RGC Resources(RGCO) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements RGC Resources, Inc. reported net income of $6.44 million for three months and $11.46 million for six months ended March 31, 2024, reflecting asset and equity growth Condensed Consolidated Balance Sheets Total assets increased to $313.4 million as of March 31, 2024, driven by utility property and accounts receivable, with stockholders' equity reaching $110.5 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Balance Sheet Item | March 31, 2024 (USD) | September 30, 2023 (USD) | | :--- | :--- | :--- | | Total Current Assets | 28,525,645 | 26,795,262 | | Utility Property, Net | 254,140,117 | 247,583,551 | | Total Assets | 313,359,530 | 303,729,340 | | Total Current Liabilities | 21,702,382 | 32,918,787 | | Long-Term Debt, Net | 135,916,887 | 125,844,728 | | Total Stockholders' Equity | 110,543,862 | 100,732,625 | | Total Liabilities and Stockholders' Equity | 313,359,530 | 303,729,340 | Condensed Consolidated Statements of Income Net income for the six months ended March 31, 2024, increased to $11.46 million, driven by equity in affiliate earnings despite lower operating revenues Key Income Statement Data (Unaudited) | Metric | Three Months Ended Mar 31, 2024 (USD) | Three Months Ended Mar 31, 2023 (USD) | Six Months Ended Mar 31, 2024 (USD) | Six Months Ended Mar 31, 2023 (USD) | | :--- | :--- | :--- | :--- | :--- | | Total Operating Revenues | 32,659,376 | 38,029,657 | 57,078,728 | 71,311,992 | | Operating Income | 8,629,709 | 9,591,422 | 15,281,746 | 15,135,907 | | Equity in Earnings of Unconsolidated Affiliate | 1,229,384 | 2,867 | 2,697,219 | 4,099 | | Net Income | 6,443,390 | 6,341,886 | 11,463,382 | 9,598,291 | | Diluted EPS | 0.63 | 0.64 | 1.13 | 0.97 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities decreased to $11.2 million for the six months ended March 31, 2024, while financing activities provided $0.59 million Summary of Cash Flows (Unaudited) | Cash Flow Activity | Six Months Ended March 31, 2024 (USD) | Six Months Ended March 31, 2023 (USD) | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | 11,202,002 | 16,965,342 | | Net Cash Used in Investing Activities | (11,280,748) | (14,350,139) | | Net Cash Provided by (Used in) Financing Activities | 585,498 | (888,144) | | Net Increase in Cash and Cash Equivalents | 506,752 | 1,727,059 | Notes to Condensed Consolidated Financial Statements Key notes detail accounting policies, a February 2024 rate application, significant equity earnings from the near-complete MVP project, and debt refinancing from LIBOR to SOFR - The company's subsidiary, Midstream, refinanced nearly $34 million of long-term debt maturing in fiscal 2024, resolving previously disclosed uncertainties[25] - The company has transitioned all but one LIBOR-based variable rate note to a new reference rate (SOFR) as of March 31, 2024. The final note was refinanced in April 2024[29] - On February 2, 2024, Roanoke Gas filed a general rate application seeking to increase non-gas base rates by $4.33 million and raise its permitted rate of return from 9.44% to 10.35%[52] Management's Discussion and Analysis of Financial Condition and Results of Operations Net income increased by $1.87 million for the six months ended March 31, 2024, driven by MVP AFUDC and new rates, with gross utility margin up 8% to $31.6 million Results of Operations Gross utility margin increased by $2.5 million (8%) to $31.6 million for the six months ended March 31, 2024, despite a 20% decline in operating revenues Gross Utility Margin (Six Months Ended March 31) | Component | 2024 (USD) | 2023 (USD) | Change (USD) | | :--- | :--- | :--- | :--- | | Gas utility revenues | 57,024,185 | 71,253,744 | (14,229,559) | | Cost of gas - utility | 25,396,406 | 42,089,210 | (16,692,804) | | Gross utility margin | 31,627,779 | 29,164,534 | 2,463,245 | - For the six months ended March 31, 2024, net income increased by $1,865,091 compared to the prior year, primarily due to AFUDC on the MVP project and new non-gas base rates, partially offset by inflation and higher interest rates[135] - For the three months ended March 31, 2024, net income increased by $101,504, also driven by MVP's AFUDC and RNG revenues, offset by increased operating expenses and interest rates[126] Equity Investment in Mountain Valley Pipeline The company's less than 1% equity interest in MVP saw earnings surge to $2.7 million in fiscal H1 2024, with the project expected in service Q2 2024 - The LLC filed an in-service request for the MVP with FERC on April 22, 2024, expecting gas to flow during the second calendar quarter of 2024[149] - The company recorded $2,697,219 in earnings from its MVP investment in the first half of fiscal 2024, primarily from AFUDC, compared to just $4,099 in the same period last year[149] Regulatory Matters Roanoke Gas filed for a $4.33 million non-gas base rate increase and a higher rate of return in February 2024, with a new five-year SAVE Plan also approved - A general rate application was filed on February 2, 2024, seeking a $4.33 million increase in non-gas base rates and an increased rate of return to 10.35% from 9.44%. A hearing is set for November 7, 2024[151] - A new SAVE Plan was approved by the SCC, effective October 1, 2023, allowing recovery for an estimated $8.5 million in eligible investments in fiscal 2024 and $49.5 million over five years[154] Capital Resources and Liquidity Liquidity remains strong, with cash from operations at $11.2 million for the six months ended March 31, 2024, and a long-term capitalization ratio of 45% equity and 55% debt Cash Flow Summary (Six Months Ended March 31) | Cash Flow Summary | 2024 (USD) | 2023 (USD) | | :--- | :--- | :--- | | Net cash provided by operating activities | 11,202,002 | 16,965,342 | | Net cash used in investing activities | (11,280,748) | (14,350,139) | | Net cash provided by (used in) financing activities | 585,498 | (888,144) | - Subsequent to the quarter end, on May 2, 2024, Midstream established a new $9 million line of credit facility maturing May 2, 2026, providing the ability to refinance a maturing note[166] - As of March 31, 2024, the company's long-term capitalization ratio was 45% equity and 55% debt[167] Quantitative and Qualitative Disclosures About Market Risk Quantitative and qualitative disclosures regarding market risk are not applicable for this reporting period - The company has indicated that quantitative and qualitative disclosures about market risk are not applicable[168] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2024, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level[170] - No changes occurred during the fiscal quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[171] PART II. OTHER INFORMATION Legal Proceedings No material legal proceedings were reported during the current reporting period - There are no material legal proceedings to report[174] Risk Factors No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K have occurred - No material changes to risk factors have occurred since the last Annual Report on Form 10-K[175] Other Information RGC Midstream, LLC entered a new $9 million credit agreement with Bank of America on May 2, 2024, maturing May 2, 2026, at Daily SOFR plus 2.215% - On May 2, 2024, Midstream entered into a new $9 million credit agreement with Bank of America, maturing on May 2, 2026[179] Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreements and officer certifications - Exhibits filed include amendments to credit agreements, a new credit agreement for RGC Midstream, and certifications by the Principal Executive and Financial Officers[181]