RGC Resources - Earnings Call - Q1 2025

Executive Summary

• Q1 FY2025 EPS was $0.51 on net income of $5.27M, up 2% YoY; revenue rose 11.8% YoY to $27.29M. Strength came from new base rates effective July 1, 2024, colder December weather, and strong usage from a large transportation customer, partially offset by lower MVP equity earnings (AFUDC last year) and higher interest expense.
• Management maintained FY2025 EPS guidance of $1.18–$1.25 and reiterated full‑year capex of ~$21.6M; a hearing examiner recommended adoption of the $4.08M revenue requirement settlement (9.9% ROE), with final commission order pending.
• MVP is contributing cash; the company received ~$0.8M in October and expects quarterly distributions to continue, with equity earnings of $0.85M in Q1 as the pipeline operates (vs AFUDC in prior year).
• Utilities operations showed healthy demand: total delivered volumes +16% YoY, residential/small commercial +4% on +10% heating degree days; capex execution was solid at $5.7M in Q1, supporting growth in Franklin County and system reliability.
• Potential stock catalysts near term: sustained winter volume strength into January, progress to final SCC order, clarity on refinancing the $25M midstream note due 12/31/2025, and continued MVP cash distributions.

What Went Well and What Went Wrong

• What Went Well

  • Base rate uplift and weather/usage supported higher margins and earnings: “Colder weather in December and strong usage by our largest transportation customer also contributed to a higher quarterly performance.” — CEO Paul Nester.
  • Strong demand trends and system expansion: delivered volumes +16% YoY; residential/small commercial +4% on +10% heating degree days; 1.1 main miles installed and 197 new services connected in Q1.
  • Guidance intact and regulatory progress: FY25 EPS $1.18–$1.25 maintained; hearing examiner recommended adopting the $4.08M revenue increase settlement (rate year through June 30, 2025), reflecting a 9.9% ROE.

• What Went Wrong

  • MVP equity earnings stepped down YoY as AFUDC rolled off: $0.85M vs $1.47M a year ago; management flagged “apples‑to‑oranges” comparisons for two more quarters.
  • Higher interest expense: up $144K YoY in the quarter due to higher average balances and rates (midstream refinancing in prior year, Roanoke Gas LOC).
  • Refinancing overhang: ~$25M non‑revolving midstream note due 12/31/2025; conversations are positive, and management expects to refinance before maturity, but it remains an execution item.

Transcript

Tommy Oliver (SVP of Regulatory and External Affairs and Secretary)

Good morning, and thank you for joining us as we discuss RGC Resources' 2025 First Quarter Results. I am Tommy Oliver, Senior Vice President, Regulatory and External Affairs for RGC Resources. I am joined this morning by Paul Nester, our President and CEO, and Tim Mulvaney, our VP, Treasurer, and Chief Financial Officer. Before we get started, I want to review a few administrative items. First, we have muted all lines and asked that all participants remain muted. Two, the link to today's presentation is available on the Investor and Financial Information page of our website at www.rgcresources.com. Lastly, at the conclusion of the presentation and our remarks, we will take questions. Turning to slide one. This presentation contains forecasts and projections. Slide one has information about risks and uncertainty, including forward-looking statements that should be understood in the context of our public filing.

Slide two contains our agenda. During our presentation, we will discuss our operational and financial highlights for the first quarter of our 2025 fiscal year. We will then review our outlook for the rest of the 2025 fiscal year with time allotted for questions at the end. Let's turn to slide three. Main extensions and renewal activity in the first quarter of fiscal 2025 were strong. We installed 1.1 miles of main and connected 197 new services. This is compared to 185 new services in the first quarter of the 2024 fiscal year. In addition, we renewed 65 services during our first quarter of the 2025 fiscal year. We believe this is evidence of our continued investment in our system to enhance safety and reliability for our customers. Slide four shows our delivered gas volumes for the quarter.

Total volumes were up 16% compared to the first quarter of 2024, as one transportation customer with the ability to fuel switch increased its consumption of natural gas. Residential and small commercial volumes were up 4% as well due to the 10% increase in heating degree days compared to quarter one of fiscal 2024. Slide five shows CapEx for the first quarter of fiscal 2025 compared to 2024. Total spending was $5.7 million in the current year, up 8.4% over the same period a year ago. Good weather for most of the quarter enabled strong progress on mains and services. I will now turn it over to Tim Mulvaney, our CFO, to review our financial results for the quarter. Tim?

Timothy Mulvaney (VP of CFO and Treasurer)

Thank you, Tommy. Moving to slide six, we had a good quarter with increased growth gas margins due to higher rates, which went into effect this past July, overcoming lower equity earnings from our unconsolidated affiliate and higher interest expense. Net income of $5.3 million, or $0.51 per share, compared to net income in the same quarter a year ago of $5 million, or $0.50 per share. Equity in earnings of unconsolidated affiliates was $854,000 pre-tax, which reflects our share of MVP's results compared to $1.5 million in the same quarter a year ago. Our share of the results in fiscal 2024 was entirely due to AFUDC during the construction phase compared to the current year, which reflected the operation of the pipeline. This apples-to-oranges comparison will persist for two more quarters.

As we noted on the last call, we received our first cash distribution from MVP of approximately $800,000 in October. We recently received our next quarterly distribution. Interest expense was $143,000 higher compared to the same quarter a year ago due to higher average balance on the Roanoke Gas line of credit and higher interest rates on the midstream debt, which was refinanced a year ago. As a final note, the current portion of our long-term debt is $26.2 million at December 31, 2025. Primarily due to a $25 million non-revolving line related to RGC Midstream, we have already initiated conversation with our lenders and others. Those conversations have been positive, and we fully expect to have refinanced this note prior to its maturity on December 31, 2025. We also fully expect to renew our Roanoke Gas line of credit next month.

Paul will share comments regarding our expectations for 2025, including our growth, capital, and EPS. We will then take your questions. I will now pass the presentation to RGC CEO, Paul Nester. Paul?

Paul Nester (President and CEO)

Thank you, Tim, and good morning, everyone. It is a snowy, wintery morning here in Southwest Virginia today. As Tim and Tommy have reviewed, we have had an excellent first quarter, and the first quarter started off very warm in fact and ended very cold and continued to be cold through the month of January. We will talk about this in a minute, but we look forward to sharing some exciting volume delivery and other statistics related to the January month in the second quarter. Again, looking back on the first quarter, Tommy mentioned our large transportation customer who had incredible volume growth year over year. That customer does have the ability to fuel switch, but it is our understanding that that customer will continue to use natural gas in the near term, certainly in the second fiscal quarter and third fiscal quarter.

Housing growth has been steady and maybe even strong in the region. There continue to be new neighborhoods either breaking ground or moving from planning to construction stage. That is going to continue to allow us to have new main extension and, of course, ultimately have new service connections. We still are working on expanding into Franklin County. We talked about that on the year-end call just a couple of months ago. That has not been really fast due to the winter weather over the last 60 days. Certainly, as we start to come out of winter and into the construction season, we expect to have more progress there, and we will see that in our capital forecast in just a minute. Speaking of the capital forecast, we are on slide eight. Our total year capital spending remains at $21.6 million, just as we announced in December.

We may change some of the capital mix, if you will, between the categories as we adjust and to conditions toward the end of the fiscal year. Again, we still think we're going to be in that $21.5 million-$22 million range for fiscal 2025. Moving on to slide nine, the first quarter, as Tim just provided in great detail, is as we expected, and we're happy about that. There certainly is some economic uncertainty today. As we've all been following in the popular press with the recent change in presidential administration, that's causing some of us to pause on a few things and to size up what some of this means economically.

Certainly, some of the actions being taken may have an inflationary effect, and it appears that the Federal Reserve is cautious or certainly has a wait-and-see attitude in its approach right now with regard to interest rates. If you look back or think back over the last two years, we as a company have addressed inflationary and cost pressures through back-to-back rate cases, and that has helped us be in a position to hopefully manage some of this potential inflationary pressure to come in fiscal 2025. Tommy, maybe remind those on the call about the timing of the rate cases and how they impact fiscal 2025.

Tommy Oliver (SVP of Regulatory and External Affairs and Secretary)

Sure, Paul. Before I do that, maybe give you an update on our rate case. Yesterday, the hearing examiner assigned to our rate case recommended adoption of the stipulation we reached with staff back in October. The last step in the process is now for the full commission to issue a final order. As far as timing goes, unlike a lot of states, Virginia uses a forward-looking test year or a rate year, as we call it in Virginia. That means adjustments to rate base, revenues, expenses, are forecasted into a future period. In our case, the stipulated revenue requirement increase of $4.08 million is based on projections through June 30, 2025. We believe a lot of the inflationary pressure we experienced and are continuing to experience is captured in those stipulated rates.

Paul Nester (President and CEO)

Yeah, thank you, Tommy. That's really, really helpful. Again, as we think about the current fiscal year that we're slowly approaching being halfway complete. When we look at our earnings per share forecast on slide nine, the $1.18-$1.25 range, we're still comfortable with that range at this point in time. Certainly, again, as we come out of the second quarter and the bulk of the winter heating season, we should have a finer point on EPS for the year. I would like to close my remarks before we take questions. Just yet again, thanking our fantastic employees and even our customers, certainly over this historically cold event, if you will. It hasn't been this cold in our part of Virginia in over 10 years, particularly in the month of January. Our system performed magnificently. We didn't have a single customer outage of any kind.

We are very, very, very happy about that and proud about that. It takes a lot of work and coordination and a lot of preparation, as a matter of fact. Tim and Tommy have talked about our capital spending as it relates to our renewal efforts to improve and modernize our system and make it safe and reliable. That has paid off as we have been in these cold weather events. We just continue to be encouraged about the opportunities in the Roanoke region. Some of the uncertainty at a national and even a global level, those are real. This area still seems to be solid and on good footing, and we are excited about the growth opportunities here and how those can benefit our shareholders. We thank you for your interest and support. That does conclude our prepared remarks.

If you have any questions, please dial pound pound one to unmute your line pound pound one. Maybe just wait one more second. Pound pound one to unmute your line. Okay. Hearing no questions today, this does conclude the first quarter earnings call. Thank you again for taking time to join us, and we certainly look forward to speaking with you in May to discuss 2025 second quarter results. Thank you, and have a great day and be safe.