ONE Gas, Inc. (OGS) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call revealed solid financial performance with a year-over-year increase in net income and adjusted net income, driven by regulatory benefits and customer growth. Despite some uncertainties in regulatory risks and short-term cost increases from the in-sourcing program, the company's strategic projects and legislative support in Kansas are promising. The Q&A session highlighted competitive advantages and regulatory benefits that align with guidance, although some management responses lacked clarity. Given the company's market cap and positive financial metrics, a positive stock price movement is anticipated over the next two weeks.
Key Financial Performance
Net Income 2025 net income totaled $264 million or $4.37 per diluted share compared with $223 million and $3.91 in 2024. This represents an increase of $41 million or $0.46 per diluted share year-over-year. The increase is attributed to solid performance and the impact of Texas House Bill 4384.
Adjusted Net Income Adjusted net income for the fourth quarter was $90 million or $1.48 per diluted share compared with $78 million and $1.35 in the same period in 2024. For the full year, adjusted net income was $271 million or $4.48 per diluted share compared with $225 million and $3.94 in 2024. The increase is due to adjustments reflecting the Texas regulatory model and the impact of Texas House Bill 4384.
Capital Expenditures Capital expenditures totaled $760 million for the year. This reflects investments in growth and reliability projects, including a $120 million pipeline project and other infrastructure improvements.
O&M Expense O&M expense for the full year was up approximately 5% over 2024, slightly above the 4% CAGR guidance. The increase is due to executing some projects earlier than planned, demonstrating efficient execution and financial discipline.
Interest Expense Interest expense in the quarter was $2.9 million lower year-over-year, primarily reflecting lower rates on commercial paper borrowings and the implementation of Texas House Bill 4384.
Customer Growth The company added about 23,000 new residential customers in 2025, which supports spreading costs more efficiently and maintaining affordability.
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Operating Highlights
Austin system reinforcement: Boosted available winter peak capacity by approximately 25%.
New pipeline project: $120 million investment to deliver over 100 billion cubic feet of natural gas annually to Western Farmers Electric Cooperative in Southeastern Oklahoma.
Advanced manufacturing plant project: Project outside of El Paso to be in service by Q3 2026, supporting reliability and system growth without increasing costs for residential customers.
Customer base growth: Added about 23,000 new residential customers annually, spreading costs more efficiently and keeping service affordable.
Kansas legislation support: Proposed legislation to allow more efficient recovery of capital invested in Kansas Gas Service system.
In-sourcing program: Brought 40% of line locate work in-house, reducing excavation damages by over 14% year-over-year despite an 8% increase in ticket volumes.
Gas cost mitigation: Sourced gas at favorable pricing hubs, increased storage by 20%, and used hedges to mitigate price fluctuations.
Non-GAAP adjustments: Introduced to better reflect performance within the Texas regulatory model and align with financial disclosures.
Leadership change: Curtis Dinan appointed as President and COO to leverage his operational and financial experience for the company's growth.
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Risk or Challenges
Winter Storm Challenges: The company faced challenges during Winter Storm Fern, a multi-day subfreezing event. Although there were no supply disruptions, such events test the system's resilience and could pose risks to operations and customer service in the future.
Regulatory Adjustments: The introduction of non-GAAP adjustments due to Texas House Bill 4384 highlights complexities in regulatory accounting. The persistent delta between regulatory and GAAP accounting could create financial reporting challenges and impact investor perceptions.
Operational Costs: O&M expenses increased by approximately 5% in 2025, slightly above the 4% CAGR guidance. This rise, while partly due to executing projects ahead of schedule, could indicate potential cost management challenges.
Interest Rate Sensitivity: The company benefited from Federal Reserve rate cuts in 2024 and 2025, but no further rate cuts are assumed for 2026. Any unexpected rate increases could adversely affect financing costs and financial performance.
Legislative and Regulatory Risks: The company is supporting proposed legislation in Kansas for efficient capital recovery. However, legislative changes and regulatory approvals remain uncertain and could impact financial planning and operations.
Supply Chain and Staffing: The in-sourcing program temporarily increases costs due to onboarding and training. While it aims to improve long-term efficiency, it could strain short-term financials and operational capacity.
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Guidance & Outlook
Adjusted Net Income and EPS Guidance for 2026: The company expects adjusted net income in the range of $306 million to $314 million and adjusted earnings per share (EPS) in the range of $4.83 to $4.95 for 2026.
Long-term Growth Expectations: The company projects long-term adjusted net income growth of 7% to 9% and adjusted EPS growth of 5% to 7% from 2026 through 2030, using adjusted 2025 results as the baseline. This implies a 2030 adjusted EPS midpoint of approximately $6.
Capital Expenditures: The company completed $760 million in capital investments in 2025 and plans to continue disciplined execution of its capital plan to support growth, safety, and reliability. Specific projects include a $120 million pipeline project in Oklahoma and a manufacturing plant project near El Paso, both of which are expected to support system growth and reliability.
Operational and Financial Efficiency: The company plans to maintain a 3% to 4% compound annual growth rate (CAGR) for operating and maintenance (O&M) expenses and expects no further Federal Reserve rate cuts in 2026. It also aims to continue leveraging in-sourcing programs to improve operational efficiency and reduce long-term costs.
Regulatory and Legislative Developments: The company supports proposed legislation in Kansas to improve capital recovery efficiency and plans to make regulatory filings in Texas, Oklahoma, and Kansas in 2026. No full rate cases are planned until 2027 in Oklahoma.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Why couldn't the company speak about the non-GAAP adjustments in December, and how do these adjustments impact equity issuance, capital structure, and dividend payout ratio?
A:The company studied the legislation passed in June and participated in the Railroad Commission's rule-making process, which concluded recently. The adjustments are more impactful to earnings than cash flow initially and do not materially affect equity issuance, capital structure, or dividend payout ratio.
Q:What are the competitive advantages in growth opportunities like the Western Farmers announcement?
A:The company applies early filters to assess competitive advantages, such as proximity of existing assets and regulatory transparency. Transparency in rates and tariffs often provides a competitive edge over midstream providers.
Q:Can you frame the potential benefit from the proposed Kansas legislation in terms of earned ROE or net income?
A:The proposed Kansas legislation expands the types of capital included in GSRS filings and increases the customer impact cap from $0.80 to $1.35 per month. Currently, only safety-related expenditures qualify, but the new bill would include growth capital. Historically, the $0.80 cap resulted in about $8 million in GSRS filings.
Q:Does the Texas legislation benefit affect the company's growth rate range?
A:The company has not provided specific direction on growth rate changes. Last year, guidance was at the high end of the range, and this year it is at the midpoint. The company is sticking to the midpoint for now.
Q:Does the guidance and adjusted EPS level assume the latest Texas rate case outcome?
A:Yes, the guidance assumes the latest Texas rate case outcome, which aligns closely with the company's original estimates.
Q:Is there a cash component to the higher earnings from the regulatory perspective in Texas?
A:The accrual and deferral are not cash components, but once included in the GRIP filing, it will result in a larger cash flow item in normal rates.
Q:How do treasuries and the current treasury curve align with the company's guidance expectations?
A:Current market conditions are slightly favorable compared to the company's refinancing expectations for the year. However, the term loan maturing in September introduces uncertainty about future conditions.
Q:Review of Unclear Management Responses
A:Management avoided providing specific direction on growth rate changes related to the Texas legislation benefit, using vague language and sticking to the midpoint of the range without further elaboration.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
House Bill
Kansas
Railroad Commission
Rule
Texas House
Winter
accounting
adjustment
affordability
capital expenditure
carrying cost
cost capital
delta
difference treatment
disclosure
example
expense rate
focus
foot gas
gas supply
locates
midpoint
month
peak
plant
price fluctuation
project customer
rate cut
rating outlook
ratio
recovery
regulator
reminder
return equity
storage
storm
work house
OGS Transcript
ONE Gas, Inc. (OGS) Q4 2025 Earnings Call Transcript
Positive2-19
The earnings call revealed solid financial performance with a year-over-year increase in net income and adjusted net income, driven by regulatory benefits and customer growth. Despite some uncertainties in regulatory risks and short-term cost increases from the in-sourcing program, the company's strategic projects and legislative support in Kansas are promising. The Q&A session highlighted competitive advantages and regulatory benefits that align with guidance, although some management responses lacked clarity. Given the company's market cap and positive financial metrics, a positive stock price movement is anticipated over the next two weeks.
ONE Gas, Inc. (OGS) Q3 2025 Earnings Call Transcript
Positive11-4
The earnings call and Q&A highlight strong financial performance, optimistic guidance, and strategic growth initiatives, including regulatory benefits and in-sourcing efficiencies. The company demonstrates resilience and adaptability, with positive EPS growth and capital plans. Despite some vagueness in future CapEx details, the overall sentiment is positive, with market expansion, legislative tailwinds, and operational improvements suggesting a likely stock price increase.
ONE Gas, Inc. (OGS) Q2 2025 Earnings Call Transcript
Positive8-7
The earnings call shows strong financial performance with increased net income and revenue, driven by new rates and customer growth. The Q&A reveals optimism about strategic growth opportunities, especially in Texas, and the impact of House Bill 4384 on earnings. Despite some strategic execution risks, the positive guidance and revenue increases outweigh concerns. The unchanged dividend and forward sale agreements are neutral factors. Given the company's market cap, the stock is likely to see a positive reaction in the short term.
ONE Gas, Inc. (NYSE:OGS) Q1 2025 Earnings Call Transcript
Unknown5-7
The earnings call shows strong financial performance with increased net income and revenue. However, unchanged dividends and concerns over economic factors, interest rate risks, and operational risks balance the positives. The Q&A section highlights management's cautious stance and lack of clarity on some issues, which tempers enthusiasm. The company's market cap suggests moderate stock price movement, leading to a neutral sentiment prediction.
OGS Report
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