Q2 2020 Unitil Corp Earnings Call
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Lots and TV Unitil Corporation second quarter earnings Conference call.
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I would now want to try to called first over to your host for today Mr. Todd begins.
Good afternoon, and thank you for joining US discussed here until Corporation second quarter 2020 financial results with me today, or Tom Meissner, Chairman, President and Chief Executive Officer, Larry Brock Senior Vice President and Chief Financial Officer, and Treasurer, Dan Hearst DAC controller and taught black senior.
President external affairs and customer relations.
Oh, so when a tenant today's Bob Hebert, Bob was recently appointed senior Vice President Chief Financial Officer, and Treasurer effective July 31st.
Have you all skus in further detail momentarily.
We will discuss financial and other information about our second quarter results on this call as you mentioned in the press release announcing the call we have posted that information, including a presentation to the investor section of our website at Www Dot again until dot com, we will refer to that information during this call.
On slide two of the comments 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 of 1995 forward looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted.
Statements made on call should be considered together with cautionary statements and other information contained in our most recent annual report on form 10-K in other documents, we have filed with or furnished to the securities and Exchange Commission forward looking statements speak only as of today and we soon no duty to update them.
This presentation contains non-GAAP measures the accompanying supplemental information more fully described these non-GAAP measures and includes a reconciliation to the nearest GAAP measures. The company believes these non-GAAP measures are useful in evaluating if performance.
I'll now turn the call over to chairman, President and CEO Tom Meissner.
Thank you Todd and thanks, everyone for joining us today.
Before we start moving to slide three I'd like to introduce Bob Hebert was recently appointed senior Vice President Chief Financial Officer and Treasurer.
Bob brings over 30 years of industry experience in regulatory matters, and corporate finance and as testified in over 300 proceedings as an expert witness.
In fact, Bob is testified on behalf of Unitil in each of the states, where we operate including most recently is the cost of equity witness in our recent rate case in Maine.
Bob was previously with Scott Madness partner in practice area leader of rates regulation and planning.
We believe that Bob proven track record of success and as broad industry experience will be of great value to the company and its shareholders.
At this point I'd like to get Bob the opportunity to just say a few words.
Thank you Tom and good afternoon, everyone.
I have worked with Unitil on a variety of matters for many years and during that time I became familiar with the company's employees its culture and its commitment to excellence all of which I am sure have proven to be a benefit to both customers and shareholders I'm very excited to join the Unitil team and I look forward to helping advanced.
Companies long term strategies.
So we're happy to have you onboard Bob.
As Todd mentioned earlier.
Ops appointment will become effective on July 30, Onest or tomorrow at which point, where we Brock will step down as CFO.
Larry will continue along with the company as senior Vice President working closely with Bob.
I'd like to thank Larry for his leadership during his time as CFO and his commitment to working closely with Bob to ensure a smooth transition.
With that ill now move on to slide five.
Where today, we announced net income of 3.1 million or 21 cents per share for the second quarter 2020.
A decrease of point 9 million for six cents per share compared to 2019.
The company estimates that the ongoing cobot 19 pandemic unfavorably impacted net income by approximately point $4 million or three cents per share.
During the first half of 2020, net income totaled 18.3 million or $1.23 per share.
As a reminder, in the first quarter of 29 team. The company recognized a onetime net gain of 9.8 million or 66 cents EPS on the company's divestiture of its non regulated business subsidiary you source.
Adjusting for the for the divestiture gain net income was down by 2.4 million or 16 cents per share compared to 2019, reflecting warmer winter weather in 2020.
The year to date decrease in earnings is primarily due to the warmer than normal winter weather in Q1, which unfavorably affected net income by approximately 3.1 million or 20 cents per share.
Yes.
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Turning to slide six.
Similar to last quarter I'd like to recap the company's coded 19 pandemic response.
Our highest priority continues to be the safety of our customers and our our employees.
In response to the Cobot 19 emergency we implemented our crisis response plan in order to execute preventive and proactive measures. During this unprecedented time and we've also enacted a phased reopening plan.
The company is currently operating in a limited reopening phase under which most office employees are continuing to work from home when possible.
In addition, we continue to require social distancing as well as masks hygiene travel limitations and other measures to protect our employees and prevent the spread of decoded virus.
Operationally the company has continued to provide safe and reliable service through the code that 19 emergency.
Employees entering customers' homes are being routinely tested to ensure the safety of both our customers and our employees.
We're thankful that there are no active coded 19 cases, among our employees.
We quickly adapted to social distancing in other recommended guidelines, while ensuring operational continuity and our workforce has seamlessly transition to work from home standards where appropriate.
Our employees have risen to this extraordinary challenge, while continuing to provide exceptional customer service and the company as a whole remains prepared to adapt in order to serve our customers and communities.
On slide seven we provide an update of how our states are being impacted by the corporate 19 pandemic.
Unfortunately, many parts of the country have experienced some acceleration in the rate of new Cobot, 19 cases, and consequently, reopening plans are being rolled back in some places.
However, in new England, we remain cautiously optimistic that testing tracing masks, social distancing and other measures have successfully slowed the spread of covert 19, as the new case counts across our territories appear to have leveled off.
The percentage of positive cobot 19 tests in our service areas.
Also have stabilized at rates considerably lower than the national average.
As the number of new Cobot 19 cases has slowed emergency orders have been moderately relaxed as part of a phase reopening plan in the states, where we operate.
As outlined on this slide many businesses, including retail restaurants, and personal services began reopening during Q2.
I would also note that most of the major development projects that we have discussed in the past continued to proceed in our service areas, which should contribute to our expanding customer base.
On slide eight we've again summarized our five year investment plan.
We have not revised our investment plans as a result of the cobot 19 pandemic and in fact through the first half of 2020, our capital spending is more than $10 million higher in comparison to the same period in 2019.
On slide nine.
As I previously stated I simply want it to reaffirm that we do not anticipate any change to our current dividend policy as a result of the pandemic.
With that I'll now turn the call over to Larry to discuss our financial results in greater detail.
Thanks, Tom Good afternoon, everyone.
I'll begin with sales and margin discussion on slide 10.
In the second quarter 2020, our gas gross margin was 22.9 million a decrease of point 4 million from 29 team.
We estimate that the covert 19 emergency unfavorably impacted gas margin by point 8 million due to lower commercial and industrial usage.
In addition, the warm early summer weather impacted gas margin unfavorably by point 2 million in the quarter.
These seek these decreases were partially offset by point 6 million due to higher distribution rate and customer growth in 2020 compared to 29 team.
Natural gas therm sales decreased 9.0% in the second quarter of 2020 compared to the same period in 2019.
The decline in gas sales units, primarily reflects lower sienna usage due to the ongoing covert 19 emergency as well as the warm early summer weather.
In total the company estimates that weather normalized guess therm sales.
Excluding decouple sales were down 5.6% in the quarter.
Commercial and industrial sales were down 10.7% in residential usage was down 2.1% in the quarter compared to prior year.
On a weather normalized basis, excluding decouple sale the company estimates to see a nice sales were down 7.4% in residential sales would've been up 3.2% in the quarter.
Moving to slide 11.
For the first six months of Twentytwenty, our gas gross margin was 65.3 million a.
A decrease of 1.5 million from 29 team.
The decrease was primarily driven by the historically warm winter weather in the first quarter of 2020 that I discussed during our last quarters earnings call.
The company estimate that year to date sales margin was lower by 2.7 million due to warmer weather.
Partially offset by customer growth.
We also estimate that the cobot 19 emergency unfavorably impacted margin by 8.8 million due to lower Cninety usage.
These volume variances were partially offset by higher natural gas distribution rate of 2.0 million in 2020.
Through the first six months of Twentytwenty natural gas them sales decreased 7.5% compared to 2019.
We attribute the declining gas sales to the historically warm winter weather in the first quarter of 2020, and the ongoing cobot 19 emergency.
The company estimates that weather normalized gas therm sales excluding to couple sales were down 1.2% year over year.
Finally, I would note that we are currently serving 1700 31 or 2.1% more gas customers than at the same time in 2019 illustrate illustrating our growing customer base.
Next on slide 12, we discuss electric margin.
In the second quarter of 2020, our electric gross margin was 22.4 million, which is flat to 2019.
Electric sales margins were higher by point 4 million in the period due to.
Higher electric distribution rates customer growth and warmer early summer weather.
The ongoing cobot 19 emergency negatively impacted electric margin by a net point 4 million due to lower see an eye usage of point sixmillion, partially offset by higher residential usage of point 2 billion.
Total electric kilowatt hour sales decreased 2.0% in the second quarter of 2020 compared to the same period in 2019.
The decline in electric sales units, primarily reflects lower sienna usage due to the ongoing Covidien 18, emergency and Walmart early summer weather.
Partially offset by increased sales to residential customers due to the cold with 19 pandemic stay at home orders and the increased use of air conditioning during the warmer early summer period.
In total the company estimates that normal electric kilowatt hour sales Ics, excluding decouple sales were down 4.9%.
Commercial and industrial sales were down 11.0% in residential usage was up 12.8% in the quarter.
On a weather normalized basis, excluding decouple sales the company estimates the Cninety sales were down 12.2% in residential sales would've been up 6.4% in the quarter.
Moving to slide 13.
So the first six months of 2020, our electric gross margin was 45.5 million, which is again flat to 2019.
In the period electric sales margins were higher than 2000, 19.8 million due to higher electric distribution rates customer growth and warmer early summer weather.
However, these positive differences were offset by the impacts of warmer winter weather in the first quarter of point Fourmillion and as I mentioned last slide the ongoing cobot 19 emergency also negatively impacted margin by point 4 million.
Through the first six months of 2020.
Electric kilowatt hour sales decreased 2.5% compared to 2019.
We attribute the decline in electric sales principally for the lower average usage by Cnine customers as a result of the ongoing covert 19, emergency and warmer winter weather, which adversely impacted the usage of electricity for heating purposes.
This was partially offset by increased sales to residential customers due to.
Warmer early summer temperatures in the fact that people spent more time at home the unusual during the cobot 19 stay at home orders.
The company estimates that weather normalized electric kilowatt hour sales, excluding decouple sales were down 1.1% in the period.
The number of electric customers being served has increased by 755 or 0.7% compared to the prior year.
Next on slide 14 will discuss the financial impact on Unitil of the Cobot 19 emergency.
We are closely monitoring the cobot 19 emergency and its impacts on the financial health of the company.
As Tom mentioned earlier, we have estimated that as a result of the cobot 19 emergency.
Earnings per share were negatively impacted by three cents in the second quarter of 2020.
As we just discussed the count the combined impact on gas electric sales margin from the Cobot 19 emergency was 1.2 million in the second quarter of 2020.
However, this was somewhat offset by net lower own am expenses of approximately point 6 million that the company identified to be related to the cobot 19 emergency.
The lower them related to the covert 19 was due to lower employee benefit costs, primarily lower health insurance claims incurred in the second quarter of 1.0 million.
Partially offset by net point 4 million higher other pandemic related costs.
Related to the purchasing of ERP supplies facility cleaning higher bad debt provisions and other expenses.
Overall, our them was down by 1.3 million in the second quarter of 20 compared to 2019.
And the remaining decrease is primarily due to lower utility operating costs in the period.
The company is also working closely with our regulators in local utility working groups to develop reporting mechanisms to respond to requests from our regulators about the financial impacts of the cobot 19 emergency.
Due to the ongoing moratorium on service Disconnections, the company expects to incur higher levels of customer arrears, which could translate to higher bad debt expense.
We will be tracking the activity and we are exploring potential options to recover expenses related to the emergency through the regulatory process.
I'd like to point out that supply related bad debt, which is historically approximately 45% of all right off activity is tracked and recovered in reconciling mechanisms and does not impact the company's earnings.
Also as I mentioned last call. The company has no intention to alter staffing levels as a result of the code 19 emergency.
In order to help stakeholders gauge the potential impact of covert 19 on sales margin. The company has provided sensitivities between usage in margin for the third and fourth quarters of 2020.
Turning to the balance sheet.
In the second quarter, the company successfully priced $95 million of long term debt through the private placement market.
The debt was priced at competitive investment grade rates, and we anticipate the transaction to close in quarter three.
The capital will be used to refinance existing the maturing debt fund our investment programs and for other general corporate purposes.
With the company's existing credit facility, which has a borrowing limit of 120 million and the proceeds recently of the recently price debt. The company has ample liquidity to execute our growth plans.
Moving on to Slide 15, we provide earnings bridge analysis, comparing 2020 results to 29 team for the six month period ended June 30.
I'd like to note that this layout is slightly different from the form 10-Q, as we isolate the impact of the 2019 useless divestiture and related revenues and expenses.
In the supplemental presentation, we've provided a reconciliation to the statement of earnings that was provided in the 10-Q. This morning.
As discussed 2020 year to date gross margin is lower than 2019 by 1.5 million largely due to the warmer winter weather.
Core operation and maintenance expenses decreased 1.5 million compared to the same period in 2019.
This decrease is primarily driven by lower employee benefit costs of 1.1 million.
As well as lower maintenance and storm expenses of 1.0 million, partially offset by higher bad debt expense and higher professional fees of a net point 6 million.
Depreciation and amortization was higher by point 8 million, reflecting higher levels of utility plant service.
Taxes other than income taxes increased by 1.1 million, reflecting higher levels of net plant and service as well as a nonrecurring tax abatement realized in 2000 19.6 million.
Interest expense was flat, reflecting interest on lot higher interest on long term debt offset by lower interest on short term borrowings.
Other expense increased point 3 million due to higher retirement benefit costs.
Next we have isolated to 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 to point 5 million, which is the net revenues and expenses realized through use those operations in 2019.
Lastly income taxes decreased point, threemillion, reflecting lower pre tax earnings in the period.
So this bridge analysis shows the net changes to reconcile our 2019 net income of 30.5 million to our 2020 earnings of 18.3 million for the first six months of the year.
On slide 16, we'll begin our discussion of rate case activity in 2020.
As we announced last quarter, our base rate cases in May to Massachusetts have concluded.
We received an order from the main you see approving an increase to base revenue of 3.6 million.
In Massachusetts, the gas settlement approved 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 Onest of 2020.
While point 9 million of the award will be included in rates starting March Onest of 2021.
The gas settlement was lower as a result of 1.8 million lower expenses related to the pass back of excess deferred income taxes lower depreciation in the removal of retirement costs from base distribution rate.
The Massachusetts Electric settlement allows for distribution increase of point 9 million to become effective November 2020.
The electric settlement was lower by 1.1 billion as a result of lower expenses related to the pass back of excess deferred income taxes in the removal of retirement costs from base distribution rates.
The electric settlement also allows for Neal implementation of a new major Storm Reserve fund, which will help mitigate expense volatility related to future storms.
The company was planning to file you, yes rate case during 2020 with a test year 2019.
But we expect to defer the filing until the first half of 2021.
I'd point out the Belleview, yes in northern New Hampshire are required by the New Hampshire PC to propose revenue decoupling in the next rate case to be filed 2021 or later.
Over on Slide 17, we have provided a summary of Singh of significant distribution rate changes in 2020.
In 2020, we have been awarded over $7 million of rate relief.
As I mentioned last slide the Fitchburg rate case awards would've been a combined $2.9 million higher if not for lower depreciation emit transition expenses.
And the removal of retirement costs from base rates.
On slide 17, the negative amounts for the Fitchburg capital trackers reflect the transfer of collections from the tracker mechanisms and into base distribution rate.
Also we have precedent for long term rate pen rate plans or cost trackers across all of our utility subsidiaries.
Finally on slide 18.
We provide the last 12 months actual return on equity in each of our regulatory jurisdiction.
Unitil on a consolidated basis.
The total return on equity of 8.4% in the last 12 months.
The company estimates that after weather normalized seem the warm winter weather in the first quarter of 2020, the consolidated return on equity would have been 9.3%.
And with that thank you for attending today's call I'll now turn the call over to the operator, who will coordinate questions from the audience.
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Okay.
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First question comes from the line the Shelby Tucker.
RBC capital markets Shelby Your line is now.
Thank you good afternoon, and Bob welcome to the team looking forward to working with you going forward.
A quick question I had it was really about.
Switching.
In your territory from from fuel oil to gas any impact from either Kobin 19, or the persistent lower.
Cost of crude price I mean, the lower crude prices in the switching rate.
Hi, Shelby this is Tom.
For the most part we have not emphasized marketing.
For.
Shifting customers from oil to gas during this time, but I would point out that our customer growth continues to be strong year over year, which is primarily driven by organic growth.
So we have a lot lot of large projects a continue to come through.
Including a large went on sale in new Hampshire that is proceeding as planned. So we don't really expect to see an impact.
Impact on our.
Customer numbers year over year, although it will be more driven by organic growth as opposed to switching.
And then taking that answer.
That's the most of the growth is coming from that more commercial or industrial but mostly commercial does it was there any.
Indications of slow down given the Cougar 19 crisis.
We have not seen any indication of a slowdown in effect.
We've seen commercial properties mixed use development and hotels continue and construction throughout this emergency.
Great. Thanks, so much.
Thank you.
But again, if you have any questions. Please press star one nine years.
There are no further questions at this time presenters you may continue.
Thank you for everyone joining I appreciate the interest.
But you haven't Unitil Ana and we have a great Dave thanks.
Okay.
Thank you so much to our presenters. Thank you everyone who participated in this concludes today's conference call. You may now disconnect have a great.
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