Q1 2020 Earnings Call

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Good afternoon. Thank you for joining us to discuss here to corporation's first quarter 2000.

20 financial results with me today, or Tom either Chairman, President and Chief Executive Officer every block Senior Vice President and Chief Financial Officer, and Treasurer, Dan first that controller and taught Black Senior Vice President external affairs and customer relations.

We will discuss financial and other information about our first quarter results on this call as you mentioned the press release announcing the call we have posted that information.

Putting a presentation to the investor section of our website at www dot yet until dot com.

Sure prefer to that information during this call.

On slide to the converts made today about future operating results or future events are forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Act 1995 forward looking statements inherently involve risks and uncertainties that could cause <unk> actual results to differ materially from those predicted.

Statements made on this call should be considered together with cautionary statements and other information contained or most recent annual report on form 10-K, and other documents, we filed with or furnished to the Securities Exchange Commission.

Forward looking statements speak only as of today, and we assume no duty to update though.

This presentation contains non-GAAP measures the company's supplemental information more fully described these non-GAAP measures include a reconciliation to the nearest GAAP measures. The company believes these non-GAAP measures are useful in evaluating a performance.

Moving on to slide three before we start I like to introduce some recent changes in senior management.

Every block was recently appointed that senior Vice President and Chief Financial Officer, and Treasurer. There has been was going to go for over 25 years, serving most recently as Chief Accounting Officer controller. There is bad experience, ensuring strong leadership. The guide you get until forward.

Dan first deck is also joined management team as the company's new controller Dean of nearly 20 years of accounting experience. Most recently, serving as vice President corporate accounting for fidelity investments prior to that Ghana works for 15 years or Pricewaterhousecoopers.

I'll now turn the call over to chairman, President and CEO, Tom Meissner [noise].

Thank you Todd and thanks, everyone for joining us today.

I'm going to begin on slide five.

But first let me just say that our thoughts on sympathies are what the victims of the Corona virus and their families.

That's a very difficult time for our customers and communities and our highest priority continues to be the safety of our employees and that of our customers.

In response to the ongoing pandemic, we implemented our crisis response plan to execute preventative and proactive measures during this unprecedented time.

We're pleased that there's been no interruption or degradation in our customer service as a result of this emergency and no impact on our ability to provide safe and reliable service.

The gas and electric services, we provide or more central today than they've ever been before for our customers in our communities.

To help our customers during this difficult time, we've suspended all service disconnections in late payment fees.

In addition, we've created a fun to provide financial assistance to residential customers, who have suffered cobot 19 related job loss or reduced wages.

In total we have donated 225000 doors to agencies within our service areas to help relief efforts.

We also have an a. employing fundraising campaign on going that has raised additional funding for covert 19 relief efforts, we've seen strong response from our employees.

Operationally the company has continued to provide safe reliable service throughout this ongoing emergency.

We quickly adopted protocols to ensure social distancing in the field, while ensuring operational continuity.

Office workers have seamlessly transition from work to home, where appropriate and either with their employees working remotely. We continue to answer customer inquiries and have seen no decline in the level of service.

On top of the ongoing Cobot 19 emergency. We also successfully responded to storm events. The created widespread outages and our service areas and we were able to do so and restore service quickly following each event.

Our employees have risen to this extraordinary challenge and the company as a whole remains prepared and ready to adapt.

Larry will speak to the financial impacts of the Colgate 19 situation momentarily.

Moving to slide six today, we announced net income of 15.2 million or a dollar two per share for the first quarter 2020, which was a decrease of 11.3 million or 76 cents per share compared to 2019.

And the first quarter of 2019, the company recognized a onetime net gain of 9.8 million or 66 cents in NPS on the company's divestiture of its non regulated business unit you source.

Adjusting for this divestiture gain net income was down 1.5 million or 10 cents per share compared to 2019 and reflects warmer winter weather in 2020.

The company estimates that the warmer than normal winter weather negatively impacted net income by approximately 3.1 million or 20 cents per share.

On slide seven we again summarized our current five year investment plan.

This outlook has not changed from what was reported last quarter and we do not currently anticipates that the cobot 19 emergency will materially impact our 2020 investment plan.

We still expect to invest over 680 million in our gas and electric systems over the next five years, which has an increase of over 25% compared to the previous five years.

This investment will continue to fund gas infrastructure modernization gas system expansion and electric grid modernization.

This investment should maintain our historical rate base growth of 7.5% to 8.5% over the foreseeable future.

Finally on slide eight we previously announced that we increased our annual dividends or $1.50 per share.

We do not currently for see any change to our current dividend policy as a result of the covert 19 urgency.

However, we will continue to strategically analyze our dividend policy subject to EPS growth and financing needs.

Now I'll turn the call over to Larry who will take us through the numbers.

Thanks, Tom Good afternoon, everyone.

I'll begin my remarks on slide nine.

Before reviewing our gas electric sales activity I'd like to briefly discuss the warmer winter weather that Tom previously mentioned.

To put the warm winter weather into perspective.

Quarter, one winter weather was 11.5% warmer than 2019, and 13.2% warmer than normal based on the company's degree day analysis.

This was one of the warmest winters on record in our service areas and unfavorably impacted sales in both the gas and electric divisions.

In total the company estimates that if weather had been closer to normal net income would have been higher by about 3.1 million or 20 cents per share.

Turning to slide 10.

Our year to date and gas adjusted gross margin is 42.4 million, which was a decrease of 1.1 million over 2019.

This decrease was primarily driven by the warmer winter weather and lower sales, which had an impact compared to 2019 of 3.2 million.

This decrease in margin was partially offset by the positive impacts of higher gas distribution rates in 2000 21.4 million in customer growth impact of point Sevenmillion.

Natural gas therm sales decreased 6.7% compared to the first quarter of 2019.

Given the milder winter weather in 2020, the company estimates that weather normalized gas therm sales, excluding decouple sales were up 1% year over year.

We are currently serving 1.3% or about 1100 more gas customers than at the same time and 29 team.

Next on slide 11.

Our year to date electric adjusted gross margin is 23.1 million.

Which is flat to 2019.

Electric sales margins in the period will positively affected by higher electric distribution rates of point Sixmillion.

However, this positive difference was offset by the impact of the warmer winter weather and lower average usage of the same point 6 million.

Total electric kilowatt hour sales increased 2.8% compared to the first quarter of 2019.

The increase in sales primarily reflects customer growth and increased usage by two large industrial customers in the company's Massachusetts surface area.

The company's Massachusetts surface area operates under a revenue decoupling mechanism and therefore, the increased sales of the two large industrial customers do not impact electric gross margin.

We are currently serving 0.7% or about 700 more electric customers than at the same time in 2019.

Now turning to slide 12.

We provide an earnings reconciliation analysis, comparing 2021st quarter net income to our results for the first quarter 2019.

I'd like to note that this layout is slightly different from the form 10-Q, as we isolate the impact of the use of course divestiture and related revenues and expenses.

In the supplemental presentation, we have provided a reconciliation to the statement of earnings that was provided in the 10-Q.

As we previously discussed our year to date gas and electric gross margins were lower than 2019 by 1.1 million largely due to weather.

Core operation and maintenance expenses decreased 2.2 million compared to the same period in 2019.

This is a 1% decrease in core on EM.

The decrease was driven by lower utility operating costs of 1 million.

Partially offset by higher bad debt expenses of <unk> point, sixmillion, including a provision for cobot 19.

Yeah, and higher professional fees, a point 2 million.

Depreciation and amortization was lower by point, Threemillion, reflecting lower amortization of storm expenses in deferred taxes in 2020.

Taxes other than the income taxes increased point 1 million compared to 2019 were primarily reflecting higher local property tax rates and higher levels of utility plant in service.

Interest expense net was flat, reflecting higher interest on long term debt offset by lower interest on lower levels of short term borrowings at lower rates.

Other in other expense increased 2.2 million due to higher retirement benefit costs in the period.

Next we have isolated the full useless impact of 10.3 million, which was realized in 2019.

This includes the after tax gain on the divestiture of 9.8 million. In addition, 2.5 million, which is the net income realized from uses operations in the first quarter of 2019 before the divestiture.

Lastly income taxes increased point 1 million, reflecting the 2020 effective tax rate of 23.5%.

So that is our reconciliation of our current net income was 15.2 million for the quarter to the 26 5 million we earned in the first quarter 2019.

Now, let's turn to slide 13, and I'll discuss the cobot 19 impacts on our business.

We are closely monitoring the cobot 19 emergency its impact on the financial health of the company.

The most significant impact to earnings could be the effect. The current economic conditions have on commercial and industrial sales in our non decouple service areas.

Although this may be slightly offset by higher sales to our residential customers.

At this point, we are still analyzing the extent and duration to which Sienna usage may decline as a result of the emergency.

However, we estimate that for every 1% drop in C and I usage sales margin will be negatively affected approximately $400000.

As a reminder, approximately half of the company's distribution revenue is generated by CNN customers.

Due to the moratorium on surface Dick's Disconnections the company expects to have higher levels of customer reviews.

We will be tracking that activity and we are exploring potential options to recover bad debt related expenses from the emergency with our state regulators.

I'd also like to point out than energy supply related bad debt.

Which is historically approximately 45% of all right off activity is tracked in reconciling mechanisms and does not impact the company's earnings.

The company has no intention to alter staffing levels as a result of the cobot 19 emergency to ensure continued safe and reliable service for our customers.

Looking at the balance sheet and cash flow.

The company is proceeding ahead with our financing in investment plans at this time.

We have ample liquidity available to us under our existing line of credit facility.

The facility has a borrowing limit of 120 million and we are currently utilizing an approximately half of that limit.

The facility also allows us the option to increase the limit by 50 million for a combined $170 million limit.

The company is not elected to exercise that option at this point.

In total the company has about 110 million in short term liquidity available.

I'd also like to remind everyone that the company has investment grade credit ratings from S&P, and Moody's, which allows access to capital markets as needed.

We do not see liquidity being an issue for the company due to the emergency and as a result, the company will continue as planned with our dividend and investment programs.

Moving on to slide 14.

We are pleased to announce that our rate cases in Maine in Massachusetts have concluded in the first quarter of 2020.

We received an order from the main public utilities Commission approving an increase to base revenue of 3.6 million or an increase of 3.6% over test year operating revenues.

These rates became effective April Onest 2020, the order also approved a return on equity of 9.48%.

Also in the first quarter of 2020, we received Massachusetts Department of public utilities approval for base rate increases in both our gas and electric divisions.

Both rate increases were determined by settlements, which were approved with authorized returns on equity of 9.7%.

The gas settlement has a total distribution revenue increase of 4.6 million, which will be phased in over two years.

We began collecting the majority of this revenue award on March 1st 2020, while point 9 million will begin on March 1st 2021.

The electric settlement allows through distribution rate increase of 1.1 million to become effective this november of 2020.

The settlement also allows for the implementation of a new major Storm Reserve fund, which will help mitigate expense volatility related to storms.

In addition, the electric rate settlement also allows for continuation of the elect electric capital tracker slightly modified to include recovery of property taxes and also the limit for investment eligible for <unk> for recovery was more than doubled.

I would like to mention that all of these base rate awards reflect the pass back of excess deferred income taxes, which were created as a result of the tax cut in jobs Act.

The pass back is reflected in lower revenue, but is fully offset by lower amortization expense. The total annual pass back as a result of these rate three rate cases is 1.6 million annually.

Next we turn to slide 15, well, we have provided a summary of significant distribution rate changes in 2020.

We have precedent for long term rate plans or cost trackers across all of our utility subsidiaries.

In 2020, we have been awarded over 7 million of rate relief.

The negative amounts on slide 15 for the Fitchburg capital trackers reflect the transfer of collections from the tracker mechanisms and into base dispute distribution rates.

Finally on slide 16.

We provide the last 12 months actual earned return on equity in each of our regulatory jurisdictions.

Unitil on a consolidated basis earned a total return on equity of 8.7% in the last 12 months.

This reflects the unfavorable winter weather in quarter one.

The company estimates that normalizing quarter, one winter weather, the consolidated our or we would have been 9.5%.

And with that we thank you for attending today's call I will now turn the call over to the operator, who will coordinate questions from the audience.

Thank you.

Okay.

Thank you again, ladies and gentlemen can like that the question.

Please press Star then why don't you touched on telecom.

One moment please.

Our first question Compton Julien.

Bank of America. Your line is open.

Hi, This is Alex Morgan dialing in for Julien I just had one quick question, but first I definitely want it to congratulate you Orange Dan.

My question is on the mild weather that you experience. Thanks for being clear on the negative impact does have 20 cents I was hoping you might be able to talk a little bit about if you plan to mitigate any of that with a onetime cost savings in 20 Twentyth.

Specifically, thank you so much.

Hi, Alex this is Tom.

In terms of the current year I think.

Clearly the weather impact is just one of the challenges we're gonna face and then the in.

Packed is going to be from the ongoing shutdowns from the covert 19 pandemic.

They're clearly will be some offsets we've seen.

You know reductions in healthcare expenses I'm certainly travel is down training is down other discretionary expenses are down and we're currently delaying hiring.

And in large part because its impractical to actually conduct hiring at the moment.

So there will be some offsets, but it's difficult to quantify offsets that are going to significantly.

Offset the decline that we saw in sales in Q1.

Thank you.

Next question comes from Shelby Tucker of RBC capital markets. Your line is open.

Great. Thank you good afternoon, and Larry Congratulations on the promotion.

My question is about decoupling you have done in Massachusetts.

To what extent would you be.

Trying to seek maybe some type of decoupling and the other two states New Hampshire made and if you were to consider that.

What either editorial or legislative steps would you need to follow to to achieve that.

Hi, Shelby this is Tom I'm in New Hampshire, Interestingly enough where required to file decoupling proposals by statute as part of our next rate case filings. So we do anticipate filing for decoupling, both gas and electric in New Hampshire.

And our next rate case cycle.

In May we haven't really discussed.

Whether we will be pursuing that are not though I think we will be giving strong consideration to filing a decoupling proposal remain as well.

Especially since we'll be doing so in new Hampshire for northern.

And then on the point of whether legislation would be required at all I mean, obviously you have not the case, but from Maine.

I am not that I'm aware of no I don't believe legislation would be required.

Great. Thanks very much.

Thank you again reinject it like that the questions. Please press Star then one.

Our next question comes out Wayne Archambo, a monarch partners. Your line is open.

Hi, Thank you good afternoon.

No.

Pittsburgh Electric certainly a one off asset of yours within the next.

Maine, New Hampshire properties.

Do you see other properties similar to that in either Massachusetts or.

For the water utilities in new Hampshire, amazed that you'd be interested in acquiring is there much.

Available in the marketplace.

For such unique property, one off properties and would you be at all interested in is seen in acquiring.

Hi, Wayne this is Tom.

I wouldn't say that there's an abundance of properties available.

But I will say that we're always on the look out for properties that would fit with our current portfolio of utilities.

And certainly I think if there was opportunities on the jurisdictions, where we already operate.

Certainly, especially with gas and electric not so sure about water, but I wouldn't exclude those possibility.

Then, yes, I think that that would be something we would like to consider.

Is there much available on the other many of these one off.

One off local properties out there that are for sailing.

I don't think there's any currently for sale in for the most part the properties that we would be interested in.

Our subsidiaries of larger companies, who may or may not consider divesting of smaller properties up here in new England.

It would you consider any properties outside of the three state.

Area is there anything available in.

Any of the other the other states you know when going at all.

We would we would certainly consider I think states in a way, England I think if we were going to go outside of new England, we'd have to think long and hard about that.

And I can say that I know, there's some gas properties that have come up or will be coming up in other parts of the country.

And I think the big concern there is not wanting to acquire gas utilities and warm weather regions that may be subject to a.

Moratoriums on gas service I.

I think we feel pretty comfortable where we operate being a gas and electric company, our cold weather region that were relatively insulated from some of the movement in that regard.

But what's in your mind, what sort of borrowing capacity.

Feel you have.

If you were to make any acquisitions, what sort of debt.

Levels that you are willing to take on if you were to do something or would it be funded through cash flow.

No we could certainly finance acquisitions and as we have in the past in.

Certainly I think anything up to 50% of our current.

Market cap would be reasonable for us.

But.

I can't say that we have a specific level that weve.

Looked at.

Thanks, Tom Thank you.

Yes, Thank you hope you're doing well.

Yes.

Thank you.

No no further questions.

Ladies and gentlemen, this does conclude today's conference. Thank you for himself he may have a breakdown.

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