Gas Natural Inc. Reports 2016 Second Quarter Results

News provided by

Gas Natural Inc.

Aug 09, 2016, 03:00 ET

CLEVELAND, Aug. 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 second quarter ended June 30, 2016.  Results for the second quarter and first half of 2016 do not include the results of the Kentucky and Pennsylvania utilities which were divested in the fourth quarter of 2015 ("Divestitures"). 

Second Quarter 2016 Results Summary

  • Seasonal net loss from continuing operations per share of $0.16 unchanged from prior-year period
  • Results impacted by higher legal and other professional costs of $1.6 million
  • Recorded a $0.7 million gain from cancellation of an earn-out provision
  • Throughput increased over 400 MMcf driven by expanding customer base and cooler weather
  • Improved gross margin of $1.0 million driven by increased throughput volume

Mr. Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "We are successfully adding new customers throughout our operating regions.  This, along with colder weather, drove our full service distribution throughput up nearly 21%.  We expect we can continue expanding even with headwinds from the competition of lower oil prices and weak regional industrial economies.  Excluding the settlement and proxy contest costs we incurred, our results demonstrate the leverage we have with higher volume which will drive earnings power."

The number of customers served by Gas Natural's utility operations grew 2% over the past twelve months. 

He continued, "The settlement reached during our proxy contest puts many ongoing legal matters behind us.  We expect significant cost savings from the elimination of litigation, which quickly cover the cost of the settlement.  We continue to expect that we can complete our restructuring and debt refinancing this fall, subject to regulatory approvals.  We have agreement with the lenders and our applications are progressing through the regulatory approval process."

The Company previously announced on July 14, 2016 that it had reached a settlement that resulted in the dismissal of nine different pending legal proceedings in which it was either defendant or plaintiff.

Second Quarter and First Half 2016 Operations Review

Three Months Ended

Six Months Ended

(in thousands)

June 30,

June 30,


2016

2015

2016

2015

Revenue by segment:






Natural Gas Operations

$       14,606

$       14,768

$       49,670

$       66,048

Marketing & Production

2,427

1,278

5,670

3,731

Consolidated

$       17,033

$       16,046

$       55,340

$       69,779

Revenue for the 2016 second quarter increased approximately 6% over the prior-year quarter.  The increase reflects higher sales by Marketing & Production, offset by lower natural gas prices.  This segment's sales included sales to the Company's former operations in Wyoming which it divested in the third quarter of 2015.  Previously, these sales were recorded as intercompany sales and eliminated from consolidated revenue.  Within Natural Gas Operations, higher volume was offset by $0.2 million less revenue from the Divestitures and lower gas prices.

Revenue for the first half of 2016 was down approximately 21% compared with the prior-year first half.  The increase in Marketing & Production revenue was more than offset by the impact of warmer weather on volume, lower gas prices, and a $1.2 million reduction from the Divestitures.  The increase in revenue from the Marketing & Production segment was for the same reason as in the quarter.

Changes in Gross Margin

Three Months


Six Months

(in thousands)

Ended

Ended

June 30, 2016

2015 Gross Margin

$            7,482

$       25,139

Utilities sold

(129)

(505)

Weather

171

(1,883)

Impact of paper mill closures

(559)

(1,075)

Change in gas cost adjustments

693

693

New utility customers

597

597

Natural Gas Operations change

$              773

$       (2,173)

New marketing customers

139

269

Pricing and other

39

(57)

Marketing & Production change

178

212

Consolidated gross margin change

951

(1,961)

2016 Gross Margin

$            8,433

$       23,178

Gross margin for the second quarter of 2016 increased 13% over the prior-year period driven by new customers and colder weather.  Last year's second quarter was impacted by a $0.7 million unfavorable gas cost adjustment. 

Gross margin for the first half of 2016 decreased 8% compared with the prior-year period.  The decrease was primarily the result of warmer weather in each of the Company's markets and the impact of closed paper mills in Maine. 



Three Months Ended

Six Months Ended

(in thousands)

June 30,

June 30,


2016

2015

2016

2015

Operating (loss) income by segment:






Natural Gas Operations

$           (736)

$           (519)

$         4,781

$         8,122

Marketing & Production

894

(4)

977

32

Corporate & Other

(2,139)

(949)

(2,242)

(1,828)

Consolidated

$        (1,981)

$        (1,472)

$         3,516

$         6,326









Non-GAAP Adjusted EBITDA*

$         1,617

$         1,582

$         9,285

$       12,046

For the second quarter of 2016, operating loss was $0.5 million greater than the prior year.  This was primarily because higher gross margin and a $0.7 million favorable cancellation of a contingent consideration liability helped to offset $1.6 million of higher legal and other costs associated with the proxy contest and settlement, a $0.7 million increase in personnel and information technology costs, as well as higher depreciation and amortization. 

Within the Natural Gas Operations segment, operating expenses increased $1.2 million primarily due to the Company's increases in personnel and investments in information technology.  This was partially offset by the elimination of $0.5 million from the Divestitures.  Litigation, settlement and proxy contest costs drove the increase within the Corporate and Other segment.  Offsetting those increases, the Marketing and Production segment benefited from a $0.7 million gain from cancellation of an earn-out provision. 

Adjusted income before interest, taxes, depreciation, amortization, accretion, atypical expenses and discontinued operations ("Adjusted EBITDA"), a non-GAAP financial measure, was relatively consistent for both quarters, with the increased gross margin offset by higher information technology costs.  On a year-to-date 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.  

*See the attached tables for important disclosures regarding the Company's use of Adjusted EBITDA, as well as reconciliations of GAAP net (loss) income to non-GAAP Adjusted EBITDA for the 2016 and 2015 second quarter and year-to-date periods.

Balance Sheet and Cash Management

Cash and cash equivalents as of June 30, 2016 grew to $8.2 million from $2.7 million at December 31, 2015. 

Cash provided by operating activities of continuing operations in the 2016 first half was $14.7 million compared with $11.4 million in the 2015 first half, with the increase primarily due to lower working capital requirements with warmer weather and lower gas costs. 

Capital expenditures for the first half of 2016 were $4.1 million compared with $5.0 million in the prior-year period.  2016 capital expenditures included approximately $1.4 million for the Company's ERP system.  Remaining capital expenditures for 2016 are expected to be approximately $2.5 million to $3.5 million, including the final cash capital expenditures for the ERP system.  The majority of capital is focused on growth of the Company's Natural Gas Operations segment including 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 half compared with $7.9 million in the prior year first half.  Debt repayment was the primary use of cash in both periods. 

Webcast and Conference Call

Gas Natural will host a conference call and live webcast on Wednesday, August 10th at 1:30 p.m. Eastern Time.  During the conference call and webcast, management will review the financial and operating results for the 2016 second 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) 493-6725.  The webcast can be monitored on the Company's website at investor.egas.net.

A telephonic replay will be available from 4:30 p.m. Eastern Time on the day of the teleconference through Wednesday, August 17, 2016.  To listen to a replay of the call, dial (858) 384-5517 and enter the conference ID number 13641703.  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 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 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.

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

Condensed Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)



Three Months Ended

Six Months Ended


June 30,

June 30,


2016

2015

2016

2015

REVENUE






Natural gas operations

$       14,606

$       14,768

$       49,670

$       66,048

Marketing and production

2,427

1,278

5,670

3,731

Total revenues

17,033

16,046

55,340

69,779









COST OF SALES






Natural gas purchased

6,569

7,504

27,191

41,396

Marketing and production

2,031

1,060

4,971

3,244

Total cost of sales

8,600

8,564

32,162

44,640









GROSS MARGIN

8,433

7,482

23,178

25,139









OPERATING EXPENSES






Distribution, general, and administrative

7,169

5,946

13,096

12,533

Maintenance

240

288

504

615

Depreciation, amortization and accretion

2,010

1,668

3,967

3,558

Taxes other than income

938

1,005

2,018

2,008

Provision for doubtful accounts

57

47

77

99

Total operating expenses

10,414

8,954

19,662

18,813









OPERATING (LOSS) INCOME 

(1,981)

(1,472)

3,516

6,326









Other income (loss), net

138

(367)

(264)

(212)

Interest expense

(762)

(886)

(1,515)

(1,755)

Income before income taxes

(2,605)

(2,725)

1,737

4,359

Income tax (benefit) expense

(934)

(1,012)

706

1,655

(LOSS) INCOME FROM CONTINUING OPERATIONS

(1,671)

(1,713)

1,031

2,704









Discontinued operations, net of income taxes

14

213

(9)

650









NET (LOSS) INCOME

$        (1,657)

$        (1,500)

$         1,022

$         3,354









Basic weighted shares outstanding

10,508,187

10,487,610

10,505,865

10,487,561

Dilutive effect of restricted stock awards

-

-

1,232

1,320

Diluted weighted shares outstanding

10,508,187

10,487,610

10,507,097

10,488,881









BASIC & DILUTED (LOSS) EARNINGS PER SHARE:






Continuing operations

$          (0.16)

$          (0.16)

$           0.10

$           0.26

Discontinued operations

0.00

0.02

(0.00)

0.06

Net (loss) income per share

$          (0.16)

$          (0.14)

$           0.10

$           0.32









Dividends declared per common share

$         0.075

$              -

$         0.150

$         0.135

Gas Natural Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands)

June 30,

December 31,

2016

2015




ASSETS


CURRENT ASSETS


Cash and cash equivalents

$        8,156

$        2,728

Accounts receivable, less allowance for doubtful accounts of $656 and $506, respectively

6,932

10,635

Accounts receivable due from related parties

74

188

Unbilled gas

1,477

6,995

Inventory


Natural gas

2,509

4,063

Materials and supplies

2,425

2,271

Regulatory assets, current

2,356

2,469

Other current assets

2,258

2,174

Total current assets

26,187

31,523




PROPERTY, PLANT, & EQUIPMENT, NET

140,540

142,416




OTHER ASSETS


Regulatory assets, non-current

1,277

1,523

Goodwill

15,872

15,872

Customer relationships, net of amortization

2,473

2,625

Restricted cash

1,448

1,898

Other non-current assets

1,873

1,530

Total other assets

22,943

23,448

TOTAL ASSETS

$    189,670

$    197,387

Gas Natural Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)

June 30,

December 31,

2016

2015




LIABILITIES AND CAPITALIZATION


CURRENT LIABILITIES


Line of credit

$      15,050

$      15,750

Accounts payable

5,051

8,784

Accounts payable to related parties

1

192

Notes payable, current portion

34,761

5,012

Note payable to related party

3,940

1,980

Accrued liabilities

4,604

5,667

Accrued liabilities payable to related party

2,988

170

Regulatory liability, current

447

487

Build-to-suit liability

-

2,041

Other current liabilities

6,637

5,379

Total current liabilities

73,479

45,462




LONG-TERM LIABILITIES


Deferred tax liability

12,234

12,295

Regulatory liability, non-current 

1,333

1,251

Capital lease liability, non-current

4,720

5,177

Other long-term liabilities

2,893

3,286

Total long-term liabilities

21,180

22,009




NOTES PAYABLE, less current portion

6

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: 10,511,520 and 10,504,734 shares as of June 30, 2016 and December 31, 2015, respectively

1,577

1,575

Capital in excess of par value

64,054

63,985

Retained earnings

29,374

29,929

Total stockholders' equity

95,005

95,489

TOTAL CAPITALIZATION

95,011

129,916

TOTAL LIABILITIES AND CAPITALIZATION

$    189,670

$    197,387

Gas Natural Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(amounts in thousands)


Six Months Ended June 30,

2016

2015

CASH FLOWS FROM OPERATING ACTIVITIES


Net income

$         1,022

$         3,354

Less (loss) incomefrom discontinued operations

(9)

650

Incomefrom continuing operations

1,031

2,704

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


Depreciation and amortization

3,967

3,537

Accretion

-

21

Amortization of debt issuance costs

206

353

Provision for doubtful accounts

77

99

Amortization of deferred loss on sale-leaseback

451

-

Stock based compensation

70

98

Losson sale of assets

529

358

Unrealized holding gain on contingent consideration

(672)

-

Change in fair value of derivative financial instruments

(168)

(135)

Investment tax credit

(11)

(11)

Deferred income taxes

702

2,038

Changes in assets and liabilities:


Accounts receivable, including related parties

3,741

6,066

Unbilled gas

5,518

5,913

Natural gas inventory

1,555

1,799

Accounts payable, including related parties

(4,252)

(8,378)

Regulatory assets and liabilities

72

(1,038)

Prepayments and other

(62)

(35)

Other assets

848

(497)

Other liabilities

1,074

(1,464)

Net cash provided by operating activities

14,676

11,428




CASH FLOWS FROM INVESTING ACTIVITIES


Capital expenditures

(4,130)

(4,973)

Proceeds from sale of fixed assets

2

50

Proceeds from note receivable

-

55

Customer advances for construction

67

31

Contributions in aid of construction

708

195

Net cash used in investing activities

(3,353)

(4,642)




CASH FLOWS FROM FINANCING ACTIVITIES


Proceeds from lines of credit 

5,800

13,500

Repayments of lines of credit

(6,500)

(23,561)

Repayments of notes payable

(6,760)

(272)

Proceeds from notes payable, including related parties

4,000

5,000

Repayments of capital lease obligations

(1,470)

(991)

Debt issuance costs paid

(168)

(151)

Dividends paid

(788)

(1,416)

Net cash used in financing activities

(5,886)

(7,891)




DISCONTINUED OPERATIONS


Operating cash flows

(9)

2,245

Investing cash flows

-

(398)

Net cash (used in) provided by discontinued operations

(9)

1,847




NET INCREASE IN CASH AND CASH EQUIVALENTS

5,428

742

Cash and cash equivalents, beginning of period

2,728

1,586




CASH AND CASH EQUIVALENTS, END OF PERIOD

$         8,156

$         2,328

Gas Natural Inc. and Subsidiaries

   Natural Gas Operations


Utility Throughput











Three Months Ended June 30,

Six Months Ended June 30,

(in million cubic feet (MMcf))

2016

2015

2016

2015









Full service distribution:






Energy West Montana (MT)

496

474

1,764

1,800

Frontier Natural Gas (NC)

163

45

574

516

Bangor Gas (ME)

329

290

876

1,130

Ohio Companies (OH)

572

471

1,955

2,293

Public Gas (KY)

-

13

-

88

Total full service distribution

1,560

1,293

5,169

5,827









Transportation

2,888

2,446

6,071

5,765

Bucksport

23

285

74

413









Total volumes

4,471

4,024

11,314

12,005

Heating Degree Days




Three Months Ended

Percent Colder (Warmer)




June 30,

2016 Compared to


Normal

2016

2015

Normal

2015











Montana weighted average

1,140

1,095

1,157

(3.95%)

(5.36%)

Bangor, ME

1,050

1,003

1,150

(4.48%)

(12.78%)

Elkin, NC

260

454

327

74.62%

38.84%

Ohio weighted average

589

678

521

15.11%

30.13%

Total Weighted Average

886

891

847

0.56%

5.19%


























Six Months

Percent Colder (Warmer)




June 30,

2016 Compared to


Normal

2016

2015

Normal

2015











Montana weighted average

4,216

3,842

3,957

(8.87%)

(2.91%)

Bangor, ME

4,735

4,448

5,603

(6.06%)

(20.61%)

Elkin, NC

2,327

2,583

2,609

11.00%

(1.00%)

OH weighted average

3,497

3,278

4,049

(6.26%)

(19.04%)

Weighted Average

3,877

3,609

4,022

(6.91%)

(10.27%)

Gas Natural Inc. and Subsidiaries

Reconciliation of GAAP Net (Loss) Income to Non-GAAP Adjusted Net (Loss) Income(1)




(in thousands, except per share data)

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

GAAP net (loss) income

$    (1,657)

$    (1,500)

$      1,022

$      3,354

Add back, pre-tax:






Non-recurring legal, professional and settlement costs

2,122

667

2,207

1,250

Non-recurring regulatory and other expenses

-

693

-

731

Gain on cancellation of contingent consideration liability

(672)

-

(672)

-

Loss on disposal of assets

-

393

531

393

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

(525)

(646)

(853)

(904)

Discontinued operations

(14)

(213)

9

(650)

Non-GAAP Adjusted net (loss) income(2)

$       (746)

$       (606)

$      2,244

$      4,174








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

$      (0.07)

$      (0.06)

$        0.21

$        0.39

(1) Applies an effective tax rate of 36%, 37%, 41% and 38% to the non-GAAP pre-tax adjustments for the periods presented above, respectively, consistent with the actual effective tax rates for those periods.

Gas Natural Inc. and Subsidiaries

Reconciliation of GAAP Net (Loss) Income to Non-GAAP Adjusted EBITDA(1)




(in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2016

2015

2016

2015

GAAP net (loss) income

$   (1,657)

$   (1,500)

$    1,022

$    3,354

Add back:






Net interest expense

762

886

1,515

1,755

Income tax (benefit) expense

(934)

(1,012)

706

1,655

Depreciation, amortization and accretion

2,010

1,668

3,967

3,558

Non-recurring legal, professional and settlement costs

2,122

667

2,207

1,250

Non-recurring regulatory and other expenses

-

693

-

731

Gain on cancellation of contingent consideration liability

(672)

-

(672)

-

Loss on disposal of assets

-

393

531

393

Discontinued operations

(14)

(213)

9

(650)

Non-GAAP Adjusted EBITDA(2)

$    1,617

$    1,582

$    9,285

$  12,046


(2)Non-GAAP Financial Measures:
The Company believes that, when used in conjunction with GAAP measures, Adjusted Net (Loss) Income and Adjusted EBITDA, or earnings before interest, taxes, depreciation, amortization, accretion, atypical 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 (Loss) 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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