RGCO - NASDAQ

Good morning, and thank you for joining us as we discuss RGC Resources' 2025 Fourth Quarter and Year-end Results. I am Tommy Oliver, Senior VP, Regulatory and External Affairs for RGC Resources, Inc. I'm joined this morning by Paul Nester, President and CEO of RGC Resources; and Tim Mulvaney, our VP, Treasurer and Chief Financial Officer. But before we get started, I want to review a few administrative items. One, we have muted all lines and asked 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 let's turn to Slide 1. This presentation contains estimates and projections. Slide 1 has information about risks and uncertainties, including forward-looking statements that should be understood in the context of our public filings. Slide 2 contains our agenda. We will discuss our operational and financial highlights for the fourth quarter and our 2025 fiscal year. We will then provide an outlook for the 2026 fiscal year with time allotted for questions at the end. So let's get started on Slide 3. We had a very strong year for main extensions. In addition, renewal activity was steady during the fiscal 2025 year. Residential growth in the Roanoke Valley has not abated. We installed nearly 5 main miles, which is 50% higher than the total main miles installed in fiscal 2024. We also connected more than 700 new services. This compares to customer additions in fiscal 2024 of approximately 630 and fiscal year 2023 adds of approximately 550. Those that dive into our year-over-year customer count will notice that our average customer count increases slower than the actual ads cited above. This is due to the nature of our business. We routinely have customers that use natural gas exclusively to heat their homes, disconnect their service or will not pay their bills and will be disconnected through the collections process once spring weather arrives. This past spring, we had over 1,500 customers disconnect, many of which are now returning to the system with the onset of cold weather. In fact, we have reconnected over 500 customers since October. By the end of the second quarter, we expect our customer count to be approximately 65,000 customers. Focusing on the right side of the slide, our system safety and reliability is always a high priority. Through our SAVE program, we renewed 4.2 miles of main and nearly 350 services during the fiscal 2025 period. Transitioning to Slide 4. We delivered record volumes of gas in fiscal 2025. However, I will come back to that in a moment as Slide 4 shows delivered gas volumes for the quarter. Total volumes increased 8% compared to the fourth quarter of 2024. One industrial customer with fuel switching capability continued their higher natural gas consumption this year as we have discussed in previous quarters. Residential and commercial volumes were slightly up when compared to the same quarter in the prior year. Slide 5. The combination of that same industrial customer, along with a few other customers, combined with colder weather, also as discussed on previous calls, enabled us to achieve a new gas delivery record with heating degree days up 18%, total volumes moved up 14% compared to last year. This record level of gas delivery outstripped our prior annual record throughput set in 2021. Slide 6 shows full year CapEx. Total spending was $20.7 million in the current year, down 6% compared to the 2024 fiscal year. However, recall that in 2024, we spent approximately $3.2 million to complete the MVP interconnections, which enables us to grow our system in Franklin County. We did not have that kind of onetime expenditure in fiscal 2025, but continue to invest in extending and renewing our system as noted above. We will provide our outlook for CapEx as we discuss fiscal 2026 later in this presentation. I will now turn the presentation over to our CFO, Tim Mulvaney, to review our financial results and to comment on the consummation of the financing that we told you about at the end of quarter 3. Tim?

Thank you, Tommy. Turning to Slide 7 now. We experienced a slight loss in the current quarter. The fourth quarter is traditionally seasonally weaker for us, and we had higher expenses than the same period a year earlier as inflation, while lower, is still present. This resulted in a net loss of $204,000 or $0.02 per share compared to net income in the same quarter a year ago of $141,000 or $0.01 per share. We will touch on our plans to deal with higher expenses in the outlook section. One item present in both periods were gains of approximately $0.06 per share each year related to donations from the local housing authority as we converted master meter arrangements into system assets to improve reliability and safety for customers. This will not recur in 2026. Year-to-date results are also shown on Slide 7. Our performance for the year was outstanding. Net income for fiscal 2025 was $13.3 million or $1.29 per share, an increase of 15% from fiscal 2024's $11.8 million or $1.16 per share. The strong increase reflected the record levels of gas deliveries that Tommy discussed and was aided by higher operating margins, partially offset by inflationary cost increases and lower equity earnings from the company's investment in the Mountain Valley Pipeline. MVP's equity earnings for the first 3 quarters of fiscal 2024 contained significant amounts of AFUDC. Moving to Slide 8. We ended the year with a strong balance sheet. During the fourth quarter, we refinanced the debt that supports our investment in MVP for the long term. We have disclosed the details in our investor communications in September and in Note 7 of our Form 10-K that was filed yesterday. All of these documents can be found on our website. So I will not repeat all the details here. We were pleased to extend the maturity of all the debt supporting our MVP investment to 2032 with reasonable amortization. During the intervening years, we expect cash flows will be enhanced by the Southgate and Boost projects at MVP, and we have addressed our share of funding these projects as well. With these projects generating cash flow, our investment will be more valuable. Now let me turn the presentation over to Paul Nester, our President and CEO, to take us through our 2026 outlook. Paul?

Thank you, Tim, and good morning to everyone. And I would like to take a moment before we dive into the outlook, just to issue our thanks to our customers and our employees for a fantastic fiscal 2025, as Tim and Tommy have just reviewed and certainly to all of our employees for their everyday dedication to serving the customer and doing that safely and reliably. It's translated in these incredible, what are really record earnings and earnings per share results. So thank you. As you can see on Slide 9, we have a short agenda here for the 2026 outlook, and let's move on to Slide 10. We continue to have momentum with new housing here in the greater Roanoke Valley. Tommy mentioned our customer additions over the last 3 years. If you average those out, it's over 660 customers per year, which is just almost exactly 1% customer growth. And if you look back over the history of the company for really the last 20 years, we've been in that upper 1%, lower 1% range, and that continues to be steady. We're very optimistic about 2026 in that regard. We continue to have expansion in our health care and medical sector and complex here in the Roanoke Valley. It's really one of the shining stars, both scientifically and economically, but we are seeing more real estate there, more footprint, which is hopefully going to result or translate into additional natural gas usage. Tim mentioned MVP in the Southgate and Boost projects. We are thrilled to continue as a partner in those, and we're very optimistic about the success of those projects and what it will mean to this region. As you can see on the slide, we have the Google logo there, and we've talked about Google in the past and the announcement that was made in our fiscal third quarter about their location in the Roanoke Valley. That's progressing on schedule. Again, I think there'll be more to come about that in our fiscal 2026. We're still working on Franklin County. As Tommy mentioned, and some of new Business Park, they're working very closely with the county to hopefully spur some economic development in the park. And we're also still working on expanding gas service in other parts of the county. We recently had some discussion with our westernmost territory, Montgomery County, which you may recall is actually where most of the MVP in this region is located and in fact, where the Boost project will do some construction hopefully in the near future about some expansion opportunities there. Moving on to Slide 11. I'd like to hand it back over to Tommy so he can give us a few more details on the recently filed rate case. Tommy?

Yes. Thank you, Paul. As Paul noted, we filed an expedited rate case on December 2, in which we're seeking an approximate $4.3 million increase in annual revenues, and that's based on our currently authorized ROE of 9.9%. Based on the timing of the notice and filings, we believe these new rates will become effective January 1, 2026. Those are subject to refund once the commission fully adjudicates the case. We expect that process to take about 12 to 18 months. Offsetting that increase, we recently reached agreement with regards to certain tax credits and expect to begin returning these credits to customers over the next 12 months and are included with our regulatory liabilities on our balance sheet. So I will turn it back over to Paul.

Yes. Thank you, Tommy. It's no small feat to actually get this case filed right on the heels of the prior case being resolved. And Tim and Kelsie and their teams have done a very nice job on this tax credit initiative, which is, we believe, greatly going to help and benefit our customers. So we're pleased to be able to incorporate that with the rate application. Moving on to Slide 12, this slide looks yearly similar year after year. But again, that's part of the predictability of our customer growth and our SAVE program, our ability to invest $20 million, $21 million, $22 million, $23 million a year now is, in fact, proven. And again, for 2026, we're showing a capital budget of $22 million, led by the continued renewal of the [pre-73-adalate] plastic and a couple of other items through our SAVE program. Again, we have reasonable customer growth expectations and a normal amount of system enhancement. One thing I'd like to add back to the 2 slides ago about the expansion opportunities and growth opportunities. As those arise, we have the ability to either add capital or shift capital. Again, that's something we've historically done and I think done quite nimbly. And again, we're prepared to do that again in 2026. And in fact, like to do that as growth opportunities present themselves. Let's take a minute and just talk about some of these drivers for 2026, but it does require us to go back and look at 2025 a little bit. Tim and Tommy have already talked about those first 2 bullets, the housing authority transfers. And just as a recap, those were projects with our local housing authority that started 4 years ago, where we converted 5 complexes with modern pipe, modern meters, modern equipment. And our company now owns and operates those facilities. And we're just excited about that because of the safety and reliability that those projects have provided. And we'll see on the next earnings per share slide, and Tim talked about it, there was an income statement impact to those projects that since we have completed the projects, again, will not recur. And obviously, that creates a little bit of a hole for 2026 when you compare the year-over-year earnings. The other item there, again, thanks to our customers, and as Tommy highlighted, the record gas deliveries last year were just that. And we saw that in a couple of areas, not just the large fuel switching customer, but also in some of our largest firm commercial customers. We just thought it prudent to not plan for those kinds of record volumes again this year. They could happen. We hope they're happening. We'll do everything in our power to help make them happen. But from an expense management standpoint, we thought it more prudent to lower the top line as a planning tool for 2026. Tommy just talked about the new rate case. That's obviously very important to how 2026 turns out. The Save rider continues to provide helpful revenue and in fact, does cover some of the depreciation and property tax growth that, again, we experienced very predictably related to our capital spending. And finally, there in 2026, it was just announced a few days ago, our Board did authorize a larger increase this year than last year, $0.04 per share on an annualized basis, almost 5% to $0.87 per share, again, a result of the strong earnings in 2025 and what we think is going to be a solid 2026. On Slide 14, you'll see our earnings per share guidance for 2026 and the range. Again, we think there are some headwinds, Tim, and Tommy talked about inflationary pressures. Those are still very real. Obviously, the rate making will hopefully offset some of that. So we do have a little bit of a wider range than normal here. But based on some of the uncertainty in 2026, again, with volume, deliveries, weather and the rate making, we feel like the range is appropriate. You can see also the slide does highlight the impact of those housing authority projects in 2024 and 2025. I would like to add, we're already 2 months into fiscal 2026, and it is a more challenging year already than 2025, again, for the items we've talked about there. But we're doing our best again to work through that and manage through that. We finally have had some cold weather set into the Roanoke region here in the last 1.5 weeks, and it looks like we're going to have another 1.5 weeks of cold weather. That should be helpful. But again, I'd like to take one more opportunity to thank our customers and especially our employees for working safely. Safety is our #1 priority, working diligently to serve the customer. We're excited about economic development in the region. We continue to participate in a meaningful way on that. And with that, I think we'll conclude our prepared remarks and open the line for questions.

I'd like to go back to your comments here on weather. I take it, it's tracking favorably versus last year.

Yes. We started off -- we had some strange weather patterns in October and November, part of the challenge there. October had a lot of heating degree days, but we really didn't see the volume because of the dispersion of those heating degree days. So October was off from October of last year. November, we're still, of course, closing the books for November. We'll know a little more in a few days. But November turned very warm and then it turned very cold around Thanksgiving, the last few days of the month, and that cold air mass is hung in here. In fact, we're calling for winter mix and snow to [indiscernible] here in Roanoke. So if you look at the Henry Hub future prices and the NYMEX future prices of natural gas, it feels like nationally, there's going to be more cold weather this year. I think yesterday, it closed at $5, approximately a dekatherm on the current month. And that's a high number. As you know, Mike, we haven't seen that number in quite some time. We did not see it last year, as I recall, certainly not this early in the year.

And then [MVP], they've got a lot of projects going. Any capital requirements from you in 2026?

Yes, I may hand that one over to Tim.

Sure, Mike. We have -- as part of the refinancing that we did, we set up 2 facilities to fund the investment in Boost and in Southgate. So we expect that, that will come straight through what we borrow. It includes over the course of the next several years, our investment in those projects will probably total $4 million to $5 million with maybe the first $1 million to $1.5 million this year.

Okay. And then I guess my question, Paul, you kind of sidestepped it a little bit on the data centers. Just wondering if there's been anything you can share there as to what it's looking like.