RGCO

Good morning, and thank you for joining us as we discuss RGC Resources 2026 second quarter results. I'm Kelsey Davenport, Director of Finance of RGC Resources Inc. I'm joined this morning by Paul W. Nester, President and CEO of RGC Resources; Timothy J. Mulvaney, our VP, Treasurer, and Chief Financial Officer; and Lawrence T. Oliver, Senior Vice President of Regulatory and External Affairs. Let's review a few administrative items. We have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the investor and financial information page of our website at www.rgcresources.com.

At the conclusion of the presentation and our remarks, we will take questions. Turning to slide 1. This presentation contains forecasts 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 want to discuss operational and financial highlights for the second quarter and first 6 months of our 2026 fiscal year. We will review our outlook for the rest of the 2026 fiscal year with time allotted for questions at the end. I will now turn the presentation over to Tommy.

Well, thank you, Kelsey, and good morning, everyone. Turning now to operations on slide 3. Main extensions and renewal activity for the first half of fiscal 2026 were steady. We installed 2.7 main miles, a similar total to the main miles installed in the first half of fiscal 2025. In addition, we connected 340 new services in 2026, which was close to the 359 connections from 2025. Evidence that residential development continued across the region in the first half of the fiscal year. As shown on the right side of the slide, we renewed 1.5 miles of main and 196 services during the first half of the 2026 fiscal year.

While the main miles renewed were down in part due to weather compared to the same period last year, the service renewals increased by almost 25%. Let's move to slide 4, where we show our delivered gas volumes for the quarter. Despite an extreme cold spell in late January and early February, the quarter as a whole was warmer compared to the same quarter in the fiscal 2025 year. Total volumes were down 5% compared to the second quarter of 2025. Residential and commercial volumes were both down approximately 5% and heating degree days were down 2% compared to the quarter 2 of fiscal 2025. Let's move to slide 5. The story of delivered gas volumes was a little different in the first 6 months of the fiscal 2026 despite the larger number of heating degree days.

Total volumes were down 3% compared to the first half of fiscal 2025, with the decline in industrial usage primarily attributable to 1 customer being the main reason. Unlike the quarter, heating degree days for the 6 months increased 3% as the first 6 months of the fiscal year were colder than the prior year. Let's move to slide 6, where we talk about CapEx. CapEx for the first half of fiscal 2026 compared to 2025. Total spending was $9.8 million in the current year, down approximately 8% over the same period a year ago. Winter weather related to Winter Storm Fern in late January and early February affected our spending. We picked back up in March and we'll discuss plans for the remainder of the year later in the presentation.

I'm gonna now turn it over to our CFO, Tim Mulvaney, to review our financial results for the quarter. Tim.

Thank you, Tommy. Moving to slide 7, this shows both our second quarter and first half results for fiscal 2026. We had a robust quarter with increased Roanoke Gas margins due to the rates that went into effect January 1st, combined with higher earnings from our unconsolidated affiliate, MVP, and lower interest expense to overcome higher expenses related to investment in our gas system and inflationary pressures, which remain higher than the Fed's 2% target. Net income of $8.7 million or $0.84 per diluted share compared to net income in the same quarter a year ago of $7.4 million or $0.74 per diluted share, a 14% increase. The year-to-date results are also shown on slide 8. The strong Q2 results drove the six-month performance as well as the first quarter did not have the benefit of the January rates.

Net income was $13.6 million in the first half of 2026 or $1.31 per diluted share compared to $1.26 per diluted share in the first half of fiscal 2025, a 5.3% increase. A reminder about the seasonality of our industry. With recent ratemaking activity, much of our revenue is generated through volumetric factors, and accordingly, our performance in the back half of the year when volumes are lower, inevitably results in fewer revenues and profits. Paul will discuss our outlook for the remainder of 2026 in a few moments. Moving forward to slide 8, our balance sheet remains strong. We do have a $15 million note at Roanoke Gas that matures in August that is included in our current maturities of long-term debt. We are deep in conversations with our lenders to refinance this note.

We have long known that we would be unable to replicate the 2% rate that we have enjoyed. The discussions with lenders have been positive and should allow us to refinance this note at a rate consistent with our plans. We will have more to share on this in the near term. I will now pass the presentation to Paul Nester, our CEO. Paul?

Good morning. Thank you, Tim. We have a few topics that we would like to discuss concerning the second half of 2026. These are listed on slide 9. Before we get into the details of those, I do want to again thank our customers and employees for an outstanding winter performance. We discussed this a little bit on the first quarter call when we were just coming out of Winter Storm Fern, our system just performed admirably during that period. Our employees performed admirably and safely and also the customers. Again, we had an outstanding winter heating season and again, just are appreciative of our employees and customers. You know, we're here to serve our customers. We did have a couple of challenges that arose in the second quarter.

One of our top 5 customers by volume and a longtime manufacturer in the Roanoke Valley, in fact, over 60 years, idled their operations in March. You know, we really have great care and concern for the employees at that operation who, you know, lost their jobs in that process. Many of them had been there many years. As Tim said, it's a headwind really into the second half of 2026. Again, they were a large gas customer. Tommy will talk about the rate-making impacts of that event in just a few moments. Another challenge was described in our 10-Q, which we filed yesterday afternoon. We had some damage at our LNG peak shaving facility in the middle of the quarter.

We have hired tank experts and other experts to help us assess the cause and nature of this damage and to potentially design some solutions to remediate it. The outcome of that is that we do not expect to have use of our LNG peak shaving facility in the coming winter season. We have begun intense and thorough planning for that event and to provide service without the facility. As we disclosed in the 10-Q, right now we're unable to estimate the costs associated with this event, and we're unable to estimate the investment required to possibly repair or, if needed, replace the tank. Tommy will also incorporate the rate-making impacts of that into his comments. We will of course, continue to update you in future communications and/or SEC filings as more facts about this become known.

I am going to turn it over to Lawrence T. Oliver to give us an update on our pending rate case. Lawrence T. Oliver?

Thank you, Paul, and we're moving to slide 10 now. As we discussed in our most recent earnings call, Roanoke Gas filed an expedited rate case on December 2, seeking approximately $4.3 million in incremental annual revenues based on our current authorized return on equity of 9.9%. The interim rates became effective January 1, 2026, subject to refund. The SEC staff is in the process of their audit and is scheduled to file testimony in June. The hearing is scheduled for July 15, 2026, and we expect final resolution from the commission by calendar year-end. For four months beginning in January, we were offsetting the new rates through credits on bills to return the tax credits to customers that were resolved with the IRS late in fiscal 2025, had been included with our regulatory liabilities on the balance sheet.

We concluded these refunds in April. As Paul mentioned just a few minutes ago, we had a large customer cease operations in the second quarter. We informed the SCC staff of this closure, and we are optimistic that the SCC staff will incorporate the expected decline in usage over the coming year into their recommended revenue requirement when they file testimony in June. Regarding the damage that occurred to our LNG facility, we have alerted staff of this situation and have held discussions with staff regarding the establishment of a regulatory asset for these costs. Paul, I'm gonna turn it over to you.

Thank you, Lawrence T. Oliver. I continue to be pleased with the work of Lawrence T. Oliver and his team and really our whole company and our relationships with the State Corporation Commission, not only in the rate-making side, but also in the safety aspect. Thank you for all that good work there. We're on slide 11. Our capital spending forecast remains at $22 million for the fiscal year. We have rebalanced the mix of spending just slightly from what we presented at the end of the first quarter. Again, as more facts become known about our LNG facility, we will continue to be flexible to reposition certain investments as needed or even potentially add to this capital spending plan.

On slide 12, with the strong second quarter that Tim reviewed, we've both narrowed and raised our 2026 earnings per share range. On the lower end, we're at $1.31, and on the higher end, we've moved it up to $1.37. I think Tim's reminder about the seasonality is important. Obviously, the 3rd and 4th quarters will not look like the 1st and 2nd quarters from an earning standpoint. We continue to see the same macroeconomic concerns that we've really been talking about now for several quarters. Our practical inflation remains above the 2% level that the Fed targets. We are constantly throughout the organization, looking for ways to be more efficient and to save and manage expense. Interest rates, Tim talked about the refinancing of that note.

Certainly the global situation has caused the interest rate market to be volatile within a range, but still volatile. We're working with our debt partners almost on a daily basis to optimize that refinancing. You know, the local economy, and we've said this as well for several years now, continues to be steady. The Google Data Center is moving forward. There's been a few other positive announcements recently across the Roanoke Valley. Our teams continue just to work every day with economic development, contractors and other folks that are facilitating this growth, we do everything we can to support that. With that, we would love to entertain any questions that you may have.

Pound pound or hashtag hashtag one to unmute your line. We'll wait just a few more moments in case anyone has a question. Hashtag hashtag one to unmute your line. Okay. Well, hearing no questions from the audience, this does conclude our prepared remarks. You know, our team will be at the AGA Financial Forum in about 10 days, and we hope to have the opportunity there to greet and visit with many of our investors and financing partners there. Certainly, we wish the rest of you to have a safe and pleasant summer, and we look forward to speaking with you again in August to review our 2026 third quarter results. Thank you.

The host is recording this meeting. Line muted. Press pound pound 1 or hash hash 1 to speak.

Good morning, and thank you for joining us as we discuss RGC Resources 2026 first quarter results. I am Kelsie Davenport, Director of Finance for RGC Resources, Inc. I am joined this morning by Paul Nester, President and CEO of RGC Resources, Tim Mulvaney, our VP, Treasurer and Chief Financial Officer, and Tommy Oliver, our Senior Vice President of Regulatory and External Affairs. Let's review a few administrative items. We have muted all lines and ask that all participants remain muted. The link to today's presentation is available on the Investor and Financial Information page of our website at www.rgcresources.com. At the conclusion of the presentation and our remarks, we will take questions. Turning to slide one. This presentation contains forecasts, projections, and comments about earnings, capital spending, and gas prices.

Slide one has information about risk and uncertainty, including forward-looking statements that should be understood in the context of our public filings. Slide two contains our agenda. We will discuss our operational and financial highlights for the first quarter of our 2026 fiscal year. We will then review our outlook for the rest of the 2026 fiscal year, including an eventful January, with time allotted for questions at the end. I will now turn the presentation over to Paul. Paul?

Thank you, Kelsie, and good morning. We are on slide three. Main extensions or renewal activity in the first quarter of fiscal 2026 was steady. We installed 0.6 new main miles in the first quarter and connected 196 new services, which is almost exactly the same as last year with 197 new services in the first quarter of 2025. Just a comment there. The main miles are down a little bit. Last year we had 1.1 new main miles. Some of that's dependent on weather. We've actually got an outstanding backlog of new main to install, approximately 13,000 ft or 2.5 mi. In addition, we renewed through our SAVE program 117 services in the first quarter of this year, which is an increase of 80% over last year.

Together, this investment demonstrates our continued commitment to enhance safety and reliability for our customers, as we've been doing for many, many years now. Slide four shows our delivered gas volumes for the quarter. Total volumes were flat compared to Q1 last year. One large industrial customer decreased their natural gas usage from their record levels of a year ago. However, residential usage was up 8%, and other commercial volumes increased primarily due to the 11% increase in heating degree days compared to quarter one last year. Slide five shows capital expenditures for the first quarter of fiscal 2026, and those are compared to the prior year. Total spending of $5.6 million was flat to the same period of last year. Weather was mixed in the quarter this year. We did have some snow and wet weather in early December, which hampered us a little bit.

I will now turn the presentation over to our Chief Financial Officer, Tim Mulvaney, to review the financial results for the quarter. Tim?

Thank you, Paul. Moving to slide six. We had a steady quarter with gas margins up nominally and lower interest expense as the Fed lowered interest rates. This was more than fully offset by higher costs for personnel, IT, property taxes, and depreciation. Net income of $4.8 million or $0.47 per share compared to a net income in the same quarter a year ago of $5.3 million or $0.51 per share. We filed an expedited rate case in December with interim rates that began on January 1st. Tommy will discuss the rate case in greater detail in just a minute. The MVP pipeline continues to perform well, and our year-over-year financial results from our investment were as expected and in a similar magnitude to a year ago. Our balance sheet remains strong.

One item to bring to your attention is that $15 million note, which matures in August for Roanoke Gas, is now in current liabilities. We fully expect to refinance this note in the coming months and have begun preliminary conversations with our financial institution. I will pass the presentation back to Paul and Tommy to address some of the developments in late January's cold snap across the eastern half of the United States, as well as our expectations for 2026, including the rate case, capital, and earnings per share. We will then take your questions. Paul?

Yeah, thank you, Tim. We are on slide seven. Calendar 2026 has started with a number of really interesting developments. There's a lot of activity in both the international, national, and even our local landscapes and economies. We'll get to the weather in just a moment. But here in Virginia, we have a new governor and legislature that has been seated, and they are in session presently. And there's been a lot of activity there, a lot of new legislation, a lot of discussion about this term of affordability and even data centers. As most of you know, Virginia is considered the data center capital of the world. Fortunately, most of this new legislation is not focused on limiting or stymie natural gas usage or development. We are happy about that.

We are not only monitoring all this legislative activity, but we're actively engaged with our senators and delegates on any pertinent legislation. The local economy does continue to be solid or even good, but there was a press release recently of a top five industrial customer, a very large manufacturer who's been prominent in the Roanoke Valley for almost 60 years. They recently announced an operations change that will likely lead to plant closure later in calendar 2026. We have started discussions with the commission staff to address this and our pending rate case. As Tim said, Tommy will review the rate case momentarily. We're actually on slide nine now. My apologies. I think I said slide seven earlier. We're on slide nine. And the recent winter weather that Tim mentioned has a name. The National Weather Service has attached Fern to this incredible cold snap that we've had.

Just a little statistic here. Beginning January 24th through yesterday, February 9th, here in Roanoke, by heating degree day statistic, we have been 53% colder than normal. Really quite incredible. We've had 680 heating degree days versus a normal of 445. I'm just very pleased to say, up to this point, our distribution system has performed flawlessly. The interstate pipelines that serve us have performed without issue. I think one of the great stories to come out of Fern will be what natural gas has meant, not only here to us in Roanoke but around the country, particularly in the PJM RTO. Natural gas was providing, on any given day, approximately 45%-50% of the fuel for electricity generation there in this period. Again, I think we'll hear more about that in the days and weeks ahead. We did not lose any customers.

We're happy about that, proud of that. We're especially proud about how our folks worked safely through treacherous, icy conditions. In fact, we've had ice on the ground continually since January 24th, and that we haven't had a slip or fall or car accident is something I'm especially pleased with. Our LNG plant was, in fact, necessary again this winter, providing needed peaking supply on some of the coldest days. One effect of Fern was, at least in my tenure, an unprecedented spike in natural gas prices at the various pricing points, particularly the pricing points that form our supply. We've attached a chart here on slide 10 showing you the Henry Hub price. No, the computer didn't go crazy drawing that chart. As you can see there, on January 22nd, 23rd, and 24th, prices, in fact, multiplied by a factor of approximately 10. Really remarkable.

As you know, and especially if you've read our Qs and Ks, natural gas costs are passed through to customers dollar for dollar. There's no profit or loss there. So we have a pretty, we believe, estimated to be $8 million-$10 million undercollection on gas costs just related to Winter Storm Fern. We'll work with the commission to try to build those into rates in a reasonable way and hopefully collect those over the next 12-18 months. With that, I'd like to ask Tommy to provide an update on the rate case filing. Tommy?

I want to thank you, Paul. Good morning, everybody. We're on slide 11 now. As we discussed in our last earnings call, Roanoke Gas filed an expedited rate case on December 2nd, seeking approximately $4.3 million in incremental annual revenue. That's based on a currently authorized ROE of 9.9%. The interim rates were effective January 1st, 2026, and those are subject to refund once the commission fully adjudicates the case. We expect that to occur by the conclusion of this calendar year. As we also mentioned back in December, offsetting the new rates, we began making credits to customer bills over the next four months, January through April, to return to customers tax credits that we resolved with the IRS late in fiscal 2025 and are now included with our regulatory liabilities on the balance sheet. Paul, I'm going to turn it back over to you now.

Thank you, Tommy. I appreciate all the great work Tommy and his team are doing on the rate case filing. We are now on slide 12 and sharing with you our capital forecast for this fiscal year. We're still at $22 million, which was the same as we forecasted in December on the year-end call. Just to note, though, obviously, this winter weather is going to hamper the second quarter. It's going to be weaker. We've essentially lost two weeks of construction, again, due to all that snow and ice that is still on the ground. It's approximately 17% of the working days in the quarter. We'll see how that, when the weather breaks in the spring and summer, how much of that we can make up. But it is possible. Two weeks is a lot to make up across all the crews. But we're watching and monitoring that.

Moving to slide 13, our earnings per share forecast is also the same as we shared with you in December, the range of $1.27-$1.35. Certainly, the rate case that Tommy mentioned is a large factor in that. Some of the economic and political and inflation and interest rate variables that we're all experiencing also play a part in that. There's going to be some interest expense with that under collection that we just talked about that's going to work against us. I'd like to conclude my remarks just one more time by thanking all of our employees, each and every single one of them, for everything they've really done all winter, but especially here in Winter Storm Fern, to serve our customers and not have an outage and to be safe. And we really are excited.

Again, once the weather breaks, again, we've got a lot of main miles stacked up, new main miles stacked up to get into the ground and add customers. We're excited about the overall growth and health of our region. And we also, of course, want to thank you for your continued interest and support in RGC Resources. That does conclude our prepared remarks. And if you have any questions, please dial pound, pound one to unmute your line. Pound, pound one to unmute your line. We'll wait just a few more seconds in case someone wants to ask a question. Pound, pound one. Okay. Well, thank you again for taking your time to participate in our first quarter call. And we certainly look forward to being back together with you in May to discuss the second quarter results. We hope everyone has a safe end of the week. Thank you.