Gas Natural Inc. Reports 2016 First Quarter Results

CLEVELAND, May 9, 2016 /PRNewswire/ -- Gas Natural Inc. (NYSE MKT: EGAS) (the "Company"), a holding company operating local natural gas utilities serving approximately 68,000 customers in four states, reported financial results for the first quarter ended March 31, 2016.  The Company reported income from continuing operations of $2.7 million, or $0.26 per share, for the first quarter, compared with income from continuing operations of $4.4 million, or $0.42 per share, for the first quarter of 2015.  The 2016 results were significantly impacted by record-setting warm weather in most of its markets.    

Mr. Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "We have been making progress with our strategic initiatives over the past couple of years.  However, unseasonably warm weather had a significant impact on the quarter.  The National Oceanic and Atmospheric Administration reported that this past winter, defined as December through February, was the warmest winter on record for the contiguous United States.  Normally, our geographic diversity is a strength, but unfortunately all regions were affected when compared with the prior year.  Additionally, our Maine operations were unfavorably impacted by the closure of two paper mills facilities and the changes in rates for a third transportation customer.  We believe Maine remains an excellent market for growth even as it deals with economic challenges and we face tougher competition with lower oil prices."

First Quarter 2016 Operating Review
Revenue for the 2016 first quarter was $38.3 million, down $15.4 million, or 28.7%, from the prior-year quarter on lower natural gas prices and lower volume.  There was an approximate $1.0 million decline in revenue from the sale of the Kentucky and Pennsylvania utilities operations in the fourth quarter of 2015. 

Gross margin for the first quarter of 2016 was $14.7 million, a $2.9 million, or 16.5%, decrease from the prior-year period.  Approximately $2.1 million, or 71%, of the decline was due to lower volume resulting from the impact of significantly warmer weather.  Reductions in volume in the Maine operations from closed paper mills and decline in other transportation customers' related demand reduced gross margin by approximately $0.5 million.  The sale of the Pennsylvania and Kentucky utility assets had a $0.4 million impact. 

Operating expenses declined $0.6 million to $9.2 million.  Corporate and other expenses were down $0.8 million, mostly as a result of reduced legal costs and the elimination of the Kentucky and Ohio operations, while the natural gas utility operations offset this decline by about $0.2 million from higher personnel costs. 

Adjusted Income from Continuing Operations
Adjusted income from continuing operations, a number not prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), but a measure that management believes to be a better representation of the Company's fundamental earnings stability, was $3.1 million, or $0.30 per share, for the first quarter, compared with adjusted income from continuing operations of $4.8 million, or $0.46 per share, in the first quarter of 2015.  Adjusted income from continuing operations for the 2016 first quarter excludes, net of tax, $53,000 of atypical professional, legal and regulatory expenses as well as a $329,000 after-tax loss on disposal of assets.  The 2015 adjusted first quarter results exclude, net of tax, atypical professional, legal and regulatory expenses of $388,000. 

See attached tables for a reconciliations of GAAP income from continuing operations to non-GAAP adjusted income from continuing operations for the 2016 and 2015 first quarters.

Adjusted EBITDA
Adjusted earnings from continuing operations before interest, taxes, depreciation, amortization, accretion, and atypical expenses ("Adjusted EBITDA"), a non-GAAP financial measure, was $7.7 million and $10.5 million, respectively, in the first quarters of 2016 and 2015.  The Company believes that, when used in conjunction with measures prepared in accordance with GAAP, Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its financial performance. 

See the attached tables for important disclosures regarding the Company's use of Adjusted EBITDA, as well as reconciliations of GAAP income from continuing operations to non-GAAP Adjusted EBITDA.

Balance Sheet and Cash Management
Cash and cash equivalents as of March 31, 2016 were $4.0 million, compared with $2.7 million at December 31, 2015.     

Cash provided by operating activities of continuing operations in the 2016 first quarter was $9.4 million compared with $7.9 million in the 2015 first quarter, with the increase primarily due to lower working capital requirements. 

Capital expenditures for the 2016 first quarter were $2.3 million compared with $2.5 million in the prior-year period.  The 2016 first quarter capital expenditures included approximately $1 million for the Company's ERP system.  Capital expenditures in 2016, excluding capitalized costs associated with the ERP system, are expected to be approximately $4.5 million to $5 million and are focused on the growth of the Company's Natural Gas Operations segment, as well as ongoing construction activities to support expansion, maintenance and enhancements of its gas pipeline systems.

Cash used in financing activities of continuing operations was $5.9 million in the 2016 first quarter compared with $6.0 million in the prior year quarter.  Debt repayment was the primary use of cash in both periods, with the 2015 quarter also including a $1.4 million dividend payment.

Mr. Osborne concluded, "As recently announced, we adopted a new dividend policy that better aligns our dividend payout with our growth plans.  This resulted in a reduction of our annualized dividend rate to $0.30 per share, from $0.54 per share previously.  Beginning in the second quarter of 2016, we intend to establish a regular, sustained quarterly dividend schedule based on this new rate.  Additionally, in the second half of this year, we look forward to completing our corporate reorganization and refinancing, which will reduce our cost of debt, provide for additional capital and solidify our legal and capital structure to better support our future growth.  Finally, as we progress through 2016, we are working diligently to bring resolution to our remaining open legacy issues inherited from the prior management, while we also direct our energy and investments on driving growth in our core markets." 

Webcast and Conference Call
Gas Natural will host a conference call and live webcast on Monday, May 9^th at 4:30 p.m. Eastern Time.  During the conference call and webcast, management will review the financial and operating results for the 2016 first quarter and discuss Gas Natural's corporate strategies and outlook.  A question-and-answer session will follow.  The teleconference can be accessed by calling (201) 689-8471.  The webcast can be monitored on the Company's website at investor.egas.net.

A telephonic replay will be available from 7:30 p.m. Eastern Time on the day of the teleconference through Monday, May 16, 2016.  To listen to a replay of the call, dial (858) 384-5517 and enter the conference ID number 13636195.  An archive of the webcast will be available on the Company's website at investor.egas.net/past events and will include a transcript, once available.

About Gas Natural Inc.
Gas Natural Inc., a holding company, distributes and sells natural gas to residential, commercial, and industrial customers.  It distributes approximately 21 billion cubic feet of natural gas to roughly 68,000 customers through regulated utilities operating in Montana, Ohio, Maine and North Carolina.  The Company's other operations include interstate pipeline, natural gas production, and natural gas marketing.  The Company's Montana public utility was originally incorporated in 1909.  Its strategy for growth is to expand throughput in its markets, while looking for acquisitions that are either adjacent to its existing utilities or in under served markets.  Gas Natural Inc. regularly posts information on its website at www.egas.net.

Safe Harbor Regarding Forward-Looking Statements
The Company is including the following cautionary statement in this release to make applicable and to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, Gas Natural Inc. Forward-looking statements are all statements other than statements of historical fact, including, without limitation, those that are identified by the use of the words "anticipates," "estimates," "expects," "intends," "plans," "predicts," "believes" and similar expressions. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those expressed. Factors that may affect forward-looking statements and the Company's business generally include, but are not limited to the Company's ability to consummate the corporate reorganization and debt refinancing on terms that are acceptable to the Company, or at all; the Company's ability to successfully integrate the operations of the companies it has acquired and consummate additional acquisitions; the Company's continued ability to make  or increase dividend payments; the Company's ability to implement its business plan, grow earnings and improve returns on investment; fluctuating energy commodity prices; the possibility that regulators may not permit the Company to pass through all of its increased costs to its customers; changes in the utility regulatory environment; wholesale and retail competition; the Company's ability to satisfy its debt obligations, including compliance with financial covenants; weather conditions; litigation risks; and various other matters, many of which are beyond the Company's control; the risk factors and cautionary statements made in the Company's public filings with the Securities and Exchange Commission; and other factors that the Company is currently unable to identify or quantify, but may exist in the future. Gas Natural Inc. expressly undertakes no obligation to update or revise any forward-looking statement contained herein to reflect any change in Gas Natural Inc.'s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

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SOURCE Gas Natural Inc.

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