UTL - NYSE

Good day, and thank you for standing by. Welcome to the fourth quarter 2024 Unitil Corporation 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Christopher Goulding, Vice President of Finance and Regulatory. Please go ahead.

All right. Thank you. Good morning, and thank you for joining us to discuss Unitil Corporation's fourth quarter 2024 financial results. Speaking on the call today will be Thomas Meissner, Chairman and Chief Executive Officer, and Daniel Hurstak, Senior Vice President, Chief Financial Officer, and Treasurer. Also with us today are Bob Hevert, President and Chief Administrative Officer, and Todd Diggins, Chief Accounting Officer and Controller. 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 Investors section of our website at unitil.com. We will refer to that information during this call. 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. The accompanying supplemental information more fully describes 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 and CEO, Thomas Meissner. Great. Thanks, Chris, and good morning, everyone. Thanks for joining us. I'm going to begin on slide three, where yesterday we announced another strong year of results. With adjusted earnings of $47.8 million or $2.97 per share, representing an increase of $0.15 per share or 5.3% over 2023. We fully earned our authorized returns with a consolidated return on equity of 9.4%, representing constructive regulatory outcomes and our focus on cost management. On January 31st, we completed our acquisition of Bangor Natural Gas. We view Bangor as highly complementary to our existing gas operations in Maine and fully expect the transaction to be earnings accretive over the long run as we move towards cost of service rates for Bangor Natural Gas customers. Operationally, we had another outstanding year with electric reliability, gas safety, and customer service metrics, all comparing favorably. Today, we are also reaffirming our guidance for long-term earnings growth, dividend growth, and rate base growth. We will also provide earnings guidance for 2025 later during this call. Moving on to slide four, as I just mentioned, on January 31st, we completed the acquisition of Bangor Natural Gas plus approximately $0.3 million for working capital. The transaction was funded with short-term debt, and we intend to recapitalize Bangor Natural Gas with a combination of equity and long-term debt to achieve a capital structure similar to our other operating companies. We are excited to serve the Greater Bangor area and look forward to providing our new customers with the high level of service they expect of us. The process of integrating Bangor Natural Gas into the rest of our operations is well underway. We expect the transaction to be earnings neutral on a fully diluted basis in the near term, and as I mentioned on the previous slide, we expect this transaction will be earnings accretive over the long term after cost of service rates are put in place following a base rate case. Turning to slide five, we pride ourselves on providing exceptional service to our customers, and 2024 was no exception as 90% of our customers reported being satisfied with the service we provide. We are the highest rated of 23 eastern utilities and garnered high marks in a number of important categories. These strong results are a reflection of the hard work and dedication of our employees. Moving now to slide six, operationally, we maintained top quartile electric reliability and had the fifth lowest service interruption time in the past 20 years. Targeted investments combined with aggressive vegetation management programs have supported consistently strong electric reliability performance. Our gas emergency response also remains among the top tier of our peers. We recently received the Northeast Gas Association's Excellence in Safety Award for the company's implementation of a pipeline safety management system. In 2024, we also completed our gas infrastructure modernization program in Maine, concluding a 14-year program that began in 2011. We have now replaced all cast iron, bare steel, and other aging infrastructure, also increasing system operating pressures and greatly expanding system capacity. In addition to enhancing system safety, modernizing our gas system and reducing fugitive emissions is an important element of our greenhouse gas mitigation strategy. As a reminder, we completed our pipe replacement in New Hampshire in 2017, and pipe replacement efforts are ongoing in Massachusetts. Turning now to slide seven. As discussed during our previous earnings call, we are working through our advanced metering infrastructure upgrade or AMI project that will replace all electric meters in our service areas with new state-of-the-art meters. This is an exciting project and a significant step towards meeting the needs of the clean energy transition. The project is progressing as expected, and we have completed all IT integrations, installed new radio frequency equipment, and system testing is underway. We expect the meter replacement at our Massachusetts subsidiary to be complete this year and at our New Hampshire subsidiary by 2027. The estimated cost is approximately $40 million, and in Massachusetts, the costs associated with this project are eligible for accelerated cost recovery. With that, I will now pass it over to Daniel Hurstak, who will provide greater detail on our 2024 financial results.

Thank you, Tom. Good morning, everyone. I'll begin on slide eight. As Tom mentioned, we announced fiscal year 2024 results of $47.8 million and adjusted earnings per share of $2.97, representing an increase of $2.6 million in adjusted net income or $0.15 per share compared to 2023. These 2024 results were supported by higher distribution rates and customer growth, partially offset by higher operating expenses. We are reporting adjusted earnings that exclude transaction costs related to the acquisition of Bangor Natural Gas, which are not indicative of the company's ongoing costs and operations. Turning to slide nine, we will discuss our electric and gas adjusted gross margin. I'll begin with our electric operations. Electric adjusted gross margin for the year was $107.3 million, an increase of $3.2 million as compared to 2023. The increase in electric adjusted gross margin reflects higher distribution rates and customer growth. The company added approximately 990 electric customers compared to 2023. As noted during prior calls, electric distribution revenues are substantially decoupled, which eliminates the dependency of distribution revenue on the volume of electricity sales. Moving to gas operations, gas adjusted gross margin for the year was $166.9 million, an increase of $12.4 million compared to 2023. The increase in gas adjusted gross margin reflects higher distribution rates and customer growth, with the company adding approximately 730 new gas customers compared to 2023. At the end of 2024, approximately 60% of the company's gas customers were under decoupled rates, and we estimate that decoupling supported gas adjusted gross margin by approximately $0.28 per share in 2024. Moving to slide ten, I will provide an earnings bridge comparing 2024 results to 2023. As I just mentioned, adjusted gross margin for the year increased by $15.6 million, primarily driven by higher distribution rates and customer growth. Operation and maintenance expenses increased $2 million or 2.6%, reflecting higher labor costs partially offset by lower utility operating costs. This increase includes approximately $1 million of transaction costs associated with the Bangor Natural Gas acquisition. Excluding these costs, operating and maintenance expenses increased $1 million or 1.3% compared to 2023. The increase in operation and maintenance expenses, either including or excluding transaction costs, is below the increase in inflation of approximately 2.9% over the same period. Depreciation and amortization increased $8.7 million, reflecting higher depreciation rates approved in recent Maine and Massachusetts rate orders, higher levels of utility plant in service, and higher amortization of rate case and other deferred costs. Taxes other than income taxes increased $1.4 million, reflecting higher local property taxes on higher utility plant in service as well as higher payroll taxes. Interest expense increased $0.6 million, reflecting higher interest expense on short-term borrowings and higher levels of long-term debt, partially offset by higher interest income on regulatory assets. Other expense increased by $0.2 million, largely due to higher retirement benefit costs. Lastly, income taxes increased $0.8 million, reflecting higher pretax earnings. Turning to slide eleven, we are providing adjusted earnings guidance for 2025, which we expect to be in the range of $3.01 to $3.17 per share. Our guidance assumes normal weather for the year and customer growth consistent with recent experience. We also continue to provide a graph of the expected distribution of our quarterly earnings on this slide, and our quarterly results have generally been consistent with this guidance. We are also reaffirming our long-term EPS growth guidance of 5% to 7%. From 2022 to 2024, we have grown earnings 7.1%, slightly above the upper end of our long-term guidance. Moving to slide twelve, we have updated our projected five-year investment plan through 2029, which now totals approximately $980 million, which is 46% higher than the prior five years. This capital investment plan is expected to grow rate base within our long-term guidance range of 6.5% to 8.5%. We expect electric rate base growth will outpace gas rate base growth in 2025, driven by electric system modernization and the completion of our main pipe replacement program in 2024. In 2025, we expect capital spending to be approximately $176 million as we continue to make necessary and strategic system investments. Lastly, I would note that the investment plan does not include Bangor Natural Gas, which is expected to average between $3 million and $5 million annually, primarily supporting customer growth. Turning to slide thirteen, we had a busy regulatory agenda in 2024, with orders for our electric and gas rate cases for Fitchburg Gas and Electric in Massachusetts and Granite State Gas Transmission at FERC. On November 25th, 2024, FERC approved the Granite State Gas settlement as filed. As a reminder, the settlement agreement included an annual revenue increase of $3 million, representing a revenue increase of approximately 30%. The settlement also included three limited Section 4 step filings over the next three years, totaling approximately $30 million to recover eligible capital costs. Looking forward, we intend to file a distribution rate case for Unitil Energy Systems, our New Hampshire Electric subsidiary, in the second quarter of this year. We expect this rate filing will seek recovery of the Kingston Solar facility, which we expect to be placed in service also in the second quarter. As a reminder, in New Hampshire, we are able to begin recovering a portion of our requested revenue increase through a temporary rate award within a couple of months of the initial rate filing. Temporary rates are fully reconciled to the final rate award, with any under-recovery being recouped following the completion of the case. We look forward to providing additional details as this rate case activity gets underway. Moving to slide fourteen, we have updated our long-term financing plan, where we continue to expect the majority of funding, approximately two-thirds, to be derived from cash flow from operations, less dividends, with additional financing obtained from a balanced mix of debt and equity. Maintaining our strong balance sheet and our investment-grade credit ratings remains a top priority. We continue to generate strong cash flow while prudently managing risk. Looking forward, we expect to maintain our FFO to debt ratio between 17% and 19%. In January 2025, we amended our revolving credit facility to increase the borrowing limit from $200 million to $275 million and to extend the maturity of the facility to September 2028. This increase provides financing flexibility and additional liquidity for the company's current investment plan. Turning to slide fifteen, I'm pleased to announce that our board of directors has voted to increase the quarterly dividend by $0.025 per share or $0.10 per share on an annualized basis. The increase brings the annual dividend to $1.80 per share in 2025, or a 5.9% increase from 2024. Our payout ratio has been firmly within our target range for several years now, providing the ability to grow our dividend in line with long-term earnings growth.

I will now turn the call back over to Tom. Ending now on slide sixteen, 2024 was a year of outstanding progress for the company, marked by record financial performance, operational excellence, and advancement of our strategic priorities. These accomplishments are a testament to the hard work and dedication of our employees and the constructive relationships we enjoy with our regulators. As we look ahead to 2025, we are well-positioned to continue this success and deliver on our commitments to customers, communities, and shareholders. With that, I'll pass the call back to Chris. 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 coordinate questions. Please wait for your name to be announced. To withdraw your question, please press star one one again. Please standby while we compile the Q&A roster.

Our first question comes from Shar Pourreza with Guggenheim Partners. Your line is open.

Hey, guys. This is Alex on for Shar. Good morning.

Good morning.

Just on the intent to file the distribution rate case at UES, can you just walk through the strategy there? And also just get a sense of what the customer bill impact could be? And then also just from a procedural standpoint, you know, anything we should be looking out for in terms of important filing dates?

Sure. So the customer billing impacts, we won't know until we file the case. So while we're assessing the revenue deficiency, we don't have specific customer bill impacts by class to share just yet. I mentioned, we are looking to file the case at some point in the second quarter. So whether that's May 1st or June 1st, that's when you can sort of expect the timing of the filing of the case. As we highlight in the slide deck, you can see the current earned ROE for UES, which is slightly less than the allowed ROE, which is driving us towards having to file that case in 2025.

Got it. Okay. That's helpful. Thanks. And just as a follow-up, just as you think about the five-year capital plan, just on that 13% coming from equity, sort of how should we think about the timing and the means of which you issue equity? I know some of which will come from the DRIP and internal fund, but is there any way to size that? Thanks.

Sure. So as I covered, we do have a strong balance sheet. We do have strong credit metrics. The increase in the revolver does provide us with financing flexibility. So as you mentioned, to fund the capital plan, roughly 13% of that is going to come with equity. But we have no immediate plans to do that right now.

Great. Thanks. I'll leave it there. Thank you.