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RGC Resources Inc  (NASDAQ:RGCO)
Q1 2019 Earnings Conference Call
Feb. 11, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

John S. D'Orazio -- Director, President and Chief Executive Officer

Welcome to RGC Resources First Quarter Earnings Call. I'm John D'Orazio, President and CEO of RGC Resources. Thank you for taking the time out of your morning to attend. Please mute your line, and hold your questions until the completion of the presentation. Also the link to today's presentation is available on our website at rgcresources.com on the Investor and Financial Information Page.

Before we begin, just a reminder on forward-looking statements as shown on Slide one. Moving on to Slide two (Multiple Speakers). Could you please mute your line. (Multiple Speakers). Could you please mute your line, who's ever talking there. Thank you. All right. Let me repeat. So moving on to Slide two, we plan to review key operational and financial highlights, our outlook for 2019 and take any questions.

As shown on Slide three, first quarter 2019 earnings per share are $0.30, which is a $0.02 or 7% improvement over first quarter of 2018. As Slide four highlights, we invested $5.7 million in a regulated utility in the first quarter, a 6% increase over the same period last year. We spent approximately $1.4 million on infrastructure replacement, $2.9 million on customer growth and $1.5 million on other capital needs. The quarter-to-quarter change was primarily due to elevated spending related to customer growth. We continue to experience steady -- customer growth as shown on Slide five, we added 213 new customers in the first quarter.

On Slide six, our total volume increased 5% and our commercial and industrial volumes increased 4% in the first quarter compared to the same period last year. We're on Slide seven. The MVP project was over 70% complete coming into January of 2019. The targeted in-service date is the end of 2019. We invested approximately $10 million in the MVP project in the first quarter. We anticipate investing a total of $23 million in fiscal 2019. The MVP Southgate project, which is a 70 mile, 24-inch and 16-inch pipeline was filed with FERC in November of 2018. MVP Southgate is projected to be in-service at the end of 2020.

Now, I'd like to introduce Paul Nester, our Chief Financial Officer, he will review our financial results.

Paul W. Nester -- Vice President, Secretary, Treasurer and Chief Financial Officer

Thank you, John. For those of you following along via webcast, we are on Slide eight. We will begin by reviewing first quarter results. Operating income was approximately $3.3 million. We experienced top line increases in the infrastructure replacement rider or SAVE revenue and revenues related to customer growth and industrial volumes. These were offset by increases in depreciation expense and various operating and maintenance expenses.

Equity earnings in our Mountain Valley Pipeline investment increased approximately $414,000 over the prior year due to the increase in investment in the project. Other operating income is favorable when compared to first quarter 2018, primarily due to the $156,000 pre-tax impact of revenue sharing. Due to tax reform, income tax expense for the first quarter was $433,000 favorable.

Let's review our trailing 12-month results. Operating income is below the prior year due to the $919,000 increase in excess revenue from tax reform adjustment. Without the adjustment, operating income increased approximately $286,000 primarily due to the increases in the SAVE rider revenue and revenues related to customer growth and industrial volume.

Primary driver for increased operating expenses as an increase in gas costs related to increased commodity prices. Equity earnings in the Mountain Valley Pipeline increased $867,000, interest expense increased approximately $595,000 in 2019 on higher borrowings and higher rates. The trailing 12-month net income increased over $1.6 million or 27% compared to the prior year.

John will now provide the 2019 outlook.

John S. D'Orazio -- Director, President and Chief Executive Officer

Thank you, Paul. Let's review our capital expenditure projections. In fiscal 2019, we are on track to invest approximately $45 million. As highlighted on Slide nine, $22 million will be invested in our regulated utility with a focus on infrastructure replacement and customer growth. The remaining $23 million will be invested in MVP.

Roanoke Gas filed its general rate case in early October. The case is currently under Commission review. Proposed rates went into place January 1st of 2019. The staff report is expected in May and we hope to have a final order by late summer. Finally, our fiscal 2019 earning guidance remains between $1.00 to $1.04 per share.

That concludes our prepared remarks. We would now like to take any questions from the audience.

Questions and Answers:

John S. D'Orazio -- Director, President and Chief Executive Officer

So. Does anybody have any questions?

Michael Gaugler -- Janney Montgomery Scott -- Analyst

Good morning, everyone.

John S. D'Orazio -- Director, President and Chief Executive Officer

Morning.

Paul W. Nester -- Vice President, Secretary, Treasurer and Chief Financial Officer

Good morning.

Michael Gaugler -- Janney Montgomery Scott -- Analyst

Hey, it's Mike Gaugler from Janney.

John S. D'Orazio -- Director, President and Chief Executive Officer

Hey, Mike.

Michael Gaugler -- Janney Montgomery Scott -- Analyst

Just one, John on MVP. It looks like you're getting really close to finishing that line. Just wondering if there's anything outstanding legal concerns or otherwise that we should be watching as that project looks to wrap up here this year?

John S. D'Orazio -- Director, President and Chief Executive Officer

I mean there are couple of things out there that the MVP team is working on to resolve. One of those has to do with Forestry Service in the permit there. They're working with the Forestry Service as well as the Bureau of Land Management to resolve that and anticipate resolving that. Probably toward the end we're -- probably right around mid-summer I would say, June to July timeframe.

On the stream crossing permits, they're working with DEQ as well as West Virginia. DEQ (Multiple Speakers) Core of Engineers and there they've been working on that for the last couple of months, and they hope to resolve them and be able to start getting back into the streams probably in the March-April timeframe of this year. And based on all that, their schedule -- with that schedule May -- firmly are committed to having that in-service at the end of 2019.

Michael Gaugler -- Janney Montgomery Scott -- Analyst

Okay. And then I take it a -- they really can't get moving on MVP Southgate until FERC issues are closed and, or can they actually start Southgate if they get all the approvals before MVP is completed?

John S. D'Orazio -- Director, President and Chief Executive Officer

FERC issues an order for it and they can start -- they could start the Southgate project and they can do that before MVP is completed.

Michael Gaugler -- Janney Montgomery Scott -- Analyst

That will be nice.

John S. D'Orazio -- Director, President and Chief Executive Officer

Yeah, we agree.

Michael Gaugler -- Janney Montgomery Scott -- Analyst

All right, guys. That's all I had.

John S. D'Orazio -- Director, President and Chief Executive Officer

All right. Thank you, Mike.

Paul W. Nester -- Vice President, Secretary, Treasurer and Chief Financial Officer

Thanks.

John S. D'Orazio -- Director, President and Chief Executive Officer

Does anybody have any questions? There are no other questions. I want to thank everybody for attending our first quarter earnings call and wish everybody to have an enjoyable morning and afternoon. With that, thank you.

Duration: 15 minutes

Call participants:

John S. D'Orazio -- Director, President and Chief Executive Officer

Paul W. Nester -- Vice President, Secretary, Treasurer and Chief Financial Officer

Michael Gaugler -- Janney Montgomery Scott -- Analyst

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