Q3 2020 RGC Resources Inc Earnings Call

We'll now be placed into conference.

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Good morning, I bought asked her president and CEO or do you see resources incorporated welcome and thank you for joining us as we discuss RTC resources third quarter 2020 result.

First I would like to go over a few administrative items, we have muted all lines of that but all participants remain muted. After the presentation is completed we will take questions.

The length of today's presentation is available on the Investor on financial information page of our website at Www Dot or do you see resources Dot com.

Let's begin our presentation.

Well I warn presents our forward looking statements disclaimer. This presentation contains forecasts and projections.

As outlined on slide two we will began with a review a third quarter results followed by the outlook for the fourth quarter of physical 2020, which and September thirtyth.

As noted on slide three our customer count in additions are inline with expectations for the first month.

First nine months of physical 2020, despite the covered 19 pandemic. We expect this trend to continue through the fourth quarter.

The 54% increase in total volumes on slide four is not a misprint we've had one of the most interesting quarters in the company's history.

Third quarter was one of the coolest in recent memory with 841% increase in heating degree days over 29 team. This weather was 41% colder than normal and.

Commensurate with this cool weather residential volumes increased 50%.

The pandemic certain commercial customers for example, a food can manufacture and CNG fuel delivery sleep.

Experienced significant volume increases that offset the customers most negatively impacted by the pandemic in our service territory. The hotels restaurants in schools for example.

Finally, a large multi fuel manufacturer also mentioned on the last call.

Which to 100% natural gas beginning in late March, adding 0.5 Bcf to the industrial throughput for the quarter.

They are now our number one customer based on delivered volumes with approximately one bcf.

Used to June year to date.

This customer had in material usage in 29 team.

As shown on slide five physical 2020 year to date total volumes delivered increased 3% compared to last year.

Unlike the cooler weather experienced in the third quarter, the first six months or non lots of 20, 26% warmer than the prior year.

Again, the increase in industrial volumes offset the decrease in our residential and commercial glasses.

Were primarily attributable to the customer previously mentioned.

Moving on to slide six.

$17 million of capital spending for physical 2020 year to date at slightly ahead of the prior year.

Through the same infrastructure rider, we have invested approximately $7 million.

To continue modernizing our system renewing over five miles of main year to date.

We have discussed over recent years the save rider continues to provide the company with a regulatory mechanism that allows us to make our distribution system safer and more reliable.

Might add that our current application for the 2021 say program is pending before the FCC and we expect approval by fiscal year end.

Additionally, we have invested almost $6 million and growth and expansion of our system.

I would like to update you on the Blue Ridge main extension project mentioned on our last call. This project extends our system to underserved customers and is one of the largest capital projects by dollar value Rhino gas history. It is on schedule. We have completed the installation of a 7000 feet of six cents steelmaking should complete the remaining plastic.

Mains and services.

The end of the physical year.

Randy burden, our CFO will now walk us through earnings highlights Randy.

Thanks, Paul Good morning, everyone.

As indicated on slide seven resources had a strong first nine months of fiscal 2020 with diluted EPS, increasing 31% over the prior year to $1.34 pretty related share.

Performance significantly improved due to favorable utility margins and earnings on our MDP investment.

Now, let's turn to an overview of our operating results.

Great and this discussion we have included our condensed consolidated statement of income on slide eight.

Let's start with our quarter over quarter results.

In spite of the pandemic runner gas utility had a strong quarter with increased volumes and improved gas utility margins net of prior year rate case estimates.

As addressing our 10-Q gas utility margin is a non-GAAP measure defined as gas utility revenue less cost of gas.

2019, Q3 margins were abnormally high as a result of update in rate case assumptions prompted by FCC staff report excluding these effects.

She daily margins for the quarter would have increased approximately 4.3%.

As you will see on a year to date basis. This had a minimal impact.

Non-GAAP operating expenses increased approximately 115000.

This was primarily driven by an increased professional services bad debt expense, well as higher general taxes and depreciation related to the continued investment in run of gas infrastructure.

Noncash equity earnings from RTC Midstreams investment into Mountain Valley pipeline increased 55% to approximately 1.2 million due to construction spending to date.

Increasing the other income reflects.

The recognition.

Few DC related to capital spending on the two MDP interconnect projects discussed on prior calls.

Interest expense increased during the quarter due to the higher overall borrowings related to investment in the NDP.

Increasing expense was offset by the recognition of the financing opponent of AFUDC.

Income tax increase 57000, or the third quarter, primarily as a result of increases in taxable income.

Overall, the net income for the quarter increased to 1.2 million or 15 cents per diluted share compared to 1.1 million or 14 cents per diluted share for the prior quarter.

Now, let's review results for the nine months ended June Thirtyth 2020.

Operating income increased approximately 2.3 million to a total of 13.4 million primary drivers, where the increased non gas rates and a positive w. any adjustments revenue due to the warmer weather.

Increases were offset by higher expenses from the amortization and first quarter write down of regulatory assets.

Et cetera, vesting of restricted stock and to a lesser extent increases in professional services bad debt expense general taxes and depreciation.

Equity earnings on the MVP investment increased by approximately 1.4 million to 3.5 million again related to the construction spend today.

The quarter over quarter analysis. The other income increase reflects the recognition of AFDC related to the two MDP interconnect project as discussed earlier.

Increased borrowings resulted in a 18% increase in interest expense borrowing levels increased over the same period of the prior year do the combined continue sorry funding of our MVP investment as well as funding of our run a gas capital projects.

Income tax expense increased due to the company's growth in taxable income.

In combination all of these factors resulted in a 2.7 million or 32% increase in net income for the first nine months in fiscal 2020 as compared to the same period in fiscal 2019.

This concludes our review our financial results I will now have the presentation back over to Paul.

Thank you Randy as we near the end of fiscal 2020, Let's review our outlook on slide nine.

We are in prime construction season, we anticipate investing $5 million in the fourth quarter, bringing total 2020 run of gas investment to approximately $22 million.

That's meant and save infrastructure rider projects in the Blue Ridge project will lead the way.

The MVP is targeting in early calendar 2021 in service date.

So the project has not yet returned to construction and is still working through various permit issues.

Accordingly, our require physical 2020 cash investment will be lower than previously disclosed.

We wanted to give you a quick update regarding the effects of the pandemic.

Pandemic continues to create significant uncertainty for the foreseeable future as Randy discussed earlier, so far there has been minimal impact on operational and financial results.

We are still monitoring the possible impacts OCO. The 19 on the safety of our employees and customers certainly the broader economy.

And we're taking the.

Possible effects of the pandemic into consideration during our physical 2021 planning.

I'd like to.

Reemphasize, what we talked about on the prior call the dedication of.

Yes.

And our.

Partners here at the company has been outstanding over these last several weeks and months and responding to the pandemic and.

Keep in the gas flow and I just would like to say thank you.

To them again.

That concludes our prepared remarks.

You have questions. Please dial pound six.

Unused Caroline.

Good morning, everyone.

Hey, Mike Good morning area.

I'm good Sir yourself.

Well thank you.

Congrats on the core.

Much better than I expected.

And well. Thank you I think as you recall at the end of the last call in our outlook discussion we.

Stated there was a lot of uncertainty and course, everyone I think dealing with the uncertainty and.

We have been fortunate as we mentioned in today's call some things of.

No.

Paul on our way, if you will and our customers way and Thats been helpful.

Yes, I would see all my question I have.

Certainly a lot of new since your last call.

Atlantic Coast.

Being taken off the boards.

Certainly makes MDT just not much more valuable.

Well maybe.

In the share with us what you can on kind of where we are with MVP I think last time that was 90, 192% complete our they are the Bakken shield.

Mr Construction going on.

Instant timeline still in place.

Maybe any chatter about.

Future expansions of MBT now, that's nowadays Cts off the boards.

Yeah, I'd be glad to to.

Talk through that a little bit.

Certainly we can share with you what.

Equitrans midstream to managing partner as as shared and their earnings release.

Earlier this week on August 4th.

Yes, I think they stated Mike they expect the biological opinion from the fish and wildlife service to be issued shortly and.

They hope to.

That point receive a fairly quick approval from the for to get back into the field and resume construction. So.

They're not obviously not in the field at the moment, but again, sending those two steps.

Hopefully very soon and they can get back in the field.

I think they also disclosed in that and that earnings release, Mike that they expect the Army Corps.

Reissue the nationwide 12 permit.

Which is.

Big deal too and.

Thats going to allow water body crossings to resume so.

Hopefully a lot of things to come come here in the very very near future.

As to.

The Atlantic coast being canceled that was up.

Frankly, a surprise development to a lot of us I think in the industry and it does have ramifications due to the mountain Valley I think theres been quite a bit of press on.

Acuity, who is the largest shipper on the mountain Valley in.

What they're doing with some of their capacity, possibly with.

Duke and Dominion, who of course were the primary.

Partners in the Atlantic Coast pipeline, so a lot lot of market dynamics happening now around that.

Which we thank our positive to the mountain Valley.

Expansion.

Thanks.

And then some press on expansion I'm not sure that Equitrans made any public comments on expansion it at this point, but.

Hopefully down the road there will be more discussion about that.

Yes, I would think I.

I mean it.

You probably have the capability to.

Uh-huh compression on the on the three existing line correct.

Yes, Thanks, I think thats right the pipe is engineered.

As it was presented to par FERC to allow for more.

More natural gas to flow through the pipe right.

Okay.

Yes.

Alright, well so that's that's all I had other than the can congratulations on the quarter forward to chat with you next quarter.

Well. Thank you very much for joining today and asking your questions and yes further questions, let us know.

Thanks.

That does anyone else on the call.

Have a question I'd like to ask you can on mute yourself by dialing pound six.

Well if there are no more questions. This concludes our.

Third quarter earnings call for fiscal 2020.

We look forward to speaking with you again in December.

To review, our full physical 2020 results.

Thank you again for joining us and please stay safe and healthy.

As we all try to work to reduce the spread of the virus.

And we hope you have a great day integrate weekend. Thank you. Thank you.

Yes.

The leader has disconnected the conference will be terminated in five minutes.

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