ONE Gas OGS Q4 2025 Earnings Call Transcript

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Date

Thursday, Feb. 19, 2026 at 11 a.m. ET

Call participants

• Chairman & Chief Executive Officer — Sid McAnnally
• Executive Vice President & Chief Financial Officer — Chris Sighinolfi
• President & Chief Operating Officer — Curtis L. Dinan
• Vice President, Investor Relations — Erin Dailey

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Takeaways

• Net income -- $264,000,000 for the year; up from $223,000,000 in 2024.
• GAAP EPS -- $4.37 per diluted share; increased from $3.91 in 2024.
• Adjusted net income -- $271,000,000 for 2025 and $90,000,000 for the fourth quarter; prior-year results: $225,000,000 full-year, $78,000,000 Q4.
• Adjusted EPS -- $4.48 full-year and $1.48 Q4, compared to $3.94 and $1.35 in 2024.
• Texas House Bill 4384 impact -- Regulatory and GAAP accounting delta widened to nearly $7,000,000, or roughly $0.11 per diluted share for 2025; projection for 2026 is an approximate $12,000,000 or roughly $0.18 per diluted share, around 4% of projected consolidated full-year EPS.
• 2026 adjusted guidance -- Adjusted net income forecasted at $306,000,000 to $314,000,000; adjusted EPS range: $4.83 to $4.95.
• Long-term growth outlook -- Management expects 7%-9% adjusted net income CAGR and 5%-7% adjusted EPS CAGR using adjusted 2025 as the baseline; 2030 adjusted EPS midpoint implied at about $6.
• Capital expenditures -- $760,000,000 invested in 2025; $170,000,000 dedicated to expansion for new customers.
• Operations & maintenance (O&M) expense -- Increased by approximately 5% compared to 2024, above 4% CAGR guidance; early project execution cited as driver.
• Interest expense -- Quarterly expense, excluding KGSS-1, decreased by $2,900,000 year over year due to lower commercial paper rates and legislative impact.
• Credit ratings -- S&P affirmed A- (stable); Moody's affirmed A3 (stable); 2025 cash flow metrics maintained “several hundred basis points” above downgrade thresholds with both agencies.
• Texas rate case resolution -- $14,400,000 revenue increase, 9.8% allowed return on equity, and 59.9% equity ratio approved; consolidation of three Texas divisions into one statewide unit completed.
• Regulated expansion projects -- roughly $120,000,000 pipeline investment for Western Farmers Electric Cooperative to deliver over 100,000,000,000 cubic feet annually; new service to advanced manufacturing plant in El Paso on track to be in service by Q3 2026.
• Customer growth -- Residential customer base expands by approximately 23,000 annually.
• Operational performance -- 1,300,000 line locates completed with 40% now in-house; excavation damages per 1,000 locates decreased by over 14% year over year amid 8% increase in ticket volumes.
• Residential bill inflation -- Cumulative CAGR for residential bills held just under 2%, below inflation, while maintaining safety performance.
• Leadership change -- Curtis L. Dinan appointed President & COO, expanding his operational and financial oversight.

Summary

ONE Gas (NYSE:OGS) management cited record winter gas deliveries during Winter Storm Fern with no supply disruptions, following significant post-2021 system investments. Updated financial reporting now includes non-GAAP adjusted figures to reflect the material impact of Texas House Bill 4384. Management expects adjusted net income and EPS to further grow under clear new guidance, with the Texas regulatory delta highlighted for its impact on reported results. Recent Texas regulatory approvals consolidate the company's Texas divisions and grant improved revenue, equity returns, and equity ratio, affecting future filings and operations.

• The recently introduced Kansas legislation could expand the universe of recoverable capital in GSRS filings and raise the monthly cap, pending Senate approval.
• Sourcing gas at the Waha hub and increased storage have insulated more than 80% of supply from temporary price spikes during recent storms.
• Physical and financial hedging practices reduced short-term pricing volatility for customers in the latest multi-day freeze event.
• Insourcing key field work has lowered damage rates despite expanded project volumes.
• Cost containment led to all-in residential CAGRs below inflation, supporting customer affordability.
• Guidance for 2026 incorporates outcomes from the latest Texas rate case, including allowed cost of capital and capital structure.
• Management confirmed that accounting changes resulting from Texas House Bill 4384 materially increase the adjusted–GAAP delta but do not initially affect capital markets issuance plans or materially boost near-term cash flow.

Industry glossary

• GRIP filing: Annual request by Texas gas distribution utilities to recover capital investment costs through interim rate adjustments without a full rate case.
• GSRS filing: Gas System Reliability Surcharge; an application in Kansas for recovery of eligible capital expenditures via surcharges added to customer bills.
• PBR filing: Performance-Based Rate; a regulatory mechanism in Oklahoma for adjusting utility rates based on defined performance criteria and cost recovery needs.
• KGSS-1: Specific Texas Gas Service subsidiary or financing entity referenced for interest expense exclusions.
• Waha hub: Key natural gas market and pricing point in West Texas, used strategically for gas sourcing by utilities.

Full Conference Call Transcript

Sid McAnnally: I begin our call today by recognizing our coworkers across the company, for their dedication to serving our 2,300,000 customers during Winter Storm Fern. This storm was the first multi-day subfreezing event we have experienced since Winter Storm Uri in 2021. On the peak day of the storm, we delivered over 3,000,000,000 cubic feet of gas to our customers with no supply disruptions. This performance is a testament to the work completed after Uri, including the Austin system reinforcement which boosted our available winter peak capacity by approximately 25%. Our post-Uri investments also included a focus on gas supply.

We increased our storage capacity to over 60 Bcf, implemented strategic reinforcements across our system, and diversified our gas supply, all enhancing reliability and reducing the impact of price fluctuation on our customers. As a result, across our service territory, over 80% of the gas supply needed during the storm was shielded from temporary price increases. Our full-year 2025 financial results were also strong. In August, based on a solid first half performance and the expected impact of Texas House Bill 4384, we raised the midpoint of our EPS guidance to $4.37. We finished the year fully in line with that midsummer expectation. This marks our twelfth consecutive year of meeting or surpassing the midpoint of our initial EPS guidance.

Finally, to ensure that the financial impact of the Texas legislation is appropriately reflected in our disclosures, we have introduced a non-GAAP adjustment to our net income and earnings per share. This update adds clarity to our disclosures and helps better illustrate the earnings that our regulator allows. I will ask Chris to discuss the details. Chris?

Chris Sighinolfi: Thanks, Sid, and good morning, everyone. With solid fourth-quarter performance, we delivered full-year financial results squarely in line with our revised guidance. 2025 net income totaled $264,000,000 or $4.37 per diluted share, compared with $223,000,000 and $3.91 in 2024.

Chris Sighinolfi: Capital expenditures totaled $760,000,000 for the year. As Sid noted, we have introduced non-GAAP adjustments to our financial reports and our earnings guidance. These adjustments offer a comprehensive view of our performance within the Texas regulatory model and better reflect the returns allowed by our regulator. I want to spend a moment detailing specifically what these adjustments represent and why we are introducing them now. In 2011, the Texas Railroad Commission adopted Rule 8.209 of the Texas Administrative Code. This rule allows natural gas utilities to defer depreciation expense and ad valorem taxes and accrue a carrying cost on qualifying safety-related capital expenditures between the time of project in-service and its inclusion in rates.

Texas House Bill 4384, signed into law last June, extends the approved deferrals and accruals of Rule 8.209 to all capital expenditures in the state. The carrying cost allowed to be accrued under both provisions is defined as the unrecovered gross plant multiplied by the utility's pretax weighted average cost of capital as established in its most recent rate proceeding. As we know, weighted average cost of capital includes a return on debt and a return on equity. It is specifically the accrual and allowed recovery of this equity return and the timing of its impact that caused a delta between our regulatory books in Texas and our reported GAAP financials.

This difference in treatment between our regulatory accounting and GAAP accounting has existed since the adoption of Rule 8.209 in 2011, but it represented a modest annual impact when only Rule 8.209 applied. For example, in 2024, this difference was approximately $2,000,000, or roughly $0.03 per diluted share. With the expansion of qualifying capital under House Bill 4384 last year, this delta widened to nearly $7,000,000, or roughly $0.11 per diluted share. With a full year of impact in 2026, we anticipate it will constitute an approximate $12,000,000 variance, roughly $0.18 per diluted share, or 4% of our projected consolidated full-year EPS.

In sum, this difference in treatment is a fundamental aspect of our regulatory framework and an embedded feature of our financial profile. Texas House Bill 4384 has amplified the impact of these adjustments and with them meaningfully increased the persistent delta between regulatory accounting and GAAP accounting. For these reasons, we will report non-GAAP adjusted net income and EPS figures as key indicators of business performance going forward. Adjusted net income for the fourth quarter was $90,000,000 or $1.48 per diluted share compared with $78,000,000 and $1.35 in the same period in 2024. For the full year, adjusted net income was $271,000,000 or $4.48 per diluted share, compared with $225,000,000 and $3.94 in 2024.

Our expected financial performance as expressed in our 2026 financial guidance has not changed, but we intend to also provide guidance based on our adjusted numbers going forward. So for 2026, we expect adjusted net income in the range of $306,000,000 to $314,000,000 and adjusted earnings per share in the range of $4.83 to $4.95. Consistent with our previously communicated five-year financial outlook, we expect long-term adjusted net income growth of 7% to 9%, and adjusted EPS growth of 5% to 7%. These growth rates now use adjusted 2025 actual results as the baseline for the 2026 through 2030 planning period, implying a 2030 adjusted EPS midpoint of roughly $6.

Turning to other financial results, O&M expense for the full year was up approximately 5% over 2024, slightly above our 4% CAGR guidance. As I noted on our third-quarter call, we had the opportunity and capacity to execute some projects earlier than we had initially planned, resulting in the slightly elevated expense rate for 2025. Executing certain projects ahead of schedule is another example of how we continually look for ways to deliver improvements more efficiently while maintaining financial discipline. Our long-term outlook continues to project a 3% to 4% O&M CAGR as indicated in our guidance.

Excluding amounts related to KGSS-1, interest expense in the quarter was $2,900,000 lower year-over-year, primarily reflecting lower rates on commercial paper borrowings and the implementation of Texas House Bill 4384. We benefited from Federal Reserve rate cuts in 2024 and 2025, which we anticipated, though they occurred more quickly than we had assumed in our plan. As a reminder, we have assumed no further rate cuts in 2026. As with everything we do, we are focused on efficient execution of our financing strategy, so any future rate cuts flow through to our bottom line. Our balance sheet remains strong. In December, S&P affirmed its A- credit rating and stable outlook.

And earlier this month, Moody's affirmed its A3 rating and stable outlook. 2025 cash flow metrics were several hundred basis points above our respective downgrade thresholds with both agencies, and our financial plan supports similar performance going forward. With that, Curtis, I will turn it to you.

Curtis L. Dinan: Thank you, Chris, and good morning, everyone. I will begin with an update on regulatory and legislative activity. Earlier this month, we received a final order in the Texas rate case. The Railroad Commission approved a $14,400,000 revenue increase, a 9.8% return on equity, a 59.9% equity ratio. The Commission also approved consolidation of our three remaining Texas divisions into a single statewide division. We plan to make one GRIP filing for Texas Gas Service and our PBR filing in Oklahoma later this quarter. Our Kansas GSRS filing is planned for April. We have no full rate cases planned until the Oklahoma filing in 2027 as required by our tariff.

Curtis L. Dinan: Turning to legislative activity.

Curtis L. Dinan: We are supporting proposed legislation in Kansas that would allow for more efficient recovery of the capital we invest in the Kansas Gas Service system. We view this as a constructive step towards better aligning capital recovery with investment timing as we help to advance ongoing economic development in Kansas. Moving on to operations and commercial activity. Our strong finish to the year reflects the consistent, disciplined execution of our capital plan, which is designed to support growth while staying closely aligned with our affordability, safety, and reliability commitments. We completed $760,000,000 worth of capital investment projects during 2025, with $170,000,000 dedicated to serving our growing customer base.

An example of the investments we are making is the new pipeline announced in December where ONE Gas, Inc. will invest roughly $120,000,000 to deliver over 100,000,000,000 cubic feet of natural gas annually to Western Farmers Electric Cooperative in southeastern Oklahoma. This project will support a new natural gas-fueled generation plant and create capacity for future economic growth across the region. We have also broken ground on a project to serve an advanced manufacturing plant outside of El Paso, which is on track to be in service by the third quarter of this year. This is another project that supports reliability and system growth without increasing costs for residential customers. Both projects were included in our guidance.

Beyond these projects, we continue to add about 23,000 new residential customers each year. Growth in our customer base allows us to spread costs more efficiently, helping keep service affordable. In addition to our customer-focused growth strategy, our overall approach to running the business ensures customer affordability remains a key priority. Sid alluded to some of the steps we take to mitigate gas cost. Examples include sourcing gas at the Waha hub, which often offers favorable pricing, increasing our storage by 20%, and using physical and financial hedges to mitigate temporary price fluctuations like we saw last month. We are also focused on long-term value and efficiency as we make staffing and operational decisions.

Our insourcing program is a good example. While onboarding and training new employees temporarily increases cost, the long-term benefits are clear. Our teams operate more efficiently, deliver stronger performance, and create a pipeline of future talent. We completed 1,300,000 line locates last year, and now perform about 40% of that work in-house. Insourcing this work has delivered significant operational improvements as our ratio of total excavation damages per 1,000 locates, a common industry metric, decreased by over 14% year-over-year, even though we experienced an 8% increase in ticket volumes. Bringing this work in-house reflects our broader focus on improving execution, reducing long-term cost, and strengthening our operational capabilities.

Our efforts to run the business efficiently have paid off, as we have kept our cumulative residential bill CAGR below inflation at just under 2% while continuing to deliver top-tier safety performance. I will now turn it back to Sid for closing remarks.

Sid McAnnally: Thank you, Curtis. Yesterday, we announced that Curtis will take on an expanded role as President and Chief Operating Officer. As our system continues to grow and the number and scale of new projects increases, this change will allow us to leverage the experience that Curtis brings from both his time in operations as COO and his financial experience as CFO in the early years of our company. We are fortunate to have someone that combines deep experience across the business with strong leadership skills to take on this expanded role at an exciting time for our company. Operator, we are now ready for questions.

Operator: Thank you.

Operator: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will pause for a moment to allow everyone an opportunity to signal for questions. First question comes from Gabriel Moreen with Mizuho. Your line is open. Please go ahead.

Gabriel Moreen: Hey, good morning, everyone, and congrats to Curtis. I am sure he is forward to saving all that time on conference calls talking through only one Texas regulatory jurisdiction at this point. Thank you, Gabe. Yeah. I want to start off on the, you know, of the non-GAAP adjustments here. I am curious why, first of all, maybe you could not did not feel like you could speak to this in December. But then sort of as a larger picture, here, given that this, I think, is a bit of a material step change as far as kind of your starting point here for EPS growth.

Does that also play into kind of equity issuance or needed equity issuance, how you think about your cap structure, your dividend payout ratio? Does it matter less because, you know, this is sort of as you mentioned, regulatory versus financial accounting.

Chris Sighinolfi: Hi, Gabe. It is Chris. On the timing, a couple things to note. You know, this was obviously legislation passed in June. And we studied it throughout the period. As you may recall, the Railroad Commission had a 270-day window to draft and pass procedural rules associated with this legislation. We have been party to that process throughout the fall and the early part of the winter. And so, you know, we participated in comments. We looked at early drafts. The final rules are on the RRC agenda for approval at next Tuesday's meeting.

So, you know, if there was a final step to solidify our understanding of the state's intent in this legislation, we feel very confident that we know, with the final rule sitting for approval, where the state's intent is. And so that was kind of the final step of it. It was the increase in the magnitude of the delta between regulatory books and GAAP books, and then it was the conclusion of that process that led us to take action on this at this point and not at an earlier juncture.

As it pertains to your question as to, you know, the capital markets side of the plan, it really does not have an effect in a meaningful way on that. The House Bill accounting treatment is, in the early part of it, more impactful to earnings than it is to cash flow. And so I would not expect that it would change that in a material way. It may over time, but not initially.

Gabriel Moreen: Got it. Thanks, Chris. And then maybe if I can just pivot a little bit to some of the, I think, growth opportunities with the Western Farmers announcement and the like. Can you just talk about sort of the competitive landscape and I think some of the backlog within the projects that I think you are in negotiation on. How you are competing with, I think, some other providers, like midstream providers that also may be looking to lay their lines to additional power gen facilities, how that shapes up within kind of, I think, the regulatory construct that probably pitching to potential customers?

Curtis L. Dinan: Yeah. Gabe, it is a really good point. What we try to do early in the process, we have lots of these opportunities coming towards us. And one of the early filters we apply to it is do we have a competitive advantage to serve that facility. There are some situations where we are very competitively advantaged because of assets we already have nearby to the opportunity, and there are other situations where we are not as competitive. We do not have assets in those areas, so we quickly try to move on from those. You are right, though, where those two things are maybe equal between a midstream provider and us. The tiebreaker often is our regulatory structure.

And being able to be very transparent about what is included in our rates, how charges to that customer would be funded, if there are any customer payments required for the construction, it is very transparent by being able to look at our tariffs. So I think in many ways, just that transparency gives us a competitive advantage. That is just one of the pieces of it in addition to what I was describing as the geographic advantages we have sometimes.

Gabriel Moreen: Got it. Thanks, Curtis.

Operator: We will now turn to Paul Andrew Zimbardo with Jefferies. Your line is open. Please go ahead.

Chris Sighinolfi: Hi. Good morning, team, and congratulations, Curtis, as well.

Operator: Good morning, Paul.

Chris Sighinolfi: Hi. No. Thank you. The first question, is there any way that you could frame the potential benefit from that proposed Kansas legislation you mentioned, whether earned ROE or net income? That would be helpful.

Curtis L. Dinan: So, Paul, it is still in the early stages. I think just this morning, the proposed bill cleared the House of Representatives. The main parameters in the bill as it is written that is going to the Senate is an increase in the types of capital that can be included. Essentially, all of the capital that we invest directly in Kansas would now be part of that GSRS filing, so an expanded universe, so to speak. And then the cap would increase. Today, it is $0.80 per month of impact to a customer. That $0.80 would increase to $1.35. I would emphasize, it has cleared the House. It still has to go through the Senate process.

So I would characterize this still as in early innings.

Chris Sighinolfi: Okay. And how much of—you said it would make substantial all the capital qualify. How much would qualify currently?

Curtis L. Dinan: Currently, what qualifies is safety-related expenditures, so system integrity type of work as well as cybersecurity. So this would add in any growth capital we are doing, facilities that we are putting in place, those types of things that are directly in the state of Kansas. Any corporate allocations such as an ERP system that is spread, like applies to all of the company, that would have to go through a full rate case to be able to be included. So it substantially includes all of the capital we are spending up there, other than those corporate items. And you have seen our filings each year at $0.80. It has been about an $8,000,000 GSRS filing.

So it would increase from that $0.80 to $1.35.

Chris Sighinolfi: Okay.

Chris Sighinolfi: Okay.

Operator: That is helpful.

Chris Sighinolfi: Then a bigger picture one, just as you add in the Texas legislation benefit to the adjusted profile. Any direction you are providing on kind of where within that growth rate range? I think latest vintage was around the midpoint long term. Any refreshed thoughts on that as you shift—Hey, Paul. It is Chris. No. Not specifically. When we offered guidance last year, we had noted the high end of the range. This year, we noted the midpoint. We are just six weeks in. I would stick to that for now. Okay.

Operator: Thank you very much. We will now turn to David Keith Arcaro with Morgan Stanley. Your line is open. Please go ahead. Hey, thanks. Good morning. Good morning, David.

Erin Dailey: Congratulations, Curtis, as well. Best wishes

Chris Sighinolfi: to you in the new, expanded role here. I was wondering, let me see. Oh, just to check, does the guidance in the adjusted EPS level, does that assume the latest Texas rate case outcome essentially that you just got? In terms of what, you know, cost of capital is being embedded in there? Yeah. It does. Our original guidance back in the fall embedded a best estimate for what we thought that would prove to be, and it is pretty close to that. So it is in on the GAAP side and obviously carries forward from there to the non-GAAP. Got it. Okay. Thanks.

And I did not quite catch it, Chris, but is the adjustment—is there a cash component to that, like, in terms of the higher earnings from the regulatory perspective, are you getting that as a cash recovery, like a boost to cash in some way? Or is that all pure, you know, just on paper in terms of the accounting? The accrual and deferral is not—once, obviously, that gets rolled into the GRIP filing, it will be a larger cash flow item than it would have been without the legislation. So there is a cash component, but the cash component shows up as it would in normal rates and not in the deferral accrual.

David Keith Arcaro: Got it.

Chris Sighinolfi: Yep. That is clear. Thanks for that. And then just last quick one. I was curious. How are Treasuries and the current kind of Treasury curve lining up against your guidance expectations at this point?

David Keith Arcaro: We have seen

Chris Sighinolfi: pretty strong market performance from issuers that have gone so far. I would say, David, if we were to move with something today, it is probably slightly favorable to what we embedded in our refinancing for the year. But, you know, that term loan that we put in place last year does not mature until September. And so, you know, I am always nervous to take today’s conditions that may or may not exist by the time we access the capital markets. But specific to your question, it is favorable to it today. Okay. Great. Thanks so much.

Operator: That concludes the question and answer session. I would now like to hand it back to the ONE Gas, Inc. team for closing remarks. Thank you again for your interest in ONE Gas, Inc.

Erin Dailey: We look forward to seeing many of you at upcoming conferences in Chicago and New York. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in May. We will provide details on the conference call at a later date. Have a wonderful day.

Operator: This concludes the ONE Gas, Inc. fourth quarter and year-end 2025 earnings conference call and webcast. You may now disconnect.

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