Rgc Resources Inc Q4 FY2023 Earnings Call

Good morning. I am Tommy Oliver, Senior Vice President of Regulatory and External Affairs for RGC Resources, Inc. Thank you for being with us this morning as we review RGC Resources' fourth quarter and full-year results for 2023. I am accompanied by Paul Nester, President and CEO of RGC Resources, and Tim Mulvaney, our Interim Chief Financial Officer and Treasurer. Before we begin, I would like to address a few administrative notes. Firstly, we have muted all lines and request that participants remain muted. Secondly, the link to today's presentation can be found on the investor and financial information page of our website at www.rgcresources.com. Lastly, we will open the floor for questions following the presentation and our remarks. Moving to slide one, this presentation includes forecasts and projections, alongside information about risks and uncertainties, including forward-looking statements to be understood in the context of our public guidance. The agenda can be found on slide two, where we will review our quarterly and annual operational and financial results and discuss our outlook for fiscal 2024 before taking questions at the end. Now, on slide three, our main extensions for the year reached 4 miles, and we added over 550 new customers, marking another year of significant customer growth and our seventh consecutive year of adding at least 550 new customers. I'd also like to acknowledge our collaboration with the Roanoke Redevelopment and Housing Authority. Since 2022, we have assisted the authority in modernizing the natural gas facilities at three of its apartment complexes. After completing the upgrades, Roanoke Gas took over ownership and operation of these facilities, which not only increased our customer count and rate base but also provided the residents with a new, safer, and more reliable gas system. The authority plans to renew two additional properties in the coming years. On the right side of the graph, we can see a steady increase in our total customer count since 2020. The customer numbers for 2021 and 2022 were affected by a state-mandated service disconnection moratorium impacting 2020 and 2021. By the end of fiscal 2023, our customer count was 62,740. However, this does not accurately reflect true customer growth as some customers disconnect during spring and reconnect with the colder weather. Therefore, our active customer count as of December 1 was 63,599. Now transitioning to slide four, 2023 was a significant year for regulatory activity. As mentioned in previous earnings calls, we received approval from the State Corporation Commission in January to rate base a renewable natural gas (RNG) facility. This facility became operational, and we started billing customers in March. We also submitted a new five-year SAVE plan, which was approved in August and includes a $50 million spending cap for the plan's duration with $8.55 million allocated for fiscal 2024. We began billing the new SAVE rate on October 1, 2023. Additionally, we had a rate case progressing with the SEC, where we reached a settlement in September agreeing to a revenue requirement increase of $7.45 million. The hearing examiner’s report issued in November accepted the stipulated revenue requirement and nearly all other stipulation terms. We anticipate a final order from the commission within the next 30 to 60 days. Finally, we received an extension of our certificate to serve Franklin County. Originally issued in February 2019, it had a five-year sunset provision which would have rendered it void had we not started serving customers within that period. The commission has now extended this provision for an additional three years, until February 2027. Slide five illustrates our delivered gas volumes, which increased compared to last year due to higher industrial usage. Slide six indicates that for the fiscal year, gas volumes saw a slight decrease. Residential and commercial volumes were down due to fewer heating degree days, although this was balanced by a modest year-over-year increase in industrial utilization. On slide seven, we executed our 2023 Roanoke Gas capital investment plan with over $25 million invested in utility plant, reflecting a minor decrease from the previous year. A significant portion of this investment was related to the RNG facility previously mentioned. It is important to note that this capital is fully incorporated into our current rates due to the rate case and the RNG rider. I will now turn the floor over to Tim Mulvaney, our Interim CFO and Treasurer, to discuss our financial results. Tim?

Thank you, Tommy. We are on slide eight now. For the fourth quarter, operating income increased by $290,000 or 64% to $745,000, compared to the fourth quarter of 2022. The increase was primarily driven by interim base rates implemented on January 1. Interest expense, up $242,000, continues to be pressured due to the higher interest rate environment, which is impacting our floating rate debt supporting the investment in the Mountain Valley pipeline. Our net income for the quarter was just over $1 million, compared to an $11 million loss due to a $15 million pre-tax impairment taken on our investment in MVP in the fourth quarter last year. The fourth quarter of this year included $1.5 million of non-cash AFUDC pretax, which resulted from our investment in the MVP resuming construction. Moving on to slide nine, to aid in the comparison of our fiscal year results, excluding impairments recorded on our MVP investment in 2022, we have represented our financial results for the quarter and the year on an underlying basis on slide nine. I will now turn the presentation over to Paul Nester, RGC Resources' President and CEO for an outlook on 2024. Paul?

Thank you, Tim, and good morning. We are on slide 10. We're going to take a few minutes and review the 2024 Roanoke Gas capital spending forecast. We're also going to try to provide an update on the Mountain Valley pipeline, and then we'll share our initial guidance for our 2024 earnings per share. Moving on to slide 11, we're projecting a total spend on utility plant for fiscal year 2024 of approximately $21 million. This is down from the 2023 capital spending, primarily due to the $4.1 million we invested in the RNG facility in 2023. But this is a resumption of a more normal level of annual capital spending in the utility. I would like to take one minute and just comment on the customer growth numbers that Tommy shared with us a few moments ago. And in particular, the 63,500 customers. That is certainly an all-time high for our company. And I want to certainly thank our customer experience and our operations personnel for getting well over 1,500 customers turned on since October 1. For a small company like ours, it's a noteworthy achievement due to a lot of dedication and hard work by many folks. So thank you. Moving on to slide 12, many of you may have seen the Equitrans 8-K that was filed last week where they provided an update on some of the statistics related to Mountain Valley construction. It's a good update. We'll try to interpret a little bit of that for you. Of the remaining scope work when construction resumed this summer, approximately 50% of the upland pipe, 65% of the tie-in, 75% of the crossing, and approximately 104 miles of hydrostatic testing have occurred. So again, the progress has been very good. We've had a nice dry fall here, which has been conducive to construction and good progress. The total budget for the project remains $7.2 billion with projected completion in Q1 of calendar 2024. I would like to also mention that Roanoke Gas has resumed construction on both our Lafayette and Summit View interconnects. You may remember that Roanoke Gas has two taps off the Mountain Valley to bring the much-needed supply of natural gas to this region, including at the Summit View Business Park in Franklin County, which will be Franklin County's first opportunity for natural gas. We're on track for both stations to be completed commensurate with the Mountain Valley construction being completed and the Mountain Valley flowing gas. We're really excited to finally see the Mountain Valley completed. And we're really excited about having natural gas from the basin flowing into the Roanoke Valley. So I mean, the MVP schedule of first quarter calendar 2024 stays on track, and we believe that to be the case right now. We expect that our RGC Midstream subsidiary to essentially have a breakeven fiscal 2024 from an earnings standpoint. Moving on to slide 13, with our earnings per share guidance. Again, we had a tremendous 2023. We filed our 10-K this past Friday. It provides many of the details of 2023. And again, I would just like to thank our customers and our employees for an outstanding year. If you were on these calls as we went through 2023, we did not expect to hit a $1.14 earnings per share, but through a lot of hard work, we were able to achieve that. Thank you. For 2024, we do believe Roanoke Gas is going to have another solid year. Tim mentioned inflationary pressures and the rising interest rate environment. That is still very real, and we do expect that to challenge 2024 earnings in the Roanoke Gas utility. Our range, as you can see, we think right now we can be in the $1.10 to hopefully $1.16 again with a breakeven RGC midstream. That concludes our prepared remarks. If you have questions, please unmute your line.

Hi, good morning, everyone.

Good morning, Michael. How are you?

I'm good. How about yourself?

We're very good. Thank you.

You're getting some good weather this quarter?

We are. We've had incredible weather. It's not been great heating load weather, if you will, but it's been great construction weather. Then very dry, which again, ordinarily, you don't care for, but we're happy about that this year.

Okay. You mentioned the Franklin County tie-in and the business park there. I think that's what we toured the last time I was down. Just wondering, are there any tenants or anybody waiting in Franklin County for the gas?

We can't provide details about specific opportunities related to economic development, but there is significant potential and enthusiasm, Michael. This afternoon, Tommy, Jim Shockley, and I are meeting in Franklin County with some local representatives to discuss these issues. There is much to be excited about, and having natural gas available in that park presents a fantastic opportunity.

Okay. I assume that the cash flow from Mountain Valley will be used to reduce debt?

Yes, Tim. I think we've talked a little bit about cash flow in the 10-K. Would you like to comment on that to Michael?

So we have certain pieces of our Mountain Valley debt that are coming due in 2024 and we're working with banks to replace that in the short term. But as the Mountain Valley pipeline does begin to flow, there are provisions in the agreement that they will pass excess cash flow as defined in those agreements onto the company, and we expect to use those.

And then last question. Any idea, if you had to take a guess, Paul, what month you could actually start seeing some of that gas flow into Roanoke?

Yeah. I think the public guidance from the JV, Michael, is still calendar first quarter, and they haven't gotten more precise than that. As you know, in other words, there's not a month or a day at this point. And a lot of it, of course, depends on the ability to do field construction over the coming days and weeks as we are in the winter time, with some shorter days. So we are still planning and operationally planning for first quarter 2024. So hypothetically, if that were March 1, we will be ready. If that's March 31, we will be ready as Roanoke Gas to receive that gas.

Okay. And I was just wondering if that lower-cost gas could be flowing in January or February when you need it the most?

Yeah. It's a great question. We're not making plans for January at this point in time. That would be wonderful. But we don't know that that's maybe physically possible, so…

Okay. Well, I guess we'll wait for the next Equitrans 8-K.

Yes, yes. Yeah, that will hopefully be informational in that regard. But, again, we can see it coming from here. That's the good news.

Good. Alright, gentlemen. Congrats on a great year. Really was.

Thank you, Michael.

Thanks, Michael.

Do we have any other questions from the audience? Any other questions? We'll pause for just a few seconds in case someone would like to ask a question. Okay, well if there are no more questions today, this does conclude our fourth quarter and fiscal year 2023 earnings call. Thank you so much for joining us, and we look forward to speaking with you again in February to review the first quarter of 2024. We certainly wish you and your families a Merry Christmas and a Happy New Year. Thank you.