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RGC Resources, Inc. (RGCO)

Q2 2021 Earnings Call· Fri, May 14, 2021

$22.56

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Transcript

Paul Nester

Management

Good morning. I'm Paul Nester, President and CEO of RGC Resources, Inc. I hope it is beautiful and pleasant wherever you may be today as it is here in the Roanoke Valley. With me today are Tommy Oliver, our CFO; and David Garcia, our Director of Financial. Again welcome, and thank you for joining us as we discuss RGC Resources' Fiscal 2021 Second Quarter Results. First, a few housekeep items. We have muted all lines and ask that all participants remain muted. After the presentation is completed, we will take questions. The link to today's presentation is available on the Investor & Financial Information page of our website at www.rgcresources.com. Let’s get started. Slide 1 contains our forward-looking statements disclaimer. This presentation contains forecasts and projections. This morning's agenda is on Slide 2. We will review the second quarter and year-to-date operational and financial results followed by our outlook for the second half of fiscal 2021. We will conclude with an opportunity for you to ask questions. I want to preference the next few slides by saying that we are pleased with the year-to-date results of the Roanoke Gas utility. Customer growth has been strong and capital spending is right on plan. As noted on Slide 3, our second quarter customer growth of 160 was almost equal to the first quarter total of 170, bringing us to a year-to-date, total of 330 new customers. This is exactly the same as fiscal 2020. We mentioned our new main miles last quarter. As expected, we completed an additional 1.7 miles in the second quarter bringing the year-to-date total to 3.3 miles or exceeding by 50%, the total for all the fiscal 2020, which was only 2.3 miles. Moving on to Slide 4. 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 switched to natural gas in March of 2020. You may recall that's when they started that fuel switch. They have switched back to coal so far in 2021. On Slide 5, year-to-date volumes are up as a result of the second quarter increase. We are pleased that firm volumes continue to be stronger than weather norms. Building suppliers, auto part manufacturing and consumer products manufacturing, continue to have noticeable year-over-year increases. Let's review capital spending on Slide 6. We are $1.4 million lower than 2020, almost entirely due to project timing. The signature project in 2020, the Blue Ridge main extension had $1.8 million of spending through March 2020. Phase 2 of that project will kick off in June of this year. Our other key projects for 2021, the [indiscernible] expansion support project in the Mason Station renewal started in the third quarter of this fiscal year. Tommy will now provide additional details of our financial results. Tommy?

Tommy Oliver

Management

Thank you, Paul. And good morning everyone. I will now review our operating results. To aid in this discussion, we have included our condensed consolidated statements of income on Slide 1. Let's start with our quarter-over-quarter results. As indicated on Slide 7, Resources completed its first quarter of fiscal 2021 with earnings of $0.58 per diluted share, compared to $0.70 for the same quarter of the prior year. While operating income was favorably impacted by customer growth, SAVE revenues and firm volumes, this was offset by a one-time rate case adjustment that increased revenues in the prior year. I 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 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 cost to recover from customers on a dollar-for-dollar basis with no margin earned by the company on these costs. Non-gas O&M costs are flat year-over-year. As discussed during the first quarter call equity and earnings halted in the second quarter commensurate with a halt and MVP fieldwork. This drove a $0.11 decrease in earnings from the prior year. Now I will turn to the year-to-date results. The drivers for year-to-date results were primarily the same as for the quarterly results. Revenues and operating expenses were both up primarily due to colder weather and the 31% increase in gas costs. Operating expenses in the prior year were affected by COVID-19 related bad debt expense, as well as a first quarter, 2020 $317,000 write-down and regulatory assets stemming from the Virginia State Corporation Commission's final…

Paul Nester

Management

Thank you, Tommy. We are excited about that 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're happy about that. Let's discuss the remainder of fiscal 2021, starting with Roanoke Gas capital on Slide 9. We still plan to spend $21.1 million this fiscal year with $12 million expected in the back half of fiscal 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. As stated earlier, several key projects are about to be underway. We have started the renewal of Mason station, which is one of our older gate stations. This is included in this year's safe plan and will be approximately three quarters of a million dollars. We also mentioned Phase two in Blue Ridge an approximately $106,800-foot main extension. And very importantly, we have over $1 million of primarily main work scheduled to support Carilion Clinics current construction and future expansion plans. Moving on to Slide 10, let's talk about the Mountain Valley pipeline. Today, total project work for MVP is 92% complete, which includes all work on the projects, three compressor stations, and it's 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 of way fully restored. Currently MVP has all necessary permits with exception of those needed to cross water bodies and wetlands. In March MVP crews resumed construction in the upland areas where we currently have approval to work. MVP is on track to complete all of that work by September of this year. Once…

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