Gas Natural Inc. Reports 2015 Fourth Quarter and Full Year Results

CLEVELAND, March 15, 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 fourth quarter and year ended December 31, 2015.  The Company reported income from continuing operations of $0.7 million, or $0.07 per share, for the fourth quarter, compared with income from continuing operations of $1.2 million, or $0.11 per share, for the fourth quarter of 2014.  For the year, income from continuing operations was $1.2 million, or $0.11 per share, compared with $2.7 million, or $0.26 per share, for 2014.

As previously announced, the Company completed the sale of its Wyoming operations on July 1, 2015 for net proceeds of $15.4 million; the divested unit is reported as discontinued operations.  Additionally, the Company completed the disposal of several smaller businesses during the fourth quarter of 2015, for which the net loss is reported as other (loss) income, net.     

Mr. Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "Despite our fourth quarter revenue being unfavorably impacted by lower natural gas costs and warmer weather, our gross margin modestly outperformed last year.  However, we incurred approximately $1.3 million of pretax costs relating to our recently implemented ERP system, unfavorably impacting our income from continuing operations.  This investment represents the establishment of needed foundational infrastructure to support our future growth."

He added, "Operationally, we continued to make progress in accordance with our strategy to become a holding company of benchmark natural gas utilities.  Significant accomplishments follow: 

• Added approximately 1,000 new customers in our core markets in the quarter;
• Disposed of our utilities and assets in Pennsylvania and Kentucky, as well as the building that previously housed our corporate headquarters; and
• Launched the final phase of our ERP implementation.

More recently, we requested approval from our various regulators of our plans for a new corporate organizational structure and $99 million of new debt financing arrangements.  These actions position us to focus on enhancing our core business, appropriately deploying our capital and human resources to maximize our growth potential and realize our inherent shareholder value."

Natural Gas Operations Segment Review

The Natural Gas Operations segment reported $26.6 million in revenue for the 2015 fourth quarter, a decrease of $8.2 million, or 23%, from the prior-year quarter, which was primarily attributable to lower gas prices passed on to customers and warmer weather in all markets, as well as the impact of disposing of the Company's Pennsylvania and Kentucky utilities.

Revenue for 2015 was $104.0 million, a decrease of $19.1 million, or 16%, with the change largely driven by lower gas prices passed on to customers in all markets and warmer weather in the Ohio, Montana and North Carolina markets.  Additionally, revenue for 2015 in the North Carolina market was unfavorably impacted by $0.5 million for second quarter adjustments to sales volumes used in the unbilled revenue calculation.  These decreases were partially offset by a $1.8 million increase in revenue in the Company's Maine market, resulting from higher volumes due to customer growth, including from the Loring pipeline which began service in September 2014.

Gross margin for the fourth quarter of 2015 was $12.1 million, a $0.2 million improvement over the prior-year period driven by the impact of an unfavorable $0.7 million GCR adjustment in the 2014 fourth quarter that did not recur in the 2015 fourth quarter, partially offset by lower throughput in the 2015 fourth quarter caused by warmer weather.  Gross margin for the full year decreased by $0.4 million to $43.6 million primarily due to lower sales volumes caused by warmer weather, PUCO gas cost adjustments in Ohio that took place in the second quarter, second quarter volume adjustments to the unbilled revenue calculation in North Carolina and the impact of the disposed utilities.  These cost increases were partially offset by the incremental gross margin generated from the start-up of the Loring pipeline and more favorable pricing arrangements in Maine.   

Operating expenses increased by $1.6 million, or 21%, in the quarter, to $9.5 million.  The increase was primarily attributable to $1.0 million of costs associated with the newly implemented ERP system, with the remainder due to lower capitalized labor costs, property tax increases and higher legal costs.  Operating expenses in 2015 were $35.7 million, which were $3.7 million, or 11%, higher than 2014.  The increase reflects the same factors affecting operating expenses in the 2015 fourth quarter.

The segment reported 2015 fourth quarter net income of $1.1 million compared with net income of $2.3 million in the 2014 fourth quarter.  For 2015, net income for the segment was $3.5 million compared with $6.5 million for the prior year. 

Other Operating Segments

The Marketing and Production Operations segment was near breakeven in the fourth quarter of 2015, reflecting improvement from a $0.5 million net loss in the prior-year period.  Revenue increased by
$0.7 million to $2.9 million for the fourth quarter of 2015, compared with the same period in 2014 while gross margin remained relatively constant at $0.2 million.  For the full year, the segment's net loss improved to $0.1 million from a $1.4 million net loss in the prior year.  This improvement was driven by a $1.7 million reduction in operating expenses, which included a $1.1 million bad debt charge in 2014, more than offsetting the effect of lower volume from losing an LNG customer to pipeline competition in 2014.

Net loss from continuing operations for the Corporate and Other Operations segment in the 2015 fourth quarter improved to a $0.4 million loss compared with a $0.6 million loss in the prior-year quarter.  The segment also reported a net loss from discontinued operations of $0.5 million in the quarter, compared with net income from discontinued operations of $0.5 million in the prior year period.  For 2015, the segment recorded a net loss from continuing operations of $2.2 million, relatively consistent with a net loss from continuing operations of $2.3 million in the prior year.  Net income from discontinued operations for 2015 was $3.5 million, compared with $1.0 million for 2014, relating to the Company's divested Wyoming operations. 

Adjusted Income from Continuing Operations

Adjusted income from continuing operations, a non-GAAP number, was $1.0 million, or $0.09 per share, for the fourth quarter, compared with adjusted income from continuing operations of $2.6 million, or $0.22 per share, in the fourth quarter of 2014.  Adjusted income from continuing operations for the 2015 fourth quarter excludes, net of tax, $0.5 million of atypical professional, legal and regulatory expenses offset by $0.2 million of gain on disposals.  The 2014 adjusted results exclude, net of tax, atypical professional, legal and regulatory expenses of $1.1 million and losses on disposals of $0.3 million. 

For the year, adjusted income from continuing operations, a non-GAAP number, was $3.6 million, or $0.32 per share, compared with $5.8 million, or $0.54 per share, for 2014.  The 2015 adjusted results exclude, net of tax, $2.2 million of atypical professional, legal and regulatory expenses and $0.2 million of losses on disposals, impairment and other.  The 2014 adjusted results exclude, net of tax, $2.2 million of atypical professional, legal and regulatory expenses, a $0.7 million customer bankruptcy write-off and $0.1 million of other items. 

See attached tables for a reconciliations of GAAP income from continuing operations to non-GAAP adjusted income from continuing operations for the 2015 and 2014 fourth quarters and full years.

Adjusted EBITDA

Adjusted earnings from continuing operations before interest, taxes, depreciation, amortization, accretion, and atypical expenses ("Adjusted EBITDA"), a non-GAAP financial measure, was
$3.8 million and $6.5 million, respectively, in the fourth quarters of 2015 and 2014.  On a full year basis, the same measure was $16.4 million for 2015 and $19.1 million for 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 reconciliations of GAAP (loss) income from continuing operations to Adjusted EBITDA.

Balance Sheet and Cash Management

Cash and cash equivalents as of December 31, 2015 were $2.7 million, compared with $1.6 million at December 31, 2014.     

Cash provided by operating activities of continuing operations in 2015 was $9.4 million compared with $11.1 million in 2014, with the decrease primarily due to lower income from continuing operations. 

Capital expenditures for 2015 were $9.6 million compared with $21.6 million in the prior-year period.  Capital investments are focused on the growth of the Company's Natural Gas Operations segment, as well as ongoing construction activities to support expansion, maintenance and enhancements of its gas pipeline systems.

Cash used in financing activities of continuing operations was $19.3 million in 2015 compared with
$5.0 million in 2014.  Debt repayment was the primary increased use of cash in 2015.

Mr. Osborne concluded, "This has been another very productive year for Gas Natural.  We have been undertaking tremendous changes to result in a stronger, more focused organization, well positioned for the years ahead.  In addition to the fourth quarter accomplishments cited above, we also experienced significant other successes earlier in the year, including:

• Adding new talent to our Board of Directors;
• Divesting our Wyoming operations;
• Adding new talent to our management team, accounting and finance operations;
• Restructuring our operations to improve efficiency;
• Receiving a positive outcome with the Montana PSC, allowing us to dividend funds to our corporate level; and
• Entering into stipulation with the PUCO Staff relating to our 2014 investigative regulatory audit of our Ohio utilities, which remains subject to approval by the PUCO.

While undergoing these significant changes, we also added approximately 2,000 customers to our ongoing utility operations, offsetting those lost with the businesses we divested.  We look forward to bringing resolution to our remaining open issues as we progress through 2016 while we also direct our energy and investments on driving growth in our core markets." 

Webcast and Conference Call

Gas Natural will host a conference call and live webcast on Wednesday, March 16^th at 4:30 p.m. Eastern Time.  During the conference call and webcast, management will review the financial and operating results for the 2015 fourth quarter and full year and discuss Gas Natural's corporate strategies and outlook.  A question-and-answer session will follow.  The teleconference can be accessed by calling (201) 689-8471.  The webcast can be monitored on the Company's website at investor.egas.net.

A telephonic replay will be available from 7:30 p.m. Eastern Time on the day of the teleconference through Wednesday, March 23, 2015.  To listen to a replay of the call, dial (858) 384-5517 and enter the conference ID number 13628111.  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 end-use residential, commercial, and industrial customers.  It distributes approximately 21 billion cubic feet of natural gas to approximately 68,000 customers through regulated utilities operating in Montana, Ohio, Maine and North Carolina.  The Company's other operations include interstate pipeline, natural gas production, and natural gas marketing.  The Company's Montana public utility was originally incorporated in 1909.  Its strategy for growth is to expand throughput in its markets, while looking for acquisitions that are either adjacent to its existing utilities or in under 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 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 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.

 

FINANCIAL TABLES FOLLOW.

 

 

 

 

 

 

 

 

 

 

 

 

 

⁽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 atypical 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.