Q3 2021 Unitil Corp Earnings Call

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Good day, and thank you for standing by.

Welcome to the Q3 2021 Unitil 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.

Good question during the session you will need to press star one on your telephone please be advised that today's conference is being recorded.

You require any further assistance please press star zero.

I would now like to hand, the conference over to your speaker today Mr.

Todd Diggins director of finance, Thank you and please go ahead.

Okay.

Good morning, and thank you for joining us to discuss mutual Corporation's third quarter 2021 financial results speaking 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 in this call we have posted information, including a presentation to the investors section of our website at <unk> Dot Com, we will refer to that information during this call.

Moving to slide two 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 1995.

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 accompanying supplemental information more fully describe these non-GAAP financial measures and includes a reconciliation to the nearest GAAP financial measures. The company believes these non-GAAP financial measures are useful in evaluating its performance with that I will now turn the call over to chairman President and COO.

CEO Tom Meissner.

Thanks, Todd and good morning, everyone. Thanks for joining us.

I'd like to kick off today's discussion on slide three which provides a brief description of <unk> business model.

We're a pure play distribution utility in new England, and new England, serving attractive areas, including the New Hampshire, and Maine Sea Coast.

We have a diverse customer mix across the three states that we service with about 25% more electric customers and gas customers.

As a pure play distribution utility our earnings are not impacted by commodity cost fluctuations because we recover the cost of energy through commission approved reconciling recovery mechanisms.

Turning to slide four today, we announced breakeven net income and earnings per share for the third quarter of 2021, and net income of $21 6 million or $1 42 per share through the first nine months of the year.

This represents a <unk> 10 per share or 14% increase over the same period in 2020, reflecting higher adjusted gross margins for both the gas and electric divisions.

I'd also like to touch on a few strategic updates.

First I'd like to reaffirm our long term earnings guidance of 5% to 7% growth in EPS with 2021 earnings expected to be above the higher end of that range relative to 2020.

Our regulatory initiatives are progressing well with temporary rates currently in effect that both our new Hampshire electric and gas divisions.

Bob will provide additional details about those proceedings later in the call.

The company's capital investment plan is advancing as expected supporting long term rate base growth in the range of six five to eight 5%.

We will provide our refreshed five year capital investment forecast during our fourth quarter call.

We're committed to maintaining a strong balance sheet to support our growth and in the third quarter. The company raised equity through a public offering resulting in net proceeds of approximately $44 5 million.

The net proceeds of this transaction will be used to make equity capital contributions to our regulated utility subsidiaries to repay debt and for general corporate purposes.

Finally, I am pleased to share that in October we published our 2021 corporate sustainability and responsibility report, which provides greater clarity into our progress and are developing strategies.

Slide five summarizes some of the key points of our corporate sustainability report, which can be found on our website.

As I mentioned previously earlier this year, we announced our carbon commitment, which aligns with the Paris climate agreement.

Maintaining safe and reliable systems, and reducing greenhouse gas emissions are central to our vision.

We continue to advance our business strategy with a keen focus on those goals.

In 2021, we also began companywide diversity equity and inclusion training and an ongoing employee awareness campaign.

At Unitil diversity means having a workforce that is reflective of the people and the communities. We serve while also ensuring that people are provided the resources and opportunities to grow and succeed.

This is crucial to successfully realizing our vision of transforming the way people meet their changing energy needs to create a clean and sustainable future.

Finally in addition to discussing our sustainability strategies and goals. The report also provides key metrics and statistics and various industry specific reporting templates.

I encourage you to view the full report a unit till dot com.

Turning to slide six converting heating and transportation fuels, such as diesel fuel oil and gasoline to lower carbon alternatives with the support of electrification and natural gas presents significant opportunities for unitil.

The states, we have had the highest dependency on fuel oil for heating in the nation.

In addition across our New Hampshire, Massachusetts service areas. There is considerable overlap between our gas and electric customers.

This is particularly noteworthy in Massachusetts, where more than 90% of our customers have unitil is the electric service provider.

Looking forward, we see that diversity is a strategic opportunity as electrification policies continue to develop.

I would also like to mention that New Hampshire Senate Bill 86, recently became law and prohibits towns and municipalities from borrowing or restricting the use of any commercially available utility service or heating system, including natural gas.

We're confident that the strong economic conditions in our service areas together with the potential for fuel conversion and customer additions will continue to support growth opportunities across our territories.

With that I'll now pass it over to Bob who will take us through the details of our financial results.

Thank you Tom and good morning, everyone.

I will begin on slide seven as Tom noted today, we announced breakeven third quarter net income and earnings per share.

On a year to date basis, net income increased by $3 million or <unk> 17 per share compared to 2020.

That <unk> 17 per share increase reflects our successful common stock offering in the third quarter.

Year over year earnings growth of 14%, primarily as the result of higher adjusted gross margins, partially offset by higher operating expenses.

As Tom mentioned, we continue to expect full year 2021 earnings above the top end of our 5% to 7% long term EPS growth range relative to our 2020 earnings of $2 15 per share.

Turning to slide eight for.

For the nine months ended September 32021 electric adjusted gross margin was $73 4 million, an increase of $3 4 million or four 9% compared to 2020.

The increase over the nine months period was driven by higher rates and customer growth are.

Our commercial and industrial unit sales increased three 2%, reflecting continuing economic growth in our service territories.

Moving to slide nine.

For the nine months ended September 32021 gas adjusted gross margin was $92 2 million, an increase of $8 9 million or 10, 7% compared to 2020.

The increase in gas adjusted gross margin reflects higher rates and customer growth of seven 5 million.

And $1 4 million from the favorable effect of colder winter weather.

Moving on to Slide 10, we provide an earnings bridge comparing 2021 results to 2020.

As noted earlier 2021, adjusted gross margin increased by $12 3 million as a result of higher rates and higher unit sales.

Operating and maintenance expenses increased $2 6 million.

The current year increase is attributable to higher utility operating costs and higher labor costs, partially offset by lower professional fees.

Depreciation and amortization increased by $3 8 million, reflecting higher levels of utility plant in service and higher amortization expense.

Taxes other than income taxes increased $5 $6 million, primarily due to increased local property taxes on higher utility plant and service and slightly higher payroll taxes.

As a reminder, in the third quarter of 2020, the company recognized $6 million of payroll credits associated with the cares Act.

Interest expense increased by $1 8 million, reflecting higher interest excuse me, reflecting interest on higher long term debt balances, partially offset by lower rates on lower levels of short term borrowings.

Other expense decreased $5 $6 million, largely due to lower retirement benefits and other costs.

Lastly income taxes increased by $1 $1 million as a result of higher pre tax earnings.

Turning to slide 11.

The Unitil energy and northern New Hampshire rate cases, which ive discussed on previous calls are progressing as expected.

At this point temporary rates have been authorized and are in effect in both dockets at UBS a temporary rate of four Great Award of $4 5 million became effective on June 1st and at Northern New Hampshire.

Prairie rates of $2 6 million became effective on October one.

As a reminder, temporary rates are reconciled to the final rate case award and the difference is collected or refunded usually over one year.

Both filings include full revenue decoupling proposals and multi year rate plans to recover certain capital investments made in 2021 2022 and 2023.

As mentioned in last quarter's earnings call, the New Hampshire Public Utilities Commission issued an order, stating that incremental bad debt and late fees associated with the Covid pandemic may be addressed in each utility's next rate case.

Pursuant to that order we have included proposals to recover these costs in both our electric and gas cases.

Procedural schedules have been received for both cases, and we look forward to working with all parties in bringing these cases to resolution.

And with that I will turn it back over to Tom.

Thank you Bob.

Wrapping up now on slide 12.

With the first nine months of 2021 behind US we're pleased with the progress. The company has made and look forward to the opportunities ahead.

We believe our long term strategic plan is solid and allows us to continue our growth strategies pursue our sustainability goals to maintain excellent service to our customers.

And the year end earnings call, we will provide updates to our outlook, including our capital investment plan and dividend policy.

We remain excited about the company's future and growth prospects. We believe we are well positioned to create value for our shareholders.

With that I'll turn it back to Todd great. Thanks, Tom that rest of the material on this call. Thank you for attending I will now turn the call over to the operator, who will coordinate questions.

Thank you and as a reminder to ask a question you will need to press Star then the number one on your telephone keypad to.

Let me draw your question. Please press the pound key.

Please standby, while we compile the Q&A roster.

Our first question comes from the line of Julien Dumoulin Smith of Bank of America. Your line is now open.

Hey, this is actually Cody Clark on for Julian Good morning, Tom and Bob.

Thanks Jody.

So to start there's been a lot of focus on the rising gas price and especially in new England, where youre kind of at the end of the pipe. So to speak. So can you speak to this dynamic and the impacts to customer bills that youre seeing and also can you discuss some of the mitigating factors that you have at your disposal.

Hey, Cody this is Bob <unk> now we'd be happy to talk about that and let me start by talking about where we are in new Hampshire.

You know we have rate cases going on in both the electric and the gas side.

And we recently have received orders.

In New Hampshire, one approving our electric default rates in the other approving our gas cost rates now.

Cody you may recall that in new Hampshire on the electric side.

Customers can.

Select competitive providers, but that is not the case on the natural gas side. So our approach differ slightly between the two.

On the electric side, we've procured our supplies and we did so to be sure that we captured the market and we provided customers with the lowest possible rate for default service to <unk>.

<unk> service in New Hampshire as in Massachusetts is meant to provide market signals by design. The commission reviewed our procurement strategy found that we properly selected the lowest cost rate found our rates just and reasonable and those rates were approved on October eight.

Now on the natural gas side.

Last Friday, we received an order approving those rates and this goes to the second part of your question Cody what mitigation factors, we have in place for.

For the northern gas supply portfolio.

We effectively fixed about 70% of the variable prices under our pipeline storage and peaking.

Contracts.

And by fixing those the New Hampshire Commission found our approach to be as they said commendable and in fact, we were able to provide benefits to gas customers in new Hampshire. So.

In both cases the commission found our approach reasonable in one case commendable and in both cases.

To provide the service we are meant to provide.

In Massachusetts, we have received orders approving our gas cost rates and for our electric default service, which as in New Hampshire.

Is available to all customers.

We actually were able to work with the attorney general to come up with a stipulation or procurement was a little bit unique this year simply because of a procedural issue that came along but we worked with the attorney general to mitigate the increased costs for customers.

And again the commission found out or excuse me the department in Massachusetts found our approach to be very reasonable appreciated what we had done and those rates Likewise were approved.

About a week and a half ago.

The only area, where we're waiting in order for our gas cost rates as in Maine. The Commission I believe is deliberating today and.

And we expect to get an order there and short fairly shortly.

As in New Hampshire, we hedged again about 70% of the supply portfolio relative to the Nymex forwards.

Got it okay.

That's very helpful. So so.

Sort of answers my second question.

And it's going back to the the New Hampshire rate case, and I was just wondering if youre if youre seeing a heightened focus there in light of the environment and I'm just wondering what the.

The recent conversations have been with stakeholders and regulators.

Around the rate case or are you still seeing the positive momentum that you spoke to on previous calls and mentioned earlier.

Morning.

We are I will tell you that in the.

The electric case, the UES case, we've gone through 14 rounds of discovery.

Nearly 500 questions have been answered and I think all the parties have been very appreciative of.

How quickly and thoroughly we've responded to discovery so things are going along well. The next significant date in that cases November 18th when we received testimony from the other parties to the case.

But that case has been moving along well.

<unk> has been what we expect both in terms of the quantity and the number of parties involved.

On the gas side.

Again, I think the parties have been very pleased with our filing again in terms of the transparency and the thoroughness. So far we have only had one round of discovery only 11 questions and they were principally related to temporary rates. So we'll see where that goes going forward, but so far both cases are proceed.

Leading as we would expect and.

As best we can tell the stakeholders have been.

Appreciative.

<unk>.

Our responses.

Our filings.

Got it okay. That's very helpful. That's all I had really appreciate it have a good one.

Thanks Cody.

Again, if you would like to ask a question. Please press Star then the number one on your telephone keypad.

Again to ask a question. Please press Star then the number one on your telephone keypad.

There are no questions coming in at this time. This concludes today's conference call.

Thank you for participating you may now disconnect.

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