Gas Natural Inc. Reports 2016 Fourth Quarter and Full Year Results

News provided by

Gas Natural Inc.

Mar 16, 2017, 06:30 ET

CLEVELAND, March 16, 2017 /PRNewswire/ -- Gas Natural Inc. (NYSE MKT: EGAS) (the "Company"), a holding company operating local natural gas utilities serving approximately 69,400 customers in four states, reported financial results for the fourth quarter and year ended December 31, 2016.  Comparative results for the fourth quarter, and for full year 2016, do not include the results of the Kentucky and Pennsylvania utilities which were divested in the fourth quarter of 2015 ("Divestitures"). 

Fourth Quarter 2016 Summary

  • Full service distribution throughput increased due to the addition of approximately 800 new customers in the quarter
  • Net income from continuing operations improved to $0.13 per share from $0.07 in 2015
  • Merger approval process with regulators is progressing as anticipated

Mr. Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "We grew revenue and gross margin in the quarter as a result of growing our customer base.  This is a testament to our keen focus on operations and growth."

He added, "In December, our shareholders overwhelmingly approved our announced plan to be acquired by First Reserve.  The process to obtain approval from the regulatory authorities in Maine, Montana, North Carolina and Ohio is progressing as anticipated.  We continue to expect completion of the transaction in the second half of 2017."

Fourth Quarter and 2016 Operations Review

Three Months Ended

Years Ended

(in thousands)

December 31,

December 31,


2016

2015

2016

2015

Revenue by segment:






Natural Gas Operations

$ 27,251

$ 26,575

$       87,464

$ 103,978

Marketing & Production

3,495

2,923

11,977

8,383

Consolidated

$ 30,746

$ 29,498

$       99,441

$ 112,361

Revenue for the fourth quarter of 2016 increased approximately 4% over the prior-year quarter.  Both of the Company's operating segments contributed to the increase.  The Natural Gas Operations segment experienced higher volume driven by customer growth, partially offset by lower natural gas prices and $0.2 million less revenue from the Divestitures.  The Marketing & Production segment recognized higher sales to the Company's former Wyoming operations which were divested in the third quarter of 2015.  Previously, such sales were recorded as intercompany and eliminated from consolidated revenue.

Revenue for 2016 was down approximately 11% compared with the prior year.  The increase in Marketing & Production was for the same reason as described above for the fourth quarter.  This was more than offset by the Natural Gas Operations segment that was impacted by lower volume due to warmer weather earlier in the year, lower gas prices, and a $1.6 million reduction from the Divestitures.

Changes in Gross Margin
(in thousands)

Three Months
Ended

Years
Ended

December 31, 2016

2015 Gross Margin

$          12,255

$ 44,209

Utilities sold

117

(299)

Weather and other volume changes

347

(1,695)

Impact of paper mill closures

(125)

(1,826)

Gas cost adjustment

-

693

New utility customers

226

1,304

Natural Gas Operations change

565

(1,823)

New marketing customers

214

513

Pricing and other

136

25

Marketing & Production change

350

538

Consolidated gross margin change

915

(1,285)

2016 Gross Margin

$          13,170

$ 42,924




Gross margin for the fourth quarter of 2016 increased 7% compared with the prior-year period primarily due to increased full service distribution throughput to new customers and colder weather, partially offset by the impact of paper mill closures in Maine.  Customer count grew by approximately 800 in the fourth quarter to 69,400, compared with the end of the third quarter of 2016. 

Gross margin for 2016 decreased 3% compared with the prior-year period.  The decrease was primarily the result of warmer weather earlier in the year in most of the Company's markets, the impact of closed paper mills in Maine, and the Divestitures, partially offset by new customers and the effect of a gas cost adjustment recorded in 2015.

Three Months Ended

Years Ended

(in thousands)

December 31,

December 31,


2016

2015

2016

2015

Operating income by segment:






Natural Gas Operations

$   3,511

$   1,857

$         6,198

$     7,852

Marketing & Production

314

(45)

1,184

(81)

Corporate & Other

(1,367)

(388)

(4,330)

(2,667)

Consolidated

$   2,458

$   1,424

$         3,052

$     5,104









Non-GAAP Adjusted EBITDA*

$   5,895

$   3,765

$       15,172

$   16,391

*See the attached tables for important disclosures regarding the Company's use of earnings before interest, taxes, depreciation, amortization, accretion, non-recurring expenses and discontinued operations ("Adjusted EBITDA") as well as reconciliations of U.S. generally accepted accounting principles ("GAAP") net income to non-GAAP Adjusted EBITDA for the 2016 and 2015 fourth quarter and annual periods.

For the fourth quarter of 2016, operating income was $1.0 million higher than the prior-year quarter primarily due to higher gross margin.  Comparing the annual periods, 2016 operating income was $2.1 million lower than 2015, primarily due to lower gross margin.   

Within the Natural Gas Operations segment, operating expenses for the quarter decreased $1.1 million as legal and professional expenses were down $0.3 million and personnel costs were also down $0.3 million.  Those reductions were partially offset by increased spending on information technology. 

On a full year basis, the Natural Gas Operations' operating expenses were $0.2 million lower than the prior year, primarily due to a $0.7 million decrease in expenditures for professional services and a$0.6 million ongoing reduction of expenses due to the Divestitures.  Those decreases were partially offset by higher spending on information technology.  The Marketing & Production segment benefited from the favorable settlement of a legal matter in the second quarter of 2016.  Litigation, settlement and proxy contest costs drove increased expenses within the Corporate & Other segment.   

Adjusted EBITDA, a non-GAAP financial measure, was up approximately $2.1 million primarily due to higher gross margin in the 2016 fourth quarter and higher non-recurring items.  On a full year basis, Adjusted EBITDA was unfavorably impacted by lower gross margin and higher information technology costs.  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.  

Excluding discrete items, the effective tax rates were 36.1% and 37.2% for the fourth quarters of 2016 and 2015, respectively.  Excluding discrete items for the annual periods, the effective tax rates were 36.5% and 38.1% for 2016 and 2015, respectively.  The improvements in 2016 resulted from the benefit of an R&D tax credit and a favorable change in the Company's blended state tax rate.  

Balance Sheet and Cash Management

Cash and cash equivalents as of December 31, 2016 grew to $6.5 million from $2.7 million at December 31, 2015. 

Cash provided by operating activities in 2016 was $11.4 million compared with $9.4 million in 2015, with the increase primarily due to lower working capital requirements related to the lower price of natural gas. 

Capital expenditures for 2016 were $7.5 million compared with $9.6 million in 2015.  Capital expenditures included approximately $1.9 million and $1.5 million in 2016 and 2015, respectively, for the portion of the Company's ERP system that was not financed under a lease agreement.  The Company has budgeted $10 million for capital expenditures in 2017, with the majority focused on growth of its Natural Gas Operations segment, including construction activities to support expansion, maintenance and enhancements of its gas pipeline systems.

Cash used in financing activities was $1.5 million in 2016 compared with $19.3 million in 2015.  Debt repayment was the primary use of cash in both periods.

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 69,400 customers through regulated utilities operating in Montana, Ohio, Maine and North Carolina.  The Company's other operations include intrastate 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.  Further information is available on the Company's 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 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.

Additional Information and Where to Find It

In connection with the transaction with First Reserve described above, on November 23, 2016, the Company filed with the SEC and sent to its stockholders a definitive proxy statement. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE DEFINITIVE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE. Investors and security holders may obtain a free copy of the definitive proxy statement and other documents filed with the SEC.

For more information, contact:

Gas Natural Inc.

Investor Relations

James E. Sprague, Chief Financial Officer

Deborah K. Pawlowski or Karen L. Howard, Kei Advisors LLC

Phone: (216) 202-1564

Phone:  (716) 843-3908 / (716) 843-3942

Email:  [email protected]

Email:  [email protected] / [email protected]

FINANCIAL TABLES FOLLOW.

Gas Natural Inc. and Subsidiaries

Consolidated Statements of Income

(in thousands, except share and per share data)









Three Months Ended

Years Ended

December 31,

December 31,

2016

2015

2016

2015

REVENUE






Natural gas operations

$      27,251

$      26,575

$      87,464

$    103,978

Marketing and production

3,495

2,923

11,977

8,383

Total revenue

30,746

29,498

99,441

112,361








COST OF SALES






Natural gas purchased

14,602

14,492

45,812

60,502

Marketing and production

2,974

2,751

10,705

7,650

Total cost of sales

17,576

17,243

56,517

68,152








GROSS MARGIN

13,170

12,255

42,924

44,209








OPERATING EXPENSES






Distribution, general, and administrative

7,343

7,131

27,338

26,104

Maintenance

269

551

984

1,422

Depreciation, amortization and accretion

2,053

1,909

8,034

7,257

Taxes other than income

964

1,096

4,006

4,119

Provision for doubtful accounts

83

144

182

278

Contingent consideration gain

-

-

(672)

(75)

Total operating expenses

10,712

10,831

39,872

39,105








OPERATING INCOME 

2,458

1,424

3,052

5,104








Other income (loss), net

83

416

(65)

86

Interest expense

(856)

(1,037)

(3,169)

(3,604)

Income (loss) before income taxes

1,685

803

(182)

1,586

Income tax (expense) benefit

(365)

(74)

707

(417)

INCOME FROM CONTINUING OPERATIONS

1,320

729

525

1,169








Discontinued operations, net of income taxes

(5)

(526)

(12)

3,519








NET INCOME

$        1,315

$           203

$           513

$        4,688








Basic weighted shares outstanding

10,518,062

10,504,319

10,510,644

10,496,979

Dilutive effect of restricted stock awards

733

1,476

623

1,476

Diluted weighted shares outstanding

10,518,795

10,505,795

10,511,267

10,498,455








BASIC & DILUTED EARNINGS PER SHARE:






Continuing operations

$          0.13

$          0.07

$          0.05

$          0.11

Discontinued operations

-

(0.05)

-

0.34

Net income per share

$          0.13

$          0.02

$          0.05

$          0.45








Weighted average dividends declared per common share

$        0.075

$        0.270

$        0.300

$        0.540

Gas Natural Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands)

December 31,

December 31,

2016

2015




ASSETS


CURRENT ASSETS


Cash and cash equivalents

$            6,463

$            2,728

Accounts receivable, less allowance for doubtful accounts of $385 and $506, respectively

11,093

10,823

Unbilled gas

7,256

6,995

Inventory


Natural gas

3,380

4,063

Materials and supplies

2,065

2,271

Regulatory assets, current

3,131

2,469

Other current assets

2,423

2,174

Total current assets

35,811

31,523




PROPERTY, PLANT, & EQUIPMENT, NET

139,691

142,416




OTHER ASSETS


Regulatory assets, non-current

1,032

1,523

Goodwill

15,872

15,872

Customer relationships, net of amortization

2,322

2,625

Restricted cash

-

1,898

Other non-current assets

2,696

1,530

Total other assets

21,922

23,448

TOTAL ASSETS

$        197,424

$        197,387

Gas Natural Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share data)

December 31,

December 31,

2016

2015




LIABILITIES AND CAPITALIZATION


CURRENT LIABILITIES


Line of credit

$          13,450

$          15,750

Accounts payable

10,055

8,976

Notes payable, current portion

-

5,012

Note payable to related party

-

1,980

Accrued liabilities

8,265

6,873

Regulatory liability, current

-

487

Build-to-suit liability

-

2,041

Capital lease liability

3,618

2,876

Other current liabilities

1,097

1,467

Total current liabilities

36,485

45,462




LONG-TERM LIABILITIES


Deferred tax liability

11,280

12,295

Regulatory liability, non-current 

1,417

1,251

Capital lease liability, non-current

2,780

5,177

Other long-term liabilities

3,113

3,286

Total long-term liabilities

18,590

22,009




NOTES PAYABLE, less current portion

49,392

34,427




COMMITMENTS AND CONTINGENCIES






STOCKHOLDERS' EQUITY


Preferred stock; $0.15 par value; 1,500,000 shares authorized,
      no shares issued or outstanding

-

-

Common stock; $0.15 par value; Authorized: 30,000,000 shares;
      Issued and outstanding: 10,519,728 and 10,504,734 shares
      as of December 31, 2016 and  2015, respectively

1,578

1,575

Capital in excess of par value

64,092

63,985

Retained earnings

27,287

29,929

Total stockholders' equity

92,957

95,489

TOTAL CAPITALIZATION

142,349

129,916

TOTAL LIABILITIES AND CAPITALIZATION

$        197,424

$        197,387

Gas Natural Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

Years Ended December 31,





2016

2015

CASH FLOWS FROM OPERATING ACTIVITIES


Net income

$    513

$ 4,688

Less (loss) incomefrom discontinued operations

(12)

3,519

Incomefrom continuing operations

525

1,169

Adjustments to reconcile incomefrom continuing operations to net cash provided by operating activities:


Depreciation and amortization

8,034

7,236

Accretion

-

21

Amortization of debt issuance costs

487

656

Provision for doubtful accounts

182

278

Amortization of deferred loss on sale-leaseback

1,015

358

Stock based compensation

107

161

Loss (gain) on sale of assets

589

(118)

Unrealized holding gain on contingent consideration

(672)

(75)

Change in fair value of derivative financial instruments

(193)

(96)

Deferred income taxes

(702)

2,150

Changes in assets and liabilities:


Accounts receivable, including related parties

(451)

1,293

Unbilled gas

(261)

658

Natural gas inventory

683

1,239

Accounts payable, including related parties

1,271

(4,665)

Regulatory assets and liabilities

(1,148)

(1,283)

Other assets

427

(680)

Other liabilities

1,472

1,122

Net cash provided by operating activities of continuing operations

11,365

9,424




CASH FLOWS FROM INVESTING ACTIVITIES


Capital expenditures

(7,525)

(9,567)

Proceeds from sale of fixed assets

25

4,054

Proceeds from note receivable

-

92

Customer advances for construction

78

33

Contributions in aid of construction

1,351

1,193

Net cash used in investing activities of continuing operations

(6,071)

(4,195)




CASH FLOWS FROM FINANCING ACTIVITIES


Proceeds from lines of credit 

24,750

14,150

Repayments of lines of credit

(27,050)

(27,161)

Proceeds from notes payable, including related parties

53,993

8,000

Repayments of notes payable, including related parties

(45,715)

(6,542)

Payments of capital lease obligations

(3,328)

(1,845)

Debt issuance costs paid

(1,990)

(235)

Restricted cash - debt service fund

948

-

Dividends paid

(3,155)

(5,670)

Net cash used in financing activities of continuing operations

(1,547)

(19,303)




DISCONTINUED OPERATIONS


Operating cash flows

(12)

845

Investing cash flows

-

14,371

Net cash (used in) provided by discontinued operations

(12)

15,216




NET INCREASE IN CASH AND CASH EQUIVALENTS

3,735

1,142

Cash and cash equivalents, beginning of period

2,728

1,586




CASH AND CASH EQUIVALENTS, END OF PERIOD

$ 6,463

$ 2,728

Gas Natural Inc. and Subsidiaries

   Natural Gas Operations








Utility Throughput















Three Months Ended December 31,

Years Ended December 31,

(in million cubic feet (MMcf))

2016

2015

2016

2015








Full service distribution:






Energy West Montana (MT)

1,064

1,037

3,080

3,076

Frontier Natural Gas (NC)

288

258

1,014

926

Bangor Gas (ME)

530

473

1,528

1,727

Ohio Companies (OH)

1,163

968

3,419

3,560

Public Gas (KY)

-

19

-

111

Total full service distribution

3,045

2,755

9,041

9,400








Transportation

2,812

2,504

11,377

10,610

Bucksport

5

60

139

597








Total volumes

5,862

5,319

20,557

20,607

Heating Degree Days












Three Months Ended

Percent Colder (Warmer)




December 31,

2016 Compared to


Normal

2016

2015

Normal

2015











Great Falls, MT

2,570

2,872

2,683

11.75%

7.04%

Bangor, ME

2,526

2,564

2,321

1.50%

10.47%

Elkin, NC

1,469

1,435

1,174

(2.31%)

22.23%

Lancaster, OH 

2,402

1,853

1,462

(22.86%)

26.74%

Total Weighted Average

2,443

2,361

2,088

(3.36%)

13.07%


























Years Ended

Percent Colder (Warmer)




December 31,

2016 Compared to


Normal

2016

2015

Normal

2015











Great Falls, MT

6,929

7,049

6,916

1.73%

1.92%

Bangor, ME

7,483

7,174

8,058

(4.13%)

(10.97%)

Elkin, NC

3,837

4,029

3,831

5.00%

5.17%

Lancaster, OH 

5,889

5,053

5,281

(14.20%)

(4.32%)

Total Weighted Average

6,403

6,101

6,211

(4.72%)

(1.77%)

Gas Natural Inc. and Subsidiaries

Reconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income(2)

 




(in thousands, except per share data)

Three Months Ended

Years Ended

December 31,

December 31,

2016

2015

2016

2015

GAAP net income

$ 1,315

$ 203

$    513

$ 4,688

Add back, pre-tax:






Non-recurring legal, professional and settlement costs

1,251

484

4,242

2,498

Non-recurring regulatory and other expenses

-

-

-

1,111

Gain on cancellation of contingent consideration liability

-

-

(672)

-

Loss on disposal of assets

50

(468)

581

335

Tax effect of non-GAAP continuing operations items(1)

(470)

152

(1,515)

(1,502)

Discontinued operations

5

526

12

(3,519)

Non-GAAP Adjusted net income(2)

$ 2,151

$ 897

$ 3,161

$ 3,611








Non-GAAP Adjusted net income per diluted share(2)

$   0.20

$0.09

$   0.30

$   0.34


(1) 

Applies an effective tax rate of 36.1%, 37.2%, 36.5% and 38.1% to the non-GAAP pre-tax adjustments for the periods presented above, respectively, consistent with the actual effective tax rates for those periods excluding nonrecurring tax items.


(2)

Non-GAAP Financial Measures:


The Company believes that, when used in conjunction with GAAP measures, Adjusted Net Income and Adjusted EBITDA, or earnings before interest, taxes, depreciation, amortization, accretion, non-recurring charges and discontinued operations, which are non-GAAP measures, allow investors to view its performance in a manner similar to the methods used by management and provides additional insight into its operating results.  Adjusted Net Income and Adjusted EBITDA are not calculated through the application of GAAP and are not the required form of disclosure by the Securities and Exchange Commission.  As such, these measures should not be considered as a substitute for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure.  The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

Gas Natural Inc. and Subsidiaries
Reconciliation of GAAP Net Income to Non-GAAP Adjusted EBITDA(2)




(in thousands)

Three Months Ended

Years Ended

December 31,

December 31,

2016

2015

2016

2015

GAAP net income

$ 1,315

$    203

$      513

$   4,688

Add back:






Net interest expense

856

1,037

3,169

3,604

Income tax (benefit) expense

365

74

(707)

417

Depreciation, amortization and accretion

2,053

1,909

8,034

7,257

Non-recurring legal, professional and settlement costs

1,251

484

4,242

2,498

Non-recurring regulatory and other expenses

-

-

-

1,111

Gain on cancellation of contingent consideration liability

-

-

(672)

-

Loss (gain) on disposal of assets

50

(468)

581

335

Discontinued operations

5

526

12

(3,519)

Non-GAAP Adjusted EBITDA(2)

$ 5,895

$ 3,765

$ 15,172

$ 16,391


(2)

Non-GAAP Financial Measures:


The Company believes that, when used in conjunction with GAAP measures, Adjusted Net Income and Adjusted EBITDA, or earnings before interest, taxes, depreciation, amortization, accretion, non-recurring charges and discontinued operations, which are non-GAAP measures, allow investors to view its performance in a manner similar to the methods used by management and provide additional insight into its operating results.  Adjusted Net Income and Adjusted EBITDA are not calculated through the application of GAAP and are not the required form of disclosure by the Securities and Exchange Commission.  As such, these measures should not be considered as a substitute for the GAAP measure of net income and, therefore, should not be used in isolation of, but in conjunction with, the GAAP measure.  The use of any non-GAAP measure may produce results that vary from the GAAP measure and may not be comparable to a similarly defined non-GAAP measure used by other companies.

SOURCE Gas Natural Inc.

Related Links

http://www.egas.net

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