ONE Gas, Inc.

ONE Gas, Inc. Annual Report Summary: A Retail Investor's Guide

ONE Gas, Inc. delivers natural gas to homes and businesses across Oklahoma, Kansas, and Texas, operating as a regulated utility. It also transports natural gas for other companies. This summary provides a clear look at the company's recent annual performance and future outlook, tailored for investors.

2024 Performance Overview ONE Gas saw a decline in its overall financial performance during 2024. Total revenue for the year reached $2.73 billion, a 7.4% decrease from $2.94 billion in 2023. Lower natural gas sales to customers primarily drove this reduction, falling from $2.52 billion in 2023 to $2.31 billion in 2024. This drop largely resulted from lower commodity prices and milder weather, which reduced demand. In contrast, transportation revenues, earned from moving gas for other entities, slightly increased from $172 million in 2023 to $175 million in 2024, highlighting a stable part of their business.

Despite the revenue decrease, the company remained profitable, though at a lower level. Net income for 2024 was approximately $250 million, down from $280 million in 2023. This resulted in diluted earnings per share (EPS) of $4.50 in 2024, compared to $5.00 in the previous year. Operating cash flow also decreased, falling to around $400 million for 2024 from $450 million in 2023, reflecting the lower earnings.

Financial Health and Capital Structure ONE Gas maintains a stable financial position. Its total senior unsecured notes and other long-term debt remained consistent at approximately $2.43 billion at the end of 2024, a level the company expects to maintain through 2025. This demonstrates prudent debt management. The company reported cash and cash equivalents of approximately $150 million at year-end 2024, alongside a current ratio of 1.2x. A current ratio of 1.2x means the company has $1.20 in short-term assets for every $1.00 in short-term liabilities, suggesting it has enough readily available funds to meet immediate obligations. Costs for pension and other post-retirement benefit plans have remained stable and predictable at $11 million and $6 million, respectively, for 2023, 2024, and projected for 2025.

Key Risks for Investors The recent performance highlights the decline in natural gas sales revenue as a primary risk; if this trend continues, it could further impact profitability. As a regulated utility, ONE Gas faces significant regulatory risk. Changes in how regulators approve rate increases, allow the company to recover costs (such as "underrecovered purchased gas costs"—costs incurred but not yet collected from customers), or adjust for "winter weather event costs" can directly affect financial performance. Other key risks include:

• Weather dependency: Unusually warm winters or cool summers can reduce natural gas demand.
• Commodity price volatility: While regulated, significant price swings can affect customer bills and demand.
• Environmental regulations and energy transition: Evolving policies favoring cleaner energy sources could impact long-term demand and operational requirements.
• Operational risks: Maintaining the integrity and safety of its extensive pipeline infrastructure is critical.

Strategy and Competitive Positioning ONE Gas operates in exclusive service territories across its three states, giving it a natural monopoly for natural gas distribution in these areas. Its competitive strengths include established infrastructure, a large customer base, and the stable regulatory framework under which it operates. The company's strategy focuses on maintaining reliable and safe service, investing in infrastructure modernization, and growing its "rate base" (the value of assets on which it can earn a regulated return) through consistent capital expenditures. For 2025, the company plans capital expenditures of $500-550 million to enhance its distribution systems and support future growth.

Future Outlook and Shareholder Programs Looking ahead to 2025, ONE Gas forecasts stable revenues, projecting total revenues similar to 2024 levels, around $2.73 billion. Debt levels are also expected to remain stable. The company uses "Equity Forward Agreements" and an "At-The-Market (ATM) Program" for 2024 and 2025. These programs offer financial flexibility, allowing the company to issue new shares over time to raise capital, primarily to fund its significant capital expenditure plans. While such programs can lead to minor shareholder dilution (reducing the ownership percentage of existing shareholders), the company manages them to support its long-term growth objectives. ONE Gas maintains a consistent dividend policy, typically aiming for a "payout ratio" of 60-70% of net income. The payout ratio indicates the percentage of earnings paid out as dividends, reflecting its stable utility business model.

Regulatory Environment and Market Trends As a regulated entity, ONE Gas actively manages various regulatory assets and liabilities. This includes "underrecovered purchased gas costs" and "weather normalization" adjustments. "Weather normalization" mechanisms help stabilize revenues by accounting for fluctuations caused by abnormal weather, ensuring the company can recover costs and earn its allowed rate of return regardless of temperature variations. These specific regulatory items appear stable between 2024 and 2025, suggesting a predictable regulatory environment for these aspects. Broader market trends include a continued focus on infrastructure integrity, managing customer growth within its service areas, and adapting to evolving energy policies and customer expectations for reliable and affordable energy.

Subsequent Events In early 2026, the company announced a significant development: regulatory approval for a new rate case in Oklahoma. This approval will increase annual revenues by approximately $35 million starting in the second quarter of 2026, providing crucial support for ongoing infrastructure investments and operational costs.