Unitil Corp (UTL) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2014 Unitil Corporation Earnings Conference Call. My name is Witley and I will be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. David Chong, Director of Finance and Assistant Treasurer. Please proceed, sir.

Good afternoon and thank you for joining us to discuss Unitil Corporation's third quarter 2014 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer; Mark Collin, Senior Vice President, Chief Financial Officer and Treasurer; and Larry Brock, Chief Accounting Officer and Controller.

We will discuss financial and other information about our third quarter 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.unitil.com. We will refer to that information during this call.

Before we start, please note that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding the Company's financial condition, results of operations, capital expenditures and other expenses, regulatory environment and strategies, market opportunities, and other plans and objectives.

In some cases, forward-looking statements can be identified by terminologies such as may, will, should, estimate, expect or believe, the negative of such terms or other comparable terminology. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties and the Company's actual results could differ materially. Those risks and uncertainties include those listed or referred to on slide 1 of the presentation and those detailed in the Company's filings with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2013.

The forward-looking statements speak only as of the date they are made. The Company undertakes no obligation to update any forward-looking statements.

With that said, I'll now turn the call over to Bob.

Thanks, David. I'll begin by summarizing our financial performance for the past quarter. If you can turn to slide 4 of our presentation, today, we announced net income of $1.6 million or $0.11 per share for the third quarter of 2014, an increase of $1 million compared to the third quarter of 2013. For the nine-month period, we reported net income of $15.3 million, an increase of $4 million or 35% over prior year. Earnings per share for the nine-month period were $1.10 compared to $0.82 for the same period in 2013. The Company's earnings for 2014 were driven by increases in natural gas and electric sales margins.

If you can turn to slide 5, we've demonstrated significant growth in our financial results over the past few years. We are pleased with the Company's results for the third quarter. We believe we're well positioned to continue expanding our natural gas utility business, an ongoing initiative that is driving consistent growth for the Company as well as benefiting the region by offering new customers significant cost savings over oil.

We continue to add new customers that are along or near our [mains], but previously did not have gas service. The gas penetration rates in our service areas are relatively low, reflecting the historical dominance of home heating oil in our region. Due to the competitive position of gas compared to home heating oil and our low penetration rates, we have a unique opportunity to consistently add new customers in and around the areas we currently serve for years to come.

Our service areas are also experiencing significant economic growth. For example, there is a significant construction activity currently underway in two of the largest cities we serve; Portland, Maine; and Portsmouth, New Hampshire. We estimate that there is approximately $0.5 billion of new construction underway in these popular tourist destination cities and working communities. We are also seeing new industrial customer growth, including consumer goods manufacturers, asphalt suppliers, hospitals and governmental agencies. Not only are we seeing commercial and industrial development, but we are also seeing improved residential housing. Home prices, for example, are up 5% in New Hampshire this year compared to last year.

On slide 6, we are also benefiting from this improved economic activity. Since 2010, our gas unit sales have grown annually 5%. We are seeing this growth accelerate as we add large commercial and industrial customers. On a year-to-date basis, our weather-normalized gas unit sales are up 6% compared to last year.

On slide 7, we have developed a gas growth strategy designed to capitalize on favorable natural gas fundamentals with disciplined capital investments that will drive our rate base and earnings growth for foreseeable future. Our plan is to double our rate base to $360 million by 2016, compared to $180 million in 2008, which is when we acquired Northern Utilities.

Additionally, we are growing our gas customer base on the order of 3% per year, which compares to our peers at about 1% annually. We also expect to grow our gas unit sales by 4% to 6% annually. Combination of these metrics shows that we're one of the fastest-growing distribution utilities in the region, if not the country.

Now, I will turn the call over to Mark Collin, who will discuss our financial results for the quarter and also provide a regulatory update. Mark?

Thanks, Bob; and good afternoon, everyone. As Bob just described, the Company's strong earnings growth in the quarter and last nine-month periods have been driven by significant increases in natural gas and electric sales margins.

Turning to slide 8, natural gas sales margins were $15.2 million and $68 million for the third quarter and the nine-month periods, reflecting increases of $2.8 million and $11.7 million; are up 21% for the year so far compared to prior year. Natural gas sales margins in 2014 were positively affected by higher therm unit sales, a growing customer base, and recently approved distribution rates.

Therm sales of natural gas increased 11.2% in the first nine months of 2014, driven by the colder winter weather and new customer additions. There were 12% more heating degree days in the nine months of 2014 compared to the same period in 2013, which we estimate positively impacted earnings by about $0.09 per share. Excluding the effect of weather on sales, weather-normalized GAAP therm sales are estimated to be up about 5.7% for the nine months of 2014 compared to last year, reflecting a healthy customer growth rate.

Now, turning to slide 9, we'll take a look at our electric business sales and margin. Electric sales margins were $22.6 million and $60.7 million for the third quarter and the nine-month periods, reflecting increases of $1.8 million and $3.6 million; are up 6% for the year so far compared to prior year. The increase in electric sales margin in the nine-month period reflects recently approved electric-based distribution rates and higher unit sales. Electric kilowatt hour sales increased roughly 1% for the nine-month period compared to prior year. Billing demands were also up about 1% for the year; and about 90% of our C&I margin is derived from these six billing demands.

Turning to slide 10, Usource, the Company's non-regulated energy brokering business, recorded revenues of $4.5 million (technical difficulty) of about $0.1 million compared to the same period in 2013.

Operation and maintenance expenses increased $1.4 million and $3.5 million for the third quarter and the nine-month periods compared to prior year. The increase in O&M expenses in the three-month and nine-month periods primarily reflects higher compensation and benefit costs and higher utility operating cost. Depreciation and amortization increased $1 million and $2.4 million for the third quarter and the nine-month periods compared to prior year, reflecting higher utility plant assets in service and amortization of major storm restoration costs.

Taxes other than income taxes increased $0.4 million and $1.6 million for the third quarter and the nine-month periods compared to prior year, primarily reflecting higher local property taxes on higher levels of utility plant in service. Net interest expense increased $0.2 million and $1.5 million for the third quarter and nine-month periods, reflecting lower interest income on regulatory assets.

Now, turning to slide 11, we have a strong regulatory track record. We achieved approximately $56 million in rate relief since 2010, which roughly equates to a 50% increase in sales margin since 2010. In 2014 alone, we achieved almost $20 million of rate relief from three recently completed rate cases.

Turning to slide 12, we've provided an update of our financial results at the utility operating company level. The chart shows the trailing 12 months actual earned return on equity in each of our regulatory jurisdictions. Unitil, on a consolidated basis, earned a total return on equity of 9.6% in the last 12-month period. Also, as we've discussed in the past and as shown on the table on the right, we have long-term capital cost trackers in place to recover a significant portion of current and future capital spending, which we expect will help to maintain the level of earnings across our subsidiaries.

Finally, earlier this month, we were able to take advantage of historically low interest rates to secure significant long-term financing for our largest growing subsidiary. Northern Utilities recently closed a $50 million offering of 30-year senior unsecured notes. The coupon rate on these notes is 4.42%, which is the lowest coupon rate of all of Unitil's currently outstanding long-term debt. The offering provides for a strong capital structure and positions Northern Utilities for its gas expansion and cast iron replacement programs.

Now, this concludes our summary of our financial performance for the period. I will turn the call over to the operator for any of you that may have some questions. Thank you.

(Operator Instructions) Shelby Tucker, RBC Capital Markets.

Thank you. Good afternoon. Bob, maybe a question for you, first. Could you maybe give us an update on the expansion projects or possibilities of bringing more gas to the region and also what role you might play in that broader expansion?

How are you doing, Shelby?

Good, thank you.

Yes. I mean obviously, that's a key issue for the region as a whole and for us as a company. The shale revolution clearly is here in the country. The US is now the world's largest gas and oil producer, that's a significant advantage for the country. The challenge for our region is that shale gas is available from the Marcellus and the Utica Shale basins, but we don't have the pipeline capacity to get it here.

The two main projects that have been proposed, one by Kinder Morgan, which would come from the west across Massachusetts into the Boston area; and then, the other one is a specter project that would -- so-called the Atlantic Bridge, which would come up from the Jersey area into Boston and then north of Boston, which would hook into our system. We are in the process of negotiating to become an anchor customer on the Atlantic Bridge project up into our area. Those negotiations are going well and we fully expect to be an anchor customer on that project.

The good news about that project is as opposed to the Kinder Morgan project is, that is a project using an existing right of way. So it's not a new fields construction, and so it will use that existing right of way to put in a bigger pipe to supply gas to the area. The projection for that project, which is being reviewed by regulatory officials now, is for service sometime in 2017. So the long-term good news is that there are projects underway that will solve this issue, the short-term issues dealing with the short-term potential price swings for natural gas, particularly in the winter as we experienced last year.

And some projects out there have anchor tenants, also equity participants. Do you have that opportunity at all?

We have not discussed that to this point.

Okay, great. And then, maybe a question for Mark, I noticed that you reclassified some short-term debt into long-term debt as you've issued the $50 million of new bonds. Can you maybe explain the mechanism in terms of what it means for fourth quarter? Are we going to see a -- and if it's paid out of the long-term debt (technical difficulty) of $42.3 million or so that you reclassified?

No, it was subsequent event accounting that basically was a technical accounting matter the way that we would have to show the fact that short-term debt was basically as a result of the issuance that actually happened after the quarter, as you know Shelby. As a result of that issuance, we had to show that that short-term debt was essentially converted or paid down with long-term debt. So we [may see] that accounting adjustment. In the next period, it will -- the transaction will be fully reflected. So the long-term debt as -- the $50 million will show up completely on the balance sheet and then our short-term balance will be what it actually is at the end of the period, there will be no longer subsequent event accounting associated with it.

Okay, but right now, you actually show your long-term debt now being increased by 42.3% next quarter when it's going to see an increase by 7.7% or so?

Yes. Exactly, yes. It will be the [$46 million], yes.

Okay, great. Thank you.

Yes.

(Operator Instructions) There are no further questions in queue. I'll now turn the call back over to management for closing remarks.

Thank you for joining us to discuss our third quarter on today's call. We look forward to updating you at our next quarter. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, you may now disconnect. Have a great day.