Q1 2021 RGC Resources Inc Earnings Call
The conference.
Yes.
The leader has muted your line two on mute your line press pound six.
Good morning, John Paul Nester, President and CEO of RTC Resources, Inc. With me today are Randy Burton, our Chief Financial Officer, and David Garcia, Our director of financial reporting and analysis welcome and thank you for joining us as we discuss <unk> resources physical 2021 first quarter results.
First a few of administrative items, we have muted all lines and ask that all participants remain muted.
After the presentation is completed we will take questions.
The length of today's presentation is available on the Investor and financial information page of our website at Www Dot <unk> resources.
Calm let's begin.
Slide one contains our forward looking statements disclaimer. This presentation contains forecasts and projections.
As outlined on slide two we will review first quarter operational and financial results followed by our thoughts on the remainder of the fiscal year and we will wrap up.
With an opportunity for you to ask questions.
As noted on slide three our first quarter customer growth built on the physical 2020 results by adding an additional 170 new customers of.
Of note this quarter, we have installed 1.6 miles of new name as the comparison for all of the physical 2020, we added two three miles excluding.
Excluding the Blue Ridge main extension.
We expect to exceed 2000 Twenty's total in the second quarter of fiscal 2021.
Let's move on to slide four.
First quarter volumes were down from the prior year, though not in correlation with the weather, which was 13% warmer than normal Randy.
Randy will discuss COVID-19 impacts in more detail when he reviews the financial statements, but we continue to see weakness in some commercial sectors that we believe is attributable to the pandemic with the hospitality sector being the Best example.
However, other commercial sectors are particularly strong year over year building supplies and CMG power delivery fleets being two good examples.
Let's review first quarter capital spending on slide five we are right, where we expected to be with our 2021 on capital investment plan no debt.
Now on slightly from 2020, you may recall that the first quarter of 2020 had about half of million dollars of carryover spending related to the LNG generator project.
Randy will now walk us through our financial results.
Paul and good morning.
I would like to take this opportunity to encourage everyone to visit our website using the link provided at the bottom of this slide to learn more about our ESG activities.
Recently added this page to highlight the many things we have been doing surrounding the ESG initiatives.
As indicated here on slide six resources completed its first quarter of fiscal 2021 with the earnings of 58 cents per diluted share increasing approximately 18% over the same quarter of the prior year. This increase reflects continued improvements in rona of gases utility margins driven.
And by our infrastructure improvement programs customer growth and overall lower operating expenses.
Additionally.
Non cash equity and earnings for <unk> Midstream investment in the Mountain Valley pipeline contributed to the increased earnings.
At this time I would like to preface the additional review with a few comments regarding the pandemic.
First these results Mark the final comparison to completely Covid free historical period as the effects of COVID-19.
And the state of emergency was declared in our service territory in March of 2020.
This is worthy of highlighting as our company has been extremely fortunate to have had minimal impacts on operations, including our ability to safely and on an uninterrupted basis to deliver service to our customers I am very proud of all of our team as they have done an exceptional job of remaining diligent in their.
<unk> to ensure safety for our customers and themselves while providing essential services.
Next we continually monitor the impact.
To make on our customers and accordingly, we see the economic impact of certain customers in the form of delinquent payments and aged receivable balances.
We are working with our customers to establish reasonable payment terms and or to apply the cares act funding to their <unk>. If eligible we have also updated our allowance for potential bad debts as appropriate.
Now, let's turn to slide seven and I'll review, our operating results in more detail.
To aid in this discussion we have included our dance consolidated statements of income.
On slide seven.
Let's start with our quarter over quarter results for.
For the current quarter operating income of $19 5 million reflects the volume declines mentioned earlier by Paul.
However, operating income of five 6 million reflects an increase over the same quarter of the prior year by approximately 500000 due to favorable improvements in our rona of gas utility margins and the lower operating expenses.
As a reminder, the prior year quarter included a $317000 write down of certain regulatory assets per the FCC's final order in our general rate case.
The non cash equity and earnings of <unk> Midstream investment in the Mountain Valley pipeline increased 24% to approximately $1 4 million for the current quarter.
Other income net and lower interest expense added approximately 237000 and pre tax earnings.
Due to due primarily to capitalization of <unk> D. C on rona of gases to gas stations that will interconnect with the mountain Valley pipeline.
Lower pension expense and post the <unk> poster.
Postretirement benefits expense and the favorable interest rate environment of the current quarter.
Now, let's review the trailing 12 months at December 31, 2020.
Operating income increased.
I'm, sorry, operating income decreased approximately 3% to $13 million.
Favorable increases from higher non gas rates and increased transportation and interruptible volumes. During the current 12 months were offset primarily by higher expenses from accelerated recovery of certain regulatory assets and required increases and our allowance for bad debts driving the overall decrease.
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Non cash equity in the earnings on RG <unk> midstream investments in MVP.
Increased by approximately $1 5 million, reflecting continued application of AFDC on the projects construction spend.
Other income net increase primarily reflects the recognition of AFDC on the two gates station projects discussed above and in the prior quarters.
And lower interest I'm, sorry, lower expense for the retirement benefits.
Increased borrowings resulted in an approximate 4% increase in interest expense, while borrowing levels slowed over the current 12 month period due to the reduced requirements for cash investment and the MVP.
Amulet of borrowing levels still increased over the same period of the prior year. The increased debt levels are reflective of the incremental MVP investments and the funding of run of gases capital projects. The favorable interest rate environment reduced the interest expense that would have otherwise been incurred due to these additional <unk>.
Boeing's <unk>.
Income tax expense increased due primarily to the increase in pretax income.
And finally on an after tax basis, the aforementioned increase in the noncash operating expenses, primarily offset the increase in the non cash equity and earnings on the MVP investment.
Resulting in the increased net income of $1 million or an approximate 10% for the trailing trailing 12 months at December 31, 2020 compared to the same period.
Of December 2019.
This includes concludes our review of the financial results I will now hand, the presentation back over to Paul.
Thank you Randy we did have an outstanding first quarter, let's discuss the remainder of fiscal 2021, we're going to take that in three steps as shown on.
Slide a we like the picture here on slide eight if you can see it if you are joining us online and so beautiful gas light here in the Raleigh Court.
Neighborhood of of Roanoke.
Moving to slide nine we are still on target to spend $21 $1 million of physical year.
We continue to renew strengthen and expand the Rhino gas distribution system main extension of new customer additions have spilled over from the first quarter ended the second quarter and we expect that trend to continue into the warmer construction season I would like to highlight a couple of projects that we will start this coming spring first we will renew another of our older.
Gate stations at approximately three quarters of of $1 million of investment and this in fact will be our fifth such gates station renewal through the save plan as you recall the save plans our infrastructure Rider program second if he joined US in 2020 on these calls or at our annual meeting last year we.
<unk>, our Blue Ridge expansion project, which was approximately an 8000 foot main extension into a previously unserved area of the largest.
By dollar value main extension project in the company's history.
We're moving into phase III and Blue Ridge at approximately $1 million this year.
Lanning to run about 6800 feet.
More Maine, and Thats going to give us a significant residential conversion opportunity.
Moving on to the Mountain Valley pipeline, we're on slide 10.
<unk> been a lot of discussion on that in the last few months and a lot of press and we want to take a few minutes to discuss some of that as the slide shows the project is.
Roughly 92% complete that includes all three compressor stations. The three original certificated interconnects and more than 264 miles of pipe welded and in place. It's also worth noting approximately half of the 303 mile right away is fully restored.
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We'd also like to take a moment and.
Talk a little bit about the recent announcement of chain.
Changing from the nationwide permit 12 to the individual stream crossing permits the project announced this on.
January 26, just a few days ago.
And maybe we'll just.
The answer a few frequently asked questions on that action.
The first question of course, why is the project taking that action.
Under the totality of the circumstances MVP believes the pursuing the individual per minute process, along with an associated FERC Amendment process is the most efficient regulatory path to completing the remaining components of.
The project.
Sort of a follow on question to that how many stream crossings actually remained there are approximately 430 crossings.
It's worth noting those crossings make up less than 10 miles of the actual pipeline path.
How will shifting to the individual permit process.
<unk> the projects current budgeted current budget and targeted.
The late 2021 in service date.
We believe that an efficient permitting process, including all of the required public participation can be completed in a timely manner.
The project also believes that approvals for the biological opinion and permits for the Jefferson National Forest will continue to be upheld and that work per.
Progress in a manner that would allow.
On Mountain Valley. The maintained its current budget estimate of five $8 billion to $6 billion of cash.
Cost and achieve its late 2021 targeted in service said simply the budget and the in service date are still the same despite this fairly significant regulatory change.
We do want to take a minute and talk about <unk>.
<unk> and that cash cost.
The components.
And we've added a new bar chart on slide 10 here showing our cumulative.
To the investment in the project and as you can see on the chart.
Bifurcate the investment by cash investment signified by the Green bars.
On <unk> by the Blue bars as many of you know we've been recording AFDC income up through December 31, 2020 on the project area of UTC as allowance for funds used during construction we.
We give a more thorough explanation of that of course in our 10-Q and previously in our 10-K, but it's essentially a FERC mechanism that allows.
The substantial or significant infrastructure project of this type to recognize its financing cost.
And the <unk> been been used for decades really in these large.
Again infrastructure type projects.
It does add to the cumulative investment of the project so.
And as you can see it's become a little more significant as of.
Of the project has been delayed and work.
<unk> through its regulatory and legal challenges.
As we noted in our 10-Q, which was filed yesterday and our subsequent events footnote of the project will temporarily cease recording <unk>.
Is.
Its proper based on FERC accounting guidance since there is not going to be really meaningful forward construction on the project in the near term while they work through this individual permitting.
<unk>, we will see in a moment on the next slide that will have some impact too.
Our consolidated earnings per share, but we will again talk about that on slide 11.
I did want to highlight one other question that we're frequently.
The hearing relative to the project can the current administration.
Stop Mountain Valley similar to what happened with the Keystone project in January.
We'll give a little bit of a longer answer on that.
The regulatory review and approval process for the Mountain Valley project.
As input from agencies in both Democrat and Republican administrations, we think thats important to note the.
Of the projects' ultimate approval.
It was based on the best interest of our National Security and energy policy and has withstood scrutiny by being upheld on both the United States Court of Appeals.
Or the United States quarter of Appeals for the district of Columbia Circuit. So.
Again, we think the of need an approval forward has withstand legal challenge to this point, we don't believe that the cash.
Current administration has the legal standing to stop the project similar to the.
Of the Keystone project.
All right, let's move over to slide 11.
Many of you may recall that we halted our earnings guidance with the onset of the pandemic.
On March 2020, as Randy mentioned earlier.
We do think it's an appropriate time now to to reinstate earnings guidance, particularly with this.
<unk> change.
By the Mountain Valley project.
Slide 11 gives a nice picture we thought it was important to delineate our earnings between essentially the run of gas utility, which is really represented in blue.
The Red bar portion of the bars are our midstream earnings primarily from the Mountain Valley project and again those midstream earnings are non cash.
Obviously the projects not in service.
Flow and gas is not producing cash flows.
As you can see and as we've discussed now for several years the run of gas utilities, just really performed very well, we've had nice economic development and customer growth in the run of Valeant and our service territory.
We foresee that continuing to be.
Robust throughout 2021, and we in fact expect of 7% to 8% lift in our cash earnings from the utility.
Could you can see we provided a range there to $1 12.
Could be a little better than that but we feel pretty comfortable with the dollar rate of cash earnings there.
We've essentially.
Net had midstream earnings to zero for the 2021 period, we do have a few D C and the physical first quarter as Randy discussed we will of course continue to have financing costs on the Mountain Valley project.
For the remainder of the fiscal year, we believe those essentially offset each other.
Could the project.
Record AFDC and physical 2020 of our fiscal 2021, yes, that's certainly possible right now we're just taking a conservative approach here and assuming no <unk> through September 32021, one other thing we would like to highlight is the dividend payout ratio.
That's the.
Frequently our concern of investors when we go around the country and meet with people who own the company.
As you can see we've applied the current annualized dividend of 74.
To.
Two these cash earnings and you can see our payout ratio is still well under 70% certainly within board.
The policy and guidelines there so we feel very comfortable with the dividend.
Dividend payout based on our Rona of gas earnings.
That concludes our prepared remarks, if you have any questions. Please dial pounds six to on mute your line and we would be glad to.
Try to answer your question pound six to on mute your line.
<unk>.
Good morning, everyone.
The more on and Mike how are you good morning, Mike.
Good yourselves.
We're doing well. Thank you, it's a little IC hearing run out. This morning, I meant the mentioned everyone to turn up the gas laws, while they're listening to the call.
Please turn off your debt a little of coal to coal.
How are you doing.
Paul.
I know you're making money.
We're trying our best yes.
Yeah.
So I wanted to circle on my my always favorite topic MVP in the strategy change.
From from the partners.
So I'm wondering.
Sure.
Has the stream crossing.
Thank you you mentioned in your comments 430 crossings remained so does the change in strategy bifurcate the process. So that X amount of the streams fall under FERC and X amount of fall under the Army Corps.
Or do you still kind of need first for all of it.
Yeah, that's of Great question so.
The Army Corps.
And park.
In addition to the West Virginia Department of Environmental Protection on the Virginia Department of environmental quality, we'll all be involved in the.
The permitting process.
And Thats also the same as it was with the nationwide 12.
Instead of of course of proving a.
Blanket permit which is what the nationwide 12.
The performed as they'll just be.
Reviewing and approving individual permits.
So in essence, they are taken this tax stream by stream.
They really are taken the extreme extreme by stream and.
They feel really good debt from a construction standpoint, nothing has changed in in other words of the projects still going to complete those stream by stream crossings in an environmentally responsible and.
The protective manner and in fact by moving to this individual permit process. It really does respond to the.
The fourth circuit's opinion on the nationwide 12, and really a lot frankly, a lot of the opposition's.
Thoughts and comments on the stream crossings.
Okay.
And then.
Just wondering is there any update on the.
The disposition of the the Con Ed stake.
No.
We've not heard anything any anything on that at this time.
Okay.
Well gentlemen, that's all I had.
Again, congrats on them on a really good quarter.
Thank you. Thank you Mike so so glad to have you with us.
Do we have any other questions you can on mute your line with pound six if you would like to.
The to speak or ask a question.
Okay.
Hey, Paul I've got one more.
Alright and on others.
You had mentioned on the few.
D C. The Dod could start back up at some point in the future.
So assuming.
Since we're taking this.
The stream by strength.
I would guess that once that process of crossing the stream starts.
It might be minor in terms of.
The accounting policy to go back to a of UGC would there be.
Would there be a potential for like one big catch up a of UTC that encompass all of the stream work at the end of the construction of the of the project instead of the kind of the regular cadence that we've had of every quarter.
Yeah, so our understanding Mike.
The the accounting for the ASU DC will.
Occur is going to be very specific to the construction activities in the field.
And so at the point in time on the project feels like it's out of place with it.
Individual permit approvals in other regulatory processes that they will in fact mobilize meaningful.
Crew count to the field.
At that point in time.
I think follow the proper practice, there that the <unk> would reinitiate.
Said slightly differently there'll be meaningful construction activity of course from both the labor and <unk>.
Material on productivity standpoint that would justify the F E D C attaching to that activity.
And Mike.
The mechanism there allows for the capitalization of those financing our carrying costs during the period of time on which there are those substantial construction activities of that Paul mentioned so.
That would result in our calculation of those only at that time.
Okay.
Alright, I think I got it.
There's a lot of.
It is an educational process.
On the GP for shooting of the first day. It is in the idea of UTC as of.
It's a fairly unique accounting process specific to FERC projects and utility.
And nature of projects so.
Alright, I'll, let you gentlemen go again, thank you well thanks bye.
Anyone else that of any other questions.
Six the on mute your line.
Okay well.
If there are no more questions. This does conclude our first quarter earnings call. Thank you for joining us and we look forward to speaking with you.
Again in May to review, our second quarter results. We hope you all have a safe and happy weekend.
Thank you. Thank you.
Yeah.
Yeah.
That's the biggest crowd by fall of we've ever had.
I'm really surprised and how some other like shareholder type questions.
Yeah.
Maybe we can kind of maybe we covered enough there.
The leader has disconnected the conference will be terminated in five minutes.
Yeah.
Yes.