Q4 2019 Earnings Call
[music].
Hello, My name is Sheryl and I will be your conference facilitator at this time I would like to welcome everyone to the M.D. you Resources Group 2019 yearend earnings results and Twentytwenty guidance Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer period, if he would like to ask a question Jordan. This time typically press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound key on your telephone keypad. This call will be available for replay beginning at five P.M. eastern.
Today through 11, 59, P.M. Eastern on February 19th Twentytwenty. The conference I'd number for the replay is seven oneself and three to six six again they'll conference I'd number for the replay is seven one set that three to six six did numbers.
While further we play is 18558 fivenine to 056 or for all 45373 406.
I'd now like to turn the conference over to Jason Volmer, Vice President Chief Financial Officer, and Treasurer of M.D. Human Resources group. Thank you. Mr. Bowman you may begin your conference.
Thank you Sheryl and welcome to our conference call covering or 29 tuned earnings results in 2020 guidance. This conference calls being broadcast live to the public over the Internet and slides will accompany our remarks you.
He would like to viewed as large what was going or website at www dot MDB dotcom and go to events and presentations page under the investors tab.
Earnings release is also available on our website.
During the presentation, we will make certain forward looking statements within the meaning of section 21, He probably Securities Exchange Act of 1934, although the company believes that its expectations and beliefs are based on a reasonable assumptions actual results may differ materially.
For a discussion of factors that may cause actual results to differ please refer to item one a risk factors in our most recent form 10-K.
For a call today I will discuss key financial highlights and then during the presentation over to Dave Goodin, President and CEO of MD resources group rates were more remarks.
After Dave's remarks, we'll open the line for questions.
In addition to David myself members of our management team, who will be available to answer questions today are.
Dave Barney President and CEO of Knife River Corporation, Jeff Thiede, President and CEO of MTO construction services group.
The bulk of it still presidency, all Cascade natural gas great Plains natural gas inner mountain gas in Montana Dakota utilities.
Never Hastings, President and CEO of W.B., I energy, and Stephanie Barth, Vice President Chief Accounting Officer, and controller of MD resources.
Yesterday, we announced 2900 earnings of 335.5 million or one dollar and 69 cents per share compared to 2018 earnings of 272 point threemillion or $1.39 per share.
This is an increase of 23% year over year.
In the fourth quarter earnings were 95.1 million or 47 cents per share compared to 78.8 million or 40 cents per share in 2018.
For 2019 or combined utility business reported earnings of 94.3 million compared to 84.7 in 2018.
For electric utility segment earned 54.8 million in 2019 compared to prior year earnings of 47 million.
This increase in earnings was result of higher electric gross margins, which increased due to higher average for even at rates that included rate recovery in the state of Montana.
This business also reported higher revenues from the Big Stone, South Ellendale transmission line and higher investment returns during the year.
Partially offsetting these increases were higher depreciation depletion and amortization expense from increased asset additions and higher operation and maintenance maintenance expense, primarily payroll related costs.
The natural gas utility segment had earnings of 39.5 million in 2019 compare to prior year earnings of 37.7 million.
The increase in earnings was largely due to higher retail sales margins as a result of a 9.9% increase in a retail sales volumes.
Partially offset by weather normalization and conservation adjustments.
Approved rate recovery and higher investment returns also had a positive impact on earnings. These increases were partially offset by higher operation and maintenance expense and higher depreciation depletion and amortization expense.
At the pipeline and midstream business earnings in 2019 were 29.6 million compared to prior year earnings of 28.5 million.
Earnings in 2018 included a 4.2 million dollar tax benefit from the result, a reversal of a regulatory liability.
The increase in earnings was largely the result of higher transportation revenues from record transportation volumes largely related to organic growth projects and higher customer rates due to a FERC rate case settlement, which was effective may onest of 2019.
Increased investment returns also had a positive impact on the air.
Partially offsetting these increases was higher depreciation depletion and amortization expense.
I'm increased asset additions as well as higher depreciation rates from the previously mentioned for great case.
Our construction services business reported record revenues of 1.85 billion up from 1.37 billion in the prior year and record earnings of 93 million in 2019 up 45% from 2018 earnings of 64.3 million.
This business is earnings increased due to higher inside specialty contracting margins a direct result of increased workloads in the hospitality and high Tech industries.
As well as the absence of changes in estimates on certain construction projects that we made in 2018.
Outside contracting margins also increased for the year.
This was driven by higher workloads from strong utility customer demand, partially offsetting the increase was higher selling general and administrative expense, primarily payroll related costs due to record staffing levels.
Construction services backlog at the end of the year was 1.14 billion up 22% from 20 eighteens record.
The construction materials business also reported record revenues of 2.19 billion had earnings of 120.4 million compared to 2018 revenues of 1.93 billion and earnings of 92.6 million.
Higher contracting and materials revenues from strong economies across the company's footprints and higher materials volumes related to businesses acquired since the third quarter of 2018 drove the increase in earnings.
This business that asset sale gains that were approximately 5.6 million higher after tax and the prior year, which further increased earnings.
Partially offsetting these increases were higher selling general administrative expense and higher interest expense.
The construction materials backlog at the end of the year was 693 million down just slightly from last year's record backlog of 706 million.
Now I'd like to turn the call over to Dave for his formal remarks it.
Thank you, Jason and good afternoon, everyone and thank you for joining us this afternoon.
I'm happy to report that our performance in 2019 was again at record levels in a number of areas.
As we look to 2020 I am pleased with the opportunities in front of us to continue to execute on our growth strategy with a focus on growing both organically and through strategic acquisitions.
Before I dive into the details of 2019 I do want to extend a heartfelt. Thank you to the employees of RMB resources companies for another great year.
Their commitment to our customers communities and shareholders, all why operating safely and with integrity is allowing us to provide exceptional operating results as we continue building a strong America to.
Together, we reported 2019 earnings of $1.69 per share compared to 2018, where we reported earnings of $1.39 cents per share.
We're very proud of our record of consistently rewarding our shareholders with a growing dividend while investing in our businesses to fund growth opportunities across all business lines.
At our utility companies, we reported record earnings for 2019, driven by a nearly 10% increase in natural gas sales volumes and implemented rate relief.
Throughout the year the utility completed several organic growth projects.
Natural gas service was brought to the winter North Dakota, and the Big Stone South to Ellendale transmission line was brought into service.
Great cases were filed in several states and utility was able to finalize and implement new rates in two of them.
Looking at 2020. The company currently has two pending rate cases, and anticipates filing additional rate request throughout the year.
On Monday of this week and natural gas case, and the state of Washington was approved with a 2.8% increase in Cascades annual revenues with new rates to be effective on March 1st of this year.
This business continues to work on the regulatory filings and planning required to construct own and operate in 88 megawatt simple sample natural gas combustion turbine near Mandan North Dakota. This facility is expected to cost approximately 73 million and plans to be in service in 2023.
[music].
These types of growth projects paired with customer focus remember boys allows us to provide some of the best customer service in the nation.
Recently JD power release, their 2019 gas utility residential customer satisfaction study, which ranked Cascade natural gas the highest midsize natural gas utility in the West region.
Inter mountain gas ranks second and Montana Dakota ranked third.
This is the second straight year that are utility companies have ranked one two and three and the fourth year that Cascade and enter mountain have filled the top two spots.
Our utility companies take immense pride in serving our more than 1.1 million customers across our age state footprint.
And looking forward, we continue to see solid customer growth and expect to grow our customer base between one and 2% annually.
We also expect rate base to grow approximately 5% compounded annually over the next five years driven by investments in the system infrastructure upgrades and replacements to safely made customer demand.
Header pipeline business, we had a very full 2019 and for the third consecutive year moved record volumes of natural gas through its pipeline system.
Yes yesterday the company brought into service its Demicks Lake expansion project here in North Dakota.
Which is a capacity of 175 million cubic feet per day.
With the additions of this expansion coupled with Demicks Lake and line section 22 projects brought online in late 2019. The company now has capacity to transport more than 2.2 billion cubic feet of natural gas through its system per day.
In the coming weeks the pipeline business, we'll be filing with FERC and application for permission to proceed with construction on the north bike and expansion projects slated for 2021.
This project would add approximately 350 million cubic feet of capacity per day.
As you May recall, the north back and expansion project was originally introduced in early 2019, as a 200 million cubic foot per day project and has expanded twice to accommodate strong customer demand for this project and expected demand with continued record levels of natural gas production in the back.
And.
Now I'd like to turn to our construction businesses.
The construction services group ended another year with record revenues record earnings and record backlog.
The company continues to see strong demand for both inside and outside specialty contracting work.
The inside contracting business segment is busy in the southwest and northwest markets, where strong demand in the hospitality and high Tech industries are driving increased workloads.
Outside contracting continues to see high volumes of electrical transmission distribution, along with substation work for utility customers across our market areas.
In 2019, this business acquired the assets of Pride electric and electric construction company based in Washington State.
This business is strong performance throughout the remainder of the are added to the bottom line growth we saw at this business.
More recently on Monday of this week, we welcome per electric two M. view construction services group.
For electric is a leading electrical construction company based in Fairfax, Virginia with over 350 employees that specialize in new construction tenant improvement and service work in the government commercial health care and high Tech markets. We're very excited to welcome the employees of per electric.
Along with their expertise to the M. do you family.
At our construction materials business. We also had record revenues in 2019.
This business continues to benefit from strong economic conditions in several states across its footprint.
And as a result material sales and contracting workloads increased in 2019, driving that 30% increase in earnings on a year over year basis.
This business continues to successfully acquire businesses to expand to aggregate reserves and market coverage across the western half of that our nation.
For 2020, we will continue to evaluate additional acquisition opportunities at both businesses and we look forward to successfully executing on projects in our record combined construction backlog, which now stands at 1.84 billion.
All while we focus on cost inefficiencies and most importantly safety.
We expect full year construction services revenues to be in a range of 1.85 to two point, all 5 billion and construction material revenues to be in the range from 2.2 to 2.4 billion.
With margins importantly, comparable or slightly higher than our 2019 levels at both businesses.
That completes our individual business unit discussion now looking ahead as an overall corporation.
And as noted in our release, we are initiating our 2020 earnings guidance to be in the range of $1.65 to $1.85 per share.
This range reflects.
Normal operating economic and weather conditions, including precipitation and temperatures across all service areas.
And the investment over 650 million for capital projects.
And earnings from additional acquisitions made throughout the year would be incremental to this range and are not included in this capital forecast.
Here at MD resources, we performed at record levels in 2019, and I'm optimistic that we're well positioned to produce significant long term value as we execute on our business plans and explore potential acquisitions, along with organic growth opportunities.
We continue to maintain a strong balance sheet solid credit ratings and good liquidity positions.
And for 82 consecutive years, we've continued to provide a competitive dividend to our shareholders, while increasing it for the past 29 years.
That is always MTO resources is committed to operating with integrity and to focus on safety, while creating superior shareholder value as we continue building a strong America.
I certainly appreciate everyone's interest in and commitment to empty resources and ask now that we open the lines two questions operator.
At this time I would like to remind everyone. If he would like to ask a question. Please press Star then the number one on your telephone keypad. If he would like to withdraw your question press the pound <unk> on your telephone keypad. If you are almost speakerphone.
Up your handset before entering your request, we will pause for just a moment to compile the couponing roster.
Your first question.
From Chris.
Siebert Williams. Please go ahead your line is open.
How are you.
Hey, Chris doing well how are you doing.
Great, especially when you come out with the earnings like this.
Yep. Thank you Chris.
ER.
That's it for electric acquisition, that's kind of unusual.
On the east coast or does that tell us anything about your your plans or was that just a one off.
Yeah Lucky.
Yeah, Chris I'll, Oh, I'll start with them at hand, this over to Jeff, who really led that acquisition keep in mind, we already operate or construction services in some 43 or so different states already.
So we have nearly a nationwide footprint, a but certainly the mid Atlantic where per electrics located.
As a nice addition, if you will from a geography at all have Jeff just maybe touch on the acquisition a little bit because we find it to be significant.
Thank you Dave Yeah Pro Electrics office is less than 600 miles from another one of our CSG offices the Psi.
Hi, all we think they're great fit and we're involved in national contractor associations, and we look define companies that have high integrity.
A really good sound management team and excellent field people and we found that would put electric and it's not a one off and we'll continue to look for companies that are fit for CSG and the continental United States.
Well I have you Jeff.
No in your backlog.
Proportion is Vegas right now.
If you take a look at our Vegas backlog that getting into specifics you take a look at Vegas, our southwest our west at our Midwest, Our backlogs broken up the thirds. So that's a good demonstration of our diversification and balance within our op.
Operations across the country.
And then it also seems like maybe in the true is gaining some traction lately and express some.
Reservations.
Yeah.
[music].
Well, what do you know about the timetable there.
You guys at all at this point.
Yeah, some of our backlog burns off in that project is been pushed out a we think that we have a we'll have a part in that project, but its confidential and we are involved has one of the partners in that project.
Okay great.
I'm also can you give us.
On other than.
David said filing air permits.
And just give us a little bit update on the north block and expansion and what you're seeing there.
Sure Chris.
The as Dave mentioned in his opening remarks weve.
Increase to the overall design in that project now to 350000 Mmcf a day.
We have been working through the NEPA pre filing process.
Where it works we work with all stakeholders.
We're in a final stages of finishing up our draft application.
Which we expect to file with FERC in a couple of weeks.
Thanks, guys.
Yeah, you bet. Thank you Chris.
Your next question comes from <unk> to this point. Please go ahead. Your line is open.
Hi, good afternoon guys.
Hey, good afternoon, Andy how are you.
Great.
Yeah.
Question.
Oh.
<unk>.
Describe to us.
Yeah.
Thanks Denny.
<unk>.
Yeah, I mean, we.
Provided the range as Andy between a 165 and 185 and.
You know in that range guidance I know you noted some factors there a normal weather normal precipitation normal ability to get out in the spring time with their construction activities, what we normally might expect from a fall.
So when the snow hits, our northern tier areas and so a you know whether would have an impact on that certainly favorable weather. We get out early you know we're sitting on a billion 0.8 in backlog currently in construction. So clearly there is.
Quite a bit award kind of ready to go for this year. So important for us will be all early we can get out I would say those would be some key factors again, we don't haven't baked in any a acquisition activity as part of that range as well and so.
Acquisition activity could be incremental to that but again it will update the the earnings guidance as we go throughout the year as we've done in a prior years as well, but so those would be some of the factors I would look at.
Yeah.
Whether.
Uh huh.
Yeah, I mean, a it's a tale of two cities I mean, we're you know our utility business obviously does.
With natural gas sales almost a million customers relies on January whether there were normalized in or have you know more fixed bill rates and six of our eight states and so there's some normalization effect there and you know what their northern tier exposure under construction side, most of our ready mix structural part from Minnesota through.
Through the Dakotas into Montana, Wyoming, and <unk> in the Idaho So.
No I think it's early to tell so far is it's early start to the year were just a one month into it I would opine on the weather so far it's pretty early.
Got it.
Very much.
You bet, thanks for the questions Andy.
This marks the last call for questions. If he would like to ask a question Press Star then the number one on your telephone keypad. This call will be available for replay beginning at five P.M. eastern today through 11, 59, P.M. Eastern February 19th 2020 the conference.
For the replay 773 to six six again the conference I'd number for <unk> 713 to six.
At this time there are no further questions I would like to turn the call back over to management for closing remarks.
Thank you Sheryl 2019 was a very strong year for our businesses, which we all executed well on is including our strategies.
We are committed to building a strong America, along with being optimistic about our opportunities for 2020 and beyond we appreciate everybodys participation on the call today and again. Thank you for your continued interest in M. do you resources with that I'll turn this back to the operator Cheryl.
This concludes todays MTV resources Group conference call. Thank you for your participation you may now disconnect.
[noise].