024
ONE Gas, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day and welcome to the ONE Gas First Quarter Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Aaron Daly [ph]. Please go ahead Ms. Daly.
Unidentified Company Representative: Thank you, Matt. Good morning everyone and thank you for joining us on our first quarter 2024 earnings conference call. This call is being webcast live and a replay will be available later today. After our prepared remarks, we're happy to take your questions. Statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ please refer to our SEC filings.
Joining us on the call this morning are Sid McAnnally, President and Chief Executive Officer; Chris Sighinolfi, Senior Vice President and Chief Financial Officer; and Curtis Dinan, Senior Vice President and Chief Operating Officer. And now, I'll turn the call over to Sid.
Sid McAnnally: Thanks, Aaron, and good morning everyone. We're happy to be with you this morning to discuss our first quarter performance. Based on our first quarter financial results, we're on track to achieve the midpoint of our 2024 financial guidance, despite warm winter weather in our service territory. Our success is made possible by the management of O&M expenses, realizing the efficiencies of bringing functions such as line locating in-house and the diligence of our coworkers and the execution of our strategic plan. We continue to add new meters, which enhances affordability for our customers and we are engaging in regulatory activity as planned, helping us address the impact of recent economic developments, as we maintain our system and fund our growing business.
We remain focused on our primary mission, the safe delivery of reliable natural gas to our customers. We recently learned that we received the American Gas Association Safety Award for having the lowest rate of significant injuries among our peer companies for the seventh year in a row. This is a remarkable achievement and one that requires a renewed commitment each day to keep our coworkers and customers safe and to operate in a way that's environmentally responsible. I'm also pleased to announce that as of December 31, 2023, we've achieved a 50% reduction in emissions due to leaks by executing our safety-driven pipeline replacement plan. This progress keeps us on track to reach our stated 2035 goal of reducing emissions associated with mains and services by 55%, measured from a 2005 baseline, even as we continue to grow our system.
We also learned that we achieved a AAA ESG rating from MSCI due to our management of safety and climate-related risks. We will continue to provide robust disclosures around our ESG policies and practices and will proactively identify and address related risks. Now, I'll turn it over to Chris to discuss our financial performance for the quarter. Chris?
Chris Sighinolfi: Thanks, Sid and good morning everyone. As Sid noted, we had solid financial performance this quarter despite the headwinds posed by elevated interest rates and persistent inflation. Our teams continue to do a great job managing the risks we can control. Net income for the first quarter was $99 million or $1.75 per diluted share compared with $103 million or $1.84 in the same period 2023. Although weather across our service territories for the first quarter was 9% warmer than normal, the impact on earnings was not material due to our effective weather normalization mechanisms. First quarter revenues reflect an increase of $11.2 million from new rates and $1.3 million from continued growth in our customer base.
First quarter O&M expenses were approximately 5% higher than the first quarter last year, continuing the moderating trend we experienced throughout 2023, as process efficiencies and the benefits of our in-sourcing efforts have borne fruit. We expect these initiatives to continue to help counterbalance inflationary pressures and as a reminder, project operating expenses to grow by approximately 5% per year through 2028. Other income net increased nearly $1 million compared to the same period last year, primarily due to increases in the market value of investments associated with our nonqualified employee benefit plans. Excluding the amounts related to KGSS1, interest expense in the first quarter was $1.2 million or roughly 7% higher than the same period in 2023, which reflects higher rates on commercial paper balances.
The issuance of $300 million of 5.1% senior notes in December and the maturity of lower coupon notes in February and March. Last fall we expanded both our credit facility and commercial paper program each to $1.2 billion from $1 billion. Our short-term debt at March 31 is elevated compared to year end 2023 as we pre-funded our February maturity with a senior note issuance in December and initially absorbed our March maturity with commercial paper. We will look to issue long-term debt and exercise our equity forward sales agreements later in the year as construction work in progress becomes used and useful. Also while our jurisdictions provide effective weather normalization mechanisms, which mitigated the earnings impact of the warm weather we experienced in the first quarter, cash flows were affected as we did not monetize as much gas and storage as we would have under normal weather conditions.
Higher initial storage balances mean we will inject less this refill season. And so we expect the storage-related cash flow impacts to be offset as we move through the next two quarters. We have forward sales agreements for approximately 3.6 million shares of our common stock with settlement by the end of 2024 at an average price of nearly $77 per share. Had all forward shares been settled at quarter end, we would have received net proceeds of approximately $274 million. We also have approximately $225 million of equity available for issuance under our at-the-market equity program. With forward sales executed last year, we have largely satisfied our equity needs for 2024. Yesterday the ONE Gas Board of Directors declared a dividend of $0.66 per share unchanged from the previous quarter.
We affirm our 2024 financial guidance including net income of $214 million to $231 million, earnings per diluted share of $3.70 to $4 and capital investments of approximately $750 million. Finally, last quarter I noted the market's vigorous debate about the pace, timing and magnitude of potential interest rates cuts from the Federal Reserve, a discussion which remains very much alive today and to which the market appears highly responsive. Accordingly, I thought it worth repeating that our 2024 financial guidance is not predicated upon any rate cuts occurring this year. We did not assume that that would happen. Moreover given heightened market volatility and consensus interest rate forecast which continue to fluctuate, we outline the modeling assumptions which underpin our five year guidance in our investor presentations and I'd point your attention back to them for a sense of our multiyear expectations.
And now I'll turn it over to Curtis.
Curtis Dinan: Thank you, Chris and good morning, everyone. I'll start with an update on the storm that moved through Oklahoma and Kansas last night. While there was widespread damage in Barnsdall and Bartlesville, Oklahoma we did not experience any significant system damage and did not have any reported injuries to any of our coworkers. Turning to our regulatory activities. The Kansas Gas Service rate case was filed in March. We are requesting a $58.1 million net revenue increase based on a 10.25% requested return on equity ratio and an equity ratio of 59.6% reflecting our actual capital structure. Each 25 basis point change in the requested ROE results in a revenue change of approximately $2.6 million and each 1% change in the requested equity ratio results in an approximate $1.2 million revenue change.
We also asked the Kansas Corporation Commission to allow a dual rate structure for high and low usage customers and an annual performance-based rate adjustment. We expect new rates to go into effect in November. Texas Gas Service made a gas reliability infrastructure program filing for all customers in the Central Gulf region in February seeking a $12.3 million adjustment with rates to be effective in June. We plan to file a full rate case for the Central Gulf territory in early June. In March, Texas Gas Service made grid filings for all customers in the West North service area requesting an $8.6 million increase to be effective in July. Finally, Oklahoma Natural Gas filed its annual performance-based rate change application in February, seeking a $31.8 million adjustment with rates expected to go into effect in late June.
Turning to our commercial and operating activities. Our capital execution continues to be strong with our investments for the first quarter running ahead of the same period last year. Looking at growth, while the first quarter saw a slight deceleration in the pace of new meter sets, as elevated mortgage rates impact the immediate-term decisions of homebuilders and potential buyers, we have set over 7,000 new meters year-to-date through April. 1900 new meters were set in April alone, making this the most active April since 2020. As we have discussed previously, our region continues to enjoy strong economic growth with new employers moving into our territories, bringing jobs, people and an ongoing need for housing. Our planning and capital execution position us to serve the growing customer base, arising from that economic development.
And now I'll turn it over to Sid for closing remarks.
Sid McAnnally: Thank you, both. Our success is made possible by the commitment of our coworkers to one another and to our mission. A positive indicator was reflected in the results of our Annual Gallup employee engagement survey, which looked at the way our coworkers experience work at ONE Gas. While our engagement scores increased for the eighth consecutive year, we are already working on improvements, reflecting our commitment to provide both industry-leading safety results and the best workplace and customer experience possible while creating long-term value for our shareholders. As Curtis mentioned, last night a series of storm systems moved through our service territory and we recognize our teams who responded, ensuring that our customers and systems were safe.
We are grateful to each and every person who took part in our response ever. I'm grateful to each of our 3900 coworkers for their dedication to safe operations and excellent service to our 2.3 million customers. Thank you all for joining us this morning. Operator, we're now ready for questions.
See also
30 Most Profitable Companies with Highest Margins in the World and
15 Most Common Counterfeit Foods in the US.
To continue reading the Q&A session, please click here.
