Gas Natural Inc. Reports 2016 Second Quarter Results

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:  jsprague@egas.net

Email:  dpawlowski@keiadvisors.com / khoward@keiadvisors.com

 

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.

 

To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/gas-natural-inc-reports-2016-second-quarter-results-300311264.html

SOURCE Gas Natural Inc.

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