RGC Resources(RGCO) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION The unaudited financial statements for March 31, 2025, reflect increased assets and net income, alongside a going concern warning due to significant maturing debt - Management has concluded that substantial doubt exists about the Company's ability to continue as a going concern due to $35.6 million of current maturities of long-term debt, which it expects to refinance[26] Financial Statements The unaudited financial statements for March 31, 2025, reflect increased assets and net income, but also highlight a going concern issue due to significant maturing debt Condensed Consolidated Balance Sheets As of March 31, 2025, total assets and stockholders' equity increased, while total liabilities also rose, primarily due to higher current maturities of long-term debt Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Assets | $326,421,287 | $320,699,223 | | Total Current Assets | $25,777,943 | $25,072,301 | | Utility Property, Net | $267,560,507 | $262,041,454 | | Total Liabilities | $208,588,064 | $212,562,448 | | Total Current Liabilities | $45,489,019 | $28,698,430 | | Long-Term Debt, Net | $115,226,622 | $136,672,908 | | Total Stockholders' Equity | $117,833,223 | $108,136,775 | Condensed Consolidated Statements of Income For the six months ended March 31, 2025, net income increased to $12.9 million, driven by a 12% rise in total operating revenues Income Statement Summary (Unaudited) | Metric | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Total Operating Revenues | $63,751,583 | $57,078,728 | | Operating Income | $17,727,963 | $15,281,746 | | Net Income | $12,945,897 | $11,463,382 | | Diluted EPS | $1.26 | $1.13 | Condensed Consolidated Statements of Cash Flows For the six months ended March 31, 2025, operating cash flow significantly increased, while investing activities used slightly less cash and financing activities shifted to a net cash outflow Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended Mar 31, 2025 | Six Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $21,834,963 | $11,202,002 | | Net Cash used in Investing Activities | ($10,708,806) | ($11,280,748) | | Net Cash (used in) provided by Financing Activities | ($9,867,571) | $585,498 | | Net Increase in Cash | $1,258,586 | $506,752 | Notes to Condensed Consolidated Financial Statements The notes provide details on financial statement presentation, including a going concern warning, revenue recognition, segment performance, MVP investment impact, debt agreements, and regulatory matters - The company's subsidiary, Midstream, has $35.6 million in long-term debt maturing in the next 12 months, which exceeds available liquidity, creating substantial doubt about the company's ability to continue as a going concern[26] - On April 10, 2025, the SCC approved a settlement for Roanoke Gas's general rate application, resulting in a $4.08 million annual revenue increase based on a 9.90% return on equity[50] - The Mountain Valley Pipeline (MVP) entered commercial operation on June 14, 2024, with the company recognizing its share of earnings and receiving approximately $1.8 million in cash distributions in the first half of fiscal 2025[54][56] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the increase in net income driven by higher rates and volumes, alongside liquidity challenges from maturing debt, expressing confidence in refinancing efforts Overview The company, primarily a regulated natural gas distributor, is influenced by SCC-approved rates and weather, with a recent rate case settlement approving a $4.08 million annual revenue increase - A settlement with the SCC resulted in an approved annual revenue increase of $4.08 million and a return on equity of 9.90%[111] - The Weather Normalization Adjustment (WNA) mechanism mitigated earnings volatility, with the company accruing approximately $473,000 in additional revenue for the six months ended March 31, 2025, compared to $2.9 million in the prior year[115] Results of Operations Net income increased by $1.5 million for the six months ended March 31, 2025, driven by higher operating revenues and gross utility margin, despite reduced MVP equity earnings Three Months Ended March 31, 2025 vs 2024 | Metric | Q2 2025 | Q2 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $36,462,097 | $32,659,376 | $3,802,721 | 12% | | Gross Utility Margin | $19,373,783 | $17,332,941 | $2,040,842 | 12% | | Net Income | $7,676,208 | $6,443,390 | $1,232,818 | 19% | Six Months Ended March 31, 2025 vs 2024 | Metric | YTD 2025 | YTD 2024 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | $63,751,583 | $57,078,728 | $6,672,855 | 12% | | Gross Utility Margin | $34,934,278 | $31,627,779 | $3,306,499 | 10% | | Net Income | $12,945,897 | $11,463,382 | $1,482,515 | 13% | - Equity in earnings of unconsolidated affiliate (primarily MVP) decreased by $1,041,831 (39%) for the six-month period, as in-service operational earnings did not fully replace AFUDC recognized during the prior year's construction phase[144] Capital Resources and Liquidity Liquidity is driven by operating cash flows, with projected $22 million in capital expenditures and a significant challenge from $35.6 million in maturing Midstream debt, which management expects to refinance - Total fiscal 2025 capital expenditures are expected to be approximately $22 million, focused on SAVE infrastructure replacement projects and system expansion[162] - Midstream's debt service over the next 12 months includes $35.6 million to retire maturing debt, which management believes it will be able to renegotiate and resolve[166] - The company's long-term capitalization ratio as of March 31, 2025, was 45% equity and 55% debt[167] Quantitative and Qualitative Disclosures About Market Risk This section is not applicable for the current reporting period - Not applicable[168] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2025, with a new ERP system implemented post-period expected to impact internal controls - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2025[170] - On April 1, 2025, the Company implemented a new enterprise resource planning (ERP) system, which will result in changes to internal control over financial reporting[172] PART II. OTHER INFORMATION This section includes information on legal proceedings, risk factors, and a list of filed exhibits Legal Proceedings The company reported no legal proceedings for the current period - None[176] Risk Factors No material changes occurred to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended September 30, 2024 - There have been no material changes to the risk factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, 2024[177] Exhibits The report lists several filed exhibits, including agreements, promissory notes, and officer certifications - Exhibits filed include a Natural Gas Asset Management Agreement with DTE Energy Trading, an Amended and Restated Promissory Note with Pinnacle Bank, and CEO/CFO certifications[182]