Unitil Corp (UTL) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2015 Unitil earnings conference call. My name is Whitley and I will be your operator for today's conference. All participants are in listen-only mode. Later we will conduct a question and answer session. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would like to turn the conference over to your host for today, Mr. David Chong, Director of Finance. Please proceed.

Good afternoon. And thank you for joining us for Unitil Corporation's first quarter 2015 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer, Mark Collin, Senior Vice President, Chief Financial Officer and Treasurer, Todd Black, Senior Vice President, and Larry Brock, Chief Accounting Officer and Controller. We will discuss financial and other information about our first quarter on this call. As we mentioned in the press release announcing the call, we have posted that information including a presentation to the investor section of our website at www.unitil.com. We will refer to that information during this call. Before we start, please note the 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 strategy, market opportunities and other plans and objectives. In some cases forward-looking statements can be identified by terminology 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, including those listed or referred to on slide one 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, 2014. 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 will now turn the call over to Bob.

Thanks, David. Thank you, everyone, for joining us today. I will summarize the highlights of our past quarter. If you turn to slide four of our presentation, today we announced net income of $13.6 million or $0.98 per share for the first quarter of 2015, an increase of $1 million or $0.07 per share over the first quarter of 2014. The 8% increase in earnings for the first three months of 2015 were driven by sustained customer growth in our natural gas business, a successful regulatory agenda and a cold New England winter.

Turning to slide five. The graph shows that our financial results have increased sharply over the past few years with net income growing at an annual rate of 17% since 2012. Our financial results have been driven by robust business fundamentals including an improving economy as well as continued strong demand for natural gas. We believe our rapid rate-based growth combined with constructive regulation will continue to drive our operating results in the future.

If you turn to slide six, natural gas is a cost-competitive fuel choice and offers all of our customers the best choice of value in terms of its superior efficiency and convenience. We have a penetration rate of only 60% on our existing distribution system which provides for abundant low cost opportunities to add customers along our existing distribution mains. Additionally, we have begun to expand into adjacent service areas for new growth opportunities when it makes economic sense to do so. Slide seven highlights the growth we have achieved on our natural gas business. Our gas customer base grew 3% in 2014. In addition, natural gas unit sales have grown by 5% on a weather normalized basis since 2012. This is right in line with our goal to grow our gas unit sales between 4% to 6% annually.

Moving on to slide eight. Our utility rate base continues to grow as we add new customers and improve both the gas and the electric distribution systems. Over the past three years our gas rate base has grown at an annual rate of 10% driven by customer additions and our infrastructure replacement and improvement programs. Our electric rate base has grown 4% over the last three years. We believe that rate base will continue to grow around these levels for the foreseeable future.

Turning to slide nine. Our return on equity has steadily increased over the past three years, reflecting strong sales and customer growth combined with constructive rate case results. Our regulatory strategy has helped us to achieve approximately $60 million in rate relief since 2010 which equates to a 50% increase in sales margin. This rate relief has enabled our earnings to match and exceed our rapid rate base growth and provide us with the opportunity to earn within our allowed rate of return.

Finally, slide 10 describes the dividend increase that we announced in the first quarter of 2015. Our annual dividend is now $1.40 per share, which equates to a current dividend yield of about 4%. Since incorporation in 1984 Unitil has continuously paid quarterly dividends and has never reduced its dividend. Now I will turn the call over to Mark Collin, who will discuss our financial results for the quarter and our current rate case proceedings. Mark?

Thank you, Bob. Good afternoon, everyone. I will begin by discussing our sales margin and operating expenses variances for the quarter. If we turn to slide 11, natural gas sales margin was $38.8 million in the quarter, an increase of $2.3 million or 6% compared to the first quarter of 2014. Natural gas sales margin was positively affected by higher therm unit sales, a growing customer base and higher distribution rates.

Therm sales of natural gas were up 6.5% in the first quarter, driven by colder weather and customer additions. There were 4% more Heating Degree Days in the first quarter of 2015 compared to 2014, which we estimate positively impacted earnings per share by about $0.02. Compared to normal weather, there were 14 % more Heating Degree Days in the first quarter, which we estimate positively impacted earnings per share by about $0.08.

Excluding the effect of weather on sales, weather normalized gas therm sales are estimated it be up about 5% in the quarter compared to the same period in 2014. Slide 12 highlights our electric business sales and margin. Electric sales margin was $21.2 million in the first quarter of 2015, an increase of $2 million or 10% compared to 2014.

Electric sales margin reflects higher electric base distribution rates as a result of a rate case we completed in Massachusetts in June of 2014 along with a rate step adjustment we had in May of 2014 for our New Hampshire utility. Electric kilowatt hour sales increased 0.3% compared to the fourth quarter of 2014 -- first quarter of 2014. Turning to slide 13 now, operation and maintenance expenses decreased $0.2 million in the quarter compared to the same period in 2014.

The change in O&M expenses reflects lower professional fees of $0.8 million partially offset by higher utility operating costs of $0.4 million and higher compensation and benefit costs of $0.3 million and lower all other operating costs net of about $0.1 million. Included in the increase in utility operating costs are $0.2 million of higher vegetation management costs which are currently recovered in electric rates and reflected in electric sales margin.

Depreciation and amortization expenses increased $1.2 million in the quarter reflecting higher depreciation on normal utility plant additions of $0.6 million, higher amortization of previously deferred major storm restoration costs of $0.4 million, which is recovered in electric rates and reflected in electric sales margin and an increase in all other application of $0.2 million.

Taxes other than income taxes increased by $0.3 million in the quarter compared to the same period in 2014, reflecting higher property taxes on higher levels of utility plant and service. Net interest expense increased $0.6 million in the quarter reflecting higher levels of long-term debt and lower net interest income on regulatory assets. Now, turning to slide 14, we have provided an update on our financial results at the utility operating company level. This 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 9.2% in the last 12 months ended March 31, 2015.

Also, as we have discussed in the past and as shown on the table on the right, we have long-term capital 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. We will continue to keep a close eye on the earnings level by utility subsidiary and evaluate the need to file rate relief to provide us with the opportunity to earn our authorized rate of return on a consistent basis.

Now, this concludes our summary of our financial performance for the period. I will turn the call over to the Operator, who will coordinate questions. Thank you.

(Operator Instructions). Your first question comes from the line of Shelby Tucker, RBC Capital Markets. Please proceed.

A quick question on the CapEx program. For the quarter you seem to be trailing at least a little bit behind your annual rate. I'm guessing that was mostly weather driven. And number two, should we expect to see a catch-up for the rest of the year, or a revision on your CapEx for the year?

Shelby, excuse me.

No problem.

I got a little frog in my throat here. Okay. Yeah, first quarter CapEx you said was trailing a little bit. We did have a very heavy winter up here in New England, as you know, with lots of snow and cover so our CapEx budget is a little bit behind where we typically would be for the year. Our construction season particularly for gas really is from the spring to the early fall so we do expect it to catch up and be with back on our annual target for the year.

Got it. And most likely would be more dedicated on the third and fourth quarter, as it has been in the past?

Exactly.

Got it. Okay. Thanks very much.

Take care, Shelby.

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

Thank you for joining us for this quarter. And we look forward to talking to you next quarter. Thank you, and have a good day.

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