RGC Resources(RGCO) - 2022 Q2 - Quarterly Report

Part I Item 1. Financial Statements The company reported a significant net loss for the period, primarily due to a $39.8 million MVP impairment, affecting assets but boosting equity Condensed Consolidated Balance Sheets Total assets decreased to $288.4 million due to reduced affiliate investment, while stockholders' equity increased to $105.5 million from stock issuance Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Total Assets | $288,358,485 | $310,109,193 | | Cash and cash equivalents | $9,431,990 | $1,518,317 | | Investment in unconsolidated affiliates | $27,321,251 | $64,867,319 | | Total Liabilities | $182,895,756 | $210,407,484 | | Long-term debt, net | $104,841,078 | $133,471,427 | | Total Stockholders' Equity | $105,462,729 | $99,701,709 | Condensed Consolidated Statements of Income The company shifted from net income to a $24.5 million net loss in Q2 2022, primarily due to a $39.8 million MVP impairment, despite increased operating revenues Income Statement Summary (Unaudited) | Metric | Three Months Ended Mar 31, 2022 | Three Months Ended Mar 31, 2021 | Six Months Ended Mar 31, 2022 | Six Months Ended Mar 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total operating revenues | $29,529,683 | $28,253,662 | $52,792,763 | $47,770,679 | | Operating Income | $7,443,388 | $7,099,426 | $12,821,811 | $12,680,813 | | Impairment of unconsolidated affiliates | ($39,822,213) | $0 | ($39,822,213) | $0 | | Net Income (Loss) | ($24,494,429) | $4,767,478 | ($20,909,900) | $9,490,741 | | Diluted EPS (Loss) | ($2.89) | $0.58 | ($2.48) | $1.16 | Condensed Consolidated Statements of Cash Flows Net cash from operations increased to $13.0 million due to non-cash adjustments, while financing activities rose significantly from a $28.3 million stock issuance Cash Flow Summary (Six Months Ended March 31, Unaudited) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $12,992,906 | $9,611,402 | | Net cash used in investing activities | ($14,278,880) | ($11,691,440) | | Net cash provided by financing activities | $9,199,647 | $2,515,521 | | Net increase in cash | $7,913,673 | $435,483 | Notes to Condensed Consolidated Financial Statements Key notes detail a $27 million equity offering, a $39.8 million MVP impairment, segment results, and compliance with debt covenants - In March 2022, the Company issued 1,350,000 shares of common stock, raising net proceeds of nearly $27 million to strengthen its balance sheet and fund infrastructure programs[25] - A pre-tax impairment loss of approximately $39.8 million was recognized in Q2 2022 on the company's investment in the Mountain Valley Pipeline (MVP) and Southgate projects due to unfavorable court rulings that increased uncertainty about the projects' completion[42][44] Segment Income (Loss) Before Income Taxes (Three Months Ended March 31, 2022) | Segment | Income (Loss) Before Taxes | | :--- | :--- | | Gas Utility | $7,117,202 | | Investment in Affiliates | ($40,279,495) | | Parent and Other | $23,689 | | Consolidated Total | ($33,138,604) | - The company was in compliance with all debt covenants as of March 31, 2022, including a key covenant that excludes the non-cash impairment on LLC investments from the interest coverage ratio calculation[61] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the $39.8 million MVP impairment, stable Gas Utility business, $27 million equity raise, and ongoing MVP project challenges Results of Operations Net income fell to a loss due to the $39.8 million MVP impairment, while gross utility margin increased by 6% to $14.6 million, and O&M expenses rose Gross Utility Margin Comparison (Three Months Ended March 31) | Metric | 2022 | 2021 | Increase | Percentage | | :--- | :--- | :--- | :--- | :--- | | Gas Utility Revenues | $29,499,219 | $28,221,274 | $1,277,945 | 5% | | Cost of Gas - Utility | $14,923,575 | $14,447,057 | $476,518 | 3% | | Gross Utility Margin | $14,575,644 | $13,774,217 | $801,427 | 6% | - The increase in gross utility margin for Q2 2022 was driven by higher SAVE revenues (+$193k), WNA revenues (+$307k), and transportation volumes[115][117] - Operations and maintenance expenses for Q2 2022 increased by 8% ($310,537), primarily due to higher bad debt expense (+$194k), insurance premiums (+$43k), and professional services for the LLC impairment valuation (+$44k)[117] Equity Investment in Mountain Valley Pipeline The MVP project faced significant legal setbacks, leading to a $39.8 million impairment loss and a revised completion target of H2 2023 at $6.6 billion - The Fourth Circuit vacated and remanded key permits for the MVP project in January and February 2022, creating significant uncertainty[148] - As a result of legal setbacks, the company recorded a pre-tax impairment loss of approximately $39.8 million on its LLC investment in the second quarter of fiscal 2022[154] - The MVP operator is now targeting a full in-service date in the second half of 2023 with a revised total project cost of approximately $6.6 billion (excluding AFUDC)[148] Capital Resources and Liquidity The company's liquidity improved with a $27 million equity offering, increased operating cash flow, renewed credit lines, and a 46% equity to 54% debt capitalization ratio - A March 2022 equity offering of 1,350,000 common shares resulted in net proceeds of nearly $27 million, which was used to strengthen the balance sheet and reduce debt[170] - On March 31, 2022, Roanoke Gas entered into a new one-year unsecured line-of-credit agreement with borrowing limits ranging from $21 million to $33 million[168] - The company's long-term capitalization ratio stood at 46% equity and 54% debt as of March 31, 2022[173] Part II Item 1A. Risk Factors Updated risk factors highlight increased uncertainty for the MVP investment due to adverse court rulings, potentially leading to further impairment and impacting financial position - The primary updated risk factor relates to the Investment in Mountain Valley Pipeline, LLC, following adverse rulings by the Fourth Circuit Court in early 2022[181] - The company warns that future circumstances, such as construction delays or further permit denials, could lead to additional and possibly full impairment of the remaining investment in the LLC[181] - Significant delays or failure to receive requisite approvals for the MVP could materially impact Resources' consolidated financial position, results of operations, and ability to pay shareholder dividends at the current level[182][185] Other Items No material legal proceedings, unregistered equity sales, senior security defaults, or mine safety disclosures were reported for the period - Item 1 – Legal Proceedings: No material proceedings[179] - Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds: None[189] - Item 3 – Defaults Upon Senior Securities: None[190]