RGC Resources Inc (RGCO) 2022 Q1 法說會逐字稿

Good morning. I'm Paul Nester, President and CEO of RGC Resources. Welcome, and thank you for joining us as we discuss RGC Resources' 2022 first quarter results.

Let's review a few administrative items. We have muted all (Operator Instructions) The link to today's presentation is available on the Investor and Financial Information page of our website, www.rgcresources.com.

I would also like to introduce the 2 folks joining me today. One is Jason Field. Jason just joined us a couple of weeks ago and, effective here in a couple of days, will be the new Chief Financial Officer and Treasurer of the company. Welcome, Jason.

Also joining me is Tommy Oliver. Tommy, as many of you know, has been our Interim Chief Financial Officer since April of 2021. Would be remiss to not thank Tommy for his valuable service over the last months while serving in that role. Thank you, Tommy.

Looking at Slide 1. This presentation contains forecasts and projections. Slide 1 is our forward-looking statement disclaimer.

Agenda is on Slide 2. We will begin by reviewing first quarter operational and financial results, followed by a discussion of our outlook for the remainder of fiscal 2022. We will conclude with an opportunity for you to ask questions.

Moving on to Slide 3. Our customer growth results in Roanoke Gas utility continue to be outstanding. As noted, we added 287 customers in the first quarter, 61% improvement over the prior year quarter. Our trailing 12-month customer additions totaled 706. As the slide indicates, we added 2.2 miles of new main. Our trailing 12-month statistic on new main is 8 miles.

Phase 3 of Blue Ridge, which is another 1.5 mile main extension is over 50% complete. I'm very, very happy with our company and our field crews in particular and their responsiveness to our customers' needs and desires for new natural gas service. They've just done an outstanding job and they have been doing an outstanding job as we know for many, many years. But certainly, in this first quarter, we had a spectacular customer growth quarter.

Tommy will now discuss our first quarter delivered volumes, capital spending and financial statements.

Well, thank you, Paul. I'm focusing on Slide 4. Despite the dramatic increase in customer counts as discussed by Paul, our first quarter firm volumes were negatively impacted by the 7% warmer-than-normal weather that the Roanoke experienced.

As shown on Slide 4, residential volumes declined by 8% and commercial volumes declined by 5% due to the much warmer December 2021. In fact, it was 32% lower heating degree days in that month compared to normal. Overall, industrial volumes were down, primarily, due to the large customer that fuel switched to natural gas in 2020. Excluding this multi-fuel customer that switched its primary fuel from natural gas to coal, industrial volumes would have increased.

Transition to Slide 5 where we'll review our capital spending. Our capital spend during the first quarter of the current fiscal year is running slightly ahead of spending during the first quarter of fiscal 2021. The majority of this spending has been on customer growth and system expansion, including our continued investment in the Blue Ridge project, as Paul just mentioned. Paul also talked about our miles of main extensions and new customers a few minutes ago. In addition to these investments, we have spent approximately $1 million on a onetime gas supply infrastructure project.

Moving to Slide 6, where our condensed consolidated statements of income are shown. I'm going to separately review the financial results from our 2 operating segments, Roanoke Gas, our regulated utility and RGC Midstream.

I want to start with the first quarter results for Roanoke Gas. Operating income for the first quarter of fiscal 2020 showed a modest decline compared to the prior year's quarterly results. Gross margins increased due to the SAVE rider and customer growth, which was offset by higher depreciation expense and receipt of CARES Act money in quarter 1 of fiscal year 2021.

Turning to RGC Midstream. Midstream continued with its significant quarterly year-over-year decline in equity and earnings from the Mountain Valley partnership. Equity and earnings declined by over $1.2 million quarter-over-quarter. For the trailing 12 months, Roanoke Gas operating income increased by 12% year-over-year which is a testament to the outstanding performance by our utility subsidiaries Paul just discussed.

Specifically, the increased margin is largely attributable to our SAVE program revenues and customer growth which, as we discussed, added -- as we discussed in an earlier slide related to our main extensions and new customer adds.

The strong Roanoke Gas earnings were offset by a year-over-year $4.6 million decline in equity and earnings from Midstream's investment in the Mountain Valley pipeline, resulting in a $1.08 per share earnings on a consolidated basis compared to $1.38 for the prior 12 months.

I will now turn it back over to Paul, who will discuss the outlook for the remainder of the fiscal year.

Thank you, Tommy. We are on Slide 7, which has our agenda for the outlook.

Moving on to Slide 8. With our capital spending forecast for the fiscal year, we still are at approximately $25 million this year. And as we discussed last quarter, this is the largest or will be the largest capital spend in Roanoke Gas is 139-year history. Momentum on main extensions and new customer additions is continuing, and we still expect to spend around $6 million specific to those 2 items in fiscal 2022. We have started the loan gate station renewal that was remaining in our system that has already started. We had spending on that in the first quarter. It will be completed in the late summer.

We already mentioned phase 3 of Blue Ridge and we're preparing to start phase 4, which will be another 2,300-foot main extension.

Finally, Tommy mentioned the large special project. That project is on schedule and will approximate $5 million by the time it's completed at the end of this fiscal year. We are still planning the public announcement of that project. We were sidetracked a little here in January with the extreme wet and cold weather and some other matters. But we hope to be able to do that in the very, very near future.

Moving on to Slide 9, the Mountain Valley pipeline. Most of you are aware by now, the Fourth Circuit's actions to vacate and remand the Jefferson National Forest and Biological Opinion permits. Those actions and possible next steps are currently being considered. As we disclosed in our 10-Q that we filed yesterday afternoon, there's just not enough information at this time to determine changes the project cost or schedule.

Well, now maybe actually a moment to maybe reflect on the Mountain Valley pipeline. We've got a beautiful picture in our slide deck, if you haven't seen it. It's portion of the rider way that's been completed and restored. And if you're listening by phone, I encourage you to visit our website and review the slide deck and then review this picture, in particular.

But RGC Resources through RGC Midstream became a partner in the Mountain Valley joint venture, October 1, 2015. And at that same time, Roanoke Gas entered into a precedent agreement to become a shipper on the Mountain Valley pipeline. And I think it's probably important to maybe look back and discuss what was our thesis back then all those years ago.

I think, first and foremost, the Roanoke region and Southwest Virginia were poised to grow. If we think back to 2015, our medical school and many of the things happening in our downtown area, we're really just getting started. And we made the determination that our customers, both present then and in the future would require more natural gas. Thank Tommy, we testified to this at some of the hearings in the fall. We've added well over 3,000 customers since October 1, 2015.

So our thoughts on this region growing economically and culturally. And in many ways, it's really been fabulous over the last 6 or 7 years turned out to be true and our thoughts about our customer base growing also turned out to be very true. There was another part of the thesis at that time that Virginia, in particular, really, the whole Eastern half of the United States needed more natural gas and gas infrastructure. We believe that is also still true.

So back then, we came back to why are we here as Roanoke Gas, the utility and RGC Resources as the holding company. We're here to serve. We've been here in the Roanoke Valley serving since 1883. That means a lot to us, and we plan to continue to serve. We believe the Mountain Valley Pipeline was critical for us to continue that service. We still feel that way today. Nothing has changed -- if anything, our desire to serve and our need to serve as we've just demonstrated with our customer additions and our main mile extensions is ever increasing. The average everyday person wants and demand natural gas.

So if you step back and maybe just think about the big picture on natural gas, I think there's 4 things to remember: It is the cleanest of all hydrocarbons, it's affordable, it's available and it provides long-term energy security. These things have not changed either.

So despite the attacks on the pipeline and the attacks on the agencies that permit the pipeline, some of these macro big-picture items are, in fact, unchanged.

Let's move to Slide 10. Our earnings guidance. This slide depicts the earnings from our 2 operating segments, as Tommy mentioned, the Roanoke Gas utility and RGC Midstream. I do want to note, Midstream's earnings for 2022 assume a level of noncash AFUDC that's commensurate with the resumption of MVP growth construction. We have not changed that assumption from our earlier guidance as of today.

Again, as we just discussed a moment ago, we do not really have enough information at this point in time to change that guidance would, of course, refer you to our 10-Q and our disclosures about the project as well as our subsequent event footnote #15 in the financial statement.

So at this time, our forecast for Roanoke Gas, the Roanoke Gas segment, 2022 earnings is unchanged as well. Okay. That concludes our prepared remarks.

(Operator Instructions)

I -- I'm looking at the guidance, and I'm guessing that in terms of volumes, that you're going to see through rolling up gas for the heating season. You're still probably thinking that those are largely unchanged so that January offsets December. Is that right?

Yes, that's a good question. No December by heating degree day statistic was 32% warmer than normal and the volumes abnormally low for that month. In fact, Tommy, I think we looked at our most recent 30-year history. It was the second warmest December in that 30-year history. So we were, as Tommy mentioned and the slide showed, Mike, we were off on volume, but January has been colder than normal by statistic.

And in fact, we've had a few very cold days. We never approached the single digits of low temperatures, but we had many, many days in the mid and upper teens, what we call good or great gas days. So we're still closing the books for January, but we think and we know roughly what our delivered volumes are for January. They were quite strong. We believe -- and February has turned out to be cold so far as well. We'll see what the rest of the quarter holds.

Okay. Then one on Mountain Valley. The recent changes in terms of the court decision. They wouldn't keep them entirely out of the field, what -- I mean they can still go back into the fields and perform some work. I'm guessing that just has to do with the Jefferson National Forest. Is that correct?

Mike, I don't know the exact answer to that question right now. I think that's still being determined based on the biological opinion result as well, probably more to come on that from the joint venture as they know more.

Okay. When would they typically be heading back into the field? April?

Yes. So it depends on the weather. We've actually been very wet. We had a tremendous snow in the middle of January that is just now leaving the ground, and we had a lot of rain yesterday. So it's good old-fashioned winter weather, it's not conducive to construction. So I think -- yes, I think a reasonable person would say they weren't going to be back in the field in the next few weeks. It would need to be a little bit dryer, a little bit better for conditions.

That's all I had, gentlemen.

Well, thank you, Mike. (Operator Instructions) Well, if there are no more questions, this concludes the first quarter earnings call. Thank you for joining us, and we look forward to speaking with you again in May to discuss the second quarter. We hope you all have a safe and wonderful day. Thank you.