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RGC Resources, Inc. (RGCO)

Q2 2020 Earnings Call· Wed, May 13, 2020

$22.56

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Transcript

Paul Nester

Management

Good morning. I'm Paul Nester, President and CEO of RGC Resources Inc. Welcome and thank you for joining us as we discuss RGC Resources Second Quarter 2020 results. First, I would like to go over a few administrative items. We have muted all lines and asked that all participants remain muted. After the presentation is completed, we will take questions. And the link to today's presentation is available on the Investor and Financial Information page of our website www.rgcresources.com. Now, let's begin our presentation. Slide 1, presents our forward-looking statements disclaimer. This presentation does contain forecasts and projections. As outlined on slide 2, we will begin with a review of second quarter results followed by a discussion of the impacts from the COVID-19 pandemic and conclude with the outlook for the remainder of fiscal 2020. We will take questions after the presentation. As noted on slide 3, through the first six months of fiscal 2020 Roanoke Gas continued to experience consistent growth in its customer base. The COVID-19 pandemic restrictions instituted in the second half of March broke this trend. Firm delivered volumes were down approximately 18% from the prior year due to 19% warmer weather as noted on slide 4. Transportation and interruptible volumes were strong in the current quarter, primarily driven by a multi-fuel customer that significantly increased tenfold actually its natural gas usage during the quarter. As shown on slide 5, fiscal 2020 year-to-date total volumes delivered declined 7% compared to last year. Mirroring the trends of the quarter the first six months of fiscal 2020 was 14% warmer than the prior year. Again, the increase in industrial volumes offset the decrease in our residential and commercial classes, and were primarily attributable to the customer just mentioned. Moving on to slide 6, the pandemic restrictions have not yet impacted our capital project plans and hence our capital spending. We invested approximately $10.4 million in Roanoke Gas utility plant during the first half of fiscal 2020. This is a 5% decrease compared to the same period in 2019. The second quarter of 2019 was slightly elevated due to materials purchases for our two MVP interconnects or gate stations. I would like to highlight one project the Blue Ridge main extension, a 7,000 foot 6-inch steel pipe and 4,500 foot 4-inch and 2-inch plastic pipe project one of the largest capital projects by dollar value in Roanoke Gas history, and the largest capital project planned for fiscal 2020. It is on schedule with $1.8 million of spending fiscal year-to-date. Randy Burton, our CFO he's with me today will now walk us through our earnings highlights. Randy?

Randy Burton

Management

Thanks, Paul, and good morning. As indicated on slide 7, Resources had a strong first half of fiscal 2020 with diluted EPS increasing 35% over the prior year to $1.19 per share. Performance improved significantly due to favorable utility margins and earnings on our MVP investment. Now, let's turn to an overview of our operating results. To aid in this discussion, we have included our condensed consolidated statements of income on slide 8. Let's start with our quarter-over-quarter results. Operating income increased approximately $0.8 million in the quarter. This increase reflects a higher gas utility margin of approximately $1.3 million, or 11% compared to the same period in the prior year. As addressed in our 10-Q, gas utility margin is a non-GAAP measure defined as gas utility revenue less cost of gas. The margin increase is a result of the implementation of the non-gas base rates from our recent general rate case discussed on our first quarter call. The increase in margin was offset by increased operating expenses of approximately $491,000. This was primarily driven by accelerated vesting of our restricted stock related to our previous CEO's retirement, professional services and bad debt expense as well as higher general taxes and depreciation expense related to continued investment in Roanoke Gas infrastructure. Non-cash equity earnings from RGC's Midstream's, investment in the Mountain Valley pipeline increased 70% to approximately $1.2 million, due to construction spending to date. The increase in the other income reflects the recognition of AFUDC related to capital spending on the two MVP interconnect projects. As we discussed on our first quarter call, the FCC allowed Roanoke Gas to defer for potential future recovery, carrying costs related to the MVP interconnect stations. Therefore, AFUDC was recognized during the quarter based on construction spending from the effective date of the…

Paul Nester

Operator

Thank you, Randy. We are on slide 9. Let's further discuss the impacts of the COVID-19 pandemic in particular on our community and our company. To-date, the greater Roanoke Valley, which is the Roanoke Gas service territory has had fewer cases and deaths per capita attributable to the virus than some of the larger metropolitan areas of our state and country. We've also been very fortunate to not have any known cases in our company ranks. Previous investments and upgrades to technology that strengthen customer interactions and improve operational communication and execution in combination with implementing our pandemic plan have allowed the company to safely and effectively provide uninterrupted natural gas service. I would like to take this opportunity to thank all of our employees and our contracting partners for their efforts and dedication to our customers and our company during these trying times. They have adapted and adjusted and stepped up where needed and when asked. I am very proud of them. Let's briefly discuss liquidity. As with our operations and employees, we are well positioned and prepared. We have sufficient availability in our Roanoke Gas line of credit, which we are currently out of and the RGC Midstream credit facility that supports the MVP investment. Initializing the at-the-market program in early February provides immediate and cost efficient access to the equities market as needed. However, the negative impact from restrictions, shutdowns and closures in our service territory is meaningful. Two of our largest industrial customers associated with the automotive industry have had extended shutdowns. Our major hospital systems of which there are three of them and they are in our top 15 customer list have been forced to reduce staffing and pay levels. The hospitality and tourism industry has completely halted. There are a few bright spots. A…