ONE Gas Announces First Quarter 2020 Financial Results
TULSA, Okla., April 27, 2020 /PRNewswire/ -- ONE Gas, Inc. (NYSE: OGS) today announced its first quarter 2020 financial results, declared its quarterly dividend and affirmed its 2020 financial guidance.
ONE Gas is providing essential services during the COVID-19 pandemic. Following the guidance of the Centers for Disease Control and Prevention, Occupational Safety and Health Administration and third-party subject matter experts engaged by the company, a comprehensive set of policies, procedures and guidelines have been implemented to protect the safety of the company's employees, customers and communities as natural gas service continues to be provided to customers. ONE Gas continues to closely monitor developments related to the pandemic and will adjust its actions and operations as appropriate. Additional information regarding the impact of the pandemic to ONE Gas will be provided by management on the earnings conference call and in the investor presentation available on its website. Details for the conference call and webcast and a link to the investor presentation are provided later in this release. In addition, the company anticipates filing its Quarterly Report on Form 10-Q on April 28, 2020.
FIRST QUARTER 2020 KEY PERFORMANCE DRIVERS AND HIGHLIGHTS
-- First quarter 2020 net income was $91.7 million, or $1.72 per diluted
share, compared with $93.7 million, or $1.76 per diluted share, in the
first quarter 2019;
-- Actual heating degree days across the company's service areas were 4,714
in the first quarter 2020, 10% warmer than normal and 19% warmer than
the same period last year;
-- Delivered natural gas sales volumes for the first quarter 2020 were 16%
lower compared with the first quarter 2019, primarily as a result of the
warmer weather;
-- The company ended the quarter with $474.7 million of commercial paper
and $1.2 million in letters of credit outstanding, leaving $224.1
million available in its commercial paper program;
-- In February 2020, the company initiated an at-the-market equity program
with an aggregate offering price up to $250 million. As of March 31,
2020, no shares have been issued or sold under the program;
-- In April 2020, the company entered into a $250 million, 364-day
revolving credit agreement; and
-- The board of directors declared a quarterly dividend of $0.54 per share,
or $2.16 per share on an annualized basis, payable on June 1, 2020, to
shareholders of record at the close of business on May 13, 2020.
"In the midst of the COVID-19 pandemic, our focus remains on continuing to protect our workforce and customers while operating our systems safely during this difficult time," said Pierce H. Norton II, president and chief executive officer. "Our employees have displayed unwavering courage and resolve during these unprecedented times."
FIRST QUARTER 2020 FINANCIAL PERFORMANCE
ONE Gas reported operating income of $133.2 million in the first quarter 2020, compared with $127.6 million in the first quarter 2019.
Net margin, which is comprised of total revenues less cost of natural gas, increased by $6.2 million compared with first quarter 2019, which primarily reflects:
-- A $7.9 million increase from new rates primarily in Kansas and Texas;
-- A $2.5 million increase attributed to net residential customer growth;
and
-- A $0.9 million increase in rider and surcharge recoveries due to a
higher ad-valorem surcharge in Kansas; offset by
-- A $3.9 million decrease due to lower sales volumes, net of weather
normalization, primarily in Kansas and Oklahoma from warmer weather in
2020 compared with the same period in 2019. For the first quarter 2020,
heating degree days in Kansas and Oklahoma were 19% and 21% lower,
respectively, compared with the same period in 2019; and
-- A $1.1 million decrease due to lower transportation volumes in Kansas.
First quarter 2020 operating costs were $121.4 million, compared with $124.5 million in the first quarter 2019, which primarily reflects:
-- A $2.0 million decrease in legal-related costs; and
-- A $1.6 million decrease in employee-related costs, which reflects a $4.3
million decrease in the expense associated with the change in the value
of the liabilities for nonqualified employee benefit plans and a $1.2
million increase in labor costs; offset by
-- A $0.8 million increase in bad debt expense.
Depreciation and amortization expense for the first quarter 2020 was $47.5 million, compared with $43.8 million in the first quarter 2019, due primarily to an increase in depreciation expense from capital investments placed in service, higher depreciation rates in Kansas and an increase in amortization of the ad-valorem surcharge rider in Kansas.
For the first quarter 2020, other expense, net, increased $6.2 million compared with the same period last year, due primarily to a $6.7 million decrease in the value of investments associated with nonqualified employee benefit plans.
Income tax expense includes a credit for amortization of excess accumulated deferred income taxes (EDIT) of $6.9 million and $6.7 million for the quarters ended March 31, 2020, and 2019, respectively.
Capital expenditures and asset removal costs increased $29.0 million for the first quarter 2020 compared with the same period last year, due primarily to increased system integrity activities and extending service to new areas.
Key Statistics: More detailed information is listed in the tables located in the Appendix.
-- Actual heating degree days across the company's service areas were 4,714
in the first quarter 2020, 10% warmer than normal and 19% warmer than
the same period last year;
-- Actual heating degree days in the Oklahoma service area were 1,636 in
the first quarter 2020, 8% warmer than normal and 21% warmer than the
same period last year;
-- Actual heating degree days in the Kansas service area were 2,222 in the
first quarter 2020, 10% warmer than normal and 19% warmer than the same
period last year;
-- Actual heating degree days in the Texas service area were 856 in the
first quarter 2020, 15% warmer than normal and 15% warmer than the same
period last year;
-- Residential natural gas sales volumes were 55.2 billion cubic feet (Bcf)
in the first quarter 2020, down 16% compared with the same period last
year;
-- Total natural gas sales volumes were 72.6 Bcf in the first quarter 2020,
down 16% compared with the same period last year;
-- Natural gas transportation volumes were 65.4 Bcf in the first quarter
2020, relatively unchanged compared with the same period last year; and
-- Total natural gas volumes delivered were 138.0 Bcf in the first quarter
2020, down 9% compared with the same period last year.
REGULATORY UPDATE
Oklahoma
In April 2020, the Public Utility Division of the Oklahoma Corporation Commission is expected to file an application to allow all utilities in Oklahoma to defer, as a regulatory asset, incremental expenses, including increased bad debt expenses and/or impacts to revenue that are outside the utility's control or a direct result of the utility's COVID-19 response, beginning March 13, 2020. Regulatory action on the proposed application is expected in the second quarter 2020.
In February 2020, Oklahoma Natural Gas filed its fourth annual Performance-Based Rate Change (PBRC) application following the general rate case that was approved in January 2016. The filing includes a requested base rate increase of $11.8 million and a $12.2 million credit associated with EDIT. If approved, new rates are expected to become effective in the third quarter of 2020, and EDIT is expected to be credited to customers in the first quarter 2021.
Kansas
In April 2020, Kansas Gas Service filed an application with the Kansas Corporation Commission for an Accounting Authority Order to accumulate and defer certain incremental costs incurred, including bad debt expenses and lost revenues, as well as associated carrying costs related to COVID-19 beginning March 1, 2020, for recovery in Kansas Gas Services' next rate case filing. Regulatory action on the proposed application is expected in the second quarter 2020.
Texas
In April 2020, the Railroad Commission of Texas issued an order authorizing utilities to use an accounting mechanism and a subsequent process through which Texas Gas Service may seek future recovery of incremental expenses resulting from the effects of COVID-19, including bad debt and associated credit and collections costs, and other reasonable and necessary incremental costs to address the impact of COVID-19, beginning March 13, 2020.
West Texas Service Area
In March 2020, Texas Gas Service made Gas Reliability Infrastructure Program (GRIP) filings for all customers in the West Texas service area, requesting a $4.7 million increase to be effective in the third quarter 2020.
Central Texas Service Area
In 2019, Texas Gas Service filed a rate case for all customers in the Central Texas and Gulf Coast service areas, seeking a $15.6 million rate increase and a $1.3 million credit to customers associated with EDIT, and requesting to consolidate the two service areas into one. If approved, new rates are expected to become effective in the third quarter of 2020.
2020 FINANCIAL GUIDANCE
ONE Gas affirmed its 2020 financial guidance, with net income expected to be in the range of $186 million to $198 million, or $3.44 to $3.68 per diluted share.
Management expects a negative impact to earnings from lower revenues and net incremental expenses, including bad debt expenses, associated with the COVID-19 pandemic. This impact will be partially mitigated by regulatory assets established in accordance with the accounting orders that are expected to be received in all jurisdictions but could result in net income and diluted earnings per share below the midpoint of the guidance range.
EARNINGS CONFERENCE CALL AND WEBCAST
The ONE Gas executive management team will conduct a conference call on Tuesday, April 28, 2020, at 11 a.m. Eastern Daylight Time (10 a.m. Central Daylight Time). The call also will be carried live on the ONE Gas website.
To participate in the telephone conference call, dial 888-220-8451, pass code 1051355, or log on to www.onegas.com/investors and select Events and Presentations.
If you are unable to participate in the conference call or the webcast, a replay will be available on the ONE Gas website, www.onegas.com, for 30 days. A recording will be available by phone for seven days. The playback call may be accessed at 888-203-1112, pass code 1051355.
LINK TO INVESTOR PRESENTATION
An updated investor presentation can be found on the company's website, www.onegas.com/investors under Events and Presentations, or by following the link below.
https://www.onegas.com/files/doc_presentations/2020/04/04-2020-April-2020-Investor-Update.pdf
NON-GAAP INFORMATION
ONE Gas has disclosed net margin in this news release, which is considered a non-GAAP financial metric used to measure the company's financial performance. Net margin is comprised of total revenues less cost of natural gas. Cost of natural gas includes commodity purchases, fuel, storage, transportation and other gas purchase costs recovered through our cost of natural gas regulatory mechanisms and does not include an allocation of general operating costs or depreciation and amortization. In addition, these regulatory mechanisms provide a method of recovering natural gas costs on an ongoing basis without a profit. Therefore, although our revenues will fluctuate with the cost of natural gas that we pass through to our customers, net margin is not affected by fluctuations in the cost of natural gas. Accordingly, we routinely use net margin in the analysis of our financial performance. We believe that net margin provides investors a more relevant and useful measure to analyze our financial performance as a 100% regulated natural gas utility than total revenues because the change in the cost of natural gas from period to period does not impact our operating income. A reconciliation of net margin to the most directly comparable GAAP measure is included as a table at the end of the earnings tables accompanying this release.
ONE Gas, Inc. (NYSE: OGS) is a 100% regulated natural gas utility, and trades on the New York Stock Exchange under the symbol "OGS." ONE Gas is included in the S&P MidCap 400 Index and is one of the largest natural gas utilities in the United States.
ONE Gas, headquartered in Tulsa, Oklahoma, provides natural gas distribution services to more than 2 million customers in Kansas, Oklahoma and Texas. Its divisions include Kansas Gas Service, the largest natural gas distributor in Kansas; Oklahoma Natural Gas, the largest in Oklahoma; and Texas Gas Service, the third largest in Texas, in terms of customers.
For more information, visit the website at www.onegas.com.
Some of the statements contained and incorporated in this news release are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements relate to our anticipated financial performance, liquidity, management's plans and objectives for our future operations, our business prospects, the outcome of regulatory and legal proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. The following discussion is intended to identify important factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.
Forward-looking statements include the items identified in the preceding paragraph, the information concerning possible or assumed future results of our operations and other statements contained or incorporated in this news release identified by words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "should," "goal," "forecast," "guidance," "could," "may," "continue," "might," "potential," "scheduled," "likely," and other words and terms of similar meaning.
One should not place undue reliance on forward-looking statements, which are applicable only as of the date of this news release. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Those factors may affect our operations, markets, products, services and prices. In addition to any assumptions and other factors referred to specifically in connection with the forward-looking statements, factors that could cause our actual results to differ materially from those contemplated in any forward- looking statement include, among others, the following:
-- our ability to recover operating costs, income taxes and amounts
equivalent to the cost of property, plant and equipment, regulatory
assets and our allowed rate of return in our regulated rates;
-- our ability to manage our operations and maintenance costs;
-- changes in regulation of natural gas distribution services, particularly
those in Oklahoma, Kansas and Texas;
-- the economic climate and, particularly, its effect on the natural gas
requirements of our residential and commercial customers;
-- the length and severity of a pandemic or other health crisis, such as
the recent outbreak of COVID-19, including its impacts to our
operations, customers and employees, and the measures that
international, federal, state and local governments, agencies, law
enforcement and/or health authorities implement to address it, which may
(as with COVID-19) precipitate or exacerbate one or more of the
above-mentioned and/or other risks, and significantly disrupt or prevent
us from operating our business in the ordinary course for an extended
period;
-- competition from alternative forms of energy, including, but not limited
to, electricity, solar power, wind power, geothermal energy and
biofuels;
-- conservation and energy storage efforts of our customers;
-- variations in weather, including seasonal effects on demand, the
occurrence of storms and disasters, and climate change;
-- indebtedness could make us more vulnerable to general adverse economic
and industry conditions, limit our ability to borrow additional funds
and/or place us at competitive disadvantage compared with competitors;
-- our ability to secure reliable, competitively priced and flexible
natural gas transportation and supply, including decisions by natural
gas producers to reduce production or shut-in producing natural gas
wells and expiration of existing supply and transportation and storage
arrangements that are not replaced with contracts with similar terms and
pricing;
-- the mechanical integrity of facilities operated;
-- operational hazards and unforeseen operational interruptions;
-- adverse labor relations;
-- the effectiveness of our strategies to reduce earnings lag, margin
protection strategies and risk mitigation strategies, which may be
affected by risks beyond our control such as commodity price volatility
and counterparty creditworthiness;
-- the availability of and access to, in general, funds to meet our debt
obligations prior to or when they become due and to fund our operations
and capital expenditures, either through (i) cash on hand, (ii)
operating cash flow, or (iii) access to the capital markets;
-- changes in the financial markets during the periods covered by the
forward-looking statements, particularly those affecting the
availability of capital and our ability to refinance existing debt and
fund investments and acquisitions;
-- actions of rating agencies, including the ratings of debt, general
corporate ratings and changes in the rating agencies' ratings criteria;
-- changes in inflation and interest rates;
-- our ability to recover the costs of natural gas purchased for our
customers;
-- impact of potential impairment charges;
-- volatility and changes in markets for natural gas;
-- possible loss of local distribution company franchises or other adverse
effects caused by the actions of municipalities;
-- payment and performance by counterparties and customers as contracted
and when due;
-- changes in existing or the addition of new environmental, safety, tax
and other laws to which we and our subsidiaries are subject;
-- the uncertainty of estimates, including accruals and costs of
environmental remediation;
-- advances in technology, including technologies that increase efficiency
or that improve electricity's competitive position relative to natural
gas;
-- population growth rates and changes in the demographic patterns of the
markets we serve, and conditions in these areas' housing markets;
-- acts of nature and the potential effects of threatened or actual
terrorism and war;
-- cyber-attacks or breaches of technology systems that could disrupt our
operations or result in the loss or exposure of confidential or
sensitive customer, employee or company information;
-- the sufficiency of insurance coverage to cover losses;
-- the effects of our strategies to reduce tax payments;
-- the effects of litigation and regulatory investigations, proceedings,
including our rate cases, or inquiries and the requirements of our
regulators as a result of the Tax Cuts and Jobs Act of 2017;
-- changes in accounting standards;
-- changes in corporate governance standards;
-- discovery of material weaknesses in our internal controls;
-- our ability to comply with all covenants in our indentures, the ONE Gas
Credit Agreement and the ONE Gas 364-day Credit Agreement, a violation
of which, if not cured in a timely manner, could trigger a default of
our obligations;
-- our ability to attract and retain talented employees, management and
directors;
-- unexpected increases in the costs of providing health care benefits,
along with pension and postretirement health care benefits, as well as
declines in the discount rates on, declines in the market value of the
debt and equity securities of, and increases in funding requirements
for, our defined benefit plans;
-- the ability to successfully complete merger, acquisition or divestiture
plans, regulatory or other limitations imposed as a result of a merger,
acquisition or divestiture, and the success of the business following a
merger, acquisition or divestiture; and
-- the costs associated with increased regulation and enhanced disclosure
and corporate governance requirements pursuant to the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010.
These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors could also have material adverse effects on our future results. These and other risks are described in greater detail in Part 1, Item 1A, Risk Factors, in our Annual Report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Other than as required under securities laws, we undertake no obligation to update publicly any forward-looking statement whether as a result of new information, subsequent events or change in circumstances, expectations or otherwise.
APPENDIX
ONE Gas, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
March 31,
(Unaudited) 2020 2019
--- ---
(Thousands of dollars, except per share
amounts)
Total
revenues $528,168 $661,000
Cost
of
natural
gas 226,139 365,076
Operating expenses
Operations
and
maintenance 104,839 108,275
Depreciation
and
amortization 47,513 43,846
General
taxes 16,473 16,184
--- ---
Total
operating
expenses 168,825 168,305
--- ---
Operating
income 133,204 127,619
--- ---
Other
income
(expense),
net (5,788) 429
Interest
expense,
net (15,693) (15,786)
--- ---
Income
before
income
taxes 111,723 112,262
--- ---
Income
taxes (20,046) (18,602)
--- ---
Net
income $91,677 $93,660
=== ===
Earnings
per
share
Basic $1.73 $1.77
Diluted $1.72 $1.76
=== ===
Average shares
(thousands)
Basic 53,007 52,825
Diluted 53,268 53,206
=== ===
Dividends
declared
per
share
of
stock $0.54 $0.50
=== ===
ONE Gas, Inc.
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
(Unaudited) 2020 2019
---
Assets (Thousands of dollars)
Property, plant and
equipment
Property, plant and
equipment $6,536,625 $6,433,119
Accumulated depreciation
and amortization 1,901,738 1,867,893
---
Net property, plant and
equipment 4,634,887 4,565,226
---
Current assets
Cash and cash equivalents 11,069 17,853
Accounts receivable, net 234,327 260,012
Materials and supplies 53,390 55,732
Natural gas in storage 48,032 104,259
Regulatory assets 39,808 47,440
Other current assets 21,041 20,906
---
Total current assets 407,667 506,202
---
Goodwill and other assets
Regulatory assets 380,686 391,036
Goodwill 157,953 157,953
Other assets 93,712 87,883
---
Total goodwill and other
assets 632,351 636,872
---
Total assets $5,674,905 $5,708,300
===
ONE Gas, Inc.
CONSOLIDATED
BALANCE SHEETS
(Continued)
March 31, December 31,
(Unaudited) 2020 2019
---
Equity and
Liabilities (Thousands of dollars)
Equity and long-
term debt
Common stock,
$0.01 par value: outstanding
52,771,749
authorized shares at
250,000,000 December 31,
shares; issued 2019
and outstanding
52,860,808
shares at March
31, 2020;
issued and $529 $528
Paid-in capital 1,729,587 1,733,092
Retained earnings 465,411 402,509
Accumulated other
comprehensive
loss (6,515) (6,739)
---
Total equity 2,189,012 2,129,390
---
Long-term debt,
excluding
current
maturities, and
net of issuance
costs of $10,823
and $10,936,
respectively 1,286,193 1,286,064
---
Total equity and
long-term debt 3,475,205 3,415,454
---
Current
liabilities
Notes payable 474,695 516,500
Accounts payable 82,088 120,490
Accrued taxes
other than
income 46,774 47,956
Regulatory
liabilities 33,649 45,201
Customer deposits 58,272 57,987
Other current
liabilities 80,675 84,603
---
Total current
liabilities 776,153 872,737
---
Deferred credits
and other
liabilities
Deferred income
taxes 698,877 682,632
Regulatory
liabilities 494,210 503,518
Employee benefit
obligations 109,865 115,657
Other deferred
credits 120,595 118,302
---
Total deferred
credits and
other
liabilities 1,423,547 1,420,109
---
Commitments and
contingencies
---
Total liabilities
and equity $5,674,905 $5,708,300
===
ONE Gas, Inc.
CONSOLIDATED STATEMENTS
OF CASH FLOWS
Three Months Ended
March 31,
(Unaudited) 2020 2019
---
(Thousands of dollars)
Operating activities
Net income $91,677 $93,660
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization 47,513 43,846
Deferred income taxes 6,856 4,828
Share-based
compensation expense 2,261 1,954
Provision for doubtful
accounts 3,077 2,263
Changes in assets and
liabilities:
Accounts receivable 22,608 (44,924)
Materials and supplies 2,342 (2,562)
Natural gas in storage 56,227 55,820
Asset removal costs (9,888) (11,169)
Accounts payable (34,227) (53,172)
Accrued taxes other
than income (1,182) 4,263
Customer deposits 285 1,218
Regulatory assets and
liabilities 4,932 29,090
Other assets and
liabilities (9,748) (2,824)
---
Cash provided by
operating activities 182,733 122,291
---
Investing activities
Capital expenditures (113,517) (83,303)
Other investing
expenditures (314) (3,351)
Other investing
receipts 650 311
---
Cash used in investing
activities (113,181) (86,343)
---
Financing activities
Repayments on notes
payable, net (41,805) (4,000)
Dividends paid (28,543) (26,343)
Tax withholdings
related to net share
settlements of stock
compensation (5,988) (7,300)
---
Cash used in financing
activities (76,336) (37,643)
---
Change in cash and cash
equivalents (6,784) (1,695)
Cash and cash
equivalents at
beginning of period 17,853 21,323
---
Cash and cash
equivalents at end of
period $11,069 $19,628
===
ONE Gas, Inc.
INFORMATION AT A GLANCE
Three Months Ended
March 31,
(Unaudited) 2020 2019
---
Financial (in millions)
---
Net margin $
302.1 $
295.9
Operating costs $
121.4 $
124.5
Depreciation and
amortization $
47.5 $
43.8
Operating income $
133.2 $
127.6
Capital expenditures and
asset removal costs $
123.4 $
94.4
Net margin on natural gas
sales $
260.7 $
253.5
Transportation revenues $
34.2 $
35.0
Other revenues $
7.2 $
7.4
Volumes (Bcf)
---
Natural gas sales
Residential 55.2 65.7
Commercial and industrial 16.3 19.3
Other 1.0 1.1
Total sales volumes
delivered 72.6 86.1
Transportation 65.4 65.6
Total volumes delivered 138.0 151.7
Average number of
customers (in thousands)
---
Residential 2,043 2,027
Commercial and industrial 163 162
Other 3 3
Transportation 12 12
Total customers 2,221 2,204
Heating Degree Days
---
Actual degree days 4,714 5,831
Normal degree days 5,246 5,309
Percent colder (warmer)
than normal weather (10.1)% 9.8 %
Statistics by State
---
Oklahoma
---
Average number of
customers (in thousands) 895 889
Actual degree days 1,636 2,077
Normal degree days 1,775 1,775
Percent colder (warmer)
than normal weather (7.8)% 17.0 %
Kansas
---
Average number of
customers (in thousands) 648 647
Actual degree days 2,222 2,751
Normal degree days 2,461 2,528
Percent colder (warmer)
than normal weather (9.7)% 8.8 %
Texas
---
Average number of
customers (in thousands) 678 668
Actual degree days 856 1,003
Normal degree days 1,010 1,006
Percent colder (warmer)
than normal weather (15.2)% (0.3)%
RECONCILIATION OF NON-GAAP FINANCIAL MEASURE
Reconciliation of total revenues to net margin (non-GAAP)
Three Months Ended
March 31,
(Unaudited) 2020 2019
--- ---
(Thousands of dollars)
Total revenues $528,168 $661,000
Cost of natural gas 226,139 365,076
--- ---
Net margin $302,029 $295,924
=== ===
Analyst Contact: Brandon Lohse
918-947-7472
Media Contact: Leah Harper
918-947-7123
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SOURCE ONE Gas, Inc.
