# RGC Resources Inc: Form 10-Q for the period ended Dec 31, 2024

- Company: [RGC Resources Inc](/companies/rgco.md) (CIK 1069533)
- Form: 10-Q
- Filed: 2025-02-10
- Accepted by EDGAR: Feb 10, 2025, 16:15 ET
- Period: 2024-12-31
- Accession: 0001437749-25-003304
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1069533/000143774925003304/rgco20241231_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1069533/000143774925003304/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-10-01 to 2024-12-31 | $26.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Operating income | 3 months, 2024-10-01 to 2024-12-31 | $7.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2024-10-01 to 2024-12-31 | $1.8m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-10-01 to 2024-12-31 | $1.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-10-01 to 2024-12-31 | $5.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-10-01 to 2024-12-31 | $0.51 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-10-01 to 2024-12-31 | $0.51 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-10-01 to 2024-12-31 | 10,263,997 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-10-01 to 2024-12-31 | $827.2k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-10-01 to 2024-12-31 | $5.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-10-01 to 2024-12-31 | $2.1m | us-gaap:PaymentsOfDividendsCommonStock |
| Current assets | at 2024-12-31 | $35.9m | us-gaap:AssetsCurrent |
| Total assets | at 2024-12-31 | $335.2m | us-gaap:Assets |
| Current liabilities | at 2024-12-31 | $64.3m | us-gaap:LiabilitiesCurrent |
| Long-term debt | at 2024-12-31 | $111.3m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2024-12-31 | $26.2m | us-gaap:LongTermDebtCurrent |
| Short-term borrowings | at 2024-12-31 | $19.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2024-12-31 | $111.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 35,833 characters.

### Forward-Looking Statements

This report contains forward-looking statements that relate to future transactions, events or expectations. In addition, Resources may announce or publish forward-looking statements relating to such matters as anticipated financial performance, business prospects, investments, inflation, rate making, technological developments, new products, research and development activities, operational impacts and similar matters. These statements are based on management’s current expectations and information available at the time of such statements and are believed to be reasonable and are made in good faith. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors could cause the Company’s actual results and experience to differ

materially from the anticipated results or other expectations expressed in the Company’s forward-looking statements. The risks and uncertainties that may affect the operations, performance, development and results of the Company’s business include, but are not limited to, those set forth in the following discussion and within Item 1A “Risk Factors” in the Company’s 2024 Annual Report on Form 10-K. These factors are difficult to predict and many are beyond the Company’s control. Accordingly, while the Company believes its forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. When used in the Company’s documents or news releases, the words “anticipate,” “believe,” “intend,” “plan,” “estimate,” “predict,” “target,” “expect,” “objective,” “projection,” “potential,” “forecast,” “budget,” “assume,” “indicate” or similar words or future or conditional verbs such as “will,” “would,” “should,” “can,” “could,” “may” or “might” are intended to identify forward-looking statements.

Forward-looking statements reflect the Company’s current expectations only as of the date they are made. The Company assumes no duty to update these statements should expectations change or actual results differ from current expectations except as required by applicable laws and regulations.

The three-month earnings presented herein should not be considered as reflective of the Company’s consolidated financial results for the fiscal year ending September 30, 2025. The total revenues and margins realized during the first three months reflect higher billings due to the weather-sensitive nature of the natural gas business.

### Overview

Resources is an energy services company primarily engaged in the regulated sale and distribution of natural gas to approximately 63,400 residential, commercial and industrial customers in Roanoke, Virginia and surrounding localities through its Roanoke Gas subsidiary. Midstream, a wholly owned subsidiary of Resources, is a less than 1% investor in both the MVP and Southgate. The utility operations of Roanoke Gas are regulated by the SCC, which oversees the terms, conditions and rates charged to customers for natural gas service, safety standards, extension of service and depreciation. The Company is also subject to regulation from the United States Department of Transportation in regard to the construction, operation, maintenance, safety and integrity of its transmission and distribution pipelines. FERC regulates the prices for the transportation and delivery of natural gas to the Company’s distribution system and underground storage services. In addition, the Company is subject to other regulations which are not necessarily industry specific.

Nearly all of the Company’s revenues are derived from the sale and delivery of natural gas to Roanoke Gas customers based on rates and fees authorized by the SCC. These rates are designed to provide the Company with the opportunity to recover its gas and non-gas expenses and to earn a reasonable rate of return for shareholders based on normal weather. These rates are determined based on various rate applications filed with the SCC. Generally, investments related to extending service to new customers are recovered through the additional revenues generated by the non-gas base rates in place at that time. The investment in replacing and upgrading existing infrastructure, as well as recovering increases in non-gas expenses due to inflationary pressures, regulatory requirements or operational needs, are generally not recoverable until a formal rate application is filed to include the additional investment and higher costs, and new non-gas base rates are approved.

On February 2, 2024, primarily in response to continued inflationary pressures, Roanoke Gas filed for an annual non-gas base rate increase of $4.33 million. The filing also reflected an increase in the Company's authorized return on equity from 9.44% to 10.35%. The new interim non-gas base rates went into effect for customer billings on or after July 1, 2024, subject to refund. On October 16, 2024, the Company reached a settlement with the SCC staff on all outstanding issues in the case. Under the terms of the settlement, the Company agreed to an annual incremental revenue requirement increase of $4.08 million based on a return on equity of 9.90%.

Following extended periods of regulatory and judicial delays, as well as receipt of authorization from the FERC, the MVP entered into service on June 14, 2024 and became available for interruptible or short-term firm transportation service. On July 1, 2024, the MVP commenced long-term firm capacity obligations. See the Equity Investment in Mountain Valley Pipeline section for additional information on the MVP.

As the Company’s business is seasonal in nature, volatility in winter weather and the commodity price of natural gas can impact the effectiveness of the Company’s rates in recovering its costs and providing a reasonable return for its shareholders. In order to mitigate the effect of weather variations and other factors not provided for in the Company's base rates, Roanoke Gas has certain approved rate mechanisms in place that help provide stability in earnings, adjust for volatility in the price of natural gas and provide a return on qualified infrastructure investment. These mechanisms include the SAVE Rider, WNA, ICC, RNG Rider and PGA.

The SAVE Plan and Rider provides the Company with a mechanism through which it recovers costs related to qualified SAVE infrastructure investments on a prospective basis, until a rate application is filed incorporating these investments in non-gas base rates. Roanoke Gas filed and received approval from the SCC for an updated annual SAVE Rider rate which became effective October 1, 2024. As a result of the updated SAVE Rider, SAVE Plan revenues increased by approximately $273,000 for the three-month period ended December 31, 2024 compared to the same period last year when the recovery of all prior SAVE Plan investment was incorporated into the non-gas base rates that were effective January 1, 2023. The updated SAVE Rider is expected to result in approximately $1,389,000 of annualized SAVE-related revenues during fiscal 2025. Additional information regarding the SAVE Plan and Rider is provided under the Regulatory section below.

The WNA mechanism reduces the volatility in earnings due to the variability in temperatures during the heating season. The WNA is based on the most recent 30-year temperature average and provides the Company with a level of earnings protection when weather is warmer than normal and provides its customers with price protection when weather is colder than normal. The WNA allows the Company to recover from its customers the lost margin (excluding gas costs) from warmer-than-normal weather and correspondingly requires the Company to refund the excess margin earned for colder-than-normal weather. The WNA mechanism used by the Company is based on a linear regression model that determines the value of a single heating degree day and thereby estimates the revenue adjustment based on weather variance from normal. Any billings or refunds related to the WNA are completed following each WNA year, which extends for the 12-month period from April to March. For the three months ended December 31, 2024, the Company accrued approximately $500,000 in additional revenues under the WNA model for weather that was 6% warmer than normal, respectively, compared to approximately $1,173,000 in additional revenues for weather that was 16% warmer than normal for the corresponding period last year.

The Company has an approved rate structure to mitigate the impact of the financing costs of its natural gas inventory. Under this rate structure, Roanoke Gas recognizes revenue by applying the ICC factor, based on the Company’s weighted-average cost of capital, including interest rates on short-term and long-term debt, and the Company’s authorized return on equity, to the average cost of natural gas inventory during the period. Total ICC revenues decreased by approximately $53,000 for the three-month period ended December 31, 2024 compared to the corresponding period last year, due to lower natural gas commodity prices during the 2024 summer storage injection season resulting in a lower average cost of natural gas in storage. Accordingly, fiscal 2025 ICC revenues are expected to continue to remain below last year's levels.

In March 2023, Roanoke Gas began operating the RNG facility, through a cooperative agreement with the Western Virginia Water Authority, to produce commercial quality RNG for delivery into its distribution system. With SCC approval, Roanoke Gas is allowed to recover the costs associated with the investment in RNG facilities and the related operating costs through an RNG Rider added to customer bills. Customers receive the benefit of the monetization of environmental credits generated through the production of RNG. Roanoke Gas recognized approximately $388,000 in RNG revenue for the three months ended December 31, 2024 compared to approximately $300,000 for the corresponding period in the prior year.

The cost of natural gas, which is a pass-through cost, is independent of the Company's non-gas rates. Accordingly, the Company's approved billing rates include a component designed to allow for the recovery of the cost of natural gas used by its customers. This rate component, referred to as the PGA, allows the Company to pass along to its customers increases and decreases in natural gas costs through a quarterly filing, or more frequent if necessary, once SCC staff approval is received. As actual costs will differ from the projections used in establishing the PGA rate, the Company will either over-recover or under-recover its actual gas costs during the period. The difference between actual costs incurred and costs recovered through the application of the PGA is recorded as a regulatory asset or liability. At the end of the annual deferral period, the balance is amortized over a succeeding 12-month period through the ensuing non-gas rate component.

### Results of Operations

The analysis on the results of operations is based on the consolidated operations of the Company, which is primarily associated with the utility segment. Additional segment analysis is provided when Midstream's investment in affiliates represents a significant component of the comparison.

The Company's operating revenues are affected by the cost of natural gas, as reflected in the condensed consolidated statements of income under cost of gas - utility. The cost of natural gas, which includes commodity price, transportation, storage, injection and withdrawal fees, with any increase or decrease offset by a correlating change in revenue through the PGA, is passed through to customers at cost. Accordingly, management believes that gross utility margin, a non-GAAP financial measure defined as utility revenues less cost of gas, is a useful and relevant measure to analyze financial performance. The term gross utility margin is not intended to represent or replace gross margin, the most comparable GAAP financial measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies. A reconciliation between gross utility margin and gross margin is presented under the Gross Utility Margin section below. The following results of operations analyses will reference gross utility margin.

### Three Months Ended December 31, 2024:

Net income increased by $249,697 for the three months ended December 31, 2024, compared to the same period last year, primarily due to the implementation of new non-gas base rates effective July 1, 2024, slightly offset by lower WNA revenues and lower equity earnings from the MVP as the project transitioned from construction to in service, as well as higher interest expense.

The tables below reflect operating revenues, volume activity and heating degree days.

| Operating Revenues | Three Months Ended December 31, 2024 | 2023 | Increase / (Decrease) Percentage |  |
| --- | ---: | ---: | ---: | ---: |
| Gas utility | $27,263,204 | $24,391,854 | $2,871,350 | 12% |
| Non utility | 26,282 | 27,498 | (1,216) | (4)% |
| Total operating revenues | $27,289,486 | $24,419,352 | $2,870,134 | 12% |
| **Delivered Volumes** |  |  |  |  |
| Regulated natural gas (DTH) |  |  |  |  |
| Residential and commercial | 2,174,553 | 2,094,640 | 79,913 | 4% |
| Transportation and interruptible | 1,320,849 | 925,995 | 394,854 | 43% |
| Total delivered volumes | 3,495,402 | 3,020,635 | 474,767 | 16% |
| HDD | 1,366 | 1,237 | 129 | 10% |

Total operating revenues for the three months ended December 31, 2024, compared to the same period last year, increased by approximately 12% primarily due to the implementation of a non-gas base rate increase, along with higher delivered volumes, gas costs and SAVE revenues, slightly offset by a decrease in WNA revenue. The non-gas base rate increase implemented in 2024 was the main contributing factor to an approximate $1.6 million increase in non-gas volumetric revenues. In addition, total heating degree days increased by 10% from the same period last year, resulting in a 4% increase in the weather-sensitive residential and commercial volumes, while transportation and interruptible volumes increased 43% primarily driven by business activity of a single, multi-fuel customer during the quarter. We expect the higher usage to continue in the near term, although much of this volume has a lower margin contribution. Gas costs also increased over the prior period primarily due to pipeline capacity charges increasing over $800,000 as a result of higher rates and additional capacity. These capacity charges, which do not impact margin, are expected to continue at a comparable level. SAVE Plan revenues increased as Roanoke Gas continues to invest in qualified SAVE infrastructure projects, resulting in approximately $273,000 more revenue compared to the same period in the prior year. WNA revenues declined approximately $673,000 from the corresponding period last year as weather was only 6% warmer than normal during the current period compared to 16% warmer than normal during the prior period.

| Gross Utility Margin | Three Months Ended December 31, 2024 | 2023 | Increase Percentage |  |
| --- | ---: | ---: | ---: | ---: |
| Gas utility revenues | $27,263,204 | $24,391,854 | $2,871,350 | 12% |
| Cost of gas - utility | 11,702,709 | 10,097,016 | 1,605,693 | 16% |
| Gross utility margin | $15,560,495 | $14,294,838 | $1,265,657 | 9% |

Gross utility margin increased over the same period last year primarily as a result of the implementation of new non-gas base rates and increases in SAVE and RNG revenues, offset by the reduction in WNA and ICC revenues. When adjusted for WNA, the volumetric margin increased by approximately $921,000 primarily due to the new non-gas base rates and increases in transportation and interruptible volumes. The RNG Rider and SAVE Plan contributed an additional $88,000 and $273,000, respectively, to margin, while ICC revenues decreased by approximately $53,000 due to lower cost of gas in storage.

The changes in the components of gas utility margin are summarized below:

|  | Three Months Ended December 31, 2024 | 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Customer base charge | $4,065,148 | $4,032,454 | $32,694 |
| ICC | 189,907 | 243,330 | (53,423) |
| SAVE Plan | 293,999 | 21,187 | 272,812 |
| Volumetric | 10,067,087 | 8,473,367 | 1,593,720 |
| WNA | 500,446 | 1,173,127 | (672,681) |
| RNG | 388,003 | 300,365 | 87,638 |
| Other revenues | 55,905 | 51,008 | 4,897 |
| Total | $15,560,495 | $14,294,838 | $1,265,657 |

The tables below provide a reconciliation between gross utility margin and gross margin:

| Three Months Ended December 31, 2024 Operating revenues | Gas Utility | Investment in Affiliates | Consolidated Total |
| --- | ---: | ---: | ---: |
| Gas utility | $27,263,204 | $— | $27,263,204 |
| Non utility | 26,282 | — | 26,282 |
| Total operating revenues | 27,289,486 | — | 27,289,486 |
| Cost of sales |  |  |  |
| Cost of gas - utility | (11,702,709) | — | (11,702,709) |
| Cost of sales - non utility | (4,349) | — | (4,349) |
| Depreciation and amortization | (2,843,360) | — | (2,843,360) |
| Operations and maintenance | (4,653,956) | (34,715) | (4,688,671) |
| Total cost of sales | (19,204,374) | (34,715) | (19,239,089) |
| **Gross margin (GAAP)** | 8,085,112 | (34,715) | 8,050,397 |
| Corporate and other, net | (21,933) | — | (21,933) |
| Depreciation and amortization | 2,843,360 | — | 2,843,360 |
| Operations and maintenance | 4,653,956 | 34,715 | 4,688,671 |
| **Gross utility margin (Non-GAAP)** | $15,560,495 | $— | $15,560,495 |

| Three Months Ended December 31, 2023 Operating revenues | Gas Utility | Investment in Affiliates | Consolidated Total |
| --- | ---: | ---: | ---: |
| Gas utility | $24,391,854 | $— | $24,391,854 |
| Non utility | 27,498 | — | 27,498 |
| Total operating revenues | 24,419,352 | — | 24,419,352 |
| Cost of sales |  |  |  |
| Cost of gas - utility | (10,097,016) | — | (10,097,016) |
| Cost of sales - non utility | (5,150) | — | (5,150) |
| Depreciation and amortization | (2,697,707) | — | (2,697,707) |
| Operations and maintenance | (4,321,247) | (12,780) | (4,334,027) |
| Corporate and other | — | — | (1,170) |
| Total operations and maintenance | (4,321,247) | (12,780) | (4,335,197) |
| Total cost of sales | (17,121,120) | (12,780) | (17,135,070) |
| **Gross margin (GAAP)** | 7,298,232 | (12,780) | 7,284,282 |
| Corporate and other, net | (22,348) | — | (21,178) |
| Depreciation and amortization | 2,697,707 | — | 2,697,707 |
| Operations and maintenance | 4,321,247 | 12,780 | 4,334,027 |
| **Gross utility margin (Non-GAAP)** | $14,294,838 | $— | $14,294,838 |

27

Operations and maintenance expenses increased by $353,474, or 8%, from the same period last year primarily due to inflationary effects on personnel costs, costs to operate and maintain the RNG facility and professional services. Personnel costs increased by approximately $123,000 due to increased staffing and the inflationary impact on salaries and benefits as well as amortization of restricted stock awards. Cost associated with the RNG facility increased approximately $98,000 due to timing differences. Increased IT support costs and corporate insurance premiums accounted for much of the remaining cost increase.

Taxes other than income taxes increased by $90,131, or 14%, primarily due to higher property taxes associated with growth in utility property.

Depreciation expense increased by $143,653, or 5%, consistent with an increase in utility property balances.

Equity in earnings of unconsolidated affiliate decreased by $613,622, or 42%. With the MVP in service, the Company now recognizes its share of operational earnings from the MVP, favorably adjusted for the amortization of a basis difference that arose when the Company recorded an other-than-temporary impairment of its investment in 2022, which did not fully replace the amount of AFUDC recognized while construction activities were ongoing during the first quarter of fiscal 2024. See Note 5 of the consolidated financial statements for additional information related to the MVP.

Other income, net increased by $352,550 primarily due to an approximate $280,000 decrease in benefit plan costs, coupled with an increase of approximately $101,000 in revenue sharing related to the asset management agreements, which are described in more detail below.

Interest expense increased by $143,657, or 9%, primarily due to higher interest rates on the Company's variable rate debt, along with higher borrowing levels. The weighted-average interest rate on total debt increased from 4.28% during the first quarter of fiscal 2024 to 4.45% during the first quarter of fiscal 2025. The increase in the weighted-average interest rate was associated with Midstream's credit facilities. Total average debt outstanding during the first quarter of fiscal 2025 increased by 5% from the first quarter of fiscal 2024.

Roanoke Gas' interest expense increased by $63,472, or 7%, as total average debt outstanding increased by approximately $6,388,000 associated with net borrowings under the Company's line-of-credit. The average interest rate decreased slightly from 4.07% during the first quarter in fiscal 2024 to 4.06% during the first quarter in fiscal 2025. All of Roanoke Gas' long-term debt carry fixed rates either due to fixed rate notes or with variable rate debt that has a corresponding swap agreement. See Note 6 and 7 of the consolidated financial statements for more information on the Company's debt.

Midstream's interest expense increased by $80,185, or 12%, as the average interest rate on Midstream's total debt increased from 4.92% to 5.38% related to higher interest rates on the variable rate credit facilities that were refinanced in fiscal 2024, coupled with an approximate $1,261,000 increase in total average debt outstanding during the period.

Income tax expense increased by $21,558, or 1%, corresponding to an increase in pre-tax income. The effective tax rate was 23.4% and 24.0% for the three-month periods ended December 31, 2024 and 2023, respectively. The effective tax rate is below the combined statutory state and federal rate due to the amortization of excess deferred taxes and tax credits.

### Critical Accounting Policies and Estimates

The consolidated financial statements of Resources are prepared in accordance with GAAP. The amounts of assets, liabilities, revenues and expenses reported in the Company’s consolidated financial statements are affected by accounting policies, estimates and assumptions that are necessary to comply with generally accepted accounting principles. Estimates used in the financial statements are derived from prior experience, statistical analysis and management judgments. Actual results may differ significantly from these estimates and assumptions.

There have been no significant changes to the critical accounting policies as reflected in the Company’s Annual Report on Form 10-K for the year ended September 30, 2024.

### Asset Management

Roanoke Gas uses third-party asset managers to oversee its pipeline transportation, storage rights and gas supply inventories and deliveries in order to provide a secure and reliable source of natural gas to its customers. In return for utilizing the excess capacities of the transportation and storage rights, the asset managers pay Roanoke Gas a monthly utilization fee. In accordance with an SCC order issued in 2018, a portion of the utilization fee is retained by the Company with the balance passed through to customers through reduced gas costs. Prior to the MVP being placed in service, Roanoke Gas utilized one asset manager. With the MVP now in service, Roanoke Gas has a second asset management agreement for the utilization of its MVP capacity. Both asset management agreements expire March 31, 2025. The Company expects to enter into a new arrangement to begin April 1, 2025.

### Equity Investment in Mountain Valley Pipeline

The Company has a less than 1% interest in the MVP, which is accounted for as an equity investment, and a less than 1% interest in the Southgate pipeline, which is contemplated to interconnect with the MVP and accounted for under the cost method.

From inception through May 2024, earnings from the LLC were primarily attributable to AFUDC income. With the MVP in operation, the Company recognizes its share of earnings from the LLC, favorably adjusted for a basis difference between the Company's proportional share of assets and its carrying value that arose when the Company recorded an other-than-temporary impairment of its investment in 2022. This basis difference amortization is a favorable non-cash adjustment over the operational life of the MVP, or 40 years. For the first quarters of fiscal 2025 and 2024, the Company recorded equity in earnings of consolidated affiliate of approximately $850,000 and $1.5 million, respectively, with the 2024 amount being derived from AFUDC. Midstream received a quarterly cash distribution of its share from the LLC of approximately $800,000 in October which was a return on its invested capital. Future quarterly distributions are expected to be of a similar amount. The Company is using this cash to pay interest and other expenditures related to Midstream.

Midstream fully borrowed $25 million under a non-revolving credit facility, which matures in December 2025, as well as $8,895,000 under a separate non-revolving credit facility, which matures in May 2026. Quarterly amortization payments have been suspended on one of Midstream's promissory notes that matures January 1, 2028, and will resume in April 2025 with $1.2 million due over the next 12 months. The Company is actively discussing and anticipates refinancing the line of credit obligation in 2025. Additionally, Midstream is considering the long-term structure of all its debt as the MVP has transitioned from its project phase to being operational. See Note 7 for more information on all borrowings related to Midstream.

### Regulatory

See Note 4 of the condensed consolidated financial statements for discussion on Regulatory matters.

### Capital Resources and Liquidity

Due to the capital-intensive nature of the utility business, as well as the impact of weather variability, the Company’s primary capital needs are the funding of its capital projects, the seasonal funding of its natural gas inventories and accounts receivables, debt service and payments of dividends to shareholders. The Company anticipates funding these items through its operating cash flows, credit availability under short-term and long-term debt agreements and proceeds from the sale of its common stock.

Cash and cash equivalents increased by $1,204,178 for the three-month period ended December 31, 2024 compared to an increase of $1,352,306 for the three-month period ended December 31, 2023. The following table summarizes the sources and uses of cash:

| Cash Flow Summary | Three Months Ended December 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by (used in) operating activities | $827,190 | $(564,347) |
| Net cash used in investing activities | (5,751,463) | (5,300,295) |
| Net cash provided by financing activities | 6,128,451 | 7,216,948 |
| Increase in cash and cash equivalents | $1,204,178 | $1,352,306 |

29

### Cash Flows Provided by Operating Activities:

The seasonal nature of the natural gas business causes operating cash flows to fluctuate significantly during the year as well as from year-to-year. Factors, including weather, energy prices, natural gas storage levels and customer collections, contribute to working capital levels and related cash flows. Generally, operating cash flows are positive during the second and third fiscal quarters as a combination of earnings, declining storage gas levels and collections on customer accounts contribute to higher cash levels. During the first and fourth fiscal quarters, operating cash flows generally decrease due to increases in natural gas storage levels and rising customer receivable balances.

Cash flows from operating activities for the three months ended December 31, 2024 increased by $1,391,537 compared to the same period last year. The table below summarizes the significant components of operating cash flows:

| Cash Flow From Operating Activities: | Three Months Ended December 31, 2024 | 2023 | Increase/ (Decrease) |
| --- | ---: | ---: | ---: |
| Net income | $5,269,689 | $5,019,992 | $249,697 |
| Non-cash adjustments: |  |  |  |
| Depreciation | 2,843,360 | 2,761,920 | 81,440 |
| Equity in earnings | (854,213) | (1,467,835) | 613,622 |
| Distribution from unconsolidated affiliate | 801,816 | — | 801,816 |
| Changes in working capital and regulatory assets and liabilities: |  |  |  |
| Accounts receivable | (11,372,730) | (8,963,996) | (2,408,734) |
| Accounts payable | 3,068,681 | 572,694 | 2,495,987 |
| Income taxes | 1,633,289 | 2,317,469 | (684,180) |
| Change in over collection of gas costs | 1,339,550 | 2,046,845 | (707,295) |
| Change in accrued WNA revenues | (500,446) | (1,173,127) | 672,681 |
| Other | (1,401,806) | (1,678,309) | 276,503 |
| Net cash provided by (used in) operating activities | $827,190 | $(564,347) | $1,391,537 |

The increase in operating cash flows is primarily due to the equity in earnings related to the Company's investment in the MVP and the cash distribution received from the LLC. The decrease in non-cash equity in earnings from the Company's investment in the LLC is a result of the MVP transitioning from the construction phase to being operational. While under construction, AFUDC provided the majority of the income recognized. In October, the Company received a $800,000 quarterly cash distribution of its share from the LLC which was has been accounted for as a return on its invested capital. To a lesser extent, colder weather and increased gas costs compared to the same period last year resulted in higher accounts receivable and accounts payable balances. Pipeline and storage capacity charges during the first quarter of 2025 increased over $800,000 from the same period in the prior year. Additionally, total commodity costs increased from $3.15 per DTH in the first quarter of fiscal 2024 to $3.44 per DTH in the first quarter of fiscal 2025. A colder-than-normal December reduced the uncollected WNA balance as of December 31, 2024 despite the first quarter of fiscal 2025 being warmer than the first quarter in the prior year. As such, the warmer weather experienced during the current quarter contributed approximately $673,000 in additional operating cash. The reduction in cash related to income taxes is primarily attributable to a $1.0 million refund received during the first quarter of fiscal 2024.

### Cash Flows Used in Investing Activities:

Investing activities primarily consist of expenditures related to Roanoke Gas' utility property, which includes replacing aging natural gas pipe with new plastic or coated steel pipe, improvements to the LNG plant and gas distribution system facilities and expansion of its natural gas system to meet the customer growth demand. The Company is continuing its focus on SAVE infrastructure replacement projects, including the replacement of pre-1973 first generation plastic pipe. New customer demand for natural gas continues to be steady and therefore extending the natural gas distribution system within its service territory is also a priority. Roanoke Gas' total capital expenditures for the three-month period ended December 31, 2024 were approximately $5.7 million compared to $5.3 million during the same period last year. Total fiscal 2025 capital expenditures are expected to be approximately $22 million. Midstream continues to be invested in the LLC; however, the Company did not make capital contributions in 2024 under a prior agreement with the LLC's managing partner. Accordingly, Midstream's ownership percentage declined during the remaining construction period of the project. Now that the MVP is in service, Midstream will incur periodic, future capital investment related to ongoing MVP operations requirements and system improvements. Midstream has and will continue to make capital investments in Southgate. The targeted timing for completion of the Southgate project is 2028.

### Cash Flows Provided by Financing Activities:

Financing activities generally consist of borrowings and repayments under credit agreements, issuance of common stock and the payment of dividends. Net cash flows provided by financing activities were approximately $6.1 million for the three months ended December 31, 2024, compared to $7.2 million in net cash flows from financing activities for the same period last year. The $1.1 million decrease in financing cash flows is primarily attributable to net borrowings of $7.9 million under Roanoke Gas' line-of-credit during the first three months of fiscal 2025 compared to net borrowings of $8.9 million in the same period last year. Roanoke Gas' decreased borrowings were slightly offset by a net increase of $485,000 in Midstream's debt. During the first quarter of fiscal 2025, Midstream borrowed a net $40,000 compared to repaying $525,000 during the same period in the prior year. Notes 6 and 7 provide details on the Company's line-of-credit and borrowing activity.

In addition, Resources issued a total of 14,792 shares of common stock resulting in net proceeds of approximately $269,000. No shares were issued through the ATM program during the first quarter of fiscal 2025. During the same period last year, Resources issued 44,367 shares for approximately $821,000, including 26,077 shares through the ATM program for approximately $542,000, net of fees.

Management regularly evaluates the Company’s liquidity through a review of its available financing resources and its cash flows. Resources maintains the ability to raise equity capital through its ATM program, private placement or other public offerings. Management believes Roanoke Gas has access to sufficient financing resources to meet its cash requirements for the next year, including the line of credit and the two private shelf facilities. Roanoke Gas may also adjust capital spending, as necessary, if such a need would arise. Management expects to renew the Roanoke Gas line of credit in March and expects to refinance a portion of the line of credit into a long-term note in the coming months.

With the MVP now in service, Midstream's future cash requirements will relate to regular monthly operating expenses, debt service and capital contributions. The Company received its first cash distribution from MVP of approximately $800,000 in October 2024, and should receive similar distributions quarterly. Midstream's total debt service over the succeeding 12 months includes $26.2 million to retire maturing debt. Management has initiated conversations with its lenders and others to renegotiate Midstream's debt that is coming due over the next 12 to 18 months. With MVP operational and cash distributions being made to the partners, the Company is exploring longer-term financing that may include additional debt amortization and considerations around the Company's capital expenditure expectations. Management has successfully renegotiated Midstream's obligations several times in recent years and believes that it will be able to do so before the applicable due dates. Conversations to date have been positive.

As of December 31, 2024, Resources' long-term capitalization ratio was 45% equity and 55% debt.

## Controls and procedures

As filed, 1,485 characters.

The Company maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to be effective in providing reasonable assurance that information required to be disclosed in reports under the Exchange Act are identified, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management to allow for timely decisions regarding required disclosure.

Through December 31, 2024, the Company has evaluated, under the supervision and with the participation of management, including the chief executive officer and the chief financial officer, the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2024.

Management routinely reviews the Company’s internal control over financial reporting and makes changes, as necessary, to enhance the effectiveness of the internal controls. There were no control changes during the fiscal quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 156 characters.

There have been no material changes to the risk factors previously disclosed in Resources' Annual Report on Form 10-K for the year ended September 30, 2024.

Filed Feb 10, 2025.
Source: SEC EDGAR, the filing index for accession 0001437749-25-003304. Last ingested by Listed: Nov 4, 2026, 14:35 ET. No prices; not investment advice.