Q4 2020 Unitil Corp Earnings Call
Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, please stay on the line.
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Okay.
Ladies and gentlemen, thank you for standing by the the Q4 2020 Unitil earnings call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question. During the session you need the press star one on your telephone if you require any further assistance. Please press star Zero I would now like to do sales. Please conference call. Mr. Todd Diggins, you may begin sir.
Good afternoon, and thank you for joining us to discuss the Unitil Corporation's fourth quarter 2020 financial results speaking on the call today, it'll be Tom Meissner, Chairman, President and Chief Executive Officer, and Bob <unk>, Senior Vice President and Chief Financial Officer and Treasurer.
We will discuss financial and other information on this call as we mentioned in the press release announcing the call we have posted that information, including a presentation to the investors section of our website at www Dot Unitil dotcom, we will refer to that information during this call.
On slide two of the comments made today about future operating results of our future events are forward looking statements under the safe Harbor provisions of the private Securities Litigation Reform Act of $19 95 forward looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted.
Statements made on this call of should be considered together with the cautionary statements and other information contained in our most recent annual report on form 10-K, and other documents, we have filed with or furnished to the securities and Exchange Commission.
Forward looking statements speak only as of today, and we assume no duty to update them.
This presentation contains non-GAAP measures of the accompanying supplemental information more fully describe these non-GAAP measures and includes a reconciliation to the nearest GAAP measures. The company believes these non-GAAP measures are useful in evaluating the performance.
And with that I will now turn the call over to chairman President and CEO Tom Meissner.
Thanks, Todd and good afternoon, everyone.
I'm going to begin on slide four where today, we announced net income of $13 6 million or <unk> 90 per share for the fourth quarter of 2020.
This represents an increase of $2 2 million or <unk> 13 per share compared to 2019.
For the fiscal year ended December 31, 2020, net income was $32 2 million or $2 15 per share.
By any measure of 2020 proved to be a challenging year for our company our customers and our shareholders.
The year began with historically warm winter weather, which negatively impacted sales margins and earnings.
The weather. The winter was then followed by the worst worldwide health emergency in over a century.
The COVID-19 pandemic led to both financial and operational headwinds for the remainder of 2020.
However faced with these challenges we stayed true to our mission and continue to provide safe and reliable service for our customers and communities.
Over the course of the year, we successfully responded to several storm events and achieved record results for safety and customer satisfaction, all while executing on our strategic priorities.
In addition, we effectively executed on our investment plan moved forward with grid modernization and advanced our ESG profile.
We also carried out our regulatory strategy as we finalized rate cases for our natural gas division in Maine.
The gas and electric divisions of Massachusetts, as well as granite state our FERC regulated gas transmission company.
As we head into 2021, Unitil is well positioned to move forward stronger than ever.
With that I will now pass it over to Bob to provide further detail on our 2020 results.
Thank you Tom and good afternoon, everyone.
I will begin on slide five as Tom noted, we announced fourth quarter earnings per share of <unk> 90.
In fiscal year 2020 earnings per share of $2 15.
As a reminder, in the first quarter of 2019 Unitil recognized the one time net gain of $9 $8 million or <unk> 66 per share.
On the divestiture of use source, which had provided nonregulated energy services.
Adjusting for the divestiture gain net income for the year is down $2.2 million or <unk> 16 per share compared to 2019.
The decrease primarily was due to warmer than normal winter weather and the COVID-19 pandemic.
Turning to slide six I will discuss our sales margin for.
For the fiscal year ended December 31, 2020 electric gross margin was $92 9 million, an increase of $1 million compared to 2019.
The increase in electric margin reflected higher rates of $1 $4 million.
With customer growth and warmer summer weather of about <unk> 4 million.
Those gains were partially offset by $8 million, reflecting the combined net effect of lower commercial and industrial sales the <unk>.
The residential sales associated with the COVID-19 pandemic.
Total kilowatt hour sales were unchanged relative to 2019.
Residential sales increased six 5%, primarily reflecting the COVID-19 environment and warmer summer weather.
C&I sales decreased four 5%, reflecting lower usage due to the COVID-19 pandemic.
Moving to slide seven for the fiscal year ended December 2020 gas gross margin excuse me gross margin was $122 6 million, an increase of <unk> $4 million year over year.
The increase was driven principally by higher rates of $5 $1 million and customer growth of $1 $8 million.
These increases were partially offset by warmer winter weather of $4 4 million.
And an estimated effect of $2 $1 million due to lower commercial and industrial usage associated with the COVID-19 pandemic.
Relative to 2019 natural gas therm sales decreased by seven 5% the.
The decrease again was attributed to the historically warm winter weather and the COVID-19 pandemic.
We estimate weather normalized gas therm sales, excluding decoupled sales were down one 6% year over year.
Lastly, despite the challenges brought in 2020, the number of gas customers served increased by 2%.
On slide eight we summarize the effect of the COVID-19 pandemic.
We continue to closely monitor the situation and any potential effect on the company's financial health.
Slide eight provides the pandemics effect on various income statement categories.
We estimate that the pandemic unfavorably affected earnings per share by <unk> <unk> in the fourth quarter, bringing the annual effect to <unk> <unk> per share.
The principal effect was lower gas margins somewhat offset by lower operating expenses and the recognition of an employee retention credit under the cares Act.
Moving to slide nine we provide an earnings bridge analysis, comparing 2020 results to 2019 for the fiscal year ending December 31, each year.
As shown in the past this layout is slightly different in the form 10-K, as we isolate the effect of the <unk> divestiture and accompanying revenues and expenses.
In the supplemental materials to this presentation. We have provided a reconciliation to the statement of earnings provided in the form 10-K.
As noted earlier 2020 gross margin was higher than 2019 by $1 $4 million driven by rates and customer growth largely offset by warmer winter weather and the COVID-19 pandemic.
Core operation and maintenance expenses decreased $1 $1 million compared to the same period in 2019.
That decrease primarily was due to lower employee benefit costs, partially offset by higher professional fees and pandemic related costs.
Depreciation and amortization was higher by $2 $5 million, reflecting higher levels of utility plant and service.
Taxes other than income taxes increased by $1 $2 million, reflecting property taxes associated with higher levels of net plant and service and the nonrecurring tax abatement of $6 million realized in 2019.
As noted earlier the increase was partially offset by $6 million of payroll credits recognized under the cares Act.
Interest expense increased $5 1 million, reflecting higher long term debt levels, partially offset by lower interest rates on short term debt.
Other expense increased $5 4 million.
Primarily due to higher retirement benefit costs.
Next we've isolated the full use source effect of $10 3 million, which was realized in 2019.
This includes the after tax gain on the divestiture of $9 8 million and $5 million, which reflects the net of revenues and expenses realized through 2019.
Lastly income taxes were flat year over year.
Turning now to slide 10, as we've done in the past Slide 10 provides our projected five year investment plan, which now totals about $725 million. Our planned investments will ensure the safety and reliability of our existing distribution system enable system growth advanced our grid.
<unk> initiatives and enhanced customer experience.
There remains potential upside to this projection for electric vehicle infrastructure additional grid modernization and supply side projects.
We anticipate long run annual rate base growth in the range of six 5% to eight 5% largely in line with our historical growth.
Slide 11 provides the five year financing plan supporting our capital investment portfolio.
We expect roughly two thirds of our capital investments will be funded by cash flow from operations less dividends.
The remainder will be funded through a combination of debt and equity.
We continue to target a dividend payout ratio range of 55% to 65%.
Enabling us to reinvest earnings and reduce external financing requirements.
Lastly, the company has ample liquidity through our credit facility, which has a limit of $120 million and the option to request an increase to our borrowing capacity by $50 million.
And turning to slide 12.
Our regulatory outlook for 2021 and beyond remains active and includes planned base rate filings in New Hampshire for both Unitil energy systems, our electric distribution utility and Northern Utilities', New Hampshire Division, our natural gas utility.
New Hampshire regulators typically allow for the collection of a portion of the revenue deficiency filed in the rate case to begin prior to receiving a final order.
We expect such temporary rates to become effective in 2021 for both companies.
The rates are fully reconciled to the final rate decision.
We also plan to file proposals for full decoupling structures in both cases as you know decoupling of removes the effect of weather and changing customer usage patterns from revenue.
If those mechanisms are approved in new Hampshire, 82% of our meters will be served under decoupled rates a significant increase from the 24% of meters currently served under decoupling structures.
I'll now turn it back to Tom.
Great.
Thanks, Bob.
Turning now to slide 13.
Despite the challenges facing unit sales in 2020, we continued to demonstrate the company's strength and day to day operations.
In particular, we were able to provide mutual aid support to other utilities of record eight times in 2020.
After the tropical storm ECS, we restored power to all of our customers within a 24 hour period, and example of our efficient restoration practices.
As a result of these efforts we again received the EI Mutual assistance Award our third time accepting this award in the last four years.
Moving on to slide 14.
In addition to electric and gas operational excellence, our customer service targets were exceeded.
I am pleased to share that our customer satisfaction is.
And an all time high with the 93% of our customers satisfied with the service we provide.
In terms of customer satisfaction, we were the number one rated utility in the northeast and the second rated utility in the entire eastern United States.
Our employee pride of engagement are also at an all time high with 90% of employees reporting that they are proud to work for Unitil.
We believe these excellent results go hand in hand, and reflect our commitment to our central values of respect integrity stewardship and excellence.
On Slide 15, we are also pleased with our gas emergency response as well as our safety metrics from 2020.
Once again Unitil was selected as the leading practice company by the American Gas Association, recognizing our superior emergency response and preparedness.
In 2020, we insured public safety of our responding to emergencies faster on average than in 2019 and in fact 2020 was our best response time in company history.
Also supporting the safety of our gas system is continued infrastructure replacement of modernization, which is now over 94% complete.
Turning to slide 16.
Sustainability is central to our mission and vision and we recognize our responsibility to evolve the energy landscape.
Our vision is to transform the way people meet their changing energy needs to create a clean and sustainable future.
As I mentioned last quarter in October we published our second corporate sustainability report that included key metrics and statistics included in various industry specific reporting templates.
In addition to publishing our second sustainability report, we now have staff devoted entirely to advancing our sustainability initiatives.
The company will continue to invest in electric grid modernization to accommodate evolving customer needs new technologies, and the clean renewable energy resources being distributed across the energy delivery system.
These initiatives.
<unk> will likely include advanced metering, great intelligence distributed energy enhanced customer services and innovative rate design.
We continue to identify sources of existing or planned renewable natural gas resources and are actively investigating the potential of adding pipeline quality RMG to our supply portfolio.
In New Hampshire, we have established a working group to explore issues and opportunities surrounding renewable natural gas as part of the collaborative settlement of proving our most recent integrated resource plan.
Lastly, as I have mentioned before our goal is to be the most technologically advanced utility in the region and we will continue to provide updates as we advance our ESG profile.
Now wrapping up on slide 17.
This year will be remembered for its historic challenges, but we look to the future with optimism.
The foundation of our business remains strong.
Unitil generates steady and predictable cash flows with continued support from strong customer growth and robust investment opportunities.
As Bob already highlighted we expect long run rate base growth from the range of six five to eight 5%.
Which will support long term earnings growth from the range of 5% to 7%.
In the near term, we expect EPS growth to be somewhat above the upper end of this range relative to our 2020 earnings of $2 15, as our earnings recover from both weather impacts and the ongoing pandemic.
With that I'll turn it back to Todd.
Great. Thanks, Tom.
Thank you for attending today's call I will now turn the call back over to the operator, who will coordinate questions.
Ladies and gentlemen, if you have a question or a comment at this time. Please press Star then the one key on your Touchtone telephone. If your question has been answered you question yourself into the queue. Please press the pound key.
Our first question comes from Michael Gallagher with Janney Montgomery.
Yeah.
Good afternoon, everyone.
Hi, Mike.
Two quick questions.
You stated on Covid the neg.
The impacts there of nine cents for the year, just wondering if thats, what youre expecting for 2021.
Yes.
This is Bob.
As we look forward into 2021, we look at Covid in the context of how we are projecting use going forward. We think there will be of continuing COVID-19 effect, although we expect that effect to moderate over time.
As with most people, we see the likelihood of vaccinations, taking hold to be meaningful. So we do consider a continuing effect of COVID-19 through 2021 of.
Though we don't think it'll be as pervasive as long lasting as it had been in 2020.
Yeah.
Alright, and then I'll touch on the other item net that you called out in terms of having a negative impact on the results and thats the weather.
Just wondering how that's tracking thus far in Q1.
As of your expectations.
As Bob Haver. It again, so far through January we know the first half of January was somewhat warmer than normal.
We have considered that although the last week the.
The temperature turned in our favor a little bit. So we'll have to see how January shakes out but for the balance of the year, we're generally looking toward normal weather.
Okay.
And it looks like some cold weather coming in so should.
It should give you a little bit of the benefit.
Real soon.
Yeah.
We're off of that.
Thank you much.
Thank you. Thank you.
Our next question comes from Shelby Tucker with RBC capital markets.
Thank you good afternoon a quick.
A quick question on the competitive position.
Position of natural gas versus fuel oil have you done any analysis of what.
Impact natural gas blending would have on your position comparing to the oil.
Okay.
So this is Bob Howard again.
Let me take that from from the perspective of how we're looking at sort of renewable natural gas in our supply portfolio is that we are heading.
Yes.
Okay sure.
As Tom mentioned, we do have a collaborative process going on right now of New Hampshire looking at how we might integrate renewable sources of natural gas in the supply portfolio from a least cost.
The grade resource planning perspective.
You may recall that last quarter. We noted that we had issued a request for expressions of interest as well for different sources of renewable natural gas. The purpose of that was to help us understand what might be available of how we might think through the cost and availability of those supplies. So we are looking at.
That issue really throughout all of our jurisdictions, we are considering both legislative and regulatory strategies in each of our jurisdictions as well now you mentioned the main as you probably know.
Maine, New Hampshire have the highest saturation of oil heating in the country. So we're very keen on being sure that we can maintain our advantage we think that day.
Natural gas is very helpful from an environmental perspective simply due to the high saturation of oil in those two states, but it will become even more environmentally.
Attractive as we're able to blend in as we learn more about how we might be able to blend in.
Lower carbon sources of renewable natural gas.
Great. Thanks, Bob and then just as a follow up there do you know if the fuel the industry is facing its own.
The headwinds regulatory or legislative headwinds any additional costs that are being put on on that industry.
I think this is Tom Shelby I think what we're seeing is that the fuel oil companies are coming up with their own strategies to use biofuels.
In response to many of the same pressures that the natural gas utilities are facing.
So I think the real question is how much of that is really available and feasible.
Of what the cost impact will be on the air supply.
So, but they are responding in much the same way trying to develop strategies to head to greener supplies for oil similar to what we are pursuing.
Got it great. Thanks, Tom.
Good day.
And I'm not showing any further questions at this time. So this does conclude today's presentation. You may now disconnect and have a wonderful day.
Yeah.