07/29/2019 | Press release | Distributed by Public on 07/29/2019 15:08
TULSA, Okla., July 29, 2019 /PRNewswire/ -- ONE Gas, Inc. (NYSE: OGS) today announced its second-quarter 2019 financial results and updated its 2019 financial guidance.
'In the second quarter, we continued to see the positive impact of new rates on our net margin as a result of capital expenditures on system integrity and expansion, somewhat offset by overall warmer weather,' said Pierce H. Norton II, president and chief executive officer. 'In addition, operating costs were slightly lower than the same period last year, as we maintain our focus on managing expenses while safely and reliably serving our customers.'
SECOND-QUARTER 2019 FINANCIAL PERFORMANCE
ONE Gas reported operating income of $46.9 million in the second quarter 2019, compared with $41.0 million in the second quarter 2018.
Net margin, which is comprised of total revenues less cost of natural gas, increased by $9.6 million compared with second quarter 2018, which primarily reflects:
Second-quarter 2019 operating costs were $116.1 million, compared with $117.6 million in the second quarter 2018, due primarily to a $2.7 million decrease in employee-related expenses.
Depreciation and amortization expense for the second-quarter 2019 was $45.0 million, compared with $39.8 million in the second quarter 2018, due primarily to an increase in depreciation expense from capital investments placed in service, higher depreciation rates in Kansas and an increase in the amortization of the ad-valorem surcharge rider in Kansas.
For the second-quarter 2019, other expense, net, decreased $1.3 million compared with the same period last year, due primarily to earnings on investments associated with nonqualified employee benefit plans, which offset the increase in costs for the plans included in operating costs.
Second-quarter 2019 interest expense increased $3.4 million compared with the same period last year, resulting primarily from the refinancing of the company's $300 million Senior Notes, at a 2.07% interest rate, with $400 million Senior Notes, at a 4.50% interest rate, due November 2048.
Income tax expense for the second-quarter 2019 includes amortization of excess accumulated deferred income taxes (ADIT) of $2.1 million, which is offset in revenues.
Capital expenditures and asset removal costs increased $6.6 million for the second- quarter 2019 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.
YEAR-TO-DATE 2019 FINANCIAL PERFORMANCE
Operating income for the six-month 2019 period was $174.5 million, compared with $171.3 million for the same period last year.
Net margin increased by $17.5 million compared with the same period last year, which primarily reflects:
Operating costs for the six-month 2019 period were $240.6 million, compared with $236.4 million for the same period last year, which primarily reflects:
Depreciation and amortization expense for the six-month 2019 period was $88.8 million, compared with $78.7 million for the same period last year, due primarily to an increase in depreciation expense from capital investments placed in service, higher depreciation rates in Kansas and an increase in the amortization of the ad-valorem surcharge rider in Kansas.
For the six-month 2019 period, other expense, net, decreased $3.9 million compared with the same period last year, due primarily to earnings on investments associated with nonqualified employee benefit plans, which offset the increase in costs for the plans included in operating costs.
Interest expense increased $6.8 million for the six-month 2019 period compared with the same period last year, resulting primarily from the refinancing of the company's $300 million Senior Notes, at a 2.07% interest rate, with $400 million Senior Notes, at a 4.50% interest rate, due November 2048.
Income tax expense for the six-month 2019 period includes amortization of excess ADIT of $8.9 million, which is offset in revenues.
Capital expenditures and asset removal costs increased $7.0 million for the six-month 2019 period compared with the same period last year, due primarily to increased system integrity activities and extending service to new areas.
The company ended the second quarter 2019 with $11.1 million of cash and cash equivalents, $293.0 million of commercial paper outstanding and $698.8 million of remaining credit available under its $700 million credit facility. The long-term debt-to-capitalization ratio at June 30, 2019, was 38%, and the ratio of total debt-to-capitalization was 43%.
In March 2019, Oklahoma Natural Gas filed its third annual Performance-Based Rate Change (PBRC) application following the general rate case that was approved in January 2016. This filing was made in compliance with the January 2019 Oklahoma Corporation Commission (OCC) order settling tax issues resulting from the Tax Cuts and Jobs Act of 2017. This order requires that all earnings, including amounts attributable to tax savings, occurring in the 2018 calendar year that are above the authorized return on equity of 9.5% be returned to customers, with interest at the cost of capital rate. A settlement was reached, and a joint stipulation has been filed. This stipulation includes a PBRC credit of $15.6 million to be spread over a 12-month period and a credit of $12.7 million associated with excess ADIT. In June 2019, the Administrative Law Judge recommended that the OCC approve the joint stipulation. An order from the OCC is expected in the third quarter 2019.
As required, PBRC filings are made annually on or before March 15, until the next general rate case, which is required to be filed on or before June 30, 2021, based on a calendar 2020 test year.
West Texas Service Area
In March 2019, Texas Gas Service made Gas Reliability Infrastructure Program (GRIP) filings for all customers in the West Texas service area. The Texas Railroad Commission (RRC) and the cities agreed to an increase of $4.1 million, and new rates became effective in July 2019.
Central Texas Service Area
In March 2019, Texas Gas Service made GRIP filings for all customers in the Central Texas service area. The RRC and the cities agreed to an increase of $5.5 million, and new rates became effective in June 2019.
2019 FINANCIAL GUIDANCE UPDATED
ONE Gas updated its 2019 financial guidance, with net income expected to be in the range of $180 million to $190 million, compared with its previously announced range of $174 million to $190 million. Earnings per diluted share is expected to be approximately $3.39 to $3.57, compared with its previously announced range of $3.27 to $3.57 per diluted share.
Capital expenditures, including asset removal costs, are still expected to be approximately $450 million in 2019, with about 70% of these expenditures targeted for system integrity and replacement projects.
Additional information is available in the guidance table on the ONE Gas website.
EARNINGS CONFERENCE CALL AND WEBCAST
The ONE Gas executive management team will conduct a conference call on Tuesday, July 30, 2019, 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 888-208-1711, pass code 1661802, or log on to www.onegas.com.
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 1661802.
LINK TO EARNINGS TABLES
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:
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.
SOURCE ONE Gas, Inc.