ONE Gas(OGS) - 2024 Q1 - Quarterly Results

First Quarter 2024 Overview This section provides a comprehensive review of ONE Gas's financial performance and key operational highlights for the first quarter of 2024 Executive Summary and Key Highlights ONE Gas announced its first quarter 2024 financial results, affirming its 2024 financial guidance and declaring a quarterly dividend. Despite a slight decrease in net income year-over-year and warmer weather, the company remains on track to achieve its annual financial guidance, supported by efficient capital execution and a focus on safe operations First Quarter Net Income and EPS Comparison | Metric | Q1 2024 | Q1 2023 | | :---------------- | :------ | :------ | | Net Income | $99.3 million | $102.6 million | | Diluted EPS | $1.75 | $1.84 | - Weather across service areas was 9 percent warmer than normal, but the impact on operating income was mitigated by weather normalization mechanisms[4] - ONE Gas was awarded the American Gas Association Safety Achievement Award for the seventh consecutive year[4] - The board of directors declared a quarterly dividend of $0.66 per share ($2.64 annualized), payable on June 4, 2024[4] - President and CEO Robert S. McAnnally stated the company remains on track to achieve the midpoint of its 2024 financial guidance based on first quarter results[2] Detailed Financial Performance Operating income for Q1 2024 decreased slightly to $145.9 million from $149.2 million in Q1 2023, primarily due to increased employee-related costs and lower sales volumes, partially offset by revenue from new rates. Net interest expense increased due to new debt issuances and repayments, while capital expenditures rose, focusing on system integrity and service expansion Operating Income Comparison | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | | :--------------- | :----------------- | :----------------- | | Operating Income | $145.9 | $149.2 | - Operating income was positively impacted by an $11.2 million increase in revenue from new rates[5] - Operating income was negatively impacted by an $8.5 million increase in employee-related costs and a $3.7 million decrease in revenue due to lower sales volumes (net of weather normalization)[10] - Actual heating degree days were 4,741 for Q1 2024, 9 percent warmer than normal and 3 percent warmer than the same period last year, with impacts mitigated by weather normalization mechanisms[5] Operating Income and Revenue Drivers Operating income was influenced by new rate revenues, increased employee costs, and lower sales volumes, with weather normalization mitigating impacts Operating Income Drivers (Q1 2024 vs Q1 2023) | Driver | Impact on Operating Income (Millions) | | :------------------------------------ | :------------------------- | | Revenue from new rates | +$11.2 | | Employee-related costs | -$8.5 | | Lower sales volumes (net of weather normalization) | -$3.7 | - Weather across the Company's service areas was 9 percent warmer than normal, and 3 percent warmer than the same period last year, with the impact on operating income mitigated by weather normalization mechanisms[5] Net Interest Expense and Income Tax Net interest expense rose due to new debt issuances and repayments, while income tax credit for EDIT amortization saw a slight increase - Net interest expense increased $1.7 million for the three months ending March 31, 2024, primarily due to the issuance of $300 million of 5.10 percent senior notes in December 2023 and the repayment of $300 million of 3.61 percent senior notes and $473 million of 1.10 percent senior notes in February and March 2024[6] Income Tax Expense Credit for EDIT Amortization | Period | Credit Amount (Millions) | | :---------------- | :----------------------- | | Q1 2024 | $10.1 | | Q1 2023 | $9.9 | Capital Expenditures Capital expenditures increased, primarily directed towards system integrity and expanding service to new areas Capital Expenditures and Asset Removal Costs | Period | Amount (Millions) | | :---------------- | :---------------- | | Q1 2024 | $179.4 | | Q1 2023 | $164.6 | - Expenditures primarily represent investments in system integrity and extension of service to new areas[7] Regulatory Activities Update This section details recent regulatory filings and rate case updates across Oklahoma, Kansas, and Texas service areas Oklahoma Natural Gas Oklahoma Natural Gas filed its annual Performance-Based Rate Change application in February 2024, seeking a base rate revenue increase, an energy efficiency incentive, and a credit for excess deferred income taxes to customers - Filed annual Performance-Based Rate Change application in February 2024 for the test year ended December 2023[8] Requested Increases/Credits | Item | Amount (Millions) | | :-------------------------------- | :------------- | | Base rate revenue increase | $31.8 | | Energy efficiency incentive | $2.4 | | EDIT credit to customers (2025) | $12.8 | - A hearing for the application is scheduled for June 4, 2024[8] Kansas Gas Service Kansas Gas Service submitted a general rate case in March 2024, requesting a significant increase in net base rates and proposing a performance-based ratemaking mechanism and a new residential customer rate class - Submitted a general rate case in March 2024[9] Requested Rate Increases | Item | Amount (Millions) | | :------------------------------------------------ | :------------- | | Increase in net base rates | $58.1 | | Total requested increase (including approved surcharges) | $93.1 | | Revenue increase already approved via Gas System Reliability Surcharge | $35.0 | - Proposed a performance-based ratemaking mechanism and a rate class designation for residential customers based on annual usage[9] Texas Gas Service Texas Gas Service made two Gas Reliability Infrastructure Program (GRIP) filings in February and March 2024, seeking rate increases for its West-North and Central-Gulf service areas - Made a GRIP filing in March 2024 for the West-North service area, requesting an $8.6 million increase to be effective in July 2024[11] - Made a GRIP filing in February 2024 for the Central-Gulf service area, requesting a $12.3 million increase to be effective in June 2024[12] 2024 Financial Guidance ONE Gas reaffirmed its 2024 financial guidance, projecting net income, diluted earnings per share, and capital expenditures for the year - ONE Gas affirmed its financial guidance issued on November 29, 2023[13] 2024 Financial Guidance | Metric | Guidance Range | | :------------------------------------------ | :------------------- | | Net income | $214 million to $231 million | | Diluted earnings per share | $3.70 to $4.00 | | Capital expenditures (incl. asset removal costs) | Approximately $750 million | Company Information and Forward-Looking Statements This section provides details on the upcoming earnings call, company profile, and important disclaimers regarding forward-looking statements and associated risks Earnings Conference Call and Company Profile ONE Gas will host an earnings conference call on May 7, 2024. The company is a 100% regulated natural gas utility, serving over 2.3 million customers across Kansas, Oklahoma, and Texas, and is included in the S&P MidCap 400 Index - An earnings conference call will be hosted on Tuesday, May 7, 2024, at 11 a.m. Eastern Standard Time[14] - ONE Gas, Inc. (NYSE: OGS) is a 100% regulated natural gas utility, included in the S&P MidCap 400 Index, and is one of the largest natural gas utilities in the United States[15] - The company provides natural gas to more than 2.3 million customers in Kansas, Oklahoma, and Texas through its divisions: Kansas Gas Service, Oklahoma Natural Gas, and Texas Gas Service[16] Forward-Looking Statements and Risk Factors This section highlights that the news release contains forward-looking statements regarding future financial performance, operations, and market conditions, which are subject to various known and unknown risks and uncertainties. These factors could cause actual results to differ materially from projections, and readers are cautioned not to place undue reliance on them - The news release contains forward-looking statements related to anticipated financial performance, liquidity, management's plans, business prospects, regulatory and legal proceedings, and market conditions[17] - These statements are made in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995[17] - Known and unknown risks, uncertainties, and other factors may cause actual results to be materially different from forward-looking statements, including factors such as the ability to recover costs, cyber-attacks, changes in regulation, economic climate, adverse weather, and access to capital[19][20][23] Appendix - Financial Data This appendix provides detailed consolidated financial statements, including income, balance sheets, and cash flows, along with specific securitization details and key operational metrics Consolidated Statements of Income The consolidated statements of income show a decrease in total revenues and net income for the first quarter of 2024 compared to the same period in 2023, primarily driven by a significant reduction in the cost of natural gas Consolidated Statements of Income (Three Months Ended March 31) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :------------------------ | :------------------ | :------------------ | | Total revenues | $758,320 | $1,032,143 | | Cost of natural gas | $383,003 | $665,799 | | Operating expenses | $229,457 | $217,113 | | Operating income | $145,860 | $149,231 | | Net income | $99,317 | $102,621 | | Diluted EPS | $1.75 | $1.84 | | Dividends declared per share | $0.66 | $0.65 | Consolidated Balance Sheets The consolidated balance sheets indicate a slight decrease in total assets from December 31, 2023, to March 31, 2024. Key changes include an increase in net property, plant and equipment, a decrease in total current assets, and a significant increase in notes payable within current liabilities Consolidated Balance Sheets (Selected Items) | Metric | March 31, 2024 (Thousands) | December 31, 2023 (Thousands) | | :------------------------------------------ | :------------------------- | :-------------------------- | | Total assets | $7,764,037 | $7,770,994 | | Net property, plant and equipment | $6,237,954 | $6,135,212 | | Total current assets | $663,695 | $765,204 | | Total equity | $2,829,985 | $2,765,877 | | Total long-term debt (excl. current maturities) | $2,146,362 | $2,160,401 | | Total current liabilities | $1,403,524 | $1,477,221 | | Notes payable | $953,400 | $88,500 | Consolidated Statements of Cash Flows Cash provided by operating activities significantly decreased in Q1 2024 compared to Q1 2023, largely due to the absence of proceeds from government securitization of winter weather event costs. Investing activities showed an increase in cash used, while financing activities shifted from cash used to cash provided, primarily driven by net borrowings of notes payable Consolidated Statements of Cash Flows (Three Months Ended March 31) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :------------------------------------------ | :------------------ | :------------------ | | Net income | $99,317 | $102,621 | | Cash provided by operating activities | $108,262 | $469,066 | | Cash used in investing activities | $(165,981) | $(149,879) | | Cash provided by (used in) financing activities | $39,804 | $(310,388) | | Proceeds from government securitization of winter weather event costs | $0 | $197,366 | | Borrowings (repayments) of notes payable, net | $864,900 | $(272,000) | KGSS-I Securitization Details This section provides specific financial details regarding the Kansas Gas Service Securitization I (KGSS-I), which issued $336 million in securitized utility tariff bonds in November 2022, outlining its impact on the consolidated balance sheets and statements of income - Kansas Gas Service Securitization I (KGSS-I) issued $336 million of securitized utility tariff bonds in November 2022[34] Impact of KGSS-I on Consolidated Statements of Income (Q1) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :------------------------ | :------------------ | :------------------ | | Operating revenues | $11,671 | $11,933 | | Operating expense | $(111) | $(110) | | Amortization expense | $(7,385) | $(7,089) | | Interest income | $188 | $75 | | Interest expense | $(4,327) | $(4,809) | | Income before income taxes | $36 | $0 | Impact of KGSS-I on Consolidated Balance Sheets (Selected Items) | Metric | March 31, 2024 (Thousands) | December 31, 2023 (Thousands) | | :------------------------------------------ | :------------------------- | :-------------------------- | | Restricted cash and cash equivalents | $9,963 | $20,552 | | Securitized intangible asset, net | $286,234 | $293,619 | | Securitized utility tariff bonds, excluding current maturities | $268,102 | $282,506 | Information at a Glance This comprehensive table provides a snapshot of key financial and operational metrics for Q1 2024 and Q1 2023, including detailed breakdowns of revenues, costs, income, capital expenditures, sales volumes, customer counts, and heating degree days across the company's service areas Key Financial Metrics (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (Millions) | Q1 2023 (Millions) | | :-------------------------------- | :----------------- | :----------------- | | Total revenues | $758.3 | $1,032.1 | | Cost of natural gas | $383.0 | $665.8 | | Operating costs | $152.8 | $145.8 | | Operating income | $145.9 | $149.2 | | Net income | $99.3 | $102.6 | | Capital expenditures and asset removal costs | $179.4 | $164.6 | Volumes Delivered (Bcf) (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (Bcf) | Q1 2023 (Bcf) | | :------------------------ | :------------ | :------------ | | Natural gas sales | 70.5 | 73.8 | | Transportation | 63.4 | 64.9 | | Total volumes delivered | 133.9 | 138.7 | Average Number of Customers (Thousands) (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 (Thousands) | Q1 2023 (Thousands) | | :---------------- | :------------------ | :------------------ | | Residential | 2,110 | 2,100 | | Commercial and industrial | 165 | 165 | | Total customers | 2,290 | 2,280 | Heating Degree Days (Company-wide) (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :-------------------------------- | :------ | :------ | | Actual degree days | 4,741 | 4,872 | | Normal degree days | 5,219 | 5,237 | | Percent colder (warmer) than normal weather | (9.2)% | (7.0)% |