Good day and thank you for standing by. Welcome to the fourth quarter, 2024. Unitil earnings conference call. (Operator Instructions) 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 Corporations 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 Robert 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 harbour provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risk 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 Security and exchange Commission. Forward-looking statements speak only as of today, and we assume no obligation to update them. The 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. But that it will now turn the call over to Chairman and CEO Tom Meissner.
Thomas Meissner
Great. Thanks, Chris and. good morning, everyone. Thanks for joining us. I'm going to begin on slide 3 where yesterday we announced another strong year of results with adjusted earnings of $47.8 million or $297 per share, representing an increase of $0.15 per share or 5.3% over 2021-2022. We fully earned our authorized returns with a consolidated return on equity of 9.4%, representing constructive regulatory outcomes in our focus on cost management. On January 31, 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 secretive 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 favourably to our utility peers. Today we are also reaffirming our guidance for long term earnings growth, dividend growth, and rate-based growth. We will also provide earnings guidance for 2025 later during this call. Moving on to slide 4, as I just mentioned, on January 31, we completed the acquisition of Bangor Natural Gas with a purchase price of $70.9 million plus approximately $0.3 million for working capital. The transaction was funded with short-term debt, and we intend to recapitalize Banger Natural gas with 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. 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 or service rates are put in place following a base rate case. Turning to slide 5, we pride ourselves on providing exceptional service to our customers. In 2024 was no exception, as 90% of our customers reported being satisfied with the service we provide. We 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 of our employees. Moving now to slide 6, operationally, we maintained top quartile electric reliability and had the 5th 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, and we recently received the Northeast Gas Association's excellence and 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've now replaced all cast iron, bare steel, and other aging infrastructure while also increasing system operating pressures and greatly expanding system capacity. In addition to system 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 2011 or 2017, and pipe replacement efforts are ongoing in Massachusetts. Turning now to slide 7, 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 Dan, who will provide greater detail on the 2024 financial results.
Daniel Hurstak
Thank you, Tom. Good morning, everyone. I'll begin on slide 8. As Tom mentioned, we announced fiscal year 2024 adjusted net income 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. Turn to slide 9, I will discuss our electric and gas adjusted gross margins. 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, 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 $166.9 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 the decoupling supported gas adjusted gross margin by approximately $0.28 per share in 2024. Moving to slide 10, we 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 labour 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 and 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 and 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 expenses increased by $0.2 million largely due to higher retirement benefit costs. And lastly, income taxes increased $0.8 million reflecting higher pre-tax earnings. Turning to slide 11. 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 earning 7.1%, slightly above the upper end of our long-term guidance. Moving to slide 12. We have updated our projected 5 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-based within our long term guidance range of 6.5% to 8.5%. We expect electric rate-based growth will outpace gas rate-based 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 this 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 13, 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 Grand state gas transmission at FARC. On November 25, 2024, FARC approved the grand estate gas settlement as filed. As a reminder, the settlement agreement included an annual revenue increase of $3 million which represents a revenue increase of approximately 30%. The settlement also included three limited Section 4 step filings over the next 3 years, totalling 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 New Hampshire Electric subsidiary in the 2nd 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 2nd 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 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 rape case activity gets underway. Moving to slide 14, we have updated our long term financing plan where we continue to expect the majority of funding, approximately 2/3, 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 and 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 15. I'm pleased to announce that our board of directors has voted to increase the quarterly dividend by $2.5 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.
Thomas Meissner
Thanks, Dan. 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 of our employees in 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.
Question and Answer Session
Operator
(Operator Instructions) Our first question comes from Shar Pourreza with Guggenheim Partners. Your line is open.
Hey guys, this is Shar Pourreza.
Thomas Meissner
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 pro a procedural standpoint, anything we should be looking out for in terms of important filing dates.
Daniel Hurstak
Sure, so the customer bill and impacts we won't know until we file the case. So while we're assessing the revenue deficiency, we don't have a specific customer bill and impacts by class to share just yet. As I mentioned, we are looking to file the case at some point in the 2nd 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 back, 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 thought of as a follow up just as you think about the 5 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? Thanks.
Daniel Hurstak
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% is going to come with equity, but we have no immediate plans to do that right now.
Great, thanks. I'll leave it there.
Operator
Thank you. (Operator Instructions) This concludes today's conference call. Thank you for participating. You may now disconnect.
