Q2 2021 Unitil Corp Earnings Call
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Good day and thank you for standing by welcome to the Q2.2021Unitil earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.
Be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Todd Diggins Director of Finance. Please go ahead.
Good morning, and thank you for joining us to discuss Unitil Corporation's second quarter 2021 financial results.
On the call today will 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 this call we have posted information, including a presentation to the investors section of our website at www Unitil Dot com.
We will refer to that information during this call moving.
Moving to slide 2 the comments made today about future operating results or 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 can cause actual results to differ materially from those predicted.
Statements made on this call should be considered together with 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 obligation to update them.
This presentation contains non-GAAP financial measures the accompanying supplemental information more fully describes these non-GAAP financial measures and include a reconciliation to the nearest GAAP financial measures. The company believes these non-GAAP financial measures are useful in evaluating its performance and with that I will turn the call over to chairman President and CEO.
Tom Meissner.
Thanks, Todd and good morning, everyone.
I'm going to begin on slide 4 today so.
So today, we're pleased to announce net income of $2.7 million or <unk> 18 per share for the second quarter of 2021.
For the first half of 2021 net income was $21.6 million or $1.44 per share.
This represents an increase of 21 per share over the same 6 month period of 2020 and reflects higher electric and gas adjusted gross margins.
Next I'd like to quickly review a few high level themes.
First we reiterate our long term guidance of 5% to 7% growth in earnings per share with 2021 earnings expected to be somewhat above the higher end of the range relative to 2020.
Second the company recently announced a goal of achieving net zero emissions by 2050.
This announcement is a major step for the company and reflects our commitment to environmental stewardship and corporate responsibility.
Finally, I would also like to note the filing of another strategic rate case in New Hampshire for our gas utility northern utilities.
Combined the pending rate applications for Unitil energy systems, and northern Utilities' request to nearly $20 million increase in base distribution revenues.
Bob will discuss the details of these filings later in the call.
Moving to slide 5 as I noted earlier on June 21, we announced our goal to reduce companywide direct greenhouse gas emissions by at least 50% by 2030 relative to 2019 levels and to achieve net zero emissions by 2050.
These goals are part of our overall commitment to environmental stewardship sustainability and corporate responsibility.
As I've said before our vision is to transform the way people meet their evolving energy needs to create a clean and sustainable future.
We will continue to work with customers policymakers and industry leaders to reduce emissions from the energy supply delivered to our customers.
With that I'll now pass it over to Bob who will provide further detail on our financial results.
Thank you Tom and good morning, everyone.
I will begin on slide 6.
As Tom noted today, we announced second quarter earnings per share of <unk> 18.
This represents a year over year decrease of zero point $4 million or <unk> <unk> per share.
On a year to date basis net income excuse me increased by $3.3 million or 21 per share compared to 2020.
Strong year over year earnings growth, primarily as a result of higher electric and gas adjusted gross margins.
Partially offset by higher operating expenses.
As Tom mentioned, we expect full year 2021 earnings to be ahead of our 5% to 7% long term EPS growth range relative to 2020 earnings of $2.15 per share.
Turning to slide 7 for the 6 months ended June 32021 electric adjusted gross margin was $48 million an increase.
<unk> of $2.5 million or 5.5% relative to 2020.
The increase in electric adjusted gross margin reflects higher residential unit sales of 2.8%.
And higher commercial and industrial unit sales of 3.1%.
Customers increased <unk>, 8% over the first half of 2020.
The higher sales volumes reflect customer growth and improving economic conditions.
As noted on slide 8 for the 6 months ended June 32021 gas adjusted gross margin was $72.8 million, an increase of $7.5 million or 11, 5% compared to 2020.
The increase in gas adjusted gross margin reflects higher rates of $5.1 million and the combined net effect of $2.4 million from the net favorable effect of customer growth.
Winter weather and warmer spring weather.
The first half of 2021 was 2.1% colder year over year contributing to higher natural gas therm sales of 4.2%.
Higher sales also reflect 1200 additional customers served compared to the same period in 2020.
Moving on to slide 9 we provide an earnings bridge comparing 2021 results to 2020 for the quarter.
As noted earlier 2021, adjusted gross margin increased $10 million as a result of higher rates and higher unit sales.
Operating and maintenance expenses increased $2 million.
The current year increase is attributable to higher utility operating costs higher labor costs and higher professional fees in.
In the second quarter of 2020, the company realized a benefit from lower labor costs related to the Covid pandemic.
As the economies in our service area recover we have seen that trend reverse primarily in the area of health care.
The increase in operating expenses also includes an increase of $4 million.
Or roughly <unk> <unk> per share related to a recent decision by the new Hampshire public utilities commissions non.
<unk> 2 authorized the creation of a regulatory asset for incremental bad debt related to the Covid pandemic.
Instead, the order states these costs will be addressed in each utility's next rate case.
Unitil is in a unique position in that we have pending both electric and gas rate cases in new Hampshire through which we will seek recovery of those costs I.
I will touch more on those cases later in the presentation.
Depreciation and amortization increased by $2.7 million, reflecting higher levels of utility plant and service.
Taxes other than income taxes decreased by <unk> 2 million.
Primarily due to lower payroll taxes, partially offset by higher local property taxes on higher utility plant and service.
Interest expense increased by $9 million, reflecting interest on higher long term debt balances, partially offset by lower rates on lower levels of short term borrowings.
Other expense decreased by $5 million, largely due to lower retirement benefit and other costs.
Lastly income taxes increased by $1.8 million as a result of higher pre tax earnings.
Turning now to slide 10.
The Unitil energy rate case, which I have discussed on previous calls is progressing as expected with temporary rates of $4.5 million, becoming effective on June 1st.
Yesterday, we filed a multiyear rate plan in new Hampshire for our gas utility northern utilities.
In that case, we proposed to $7.8 million rate base increase with a $3.2 million temporary rate increase.
You may recall that in new Hampshire. It is typical to collect a portion of the revenue deficiency through temporary rates prior to receiving a final order.
We anticipate temporary rates for Unitil excuse me for northern utilities to become effective in the third quarter of 2021.
Temporary rates are reconciled to the final rate case award and the differences collected are refunded, usually over 1 year period.
Our filing also includes a full revenue per customer decoupling proposal.
And a multiyear rate plan to recover certain capital expenses made in 2021.2022 and 2023.
We anticipate that these rate case filings in New Hampshire will support the return on equity at Unitil energy systems and northern utilities.
With that I will turn it back over to Tom.
Thanks, Bob.
Wrapping up with slide 11, with the first half of 2021 behind US we're pleased with what the company has accomplished.
At this time, we believe our investment plan for 2021 is on track and our regulatory initiatives are proceeding on schedule.
We look forward to providing further updates on our next call.
Todd Yes, great. Thanks, Tom that completes the material on this call. Thank you for attending I will now turn the turn the call over to the operator, who will coordinate questions.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from the line of Cody Clark with Bank of America.
Hey, good morning team, it's Julian here on for Coty.
Thank you guys for the opportunity.
Perhaps if I can just kick off here I know you spent some time already talking about customer growth and some of the normalized trends that you've seen of late but can you elaborate a little bit just on the expectations for that to persist here. It is.
Pretty remarkable here, both on customer and on just overall normalized trends.
In terms of recovery I, just would be curious if you think about that cascading to your forecast and then I've got a follow up.
Sure Julien this is Tom.
I think on the electric side, what we're seeing is we're seeing the increase in residential sales and unit sales that resulted from some of the pandemic impacts to persist this year, but we've also now seen a recovery in C&I demands.
And so that seems to be continuing we benefited in Q2 by some very very hot weather. We had a couple of heat waves. So that certainly benefit of Q2, but even in July when the weather's been much cooler than normal we're.
We're seeing that pattern persist in net.
Overall sales are staying where they were in C&I demands have recovered.
On the gas side I think we were seeing some trends that.
In Q2 that were not what we had maybe hope for in terms of normalizing, but now we are seeing signs that they're normalizing in the current quarter.
Economic activity continues to be strong.
We see evidence of that everywhere. So we're pretty much expecting to see sales on both side of the business to begin normalizing through the remainder of the year and possibly for sales on the electric side to stay at an elevated level compared to historical norms.
Got it and how would that reconcile how do you think about that juxtaposed against your longer term growth expectations here from.
More from an earnings and investment prospects perspective, if you can at least preliminarily speak to it if you will.
In terms of investment we're continuing to see the same trends on the gas side that we have in the past it really hasnt been any drop off or slowdown in interest in gas conversions or realistically just interest in gas for new construction.
We're seeing signs of a lot of robust construction activity in permitting in large part because of the housing market is so hot right now.
On the electric side.
I think we're going to probably see an uptick in new connections on the electric side relative to what we've seen in recent years again because of the.
The significant.
Housing market that we're in now and what we're seeing for permitting and new development.
Got it excellent.
If I can pivot more to the regulatory side of things.
Just.
Initial expectations as you'd like to set.
Establish them with respect to settlement prospects.
On the cases outstanding and especially as you think about the latest New Hampshire case here. If you can elaborate a little bit on on that side of things if you don't mind.
And maybe any feedback going into the case as well.
Sure. Good morning, Julien This is Bob <unk>.
We continue to work through the UES rate case, we've had.
Technical conferences at this point, which you may know simply as a form of discovery and New Hampshire.
They have gone well, we think and we are still in the process of discovery, we will not receive the other parties testimony until some time in November.
That said in New Hampshire, there is.
A precedent and practice for settlements.
And to the extent, we can arrive at a settlement that we find acceptable we certainly would move in that direction, but for now the UES rate cases proceeding.
As we thought and as we hoped it would.
The northern utility case, which we filed yesterday.
As you can imagine Julian is a bit simpler case than the Oes case.
It principally relates to rate base investments and it relates to the step adjustments that we will put in place if approved and it of course includes the same type of revenue per customer decoupling structure.
That we had in the U S case.
We are very hopeful that having taken the same approach that we did with the UES case, which is to be sure that we provide as clean and transparent filing as we possibly can we will be able to move through the case quickly and efficiently as appears to be going on with the U S case right now.
Excellent okay.
Does that mean.
Just to perhaps verbalize, what I think you were insinuating the simplicity and the step adjustments does that increase the chances for settlement.
Okay.
I'll leave it open ended.
Sure.
Look I think settled it is always a function of a lot of things including positions other parties might take.
All else being equal in my experience a simpler case may lend itself more to settlement more quickly, but we cannot say with any certainty whether or not that will happen. We put together our cases too.
To really express our positions and to defend our positions regardless of whether it's the cases are settled or litigated, but again to the extent. These cases can be settled that that is certainly something we will pursue.
Excellent alright, well, we'll leave it there. Thank you so very much really appreciate the time.
Great. Thank you. Thank you Julian.
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There are no further questions ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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