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DATE
Friday, May 8, 2026 at 9 a.m. ET
CALL PARTICIPANTS
- Chairman — Tommy Oliver
- Chief Financial Officer — Timothy J. Mulvaney
- President and Chief Executive Officer — Paul W. Nester
TAKEAWAYS
- Main Extensions — 2.7 main miles installed, comparable to the prior-year period, supporting continued regional development.
- New Service Connections — 340 new services added, closely matching last year’s total of 359.
- Main Renewals — 1.5 miles of main renewed, down from the prior-year period due to weather-related delays.
- Service Renewals — 190 renewals completed, representing an almost 25% increase over last year.
- Delivered Gas Volumes – Quarter — Total volumes down 5%, as both residential and commercial segments declined 5%; heating degree days decreased by 2%.
- Delivered Gas Volumes – Six Months — Down 3%, attributed mainly to the loss of industrial demand from one major customer; heating degree days were up 3%.
- Capital Expenditures — $9.8 million spent, down approximately 8% due to weather-impacted activity.
- Net Income – Quarter — $8.7 million, or $0.84 per diluted share, marking a 14% increase.
- Net Income – Six Months — $13.6 million, or $1.31 per diluted share, reflecting a 5.3% increase.
- Margin Drivers — Gains attributed to higher rates effective January 1, improved affiliate earnings, and reduced interest expense, which offset increased operating and inflationary costs.
- Current Debt Maturity — $15 million note at Roanoke Gas maturing in August; refinancing negotiations are ongoing, with rate increases expected above the previous 2%.
- LNG Facility Update — Damage at the LNG peak shaving facility occurred mid-quarter; facility is not expected to be operational for the coming winter, and cost estimates for remediation are unavailable.
- Major Industrial Customer — A top-five customer by volume ceased operations in March, impacting industrial loads for the year.
- Expedited Rate Case — Filed December 2 for $4.3 million incremental annual revenues, with interim rates effective January 1 and a final hearing scheduled for July 15.
- Customer Tax Credits — Bill credits were applied January through April to return resolved tax credits, with refunds now complete.
- Earnings Outlook — Full-year EPS guidance range raised and narrowed to $1.31 to $1.37.
- Capital Spending Forecast — Remains at $22 million, with potential for adjustments as more LNG facility details emerge.
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RISKS
- Paul W. Nester stated, “One of our top five customers by volume, and a long-time manufacturer in the Roanoke Valley—in fact, over 60 years—idled their operations in March,” creating a known headwind for industrial volumes in 2026.
- Paul W. Nester also disclosed, “we do not expect to have use of our LNG peak shaving facility in the coming winter season,” and cost or investment amounts to repair or replace remain unknown.
- Timothy J. Mulvaney noted, “We have long known that we would be unable to replicate the 2% rate that we have enjoyed” for the $15 million note up for refinancing, indicating expected higher interest expense.
- Inflationary pressures “remain higher than the Fed’s 2% target,” which management notes as a persistent operational concern.
SUMMARY
RGC Resources (RGCO 0.21%) management reported favorable earnings growth, driven by recently implemented rate increases and improved affiliate performance. The pending refinancing of a $15 million note is set to increase borrowing costs, with negotiations underway. Loss of a major industrial customer and inoperability of the LNG peak shaving facility represent material operational setbacks with undetermined financial impact. The company reaffirmed its $22 million annual capital spending plan and narrowed annual EPS guidance, pending further clarification on regulatory and operational risks.
- Company leadership communicated ongoing dialogue with regulatory agencies regarding rate recovery for both customer volume loss and LNG facility remediation.
- Roanoke Gas concluded its temporary bill credits to customers for tax credit resolutions at the end of April.
- Upcoming key milestones include the July 15 hearing for the expedited rate case and further SEC testimony in June.
- Management acknowledged macroeconomic challenges related to inflation and interest rate volatility, emphasizing ongoing expense management and efficiency initiatives.
INDUSTRY GLOSSARY
- MVP: Mountain Valley Pipeline, an unconsolidated affiliate from which RGC Resources derives a share of earnings and margin impact.
- LNG Peak Shaving Facility: On-site liquefied natural gas storage and vaporization system used to supplement system supply and meet high winter demand periods.
- Heating Degree Days: A metric quantifying demand for energy to heat a building, used as an industry benchmark for weather-driven gas consumption.
- Expedited Rate Case: A regulatory proceeding initiated for more rapid adjustments to allowed utility rates compared to standard ratemaking processes.
Full Conference Call Transcript
Tommy Oliver: Well, thank you, Kelsie, and good morning, everyone. Turning now to operations on slide three. Main extensions and renewal activity for 2026 were steady. We installed 2.7 main miles, a similar total to the main miles installed in 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 190 services during 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 us move to slide four, 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 2025 fiscal year. Total volumes were down 5% compared to 2025. Residential and commercial volumes were both down 5%, and heating degree days were down 2% compared to 2025. Let us move to slide five. The story of delivered gas volumes was a little different in the first six months of fiscal 2026.
Despite the larger number of heating degree days, total volumes were down 3% compared to 2025, with the decline in industrial usage, primarily attributable to one customer, being the main reason. Unlike the quarter, heating degree days for the six months increased 3%, as the first six months of the fiscal year were colder than the prior year. Let us move to slide six, where we talk about CapEx. CapEx for 2026 compared to 2025. Total spending was 9.8 million dollars in the current year, down approximately 8% over the same period a year ago. Weather related to a winter storm in late January and early February affected our spending.
We picked back up in March and will discuss plans for the remainder of the year later in the presentation. I am going to now turn it over to our CFO, Timothy J. Mulvaney, to review our financial results for the quarter. Tim?
Timothy J. Mulvaney: Thank you, Tommy. Moving to slide seven, 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 1 combined with higher earnings from our unconsolidated affiliate, MVP, and lower interest expense, which overcame higher expenses related to investment in our gas system and inflationary pressures that remain higher than the Fed’s 2% target. Net income of 8.7 million dollars, or $0.84 per diluted share, compared to net income in the same quarter a year ago of 7.4 million dollars, or $0.74 per diluted share, a 14% increase. The year-to-date results are also shown on slide eight.
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 dollars in 2026, or $1.31 per diluted share, compared to $1.26 per diluted share in 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 eight, our balance sheet remains strong.
We do have a 15 million dollar note at Roanoke Gas that matures in August. It 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 W. Nester, our CEO. Paul?
Paul W. Nester: Good morning, and 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 nine. 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, but our system performed admirably during that period. Our employees performed admirably and safely, and so did our customers. Again, we had an outstanding winter heating season and are appreciative of our employees and customers. We are here to serve our customers.
We did have a couple of challenges that arose in the second quarter. One of our top five customers by volume, and a long-time manufacturer in the Roanoke Valley—in fact, over 60 years—idled their operations in March. We really have great care and concern for the employees at that operation who lost their jobs in that process. Many had been there many years. As Tim said, it is a headwind in 2026. Again, they were a large gas customer. Tommy will talk about the ratemaking 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 makeup 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 October, we are unable to estimate the costs associated with this event, and we are unable to estimate the investment required to possibly repair or, if needed, replace the tank.
Tommy will also incorporate the ratemaking 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 Tommy to give us an update on our pending rate case. Tommy?
Tommy Oliver: Thank you, Paul, and we are 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 dollars in incremental annual revenues, based on our current authorized return on equity of 9.9%. Interim rates became effective 01/01/2026, 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 07/15/2026, 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 and had been included within 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 SEC staff of this development, and we are optimistic that the SEC 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. So, Paul, I am going to turn it over to you. Thank you, Tommy.
Paul W. Nester: I continue to be pleased with the work of Tommy and his team, and really our whole company, and our relationships with the State Corporation Commission, not only on the ratemaking side, but also in the safety aspect. So thank you for all that good work there. We are on slide 11. Our capital spending forecast remains at 22 million dollars 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 potentially add to this capital spending plan.
On slide 12, with the strong second quarter that Tim reviewed, we have both narrowed and raised our 2026 earnings per share range. On the lower end, we are at $1.31, and on the higher end, we have moved it up to $1.37. I think Tim’s reminder about the seasonality is important. Obviously, the third and fourth quarters will not look like the first and second quarters from an earnings standpoint. We continue to see the same macroeconomic concerns that we have been talking about now for several quarters. 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 are working with our debt partners almost on a daily basis to optimize that refinancing. The local economy, and we have said this as well for several years now, continues to be steady. The Google data center is moving forward. There have been a few other positive announcements recently across the Roanoke Valley. Our teams continue to work every day with economic development, contractors, and other folks that are facilitating this growth, and we do everything we can to support that. We will now open the call for questions.
We would love to entertain any questions that you may have. Please dial 1 to unmute your line. Pound or hashtag 1 to unmute your line. We will wait just a few more moments in case anyone has a question. Hashtag 1 to unmute your line. Okay. Well, hearing no questions from the audience, this does conclude our remarks. Our team will be at the AGA Financial Forum in about ten days, and we hope to have the opportunity there to greet and visit with many of our investors and financing partners there.
We wish the rest of you 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.
