ATOAtmos Energy

Please label “Contribution Margin” as a non-GAAP measure and present the disclosures and reconciliation required by Item 10(e)(1)(i) of Regulation S-K.

The Company respectfully acknowledges the Staff’s comment. The Company has decided to transition away from using contribution margin when discussing our financial results in future filings. As such, the Company will remove references to contribution margin when discussing our financial results in all future Form 10-K and 10-Q filings and in all future earnings releases furnished as exhibits to Form 8-K filings, beginning with our earnings release and Form 10-Q for the three months ended December 31, 2019.

Management's Discussion and Analysis of Financial Condition and Results of

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Operations

Non-GAAP Financial Measures, page 25.

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Please present a reconciliation for your contribution margin non-GAAP measure. In doing so, reconcile this measure to the most directly comparable GAAP measure of gross margin. If you do not believe gross margin that includes depreciation and amortization is the most directly comparable GAAP measure, please tell us why in your response. Refer to Item 10(e)(1)(i)(B) of Regulation S-K.

The Company respectfully acknowledges the Staff’s comment. The Company has decided to transition away from using contribution margin when discussing our financial results in future filings. As such, the Company will remove references to contribution margin when discussing our financial results in all future Form 10-K and 10-Q filings and in all future earnings releases furnished as exhibits to Form 8-K filings, beginning with our earnings release and Form 10-Q for the three months ended December 31, 2019. Read in the reply ↗

Please tell us how your presentation of “gross profit” complies with Item 10(e)(1)(ii)(E) of Regulation S-K, which prohibits using titles for non-GAAP measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures.

We referenced the non-GAAP measure “gross profit” and included its computation in our filing to better discuss and analyze our financial performance. To better distinguish this non-GAAP measure from similar terms, we will revise the term “gross profit” to “net revenues” in future filings and earnings releases. The following statement is indicative of the disclosure that we may include regarding net revenues, a non-GAAP measure:

Our operations are affected by the cost of natural gas.

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The cost of gas is passed through to our customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees and settlements of financial instruments used to mitigate commodity price risk. These costs are reflected in the income statement as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, we believe net revenues, a non-GAAP financial measure defined as operating revenues less purchased gas cost, is a better indicator of our financial performance than operating income as it provides a useful and more relevant measure to analyze our financial performance. Further, the term net revenues is not intended to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

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To avoid placing undue prominence on gross profit, a non-GAAP measure, your discussion on page 2 should include a similar discussion and analysis of the comparable GAAP measure in a location with equal or greater prominence. Your tabular disclosure of the non-GAAP measure on page 5 should be preceded with an equally prominent tabular disclosure of the comparable GAAP measure.

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In this regard, please show operating revenues and purchased gas cost in deriving the non-GAAP measure. Please review the guidance in our Compliance and Disclosure Interpretations issued on May 17, 2016, specifically question 102.10, when preparing your next earnings release. Reference is made to Item 2.02, Instruction 2, of Form 8-K and the requirements of paragraph (e)(1)(i) of Item 10 of Regulation S-K.

To avoid placing undue prominence on net revenues, a non-GAAP financial measure, in future earnings releases furnished as exhibits to Form 8-K filings, we will begin our discussion of results with a discussion of operating income rather than net revenues. Further, we will provide the operating revenues and purchased gas costs used in deriving net revenues in our tabular disclosures in all future earnings releases furnished as exhibits to Form 8-K filings. Read in the reply ↗

We note your response to comment 1. Please tell us how your proposed presentation of "net revenues" complies with Item 10(e)(1)(ii)(E) of Regulation S-K, which prohibits using titles for non-GAAP measures that are the same as, or confusingly similar to, titles or descriptions used for GAAP financial measures.

In our prior response, we proposed to replace the term "gross profit" with "net revenues" as the non-GAAP financial measure we use to help measure and analyze our financial performance because it is commonly used in the utility industry. To comply with Item 10(e)(1)(ii)(E) of Regulation S-K, we will replace the term “gross profit” with "contribution margin" in future filings and earnings releases. The following statement is indicative of the disclosure that we may include regarding contribution margin, a non-GAAP financial measure:

Our operations are affected by the cost of natural gas.

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The cost of gas is passed through to our customers without markup and includes commodity price, transportation, storage, injection and withdrawal fees and settlements of financial instruments used to mitigate commodity price risk. These costs are reflected in the income statement as purchased gas cost. Therefore, increases in the cost of gas are offset by a corresponding increase in revenues. Accordingly, we believe contribution margin, a non-GAAP financial measure defined as operating revenues less purchased gas cost, is a better indicator of our financial performance than operating income as it provides a useful and more relevant measure to analyze our financial performance. Further, the term contribution margin is not intended to represent operating income, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

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We note your disclosure on page 38 that you believe gross profit is a better indicator of your financial performance than revenues since increases in the cost of gas are offset by a corresponding increase in revenues. In future filings, please disclose that gross profit is a non-GAAP financial measure and why management believes the non-GAAP measure provides useful information to investors.

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Refer to Item 10(e) of Regulation S-K.

Beginning with our Form 10-Q for the three and nine months ended June 30, 2017, we will disclose that gross profit is a non-GAAP financial measure. We are also mindful of the additional disclosure requirements relating to the use of non-GAAP financial measures, as set forth in Item 10(e) of Regulation S-K.

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The disclosures in our future filings that use any such financial measures will be prepared in accordance with such requirements, including the requirement in Item 10(e)(1)(i)(C) that a statement be included disclosing the reasons why management believes that presentation of the non-GAAP financial measure provides useful information to investors. The following statement is indicative of the disclosure that we may include regarding gross profit:

We calculate gross profit as operating revenues less purchased gas cost. This net amount is considered a non-GAAP financial measure. Management uses this financial measure because operating revenues include the cost of purchased gas, which is a tracked cost that is passed through to our customers without markup under purchased gas cost adjustment mechanisms. Accordingly, we believe that gross profit provides investors a useful and more relevant measure to analyze our financial performance than operating revenues because purchased gas cost does not impact our operating income.

To facilitate the reconciliation between gross profit and GAAP operating revenues, we will include operating revenues and purchased gas cost in the tables included in our financial highlights within Management's Discussion and Analysis in all our future Form 10-K and 10-Q filings.

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