Gas Natural Inc. Reports 2015 First Quarter Results

CLEVELAND, May 11, 2015 /PRNewswire/ -- Gas Natural Inc. (NYSE MKT: EGAS) ("Gas Natural" or the "Company"), a holding company operating local natural gas utilities serving approximately 68,000 customers in six states, reported financial results for the first quarter of 2015. As previously announced, the Company has agreed to sell its Wyoming operations which serve 6,700 customers and are reported as discontinued operations.

Income from continuing operations was $4.4 million, or $0.42 per share, for the first quarter, compared with $4.5 million, or $0.43 per share, for the first quarter of 2014. Adjusted income from continuing operations, a non-GAAP number, was $4.8 million, or $0.46 per share, for the first quarter of 2015 compared with $5.0 million, or $0.47 per share, for the first quarter of 2014. The adjustments of $0.4 million after taxes in both the 2015 and 2014 periods reflect the exclusion of non-recurring professional and legal fees related to increased regulatory and legal proceedings. See attached table for a reconciliation of GAAP income from continuing operations to non-GAAP adjusted income from continuing operations.

Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "We continue to make progress on our strategic plan, resulting in customer growth in the first quarter of 2015 which drove an increase in gross margin. While our revenue was affected by lower gas prices and lower sales volumes due to warmer weather in certain markets, we are excited to continue to transform the organization into a higher quality natural gas utility which is focused on growing shareholder value."

Natural Gas Operations Segment Review

The Natural Gas Operations segment reported $51.3 million in revenue for the first quarter, a decrease of $5.5 million, or 10%. This change was primarily due to a $4.0 million decrease in revenue from our Ohio market due to lower prices paid for natural gas passed on to customers. Revenue from our Montana market decreased $1.9 million due to a volume decrease driven by significantly warmer weather compared with the prior-year period. These decreases were partially offset by a $0.4 million increase in revenue from the Company's Maine and North Carolina markets, which was the result of continued customer growth as well as colder weather in Maine.

	Natural Gas Operations Income Statement

		Three Months Ended March 31,
($ in thousands)		2015	2014

Natural Gas Operations
Operating revenues		$51,279	$56,807
Gas Purchased		33,861	39,846
Gross Margin		17,418	16,961
Operating expenses		8,778	7,820
Operating income		8,640	9,141
Other income		206	107
Income before interest and taxes		8,846	9,248
Interest expense		(671)	(665)
Income before income taxes		8,175	8,583
Income tax expense		(3,062)	(3,196)

Net Income		$ 5,113	$ 5,387

Gross margin for the first quarter of 2015 increased to $17.4 million compared with $17.0 million in the prior-year quarter. The increase was driven by continued customer growth in Maine, North Carolina and Ohio markets coupled with colder weather in Maine, which contributed to a $0.7 million improvement to gross margin. This was partially offset by a $0.3 million decrease in gross margin driven by lower sales volume in Montana caused by especially warm weather.

Operating expenses increased by $1.0 million, or 12%, for the quarter. This included higher expenses of $0.6 million due to a decrease in capitalized labor and increases in insurance and outside professional fees. Depreciation and amortization increased by $0.3 million due to the amortization of a regulatory asset as well as higher depreciable assets.

Other Operating Segments

Net income for the Marketing and Production Operations segment was breakeven in the first quarter of both 2015 and 2014. Revenue decreased by $2.2 million to $2.5 million for the first quarter of 2015, compared with the same period in 2014 and gross margin decreased by $0.3 million to $0.1 million. The decrease in revenue and gross margin was primarily due to the loss of the Company's liquid natural gas customer to pipeline competition along with lower sales volume and pricing.

Net loss for the Corporate and Other Operations segment improved to $0.3 million compared with net loss of $0.4 million in the prior-year quarter. The improvement was primarily due to a $0.3 million reduction in administrative costs.

Adjusted EBITDA

Adjusted earnings from continuing operations before interest, taxes, depreciation, amortization, accretion, and non-recurring expenses ("Adjusted EBITDA"), a non-GAAP financial measure, was $10.5 million in both the first quarter of 2015 and 2014. The Company believes that, when used in conjunction with measures prepared in accordance with U.S. generally accepted accounting principles ("GAAP"), Adjusted EBITDA, which is a non-GAAP measure, helps in the understanding of its operating performance. See the attached tables for important disclosures regarding the Company's use of Adjusted EBITDA, as well as a reconciliation of GAAP income from continuing operations to Adjusted EBITDA.

Balance Sheet and Cash Management

Cash and cash equivalents as of March 31, 2015 were $2.7 million, up $1.1 million from December 31, 2014.

Cash provided by operating activities of continuing operations was $8.0 million in the first quarter of 2015, compared with $5.6 million in the prior-year period. The increase was primarily the result of improved gas procurement policies, increased utilization of storage capabilities and effective hedging strategies which stabilized the pricing of gas.

Capital expenditures for the first quarter of 2015 were $2.5 million compared with $5.7 million in the prior-year period. Capital expenditures in 2015 are expected to be approximately $8 million to $9 million, and are focused on the growth of the Natural Gas Operations segment as well as ongoing construction activities in all of the Company's utility service areas to support expansion, maintenance and enhancement of its gas pipeline systems.

Mr. Osborne concluded, "In the first quarter of 2015, we continued to build the foundation that we began building in 2014. Our vision is to be a premier natural gas company recognized as the benchmark in the natural gas utility industry by customers, peers and investors. We are executing our strategy to achieve that vision."

About Gas Natural Inc.
Gas Natural Inc., a holding company, distributes and sells natural gas to end-use residential, commercial, and industrial customers. It distributes approximately 26 billion cubic feet of natural gas to approximately 68,000 customers through regulated utilities operating in Montana, Ohio, Pennsylvania, Maine, North Carolina and Kentucky. 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 the Maine and North Carolina markets, while looking for acquisitions that are either adjacent to its existing utilities or in under saturated 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 successfully integrate the operations of the companies it has recently acquired and consummate additional acquisitions, the Company's continued ability to make dividend payments, the Company's ability to implement its business plan, 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: (440) 974-3770	Phone: (716) 843-3908 / (716) 843-3942
Email: jsprague@egas.net	Email: dpawlowski@keiadvisors.com / khoward@keiadvisors.com

FINANCIAL TABLES FOLLOW.

Gas Natural Inc. and Subsidiaries
Condensed Consolidated Statement of Operations
(Unaudited)

	Three Months Ended March 31,
	2015	2014
REVENUES
Natural gas operations	$51,279,730	$ 56,807,363
Marketing and production	2,453,231	4,689,356
Total revenues	53,732,961	61,496,719

COST OF SALES
Natural gas purchased	33,861,353	39,846,604
Marketing and production	2,306,889	4,240,965
Total cost of sales	36,168,242	44,087,569

GROSS MARGIN	17,564,719	17,409,150

OPERATING EXPENSES
Distribution, general, and administrative	6,617,603	6,480,408
Maintenance	327,480	305,080
Depreciation and amortization	1,878,721	1,669,322
Accretion	11,180	14,228
Provision for doubtful accounts	51,742	8,279
Taxes other than income	1,003,163	921,186
Total operating expenses	9,889,889	9,398,503

OPERATING INCOME	7,674,830	8,010,647

Other income, net	277,622	94,475
Interest expense	(869,022)	(809,099)
Income before income taxes	7,083,430	7,296,023

Income tax expense	(2,666,673)	(2,759,478)

INCOME FROM CONTINUING OPERATIONS	4,416,757	4,536,545

Discontinued operations, net of tax	436,916	481,946

NET INCOME	$ 4,853,673	$ 5,018,491


Basic weighted shares outstanding	10,487,511	10,451,678
Dilutive effect of stock options	854	572
Diluted weighted shares outstanding	10,488,365	10,452,250

BASIC AND DILUTED EARNINGS PER SHARE:
Continuing operations	$ 0.42	$ 0.43
Discontinued operations	0.04	0.05
Net income per share	$ 0.46	$ 0.48

Gas Natural Inc. and Subsidiaries
Condensed Consolidated Balance Sheets

	March 31,	December 31,
	2015	2014
	(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$ 2,721,167	$ 1,585,926
Accounts receivable
Trade, less allowance for doubtful accounts of$469,374 and $370,909, respectively	15,446,459	12,095,535
Related parties	253,057	250,101
Unbilled gas	5,684,249	7,630,852
Note receivable, current portion	2,086	2,070
Inventory
Natural gas	499,957	5,301,895
Materials and supplies	2,383,545	2,300,990
Prepaid income taxes	431,681	431,681
Regulatory assets, current	6,235,884	4,097,822
Deferred tax asset	608,235	635,195
Prepayments and other	1,079,758	986,941
Assets held for sale	801,711	802,436
Discontinued operations	10,631,729	11,653,934
Total current assets	46,779,518	47,775,378

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment	190,196,318	187,566,638
Less accumulated depreciation, depletion and amortization	(47,169,527)	(45,555,553)
PROPERTY, PLANT, & EQUIPMENT, NET	143,026,791	142,011,085

OTHER ASSETS
Notes receivable, less current portion	89,752	90,345
Regulatory assets, non-current	1,922,074	2,055,404
Debt issuance costs, net of amortization	976,244	1,079,447
Goodwill	16,155,672	16,155,672
Customer relationships, net of amortization	2,851,792	2,927,500
Restricted cash	1,897,683	1,897,677
Other assets	15,652	11,404
Total other assets	23,908,869	24,217,449
TOTAL ASSETS	$ 213,715,178	$ 214,003,912

Gas Natural Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Cont'd)

	March 31, 2015	December 31, 2014
	(unaudited)
LIABILITIES AND CAPITALIZATION
CURRENT LIABILITIES
Checks in excess of amounts on deposit	$ 264,334	$ 194,524
Line of credit	24,740,799	28,760,799
Accounts payable
Trade	13,063,718	14,115,367
Related parties	86,798	170,319
Notes payable, current portion	539,246	542,201
Contingent consideration, current	671,638	671,638
Derivative instruments	1,766,472	3,023,271
Accrued liabilities	4,454,348	4,860,663
Accrued liabilities - related parties	210,736	111,133
Customer deposits, current	639,347	634,090
Obligation under capital lease, current	188,224	188,224
Regulatory liability, current	317,211	925,175
Build-to-suit liability	5,946,089	5,597,287
Other current liabilities	984,950	940,643
Liabilities held for sale	85,515	61,416
Discontinued operations	717,662	544,432
Total current liabilities	54,677,087	61,341,182

LONG-TERM LIABILITIES
Deferred investment tax credits	107,927	113,193
Deferred tax liability	13,434,344	10,538,394
Asset retirement obligation	1,207,698	1,196,518
Customer advances for construction	998,003	993,681
Regulatory liability, non-current	1,129,758	1,089,850
Customer deposits	949,540	949,540
Obligation under capital lease, less current	1,674,714	1,674,714
Contingent consideration, less current	75,362	75,362
Total long-term liabilities	19,577,346	16,631,252

NOTES PAYABLE, less current portion	39,588,284	39,720,860

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, respectively; Issued: 10,487,511shares, respectively; Outstanding: 10,487,511 shares, respectively	1,573,127	1,573,127
Capital in excess of par value	63,951,000	63,826,341
Retained earnings	34,348,334	30,911,150
Total stockholders' equity	99,872,461	96,310,618
TOTAL CAPITALIZATION	139,460,745	136,031,478
TOTAL LIABILITIES AND CAPITALIZATION	$213,715,178	$214,003,912

Gas Natural Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Three months ended March 31,
	2015	2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 4,853,673	$ 5,018,491
Less income from discontinued operations	436,916	481,946
Income from continuing operations	4,416,757	4,536,545

Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	1,878,721	1,669,322
Accretion	11,180	14,228
Amortization of debt issuance costs	123,066	103,145
Provision for doubtful accounts	51,742	8,279
Stock based compensation	124,659	308,330
Loss(gain) on sale of assets	(37,960)	(18,556)
Loss from unconsolidated affiliate	-	973
Change in fair value of derivative financial instruments	(122,286)	-
Investment tax credit	(5,266)	(5,265)
Deferred income taxes	2,922,910	2,989,830
Changes in assets and liabilities
Accounts receivable, including related parties	(3,445,699)	(4,394,864)
Unbilled gas	1,939,842	427,452
Natural gas inventory	4,801,938	4,486,484
Accounts payable, including related parties	(348,887)	4,062,275
Regulatory assets & liabilities	(3,730,189)	(7,081,394)
Prepayments and other	(93,438)	(650,436)
Other assets	(102,919)	191,134
Other liabilities	(352,371)	(1,080,589)
Net cash provided by operating activities of continuing operations	8,031,800	5,566,893

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(2,493,176)	(5,686,242)
Proceeds from sale of fixed assets	37,960	18,556
Proceeds from note receivable	577	2,056
Restricted cash – capital expenditures fund	-	(59)
Customer advances for construction	4,639	132
Contributions in aid of construction	80,308	211,004
Net cash used in investing activities of continuing operations	(2,369,692)	(5,454,553)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit	8,600,000	7,000,000
Repayments of lines of credit	(12,620,000)	(7,900,000)
Repayments of notes payable	(135,531)	(127,190)
Repayments of build-to-suit	(567,330)	-
Debt issuance costs	(19,863)	-
Restricted cash – debt service fund	(6)	(533)
Dividends paid	(1,416,489)	(1,410,978)
Net cash provided by (used in) financing activities of continuing operations	(6,159,219)	(2,438,701)

DISCONTINUED OPERATIONS
Operating cash flows	1,812,715	634,602
Investing cash flows	(180,363)	(70,505)
Net cash provided by discontinued operations	1,632,352	564,097

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	1,135,241	(1,762,264)
Cash and cash equivalents, beginning of period	1,585,926	12,741,197

CASH AND CASH EQUIVALENTS, END OF PERIOD	$ 2,721,167	$10,978,933

Gas Natural Inc. and Subsidiaries Segments of Operations

Three Months Ended March 31, 2015

	Natural Gas	Marketing &	Corporate &
	Operations	Production	Other	Consolidated

OPERATING REVENUES	$51,366,887	$ 4,626,471	$ -	$ 55,993,358
Intersegment elimination	(87,157)	(2,173,240)	-	(2,260,397)
Total operating revenue	51,279,730	2,453,231	-	53,732,961

COST OF SALES	33,948,510	4,480,129	-	38,428,639
Intersegment elimination	(87,157)	(2,173,240)	-	(2,260,397)
Total cost of sales	33,861,353	2,306,889	-	36,168,242

GROSS MARGIN	$17,418,377	$ 146,342	$ -	$ 17,564,719

OPERATING EXPENSES	8,813,923	232,756	878,895	9,925,574
Intersegment elimination	(35,685)	-	-	(35,685)
Total operating expenses	8,778,238	232,756	878,895	9,889,889

OPERATING INCOME (LOSS)	$ 8,640,139	$ (86,414)	$ (878,895)	$ 7,674,830

DISCONTINUED OPERATIONS	$ -	$ -	$ 436,916	$ 436,916

NET INCOME (LOSS)	$ 5,113,360	$ 3,641	$ (263,328)	$ 4,853,673

Three Months Ended March 31, 2014

	Natural Gas	Marketing &	Corporate &
	Operations	Production	Other	Consolidated

OPERATING REVENUES	$56,893,907	$ 7,929,773	$ -	$ 64,823,680
Intersegment elimination	(86,544)	(3,240,417)	-	(3,326,961)
Total operating revenue	56,807,363	4,689,356	-	61,496,719

COST OF SALES	39,933,148	7,481,382	-	47,414,530
Intersegment elimination	(86,544)	(3,240,417)	-	(3,326,961)
Total cost of sales	39,846,604	4,240,965	-	44,087,569

GROSS MARGIN	$16,960,759	$ 448,391	$ -	$ 17,409,150

OPERATING EXPENSES	7,819,884	382,458	1,196,161	9,398,503
Intersegment elimination	-	-	-	-
Total operating expenses	7,819,884	382,458	1,196,161	9,398,503

OPERATING INCOME (LOSS)	$ 9,140,875	$ 65,933	$(1,196,161)	$ 8,010,647

DISCONTINUED OPERATIONS	$ -	$ -	$ 481,946	$ 481,946

NET INCOME (LOSS)	$ 5,387,303	$ 20,801	$ (389,613)	$ 5,018,491

Gas Natural Inc. and Subsidiaries Natural Gas Operations

Utility Throughput

	Three Months Ended March 31,
(in million cubic feet (MMcf))	2015	2014

Full service distribution:
Energy West Montana (MT)	1,326	1,594
Frontier Natural Gas (NC)	470	430
Bangor Gas (ME)	841	779
Ohio Companies (OH)	1,873	1,835
Public Gas (PGC)	76	71
Total full service distribution	4,586	4,709

Transportation	3,306	3,346
Bucksport	128	957

Total volumes	8,020	9,012

Heating Degree Days
		Three Months Ended		Percent Colder (Warmer)
		March 31,		2015 Compared to
	Normal	2015	2014	Normal	2014

Great Falls, MT	3,211	2,778	3,590	(13.48%)	(22.62%)
Bangor, ME	3,576	4,453	4,039	24.52%	10.25%
Elkin, NC	2,708	2,282	2,434	(15.73%)	(6.24%)
Lancaster, OH	2,853	3,320	3,378	16.37%	(1.72%)
Jackson, KY	2,277	2,631	2,696	15.55%	(2.41%)
Weighted Average	3,088	3,063	3,483	(0.81%)	(12.06%)

Gas Natural Inc. and Subsidiaries
Reconciliation of GAAP Income from Continuing Operations to
Adjusted Income from Continuing Operations⁽¹⁾
(in thousands, except per share amounts)	Three Months Ended
(in thousands, except per share amounts)	March 31,
	2015		2014
	$	per diluted share	$	per diluted share
GAAP income from continuing operations	$4,417	$ 0.42	$4,537	$ 0.43
Add back, after tax:
Non-recurring legal and professional fees	364	0.03	209	0.02
Non-recurring regulatory and other expenses	24	0.01	239	0.02
Non-GAAP adjusted income from continuing operations⁽¹⁾	$4,804	$ 0.46	$4,985	$ 0.47

Gas Natural Inc. and Subsidiaries
Reconciliation of GAAP Income from Continuing Operations to Adjusted EBITDA⁽¹⁾
	Three Months Ended
(in thousands)	March 31,
	2015	2014
GAAP income from continuing operations	$ 4,417	$ 4,537
Add back:
Net interest expense	869	809
Income taxes	2,667	2,759
Depreciation, amortization and accretion	1,890	1,684
Non-recurring legal and professional fees	583	336
Non-recurring regulatory and other expenses	38	385
Non-GAAP Adjusted EBITDA⁽¹⁾	$10,464	$10,510

⁽¹⁾Non-GAAP Financial Measures:

The Company believes that, when used in conjunction with GAAP measures, Adjusted Income from Continuing Operations and Adjusted EBITDA, or earnings before interest, taxes, depreciation, amortization, accretion and non-recurring charges, 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 Income from Continuing Operations 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.

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SOURCE Gas Natural Inc.

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