Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mountain Valley Pipeline (MVP) is now operational, providing initial natural gas delivery into the Roanoke Gas system.
- RGC Resources Inc (RGCO, Financial) connected 478 new services and renewed 319 services in the first nine months of fiscal 2024, reflecting growth in the customer base.
- The company reported a net income of $11.6 million or $1.15 per diluted share for the first nine months of fiscal 2024, an increase from $10.3 million or $1.04 per diluted share in fiscal 2023.
- RGC Resources Inc (RGCO) is optimistic about economic development in the region due to the operational MVP.
- The company is maintaining a strong focus on customer service and safety, contributing to overall performance.
Negative Points
- Third quarter operating income decreased by $240,000 or 13% compared to the third quarter of 2023 due to higher costs not offset by new revenues.
- Delivered gas volumes for the quarter were 6% lower compared to the third quarter of last year, attributed to warmer weather.
- Interest expense increased by $145,000 compared to the same quarter a year ago due to the higher interest rate environment.
- Equity and earnings of the unconsolidated affiliates (MVP) were down $237,000 pretax compared to a year ago due to the transition from construction to operational phase.
- Net income for the third quarter was $160,000 compared to $690,000 in the same quarter a year ago, impacted by cost pressures, lower MVP results, and higher interest expense.
Q & A Highlights
Q: Paul, you'd mentioned you'd get ready to connect your first customer there. Is that in that industrial park in Franklin?
A: It is, Mike. It's approximately 1,500 feet from our gas station within the park, and we're just excited about that, in fact, working closely with the county to bring that to fruition. And we hope to have a little sort of ribbon cutting and ceremony around that when it's ready, but it is within the Summit View Business Park.
Q: What's the level of inquiries you're seeing now that gas is flowing? Has that gone up? Does it remain static? Is there a lot in that pipeline that looks now like it's actually going to come to realization?
A: Yes. It continues to be a good question and thank you for asking it again. This region has continued to have steady inquiries, what I would say, Mike, from economic development prospects. I don't know that it's increased now that Mountain Valley's finished, but it certainly has changed the tone and tenor of some of those inquiries. Now that it is done, it just provides so much certainty to that prospect about what their opportunity is to receive gas, potentially, directly, from Mountain Valley at Summit View or as a blended product in our existing Roanoke Gas System.
Q: What was the negative weather impact to earnings for '24 through your winter heating season? Because I'm just trying to get a feel for what earnings could be if we have normal weather conditions this year.
A: Yes, that's a great question, too. We're still fortunate here in Virginia to have weather normalization, and weather normalization allows us, Mike, to adjust back to normal weather. So I think our sort of 30,000-foot level answer to that question is we really didn't in our firm load see negative earnings impact.
Q: With most of my gas utilities coverage, even those that have weather normalization riders, there's usually a little bit of upside that they can realize if it's a colder winter. And I'm just asking because I know this was extremely warm this year and just trying to get a feel from a forecasting perspective of where numbers might be if we get a cold one.
A: Yes. Certainly, Tim or Tom, you may remember the exact statistic. This was one of the warmer winter seasons on record. My memory was we were greater than 20% warmer than normal over the winter period. But certainly, we would see increased volume lift in delivery, Mike, if we return to a normal winter. The other side of our WNA mechanism, if it's colder than normal, we're going to return to customers and happy to do that. We think that's the appropriate way, again, when you're adjusting back to pure normal, 30-year normal for that to work.
Q: What are the key variables for fiscal 2025?
A: The rate case is still ongoing and the final outcome of that is pending. In this inflationary environment, we see a lot of that continuing or persevering into fiscal 2025. We're going to do everything we can as a management team and as a company to manage expense and keep that as reasonable as we can. Interest rates, we think, are going to hopefully trend favorably in 2025. There's prevailing literature on that, particularly with what the Fed may do over the next three to six months. So we're optimistic that we may see, with our floating rate debt, some favorable interest rate activity.
Q: Can you provide any EPS guidance for 2025?
A: We're not providing any EPS guidance right now for 2025. Again, we're still working on that vigorously. We hope to be able to share that before the end of the fiscal year.
Q: What is the status of the rate case filed on February 2?
A: The company is seeking an annual increase in its base rates of $4.3 million or approximately 5% increase in total revenues. The increase includes projected rate base through June 30, 2025, and an increase in our authorized ROE to 10.35%, which reflects current market conditions. The audit of the rate case continues. Staff's testimony is due on the case on September 20 and a hearing with the commission is set for November 7. We do not expect final resolution until the second quarter of 2025.
Q: What are the financial results for the third quarter?
A: Third quarter operating income decreased $240,000 or 13% to $1.6 million compared to the third quarter of 2023 as the higher costs were not offset with new revenues during the quarter. Net income was $160,000 in the third quarter of this year compared to $690,000 in the same quarter a year ago. The combination of cost pressures, lower MVP results and higher interest expense led to the decline. EPS was $0.02 per diluted share for the third quarter this year compared to $0.07 per diluted share in the quarter a year ago.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
