John D'Orazio - President & CEO Paul Nester - CFO.

Mark Levin - Seaport Global Securities.

Good morning everyone. Welcome to RGC Resources Second Quarter Earnings Call. I'm John D'Orazio, President and CEO of RGC Resources. Thank you for taking the time out of your day to attend. Please mute your question and hold your questions until the completion of the presentation.

Also the link to today's presentation is available on our website at rgcresources.com on the Investor and Financial Information page. Before we begin, just a reminder on forward-looking statements as shown on Slide 2. Moving on to Slide 3, we plan to review key operational and financial highlights, our outlook for 2018, and take any questions.

Our second quarter earnings per share are $0.47, and as shown on Slide 4, fiscal year-to-date earnings per share are $0.76 which includes a one-time non-cash charge of $208,000 related to tax reform. Excluding the one-time charge, year-to-date earnings per share would have been $0.78 which is a $0.02 per share ahead of 2017.

We will cover more second quarter and year-to-date financial results later in the presentation. We have successfully completed a $16 million public offering in mid-March.

The proceeds from the equity rise will primarily be used to support one of our key growth strategies which is continued investment in a regulated utility which allows us to grow rate-based earnings. As Slide 5 highlights, we invested $5 million in a regulated utility in the second quarter, a $2 million decrease over the same period last year.

Approximately $2.4 million was spent on infrastructure replacement, $1.3 million on customer growth, and $1.3 million on other capital needs. The quarter-to-quarter decline was primarily due to elevated spending in the 2017 second quarter attributed to our automated meter reading or AMR projects. Slide 6, shows year-to-date capital spending.

Again we are slightly behind 2017 due to the AMR project. Our second key growth strategy is increasing margins to customer growth. We continue to experience steady customer growth, as shown on Slide 7. We added 155 customers in the second quarter and have added 360 customers year-to-date.

On Slide 8, our residential volumes increased 31% and our commercial and industrial volumes increased 15% in the second quarter compared to the same period last year. On Slide 9, our year-to-date commercial volumes increased 20% compared to the same period last year; of significance our Top 10 customer usage increased 9%.

Our third growth strategy component is the investment in the Mountain Valley Pipeline. We are on Slide 10. Construction is underway with a targeted and service stay at the end of calendar 2018. In the second quarter, we invested $2.5 billion in the project. In early April, we renegotiated the credit facility that supports this project.

We were able to expand a facility from $25 million to $38 million and lower the borrowing cost by 25 basis points. The MVP Southgate expansion was also announced in April which takes us to Slide 11. We are excited about the Southgate expansion project and we believe it speaks to the strength of the MVP Mainline and the markets it will serve.

The Southgate expansion is a proposed 70-mile pipeline that will connect a Transco Station 165 and will expand in the Central North Carolina. PSNC Energy will be an anchor shipper. The current targeted and service date is 2020.

Now I would like to introduce Paul Nester, our Chief Financial Officer, he will review the second quarter and year-to-date financial results..

Thank you, John. For those of you following along via webcast, we are on Slide 12. For the second quarter gross margin is approximately $177,000 higher than 2017 which included the $359,000 tax reform adjustment.

Gross margin without the tax adjustment increased $536,000 over the prior year primarily due to increases in the infrastructure replacement rider or SAVE revenue, customer growth, and industrial volume.

Equity earnings in our Mountain Valley Pipeline investment increased approximately $98,000 over the prior year due to the increasing investment in the project. Year-to-date gross margins are still below the prior year due to a year-to-date $821,000 tax reform adjustment.

Without this tax reform adjustment, gross margins have increased approximately $962,000 primarily due to increases in the SAVE Rider revenue, customer growth, and industrial volume. Equity earnings in the MVP increased $162,000 year-to-date. Our core operating expenses are flat in the quarter and year-to-date.

However, as John discussed earlier, we had a large capital expenditure in the 2017 second quarter related to our AMR project. This increased overhead capitalization in 2017. Interest expense increased approximately $164,000 in the second quarter and $318,000 year-to-date on higher borrowings and higher rate.

Now let's briefly review our trailing 12-month earnings. They were $0.87 compared to $0.87 in the prior period. Excluding the one-time tax charge reported in the first quarter, earnings would have improved 3.4% to $0.90 per share. At this point, I'll hand it back to John to discuss the 2018 outlook..

Thank you, Paul. Let's review our capital expenditure projections on Slide 13. We are maintaining our focus on infrastructure replacement and customer growth representing approximately 86% of our capital spending. We plan to spend approximately $22 million in fiscal 2018, an increase of $1.3 million from 2017.

Further, we anticipate investing $21 million in MVP for the remainder of fiscal 2018. Finally, our fiscal 2018 earnings guidance range is $0.90 to $0.91 per share. That concludes our prepared remarks. We'd now like to take any questions from the audience..

Hey, John, this is Mark Levin.

How are you doing?.

Hi, Mark.

Good, how are you?.

I'm doing well, doing great, thank you. So just a couple of quick questions on.

First is housekeeping, when you guys expect to file your Q?.

We plan to file our Q on Monday..

On Monday, got it. Okay, so that’s the easy one. I guess they’re all easy. But we will start with this.

So in terms of O&M expense in 2018, what do you think is the appropriate increase year-over-year to be thinking about it and maybe what are some of the puts and takes in that particular line item?.

Hey Mark, good morning. This is Paul.

How are you?.

I'm fine, Paul.

How are you?.

Doing good. I'll take that one if it's okay. We really think we're going to be flat by the end of the fiscal year, Mark. Our capital spending, as John mentioned, is going to be heavier in the second half of the year than the first half which should allow us to capitalize a greater level of overheads and we have year-to-date through March.

So we're optimistic that we can continue to manage those expenses through the rest of the fiscal year..

That's great. And then just maybe an update on the -- on your MVP investment maybe degree of confidence that this -- that the project is in service by the end of the year. And then, when you think about your guidance for 2019, I think it’s about $0.08 or $0.09 above where you are expect to finish 2018.

Can you maybe talk a little bit about like what are the key drivers to get you that incremental $0.08 or $0.09 year-over-year?.

Yes, that's a great question. For the Mountain Valley since last quarter has received all of their key federal, state permitting including notices to proceed from FERC on significant portions of the project. And as you know there are some opposition challenges that are in the press with the three sitters in the like.

But the project management team is still working toward a calendar 2018 in service and they had contingency or have contingency plans in place for some of these project delays. And there were some obviously some scheduling built-in to this kind of circumstance.

So we feel pretty confident that they've got a good plan and a good schedule and we'll continue to proceed to 2018 in service..

Yes, Mark in our most recent conversation with them, they are fairly confident that it will be in service at the end of 2018. So we feel good about that..

Yes, hopefully it’s been a wet cold spring here in Southwest Virginia. So it can dry out a little bit and allow construction to get back on schedule, that is going to be helpful. So we will see how it progresses. Your second question their key drivers on the growth for 2019; the Mountain Valley is certainly a key driver.

Coming out of fiscal 2017 the original projections on the investments in the MVP were a little bit higher in the first half of the year due to a lot of the permitting delays and procedural delays there in the first half of our fiscal year that investment has lagged.

So there will be a nice pick-up year-over-year 2019 versus 2018 from the Mountain Valley investment. We'll also see some continued lift from our rate-based investments $22 million we plan to spend this year in our CapEx and we still have -- we then still have some reasonable customer growth on the horizon..

Great, thank you guys. Appreciate the color..

Thank you..

Thank you. Are there any more questions? All right. With no further questions, I want to thank everyone for attending and I hope everybody has a great weekend. Thank you..