Atmos Energy Corporation Reports Earnings for Fiscal 2019 First Quarter; Reaffirms Fiscal 2019 Guidance

Atmos Energy Corporation (NYSE: ATO) today reported consolidated results for its first quarter ended December 31, 2018.

• Consolidated net income for the three months ended December 31, 2018 was $157.6 million or $1.38 per diluted share, compared with consolidated net income of $314.1 million, or $2.89 per diluted share for the same period last year. Adjusted net income for the three months ended December 31, 2017 was $152.2 million, or $1.40 per diluted share, after excluding the effects of implementing the Tax Cuts and Jobs Act of 2017 (TCJA) from the prior-year quarter.
• Capital expenditures rose 8.7% to $416.4 million for the three months ended December 31, 2018, with approximately 82 percent of that spending related to system safety and reliability investments.
• Atmos Energy expects fiscal 2019 earnings to be in the range of $4.20 to $4.35 per diluted share. Capital expenditures are expected to be in the range of $1.65 billion to $1.75 billion in fiscal 2019.
• The company's Board of Directors has declared a quarterly dividend of $0.525 per common share. The indicated annual dividend for fiscal 2019 is $2.10, which represents an 8.2% increase over fiscal 2018.

"Fiscal year 2019 is off to a solid start,” said Mike Haefner, President and Chief Executive Officer of Atmos Energy Corporation. "This is not only indicated by the strength of our financial position, but also by the continued implementation of our strategic plans to enhance the safety and reliability of our systems. These investments positively impact our customers, the communities we serve and the environment. We remain well positioned to deliver annual earnings per share growth between 6% and 8% for fiscal 2019.”

Results for the Three Months Ended December 31, 2018

Operating income decreased $5.6 million to $236.5 million for the three months ended December 31, 2018, from $242.1 million in the prior-year quarter. Positive contribution margins driven by weather and consumption, higher customer counts in our distribution segment and volumes in our pipeline and storage segment were more than offset by higher operating expenses and increased depreciation expense.

Distribution contribution margin increased $4.1 million to $401.1 million for the three months ended December 31, 2018, compared with $397.0 million in the prior-year quarter. Contribution margin reflects a net $7.7 million increase in weather and consumption, primarily in our Mid-Tex, Mississippi and Colorado-Kansas Divisions, and a $3.7 million increase in customers, primarily in the Mid-Tex division. These increases were partially offset by a $7.3 million net decrease in rates as a result of incorporating the lower statutory tax rate in revenues due to the TCJA.

Pipeline and storage contribution margin increased $9.2 million to $134.8 million for the three months ended December 31, 2018, compared with $125.6 million in the prior-year quarter. This increase is attributable to a $6.1 million increase in rates, due to the GRIP filings approved in fiscal 2018, and a net increase of $3.1 million due to wider spreads and positive supply and demand dynamics in the Permian Basin.

Operation and maintenance expense for the three months ended December 31, 2018, was $138.6 million, compared with $129.0 million for the prior-year quarter. This $9.6 million increase was primarily driven by higher employee costs and timing of pipeline maintenance activities in the current quarter.

Outlook

The leadership of Atmos Energy remains focused on enhancing system safety and reliability through infrastructure investment while delivering shareholder value and consistent earnings growth. Atmos Energy expects fiscal 2019 earnings to be in the range of $4.20 to $4.35 per diluted share. Capital expenditures for fiscal 2019 are expected to range between $1.65 billion and $1.75 billion.

Conference Call to be Webcast February 6, 2019

Atmos Energy will host a conference call with financial analysts to discuss the fiscal 2019 financial results on Wednesday, February 6, 2019, at 8:00 a.m. Eastern Time. The domestic telephone number is 877-485-3107 and the international telephone number is 201-689-8427. Mike Haefner, President and Chief Executive Officer, and Chris Forsythe, Senior Vice President and Chief Financial Officer, will participate in the conference call. The conference call will be webcast live on the Atmos Energy website at www.atmosenergy.com. A playback of the call will be available on the website later that day.

Forward-Looking Statements

The matters discussed in this news release may contain "forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this news release are forward-looking statements made in good faith by the company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this news release or in any of the company's other documents or oral presentations, the words "anticipate,” "believe,” "estimate,” "expect,” "forecast,” "goal,” "intend,” "objective,” "plan,” "projection,” "seek,” "strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this news release, including the risks and uncertainties relating to regulatory trends and decisions, the company's ability to continue to access the credit and capital markets and the other factors discussed in the company's reports filed with the Securities and Exchange Commission. These factors include the risks and uncertainties discussed in Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2018 and in subsequent filings with the Securities and Exchange Commission.

Although the company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. The company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Non-GAAP Financial Measures

The historical financial information in this news release utilizes certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP). Specifically, the company uses contribution margin, defined as operating revenues less purchased gas cost, to discuss and analyze its financial performance. Its operations are affected by the cost of natural gas, which is passed through to its customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees, along with hedging settlements. These costs are reflected in the income statement as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, the company believes contribution margin is a more useful and relevant measure to analyze its financial performance than operating revenues. The term contribution margin is not intended to represent operating income, the most comparable GAAP financial measure, as an indicator of operating performance, and is not necessarily comparable to similarly titled measures reported by other companies.

In addition, the enactment of the TCJA required the company to remeasure its deferred tax assets and liabilities at its new federal statutory income tax rate as of December 31, 2017, which resulted in the recognition of a non-cash income tax benefit during the three months ended December 31, 2017. Due to the non-recurring nature of this benefit, the company believes that net income and diluted earnings per share before the one-time, non-cash income tax benefit, provides a more useful and relevant measure to analyze its financial performance than net income and diluted earnings per share in order to allow investors to better analyze the company's core results and allow the information to be presented on a comparative basis to the prior year. Accordingly, the discussion and analysis of the company's financial performance will reference adjusted net income and diluted earnings per share, which is calculated as follows:

About Atmos Energy

Atmos Energy Corporation, headquartered in Dallas, is the country's largest fully-regulated, natural-gas-only distributor, serving over three million natural gas distribution customers in over 1,400 communities in eight states from the Blue Ridge Mountains in the East to the Rocky Mountains in the West. Atmos Energy also manages company-owned natural gas pipeline and storage assets, including one of the largest intrastate natural gas pipeline systems in Texas. For more information, visit www.atmosenergy.com.

This news release should be read in conjunction with the attached unaudited financial information.

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