Q1 2025 Unitil Corp Earnings Call
Dr. Thomas Meissner, Todd Diggins, Todd Diggins
Speaker Change: Good day, and thank you for standing by. Welcome to the first quarter, 2025, Unitil Earnings Conference School.
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Speaker Change: I would now like to hand the conference over to your speaker today Chris Goulding, Vice President of Finance and Regulatory. Please go ahead.
Speaker Change: Good afternoon, and thank you for joining us to discuss Unitil Corporation's first quarter 2025 financial results.
Speaker Change: Speaking on the call today will be Tom Meissner, Chairman and Chief Executive Officer, and Dan Hurstak, Senior Vice President, Chief Financial Officer and Treasurer.
Speaker Change: Also with us today are Bob Havert, President and Chief Administrative Officer and Todd Diggins, Chief Accounting Officer and Controller.
Speaker Change: We will discuss financial and other information on this call. As we mentioned in the press release announcing today's call, we have posted information, including a presentation to the investor section of our website at Unitil.com We will discuss financial and other information on this call. We will discuss financial and other information on this call.
We will refer to that information during this call.
Speaker Change: 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 Security's litigation Reform Act of 1995.
Speaker Change: For looking statements inherently involve risk and uncertainties that can cause actual results to differ materially from those predicted.
Speaker Change: Statements made on this call should be considered together with cautionary statements and other information contained in our most recent annual report on Form 10K and other documents we have filed with or furnished to the Securities and Exchange Commission.
Speaker Change: Board-looking statements speak only as of today and we assume no obligation to update them.
Speaker Change: This presentation contains non-GAAP financial measures. The accompanying supplemental information more fully describes these non-GAAP financial measures and includes a reconciliation to the nearest GAAP financial measures.
Speaker Change: The company believes these non-GOP financial measures are useful in evaluating its performance.
Speaker Change: With that, I will now turn the call over to the chairman and CEO , Tom Meissner.
Tom Meissner: Thank you, Chris, and good afternoon everyone. Thanks for joining us today.
Tom Meissner: I'm going to begin on slide three where today we announced adjusted net income, excluding acquisition related costs of 28.4 million, and adjusted earnings per share of $1.74 for the first quarter of 2025.
Tom Meissner: This is an increase of 1.2 million or five cents per share compared to the first quarter of 2024.
Tom Meissner: This is an exciting time for our company as we recently completed the acquisition of Vanger natural gas and recently announced agreements to acquire main natural gas as well as three water utilities.
Tom Meissner: Aquarian Water of Massachusetts, Aquarian Water of New Hampshire, and Avenaki Water of New Hampshire.
Tom Meissner: These acquisitions provide a great opportunity to expand our regulated operations in states where we currently operate and support our long-term rate-based and earnings growth.
Tom Meissner: We're very excited by these opportunities and believe our focus on delivering high quality, affordable service will benefit the customers in the community served.
I'll provide additional information about these acquisition shortly.
Tom Meissner: Lastly, I'm pleased to announce that we are reaffirming our long-term guidance for earning growth, dividend growth, and rate-based growth.
Tom Meissner: Moving now to slide 4, I'd like to start by saying that both banger and natural gas and main natural gas are a perfect complement to our existing operations in Maine.
Tom Meissner: We close Banger Natural Gas on January 31st and announce main natural gas on April 1st.
Tom Meissner: We're purchasing both companies that attractive multiples and view the additions as a cost effective way to expand our service areas.
Tom Meissner: We will be adding about 15,000 customers in some of the most attractive areas of the state where there is strong customer growth of 4 to 5 percent.
Tom Meissner: The distribution systems are relatively new in the proximity to our existing operations provide opportunities for operational synergies.
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Tom Meissner: Future growth prospects are strong and we believe the low penetration of natural gas in the state will drive continued conversions in the years ahead.
Tom Meissner: Notably, Maine has the highest reliance on fuel oil of any state in the nation, and converting to natural gas offers an alternative that is both cleaner and more portable.
Tom Meissner: In the coming years, we anticipate updating distribution rates to better reflect the current cost of service, after which we expect these acquisitions to be accretive to our long-term outlook.
Tom Meissner: Turning now to slide five, yesterday we executed a purchase agreement to acquire three Massachusetts and New Hampshire subsidiaries of the Aquarian Water Company for a hundred million including the assumption of approximately 30 million of debt and subject to customary closing adjustments.
Tom Meissner: The Aquarian Water Company is a water supply and wastewater treatment company formed in 1857 that operates five subsidiaries throughout the New Hampshire, Massachusetts and Connecticut
Tom Meissner: The agreement will be structured as a back-to-back transaction with the Aquarian Water Authority, a newly created quasi-public political division of the state of Connecticut that is purchasing the Aquarian Water Company from Ever Source and will subsequently sell the New Hampshire Massachusetts subsidiaries to Unitil.
Tom Meissner: In conjunction with the purchase agreement, we have negotiated an operating agreement with the Aquarian Water Authority to provide centralized services for initial term of five years.
Tom Meissner: The transaction is subject to regulatory approvals in Connecticut, Massachusetts, New Hampshire, and Maine, and is expected to close in late 2025.
Tom Meissner: Turning to slide six, I'd like to provide a brief overview of the rationale behind the aquarium transaction, which ultimately boils down to the criteria we look for in an acquisition.
High-quality assets, proximity towards existing operations.
Expected long-term earnings accretion
Future growth opportunities in a constructive regulatory environment.
Tom Meissner: Aquarian matches all those criteria and provides an attractive first entry into water distribution.
Tom Meissner: Water utilities provide a critical resource, have favorable ESG characteristics and highly predictable returns.
Tom Meissner: Massachusetts, the New Hampshire, our regulatory jurisdictions that we know well and where we enjoy strong relationships.
Tom Meissner: There is also precedent for accelerated cost recovery in bulk jurisdictions and we will look to continue those rate structures.
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Tom Meissner: The transaction includes 78 million of rate-based as of December 31, 2024, adds 23,000 customers and provides opportunities for further consolidation of municipal water systems and the states where we currently operate.
Tom Meissner: Most community water systems are municipally owned and have become increasingly capital intensive due to aging infrastructure in new water quality standards.
Tom Meissner: Our strong reputation, operational capabilities and financial strength put us in a strong position to capitalize on future opportunities.
Tom Meissner: We look forward to providing additional details about this transaction on future calls.
Tom Meissner: Turning now to slide 7, as I mentioned earlier, we expect rate-based growth to accelerate to about 10% annually through 2029 due to these acquisitions.
Tom Meissner: We also expect the acquisitions to support earnings growth near the top end of our guidance range over the next five years.
Tom Meissner: Collectively, the acquisitions will be earnings neutral in the short run, but are expected to become earnings accretive over the long run.
Tom Meissner: Turning to slide eight, our balance sheet strength remains the top priority and we believe that greatly enhances our ability to effectively finance the company's core operations as well as acquisitions.
Tom Meissner: The flexibility provided by our strong credit metrics and our ability to generate low-risk cash flows is significant.
Tom Meissner: We have ample liquidity to our revolver in the S&P rating agency recently noted that even if both banger natural gas and main natural gas are funded entirely with debt, the company's credit metrics are still above the downgrade thresholds and well within the investment of grade rating category.
Tom Meissner: We will continue to effectively manage risk and expect our FFOD debt in other credit metrics to remain above our peers and above our downgrade thresholds.
Tom Meissner: With that, I'll now pass it over to Dan who will provide greater detail on our first quarter financial results.
Thank you, Tom. Good afternoon, everyone.
I'll begin on slide nine.
Tom Meissner: As Todd mentioned, we announced the first quarter adjusted net income of $28.4 million in adjusted earning per share of $1.74, representing an increase of $1.2 million or $5 per share compared to the same period in the prior year.
Tom Meissner: Our first quarter 2025 results were consistent with the quarterly earnings distribution chart provided during our previous earnings call in February .
Tom Meissner: Moving to slide 10, I will discuss our electric adjusted gross margin.
Tom Meissner: For the three months ended March 31, 2025, Electric Adjusted Gross Margin was $27.5 million, an increase of $0.4 million, or 1.5% compared to the same period in 2024.
Tom Meissner: The increase in electric-adjusted gross margin reflects higher distribution rates and customer
Tom Meissner: The company added approximately 970 electric customers compared to the first quarter of 2024.
Tom Meissner: and as noted during prior calls, electric distribution revenues are substantially decoupled which eliminates the dependency of distribution revenue on the volume of electricity sales.
Tom Meissner: Turning to slide 11, I will discuss our gas-adjusted gross market.
Tom Meissner: The increase in gas adjuster gross margin reflects higher distribution rates in customer growth as well as a return to normal winter weather in 2025.
Tom Meissner: The company added approximately 9,230 new gas customers compared to the same period in 2024, including 8,730 customers from the Banger acquisition which closed at the end of January .
Tom Meissner: Approximately 55% of the company's gas customers are under decoupled rates and we estimate the decoupling support of gas margin by approximately 2 cents per share in the first quarter.
Looking at existing operations, excluding the Bangor acquisition,
Tom Meissner: Gas Adjusted Gross Margin was $68 million and increased the $7 million or 10.2% compared to the first quarter of 2024.
Tom Meissner: Moving to slide 12, we provide an earnings bridge comparing 2025 first quarter results to the same period in 2024.
Tom Meissner: As I just discussed, adjusted growth margins for the first quarter increased by $10.3 million, primarily driven by higher distribution rates, customer growth, and colder winter weather.
Tom Meissner: Operation and Maintenance Expenses increased $4.4 million, reflecting higher utility operating costs, higher labor costs, and higher professional fees.
Tom Meissner: This increase includes $0.7 million related to banger natural gas operating expenses and $1.2 million of transaction costs which are excluded from adjusted net income.
Tom Meissner: In addition, certain transmission expenses were higher in 2025 based on a proof formula rates in our Fitzburg service area.
Tom Meissner: Depreciation and amortization expense increased by $3.7 million, reflecting higher depreciation rates from the most recent Pittsburgh gas rate case.
Tom Meissner: Higher levels of utility plan service and higher amortization of storm costs and other deferred costs.
Tom Meissner: Taxes of an income tax is increased by $0.2 million, primarily due to amounts related to the bank or natural gas.
Tom Meissner: Interest expense increased $1.8 million, primarily reflecting higher levels of long term debt and higher interest expense on regulatory liabilities, partially offset by lower interest expense on short-term borrowing.
Tom Meissner: Other expense decreased by $0.2 million, reflecting lower retirement benefit costs.
Tom Meissner: Lastly, income taxes increased $0.1 million, reflecting higher pre-tax earnings in 2025.
Turning to Slide 13
Tom Meissner: We recently filed a distribution rate case with the New Hampshire Public Utilities Commission for Unitil Energy Systems, our New Hampshire Electric Utility, which includes a proposed revenue requirement increase of 18.5 million dollars.
Tom Meissner: This rate case includes pro-former rate base of $289 million as of December 31, 2024, an equity of 52.67% and a return on equity of 10.5%.
Tom Meissner: We are requesting a temporary rate increase of $7.8 million, subject to commission approval, and expect the approved temporary rate increase will take effect on July 1, 2025.
Tom Meissner: permanent rates are expected to take effect May 1, 2026 and will be subject to recruitment or refund based on the final order. In New Hampshire, permanent rate case awards are reconciled back to the effective date of the temporary rate
Tom Meissner: Similar to previous New Hampshire rate cases, we have proposed a multi-year rate plan to provide for timely cost recovery of 2025 and 2026 capital investments.
Tom Meissner: These investments support the advanced energy grid as well as the continued safety and reliability of our system.
Tom Meissner: We look forward to working with all stakeholders throughout this proceeding and will provide additional information on future earnings calls.
Tom Meissner: Moving to slide 14, as noted during our previous earnings call, our current 5-year capital budget now totaled approximately $1 billion and is 46% higher than the prior 5 years.
Tom Meissner: This capital budget represents our investment plan for existing operations and does not incorporate investment growth from our acquisitions.
Tom Meissner: We expect the acquisition of Banger Natural Gas and the recently announced transactions involving main natural gas and the acquiring companies will result in total capital spending above this plan over the next five years.
Tom Meissner: Turning to slide 15, we are reaffirming our 2025 Earnings Guidance, which we expect to be in the range of $3.01 to $3.17 per share.
Tom Meissner: Given our expectations that the main natural gas and aquarium companies transactions will close in late 2025, we do not expect those transactions will have a significant effect on our 2025 results.
I will now turn the call back over to Tom.
Tom Meissner: Thanks, Dan. Ending now on slide 16. We had a strong and busy start to the year and we are very pleased with our operating and financial performance.
Tom Meissner: Our core businesses are performing well and we are actively carrying out our strategic initiatives in pursuing growth opportunities.
Tom Meissner: The company is heading in a great direction and we strongly believe we are in a better position than ever before to provide long term sustainable value.
With that, I'll pass the call back to Chris.
Chris Goulding: Thanks Tom. That wraps up the prepared material for this call. Thank you for attending. I will now turn the call over to the operator who will report any questions.
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Speaker Change: This concludes today's conference call. Thank you for participating. You may now disconnect.
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