Q2 2021 RGC Resources Inc Earnings Call

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You will now be placed into conference.

The leader has muted your line two on mute your line press pound six.

Good morning, I am Paul Nester, President and CEO of <unk> Resources, Inc. I hope it is as beautiful unpleasant wherever you may be today as it is here in the.

Rogue Valley.

With me today are Tommy Oliver, our CFO and David Garcia, our director of Finance.

Again, welcome and thank you for joining us as we discuss <unk> resources physical 2021 second quarter results.

First a few housekeeping items, we have muted all lines and asked that all for participants remain muted. After the presentation is completed we will take questions.

The link to today's presentation is available on the Investor and financial information page of our website at Www Dot RBC resources Dot com.

Let's get started slide one contains our forward looking.

Payments disclaimer of this presentation does contain forecasts and projections.

This morning's agenda is on slide two we will review the second quarter and year to date operational and financial results followed by our outlook for the second half of physical 2021.

We will conclude with an opportunity for you to ask questions.

I want a preference for the next few slides by saying that we are pleased with the year to day results of the <unk> gas utility customer growth has been strong and capital spending is right on plan.

As noted on slide three our second quarter customer growth of 160.

It was almost equal to the first quarter total of 170, bringing us to a year to day total of 330, new customers. This is exactly the same as physical 2020.

We mentioned, our new main miles last quarter as expected, we completed an additional $1 seven miles in the second quarter, bringing the year to day total to $3 three miles.

We're exceeding by 50% the total for all of fiscal 2020, which was only 2.3 miles.

Moving on to slide four.

Second quarter volumes were up significantly from the prior year, primarily due to colder weather and economic environment.

Industrial volumes are down primarily due to the large customer that fuel switch to natural gas in March of 2020, you may recall, that's when they started the fuel switch they have switched back to coal so far in 2021.

On slide five year to day volumes are up as a result of the second quarter increase we're pleased that firm volumes continued to be stronger than weather norms building suppliers autopart manufacturing and consumer products manufacturing continue to have noticeable year over year increase.

Yes.

Let's review capital spending on slide six we have $1 $4 million lower than 2020, almost entirely due to project timing.

The signature project in 2020 of the Blue Ridge main extension had one $8 million of spending through March 2020 phase two of that project will kick off in June of this year or.

Our other key projects for 2021, the Carillion expansion support project in the nation Mason station renewal started in the third quarter of this fiscal year.

Tom will now provide additional details of our financial results finally.

Thank you Paul and good morning, everyone I will now review our operating results for.

This discussion we have included our condensed consolidated statements of income on slide seven let's.

Let's start with our quarter over quarter results.

As indicated on slide seven resources completed its first quarter for fiscal 2021 with earnings of 58 per diluted share compared to <unk> 70 for the same quarter of the prior year.

While operating income was favorable was favorably impacted by customer growth save revenues for volumes. This was offset by a onetime rate case adjustment that increased revenues in the prior year.

We would also note that the significant increase in operating expenses in quarter. Two of 2021 was driven primarily by a 67% increase in gas costs and colder weather compared to last year the.

The increase in gas costs was driven by both the February 2021, polar vortex that affected gas supplies throughout much of the U S and higher transportation charges from our Interstate pipeline suppliers. As a reminder, gas costs are recovered from customers on a dollar for dollar basis with no margin earned by the <unk>.

On these costs non-GAAP O&M costs are flat year over year.

As discussed during the first quarter call equity in earnings halted in the second quarter commensurate with a hold and MVP fieldwork. This drove a <unk> <unk> decrease in earnings from the prior year.

Now I will turn to the year to date results.

The drivers for year to date results for primarily the same as for the quarterly results revenues and operating expenses were both up primarily due to colder weather and a 31% increase in gas costs operating expenses in the prior year were affected by COVID-19 related bad debt expense as well as <unk>.

First quarter 2020, $317000 write down of regulatory assets stemming from the Virginia State Corporation Commission final order of January 2020.

Now lets review results from the trailing trailing 12 months at March 31 2021.

Operating income was favorably impacted by customer growth save revenues in firm volumes.

This was offset by prior year rate case adjustments and COVID-19 related bad debt as well as maintenance initiatives in the first half of fiscal 2020.

Year over year capital spending differences discussed previously by Paul has resulted in decreased capitalized overhead.

I will now take a moment to discuss how these service disconnection moratorium has impacted our bad debt expense.

Yes.

As we discussed in the first quarter earnings call utilities in Virginia are operating under moratorium, which prohibits disconnection of residential customers for non payment we have not been given any given any indication as to when the moratorium may be lifted however.

However, along with the moratorium we were allocated over $403000 of cares Act funds to help our customers who accounts had fallen behind as a result of the pandemic.

We're able to apply about $205000 of this money to eligible customer accounts in the second quarter, which reduced our debt bad debt expense, we expect to apply most if not all of the remaining cares act funds to customer accounts in the third quarter of 2021.

It is also worth noting that over 70% of the company's workforce will be fully vaccinated by the end of May.

I will now turn it back over to Paul.

Thank you Tommy we are excited about the news related to the vaccination and.

The willingness of our employees to be vaccinated by definition, our company will have herd immunity by the end of May we are happy about that.

Let's discuss the remainder of physical 2021, starting with Reno gas capital on slide nine.

We still plan to spend $21 $1 million this fiscal year with $12 million expected in the back half of physical 2021 momentum on main extensions and new customer additions has continued into the third quarter and we expect that trend to continue throughout the summer and into the early fall.

Stated earlier several key projects are or are about to be underway. We have started the renewal of Mason station, which is one of our older day stations. This is included in this year's save plan and will be approximately three quarters of a million dollars.

We also mentioned phase two and Blue Ridge, and approximately $1 million 6800 foot main extension.

And very importantly, we have over $1 million of.

Primarily main work scheduled to support Carillon clinic's current construction and future expansion plans.

Moving on to Slide 10, let's talk about the mountain Valley pipeline.

To date total project work for MVP is 92% complete which includes all work on the projects three compressor stations and its three original interconnect facilities with the additional green interconnect mechanically complete as well as roughly 265 miles of pipe welded and in place and half of the right away.

Fully restored.

MVP has all necessary permits with exception of those needed across water bodies and wetlands and March MVP cruise resumed construction in the upland areas, where we currently have approval to work.

<unk> is on track to complete all of that work by September of this year.

Once that upland work is complete MVP will have roughly 10 miles of pipe to finish for the water crossing and eight miles.

Of work in and around the Jefferson National Forest.

Approximately.

As was announced recently you know the project is targeting a summer 2022 in service date and there was a.

Of course.

Cost increase associated with that as we show on for.

Slide <unk>.

Approximately half of the cost increase is due to timing adjustments.

Which will require maintaining and protecting environmental controls along the right away for a longer period of time.

The balance of the cost increase is based on the research sequencing of construction activities.

And related mobilization of crews.

<unk>.

Again, its cash targeted cash cost of 65.

$1 million for <unk> midstream.

One other comment about Mountain Valley. This was described in our 10-Q, which we filed yesterday.

The allowance for funds used during construction day of UDC, which Tommy referenced a few moments ago.

That will be resuming in the third quarter of this fiscal year or in April.

It's going to be at a much lower level, it's going to be very specific to the forward.

Construction now occurring we expect.

Some recognition of this lower <unk> through the end of the physical year.

Essentially right along with that work expected to be completed in September.

To wrap up let's discuss our earnings guidance on slide 11.

You may recall on slide seven our year to date earnings per share was $1 16.

You probably are wondering why are we showing earnings for.

The full year in the $1 eight to $1 14 range. It is primarily driven by.

Mountain Valley and <unk>.

The impact of that to <unk> midstream.

Midstream year to date earnings per share is approximately 5% however that number will.

Recede as we move to the end of the fiscal year due to the difference between interest expense.

On our investment there and the <unk> for the final six months.

As reflected on slide 11, you can see the red bars, showing approximately two cents.

Our best estimate of midstream earnings for the full fiscal year.

I started the review.

The quarter and year to day results by stating that we are pleased that is certainly true but that does not mean that we are arresting.

Fact, it's quite the opposite.

Our employees and their teams are presently working on multiple continuous improvement projects.

Utilizing lean six Sigma methodology as well as technology these projects.

We will enable us to serve our customers better.

And operate more efficiently well into the future.

As we go through the rest of this fiscal year and even into next fiscal year, we hope to to share a few more details on some of the exciting results from those projects.

That concludes our prepared remarks, if you have questions. Please dial pounds six.

To mute your line.

We will.

<unk> just a few more seconds, if someone would like to ask a question. Please.

Donald pound six on mute your line.

Well that.

Does it appear that there are any questions at this time, so we will conclude the.

Second quarter earnings call, we do.

Thank you for taking the time to join US and we look forward to speaking with you again in August to review, our third quarter results.

Certainly wish everyone, a great day, and a safe and pleasant weekend. Thank you.

Yeah.

Okay.

Okay.

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