ONE Gas : Second Quarter 2026 Transcript

LSEG STREETEVENTS

EDITED TRANSCRIPT

OGS.N - Q2 2026 ONE Gas Inc Earnings Call

EVENT DATE/TIME: AUGUST 05, 2026 / 3:00PM GMT

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C O R P O R A T E P A R T I C I P A N T S

Erin Dailey ONE Gas, Inc. - Director, Investor Relations and Sustainability

Robert McAnnally ONE Gas, Inc. - Chief Executive Officer

Christopher Sighinolfi ONE Gas, Inc. - Chief Financial Officer, Senior Vice President

Curtis Dinan ONE Gas, Inc. - President and Chief Operating Officer

C O N F E R E N C E C A L L P A R T I C I P A N T S

Richard Sunderland Truist Securities - Analyst

Alexander Calvert Wells Fargo - Analyst

Luke Fenker Jefferies - Analyst

Amanda Huang Morgan Stanley - Analyst

David Paz Wolfe Research - Analyst

P R E S E N T A T I O N

Operator

Good day, and welcome to the ONE Gas second quarter earnings conference call and webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey.

Erin Dailey - ONE Gas, Inc. - Director, Investor Relations and Sustainability

Thank you, Dennis. Good morning, everyone, and thank you for joining us on our second quarter 2026 earnings conference call. This call is being webcast live, and a replay will be available later today. After our prepared remarks, we're happy to take your questions.

A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings.

This call will include financial results and guidance with respect to adjusted net income and adjusted net income per share, which are` non-GAAP financial measures as defined by the SEC. A reconciliation of the company's GAAP net income and GAAP earnings per share to adjusted net income and adjusted net income per share, along with additional disclosures required by Regulation G are available in the earnings release that we issued yesterday.

Joining us this morning are Sid McAnnally, Chief Executive Officer; Chris Sighinolfi, Senior Vice President and Chief Financial Officer; and Curtis Dinan, President and Chief Operating Officer.

And now I'll turn the call over to Sid.

Robert McAnnally - ONE Gas, Inc. - Chief Executive Officer

Thanks, Erin, and good morning, everyone. Our strong second quarter performance reflects solid execution across the business and the continued strength of our growth strategy supported by constructive jurisdictions. Adjusted EPS was $0.82 for the quarter compared to

$0.54 in the same period last year. Through the first half of the year, we've grown adjusted EPS by 16% over last year despite weather that was 25% warmer.

Importantly, we delivered these results while keeping the average customer bill flat year-over-year and increasing our dividend. This balanced approach to operating a 100% regulated company is intentional. Our strategy is to strengthen our delivery system and grow the business through disciplined investment while keeping our long-term customer bill growth in line with inflation. Combined with the legislative and regulatory framework that supports investment and economic development, we're able to deliver growth that is both durable and sustainable.

The opportunity to serve large-load customers continues to broaden across our service territory. Rising demand is being driven by ongoing electric load growth and the need for reliable, dispatchable energy. Interest from gas-fired generation, data centers and advanced manufacturing has grown meaningfully, creating additional avenues for sustainable long-term growth.

We expect the factors driving our strong performance in the first half of this year to continue, and we now expect to achieve adjusted earnings within the upper half of our 2026 guidance range. We are confident in our outlook which is supported by new rates taking effect and continued customer growth, along with ongoing benefits from constructive legislative developments in Kansas and Texas.

Now I'll turn it over to Chris to discuss the details of our financial performance and regulatory activities. Chris?

Christopher Sighinolfi - ONE Gas, Inc. - Chief Financial Officer, Senior Vice President

Thanks, Sid, and good morning, everyone. Adjusted net income for the second quarter was $52.1 million or $0.82 per diluted share compared with $32.7 million or $0.54 in the same period last year, a 52% increase. On a GAAP basis, EPS was $0.74 compared with $0.53 last year, a nearly 40% increase. These results were supported by approximately $16 million of new revenue from new rates and greater-than-anticipated benefits from Texas House Bill 4384.

As we have discussed previously, the Texas House bill supports economic development by allowing natural gas utilities to defer depreciation expense and ad valorem taxes and accrue a carrying cost on capital expenditures between the time of project in service and its inclusion in rates. The impact will fluctuate by quarter based on the timing and amount of eligible capital placed into service. Given the cadence of our annual GRIP filing, we generally expect the second quarter to represent a larger share of the annual benefit, with a smaller contribution in the third quarter. This timing reflects how eligible investments are accrued before the annual GRIP filing takes effect. Once the filing is reflected in customer rates, the amount recognized through accruals declines in the third quarter before building again.

With first-half 2026 results complete, we now expect House Bill 4384 to contribute approximately $0.42 to full year adjusted EPS. This expectation, along with new rates and ongoing cost discipline, gives us confidence in raising our financial expectations for the full year.

As I noted on our last quarter call, the warm winter weather created some positive offsets which we expected to see play out later in the year, and that has proven true. We consumed less gas from storage this winter than we would have under normal conditions, finishing the first quarter with inventory levels about 25% higher than we had planned. Higher spring storage balances mean we have less to inject this refill season, creating the opportunity for capacity release in Kanas, the revenues from which we share 50/50 with customers. Net to our interests, we recognized about $900k in related revenues during the second quarter and have realized a total of $2.8 million in capacity release revenues year-to-date. We believe an incremental $1.2 million in capacity release opportunities remain through the injection season.

Second quarter O&M expenses increased approximately 6.6 percent year over year, moderating from the first quarter increase. Line locating tickets, largely related to fiber installation activity, remain elevated, reflecting continued construction and economic activity across our service territories. We have also experienced increased fuel costs for our fleet due to geopolitical unrest. We are not changing our 3-4% long-term guidance for annual O&M increases, however, and expect the sequential growth in overall O&M expenses to move meaningfully lower over the back-half of this year.

Excluding amounts related to KGSS-I, second-quarter interest expense decreased by $3.8 million compared with the prior year, due in part to lower commercial paper rates.

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Turning to equity, we have forward sale agreements in place which total approximately $41.5 million, roughly half our need for this year. We will continue to be opportunistic about issuing equity as we meet our remaining needs, which, given our trading liquidity, can easily be funded through our ATM program.

Yesterday, the ONE Gas board of directors declared a dividend of 68 cents per share, unchanged from the previous quarter. Our financial guidance for the year remains adjusted net income of $306 million to $314 million and adjusted EPS of $4.83 to $4.95, but with strong first-half performance and the impact of the Texas legislation, we expect to achieve adjusted earnings within the upper half of these ranges, or $310 million to $314 million, and $4.89 - $4.95.

Now I'll turn to regulatory activities. Oklahoma Natural Gas filed its annual Performance-Based Rate Change application in February, seeking a

$28.7 million rate increase. At the hearing in June, the administrative law judge recommended approval of the application as filed. Interim rates subject to refund were implemented in late June.

Texas Gas Service made its Gas Reliability Infrastructure Program filing in March, requesting a $36.9 million revenue increase. In June, the Texas Railroad Commission approved the requested increase, and new rates became effective in July. This was our first statewide GRIP filing and the first to reflect the expanded benefits of Texas House Bill 4384.

Kansas Gas Service filed an application under the Gas Reliability Surcharge statute in July, seeking an approximately $14.3 million increase, with rates expected to take effect in October. The filing reflects the expanded recovery provisions under House Bill 2435, which broadened eligible investments to all direct capital investments in Kansas, increased the maximum residential monthly surcharge to $1.35 from $0.80, and shortened the review period to 90 days from 120 days.

We do not have any full rate cases planned until we file the Oklahoma rate case in 2027, as required by tariff. And now, Curtis, I'll turn things to you.

Curtis Dinan - ONE Gas, Inc. - President and Chief Operating Officer

Thank you, Chris, and good morning, everyone. I'll start with an update on growth and capital deployment. We completed $188 million worth of capital projects this quarter, relatively in-line with the same period last year.

Growth across our service territory remains broad-based. Through July, we installed 11,000 new meters, led by Oklahoma City and El Paso.

Beyond this ongoing residential growth, we are advancing large-load opportunities and currently have three high-volume projects under contract. Together, they represent roughly $15 million of incremental annual revenue and $175 million of associated capital, with in-service dates spanning the second half of 2026 through 2028. One of these projects is the Western Farmers gas-fired generation project, which was announced late last year. We are preparing to bid the construction contract and expect to begin installation early in 2027. The project remains on track for a Q3 2028 in-service date. It includes the construction of a 43-mile, 24-inch pipeline in southern Oklahoma. The other two contracted projects are already in construction or commissioning. One of the projects is in El Paso to serve an advanced manufacturing facility and the other will serve a data center in Oklahoma. Both are expected to be placed in service this quarter.

On our last earnings call, we noted six additional projects in late-stage discussions that, in aggregate, could support approximately 3 gigawatts of generation and up to 1 BCF per day of demand across Kansas, Oklahoma, and Texas. One of those six projects is the Oklahoma data center that I just mentioned, which is now not only under contract but expected to be in service this quarter. This project highlights one of our strategies in pursuing large-load opportunities. By leveraging our existing pipeline network, we can respond quickly to meet customer needs and create value for all customers. The remaining five projects are in late-stage discussions and project scoping and represent our highest-conviction prospects. We have 17 additional opportunities in early stages of evaluation and will provide updates as the projects advance.

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Turning to O&M, our coworkers continue to drive improvements in workforce efficiency and safety. Second quarter line locating activity increased approximately 7% year over year, while damages declined 6%. This highlights the operational benefits of bringing certain work in-house. In addition to the insourcing progress on our line locating function, we have also insourced 40% of the watch and protect function in Oklahoma and are on track to have that fully insourced by year end. This initiative further demonstrates our focus on operational excellence by enhancing safety and system integrity while driving more effective management of O&M expenses.

And now, I'll turn it back over to Sid for closing remarks.

Robert McAnnally - ONE Gas, Inc. - Chief Executive Officer

Thanks, Curtis. We operate in a region that continues to experience residential growth driven by economic development. Kansas, Oklahoma and Texas have business-friendly policies and regulatory frameworks that attract investment and support growth. Our states also enjoy abundant natural gas resources and extensive infrastructure, creating an attractive environment for large-load customers. We are well-positioned to serve this growing demand, driving sustainable growth and shareholder value, all while maintaining our commitment to safety and affordability.

Our performance over the first half of the year reflects the strength of our strategy, the quality of our execution and our ability to capitalize on the opportunities before us. The disciplined focus of our coworkers and their commitment to safety and operational excellence continues to drive our success. I want to thank each of them for their contributions and dedication to serving our customers and communities.

As we look forward, we continue to see a clear runway for growth and remain focused on serving our customers while generating attractive returns for our investors. With that, we'll open the call for questions.

Q U E S T I O N S A N D A N S W E R S

Operator

Constantine Lednev, Wells Fargo.

Alexander Calvert - Wells Fargo - Analyst

It's actually Alex on for Constantine. Just in terms of the capital allocation strategy on a go-forward basis, some of the improved regulatory contracts you've highlighted, do you see maybe a CapEx shift or pull forward of capital costs with less ROE lag? And maybe just to

frame that, would you provide sort of accretive opportunity within your current 5% to 7% longer term?

Curtis Dinan - ONE Gas, Inc. - President and Chief Operating Officer

Alex, this is Curtis. Let me just talk first a little bit about how we think about capital in general. So the first thing our capital focus is on

is our system integrity spending, and that typically represents about 60% to 70% of our capital budget. So that is agnostic to regulatory treatment in any of our jurisdictions. That's purely driven by the needs of our system and the replacements we need to make.

In terms of allocating other capital, our growth capital is driven mostly by what customer needs are and where those growth opportunities are taking place.

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