Unitil Corporation Price & Performance (UTL)

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 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 ks 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, Tom Beisner. 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 $47,800,000 or $2.97 per share, which representing an increase of $0.15 per share or 5.3% over 2020. 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 31, we completed our acquisition of Bangor Natural Gas. 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 to our utility peers. Today, we are also reaffirming our guidance for long term earnings growth dividend growth and rate base growth. Will also provide earnings guidance for 2025 later during this call.

Moving on to Slide four, As I just mentioned, on January 31, we completed the acquisition of BangorNet Natural Gas with a purchase price of $70,900,000 plus approximately $300,000 for working capital. The transaction was funded with short term debt we intend to recapitalize Bangor Natural Gas a combination of equity and long term debt to achieve a capital structure similar to our other operating companies. We're excited to serve the Greater Bangor area and look forward to providing our new customers with a high level of service they expect of us. The process of integrating Bangor natural gas into the rest of our operations is well underway. Expect the transaction to be earnings neutral on a fully diluted basis in the near term 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. Were 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 dedication of our employees. Moving now to Slide six, Operationally, we maintained top quartile electric reliability had the fifth lowest service interruption time in the past twenty 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 [indiscernible] program that began in 2011. We've now replaced all cast iron, bare steel and other aging while 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. 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 40,000,000 and in Massachusetts, the costs associated with this project are eligible for accelerated cost recovery. With that, I will now pass it over to Dan who will provide greater detail on our 2024 financial results. Thank you, Tom.

Morning, everyone. I'll begin on Slide eight, As Tom mentioned, announced fiscal year twenty twenty four adjusted net income of $47,800,000 and adjusted earnings per share of $2.97 representing an increase of $2,600,000 in adjusted net income $0.15 per share compared to 2023. [indiscernible] 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, will discuss our electric and gas adjusted gross margin.

I'll begin with our electric operations.

Electric adjusted gross margin for the year was $107,300,000 an increase of $3,200,000 as compared to 2023.

The increase in electric adjusted gross margin reflects higher distribution rates and customer growth.

The company added approximately nine ninety electric customers compared to 2023 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. Moving to gas operations. Gas adjusted gross margin for the year was $166,900,000 an increase of $12,400,000 compared to 2023. [indiscernible] increase in gas adjusted gross margin reflects higher distribution rates and customer growth with the company adding approximately seven thirty 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 10, provide an earnings bridge comparing 2024 results to 2023. As I just mentioned, adjusted gross margin for the year increased by $15,600,000 primarily driven by higher distribution rates Operation and maintenance expenses increased $2,000,000 or 2.6% reflecting higher labor costs partially offset by lower utility operating costs. This increase includes approximately $1,000,000 of transaction costs associated with the Bangor Natural Gas acquisition. Excluding these costs, operating and maintenance expenses increased $1,000,000 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 $8,700,000 reflecting higher depreciation rates approved in recent Maine and Massachusetts rate orders, Higher levels of utility plant and service and higher amortization of rate case and other deferred costs. Taxes other than income taxes increased $1,400,000 reflecting higher local property taxes on higher utility plant and service as well as higher payroll taxes. Interest expense increased $600,000 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 $200,000 largely due to higher retirement benefit costs. And lastly, income taxes reflecting higher pretax earnings. Turning to Slide 11, [indiscernible] 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 the [indiscernible] 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 12, We have updated our projected five year investment plan through 2029 which now totals approximately $980,000,000 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 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 $176,000,000 as we continue to make necessary and strategic system investments. Lastly, I would note that this investment plan does not include Bangor natural gas, is expected to average between $3,000,000 and $5,000,000 annually primarily supporting customer growth. Turning to Slide 13, We had a busy regulatory agenda in 2024 with orders for our electric and gas rate cases for Pittsburgh Gas and Electric in Massachusetts, and Granite State Gas Transmission at FERC.

On 11/25/2024, FERC approved the Granite State Gas settlement [indiscernible] As a reminder, the settlement agreement included an annual revenue increase of $3,000,000 represents a revenue increase of approximately 30%. [indiscernible] settlement also included three limited Section four step filings over the next three years totaling approximately $30,000,000 to recover eligible capital costs. Looking forward, we intend to file a distribution rate case for Unitil Energy Systems our New Hampshire 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 [indiscernible] Moving to Slide 14, 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. And we continue to generate strong cash flow while prudently managing risk. Looking forward, we expect to maintain our FFO to debt ratio between 1719%. In January 2025, we amended our revolving credit facility to increase the borrowing limit from $200,000,000 to $275,000,000 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 15, I'm pleased to announce that our Board of Directors has voted to increase the quarterly dividend by $0.025 per share or $0.1 per share on an annualized basis. The increase brings the annual dividend to $1.8 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 16, 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 dedication of our employees, the constructive relationships we enjoy with our regulators, As we look ahead to 2025, 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.

Our first question comes from Sure. Pareza 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, And also just get a sense of what the customer bill impact could be And then also just from a procedural standpoint, standpoint, anything we should be looking out for in terms of important filing dates?

Sure. So the customer bill impacts, we won't know until we file the [indiscernible] assessing the revenue deficiency, we don't have specific customer bill impacts by Class2Share just yet.

At some point in the second quarter So whether that's May 1 or June 1, That's when you sort of can expect the timing of the filing of the case As we highlight in the slide deck, you can see the current earned ROE [indiscernible] 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 funds, but is there any way to size that?

Sure. So as I covered, we 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, 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. I'm showing no further questions at this time. This concludes today's conference call. Thank you for participating. May now disconnect. [indiscernible]