Q1 2023 RGC Resources Inc Earnings Call

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Good morning, and welcome to our G. C resources 2023 first quarter earnings call I am Paul Nester, President and CEO of ours, you see resources.

A few administrative items, we have muted all lines and ask that all participants remain muted at.

At the conclusion of the presentation in our remarks, we will take questions.

A link to today's presentation is available on the Investor and financial information page of our website at Www Dot RG see resources Dot Com. Joining me. This morning are adjacent field, Chief Financial Officer, Tommy Oliver Senior Vice President of regulatory and external affairs, and Kelsey Davenport director of finance.

Yeah.

Moving on to slide one this presentation does contain forecasts and projections and slide one has our forward looking statements.

The agenda for today's call is on slide two.

As usual, we will review operational and financial highlights from the first quarter talk about our physical 2023 outlook.

And again, we will be happy to take questions at the end of the call.

Moving on to slide three we continue to have good customer growth you'll notice at the Bar chart. There shows a slight decrease in customer count from two.

<unk> 2021, you may remember as we've discussed extensively.

Extensively going back to 2020 about the moratorium that was imposed on utility disconnects and the.

The effect that that had on our customer counts.

In March of 2022, we were able to resume our collection.

Collection processes for non PE turn offs and.

Consequently, as we've gotten into the colder weather. This winter, we have been able to really add some of those customers. Our total customer count is just under 63000 were really happy with that number we fully expect to go over 63000 here in the coming months, we had a good first quarter.

<unk>, adding new services and main extension another one one miles of main.

We really believe.

The housing development in the greater Roanoke Valley is still strong we expect again this year to add approximately five to 600 new customers Jason.

Jason will walk us through our delivered volumes and financial statements and capital spending for the first quarter.

We'd be happy to Paul. Thank you we are on slide four our first quarter delivered volumes were up approximately 620000, Dhaka firms compared to the first quarter of 2022.

The 23% increase due largely to the colder than normal weather compared to a year ago heating degrees overall were 31% greater than last year. Additionally, we continued to benefit from an increase in transportation and interruptible volumes due to a single multi fuel customer that has continued its higher natural.

Our gas utilization during the quarter.

Moving to slide five our financial results are highlighted for the quarter. Our operating income of $5 million 544000 was up from the previous year approximately $166000.

Operating revenues adjusted for normal weather were up while non-GAAP operating expenses for the quarter exceeded the prior year due to higher expenditures for contracted services bad debt expense and personnel costs.

Interest expense for the quarter was higher compared to last year due to increases in rates on our variable rate debt, primarily in our midstream affiliate.

Overall, we saw a reduction in net income of approximately $329000 compared to the first quarter of last year.

On an earnings per share basis, we recorded 33 per share, which was down about 10% per share and that was a result of the dilutive effect of the equity offering which occurred in March of 2022, and the small reduction in net income.

The comparison of our 12 month operating results ending December 31, 2022 is difficult due to the impact of the impairments that we recorded again in our midstream affiliate relative to the Mountain Valley pipeline.

We've adjusted for that impairment on slide six if you move to slide six you'll see our underlying net income.

Which removes the after tax impact of those impairments and reflects the underlying net income of $8 million $851000. As you recall, we recorded those in the second and fourth quarters of 2022.

This result is down $112000 compared to the 12 months here.

2022, and overall, we're pleased with that financial performance our management of costs in this inflationary environment.

We feel like we did a good job with that.

We'll discuss a little later, the non gas rate case filing which we.

Which we filed in early December , which we expect to alleviate some of those cost pressures through the remainder of the year.

If we transition onto slide seven.

You'll see that we experienced strong investments made by the Roanoke gas utility for utility property. In these first three months of the fiscal year overall, we invested approximately $7 $5 million in utility property and that was up compared.

Compared to the first quarter of last year by about $1.8 million.

This increase was primarily the result of investments that we've made in the R&D project and.

And save eligible renewal projects.

Paul and Tommy will now discuss discuss the outlook for the remainder of fiscal 2023.

Jason I would just like to make one comment about the first quarter before we review the fiscal year forecast.

Im really happy with our Roanoke gas operation and in the overall quarter, we had but just incredibly thrilled and proud of the efforts in <unk>.

Mid December leading up to Christmas with the extreme cold weather event that we had in our part of Virginia here, our folks and our teams.

Performed exceptionally well, we did not lose a single customer and that's something that we're very proud of and happy now.

So as we look at our 2023.

Forecast, we will look at the capital investment projection for the full year, Tom He is going to give us. Some further details on our non gas.

Base rate case filing will talk about our earnings per share projection and then Tommy will conclude with.

A nice update on our R&D facility project moving on to Slide nine you can see we are still leading our capital investment was $6 $8 million of save lending just a little comment there.

Tommy is going to talk about this in a minute but.

We.

That's renewals spending essentially in other words, we are still renewing pre 1973 Adelaide plastic pipe.

Then about our annual spend for the last three or four years, we're going to continue on that trajectory.

Through the remainder of this year.

We have a couple of other noteworthy projects. In addition to the <unk> facility that I'd like to update you on where in the process of doing an enterprise resource planning or ERP system upgrade we're projected to spend about $1 $4 million on that this fiscal year are our old system is at at the end of life.

It's actually 30 years old it's been a very good system, but it's time for us to modernize and get.

Get a new tool there and our teams.

And our finance area and areas and operations areas are working through that project right now.

Going to invest about $1 $7 million in the Caribbean and Virginia Tech Carillon Medical school area to support the growth that just continues down there. There is a new addition to run them Memorial Hospital in the Medical School is also building another building.

To put a large eight inch plastic maine to reinforce.

The distribution system and that part of downtown Roanoke, We also have approximately $2 million of.

Virginia Department of transportation related projects and what those are as our general Assembly over the last five years in particular has.

Resumed funding if you will for important and necessary road infrastructure projects and we have a pretty major bridge replacement.

Occurring as well as some other road maintenance that requires us to relocate existing gas main and we'd like to take those opportunities to make the mains either larger for more capacity or in fact safer. The bridge means. An example, we're going to be putting that main underground instead of hanging on the bridge.

As it presently does so.

Again those are good projects good for the community in terms of transportation, but also good in terms of making our system.

For.

More reliable Tom.

Tommy.

It gives us a few details of the recent rate case filing well. Thank you Paul and good morning, everybody. We're on slide 10.

As we mentioned in our earnings call from last quarter. The company did fall for a rate increase with the Virginia Commission in December of 2022, we put those rates into effect on interim basis on January one 2023, we requested an increase in non gas base rates of approximately $8 five 5 million.

Which approximately $4 million 500000 is being recovered through the save rider.

Since we are now collecting costs associated with our save plan to interim rates, we did terminate our save rider effective January one as Paul mentioned, we continue to spend on renewals, but those costs will be recovered through our.

Base rates, we will be filing for approval of a new save plan later this year for rates to become effective October one.

The increase in non gas base rates will result in the average monthly residential customer's bill increasing by $5.78.

Since early winter natural gas commodity prices have been declining and are currently below $2 50 per deca term for the prompt month.

We started incorporating these lower gas cost.

In our gas rates on January one and again February 1st as a result of these changes.

These adjustments customers are now experiencing an overall decrease in their bills of approximately 19%.

With the roll in of our save year capital spend of approximately $22 million or total net rate base coming out of the rate case will be approximately $190 million.

Paul will now discuss our earnings outlook for the remainder of the fiscal year.

Thank you Tommy and just as a reminder, we.

<unk> filed a non gas base rate increase.

Three or four non gas base rate increase in October of 2018, which the commission final order in January of 2020. So we've been about three years had only Tom it hasn't since.

Since the last.

Rate case, Okay were on slide 11.

And we haven't changed our EPS guidance from the last quarter for physical 2023, and again as a reminder, fiscal 2022 as Jason mentioned earlier is adjusted for the noncash impairment loss recorded in the midstream subsidiary for 2023, we are projecting a 20.

Per share loss in the midstream subsidiary, primarily due to interest costs.

Which have increased greatly due to the higher interest rate environment that we all presently exist then and the lack of offsetting operating income from the mountain Valley pipeline.

Just as an update the MVP joint venture is presently working with the respective agencies to have the needed permits re issued so that construction can hopefully resume in the very new.

Near future.

Roto gas as you can probably tell from our update is on track to have another solid year, certainly pending the outcome of the rate case and other general economic factors.

We would like to note that the dilution effect from the March 2022 equity offering approximates seven cents per share wed.

We'd like to conclude with what's really one of the great story is probably in the history of this company.

And it will probably get greater as we continue to move towards Ultimate project completion and in service the Tommy give us an.

Data on what's happening with our renewable natural gas.

<unk> project sure Paul we're on Slide 12, and we've been talking about the R&D project for some time now and that has finally come to fruition. We did receive commission approval of the project and approval for cost recovery through a separate rider in January of this year.

We're working on the administrative approval at the rates and tariff for the project and we expect to have everything in place to start billing.

First rates will be designed to recover the costs associated with operating and maintaining the facility as well as a return on the $7 7 million dollar investment.

Construction has been progressing.

Progressing progressing largely on time and on budget and we expect that the project will go into service in March as well as.

As a company we've been working on this project for about two years and we are very pleased with the outcome and I believe the quote from the Commission's order summarizes a paradox.

The project well.

And the commission and their order stated runner gas as project has the potential to achieve a rare combination of increasing local fuel supply, reducing greenhouse gas emissions and increasingly utilities profit while also lowering customers' rates now.

Now I'll turn it back over to Paul now, yes. Thank you Tommy It really is.

Credits at Tommy and his team and the other folks in the company that supported the application process there with.

The Virginia State Corporation Commission.

It is in fact, the first such approval of a project.

And the state of Virginia by gas utility and we.

We haven't.

Then the final research, but possibly on the east coast of the United States.

Very very proud of.

Of receiving that order and what it means to our company and the community our partner on the project in Western Virginia Water Authority is.

Done a fantastic job and we're so pleased to have them as a partner on the project and look forward.

I'll turn on the switch on Tommy hearing about.

45 to 60 days.

That concludes our prepared remarks, if you have questions.

Please dial pound pound or hashtag hashtag.

And mute your line.

Pound pound to <unk> your line.

Good morning, everyone.

Hi, Good morning, how are you today.

Unseasonably warm.

Thank you.

Well it it feels more like North, Florida here in southwest, Virginia today, it's been very warm.

Here and in fact January we're closing the books for January now, but January was approximately what Jason 240 heating degree days warmer than normal one of the warm January .

On record in February has continued with that.

That trend so they're not these are not good gas days, Mike, but just construction.

The best in all of the weather.

Well listen I only really have one question that was just not a lot of time on the orange facility.

I'm just wondering.

Once you get past this one which is like a couple of weeks away.

Is there anything else out your geographic footprint Youre looking at doing.

In terms of.

Renewable projects in general not just R&D, but anything else you might say.

Mike we've been contacted by a couple of organizations that.

Looking at R&D projects in the area somewhat.

Just inject into our system, we're talking to them others want us to run pipes, the interconnect them and where value evaluating all of that.

Make a decision based on the economics once we have to make that decision.

Okay.

The solar have any benefit for you given them.

I know you are in a very mountainous region there.

Some parts of it.

Does it makes sense.

Yes so.

There has been some move Mike in the last I would say two years.

Of course, primarily by the data electrics to cite some.

Solar facilities in this region and so there.

You find a inappropriate police piece of ground to your point that suddenly facing it probably can make sense, but you're right. Those those pieces of ground are fairly precious in our area due to the mountainous.

Terrain.

We have not spent a lot of time looking into solar since we put the solar facility on our headquarters building here.

Back in 2021, but the Tommy's good comment a moment ago that now that we're coming out of this.

R&D project is going to give us some time and opportunity to explore some of those other options.

Okay.

Pretty much all I have I hope.

Hope it turns colder for Ya.

[laughter] well.

Thank you, we wouldn't mind, having a little more cold weather before winter officially.

Initially leave.

We add one more comment to your solar question and Theres pressed to this so this is not per se in my opinion, but.

Like we've seen with the mountain Valley and other infrastructure projects. The solar projects in this area that are being proposed by our.

Electric provider are facing stiff opposition to get permitted inside it.

Almost impossible that have them permitted inside so.

Back to the.

Permitting reform that was percolating in the United States Congress in the fall of 2022, there is still a need for that it's not just for mountain valley pipeline and other.

Natural gas infrastructure, but even renewable infrastructure.

Well I wish you the best on that value would be great to see them actually.

Yes.

Back in the field.

Yes that does.

102 and theirs.

There's no question to.

To be able to complete the project in a timely fashion as I think of utmost importance to.

Our country at large and to.

I get the right away restored.

Also the most environmentally responsible thing so we are doing everything we can to advocate and help push that along.

Okay.

Alright, Julian that balance of your day.

Thank you Mike Thank you for being with US today do we have any other.

Questions.

<unk> style pound pound or hashtag hashtag either wanted to on mute your line.

Okay.

Doesn't look like we have any other questions today, we would like to thank you again for.

Bandwidth us we certainly are busy.

Safe and pleasant.

Weekend and this concludes our first quarter earnings call we.

Certainly look forward to being with you again in may to discuss our.

Our second quarter results. Thank you.

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