RGC Resources Inc 2026 Q3 Earnings Call

Good morning, and thank you for joining us as we discuss RGC Resources 2026 third quarter results. I'm Kelsie Davenport, Director of Finance of RGC Resources, Inc. I am joined this morning by Paul Nester, President and CEO of RGC Resources, and Tommy Oliver, Senior Vice President of Regulatory and External Affairs. Tim is under the weather this morning and is unfortunately unable to be with us. Before we get started, let's review a few administrative items. We have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the Investor and Financial Information page of our website at www.rgcresources.com. 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 uncertainties, including forward-looking statements that should be understood in the context of our public filings. Slide two contains our agenda. We will discuss our operational and financial highlights for the third quarter and first nine months of our fiscal 2026 year. We will then review the outlook for the remainder of 2026, with time allotted for questions at the end. I will now turn the presentation over to Tommy.

Thank you, Kelsie, and good morning, everybody. Turning now to operations on slide three. Main extensions and renewal activity has continued on a steady pace through fiscal 2026. We installed three and a half miles of new main through the first nine months of the current fiscal year, a little shy of our installations in the same period of fiscal 2025. In addition, we connected 464 new services in 2026, down from the previous same period last year. We do have a healthy backlog of main extensions, which speaks well of our continued residential development across the region. As shown on the right side of the slide, we renewed 2.7 miles of main and 322 services during the first nine months of the 2026 fiscal year. While winter weather dampened the main mile renewed compared to the same period last year, the service renewals increased 40%.

Let's transition over to slide four. Slide four shows our delivered gas volumes for the quarter. Weather patterns during the third quarter resulted in some counterintuitive results, especially in May. The quarter was slightly colder than the same period a year ago, as shown on the slide, but those days occurred unevenly and as a result, did not generate the typical gas usage you would expect from cooler weather. It did, however, result in a credit to customers under the weather normalization adjustment. Overall, for the quarter, residential and commercial usage was flat. Industrial usage was up more than 25%, mostly attributable to our largest industrial customer. As a reminder, under our tiered rate structure in that customer class, those incremental decatherms are delivered at our lowest margin. Transition over to slide five.

Delivered gas volumes do not tell our exact same story for fiscal 2026 year to date, where the residential and commercial volumes were down despite heating degree days increasing by 3%. Many of those heating degree days were generated around the Winter Storm Fern event, with other portions of the year warmer than the equivalent period a year ago. Total volumes were up 1% with the residential and commercial declines offset by industrial increases, again led by that same industrial customer just mentioned. Included within these numbers is the absence this quarter of a long-time top 10 customer who ceased operations in March. We discussed that situation more fully on the previous earnings call. Slide six shows CapEx for the first nine months of fiscal 2026 compared to 2025. Overall investment was $16.1 million in the current year, up approximately 2% over the same period a year ago.

As customary, we picked up the pace of capital spending in quarter three and made up most of the deficit that arose from weather delays in the prior quarter. We will discuss plans for the full year later in the presentation. I'm going to now turn the presentation back over to Kelsie to review our financial results for the quarter.

Kelsie? Thank you, Tommy. Slide seven shows both our third quarter and nine-month year-to-date financial results for fiscal 2026.

Third quarter results were nominally ahead of the same period a year earlier. Net income was approximately $550,000, or $0.05 per diluted share, driven primarily by higher margins. Interim rates that went into effect January 1, along with the new stay revenues, drove the margin increase despite the loss of the large industrial customer we've noted in previous calls and the weather Tommy just discussed. Operating expenses, as shown on the slide, are lower due to gas costs. However, non-gas operating and maintenance expenses are higher compared to fiscal 2025's third quarter, primarily due to inflationary pressures on personnel costs, professional services, and IT support. The year-to-date results are also shown on slide seven.

Net income was $14.2 million in the first nine months of fiscal 2026, or $1.37 per diluted share, compared to $1.31 per diluted share in the first nine months of fiscal 2025, a 4.6% increase. The effect of the non-gas base rate increase was noticeable in the second quarter, largely driving our year-to-date results as the additional revenues affected the volumetric component. Thus, a larger portion of the increase was recognized during the winter heating season due to the higher energy demand. Accordingly, when delivered volumes are lower in the second half of the fiscal year, margin and net income are also lower. The items that have led to increased expenses in the quarter are also driving higher expenses in the year-to-date results. Moving to slide eight, our balance sheet remains strong.

During the quarter, we refinanced a $15 million note that matures later this month and carries a 2% interest rate. It is classified as long-term debt at June 30. This forward starting note and its attendant interest rate swap is fixed for a three-year term at 5.13%. I did want to add a few comments on the Mountain Valley Pipeline investment. The MVP main line has been in service for just over two years now and is operating safely and reliably as expected. Our share of the joint venture earnings is comparable this year to a year ago, and we continue to receive excess cash distributions on a quarterly basis. To enhance future cash flow from MVP, there are two projects underway, Southgate and Boost.

Southgate will move gas from the end of the main line into North Carolina, and Boost will enable a 30% increase in the amount of gas that can be transported through the main line. Southgate is in the construction phase and progressing as expected. Boost is actively working on its permits and has placed orders for equipment. We have invested just over a million dollars in the fiscal year for these projects, with the funding coming from lines of credit that we established in September of last year. We are pleased with the progress and prospects of both projects. I will now pass the presentation to RGC's CEO, Paul Nestor.

Paul? Thank you, Kelsie, and good morning.

Thank you for joining us for the third quarter earnings call. We're on slide nine. We have a few items to discuss as we are close to wrapping up fiscal 2026. We're going to start on slide 10 with an update on our LNG facility. If you were with us last quarter, and if you've read our 10-Q, we've disclosed that we did have some structural damage in the physical second quarter at the LNG facility. Our teams are still there working to assess that damage and to keep that facility safe, and they're doing a great job. I'd like to thank them for all their fantastic work over the last six months. We continue to be in touch with the State Corporation Commission on that matter, as well as our insurance carrier.

Certainly, when we have more information to disclose, we'll do that appropriately. We, as you can see on the slide, have been aggressively working to replace the peak shaving supply that our LNG facility provided. You may recall that facility was used by the company on the coldest winter days to supplement our interstate pipeline volume. Without the facility being available, you can see we've added gas through one of our primary interstate pipelines, the Columbia Gas Transmission, or referred to as TCO. We're excited about that and grateful for that. We're going to talk about a capital project that's now underway to bring more Mountain Valley gas further into the Roanoke gas distribution system. That project's begun as well, and we're in the process of procuring trucked LNG. That's something we've done in the past, particularly before Mountain Valley was completed. Moving on to slide 11.