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Clean Energy Fuels’ (CLNE) CEO Andrew Littlefair on Q1 2016 Results – Earnings Call Transcript

Clean Energy Fuels Corp. (NASDAQ: CLNE ) Q1 2016 Results Earnings Conference Call May 5, 2016, 04:30 PM ET Executives Tony Kritzer – Director of Investor Communications Andrew Littlefair – President and Chief Executive Officer Robert Vreeland – Chief Financial Officer Analysts Eric Stine – Craig-Hallum Rob Brown – Lake Street Partners Pavel Molchanov – Raymond James Operator Greetings and welcome to the Clean Energy Fuels first quarter 2016 earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Tony Kritzer, Director of Investor Relations. Please go ahead. Tony Kritzer Thank you, operator. Earlier this afternoon, Clean Energy released financial results for the first quarter ending March 31, 2016. If you do not receive the release, it is available on the Investor Relations section of the company’s Web site at www.cleanenergyfuels.com where the call is also being webcast. There will be a replay available on the Web site for 30 days. Before we begin, we’d like to remind you that some of the information contained in the news release and on this conference call contains forward-looking statements that involve risks, uncertainties and assumptions that are difficult to predict. Words of expression reflecting optimism, satisfaction with current prospects, as well as words such as believe, intend, expect, plan, should, anticipate and similar variations identify forward-looking statements, but their absence does not mean that the statement is not forward-looking. Such forward-looking statements are not a guarantee of performance and the company’s actual results could differ materially from those contained in such statements. Several factors that could cause or contribute to such differences are described in detail in the Risk Factors section of the Clean Energy’s Form 10-Q filed May 5, 2016. These forward-looking statements speak only as of the date of this release. The company undertakes no obligation to publicly update any forward-looking statements or supply new information regarding the circumstances after the date of this release. The company’s non-GAAP EPS and adjusted EBITDA will be reviewed on this call and exclude certain expenses that the company’s management does not believe are indicative of the company’s core operating business results. Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP and should not be considered as a substitute for, or superior to, GAAP results. The directly comparable GAAP information, reasons why management uses non-GAAP information, a definition of non-GAAP EPS and adjusted EBITDA, and a reconciliation between these non-GAAP and GAAP figures is provided in the company’s press release, which has been furnished to the SEC on Form 8-K today. Participating on today’s call from the company is President and Chief Executive Officer, Andrew Littlefair, and Chief Financial Officer, Bob Vreeland. And with that, I will turn the call over to Andrew. Andrew Littlefair Thank you, Tony. Good afternoon, everyone, and thank you for joining us. I’m going to keep my remarks focused on the most important takeaways from what we feel was a strong first quarter. We reported first quarter revenue of $95.8 million, which is a 12% increase over the first quarter of last year. Additionally, we reported $29.8 million of adjusted EBITDA versus negative $5.6 million in Q1 of 2015. The first quarter of 2016 included $6.4 million of VETC and a gain of $15.9 million from buying back some of our converts at a discount. However, even when these real benefits are backed out, our adjusted EBITDA was still positive at $7.5 million, an improvement of over $13 million from the first quarter of 2015. We delivered 77.5 million gallons to our customers. This is a 3% increase over the 75 million gallons we delivered during the first quarter of 2015. On the year-end earnings call, I told you that a primary focus for 2016 would be to conserve cash and de-leverage the balance sheet. To that end, we repaid $60 million of the $145 million convertible notes due in August 2016. In addition, given favorable pricing, we have been opportunistically repurchasing our 2018 convertible debt in the open market through privately negotiated transactions. In the first quarter, we repurchased $32.5 million; and so far in the second quarter, we have repurchased an additional $31.5 million. All told, we have repurchased $64 million of our 2018 convertible notes, leaving $186 million due in October 2018. Our total convertible debt reduction is $124 million. Also to date, in 2016, we have raised $32.4 million of proceeds from public stock sales. At quarter-end, we had $163 million of cash and investments on our balance sheet. Additionally, we reduced our SG&A by 15% year-over-year, while growing our volume and revenues. We are on track with our reduced CapEx budget of $25 million for 2016, which is 50% less than last year, so we are executing on our plan to conserve cash and reduce our debt. From an industry perspective, the pressure for companies to become more sustainable continues to grow. We see natural gas fueling as an economic and realistic solution that a company can utilize to achieve greater sustainability. And we are working with a variety of fleets and shippers like Kroger and Unilever as well as trucking companies, waste companies and municipalities. Fleets continue to look to fuel with natural gas. Here is a noteworthy example. The United States Postal Service is pursuing an initiative to reduce their carbon footprint by 20% by 2020 and have concluded that natural gas is the alternative fuel of choice for their third-party contracted carriers. These carrier carriers are responsible for the majority of all USPS transportation emissions. As part of their contract renewals, the Postal Service is starting to require its outside carriers to use natural gas where it is cost-effective. We are currently working with five other major carriers, who combined have 75 natural gas tractors fueling at several of our highway stations. Additionally, the USPS is considering replacing some of their own Class A tractors and straight trucks with natural gas. Turning now to our renewable fuel business, we continue to see increased interest in demand for our renewable fuel offering. Through our robust network of stations, we have established a pathway to Redeem, our renewable green gas, into vehicles. This is the best way to realize the full value of renewable fuel, which contributed $11 million of revenue in the first quarter. I want to emphasize that our expanding infrastructure has enabled us to benefit from this rapidly growing renewable market and differentiates us from our competitors. Companies like UPS, Ryder, Republic Services and many transit agencies use Redeem and understand its significance. Another important industry innovation, the Cummins Westport low NOx engine has already captured a lot of interest, and these engines are available to order. As a reminder, this low NOx engine reduces NOx 90%. And when combined with our Redeem renewable fuel, it has 90% less carbon. It is cleaner than running an electric vehicle that is plugged into the grid. In the industry, this new introduction is referred to as game changer. Turning now to our station construction, we benefited, during the first quarter, from an increase in full station projects. Currently, we have over 60 projects under contract and in the pipeline. We continue to believe our robust construction pipeline is a solid indicator that our customers continue to make investments in expanding their fleets and remain committed to their sustainability goals. Our virtual pipeline subsidiary, NG Advantage, showed impressive growth, delivering close to 8.6 million gallons to their customers. I’m also pleased to report that we recently signed a follow-on supply deal with Hawaii Gas, which is contracted to purchase over 14 million LNG gallons over the next five years. All told, it was a strong quarter. And I believe it is a testament to our diverse product offering and recurring revenue base. Our largest customers continue to buy new trucks and invest in their natural gas operation and we continue to gain new customers across our markets of transit, refuse and trucking. Our adjusted EBITDA continues to trend positively and we are taking strategic actions to de-leverage our balance sheet and we’re being disciplined with our capital. And with that, I’ll turn the call over to Bob. Robert Vreeland Thank you, Andrew. Good afternoon to everyone. As Andrew mentioned, we have a strong quarter with continued volume growth, a 12% increase in revenue, and adjusted EBITDA of $29.8 million. Starting with volume of 77.5 million gallons, a 3% growth rate over the first quarter of 2015, impacting this growth rate was a decline in RNG volume of 3.5 million gallons. Most of that decline is the result of no longer owning and operating our former Dallas bio-methane plant, which we sold and then operated through mid-April of 2015. Exclusive of those gallons, our volume growth was 8% year-over-year. As Andrew mentioned, NG Advantage had strong year-over-year growth as did our refuse sector, while the other sectors were level with a year ago. LNG volume was down 2.9 million gallons, principally from lower bulk LNG sales. Bulk LNG sales can be uneven throughout the year as LNG demand is influenced by various external factors, such as, more recently, the slowdown in E&P industry, the variable demand of large industrial customers, and weather. We remain active and compete well in the bulk LNG marketplace as evidenced by our new deal with Hawaii Gas. Our Redeem gallons, which are included in our CNG and LNG fuel gallons, increased 70% year-over-year to 15.2 million gallons for the quarter. Our 12% increase in revenue in the first quarter was driven by a better effective price per gallon on higher volume, increased construction project revenue, and the alternative fuel tax credit referred to as VETC. Our Compression sales were down year-over-year as we remain in this challenging global oil environment together with a strong US dollar, although the related gross margin contribution from our Compression business was better than a year ago despite the lower revenue. Our adjusted EBITDA of $29.8 million was driven by a strong gross profit margin, continued reductions in SG&A spending, and a gain from our opportunistic convertible debt repurchase. Our strong gross profit margin was driven substantially by the impacts of selling our Redeem fuel and the associated environmental credits, which helped take our gross profit margin per gasoline gallon equivalent to $0.36 per gallon compared to $0.28 for the first quarter of 2015. Both quarters include the state and federal environmental credits, the LCFS and RINs. The combined credits amounted to $11 million in the first quarter of 2016 compared to $3.2 million in 2015. The economic benefits from the environmental attributes of both natural gas and Redeem remain strong and have more than offset the pressure on retail fuel margins from this low oil and diesel price environment. And finally, on gross margin, we benefited from our increased station construction project sales and the VETC revenue. Our 15% reduction in SG&A to $25.6 million was $4.6 million lower than a year ago and $1 million or 4% lower than the recent fourth quarter. This has been a continuing trend and is the result of the actions we’ve taken given the low oil price environment. And as Andrew mentioned, we recorded a $15.9 million gain on the repurchase of $32.5 million of our 2018 convertible debt. The higher revenues and gross profit margin and lower SG&A, along with the gain on debt repurchase, led to GAAP net income of $2.8 million in the first quarter of 2016 compared to a net loss of $31 million a year ago. And it also lead to an improvement of $35.4 million in adjusted EBITDA from a year ago. Looking forward, we anticipate our Redeem sales to benefit our results, VETC will be recorded each quarter in 2016 relative to volume, and we continue to expect positive quarterly adjusted EBITDA for the balance of 2016. And with that, operator, we’ll open the call to questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] Your first question comes from Eric Stine with Craig-Hallum. Please go ahead. Eric Stine Hi, everyone. Nice quarter. Andrew Littlefair Thank you, Eric. Robert Vreeland Thanks, Eric. Eric Stine I want to start with Redeem, especially given the impact that had in this quarter. How do you think about that long-term – limiting factors to growing volumes there? I know part of it is that, right now, what, California and Oregon that have LCFS, have the standards where you can participate. But do you see other states going down the road of California? And ultimately, where do you think that those Redeem volumes can go? Andrew Littlefair Thanks. I think the short answer, Eric, is the – we’ve had tremendous growth in the Redeem business, and so it won’t be easy to keep up on that growth. But it will continue to develop, and so I think you should count on what we’re doing. So what you saw in the first quarter should continue. I really think that in terms of renewable fuel, we’re really at a beginning point as we’ve got a few different – I know you attended the ACT Conference out here. I really believe that the transportation industry, passenger car, and also those in goods movement, I think this being sustainable fuels and sustainable technologies, I think we’re just at the beginning of what’s going to be a very long move toward cleaner fuels and cleaner innovation, cleaner technology. So I think, over time, you’ll see us continue to grow Redeem. Washington State is now looking at Low Carbon Fuel Standards. We’re selling Redeem in Texas now. The Northeast has kind of come in and out of something that feels a little bit like Low Carbon Fuel Standards. Some states will be more progressive than others. But I think you’re going to continue over time to see more and more regulations that incent and begin to put more values on carbon. And so, I think the good news is for our industry and for our company is that we have this renewable fuel, we have the network to be able to dispense it and the pathway to be able to get it into vehicles. That gives us a huge leg up compared to some of the others in this business. And I think that having the technology, the new Cummins Westport engine which I know was highlighted at this big conference out here just this week, it’s a low NOx engine which is very important for tailpipe emissions, but it also – when it’s combined, as I said in my remarks, with Redeem, it’s really cleaner than the grid which is a big deal. So I think we are well-positioned and I think it will be important, Eric, as we go forward. Eric Stine That’s volumes. But in terms of pricing, what I’m looking at or reading, it seems like the thought is that the pricing, the carbon price per ton, that trend, while there may be some near-term volatility, the trend there is higher too. Andrew Littlefair Yes, Eric. And that’s right. So there’s two – there’s definitely two components to that. There’s the volume and then there’s the pricing of the environmental credits. And that environment has been strong and continues to be strong at the moment. Now, like you said, there’s always the chance of some volatility. But just the way – with the standards that have been set and the obligated parties and all of that, it’s making that kind of a strong market. Eric Stine Yeah, okay. Maybe just thinking about your fleet activity, yesterday, at ACT, clear impression that people thinking that the market is probably flat this year, maybe down a little bit, but just curious, are you seeing any movement in your pipelining other than maybe the timing getting pushed out a little bit? Have any fleets dropped out of that pipeline? What are you seeing right now? Andrew Littlefair Eric, when you look at our customer base, the refuse market continues to be strong. It’ll be as big a year as we’ve had. And we’ve been a host of an industry event, which is called the Garbageman’s Invitational. It’s worth 300 refuse industry executives come here a couple weeks ago. And to a company, they’re all fueling natural gas trucks. And so, that’s a really important segment for us. We see the same thing expanding in transit. Now, when we talk about kind of flat year-over-year, the trucking industry hasn’t been as involved. It doesn’t have quite the maturity in terms of putting vehicles in their fleet like the refuse and transit guys who have been at this now for a decade. So it was a newer segment for us. And I would say, Eric, those that – we’re still seeing new fleets come, often in more of a testing mode with handfuls or dozens of vehicles rather than large purchases. But even in that segment, which I think you’re correct, that it will be similar this year to what it was last year, which I would consider to be important that we’re not backsliding. UPS continues to show the way as other big fleets like them. They haven’t turned back and we haven’t really seen any existing customers that have been in this, especially in the trucking, go back. Those that were on the fence when we entered this downturn in the oil price, they continue to review it. But I would say their attitude – and I’ve even probably met some out there at the conference. The attitude is not opposed to natural gas. In fact, I find it refreshing, in that they’re interested in moving forward. But they’re mindful of the fact that they’ve gotten very low diesel price right now. So I think that when that subsides you’re going to see an uptick in the adoption of natural gas for heavy duty trucking. Eric Stine Right. I guess this is kind of tough to quantify, but I’ll ask anyways. Is there an oil price that you look at and say, okay, at that level, then that’s when trucking really pick back up again? Andrew Littlefair It’s hard to pin me down there. But I know this is that, we’ve had some customers begin to model out oil at $40 a barrel, right? And in some cases, that sort of is difficult to make the natural gas equation work as well as it once did. I think, Eric, when you see $50, $55, $60 a barrel, it really gets – it really begins to move up the price of diesel. Look, diesel price has gone up nationally $0.10 in the last two weeks. It’s gone up every week for the last four weeks. And so, we don’t need to see $100 oil. You need to see the price of – we need to get off of people thinking that we’re going to have $40 oil forever. And I think once they see that there’s volatility, again, in their oil price and it comes back up to $50, $55, $60, I think that’s going to be the signal to have people begin to then – natural gas is still – let’s not forget, that’s our big commodity that we use here and it’s low. It’s very low. And so, the economics begin to sing again when you get back up to that oil price. Eric Stine Okay, thanks a lot. That’s it for me. Andrew Littlefair Yeah. Operator Your next question comes from Rob Brown with Lake Street Capital Markets. Please go ahead. Andrew Littlefair Hi, Rob. Good afternoon. Rob Brown Congratulations on the EBITDA improvement. I think you said you had 60 stations in your pipeline. Could you give us a sense of – is that all to be delivered this year? And then maybe a sense of the gallon volume that those projects sort of generate ongoing? Andrew Littlefair I don’t know that I have the volume for you, Rob. But most of those stations that we’re talking about in the pipeline will be delivered this year. Rob Brown And then the mix of those, is it refuse mostly or maybe what is the mix there? Andrew Littlefair Big piece of those, refuse that are under contract, some are for our own account, some are for long contracted volumes from anchored tenants for stations that we’re building. Majority of those, though, are for customers – that we’re selling customers. And I hedged just a bit when we use the number over 60 and stuff like that because we get toward the end of the year and some of these – they will be under construction. But you never know if you’re going to get them all – four or five of them, we got it in December and this and that. But it looks to me like the station count should be very similar this year as it was last year, which are some of our biggest years that we’ve had. Rob Brown Okay, great. And then the Hawaiian Gas contract, I assume you’re supplying that out of Boron, but could you give us a sense of, again, what the gallon volume is there and sort of how that works? Andrew Littlefair Well, it starts out slow. And then my friends at Hawaii Gas have been – they’ve been wanting us to be careful about how much we’re saying. But it starts out – as you know, Rob, we’ve sold them some LNG already really more of in a test mode. And we had pieces of this contract done, gosh, maybe as long as a year ago and we were awaiting PUC approval, which came here a little bit ago. They’re now in the process of beginning to go out to bid to receive the containers that will be used for that shipping. Those will be – that’s underway now. Those containers will be delivered throughout this year and I imagine a big slug of those in the back end of this year. So we’ll begin to ramp up. And I think it begins to amount to around 3 million, 3.5 million gallons a year. And there’s a chance we’d do better than that. But it’s a nice additional load. And I hope the experience will be well because even with – you can imagine, all this entailed, we’re still able to bring them a very clean fuel that beats the otherwise imported fuel that they use for the islands. So we’re excited about it. They’re excited about it. And I hope that we can increase that from the number that I gave you in my remarks. Rob Brown Great, thank you. I’ll turn it over. Operator Your next question comes from Pavel Molchanov with Raymond James. Please go ahead. Pavel Molchanov Thanks for taking the question, guys. One of the things that’s really helped you get into positive EBITDA is the reduction in SG&A. So you went from $30 million a year ago to $26 million this quarter. Is there any further room to cut that even more? Robert Vreeland Yes, there is room. And so, we’ve been feeling the effects of actions that we’ve taken as we’ve been going along. So it’s been kind of coming down each quarter. Certainly, on a year-over-year basis, it’s a bigger number. As we go sequentially, it’s coming down. But at some point, it’ll flatten a little bit. Pavel Molchanov Okay, pretty close to where we are right now? Andrew Littlefair I think, Pavel, there’s a little room still left in it. We’re continuing to eye different things to try to bring it down some more. I think there’s still some room left. You’ll see it maybe improve, continue this year. But all the while we’re still growing. And so, there’ll be a limit to how low we can bring it. Robert Vreeland Yeah. So it’s pretty close. Pavel Molchanov Just a housekeeping question, in Q1, you got the VETC catchup cash inflow, how much was that? Robert Vreeland Correct. So we collected all of the VETC that related to 2015. Pavel Molchanov How much is that? Robert Vreeland Yeah, so it was a little bit in excess of about $30 million. Pavel Molchanov $30 million. Thank you, guys. Robert Vreeland Yeah. North of that. Little bit north of that. Andrew Littlefair $32 million. Robert Vreeland Yeah. So it’s a little bit… Andrew Littlefair $32 million, yeah. Robert Vreeland Exactly. Andrew Littlefair Thanks, Pavel. Operator Thank you. There are no further questions at this time. I’d now like to turn the floor back over to Mr. Littlefair for closing remarks. Andrew Littlefair Good. Well, thank you, operator. Thank you, everyone. I want to thank you for listening and – listening in on the call this afternoon. We look forward to updating you on our progress next quarter. Operator That does conclude our conference for today. Thank you for participating. You may now disconnect your lines. 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El Paso Electric Company’s (EE) CEO Mary Kipp on Q4 2015 Results – Earnings Call Transcript

Operator Good day. And welcome to the El Paso Electric Company Fourth Quarter 2015 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Lisa Budtke. Please go ahead. Lisa Budtke Thank you, Diana. Good morning, everyone. Thank you for joining the El Paso Electric Company fourth quarter 2015 earnings call. My name is Lisa Budtke, and I’m the Director of Treasurer Services and Investor Relations for El Paso Electric. On the call with us today are CEO, Mary Kipp; CFO, Nathan Hirschi; and other members of the senior management. You should have a copy of our press release and today’s presentation. And if you do not, you can obtain them from the website on our Investor Relations page. We currently anticipate that our 2015 Form 10-K will be filed with the Securities and Exchange Commission on or before Monday, February 29, 2016. A replay of today’s call will be available shortly after our call ends, and will run through March 9. The details as they relates to the replay are disclosed in our press release. On Slide 2 of our presentation you will see our Safe Harbor provisions. In summary, our earnings presentation, comments and answers to your questions may include statements that are not historical and that constitute forward looking statement. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the company’s actual results in future periods to differ materially from the expectations stated here. As the format of this presentation does not permit a full discussion of these risks, please refer to our Form 10-K and other SEC filings for a discussion of risk factors that should be considered. These filings may be obtained upon request from the Company, on our website or from the SEC. The Company cautions that the risk factors discussed in these filings are not exhaustive, and do not undertake to update any forward-looking statement that maybe made from time to time by or on behalf of the Company. At this time, I would like to turn the call over to Mary. Mary Kipp Good morning, everyone. On Slide 3 of the presentation I’ll briefly cover our financial performance in 2015. During the fourth quarter, we were able to record positive earnings of $0.02 per share despite the negative impact resulting from regulatory lag associated with the placement of new assets into service in the first quarter of 2015 without a corresponding increase in revenues. For the year, we reported net income of $81.9 million, or $2.03 per share which was right at the mid point of our guidance range issued during our third quarter earnings call. Also of note on January 28, 2016 the Board of Directors declared a quarterly cash dividend of $0.295 per share payable to shareholders on March 31, 2016. If you now turn to Slide 4 of the presentation, I’d like to point out some of the significant highlights that the company achieved in 2015. As I look back on all of the challenges we faced at 2015, I am extremely proud of the achievements made by the company during a very dynamic year. We began the year by completing construction of the first two generating units at the Montana Power Station. These first two units were completed on schedule and are currently providing enough energy to serve 80,000 homes in our growing service territory. We also completed construction of our new 100,000 square foot Eastside Operation Center in early 2015. The new operation center incorporates green design features which include energy efficiency and water conservation concepts. The operation center will also consolidate many of our El Paso warehousing, fleet, line crew and engineering personnel into one location, allowing us to improve the efficiency of operations, including outage response time. One of the biggest accomplishments in 2015 was the filing of rate cases in both Texas and New Mexico. The cases were necessary to seek recovery of approximately $1.3 billion that has been invested in new electric plant to meet customer growth and grid modernization since June 2009. I am also pleased with the progress of construction on the latest addition to our portfolio of local generation. Construction of Montana units 3 and 4 is on schedule on budget and is progressing well. In 2015, our consistently growing service territory and hotter than normal summer weather combined to create another native peak record of 1,794 megawatts achieved on August 6, 2015. This was the second native peak record achieved by the company during 2015. El Paso Electric has set a new native peak record in 10 out of the last 11 years. I am also pleased that Palo Verde had another stellar year in 2015 increasing its capacity factor to 94%. Palo Verde recorded its highest output ever in 2015 and once again ranks as the nation’s largest power producer for the 24th consecutive year. Also during 2015, the company was able to successfully implement a management transition strategy. Several key management positions were filled from within the company in 2015 which will leave the company well positioned for the future and will enable us to provide the safe and reliable service that our community has grown to know. Also in 2015, our employees’ commitment to excellence and our continued focus on our customers allowed us to maintain favorable customer satisfaction rating. I am also happy to see how the El Paso Electric family came together to benefit the local community last year. Our employees devoted their time and effort by volunteering almost 10,000 hours to our communities. At this time, I’d like to turn to Slide 5 where I will discuss the company’s 2016 objectives. Construction of Montana units 3 and 4 continues as planned. We expect unit 3 to be available for commercial operation in time for our summer peak and we anticipate that unit 4 will be placed into service by the end of this year, which are among our main objectives for 2016. Placing these two generating units into commercial operation by the end of the year is one of the main objectives for the company. Also in 2016, we anticipate further lowering our carbon footprint by becoming a coal free utility. We intend to sell our 7% ownership interest in Four Corners the Units 4 and 5 and associated common facilities to Arizona Public Service Company in July pending regulatory approval. This transaction will not only allow us to become a cleaner utility but it will help limit the company’s financial obligations relating to changing environmental regulations. Our 2016 objectives also include the negotiations of a new collective bargaining agreement with the International Brotherhood of Electrical Workers Local 960, which represent approximately 38% of our local workforce. The current agreement expires in September of this year. We look forward to working with our union to reach a new agreement that allows us to continue to provide our customers with a high level of service. The addition of affordable large scale solar projects to our generation mix has been an objective of the company for several years now. We currently receive over 5% of our total generating capacity from solar resources. As the cost of producing large scale solar continues to decrease, we’ll be exploring the possibilities for expanding this resource. In the near term, our integrated resource plan called for the addition of 8 megawatts of large scale solar to be added to our system by year end. Over the past several years El Paso Electric has consistently ranked near the top for grid reliability as complied by the Public Utility Commission of Texas. And we are confident we will continue on that trend in 2016. In addition, our customer care department has made it a priority to always try to improve upon the good results of recent customer satisfaction surveys. And additional objective that is very important to our company is to continue to improve communication and relationships with all our stakeholders. Last but not least the next round of rate cases will be primarily driven by the need to recover cost for Montana Units 3 and 4. These cases are currently anticipated to be filed in early 2017. If you will now turn to Slide 6, I’ll provide some details on our current rate case filings in Texas. In Texas, we initially filed for an increase in non-fuel base revenues of $71.5 million which was then revised to $63.3 million. The filing also included a requested return on equity of 10.1% and in equity ratio of 49.5%. On January 21, 2016, the company filed a joint motion to abate the procedural schedule for our Texas rate case filings. The joint motion was filed on behalf of the company, the city of El Paso, the Public Utility Commission of Texas Staff, the Office of Public Utility Council and the Texas Industrial Energy Consumers. The motion to abate the procedural schedule was filed in order to facilitate ongoing settlement talks. We continue to work towards a settlement with all parties and we will continue to file weekly updates with the PUCT regarding progress. We anticipate that the company will begin billing customers for the new rates during the second quarter of this year, but pursuant to legislative changes, we have the ability to surcharge customers for new rates relating back to consumption beginning on January 12, 2016. On Slide 7, I’ll provide a brief update of our New Mexico regulatory filing. In New Mexico, our original rate case filing requested a non-fuel base rate increase of $8.6 million, which we subsequently lowered to $6.4 million. Hearings on the merits of the general rate case took place in mid- November. Last week the hearing examiner recommended a $640,000 non-fuel base rate increase. Although we are not in agreement with all the items contained within the hearing examiner’s recommendation, we recognized that this is just another step in the process and look forward to making our case before the full New Mexico Commission. The commission currently is schedule to issue a final order by April 8, 2016 although this deadline maybe extended by the commission up to two months. All parties in the case will be filing exceptions to the hearing examiner’s recommendation in the coming weeks. After which there will be an opportunity for parties to respond to those exceptions. The primary reason for the difference between our request of $6.4 million and the hearing examiner’s recommendation of $640,000 is due to approximately $97.7 million for pension and other post employment benefit liabilities on a total company basis being included as a rate base offset. Another reason for the difference between our ask and the hearing examiner’s recommendation involves return on equity. We’ve requested an ROE of 9.95% and the hearing examiner’s recommended an ROE of 9.6%. These two items comprise a little over 1/2 the difference. Several smaller cost of service items make up the remaining difference. A critical component of the hearing examiner’s recommended decision is that substantially all of our plant in service was deemed reasonable and necessary. The treatment of our pension and other post employment benefit liability as a rate base offset is one of the items to which we will file an exception. Our attorneys and other members of the regulatory team are still evaluating the recommended decision and are identifying all items to which we will accept. We currently anticipate that a final order from the New Mexico Commission could be issued in the second quarter. Also along the regulatory front in New Mexico, we recently participated in hearing regarding the sale and abandonment of our 7% ownership in Units 4 and 5 and related facilities at the Four Corners plant. On February 2, the company filed an opposed joint stipulation reflecting a settlement agreement. We anticipate receiving a final order by the first half of this year. In December 2015, the Federal Energy Regulatory Commission authorized Arizona Public Service Company to purchase our ownership interest in Units 4 and 5 and common facilities of Four Corners. So we anticipate closing this transaction in July of 2016. If you will turn out to Slide 8, our potential timeline for the next round of rate cases has not changed. In New Mexico, the company anticipates filing a rate case in a first quarter of 2017 using an historic test year ended September 30, 2016. Although Montana Power Station unit 4 is not scheduled to be placed into service until December of 2016, precedent in New Mexico allows us to include in rate base plant addition completed within five months of the test year and date. A final order in new rates would then be anticipated to take effect during the first quarter of 2018. Looking at the Texas timeline, we also anticipate filing our rate case in the first quarter of 2017 using an historic test year ended September 30, 2016. Our timeline reflects a potential final order to be issued during the first quarter of 2017. However, due to legislative changes we have the ability to surcharge customers for new rate relating back to consumption beginning on the 155th day after the rate case is filed. This means the effective date for new rates could be applied as early as the third quarter of 2017 even if the schedule for the rate case were to be extended. I’d now like to turn the call over to Nathan who will discuss our financial results. Nathan Hirschi Thank you, Mary. Turning to Slide 9, we list the key earnings drivers for the fourth quarter and the year compared to the prior year. Beginning with the negative drivers for the quarter, earnings were lowered by $0.07 per share due to decreased AFUDC resulting from lower balance of the construction work in process. As we’ve discussed, this was primarily due to the placement of service of Montana Units 1 and 2 and the Eastside Operation Center in the first quarter of 2015. Placing these assets into service also contributed to increase depreciation expense resulting in a $0.03 per share reduction in earnings for the quarter. The impact of regulatory lag associated with placing these assets into service without a corresponding increase in revenue was expected and is the primary reason that we have filed the rating for rate increases in Texas and New Mexico. Increased administration and general expense also decreased earnings per share by $0.04 for the quarter and was primarily due to increased payroll cost and employee incentive compensation as well as increased payroll and benefits cost. Also during the quarter, interest accrued on $150 million senior notes issued in December 2014 negatively impact earnings by $0.02 per share. Earnings also declined during the quarter by $0.02 per share due to decrease deregulated Palo Verde Unit 3 revenues reflecting a decline in the price of natural gas when compared to the same period of last year. On the positive side, net income for the fourth quarter of 2015 compared to the same period last year was positively affected by a decrease in operation and maintenance expense related to our fossil fuel generating units. The decrease in expense was primarily due to decrease maintenance at the Four Corners and Newman plants. The lower level of O&M expense resulted in an increase in earnings of $0.06 per share. However, a planned outage at Four Corners was moved from the fourth quarter of 2015 to the first quarter of 2016. So we will have a corresponding increase in the first quarter. Retail non-fuel base revenues also increased during the fourth quarter primarily driven by an increase in number of customer in a residential customer class and slightly more favorable weather conditions. Non-fuel base revenues increased earnings by $0.02 per share when compared to the same period of 2014. As you can see on the same slide, many of the same drivers then impacted the fourth quarter earnings also serve as drivers for the year-to-date results of $2.03 per share. The earnings drivers that impacted the year-to-date results that were not already mentioned for the fourth quarter were investment and interest income and the Palo Verde performance rewards. Investment and interest income had a positive impact on earnings for the year due to gains resulting from the further diversification and rebalancing of our Palo Verde decommissioning trust portfolio, which increased earnings by $0.07 per share. Palo Verde performance rewards impacted the year negatively by $0.04 per share due to the performance rewards associated with the 2009 to 2012 performance periods being recorded in 2014 with no comparable amount in 2015. As these amounts are normally recorded upon the completion of our Texas fuel reconciliation filings. If you now turn to Slide 10, we have provided a chart to illustrate the weather conditions experienced in our service territory during the past 10 years. The chart includes a comparison of normal weather to the actual weather recorded in our service territory. As you can see heating degree days in 2015 were 10.3% higher than the same period last year but remain 3.6% below the 10 year average. In 2015, cooling degree days were 5.3% higher than the 10 year average and 6.3% higher than 2014, which helped to drive the increase in revenues from our residential customers and primarily impacted our third quarter results. Now turning to Slide 11, we’ve provided a comparative analysis of the changes in retail non-fuel base revenues and megawatt hour sales by customer class for the fourth quarter of 2015 compared to the same period of 2014. During the quarter, total retail non-fuel base revenues increased by $1.4 million pretax, or 1.2% over the same period in 2014. The increase was primarily due to a 2.6% increase in megawatt hour sales to the residential customer class which also recorded a 3% increase in non-fuel base revenues reflecting favorable weather and 1.4% increase in the average number of customer served. As we have provided the same analysis for the year on Slide 12. For the year total retail non-fuel base revenues increased by $14.3 million, pretax were 2.6% over the same period in 2014. Most of this was attributable to increase sales to the residential class, hotter than normal summer weather was largely responsible for the 5.1% increase in residential non-fuel base revenues when compared to the same period in 2014. Now turning to the Slide 13, our cash capital expenditures for 2015 for additions to electric utility plant were $281.5 million. In terms of cash dividends, we paid $47.1 million during the 12 months ended December 31, 2015. On December 31, 2015 we have liquidity of approximately $166 million including a cash balance of $8.1 million and borrowing capacity available to us on our credit facility. As we continue to make progress on our current construction program, we anticipate returning to the debt markets in the first half of 2016 to issue long-term debt. Now turning to Slide 14, I’d like to provide our five years projections of capital expenditures. On this chart you will see that we plan to spend $231 million on construction expenditures in 2016. Over the next five years, we currently anticipate spending approximately $1.1 billion to ensure that we have the generating capacity required to meet our customers’ growing demand for electricity. The projection also includes expanding and updating our transmission and distribution infrastructure. These amounts are subject to revision as we continue to adjust and revise our construction plans. Now turning to Slide 15, I would like to discuss everybody’s rate base projection based on our current construction plan. As Mary mentioned earlier, we anticipate Montana Units 3 and 4 to be placed in commercial operation by the end of 2016. After the completion of these two units, total rate base is expected to grow to approximately $2.1 billion. This amount is an approximation of our rate base at the time of our next rate case filings in 2017. Turning to Slide 16, I would like to wrap up today’s presentation with some comments regarding our 2016 earnings drivers. Once we get further down the road on our rate cases, we will provide specific guidance. For now, we will discuss some key earnings drivers for 2016. As you can see there are several factors that will negatively impact earnings in 2016. Most of the negative drivers are directly related to the regulatory lag which will especially impact the first quarter and in fact could result in negative earnings per share for the first quarter of 2016. The primary components of regulatory lag in 2016 are higher property taxes, lower AFUDC, increased O&M, depreciation expense and interest expense. Other items that are anticipated to negatively impact earnings include a higher effective tax rate, a return to normal weather conditions and a decrease in investment and interest income. The effective tax rate is anticipated to increase to approximately 36% for the next several years due to higher state income taxes and a reduction in the manufacturing credit due to bonus depreciation being extended through 2016. Earnings are anticipated to be positively impacted by rate increases in Texas and New Mexico as well as customer growth. Again just emphasize the point it is possible that we could have negative earnings per share in the first quarter of 2016. At this time, I’d like to turn the call back over to Lisa. Lisa Budtke Thanks, Nathan. Diana, please open the call for questions. Question-and-Answer Session Operator [Operator Instructions] We will go first to Brian Russo of Ladenburg Thalmann. Brian Russo Hi, good morning. Good, thanks. Can you quantify if any the impact to rate case from bonus depreciation? Nathan Hirschi Yes. The bonus depreciation will help us out — will give us about $30 million effect in 2016, and then over the next — until it expires in 2019 it will be about $65 million benefit. So a moderate benefit and it has been factored into that to the rate base charge that we showed on schedule on 15. Brian Russo Okay. So and I apologize but I didn’t — wasn’t — didn’t have time to compare slide 15 with your prior update but there have been some adjustments on that slide. Nathan Hirschi Some adjustments although it’s pretty consistent with what we’ve shown in the past. Brian Russo Okay. So I guess the $65 million is the cash flow benefit. Is there any rate base offset? Nathan Hirschi Yes. That it will both be a cash flow benefit and the rate base offset. But that’s at the end of the four year period. For 2016, it kind of have an offsetting effect, we think we will be in NOL position so it won’t really have that dramatic effect for 2016. It will — we will generate bonus depreciation that we didn’t initially anticipate. Some of that will be offset by some NOLs. So won’t have that dramatic effect. Brian Russo Okay. Understood. And then on the CapEx slide, it looks like there were some upward increases in the annual CapEx. Can you maybe talk about that? Nathan Hirschi Well, yes, it’s very comparable to what we saw last year actually. What we had was we had — what we had last year is relatively high year in 2015, that is $281 million that we expanded this year right. But we added a relatively high year in 2020 when we anticipate building the next two combined cycles. So we ended the year slightly below with the five year projection at $284 million– I am sorry $1.084 billion, which is slightly below what we had in the five year projection last year. But so that stays relatively consistent to what we had last year on a five year basis. Brian Russo Okay. And can you talk about whether normalized load growth in 2015 and kind of what your outlook is? Nathan Hirschi Yes. Well, obviously we had a very good year last year from a revenue perspective and from NOL that was obviously attributable to the very hot summer. If you remember we had — we had 106 days in a row what was over 90 degree. So we had a very nice summer and of the revenue growth we think about half of it was attributable to above average weather. So we think of course we saw solid customer growth which we continue to see at the 1.4% and that’s real positive. And so some of the growth was clearly related to customer growth and they are expanding service territory. And perhaps about $5 million about half of the — $5 million to $6 million about half the growth was revenue — was weather related. Brian Russo All right. And then just with the new legislation and taxes and your ability to capture the rate increase 155 days prior to when rates are effective. How does it kind of like flow through the income statement and it’s kind of like conceptually the margin impact from that. Nathan Hirschi Yes. That’s why the first quarter looks kind of challenging. Although at the day — when we ultimately when we settled the Texas rate case, we will be able to relate back to revenues to usage to January 12. But we won’t record that in the first quarter. We won’t — we don’t have the certainty of the amount of the rate increase or that until we have a final order. So when we have the final order which we anticipate would be likely in the — during the second quarter, that’s when we would pick up the revenue that would relate back and then would be built as a surcharge over perhaps an 18 months period to recover that. So that’s one of the reasons why we have a kind of challenging first quarter that revenue would not — we don’t feel comfortable recording that revenue until the second quarter assuming all the regulatory works out as we had hoped. Brian Russo Okay. So when new rates go into effect you will collect over an 18 months period conceptually rate effective starting in January of 2016. Nathan Hirschi Yes. That’s how we envision it working, yes. Operator Thank you. [Operator Instructions] We will go next to Ben Budish of Jefferies. Ben Budish Hey, good morning, guys. How are you doing? I have a quick question on the Mexico. It looks like with Texas it should be fairly easy to push those rates back to January, is there any kind of sensitivity to like the delay in implementation of rates if –get pushed back into June. Or any guidance on that? Nathan Hirschi Yes. I mean that is one of the issues. We had originally anticipated putting in new rates perhaps April 1 in New Mexico. And as the case continues it will be pushed back a little bit later in the year. We are not sure exactly how quickly it could move pretty — it could move relatively fast from here but it could delay further in the year. We think probably June 30 — June 1 is probably a reasonable day assumption. Mary Kipp And yes because so much of our revenue is dependent on second and third quarters. We are hopeful that we’ll have the new rate in time to take advantage of them during this quarter. Ben Budish Okay, great. And then I saw one of the — obviously the year-over-year drivers below AFUDC. In the release you had mentioned that it was due both to Montana 1 and 2 being put into service and reduction in the rate base, sorry AFUDC rate, is that reduction significant or is that only you are probably looking forward like when 3 and 4 going, I am thinking about the timing and comparing that to one to one end? Nathan Hirschi I am sorry the rate — Ben Budish AFUDC rate, yes. Nathan Hirschi Yes. Now the rate should be relatively constant from what we have now. We just have a more outstanding balance on our short — on our revolving credit facility which kind of drop cause the rate to go down a bit. So you’ll see the rate that we disclose in the 10-K coming up when we file that, that should be pretty close to the rate that we have going forward. Operator [Operator Instructions] And it appears we have no further questions. I’d like to turn the conference back over for additional or closing remarks. Lisa Budtke Thank you, Diana. I just want to thank everyone for joining us on today’s call. And please be safe. Operator Thank you for your participation. That does conclude today’s conference. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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Atmos Energy Outlook Gains Strength As Natural Gas Prices Remain Low

Southern natural gas utility Atmos Energy (NYSE: ATO ) reported FQ1 earnings for the period ending December 31 earlier this month that missed on diluted EPS as warm weather weighed on its revenue result. The lower-than-expected result didn’t faze investors, however, and the company’s share price set a new 10-year high last week as bearish market sentiment and declining interest rate increase expectations drove investors into utilities. Back in October, I highlighted the company’s attractive geographic footprint, concluding that [I]ts outlook contains a number of potential drivers to additional earnings growth, including the strong likelihood of a colder than normal winter across much of its service area resulting from this year’s El Nino event, increased demand for natural gas across the country in response to falling prices, and the implementation of a federal regulation that will spur additional demand for natural gas by electric utilities. While potential investors are unlikely to be interested in the company’s relatively low dividend yield, existing investors should remain in their positions despite the high valuation due to the number of potential positive catalysts on offer. While the expected cold weather has yet to materialize, natural gas prices have continued to decline in the interim, prompting continued consumption growth. The company’s share price has gained by 21% in the meantime (see figure). This article re-considers Atmos Energy as a potential long investment opportunity, given the turmoil that has hit the energy markets since October. ATO data by YCharts FQ1 earnings report Atmos Energy reported FQ1 revenue of $906.2 million, down 4% from the same quarter of the previous year as warmer-than-normal temperatures prevailed across its service areas. While the regulated segment reported higher revenue following a rate increase, this was offset by reduced demand resulting from the presence of 29% fewer heating degree days in the company’s operating area. Natural gas distribution throughput declined by 18% YoY as a result, although falling natural gas prices (the average price in the quarter was 26% lower YoY) and higher storage demand (up 37% YoY) caused pipeline transportation volumes to increase by 7% over the same period. Finally, the company ended the most recent quarter with 1.2% more customers than it had at the end of the same quarter of the previous year. The company’s cost of revenue declined by 20.7% YoY on low natural gas prices. This caused its gross profit to increase from $423.3 million to $443.8 million over the same period despite the revenue decline. The regulated distribution segment again reported the largest gross profit at $333.5 million, up from $323.8 million in the same quarter of the previous year. The regulated pipeline segment reported the largest overall gain, however, with gross income of $94.7 million versus $83.6 million YoY. The company attributed most of this gain to the recovery of continued reliability investments, reflecting the positive regulatory environments that it has the advantage of operating within. The non-regulated natural gas delivery segment reported gross income of $15.8 million, down slightly from $16 million YoY, although its average unit margin rose to $0.12 from $0.10 over the same period. O&M expenses increased to $124.8 million from $118.6 million YoY as the company took advantage of unseasonably warm weather to get a head start on some of its maintenance and preparation work. Operating income came in at $196.2 million, up from $187.7 million YoY. Net income came in at $102.9 million versus $97.6 million in the same period of the previous year, resulting in non-adjusted EPS of $1.00 versus $0.96 over the same period. The regulated segments’ contributions to net income increased by $5.5 million on higher rates and increased pipeline demand, although this was partially offset by a $2.6 million YoY timing-related reduction to the non-regulated segment’s contribution. While the non-adjusted EPS result was in-line with the consensus analyst estimate, Atmos Energy included unrealized margins in this result that, if excluded, brought its adjusted net income down to $95.6 million, or a diluted EPS of $0.93. This compared to results of $92.8 million and $0.91, respectively, for the same quarter of the previous year. While the adjusted result came in below expectations, the fact that much of the miss was attributed to income timing at the non-regulated segment prompted the company to move ahead with a quarterly dividend payment of $0.42/share (2.4% forward yield) that marked a 7.7% annual increase. Furthermore, since weather-normalization mechanisms cover 97% of the company’s utility margins, the negative impacts of a continued warm winter on its cash flows should be muted. Outlook Atmos Energy’s management was upbeat about the company’s outlook despite the FQ1 earnings miss, announcing during the subsequent earnings call that it is maintaining its adjusted EPS guidance range of $3.20-$3.40. The midpoint of this range would only represent a 5% increase over the FY 2015 result, below the company’s long-term annual target of 6-8% earnings growth. The primary driver for FY 2015 growth is still expected to be driven by capex, with the company maintaining its previous target of up to $1.1 billion for FY 2016. These are in turn expected to result in an increase to operating income of up to $125 million for the fiscal year via new rate outcomes. Atmos Energy’s capex growth beyond FY 2016 will be heavily influenced by natural gas prices. The company benefits from low prices in two ways. First, its regulated distribution segment should experience steady demand growth from customers encountering reduced heating costs. This will provide Atmos with capex growth opportunities in the forms of increased infrastructure needs and reliability spending. This capex will ultimately justify higher rates for Atmos, supporting its future revenue and gross income. So long as natural gas prices remain low, however, the higher rates will not necessarily result in reduced demand by customers since the rate increases will be offset by the low prices, preventing customers’ bills from increasing on a net basis. Higher natural gas prices, on the other hand, could likewise hurt the company’s revenues by resulting in weak demand, much as weather did in FQ1, but the U.S. Energy Information Agency [EIA] doesn’t expect this to happen before 2018 at the earliest. Henry Hub Natural Gas Spot Price data by YCharts Atmos Energy also benefits from low natural gas prices because of its regulated pipeline segment, which connects both the regulated distribution segment and other large customers to multiple Texan shale gas plays. While shale gas producers are experiencing challenging operating conditions due to the current low price of natural gas, pipeline operators and other distributors are expected to benefit in the form of higher volumes as weak prices spur consumption growth. A trade-off exists in that producers may cease production if prices fall low enough, in which case lower pipeline transmission volumes can be expected to result due to a lack of supply. Atmos Energy’s management stated that it isn’t seeing the type of economic weakness that is associated with declining production, however. This is supported by EIA projections calling for natural gas production to decline in 2016, but only because of lower imported and offshore production volumes; inland production is expected to rise, albeit at a much slower pace than in the past. One potential hurdle to the company’s longer-term capex growth plans was created by the recent decision by the U.S. Supreme Court to prevent the implementation of the U.S. Environmental Protection Agency’s [EPA] Clean Power Plan, which requires the country’s electric utilities to reduce the carbon intensities of their operations, until after a final ruling on the merits of a major legal challenge. The decision, which was split along ideological lines, postponed the Plan’s implementation until 2017 at the earliest. The recent death of Justice Antonin Scalia, who sided with the block, has created additional uncertainty around the Plan. As I discussed in my previous article, Atmos Energy’s pipeline segment could be a big beneficiary of the Plan since the least expensive method of reducing the greenhouse gas emissions of power plants is by replacing coal with natural gas. The Plan’s full implementation wasn’t expected to occur until the end of this decade at the earliest, however, yet the return of cheap natural gas has already prompted the fuel to overtake coal as electricity feedstock. Given the long-term nature of this type of conversion from one fuel source to another, the electric sector’s demand for natural gas can be expected to remain strong in the coming years regardless of the Clean Power Plan’s fate. At this point, its implementation would only cause an already positive demand outlook for natural gas to improve still further. In the short-term the demand outlook for the company’s regulated distribution segment is still positive, although I would note that weather conditions have not been as forecast this winter to date. The number of heating degree days in the company’s service areas have remained below the long-term averages in 2016 to date (down roughly 20% in January and 40% in February to date), although temperatures have been colder on a YoY basis. Previous El Nino events have been associated with colder-than-normal temperatures across the South U.S., including the company’s service areas, through April. This year’s major event has been characterized by its relatively late arrival in terms of weather-related impacts, and some meteorologists believe that its impacts will be felt later in Q1 rather than not at all. Valuation The analyst consensus estimates for Atmos Energy’s diluted EPS results in FY 2016 and FY 2017 have been revised higher over the last several months despite the FQ1 earnings miss and continued warm weather in its service area. The FY 2016 consensus has increased from $3.23 back in July to $3.27 today (investors should note that this is below the midpoint of the company’s guidance range). The FY 2017 has risen by a similar amount over the last 90 days, from $3.45 to $3.49. These estimates are supported by two factors. The first is the strong natural gas demand outlook that I described above. The second is the fact that the recent extension of bonus depreciation by Congress, which has caused some utilities to revise their guidance ranges lower, is not expected by Atmos Energy’s management to have a significant impact on the company’s earnings growth through 2020. The company’s P/E ratios have moved strongly higher in 2016 to date despite the increased earnings expectations due to its share price gains (see figure). The FY 2016 forward ratio has increased from 17.5x in October to 21.1x today. The FY 2017 forward ratio of 20.3x is well above the top of the respective long-term range, let alone its average. The company’s shares are clearly overvalued at this time as a result, despite its positive earnings growth outlook. ATO PE Ratio (NYSE: TTM ) data by YCharts Conclusion Atmos Energy reported FQ1 earnings that came in below analyst expectations as warm weather negatively impacted natural gas distribution throughput and timing issues hurt its non-regulated earnings. Investors have largely ignored the report’s release, however, sending the company’s share price to a new decade high last week in response to an improving long-term operating outlook. Low natural gas prices are continuing to drive demand growth even as production remains steady in the Texan shale gas plays. Meanwhile, prices are also expected to keep customer demand high for the regulated distribution segment by keeping utility bills flat even as higher rates are implemented to finance the company’s planned capex growth. The company’s shares are quite overvalued at this time compared to their long-term valuation levels and I do not recommend initiating a long-term investment in the company at this time. At the same time, however, I do not see any near-term downside to the shares because of the company’s positive outlook, and existing investors should consider holding their shares, as a result. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.