RGC Resources Inc.

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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, Inc. I am joined this morning by Paul Nestor, our President and CEO, and Tim Mulvaney, our VP, treasurer, and chief financial officer. But before we get started, I want to review a few administrative items. First, we have muted all lines and ask 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. And lastly, at the conclusion of the presentation and our remarks, we will take questions. So 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 file. 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. So let's turn to slide three. Main extensions and renewal activity in the first quarter of fiscal 2025 were strong. We installed 1.1 main miles 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 4 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 these 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?

Thank you, Tommy. Moving to slide six, we had a good quarter with increased grown-up 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 MVPs 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 orange 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 grown-up 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 31st, 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 Nestor. Paul?

Thank you, Tim, and good morning, everyone. It's a snowy, wintry morning here in Southwest Virginia today. As Tim and Tommy have reviewed, we have had an excellent first quarter, and first quarter started off very warm, in fact, and ended very cold and continued to be cold through the month of January. We'll talk about this in a minute, but we look forward to sharing some exciting volume delivery and other statistics related to the January moth in the second quarter. But again, looking back on the first quarter, Tommy mentioned our large transportation customer who had incredible volume growth year over year. And that customer does have the ability to fuel switch, but it's 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's 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's 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'll 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 to conditions toward the end of the fiscal year. But again, we still think we're going to be in that $21.5 to $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. 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. So 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's 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.

Sure, Paul, but 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. So the last step in the process is now for the full commission to issue a final order. But 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 30th, 2025. So we believe a lot of the inflationary pressure we experienced and are continuing to experience is captured in those stipulated rates.

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. So, when we look at our earnings per share forecast on slide 9, the $1.18 to $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, and our system performed magnificently. We didn't have a single customer outage of any kind. and we're very very very happy about that and proud about that but it takes a lot of work and coordination and a lot of preparation as a matter of fact and 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 and and that has paid off as we've been in these cold weather events so we're just continue to be encouraged about the opportunities in the Roanoke region again some of the uncertainty at a national and even a global level those are those are real but again this area still seems to be solid and on good footing and we're 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.

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We'll maybe just wait one more second. Pound pound one to unmute your line. Okay, well 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.