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Pakistan Likely To Enter MSCI Emerging Markets Index

MSCI is considering reclassifying the Pakistani equity market from frontier to emerging market status on June 14th, 2016. MSCI – a leading provider of research-based indexes and analytics – announced that it will release on June 14, 2016, shortly after 11:00 p.m. Central European Summer Time (CEST), the results of the 2016 Annual Market Classification Review. As a reminder, three MSCI Country Indexes are currently included on the review list of the 2016 Annual Market Classification Review: MSCI China A and MSCI Pakistan Indexes for a potential reclassification to Emerging Markets and MSCI Peru Index for a potential reclassification to Frontier Markets. It is important to note that MSCI is not the only index provider that classifies markets but is considered the reference benchmark for many markets. MSCI and other index providers base their market classification on a number of quantitative measurable and comparative criteria while aiming to avoid qualitative and/or subjective criteria. PAKISTAN: ECONOMY IN FOCUS Pakistan is a country with a population of 190 million people. Pakistan’s GDP stands at USD 250 billion (Year 2015). Pakistan’s economy continued to pick up in the fiscal year 2015 as economic reform progressed and security improved. Inflation markedly declined, and the current deficit narrowed with favorable prices for oil and other commodities. Despite global headwinds, the outlook is for continued moderate growth as structural and macroeconomic reforms deepen. Selected economic indicators (%) – Pakistan 2015 2016 Forecast 2017 Forecast GDP Growth 4.2 4.5 4.8 Inflation 4.5 3.2 4.5 Current Account Balance (share of GDP) -1.0 -1.0 -1.2 Source : Asian Development Bank CPEC : THE GAME CHANGER FOR PAKISTAN China Pakistan Economic Corridor (CPEC) is a mega project of USD 46+ billion, taking the bilateral relationship between Pakistan and China to new heights. The project is the beginning of a journey of prosperity for Pakistan and China’s Xinjiang. The economic corridor is about 3,000 kilometers long consisting of highways, railways and pipelines that will connect China’s Xinjiang province to the rest of the world through Pakistan’s Gwador port. The investment on the corridor will transform Pakistan into a regional economic hub. The corridor will be a confidence booster for investors and attract investment not only from China but other parts of the world as well. Other than transportation infrastructure, the economic corridor will provide Pakistan with the telecommunications and energy infrastructure. MSCI INDICES AND PAKISTAN – A QUICK RECAP It is important to mention that between 1994-2008, Pakistan was part of the MSCI Emerging Markets Index. After the Balance of Payment crisis in 2008, KSE was shut down for 4 months after which the country was kicked out of the Emerging Markets Index. In May 2009, Pakistan was added back in the MSCI Index, but this time it was added in the Frontier Markets Index. In June last year, MSCI put Pakistan up for official review regarding inclusion into the Emerging Markets Index. Now, as per today’s press release, MSCI will make its decision whether to upgrade or not on 14th of June. RECAP: THE MSCI PAKISTAN INDEX Click to enlarge Click to enlarge Click to enlarge Click Here for MSCI Fact Sheet INDEX METHODOLOGY The index is based on the MSCI Global Investable Indexes (GIMI) Methodology – a comprehensive and consistent approach to index construction that allows for meaningful global views and cross regional comparisons across all market capitalization size, sector and style segments and combinations. This methodology aims to provide exhaustive coverage of the relevant investment opportunity set with a strong emphasis on index liquidity, investability and replicability. The index is reviewed quarterly – in February, May, August and November – with the objective of reflecting change in the underlying equity markets in a timely manner while limiting undue index turnover. During the May and November semi-annual index reviews, the index is rebalanced and the large and mid capitalization cutoff points are recalculated. SOME IMPORTANT NUMBERS/STATS Click to enlarge WHAT TO LOOK FOR IF PAKISTAN ENTERS MSCI EMERGING MARKETS INDEX? If the decision is positive, emerging markets funds with 40-50 times the capital of frontier funds will be forced to have a look at Pakistan. In our view, this is an opportunity with a risk-reward skewed heavily towards the positive side. PSX – Pakistan Stock Exchange – currently trades at 9.0x earnings; companies have grown faster than their regional peers in USD over the last ten years. Should Pakistan enter MSCI Emerging Markets, it does so at more than 40% P/E discounts to its Asian EM peers. We don’t believe this is sustainable, hence calls for a positive re-rating of the valuations. ETFs IN FOCUS: Several ETFs and mutual funds invest in emerging markets; on the other hand, a small number of ETFs focus on frontier markets. For comparison purpose, we are taking BlackRock Capital ETFs. BlackRock Capital offers the iShares MSCI Emerging Markets ETF (NYSEARCA: EEM ), asset base of which is approx USD 25 billion when compared to BlackRock Capital’s iShares MSCI Frontier 100 Index ETF (NYSEARCA: FM ), asset base of which is merely USD 420 million. It is important to note that the fund size of most of the frontier markets ETFs are very small when compared with emerging markets ETFs. Hence, we don’t see any major selling pressure from the liquidation of frontier market funds which are invested in Pakistan, as that selling will be absorbed easily by the emerging market funds. In fact, emerging markets funds will bring in more liquidity in the market, hence, providing frontier market funds an easy exit. OUR STANCE We are of the view that it is likely that Pakistan will be given a green signal for entering MSCI Emerging Markets on June 14th, 2016. We caution against the notion that reclassification is a panacea for market ills or underperformance. Typically, reclassification (both upgrades and downgrades) have followed or been accompanied by economic and financial policy reforms, including improvements in market infrastructure. It is these more fundamental and structural reforms that attract and retain international investors and boost the confidence of domestic investors. Reclassifications are best viewed as signaling a confirmation of policy reforms and changes in market conditions. Hence, an identification problem may arise whereby improved market conditions are attributed to market reclassification decisions, whereas they are due to policy actions and reforms which lead to a reclassification. Similarly, we note that reclassification may have perverse effects if there is an ‘overshooting’ effect whereby speculation leads to higher prices in advance of a reclassification, over and above what would be justified by market/ economic fundamentals. Prices then adjust on the actual reclassification event. As highlighted in the article, Average Annual Revenue and Net Profit Growth of companies listed in Pakistan have been phenomenal between 2005-2015. Moving forward with CPEC in place, Pakistan’s inclusion in the MSCI Emerging Markets Index will be beneficial for both local as well as global investors. 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. I have no business relationship with any company whose stock is mentioned in this article.

Ormat Technologies’ (ORA) CEO Isaac Angel on Q1 2016 Results – Earnings Call Transcript

Ormat Technologies, Inc. (NYSE: ORA ) Q1 2016 Earnings Conference Call May 05, 2016 09:00 AM ET Executives Rob Fink – Managing Director, Hayden Investor Relations Isaac Angel – Chief Executive Officer Doron Blachar – Chief Financial Officer Analysts Paul Coster – JPMorgan Operator Good morning, and welcome to the Ormat Technologies, Incorporated First Quarter 2016 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Rob Fink. Please go ahead. Rob Fink Thank you, operator. Hosting the call today are Isaac Angel, Chief Executive Officer; Doron Blachar, Chief Financial Officer; and Smadar Lavi, Vice President of Corporate Finance and Investor Relations. Before beginning, we would like to remind you that the information provided during this call may contain forward-looking statements relating to current expectations, estimates, forecasts, and projections about future events that are forward looking as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements generally relate to the company’s plans, objectives, and expectations for future operation and are based on management’s current estimates, projections, future results, or trends. Actual future results may differ materially from those projected as a result of certain risks and uncertainties. For a discussion of such risks and uncertainties, please see Risk Factors as described in Ormat’s Annual Report on Form 10-K filed with the SEC. In addition, during the call we will present non-GAAP financial measures such as EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP measures and management’s reason for presenting such information is set forth in the press release that was issued last night, as well as in the slides posted on our website. Because these measures are not calculated in accordance with U.S. GAAP, they should not be considered in isolation from the financial statement prepared in accordance with GAAP. Before I turn the call over to management, I would like to remind everyone that the slide presentation accompanying this call may be accessed on the Company’s website, at ormat.com, under the Events & Presentations link that’s found on the Investor Relations tab. With all that said, I would now like to turn the call over to Isaac. Isaac, the call is yours. Isaac Angel Thank you, Rob, and good morning, everyone. Thank you for joining us today for the presentation of our first quarter 2016 results and our outlook for the remainder of the year. Starting with slide 4, the first quarter was a great start to the year for Ormat. We executed well, delivering strong revenue and profitability, and our focus on improving our operational and manufacturing efficiency is the main driver for margin expansion and improved results. Both our product segment and electricity segment delivered improved results year after year. Our electricity segment delivered a 20% increase, reaching $108 million, due to higher electricity generation and new expansions coming on line. Our product segment grew 44%, to $44 million, benefiting from several large contracts signed in the previous years. Overall, total revenue grew 26%, to $152 million, which demonstrates strong growth as we overcome the impact of lower commodity prices which continues to affect a portion of our revenue in our electricity segment. In addition, we achieved high gross margin levels in both segments of our business, supporting significant increases in our overall profitability. This performance is due primarily to two factors: first, our balanced business model being vertically integrated; and second, our methodical efforts to improve operational efficiency. We have been focused on efficiency and operational excellence in every aspect of our business, and that effort is reflected in our numbers. I will elaborate on the progress being made and our plans for the future after Doron reviews the financial results. Doron? Doron Blachar Thank you, Isaac, and good morning, everyone. Let me start by providing an overview of our financial results for the three months ended March 31, 2016. Starting with slide 6, for the first quarter of 2016 total revenue increased 26.1%, to $151.6 million, compared to $120.2 million in the first quarter of 2015. Moving to slide 7, revenues in the electricity segment increased 19.9%, to $107.9 million, in the first quarter of 2016, up from $90 million in the first quarter of last year. Slide 8, revenues in the product segment were $43.7 million, an increase of 44.4%, compared to $30.3 million in the first quarter of 2015. Moving to slide 9, gross margin in the first quarter of 2016 increased to 42.1%, from 36.6% in the first quarter of 2015. Our electricity segment gross margin increased to 41%, due largely to new expansions coming on line, improved efficiency at the plant level, and also the transition to a new fixed-rate PPA for our Heber 1 power plant. Part of the increase in gross margin this quarter is driven by timing of operating expenses. We expect a lighter second quarter in the electricity segment with higher expenses that will result in lower margins, on average, in the rest of the year. Our product segment generated 45% gross margin, a particularly strong level for this segment of our business. It was mainly due to the different product mix and different margins in the various sales contracts, improvements made at our manufacturing facility which enables us to shorten lead time, as well as reduction in commodity prices that reduced the cost of raw material in subcontracting. We expect our gross margin in the product segment during 2016 to be higher than normal. The margin should normalize in 2017. Turning to slide 10, operating income for the first quarter of 2016 increased to $50.5 million, compared to $29.9 million in the first quarter of 2015, representing 69.3% increase. Operating income attributable to our electricity segment was $34.8 million, compared to $24 million in the first quarter of 2015, representing a 45.2% increase. Operating income of the product segment was $15.8 million, compared to $5.9 million in the first quarter of 2015, representing 168% increase. Moving to slide 11, net income attributable to the company’s stockholders for the first quarter of 2016 was $29.3 million, or $0.59 per diluted share, compared to $10 million, or $0.21 per diluted share, in the first quarter of 2015. Let me spend a moment speaking on our hedging strategy that is designed to mitigate the impact of changes in commodity prices. We continued to make progress in reducing our exposure to these fluctuations. In December of 2015, the Heber 1 contract was switched to a fixed-rate price, which mitigate our exposure and reduce the portfolio exposed to natural gas prices to approximately 90 megawatts and less than 10% of 2016 expected electricity revenue. Recently, we reduced our economic exposure to fluctuation in the price of oil and natural gas until the end of 2016, by entering into a derivative transaction. We recognized a net loss for this transaction of $0.1 million in the first quarter of 2016, which is recorded within foreign currency translation and transaction gains or losses, compared to a net gain of $0.3 million in the first quarter of 2015 that was recognized in the electricity segment revenue. Please turn to slide 12, adjusted EBITDA. Adjusted EBITDA for the first quarter of 2016 was $80.2 million, compared to $65.3 million in the same period last year, which represents a 22.8% increase. Reconciliation of the EBITDA and adjusted EBITDA is described on the appendix slide. Turning to slide 13, cash and cash equivalents as of March 31, 2016, were $148.5 million. We generated $27 million in cash from operating activities and invested $31 million in CapEx. The accompanying slide breaks down the use of cash during the quarter. Our long-term debt as of March 31, 2016, and the payment schedules are presented on slide 14 of the presentation. The average cost of debt for the company stands at 5.9%. On May 4, 2016, Ormat’s Board of Directors approved payment of a quarterly dividend of $0.07 per share for the first quarter. The dividend will be paid on May 24, 2016, to shareholders of record as of closing of business on May 18, 2016. In addition, the Company expects to pay a quarterly dividend of $0.07 per share in the next two quarters. This concludes my financial overview. I would like now to turn the call to Isaac for an operational and business update. Isaac? Isaac Angel Thank you very much, Doron. Starting with slide 16, for an update on operations. In the first quarter, we delivered strong results that demonstrate that we are making solid progress on our multiyear strategic plan. Moving to slide 17, we continue to make improvement in all aspects of our value chain. Specifically, we are focused on reducing manufacturing lead time, improving procurement to lower our material cost, and improving management control. This process translates into a significant improvement in gross margin and adjusted EBITDA margins. Turning to slide 18, another goal was to expand our electricity generation, both organically and inorganically. Electricity generation during the quarter was 1.4 million megawatt hours, an increase of 16.4% compared to the last year. This increase was due to commencement of the second phase of Don Campbell and McGinness Hills, power plants in 2015, as well as Plant 4 of the Olkaria III complex in Kenya which come on line in January this year. Beyond expansion, we continue to make plant-level adjustments designed to optimize our electricity generations. These adjustments include the elimination of older and less efficient components and modifying output based on the underlying resource. The goal is to improve profitability, and we are making meaningful process here, as well. In addition, we are also working to monetize the Don Campbell plant and further strengthen our balance sheet as part of our joint venture with Northleaf Capital Partners. Currently, we are conducting the required power generation tests under the agreement to determine the final terms for closing. Following the closing, Ormat Nevada will contribute Don Campbell 2 to ORPD, and Northleaf will buy their interest share. We expect to close this in the second quarter of 2016. Turning to slide 19, another part of our expansion strategy involves targeted acquisitions. We recently signed definitive agreements to acquire gradually 85% of a geothermal plant in the island of Guadalupe. We expect to close this acquisition during the second quarter. This acquisition will be immediately accretive to Ormat CPS. Turning to slide 20, for an update on projects under construction. We plan to add 160 to 190 megawatts by the end of 2018 by bringing new plants on line, expanding existing plants, as well as adding capacity from the recent acquisitions. The expansion plan includes the Platanares geothermal project in Honduras, which is currently under construction, and we expect to reach commercial operation by the end of 2017. We also initiated development efforts in two projects in Nevada. Tungsten Mountain and Dixie Meadows are each expected to generate 25 to 35 megawatts once they come online in 2017 or 2018. While the drilling activity is ongoing in both projects, we are making progress towards securing PPAs. We believe that these projects may qualify for the production tax credit. In Sarulla, Indonesia, engineering and procurement for the first and second phases has been substantially completed, but it’s still in progress for the third phase. Construction for the first phase is in progress, with major activities related to mechanical and electrical equipment installation. The infrastructure work for the second phase is in progress. Major equipment, including Ormat’s OECs and Toshiba’s steam turbines, for the first phase has arrived at the site and currently installed. The drilling of production and injection wells is also in progress for all three phases. The project is still experiencing delays, mainly in field development of the second phase and third phases and cost overruns. With respect to Ormat’s role as a supplier, all contractual milestones under the supply agreement were achieved and main shipment of the second phase is on its way to the site. Manufacturing of third phase equipment is progressing as planned. The consortium expects that the first phase of operations to commence towards the end of 2016, and the remaining two phases of operations are scheduled to commence within the 18 months thereafter. The projects I just described, as well as additional projects under various stages of development, are expected to support our expansion by the end of 2018. Besides the investment in new projects, we are continuing our exploration and business development activities to support future growth. On slide 21, let me briefly discuss the recent agreement with Alevo. On March 30, 2016, Ormat signed an agreement with a subsidiary of Alevo Group S.A., a leading provider of energy storage systems, to jointly build, own, and operate the Rabbit Hill Energy Storage Project, which is located in Georgetown, Texas. The storage market is one of the most developing, growing, and exciting areas in the energy industry today, and this agreement moves us for the first time into the energy storage arena. We view this market as key to our long-term growth plan, as it helps us to further diversify revenues and support our position as a leader in the renewable energy industry. Under the terms of the agreement, Ormat will own and fund the majority of the Rabbit Hill Energy Storage Project and will provide engineering, construction services, and balance of plant equipment. Alevo will provide its innovative GridBank inorganic lithium ion energy storage system in conjunction with the power conversion systems. In addition, Alevo will provide ongoing management, operations, and maintenance services for the life of the project. We do not expect this first entry into the storage market to generate material revenues for Ormat. However, we do believe this collaboration will allow us to make significant progress towards our expansion in this field. We continue to actively explore opportunities in this area and remain focused on building relationships and collaboration with established technology providers. We believe that such collaboration can leverage our experience, relationships, and project management, and other capabilities. If you could please turn to slide 22, you would see that our CapEx requirement for the balance of 2016 stands at approximately $245 million. We plan to invest a total of approximately $75 million in capital expenditures on new projects under construction and enhancements. And additional approximately $170 million are budgeted for exploration activities, development of new projects, investment in new activities that reflects expenditure under the new strategic plan, and maintenance CapEx for operating projects. In addition, $51 million will be required for debt repayment. Turning to slide 23, for an update on our product segment. Our backlog as of May 4, 2016, stands at approximately $214 million. Moving to slide 24, for a regulatory update. We shared with you the tremendous efforts Ormat’s team is investing in order to accelerate growth of the electricity segment to increase its portion in the future. In addition to shortening the manufacturing construction lead time, we are also investing efforts to shorten the development process. One of the hurdles in the geothermal development is obtaining key permitting in order to test prospect viability. We have been supporting and lobbying the geothermal components of Senator Dean Heller’s Geothermal Exploration Opportunity Act to simplify geothermal exploration review process in the future. Under the Energy Policy Modernization Act of 2015, which passed the U.S. Senate on April 2016, an agreement was reached to approve 29 amendments, including Senator Heller’s Public Land Renewable Energy Development Act, which streamlines permitting for renewable energy projects on federal land. If the bill will pass the House unchanged, it will be significant achievement in improving ability to assess potential geothermal resources faster than before and, by that, to accelerate the development process. Turning to slide 25, for 2016 guidance. We are reiterating our 2016 full-year guidance. For the year, we expect total revenue to be between $620 million and $640 million. We expect revenue in our electricity segment to be between $410 million and $420 million. For the product segment, we expect revenues to be between $210 million and $220 million. We expect 2016 adjusted EBITDA to be between $300 million and $310 million. I’m very pleased with our performance. The first quarter represents a strong start to what we believe will be another great year for Ormat. And that concludes our remarks for today, and I thank you very much for continued support. Operator? Question-and-Answer Session Operator [Operator Instructions]. The first question comes from Paul Coster from JPMorgan. Please go ahead. Paul Coster Yes, thanks, few quick questions. First up, you’ve made tremendous progress in the electricity segment in terms of improving the yield of the existing assets. How far are we, though, from sort of the point of diminishing returns in terms of that focus? Isaac Angel Hi, Paul. Thanks very much. What was the last part of your question? Paul Coster I’m just wondering have you got to the point of having realized the efficiencies at this point, do you still have further opportunities ahead? Isaac Angel Paul, as we explained last year, this is going to be a very long journey, and we barely touched only part of the efficiencies that we have planned. We’re working on a [indiscernible] basis, and we still have a long way to go until we will actually finish all the efficiencies that we are planning to do. Paul Coster Okay. The backlog is continuing to come down. Is there anything being added in to backlog? Or, are we just simply depleting it as a result of the Sarulla project? Isaac Angel First of all, you realize that the $256 million Sarulla project is a very large project and, obviously, it affects the backlog. On the other hand, as I said last conference call, we are making a tremendous effort, and we are in the middle of a journey to increase our electricity segment which will continue to grow faster than in the past. But if we are looking forward, I would not be worried about the backlog. And there is also another thing that you should take into consideration. We decreased seriously our delivery time, for something like from 20 months to less than 12 months, which means that projects that we are signing which used to be for the year after, now they are kicking in within the next 12 months, which makes a difference in the calculation of the backlog. Paul Coster So, in other words, you’re expecting backlog to plateau soon and maybe even start rebuilding? Does that sound – is it possible that would happen within the 2016 timeline? Isaac Angel I’m writing this down, Paul, and I hope it’s going to happen. Paul Coster Okay. My last question is oil and gas prices have actually ticked up a bit recently. Is there any way in which you might start to capture the benefit of a positive inflection in prices before the point at which you move as many of these projects as possible to a fixed rate? Isaac Angel We still have about one-third of our exposure in oil and two-thirds in natural gas, which is barely moving. On the one-third which is going up, it is not something that’s going to change in the near future, which is our Puna power plant, and we hope we are going to catch the increase. And maybe Doron would like to add here something. Doron Blachar Hi, Paul. We took a different approach to the hedging due to the very, very low prices at the beginning of the year. So, we actually are able to enjoy some of the increase in the oil prices, not all of it, but some of it. And on the gas, if the gas prices are relatively stable to the beginning of the year, there isn’t much change. But as prices goes up, it gives a potentially better performance next year with the higher prices on the oil and natural gas prices. Paul Coster Very good. Thank you so much. Isaac Angel Thank you Paul. Operator [Operator Instructions]. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Isaac Angel for any closing remarks. Paul Coster Okay. Thanks a lot operator. Thank you very much for your continued support during the year, and we are very optimistic, management here in Ormat. And see you next conference call. Operator The conference has now concluded. Thank you for attending today’s presentation. 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. 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Atmos Energy’s (ATO) CEO Kim Cocklin on Q2 2016 Results – Earnings Call Transcript

Atmos Energy Corporation (NYSE: ATO ) Q2 2016 Earnings Conference Call May 5, 2016 10:00 ET Executives Susan Giles – Vice President, Investor Relations Kim Cocklin – Chief Executive Officer Mike Haefner – President and Chief Operating Officer Bret Eckert – Senior Vice President and Chief Financial Officer Analysts Chris Turner – JPMorgan Spencer Joyce – Hilliard Lyons Faisel Khan – Citigroup Charles Fishman – Morningstar Mark Levin – BB&T Operator Greetings and welcome to the Atmos Energy Second Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mrs. Susan Giles. Thank you, Mrs. Giles. You may begin. Susan Giles Thank you, Selena and good morning everyone. Thank you all for joining us. This call is being webcast live on the internet. Our earnings release, conference call slide presentation and Form 10-Q are all available on our website at atmosenergy.com. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 22 and more fully described in our SEC filings. Our first speaker is Bret Eckert, Senior Vice President and CFO of Atmos Energy. Bret? Bret Eckert Thank you, Susan and good morning everyone. We appreciate you joining us and your interest in Atmos Energy. If you would like to follow me on Slides 2 and 3 of the slide deck, you will see that realized net income for the quarter was $144 million or $1.40 per diluted share. For this current 6-month period realized net income was $240 million or $2.33 per diluted share. Positive rate outcomes in our regulated businesses drove our growth for the three and the six-month periods. Rate release for our regulated distribution and pipeline operations combined generated about $24 million of incremental margin in the quarter and about $48 million for the current six months. However, warmer than normal weather affected all segments of our business. For the quarter and six month periods, we experienced a 21% decrease in regulated distribution sales volumes due to weather that was 25% warmer quarter-over-quarter. However, our weather normalization mechanisms, which cover about 97% of utility margins, worked as designed during the warm heating season. As a result, gross profit decreased just $2.2 million for the quarter and $3.3 million for the six month period due to the warmer than normal weather. Additionally, although our regulated pipeline experience decreased through system volumes and lower storage and blending fees due to the warm weather in the current quarter, volumes are only down about 1% on a year-to-date basis. And in our non-regulated segment, we experienced higher settlement losses on long financial positions compared to both prior year periods. Focusing now on our spending, consolidated O&M was flat quarter-over-quarter but rose about $6 million in the current six months period primarily due to increased pipeline maintenance spending as well as the timing of spending period over period. Capital spending increased by $97 million in the first six months compared to one year ago primarily due to planned increases in spending in both of our regulated segments. About two-thirds of this increase was incurred in our regulated pipeline segment where we continue to enhance and fortify our Bethel and Tri-City storage fields to improve our ability to reliably deliver gas in the Mid-Tex division and APT’s other LDC customers. We remain on track to achieve our capital budget target of $1 billion to $1.1 billion for fiscal 2016 as you will see in the slide deck. Moving now to our earnings guidance for fiscal 2016, with the winter heating season coming to an end, we have tightened our projections and earnings per share range for fiscal 2016. As shown on Slide 12, we expect fiscal 2016 earnings per diluted share to range between $3.25 and $3.35 excluding unrealized margins at September 30, 2016. The expected contribution from our regulated operations as well as estimates for selected expenses for the year have been tightened from our original projections made last November. The expected contribution from our non-regulated operations remains unchanged. We expect the continued execution of our infrastructure investment strategy, coupled with constructive regulation will be the primary driver for this year’s results. Looking on Slide 13, we continue to anticipate annual operating income increases of between $100 million and $125 million from approved rate outcomes in the year. Thank you for your time. And I will now hand the call to our CEO, Kim Cocklin for closing remarks. Kim? Kim Cocklin Thank you, Bret very much and good morning everyone. Very good quarter. An excellent first half. As Bret said, we came through a warmer than normal winter in excellent shape. We are able to tighten guidance. And with the approval of the pipeline GRIP filing in Texas on May 3, we now have generated $71 million of revenues from rate outcomes, and as Bret said, are on target to achieve our target of $100 million to $125 million this year. We do have filings pending before agencies which seek a total of $56 million and we expect to file a few more cases before year end. These results very importantly mark our over five consecutive years of successfully executing our growth strategy that we began in 2011 and continues our journey in meeting the very important commitments of investing in our infrastructure to improve the safe operation of our system, to grow earnings at a level of 6% to 8% annually and to target a total shareholder return of 9% to 11%. We now will open it up for questions. Selena? Question-and-Answer Session Operator Thank you. [Operator Instructions] The first question is from Chris Turner from JPMorgan. Please go ahead. Chris Turner Good morning, guys. I wanted to check in on the pipeline rate case, I think you kind of last updated us by saying that you would file late this year early next year. What’s the latest on timing thoughts and cap structure kind of request versus your current? Kim Cocklin It’s pretty much on target is what we have been messaging you with. We intend to file it probably late this year, probably December. The cap structure we are targeting is still in the 57% to 58% equity component, which is what we anticipate having as we work through our financial plan for funding the capital budget this year. And really as we have talked about, we are going to file everything right down the middle of the fairway and not ask for anything outside that we don’t have in place right now. So, there really isn’t any change and we are on target to do everything that we have been talking to you about. If there is any changes we will have any updates at the AGA Financial Forum coming up in May, but we don’t anticipate having any. Chris Turner Okay. And then is it the right way to think about that case that you guys have recovered most of the capital return on and of already through the GRIP mechanism and most of the kind of wild card or uncertainty from our perspective that will flow through to your bottom line versus what you currently are getting is on the cost side? Kim Cocklin We will have an update to the rate base numbers obviously and we will have all our investment that we have made from the time of the GRIP filing this year through that end of that case and then we will be filing another GRIP filing after the case is filed. So, there will be additional increments to rate base in the case. Chris Turner Okay, great. And then can you remind us of when you expect to next be a cash taxpayer based on your current estimates and the changes with bonus depreciation late last year? And then also kind of maybe give an update on your expectations of using your ATM issuance mechanism that you recently launched in terms of timing this year and maybe next as well? Kim Cocklin First on the cash taxpayer, we don’t anticipate being a cash taxpayer in the current 5-year plan through 2020. So it will be after that, before we start to pay cash taxes. As far as the ATM Chris, the plans are consistent with what we disclosed at our November analyst day. We expect to do $300 million to $400 million over the 5-year plan and $50 million to $100 million on an annual basis. Chris Turner Okay. And would that be somewhat evenly spread throughout the year or would you do that kind of at certain points? Kim Cocklin I don’t – I think we are going to stick with the $50 million to $100 million as you go through that period. I will tell you that all of our financing plans have been contemplated and included in our tightened guidance range for fiscal ‘16, as well as our guidance that we have out there in 2020. Chris Turner Okay, great. Thanks guys. Kim Cocklin Thank you, Chris. Operator The next question is from Spencer Joyce with Hilliard Lyons. Please go ahead. Spencer Joyce Bret, Kim, Susan good morning. Kim Cocklin Good morning. Spencer, who is the Derby winner this year? Spencer Joyce Well, I am sorry, that’s why I had to chime in. I am on the favorite. I kind of like Nyquist this year. Kim Cocklin Nyquil [ph]…? Spencer Joyce Yes, almost Nyquist. But in any case, just one sort of broad big picture question from me, you all have been very clear about why you have avoided latching on to some of the major midstream projects that we have seen here out East a little bit and at least from my vantage point, it seems like the environmental contingent is becoming more organized and a bit more vocal and we have seen delays for Constitution, PennEast, I mean almost any named project we have seen delays at this point. I am wondering if you have seen any of that public sentiment shift into some of your smaller diameter, shorter-haul projects or is it really just business as usual as far as your pipe in the ground goes? Kim Cocklin No that has – none of that consternation is translated into any of the projects that we have got and the capital investment we are doing. I mean the regulators and our customers understand how important it is for us to continue to pursue that investment to make our system as safe as possible and continue to – our journey of becoming the nation’s safest utility. So, we are also not trying to clear new right away or go through areas that have not – that don’t have pipe in the ground right now. So, it makes a significant difference when you are trying to put those new systems in and trying to clear a path for them and that there is a great deal of opposition that goes along. And then you have got the size of the pipe itself, those things are talking 36 inch, 42 inch pipe and unfortunately you have got some stuff that’s been in the news here lately, Bethlehem Township in Pennsylvania with the Texas Eastern incident last week. So it’s pretty much elevated the opposition, but for us I mean we continue to operate in a – in kind of under the radar. And people see the need. And it’s a small pipe in most situations where we are dealing with it. So, no. Spencer Joyce Alright, that sounds great, good color there and glad to hear its business as usual. That’s all I had, we will see you in Naples. Kim Cocklin Okay. Spencer, look forward to it. Operator The next question is from Faisel Khan from Citigroup. Please go ahead. Faisel Khan Hi, good morning. It’s Faisel from Citigroup. Kim Cocklin Faisel, where have you – I thought you were doing the Geico commercials or something. We haven’t heard from you in years. Faisel Khan Yes, it has been several quarters, since I have asked a question, but and think of where the stock has gone too. So it’s probably a good thing, right. Kim Cocklin Yes. We have got a good run. Faisel Khan Yes. Just a couple of questions for you and I will get out of the queue. Just on the – with the amount of rate cases that you have going on and going forward, if you can just remind us sort of what the history is and sort of the ask versus the settled, so what percentage you usually get from the ask for these rate cases when you settle them? Bret Eckert Keep in mind, Faisal we have got annual mechanisms that cover about 93% of our filings, so. Kim Cocklin These are not traditional filings. Normally, in a general rate case, you handicap the filed form out versus – the request versus the achieved at about 50%, but so many of our filings right now, as Bret pointed out 93% are covered by annual mechanisms that really have – are very prescriptive and there is not a lot of controversy over the computation and the methodology that’s utilized to increase either the O&M or the rate base adjustments. And then you have plug and play ingredients normally associated with the cap structure that may or may not change and the return component is normally settled. The depreciation rate is also settled. So, I mean we don’t – we have got the $56 million of – that we are seeking right now that is the filed for request. I mean we are – the best target that you can have for your model I think is to look at the $100 million to $125 million that we targeted for fiscal ‘16 that we are at $71 million now and we are very confident and comfortable that we will reach the target that we have provided. I mean as we get closer through the next two quarters you will see those amounts will continue to materialize and as they become final we make them immediately available so you can get them into your model. Faisel Khan Got it, okay. It makes sense. Bret Eckert If you look at slide 27 you will see a detail of each of those mechanisms by state, by jurisdiction. Faisel Khan Yes. No, I see it. I was just wondering, are you in for like for example, I guess for the Mid-Tex cities sort of are they RRM, like is that $26.6 million, is that sort of part of this process you are talking about where it’s an automatic sort of…? Kim Cocklin That is not automatic, but it’s pretty prescriptive. So, there is normally adjustment in the ask for that type of filing and what we achieve because that does go through some negotiation process. Mike Haefner Faisel, this is Mike. The other thing that we will see in terms of the difference between an ask and an awarded amount relates to assumptions that are made and debated around things like employee costs, how pension costs are treated in that, that at the end of the day may affect the awarded amount, but does not affect us on a net income basis at the end of the day, so. Faisel Khan Okay. And then looking at the continued rate base growth of the company going from I guess $5.5 billion to $9 billion, is there anything that would sort of cause that growth rate to slow for any which reason, I just want to make sure also is the deferred taxes and the implementation of the new tax laws, is that baked into that number too? Bret Eckert It’s fully been contemplated in all of our numbers, yes. Kim Cocklin You will be the first to know, Faisel. I mean we take that commitment extremely seriously. We have advertised that we are going to grow rate base at 9% to 10% which we absolutely have to do to meet the commitment of growing earnings at 6% to 8% on average. So I mean we have built up what we hope is a lot of trust and credibility with our shareholder base and with the street and we take that as seriously as the dividends. So if there is ever any change to that and if there is any retraction or reduction to the growth rate that we see, which we don’t see for the next 5 years and we have got a very good financial strategy to back up the investment for the next 5 years and we will continue to increase that. So we are very confident and again, we can’t overemphasize the fact that we are not just advertising these rates at 6% to 8%, we are actually performing and throwing them off and we have got over a 5-year track record of meeting that commitment. So we fully expect to do it. And we understand how important it is to message any change as soon as it becomes available. So we are not going to hide the ball on anything like that. Faisel Khan It makes sense. Thanks guys for the time. I appreciate it. Kim Cocklin See you Monday. Faisel Khan We will do. Operator The next question is from Charles Fishman with Morningstar. Please proceed with your question. Charles Fishman Good morning. You lowered the – you narrowed your guidance, but you lowered the upper end of your guidance, $3.40 to $3.35, yet the upper end of regulated operations stayed the same, the upper end of non-regulated operations stayed the same, share count stayed the same, can you explain to me your thinking on that of how you go about doing – or why you did that, lowered the upper end too? Bret Eckert Well, when you tighten guidance, Charles right, I mean you have got to move the upper and the lower end. The midpoint of our guidance is still the $3.30 that remains unchanged, which is about an 8.2% growth rate over the $3.05 weather adjusted operations for fiscal ‘15, so it was just a matter of coming in six months into the year when 70% to 75% of your earnings are behind you and providing a bit tighter of a range of guidance for the street. Charles Fishman Okay. So you are not – I see what you are doing, you are focusing on the midpoint and then just assuming a variance from that. Got it, okay. That explains that… Kim Cocklin We are also trying to focus on trying to help you tighten up your model. Charles Fishman Thank you. That’s always appreciated. The next question follows up tightening up the model, effective tax rate went down – guidance on effective tax rate went down 100 basis points, can you provide a little more color on that? Kim Cocklin That was Trump hew was – because he is the Republican nomination. Charles Fishman Okay. Kim Cocklin It’s just – really just the ebbs and flows you see in a year plus there was a new stock compensation standard that was adopted and that impacted tax rate – effective tax rate a little bit. And you will see that disclosed in the 10-Q. Charles Fishman Got it, okay. Thank you very much. Good quarter. Operator [Operator Instructions] The next question is from Mr. Mark Levin from BB&T. Please go ahead. Mark Levin Hi guys. Hope you are doing well. Two very big picture questions, the first has to do with something that I am sure is not envisioned by many at this point with natural gas prices around $2.10, but is there a point at which – or is there a gas price at which you could point to or maybe theoretically come to whereby regulators would be less inclined to be as constructive as they are. Put another way, is there a natural gas price point where the customer starts to feel it in a more material way and the regulatory environment might not be quite as accommodative as it is today? Kim Cocklin I mean you can hypotheticate all you want on prices for sure Mark, but we haven’t picked a price point. We do anticipate with our 5-year plan of having an all-in – we have assumed an all-in gas price of $4.50, $4.50 to $5.50 through 2020, which if you look at the forward screen, I mean that is clearly within the realm of reasonableness and even conservative. So there are some other factors. The cost of money is another thing that’s helping the investment and along with gas prices, the customers are not expected to experience any increase in the bills that they have paid since 2007. So I mean we really haven’t run the what-if scenario on that. We pay obviously, very close attention to gas prices and are able to do some things as a result of working with the regulators to hedge positions so that we are usually 1 year or 2 years ahead of all the price changes. Mark Levin Sure. So to me it sounds like – even if it were I think we are – gas would have to do something monumental – have to be monumentally higher? Kim Cocklin It would have to be like $8 to $10 I think. Mark Levin Yes, right. So a completely different schematic. And then the second question, because you can’t get off an LDC call without asking the M&A question, but maybe I will approach it from a different way, are you seeing any opportunities – obviously, your equity has risen magnificently and for good reason, but you do have an equity currency, the cost of debt is relatively cheap – is very cheap actually. Are there opportunities out there as a buyer, now I realize going and trying to buy an LDC and finding a cheap LDC at this point might be challenging, but are there any other opportunities out there that you guys are considering or would consider given the strength of your equity and the cost of debt? Kim Cocklin We pretty – we have been very consistent in emphasizing the fact that we think multiples are extremely expensive, you never say never. But there is nothing on the block that we would be interested in paying over and above or even close to what’s going off the Board today, if you look at our investment of $1 billion to $1.1 billion of capital every year, that with the regulatory lag that we experience with 94% of that investment beginning to earn within six months at the end of the test period, that $1 billion to $1.1 billion that we are putting in the ground is helping us on this journey of becoming the nation’s safest utility, so it becomes immediately accretive. You don’t have the integration issues if you go out and overpay for an asset which you are doing right now. You have regulatory issues and complications of dealing with what you pay over book, how you deal with goodwill, how you integrate a culture, you do the systems. I mean there is a whole host of issues, social issues and financial and operational issues, when you buy an asset. I mean we did that, we have a wonderful asset – we have a wonderful portfolio. We are in jurisdictions where we want to be. We are extremely comfortable with who we are. We know who we want to be. We have got wonderful skill sets. And so we don’t really have to look across the landscape. And I think bet the future on trying to integrate an asset under the current market conditions. Mark Levin That makes perfect mix, absolutely perfect sense. And is your – just when you think about the industry as a whole and you put your sort of crystal ball on – head on and think about the next 6 months to 12 months, is your expectation that we will continue to see more deals or do you think that there will be a pause given the run in the equities? Kim Cocklin No pause. There is going to be more deals. I mean you have got people out there that supine gas is a very attractive story. They want to get it in their portfolio if they do not have it right now and natural gas. Obviously, it’s the future for energy in this country. I mean energy is a very fundamental food group of a healthy economy. Once we get past November and the elections I think with where gas prices are and where exploration efforts are in the country and the ability – it’s an affordable all-American product. So it makes all the sense in the world and there is good reason I mean I don’t think – I think the multiples are going to stay where they are at in this space as well, because I think interest rates will probably remain very low, but I think people are seeing a lot of value right now and continue to see value in natural gas. Mark Levin That all makes sense, congratulations on a great execution. Kim Cocklin Thank you, Mark. Operator There are no further questions at this time. I would like to turn the floor back over to Ms. Susan Giles for closing comments. Susan Giles Thank you, Selena. I just want to say thank you for calling. A recording of this call is available for replay on the website through August 3. And we hope to see many of you at the AGA Financial Forum in a couple of weeks. Thank you again for your interest in Atmos Energy. Bye-bye. 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.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. 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