ONE Gas, Inc. Q1 FY2025 earnings call

• Executed regulatory plan with new rates taking effect, enabling recovery of system investments and supporting customer growth and reliability.
• Faced five winter storms in Jan-Feb without significant outages, demonstrating effectiveness of system investments.
• Teams focused on expense management, with disciplined procurement strengthening supply chain and expecting insulation from material tariff impacts through 2025.
• Achieved 51% reduction in leak-related emissions, on track to meet 2035 emissions goal.
• In-sourced line locating in Oklahoma, with employees now performing about 40% of line locating services.
• Installed nearly 8,000 new meters by April, with growth in major metropolitan areas of Texas, Oklahoma, and Wichita, Kansas.

ONE Gas reported strong financial results for the first quarter with net income of $119 million or $1.98 per diluted share. Revenues increased by approximately $52 million from new rates and $2 million from customer growth. First quarter O&M expenses were approximately 2% higher than the same period last year, but the team projects a 4% CAGR in O&M expenses over the five-year plan. Other income net decreased by nearly $3 million due to decreases in the market value of investments associated with the nonqualified employee benefit plan.

• Now expects to achieve upper half of stated guidance ranges for net income ($254 million to $261 million) and earnings per diluted share ($4.20 to $4.32).
• Projects 4% CAGR in O&M expenses over the five-year plan.
• Board declared a dividend of $0.67 per share, unchanged from previous quarter.
• Forward sale agreements for 403,000 shares of common stock with average price near $75 per share, and approximately $225 million of equity available for issuance under the at-the-market equity program.

• Potential impact of legislative changes such as utility worker protections and eminent domain legislation.
• Supply chain tariffs could affect, but company expects to be insulated through 2025 due to direct supplier relationships and careful planning.

Q: Could you elaborate on the guide up within guidance for the year?

A: It's a combination of strong customer demand, continued customer base growth, and better-than-expected cost management.

Q: What's the impact of HB 4384 in Texas?

A: The bill could help with recoveries and earlier returns on projects, but doesn't drastically change capital plans as capital decisions are based on system needs, customer development, and resource impact on customer bills.

Q: Is the insourcing program for line locating going to sunset?

A: No, there are ongoing activities, and the team is more measured in the process now, with continued evaluation of other areas for in-sourcing.

Q: How did weather impact working capital and interest expense?

A: Strong demand from weather led to higher sales volume, affecting working capital needs, but commercial paper rates decreased due to the Federal Reserve's cut, providing a modest benefit.

Q: What's the expectation for O&M expenses by year end?

A: Expect a 4% CAGR over the five-year plan, with the team aiming to be below that through ongoing efficiency efforts.