GAS NATURAL INC CLEVELAND, March 16, 2017 /PRNewswire/ -- Gas Natural Inc. (NYSE MKT: EGAS) (the "Company"), a holding company operating local natural gas utilities serving approximately 69,400 customers in four states, reported financial results for the fourth quarter and year ended December 31, 2016. Comparative results for the fourth quarter, and for full year 2016, do not include the results of the Kentucky and Pennsylvania utilities which were divested in the fourth quarter of 2015 ("Divestitures").
Fourth Quarter 2016 Summary
-- Full service distribution throughput increased due to the addition of
approximately 800 new customers in the quarter
-- Net income from continuing operations improved to $0.13 per share from
$0.07 in 2015
-- Merger approval process with regulators is progressing as anticipated
Mr. Gregory J. Osborne, Gas Natural's President and Chief Executive Officer, commented, "We grew revenue and gross margin in the quarter as a result of growing our customer base. This is a testament to our keen focus on operations and growth."
He added, "In December, our shareholders overwhelmingly approved our announced plan to be acquired by First Reserve. The process to obtain approval from the regulatory authorities in Maine, Montana, North Carolina and Ohio is progressing as anticipated. We continue to expect completion of the transaction in the second half of 2017."
Fourth Quarter and 2016 Operations Review
Three Months Ended Years Ended
(in thousands) December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
Revenue by segment:
Natural Gas Operations $27,251 $26,575 $87,464 $103,978
Marketing & Production 3,495 2,923 11,977 8,383
----- ----- ------ -----
Consolidated $30,746 $29,498 $99,441 $112,361
======= ======= ======= ========
Revenue for the fourth quarter of 2016 increased approximately 4% over the prior-year quarter. Both of the Company's operating segments contributed to the increase. The Natural Gas Operations segment experienced higher volume driven by customer growth, partially offset by lower natural gas prices and $0.2 million less revenue from the Divestitures. The Marketing & Production segment recognized higher sales 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.
Revenue for 2016 was down approximately 11% compared with the prior year. The increase in Marketing & Production was for the same reason as described above for the fourth quarter. This was more than offset by the Natural Gas Operations segment that was impacted by lower volume due to warmer weather earlier in the year, lower gas prices, and a $1.6 million reduction from the Divestitures.
Changes in Gross Margin Three Months Years
(in thousands) Ended Ended
----- -----
December 31, 2016
-----------------
2015 Gross Margin $12,255 $44,209
------- -------
Utilities sold 117 (299)
Weather and other volume changes 347 (1,695)
Impact of paper mill closures (125) (1,826)
Gas cost adjustment - 693
New utility customers 226 1,304
Natural Gas Operations change 565 (1,823)
--- ------
New marketing customers 214 513
Pricing and other 136 25
--- ---
Marketing & Production change 350 538
--- ---
Consolidated gross margin change 915 (1,285)
--- ------
2016 Gross Margin $13,170 $42,924
======= =======
Gross margin for the fourth quarter of 2016 increased 7% compared with the prior-year period primarily due to increased full service distribution throughput to new customers and colder weather, partially offset by the impact of paper mill closures in Maine. Customer count grew by approximately 800 in the fourth quarter to 69,400, compared with the end of the third quarter of 2016.
Gross margin for 2016 decreased 3% compared with the prior-year period. The decrease was primarily the result of warmer weather earlier in the year in most 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 in 2015.
Three Months Ended Years Ended
(in thousands) December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
Operating income by
segment:
Natural Gas Operations $3,511 $1,857 $6,198 $7,852
Marketing & Production 314 (45) 1,184 (81)
Corporate & Other (1,367) (388) (4,330) (2,667)
------ ---- ------ ------
Consolidated $2,458 $1,424 $3,052 $5,104
====== ====== ====== ======
Non-GAAP Adjusted
EBITDA* $5,895 $3,765 $15,172 $16,391
*See the attached tables for important disclosures regarding the Company's use of earnings before interest, taxes, depreciation, amortization, accretion, non-recurring expenses and discontinued operations ("Adjusted EBITDA") as well as reconciliations of U.S. generally accepted accounting principles ("GAAP") net income to non-GAAP Adjusted EBITDA for the 2016 and 2015 fourth quarter and annual periods.
For the fourth quarter of 2016, operating income was $1.0 million higher than the prior-year quarter primarily due to higher gross margin. Comparing the annual periods, 2016 operating income was $2.1 million lower than 2015, primarily due to lower gross margin.
Within the Natural Gas Operations segment, operating expenses for the quarter decreased $1.1 million as legal and professional expenses were down $0.3 million and personnel costs were also down $0.3 million. Those reductions were partially offset by increased spending on information technology.
On a full year basis, the Natural Gas Operations' operating expenses were $0.2 million lower than the prior year, primarily due to a $0.7 million decrease in expenditures for professional services and a$0.6 million ongoing reduction of expenses due to the Divestitures. Those decreases were partially offset by higher spending on information technology. The Marketing & Production segment benefited from the favorable settlement of a legal matter in the second quarter of 2016. Litigation, settlement and proxy contest costs drove increased expenses within the Corporate & Other segment.
Adjusted EBITDA, a non-GAAP financial measure, was up approximately $2.1 million primarily due to higher gross margin in the 2016 fourth quarter and higher non-recurring items. On a full year 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.
Excluding discrete items, the effective tax rates were 36.1% and 37.2% for the fourth quarters of 2016 and 2015, respectively. Excluding discrete items for the annual periods, the effective tax rates were 36.5% and 38.1% for 2016 and 2015, respectively. The improvements in 2016 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 December 31, 2016 grew to $6.5 million from $2.7 million at December 31, 2015.
Cash provided by operating activities in 2016 was $11.4 million compared with $9.4 million in 2015, with the increase primarily due to lower working capital requirements related to the lower price of natural gas.
Capital expenditures for 2016 were $7.5 million compared with $9.6 million in 2015. Capital expenditures included approximately $1.9 million and $1.5 million in 2016 and 2015, respectively, for the portion of the Company's ERP system that was not financed under a lease agreement. The Company has budgeted $10 million for capital expenditures in 2017, with the majority focused on growth of its Natural Gas Operations segment, including construction activities to support expansion, maintenance and enhancements of its gas pipeline systems.
Cash used in financing activities was $1.5 million in 2016 compared with $19.3 million in 2015. Debt repayment was the primary use of cash in both periods.
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 69,400 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 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.
Additional Information and Where to Find It
In connection with the transaction with First Reserve described above, on November 23, 2016, the Company filed with the SEC and sent to its stockholders a definitive proxy statement. INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ CAREFULLY AND IN THEIR ENTIRETY THE DEFINITIVE PROXY STATEMENT AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME AVAILABLE. Investors and security holders may obtain a free copy of the definitive proxy statement and other documents filed with the SEC.
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
Consolidated Statements of Income
(in thousands, except share and per share data)
Three Months Ended Years Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
REVENUE
Natural gas operations $27,251 $26,575 $87,464 $103,978
Marketing and production 3,495 2,923 11,977 8,383
Total revenue 30,746 29,498 99,441 112,361
COST OF SALES
Natural gas purchased 14,602 14,492 45,812 60,502
Marketing and production 2,974 2,751 10,705 7,650
Total cost of sales 17,576 17,243 56,517 68,152
------ ------ ------ ------
GROSS MARGIN 13,170 12,255 42,924 44,209
OPERATING EXPENSES
Distribution, general,
and administrative 7,343 7,131 27,338 26,104
Maintenance 269 551 984 1,422
Depreciation,
amortization and
accretion 2,053 1,909 8,034 7,257
Taxes other than income 964 1,096 4,006 4,119
Provision for doubtful
accounts 83 144 182 278
Contingent consideration
gain - - (672) (75)
Total operating expenses 10,712 10,831 39,872 39,105
------ ------ ------ ------
OPERATING INCOME 2,458 1,424 3,052 5,104
Other income (loss), net 83 416 (65) 86
Interest expense (856) (1,037) (3,169) (3,604)
---- ------ ------ ------
Income (loss) before
income taxes 1,685 803 (182) 1,586
Income tax (expense)
benefit (365) (74) 707 (417)
---- --- --- ----
INCOME FROM CONTINUING
OPERATIONS 1,320 729 525 1,169
Discontinued operations,
net of income taxes (5) (526) (12) 3,519
NET INCOME $1,315 $203 $513 $4,688
====== ==== ==== ======
Basic weighted shares
outstanding 10,518,062 10,504,319 10,510,644 10,496,979
Dilutive effect of
restricted stock awards 733 1,476 623 1,476
--- ----- --- -----
Diluted weighted shares
outstanding 10,518,795 10,505,795 10,511,267 10,498,455
========== ========== ========== ==========
BASIC & DILUTED EARNINGS PER SHARE:
Continuing operations $0.13 $0.07 $0.05 $0.11
Discontinued operations - (0.05) - 0.34
--- ---
Net income per share $0.13 $0.02 $0.05 $0.45
===== ===== ===== =====
Weighted average
dividends declared per
common share $0.075 $0.270 $0.300 $0.540
====== ====== ====== ======
Gas Natural Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands)
December 31, December 31,
2016 2015
---- ----
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents $6,463 $2,728
Accounts receivable, less allowance for doubtful accounts of
$385 and $506, respectively 11,093 10,823
Unbilled gas 7,256 6,995
Inventory
Natural gas 3,380 4,063
Materials and supplies 2,065 2,271
Regulatory assets, current 3,131 2,469
Other current assets 2,423 2,174
Total current assets 35,811 31,523
PROPERTY, PLANT, & EQUIPMENT, NET 139,691 142,416
OTHER ASSETS
Regulatory assets, non-current 1,032 1,523
Goodwill 15,872 15,872
Customer relationships, net of amortization 2,322 2,625
Restricted cash - 1,898
Other non-current assets 2,696 1,530
Total other assets 21,922 23,448
------ ------
TOTAL ASSETS $197,424 $197,387
======== ========
Gas Natural Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
December 31, December 31,
2016 2015
---- ----
LIABILITIES AND CAPITALIZATION
------------------------------
CURRENT LIABILITIES
Line of credit $13,450 $15,750
Accounts payable 10,055 8,976
Notes payable, current portion - 5,012
Note payable to related party - 1,980
Accrued liabilities 8,265 6,873
Regulatory liability, current - 487
Build-to-suit liability - 2,041
Capital lease liability 3,618 2,876
Other current liabilities 1,097 1,467
Total current liabilities 36,485 45,462
LONG-TERM LIABILITIES
Deferred tax liability 11,280 12,295
Regulatory liability, non-current 1,417 1,251
Capital lease liability, non-current 2,780 5,177
Other long-term liabilities 3,113 3,286
Total long-term liabilities 18,590 22,009
NOTES PAYABLE, less current portion 49,392 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; 1,578 1,575
Issued and outstanding: 10,519,728 and 10,504,734 shares
as of December 31, 2016 and 2015, respectively
Capital in excess of par value 64,092 63,985
Retained earnings 27,287 29,929
------ ------
Total stockholders' equity 92,957 95,489
------ ------
TOTAL CAPITALIZATION 142,349 129,916
------- -------
TOTAL LIABILITIES AND CAPITALIZATION $197,424 $197,387
======== ========
Gas Natural Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
2016 2015
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $513 $4,688
Less (loss) incomefrom discontinued operations (12) 3,519
Incomefrom continuing operations 525 1,169
Adjustments to reconcile incomefrom continuing operations to net cash provided
by operating activities:
Depreciation and amortization 8,034 7,236
Accretion - 21
Amortization of debt issuance costs 487 656
Provision for doubtful accounts 182 278
Amortization of deferred loss on sale-leaseback 1,015 358
Stock based compensation 107 161
Loss (gain) on sale of assets 589 (118)
Unrealized holding gain on contingent consideration (672) (75)
Change in fair value of derivative financial
instruments (193) (96)
Deferred income taxes (702) 2,150
Changes in assets and liabilities:
Accounts receivable, including related parties (451) 1,293
Unbilled gas (261) 658
Natural gas inventory 683 1,239
Accounts payable, including related parties 1,271 (4,665)
Regulatory assets and liabilities (1,148) (1,283)
Other assets 427 (680)
Other liabilities 1,472 1,122
----- -----
Net cash provided by operating activities of
continuing operations 11,365 9,424
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (7,525) (9,567)
Proceeds from sale of fixed assets 25 4,054
Proceeds from note receivable - 92
Customer advances for construction 78 33
Contributions in aid of construction 1,351 1,193
----- -----
Net cash used in investing activities of continuing
operations (6,071) (4,195)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from lines of credit 24,750 14,150
Repayments of lines of credit (27,050) (27,161)
Proceeds from notes payable, including related
parties 53,993 8,000
Repayments of notes payable, including related
parties (45,715) (6,542)
Payments of capital lease obligations (3,328) (1,845)
Debt issuance costs paid (1,990) (235)
Restricted cash - debt service fund 948 -
Dividends paid (3,155) (5,670)
------ ------
Net cash used in financing activities of continuing
operations (1,547) (19,303)
DISCONTINUED OPERATIONS
Operating cash flows (12) 845
Investing cash flows - 14,371
---
Net cash (used in) provided by discontinued
operations (12) 15,216
--- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,735 1,142
Cash and cash equivalents, beginning of period 2,728 1,586
----- -----
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,463 $2,728
====== ======
Gas Natural Inc. and Subsidiaries
Natural Gas Operations
Utility Throughput
Three Months Ended December 31, Years Ended December 31,
------------------------------- ------------------------
(in million cubic feet
(MMcf)) 2016 2015 2016 2015
---- ---- ---- ----
Full service distribution:
Energy West Montana (MT) 1,064 1,037 3,080 3,076
Frontier Natural Gas (NC) 288 258 1,014 926
Bangor Gas (ME) 530 473 1,528 1,727
Ohio Companies (OH) 1,163 968 3,419 3,560
Public Gas (KY) - 19 - 111
--- --- --- ---
Total full service
distribution 3,045 2,755 9,041 9,400
Transportation 2,812 2,504 11,377 10,610
Bucksport 5 60 139 597
--- --- --- ---
Total volumes 5,862 5,319 20,557 20,607
===== ===== ====== ======
Heating Degree Days
Three Months Ended Percent Colder (Warmer)
December 31, 2016 Compared to
------------ ----------------
Normal 2016 2015 Normal 2015
------ ---- ---- ------ ----
Great Falls, MT 2,570 2,872 2,683 11.75% 7.04%
Bangor, ME 2,526 2,564 2,321 1.50% 10.47%
Elkin, NC 1,469 1,435 1,174 (2.31%) 22.23%
Lancaster, OH 2,402 1,853 1,462 (22.86%) 26.74%
Total Weighted Average 2,443 2,361 2,088 (3.36%) 13.07%
Years Ended Percent Colder (Warmer)
December 31, 2016 Compared to
------------ ----------------
Normal 2016 2015 Normal 2015
------ ---- ---- ------ ----
Great Falls, MT 6,929 7,049 6,916 1.73% 1.92%
Bangor, ME 7,483 7,174 8,058 (4.13%) (10.97%)
Elkin, NC 3,837 4,029 3,831 5.00% 5.17%
Lancaster, OH 5,889 5,053 5,281 (14.20%) (4.32%)
Total Weighted Average 6,403 6,101 6,211 (4.72%) (1.77%)
Gas Natural Inc. and SubsidiariesReconciliation of GAAP Net Income to Non-GAAP Adjusted Net Income(2)
(in thousands, except
per share data) Three Months Ended Years Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
GAAP net income $1,315 $203 $513 $4,688
Add back, pre-tax:
Non-recurring legal,
professional and
settlement costs 1,251 484 4,242 2,498
Non-recurring
regulatory and other
expenses - - - 1,111
Gain on cancellation of
contingent
consideration
liability - - (672) -
Loss on disposal of
assets 50 (468) 581 335
Tax effect of non-GAAP
continuing operations
items(1) (470) 152 (1,515) (1,502)
Discontinued operations 5 526 12 (3,519)
Non-GAAP Adjusted net
income(2) $2,151 $897 $3,161 $3,611
====== ==== ====== ======
Non-GAAP Adjusted net
income per diluted
share(2) $0.20 $0.09 $0.30 $0.34
===== ===== ===== =====
(1) Applies an effective tax rate of
36.1%, 37.2%, 36.5% and 38.1% 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 Income and Adjusted
EBITDA, or earnings before interest,
taxes, depreciation, amortization,
accretion, non-recurring 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
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 Income to Non-GAAP Adjusted EBITDA(2)
(in thousands) Three Months Ended Years Ended
December 31, December 31,
------------ ------------
2016 2015 2016 2015
---- ---- ---- ----
GAAP net income $1,315 $203 $513 $4,688
Add back:
Net interest expense 856 1,037 3,169 3,604
Income tax (benefit)
expense 365 74 (707) 417
Depreciation,
amortization and
accretion 2,053 1,909 8,034 7,257
Non-recurring legal,
professional and
settlement costs 1,251 484 4,242 2,498
Non-recurring
regulatory and other
expenses - - - 1,111
Gain on cancellation of
contingent
consideration
liability - - (672) -
Loss (gain) on disposal
of assets 50 (468) 581 335
Discontinued operations 5 526 12 (3,519)
Non-GAAP Adjusted
EBITDA(2) $5,895 $3,765 $15,172 $16,391
====== ====== ======= =======
(2) Non-GAAP Financial Measures:
The Company believes that, when used
in conjunction with GAAP measures,
Adjusted Net Income and Adjusted
EBITDA, or earnings before interest,
taxes, depreciation, amortization,
accretion, non-recurring 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 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.
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SOURCE Gas Natural Inc.
