November 9, 2016 - 6:55 AM EST
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Gas Natural Inc. Reports 2016 Third Quarter Results

CLEVELAND, Nov. 9, 2016 /PRNewswire/ -- Gas Natural Inc. (NYSE MKT: EGAS) (the "Company"), a holding company operating local natural gas utilities serving approximately 68,600 customers in four states, reported financial results for the third quarter ended September 30, 2016.  Results for the third quarter and first nine months of 2016 do not include the results of the Kentucky and Pennsylvania utilities which were divested in the fourth quarter of 2015 ("Divestitures"). 

Third Quarter 2016 Summary

  • Full service distribution throughput increased modestly due to the addition of approximately 400 new customers in the quarter
  • Net loss from continuing operations improved to $0.17 per share
  • Closed on $92 million debt refinancing in early fourth quarter
  • Signed merger agreement with First Reserve Energy Infrastructure in early fourth quarter

Mr. Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "With much of the costs and distractions of our prior legal and regulatory matters behind us, we can now more acutely focus on improving our cost structure and growing our operations.  As recently announced, early in the fourth quarter we completed the refinancing of our debt that was supported by our new organizational structure.  Closure of those initiatives positions us well to accelerate our progress as we strive to achieve our vision of becoming a premier natural gas company recognized as a benchmark in our industry."

He added, "We are working diligently through the merger process with First Reserve, announced in early October, as we endeavor for a seamless process that will prove favorable for our customers, employees, regulators and shareholders."

Third Quarter and Year-to-date 2016 Operations Review



Three Months Ended


Nine Months Ended

(in thousands)

September 30,


September 30,



2016


2015


2016


2015

Revenue by segment:








Natural Gas Operations

$       10,543


$       11,355


$       60,213


$       77,403

Marketing & Production

2,812


1,729


8,482


5,460

Consolidated

$       13,355


$       13,084


$       68,695


$       82,863

 

Revenue for the 2016 third quarter increased approximately 2% over the prior-year quarter.  The increase was driven by higher sales in Marketing & Production 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.  The Natural Gas Operations segment, despite modestly higher volume, realized lower natural gas prices as well as $0.1 million less revenue from the Divestitures.

Revenue for the first nine months of 2016 was down approximately 17% compared with the prior-year period.  The increase in Marketing & Production was for the same reason as described above for the quarter.  This was more than offset by the Natural Gas Operations segment that was impacted by lower volume due to warmer weather, lower gas prices, and a $1.4 million reduction from the Divestitures.

Changes in Gross Margin

(in thousands)

Three Months
Ended


Nine Months
Ended


September 30, 2016

2015 Gross Margin

$            6,815


$       31,954

Utilities sold

85


(420)

Weather and other volume changes

13


(1,963)

Impact of paper mill closures

(626)


(1,701)

Gas cost adjustment

-


693

New utility customers

311


1,001

Natural Gas Operations change

(217)


(2,390)

New marketing customers

30


299

Pricing and other

(52)


(109)

Marketing & Production change

(22)


190

Consolidated gross margin change

(239)


(2,200)

2016 Gross Margin

$            6,576


$       29,754

 

Gross margin for the third quarter of 2016 decreased 4% compared with the prior-year period primarily due to the impact of paper mill closures in Maine, partially offset by increased full service distribution throughput to new customers.  Customer count grew by approximately 400 in the quarter to 68,600, compared with the end of the second quarter of 2016. 

Gross margin for the first nine months of 2016 decreased 7% compared with the prior-year period.  The decrease was primarily the result of warmer weather in each 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 last year.



Three Months Ended


Nine Months Ended

(in thousands)

September 30,


September 30,



2016


2015


2016


2015

Operating (loss) income by segment:








Natural Gas Operations

$    (2,095)


$    (2,128)


$     2,687


$     5,995

Marketing & Production

(106)


(68)


870


(36)

Corporate & Other

(721)


(450)


(2,963)


(2,279)

Consolidated

$    (2,922)


$    (2,646)


$        594


$     3,680










Non-GAAP Adjusted EBITDA*

$           (8)


$        460


$     9,277


$   12,627


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

 

For the third quarter of 2016, the operating loss was $0.3 million greater than the prior-year's loss, primarily due to lower gross margin.  Comparing the year-to-date periods, 2016 operating income was $3.1 million lower than 2015 on lower gross margin and higher operating expenses.   

Within the Natural Gas Operations segment, operating expenses for the quarter decreased $0.3 million as legal and professional expenses were down $0.4 million and $0.2 million of expenses were eliminated with the Divestitures.  Those reductions were partially offset by increased investments in information technology. 

On a year-to-date basis, the Natural Gas Operations' operating expenses were $0.9 million higher than the prior year, primarily due to increases in personnel costs and investments in information technology, partially offset by $0.9 million of expenses being eliminated with the Divestitures.  The Marketing & Production segment comparison benefited from the favorable settlement of a legal matter in the 2016 second quarter.  Litigation, settlement and proxy contest costs drove increased expenses within the Corporate & Other segment.   

Adjusted EBITDA, a non-GAAP financial measure, was down about $0.5 million due to lower gross margin in the 2016 third quarter and higher atypical expenses in last year's third quarter.  On a year-to-date basis, Adjusted EBITDA was unfavorably impacted by lower gross margin and higher information technology costs as well as differences in atypical items.  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.  

Other income (loss), net increased by $0.2 million in the quarter due to recognition in last-year's quarter of a $0.4 million loss related to the sale of a building.

Compared with the prior-year quarter, the income tax benefit increased by $0.5 million to $1.8 million.  Excluding discreet items, the effective tax rates were 36.2% and 36.4% for the 2016 and 2015 third quarters, respectively.  Excluding discreet items for the nine month year-to-date periods, the effective tax rates were 31.5% and 37.6% for 2016 and 2015, respectively.  The improvements in the 2016 periods 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 September 30, 2016 grew to $3.8 million from $2.7 million at December 31, 2015. 

Cash provided by operating activities in the 2016 first nine months was $10.5 million compared with $12.2 million in the 2015 period, with the decrease primarily due to lower income from continuing operations and lower working capital requirements related to the lower price of natural gas. 

Capital expenditures for the first nine months of 2016 were $5.8 million compared with $8.3 million in the prior-year period.  2016 capital expenditures included approximately $1.9 million for the Company's ERP system that were not financed under a lease agreement.  Remaining capital expenditures for 2016 are expected to be approximately $1.3 million.  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 was $4.7 million in the 2016 first nine months compared with $18.0 million in the prior year period.  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, November 9, 2016 at 1:30 p.m. Eastern Time.  During the conference call and webcast, management will review the financial and operating results for the 2016 third 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, November 16, 2016.  To listen to a replay of the call, dial (412) 317-6671 and enter the conference ID number 13647842.  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 68,600 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


Nine Months Ended




September 30,


September 30,




2016


2015


2016


2015

REVENUE








Natural gas operations

$      10,543


$      11,355


$      60,213


$      77,403

Marketing and production

2,812


1,729


8,482


5,460

Total revenue

13,355


13,084


68,695


82,863









COST OF SALES








Natural gas purchased

4,019


4,614


31,210


46,010

Marketing and production

2,760


1,655


7,731


4,899

Total cost of sales

6,779


6,269


38,941


50,909









GROSS MARGIN

6,576


6,815


29,754


31,954









OPERATING EXPENSES








Distribution, general, and administrative

6,227


6,365


19,323


18,898

Maintenance

211


256


715


871

Depreciation, amortization and accretion

2,014


1,790


5,981


5,348

Taxes other than income

1,024


1,015


3,042


3,023

Provision for doubtful accounts

22


35


99


134

Total operating expenses

9,498


9,461


29,160


28,274









OPERATING (LOSS) INCOME 

(2,922)


(2,646)


594


3,680









Other income (loss), net

116


(118)


(148)


(330)

Interest expense

(798)


(812)


(2,313)


(2,567)

(Loss) income before income taxes

(3,604)


(3,576)


(1,867)


783

Income tax (benefit) expense

(1,778)


(1,312)


(1,072)


343

(LOSS) INCOME FROM CONTINUING OPERATIONS

(1,826)


(2,264)


(795)


440









Discontinued operations, net of income taxes

2


3,395


(7)


4,045









NET (LOSS) INCOME

$      (1,824)


$        1,131


$         (802)


$        4,485









Basic weighted shares outstanding

10,512,680


10,494,130


10,508,154


10,490,736

Dilutive effect of restricted stock awards

-


1,134


-


1,173

Diluted weighted shares outstanding

10,512,680


10,495,264


10,508,154


10,491,909









BASIC & DILUTED (LOSS) EARNINGS PER SHARE:








Continuing operations

$        (0.17)


$        (0.22)


$        (0.08)


$          0.04

Discontinued operations

-


0.32


-


0.39

Net (loss) income per share

$        (0.17)


$          0.10


$        (0.08)


$          0.43









Dividends declared per common share

$        0.075


$        0.135


$        0.225


$        0.270

 

Gas Natural Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands)


September 30,


December 31,


2016


2015





ASSETS




CURRENT ASSETS




Cash and cash equivalents

$             3,833


$            2,728

Accounts receivable, less allowance for doubtful accounts of $396 and $506, respectively

 

5,436


 

10,635

Accounts receivable due from related parties

14


188

Unbilled gas

1,991


6,995

Inventory




Natural gas

5,266


4,063

Materials and supplies

2,224


2,271

Regulatory assets, current

2,340


2,469

Restricted cash

948


-

Other current assets

3,228


2,174

Total current assets

25,280


31,523





PROPERTY, PLANT, & EQUIPMENT, NET

139,980


142,416





OTHER ASSETS




Regulatory assets, non-current

1,154


1,523

Goodwill

15,872


15,872

Customer relationships, net of amortization

2,398


2,625

Restricted cash

-


1,898

Other non-current assets

1,695


1,530

Total other assets

21,119


23,448

TOTAL ASSETS

$         186,379


$        197,387

 

Gas Natural Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)


September 30,


December 31,


2016


2015





LIABILITIES AND CAPITALIZATION




CURRENT LIABILITIES




Line of credit

$             7,086


$          15,750

Accounts payable

5,015


8,784

Accounts payable to related parties

47


192

Notes payable, current portion

-


5,012

Note payable to related party

-


1,980

Accrued liabilities

2,211


2,560

Accrued liabilities payable to related party

87


170

Regulatory liability, current

725


487

Build-to-suit liability

-


2,041

Capital lease liability, current

3,588


2,876

Deferred payment received from levelized billing

2,811


3,107

Other current liabilities

3,888


2,503

Total current liabilities

25,458


45,462





OTHER LIABILITIES




Deferred tax liability

10,526


12,295

Regulatory liability, non-current 

1,375


1,251

Capital lease liability, non-current

3,643


5,177

Other long-term liabilities

3,126


3,286

Total other liabilities

18,670


22,009





NOTES PAYABLE, less current portion

49,825


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: 10,515,834 and 10,504,734 shares as of September 30, 2016 and December 31, 2015, respectively

1,577


1,575

Capital in excess of par value

64,088


63,985

Retained earnings

26,761


29,929

Total stockholders' equity

92,426


95,489

TOTAL CAPITALIZATION

142,251


129,916

TOTAL LIABILITIES AND CAPITALIZATION

$         186,379


$        197,387

 

Gas Natural Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(in thousands)



Nine Months Ended
September 30,


2016


2015

CASH FLOWS FROM OPERATING ACTIVITIES




Net (loss) income

$  (802)


$ 4,485

Less (loss) income from discontinued operations

(7)


4,045

(Loss) income from continuing operations

(795)


440

Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities:




Depreciation and amortization

5,981


5,327

Accretion

-


21

Amortization of debt issuance costs

323


517

Provision for doubtful accounts

99


134

Amortization of deferred loss on sale-leaseback

733


-

Stock based compensation

104


135

Loss on sale of assets

548


769

Unrealized holding gain on contingent consideration

(672)


(75)

Change in fair value of derivative financial instruments

(120)


(120)

Investment tax credit

(16)


(16)

Deferred income taxes

(1,046)


2,686

Changes in assets and liabilities:




Accounts receivable, including related parties

5,275


7,533

Unbilled gas

5,004


5,361

Natural gas inventory

(1,203)


(432)

Accounts payable, including related parties

(2,700)


(7,572)

Regulatory assets and liabilities

367


(961)

Prepayments and other

(1,393)


(1,102)

Other assets

1,039


(453)

Other liabilities

(1,016)


57

Net cash provided by operating activities

10,512


12,249





CASH FLOWS FROM INVESTING ACTIVITIES




Capital expenditures

(5,785)


(8,325)

Proceeds from sale of fixed assets

2


66

Proceeds from note receivable

-


59

Customer advances for construction

94


33

Contributions in aid of construction

960


606

Net cash used in investing activities

(4,729)


(7,561)





CASH FLOWS FROM FINANCING ACTIVITIES




Proceeds from lines of credit 

9,300


13,750

Repayments of lines of credit

(6,800)


(26,761)

Repayments of notes payable, including related parties

(6,886)


(5,407)

Proceeds from notes payable, including related parties

4,000


5,000

Repayments of capital lease obligations

(2,495)


(1,560)

Debt issuance costs paid

(213)


(151)

Dividends paid

(1,577)


(2,834)

Net cash used in financing activities

(4,671)


(17,963)





DISCONTINUED OPERATIONS




Operating cash flows

(7)


1,288

Investing cash flows

-


14,305

Net cash (used in) provided by discontinued operations

(7)


15,593





NET INCREASE IN CASH AND CASH EQUIVALENTS

1,105


2,318

Cash and cash equivalents, beginning of period

2,728


1,586





CASH AND CASH EQUIVALENTS, END OF PERIOD

$3,833


$ 3,904

 

Gas Natural Inc. and Subsidiaries

Natural Gas Operations









Utility Throughput

















Three Months Ended September 30,


Nine Months Ended September 30,

(in million cubic feet (MMcf))

2016


2015


2016


2015









Full service distribution:








Energy West Montana (MT)

253


238


2,016


2,039

Frontier Natural Gas (NC)

153


152


726


668

Bangor Gas (ME)

122


124


998


1,254

Ohio Companies (OH)

302


299


2,256


2,592

Public Gas (KY)

-


4


-


92

Total full service distribution

830


817


5,996


6,645









Transportation

2,492


2,342


8,565


8,106

Bucksport

60


124


134


537









Total volumes

3,382


3,283


14,695


15,288

 

Heating Degree Days














Three Months Ended


Percent Colder (Warmer)





September 30,


2016 Compared to



Normal


2016


2015


Normal


2015












Great Falls, MT

225


384


319


70.67%


20.38%

Bangor, ME

222


88


134


(60.36%)


(34.33%)

Elkin, NC

41


16


48


(60.98%)


(66.67%)

Ohio weighted average

114


26


44


(77.19%)


(40.91%)


Total Weighted Average

151


204


186


35.10%


9.68%



























Nine Months


Percent Colder (Warmer)





September 30,


2016 Compared to



Normal


2016


2015


Normal


2015












Great Falls, MT

4,358


4,177


4,233


(4.15%)


(1.32%)

Bangor, ME

4,957


4,536


5,737


(8.49%)


(20.93%)

Elkin, NC

2,368


2,599


2,657


9.76%


(2.18%)

OH weighted average

3,487


3,200


3,819


(8.23%)


(16.21%)


Total Weighted Average

4,028


3,813


4,208


(5.34%)


(9.39%)

 

Gas Natural Inc. and Subsidiaries

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





(in thousands, except per share data)

Three Months Ended


NIne Months Ended

September 30,


September 30,


2016


2015


2016


2015

GAAP net (loss) income

$(1,824)


$  1,131


$  (802)


$ 4,485

Add back, pre-tax:








Non-recurring legal, professional and settlement costs

784


644


2,991


2,014

Non-recurring regulatory and other expenses

-


380


-


1,111

Gain on cancellation of contingent consideration liability

-


-


(672)


-

Loss on disposal of assets

-


410


531


804

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

(284)


(525)


(898)


(1,717)

Discontinued operations

(2)


(3,395)


7


(4,045)

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

$(1,326)


$(1,355)


$ 1,157


$ 2,652









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

$  (0.13)


$  (0.13)


$   0.11


$   0.25



(1)

Applies an effective tax rate of 36%, 36%, 32% 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 excluding nonrecurring tax items.



(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.

 

Gas Natural Inc. and Subsidiaries

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





(in thousands)

Three Months Ended


Nine Months Ended

September 30,


September 30,


2016


2015


2016


2015

GAAP net (loss) income

$(1,824)


$ 1,131


$  (802)


$   4,485

Add back:








Net interest expense

798


812


2,313


2,567

Income tax (benefit) expense

(1,778)


(1,312)


(1,072)


343

Depreciation, amortization and accretion

2,014


1,790


5,981


5,348

Non-recurring legal, professional and settlement costs

784


644


2,991


2,014

Non-recurring regulatory and other expenses

-


380


-


1,111

Gain on cancellation of contingent consideration liability

-


-


(672)


-

Loss on disposal of assets

-


410


531


804

Discontinued operations

(2)


(3,395)


7


(4,045)

Non-GAAP Adjusted EBITDA(2)

$       (8)


$    460


$ 9,277


$ 12,627



 (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 provide 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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/gas-natural-inc-reports-2016-third-quarter-results-300359557.html

SOURCE Gas Natural Inc.


Source: PR Newswire (November 9, 2016 - 6:55 AM EST)

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