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Just Energy Group’s (JE) CEO Deborah Merril on Q3 2014 Results – Earnings Call Transcript

Just Energy Group Inc. (NYSE: JE ) Q3 2014 Earnings Conference Call February 12, 2015 2:00 PM ET Executives Deborah Merril – President and Co-Chief Executive Officer Patrick McCullough – Chief Financial Officer James Lewis – President and Co-Chief Executive Officer Rebecca MacDonald – Executive Chairman of the Board Analysts Nelson Ng – RBC Capital Markets, LLC Trevor Johnson – National Bank Damir Gunja – TD Securities Operator Good afternoon, ladies and gentlemen. Welcome to the Just Energy Group, Inc. Conference Call to discuss the Third Quarter 2015 Results for the period ended December 31, 2014. At the end of today’s presentation there will be a formal Q&A session. [Operator Instructions] I would now like to turn the meeting over to Ms. Deb Merril. Deb, go ahead. Deborah Merril Thank you very much. Hi, my name is Deb Merril. I’m the Co-CEO of Just Energy. And I would like to welcome you all to our fiscal 2015 third quarter conference call. I have with me this afternoon Executive Chair, Rebecca MacDonald; my Co-CEO, James Lewis; as well as Pat McCullough, our CFO. Pat and I will discuss the results of the quarter and our expectations for the future. We will then open the call to questions. Before we get going, let me preface the call by telling you that our earnings release and potentially our answers to your questions will contain forward-looking financial information. This information may eventually prove to be inaccurate, so please read the disclaimer regarding such information at the bottom of our press release. Our third quarter showed continued progress in delivering our plan to become the premier world-class retailer of energy management solutions. In order to achieve that vision, significant balance sheet improvement was necessary. Less than a year ago, the company was burdened with more than a $1 billion in debt. We looked at our non-strategic assets and determined that divestiture will provide us the necessary financial flexibility to grow our core business and de-lever the balance sheet. We successfully disposed those businesses and utilized a large portion of the proceeds to bring our debt to $659 million. This is down 34% from a year earlier. We now have a forward pro forma net debt to EBITDA ratio of less than four times and we remain committed to further debt reductions and a lower ratio moving forward. Bringing new value propositions to the market is paramount to our strategy. This quarter, we entered into a comprehensive agreement to address the North American residential solar market. This entry into high growth, high profit solar space requires no CapEx and through our partnership with Clean Power Finance leverages an existing solar fulfillment network across the continent. We are focused on tapping into Just Energy’s unparalleled captive customer base and to leverage our sales and marketing channels. We believe successful execution of our solar strategy will make Just Energy the origination partner of choice in the solar industry. This quarter we will begin test marketing in California and New York. We believe solar has the potential to become a major contributor to the profitability of Just Energy in the near term and is a prime example of the direction Just Energy is taking to become the premier world-class retailer energy management solutions. You can expect us to begin providing further updates on our solar initiative on future calls as our pilot program begins producing tangible results. Overall, we are very pleased with the progress seen in fiscal 2015. We are nine months into our fiscal year and tracking to the high end of the EBITDA guidance that we provided. We believe this progress in performance will provide us with the platform for future growth, specifically double-digit percentage based EBITDA growth in fiscal 2016. Let me now provide some detail on the third quarter results. The quarter continued the trend of very strong customer aggregation. Q3 saw 354,000 additions, 6% more than fiscal 2014, and the third highest total in company history. To-date we have signed 1.1 million customers, 13% ahead of the record pay seen in fiscal 2014. Even more importantly, net customer additions for the quarter were 58,000 up 53% from last year. Year-to-date, net additions are 252,000 up 83% from a year earlier and more than the total added for all of fiscal 2014. Over the past 12 months, our total customer base increased 7% to 4.7 million RCEs. The combined attrition rate for Just Energy was 16% for the trailing 12 months ended December 31, 2014, up 1% from attrition reported in the previous quarter. Consumer attrition at 27% was flat, while commercial attrition at 7% was up 1%. Renewal rates were consistent with those reported in the second quarter. Consumer renewals remain unchanged at 75% and commercial renewals were down 1% to 63% on a trailing 12-month basis. This indicates continued satisfaction with the company’s products and services. Commercial renewals are often subject to competitive bid and will inevitably be more volatile than consumer renewals. Overall, management sees stability and renewals around current levels. Turning now to profitability, the quarter saw lower base EBITDA and cash flow compared to a very strong third quarter and fiscal 2014. This was anticipated in our guidance to the market. Base EBITDA was $50.6 million, down from $62.1 million a year ago. The quarter Base EBITDA was on plan despite $4.5 million in non-recurring legal cost. Year-to-date EBITDA is up 1% with a promising Q4 ahead. We believe our results for the year will be at the upper end of our guidance range of $163 million to $173 million. Let me turn things over to Pat McCullough to talk about the details of the quarter and then I will finish with the discussion of the trends we see in the market for future periods. Patrick McCullough Thank you, Deb. Before diving into the details of a very strong quarter, let me clarify one bit of accounting that I believe could be confusing to many. We reported an IFRS loss of $371 million on continuing operations in the quarter. This loss is entirely due to mark-to-market on our future supply purchases. Future gas and electricity prices declined in the quarter reducing the theoretical value of our positions. I say theoretical, because these positions have all been sold to customers at fixed contract prices. So mark-to-market has no impact on the real value of the position. Over time, we’ve seen wild swings in mark-to-market accounting measures both to the positive and negative. However, these swings have no cash consideration or materiality on our results whatsoever. Let me detail some of the progress towards our financial goals that we’ve seen in the third quarter. Our sales were up 13% reflecting our 7% increase in customers and higher selling prices. Year-to-date sales were up 12%. Our gross margin was up 1% versus fiscal 2014. As Deb noted, we had a very strong comparable quarter with positive reconciliations with the utilities as compared to negative reconciliations this quarter. Year-to-date margins are up 10% in line with our customer growth. This profitability was partly driven by higher new customer margins. We’re able to do this because of our innovative new products that achieved value not only for the customer, but also provide better margins for Just Energy. New commercial customers were signed at $85 annual margin, up from $80 last quarter and $68 a year ago. The higher commercial margin is a conscious decision by management to reduce low margin commercial business and focus on more profitable customer segments. We’ve also benefited from the market exit of a number of smaller low price competitors who are unable to weather the volatility of last winter’s polar vortex. New residential customers were at $191 annually, up from a $160 a year ago. Improved margin per customer has been a focus of management. Higher margin on residential customers is a particularly positive trend as these customers are largely locked into five year contract terms. Our base EBITDA was down compared to a strong third quarter a year ago. Year-to-date EBITDA is up 1%. This was anticipated when we said our guidance for the year and we’re happy to be tracking to the high end of our range despite overcoming $8.5 million in unforeseen legal provisions year-to-date. Administrative cost for the impact of these one-time expenses, they were up 41% year-over-year in the quarter and 27% year-to-date. We have anticipated double-digit growth to fund expansion, previously mentioned non-recurring charges of $8.5 million in legal costs contributed to the year-over-year variance. Selling and marketing expense increased by 17% year-over-year in the quarter compared to the 6% increase in customer additions. Selling cost included amortization of past advances to commercial agents and residual payments to our internet channel. These costs are not associated with customers added during the period. That debt was at the low end of our target range at 2.2% of relevant revenue, an improvement from 2.3%. Our third quarter funds from operations were $21.2 million, down from $37.4 million in fiscal 2014, consistent with our change in EBITDA. Year-to-date funds from operations were $60.5 million down from $71.3 million with our most profitable quarter coming up next. Overall, the third quarter was in line with our expectations and consistent with our guidance. Let me turn it back to Deb to talk about trends for the future. Deborah Merril Thank you, Pat. Through prudent fiscal management as well as a clear strategy for the future, we are in a very solid financial position after nine months of fiscal 2015. Our core business is healthy and growing. We’re generating record numbers of new customers and customer margins continue to improve. We have a leading market position in all our geographic territories. Our experience in marketing expertise allows us to stay in step with the evolving needs of our target customer. As customer awareness and demands change, we are uniquely positioned to rapidly meet the growing need for energy solutions. We will leverage our access to the best technologies and innovative products in the marketplace today to continue to provide value to our growing customer base. We’ve reduced our debt and we’ll continue to improve our balance sheet. We are comfortable with our dividend and anticipate no changes to our policy going forward. Management is committed to delivering our strategy of both building our core business and bring new exciting products to customers. This will allow Just Energy to deliver double-digit growth in fiscal 2016, and ensure the continued success of the company. On behalf of Rebecca, James, Pat and I, we want to thank our employees for their efforts in delivering shareholder value and their commitment to our customers. We’ll now open it up for questions. Question-and-Answer Session Operator Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Nelson Ng. Nelson, your line is open. Nelson Ng Great, thanks. Congratulations on a strong quarter. Deborah Merril Thank you, Nelson. Patrick McCullough Thank you, Nelson. Nelson Ng First question relates to the Massachusetts settlement in terms of $4.5 million settlement. Has that led to any changes in terms of how you source customers in that stake going forward? James Lewis Nelson, it’s James here. What it allows us to do is continue to focus on bringing value-added product to customers. We wanted to get it behind us, because we believe that Massachusetts and the customer that we have value products and services that we want to deliver from solar and other fixed price products. So it was our decision just to move forward and allow management to focus on bringing value to those customers. Nelson Ng I see, okay. And then the next question is probably for Patrick, but in terms of the debt reduction, I guess, now that you’ve repaid the credit facility, what’s your next focus? And will you be more active in your NCIB regarding the convertible debt? Patrick McCullough Yes, thanks for that question, Nelson. As everyone recognize this, we have a strategy here to improve our financial statements to create a healthy and a strong position to take this business forward. The first move that we’re working on right now is renewing our credit facility, which is going well and we expect to have finalized and closed in the short-term. At that point, we’ll essentially take the cash proceeds that we received from our non-core asset divestitures and be able to utilize those to address things like the long-term debt in the NCIBs that you are referring to. Nelson Ng Okay, thanks. And then just one last question, I want to touch on cash taxes, so they were higher this quarter, I was just wondering whether the – any Just sale contributed to higher taxes, or are you generally expecting higher taxes going forward? Patrick McCullough Yes, let’s talk about the overall tax picture first. As we go forward, we will become a cash tax payer, that will not be happening in the short-term, that will be happening in a year to two-year time period. As you’re aware, we’re doing business in the United States, Canada, and the UK, so we are working to create a tax efficient solution for those jurisdictions. But we will become a moderate cash tax payer, you will see that incorporated as we provide future guidance. As it relates to NHS, I don’t believe, there was a cash tax ramification associated with that, but I will confirm that and get back to you Nelson. Nelson Ng Okay, thank. Those are my questions for now. Deborah Merril Thank you. Operator Our next question comes – oops, my apologies. Patrick McCullough Sorry, this is Pat. Just a follow-up, Nelson. The cash tax reported this period was sales tax. It was not associated with, sorry, state tax, not associated with NHS transaction. Operator Okay. Our next question comes from Damir Gunja. Damir, your line is open. Damir Gunja Thank you. Good afternoon. Just wondering if you can give us a little bit more color elaboration on the double-digit growth expectation for 2016? I guess the – how much of that could be coming from customer growth, or margin expansion, or possibly even a solar contribution? Deborah Merril Yes, I think, it will come from all of those things. It’s – we’ve worked very hard this year to continue to add customers, last year we had a light – relatively light customer net additions, between the net additions this year, as well as the increase in margin that we’re seeing. As we look at 2016, we believe that we’ll be in a place where we can restore that double-digit growth – percentage growth in base EBITDA. So it’s kind of a combination of a lot of things. It’s not only the increase in the customer base, but also the increase in the margins for customers we’re seeing, and we fully expect solar to contribute something in fiscal 2016 as well. So that we’re still in the very early stages of test filing that and really defining our strategy and when we think that money will start really affecting our bottom line. But we’re confident that it will at least have an impact in fiscal 2016 as well. So it’s a combination of lot of things. Damir Gunja Okay. I guess on currency, can you just help us understand, I guess, the impact of the rising dollar. Is that a tailwind to the numbers, or it was on a net basis has that been hedged away, or is that something that is going to help? Patrick McCullough Yes. I think there is a little bit to say here. We do hedge transactional currency risk. So as we think about bringing U.S. dollars to Canada to pay dividends and interest payments, we will take a transactional hedge on those amounts anywhere from 12 months to 18 months period of time. We do not hedge for the translation risk or opportunity. And with the U.S. dollar strengthening, we are seeing an improvement to EBITDA. It’s probably a little bit less than you might be thinking, because our fixed cost is largely distributed with our gross margin. So we have a pretty significant U.S. selling G&A costs. So when we see a 10 percentage point improvement in the U.S. dollar versus the Canadian dollar that equates to about $2 million of EBITDA a quarter, so CAD8 million on a full-year basis. Damir Gunja That’s helpful. Thank you. That’s it for me. I’ll get back in the queue. Thank you. Operator [Operator Instructions] And we have a question from Trevor Johnson. Trevor, your line is open. Trevor Johnson Good afternoon, folks. Patrick McCullough Hi, Trevor. Trevor Johnson I know it’s early stage you are going to give us more color going forward. But can you just give us, maybe a basic sense of what the cash flow profile for a residential solar customer may look like? If you can even give dollar amounts, just curious about the timing and maybe the payback that you’ll be looking at on that venture? Patrick McCullough Sure. The origination income part of the deal that we’ve struck with Clean Power Finance is very beneficial to our financial statements, both from a profit and a cash perspective. We are piloting this to understand that ultimate margin question that I think we all have and we’ll know more in a matter of months. But right now, I can tell you how payments will happen. When we close a customer and contract them, so when we get a customer to sign – to a PPA, or lease, or a loan product in a solar residential structure nomenclature, we will then provide that contract pre-permit to Clean Power Finance. They have a contractual obligation to pay us on an average 30-day period from the point of receiving that contract. So we will be paid ahead of the installation of the panels in most cases. So while we’ll be funding OpEx associated with the direct sale of that origination, we’ll be paid quickly behind the incurrence of that cost, and the profit will be reported at the point. So we’ll be taking origination income, which will be the delta between the revenue we’ve negotiated with Clean Power Finance and our direct sales cost to that point. Trevor Johnson [indiscernible] Okay. Now, that’s helpful. Thank you. And then just lastly, I know for fiscal Q4 last year, there was a little bit of noise in the weather, just wondering if you can just talk about maybe the delta and the relative impact that might be year-over-year when you look at this Q4? James Lewis Yes. I think, as we’ve spoken before about $15 million impact last Q4, we can’t predict what the weather is going to look like, but we feel comfortable with the guidance we gave right now. Trevor Johnson Great. Thanks, guys. I appreciate it. Deborah Merril You’re welcome. Operator All right. And we have Damir with a follow-up question. Go ahead, Damir. Damir Gunja Thanks. Just on the new contracts that are coming in, I just wanted to confirm what even roughly what the average life of those deals is on the residential and the commercial side? Is the residential still largely four, five-year… James Lewis You’re correct. What we are seeing on the residential side is that four and five-year mixed debt, and then on the commercial side we have seen the length grow up a little bit between 2.5 years and 3 years. Damir Gunja 2.5 years to 3 years. I know it’s probably early and you’ve actually had some pretty decent customer additions, but is the lower commodity environment are we seeing any push back in terms of trying to from a sales point perspective? James Lewis No, what we’ve seen is good feedback – good response from our customers, and when we get some volatility like we saw in November, a little bit on the gas side, you do get some customers looking up the lock in, even at the low prices on the longer-term. So as we mentioned before, we like volatility, just not extreme volatility. Deborah Merril And Damir, I kind of add to that I think, one of the things you see from us today is that, we have a wide range of products that aren’t necessarily a great product. For instance, and we have our Just Energy Conservation Program that’s a flat bill for $90 a month plus smart thermostat that you get all your gas and power needs from us. So we’re seeing that and one of the big focuses of this team and of our company and all of our employees is to make sure, we’re kind of change in the conversation a little bit around product, so that we’re delivering products that have maybe a different kind of value that volatility is less of an issue around those things. Damir Gunja Okay. So that… Rebecca MacDonald Damir, I would just like to add something, it’s Rebecca. Damir Gunja Yes. Rebecca MacDonald Just the fact, I just want to tell you, I’m still in the room. Anyway over the last nine months, management has been talking about the transition and I think you as analysts have been having the same discussion. The top profile of entire customer base is changing with more addition of a commercial book to the resi book. But what I think is important to note and Pat touched upon it in his remarks is not only as James said that the life of that commercial customer is up. But that margin on that commercial customer is up, and that is the key. We said in the last nine months that we want to take the pain with the attrition of that book to move away the small margin customers that correct in our book over the last three years and clean it up with a higher margin customers. And we’re very pleased that we have been able to deliver effectively on it. Damir Gunja Great. And just the final one for me, I guess outside of solar, can you maybe talk about other bundling initiatives you may be pursuing or other offerings you may be able to add to the mix just leading some of the industry news there seems to be a cost and trend of people partnering up with various entities and offering more product? Deborah Merril Yes, Damir, one I already spoke out is, we’re very happy with results of our bundled smart thermostat with commodity. So far, we continue to expand that product across markets. And one of the things I think we’re really careful at is, the last thing I want to do is just start throwing the things at the wall to see what’s going to stick, the next thing, you are buying washer and dryer from us, so it’s something that probably doesn’t make a lot of sense. So what we’re doing is, we’ve got a great team of people that – with product focus that are constantly out there looking for things that make sense with energy commodity and things that really help to make it easier for our customer to control not only their costs, but also their usage. So I think, you’ll continue to see us, I think that kind of in a prudent way, the last thing I want to do is, like I said, just start point [indiscernible] because that takes time and effort of management and our employees. So far we’ve got a couple of things in the work, but solar is obviously the biggest one that we’ve recently announced, but we’ll keep looking at opportunities to add to that portfolio. Damir Gunja Okay. Thanks very much. Operator [Operator Instructions] All right. And I see we have no further questions at this time. Deborah Merril Great. Well, on behalf of myself, Jay, Pat and Rebecca, really appreciate everybody taking the time to join our call. And if there are any further questions, please feel free to contact any of us directly. Have a good day. Operator Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) 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Tiger Woods And Investment Gurus Lose Their ‘Touch’, Question: Do They Ever Get It Back?

Summary What do golf and investing have in common? The great performers have their ups and downs. These ups and downs of golfer Woods are compared with those of two investment gurus. Elliott R. Morss ©All Rights Reserved February 2015 Introduction Watching Tiger Woods get an 82, the worst score of his career at the Waste Management Phoenix Open on January 30th, I was reminded of other “greats” who have lost their touch. In particular, I thought of some of the great investors, like Graham, Lynch, Zweig, Greenblatt, O’Shaughnessy, and Buffet. 1 The investment performance of these gurus was truly remarkable, but like Tiger, they also have had their ups and downs. In what follows, I look at their records, Tiger’s records, along with what John Reese of Validea has been able to do using a computer model simulation of certain investment gurus’ strategies to pick stocks. Tiger Woods Woods has won 83 professional tournaments. He holds the record for most consecutive weeks at No. 1 (281), and the most total number of weeks (683). Since 1997, he has spent over twelve years atop the Official World Golf Ranking, and has been the number one player for all 52 weeks a record eight times. Few would argue that in his prime, Tiger was the most dominating and best player that ever lived. But since 2009, due to a series of physical ailments and personal problems, he has won only 10 tournaments and none of the Majors. Table 1 gives Tiger’s professional tournament wins by years. Table 1. – Tiger’s Wins Tiger is now 39 years old. Jack Nicklaus has won 3 more majors with his last win at 46. The usual question is whether Woods will be able to catch up to Nicklaus. It is striking how Tiger’s performance has fallen off… Peter Lynch I am a true believer in the random walk theory of stock prices , i.e., most information about individual stocks is reflected in their prices almost immediately. That suggests that unless you have information others do not have, picking stocks is a pretty random business. And this makes what Peter Lynch did at the helm of Fidelity’s Magellan Fund (MUTF: FMAGX ) even more impressive. As Table 2 indicates, Lynch did much better than the S&P 500 (^GSPC) in all but 2 years. Table 2. – Magellan Fund Performance The “Spread” (difference between (^GSPC) and the S&P 500 is indeed impressive. It means that on average if the S&P 500 gained 5%, Magellan gained 22.5%! And note that even in the two years the S&P 500 outperformed Lynch, the spread was very small. John Reese – The “5 Gurus” Reese has a degree in computer science from the Massachusetts Institute of Technology. He became intrigued with investment gurus and developed a computer program to simulate the stock picks of selected gurus. And since 2003, he has recorded the picks of the ” Top Five Gurus ” in a 10-stock portfolio that contains the top 2 ranked stocks from each of these guru investors. The top 5 gurus are selected based on their historical risk-adjusted performance. While the 5 guru’s performance (Table 3) is not as impressive as Lynch’s, it is nevertheless quite amazing. It means that on average if the S&P gained 5%, the 5 Guru Portfolio gained 17.9%! Table 3. – Performance of Reese’s “Top Five Gurus” Comparing Woods with the Investors Is there any reason to expect a comparison of Woods playing golf and gurus picking stocks as meaningful? I think so. Both activities are intensely mental. And in both activities, there is a danger of overthinking and becoming more “technical”. Because the length and time of the three differ, Table 4 breaks them down by period quartiles (earliest years to most recent years). And one commonality is quite apparent – the performance of all declined from their earliest years. And while it is true that getting older leads to reductions in physical performance, Woods is not old enough to justify such a decline. Table 4. – Comparing Investors with Golfer Woods On overthinking and getting more technical, Reese’s system should not be affected since his stocks are picked by a computer model. And in comparison to Lynch, the decline in Reese’s 5 Guru Model is not as significant as Lynch’s. The Future Of course, the Lynch career is over. But how about Woods and Reese? Woods is showing all the signs of overthinking and trying to get his “touch” back in technical fixes. Reese? Hard to say. So far in 2015, his “5 Guru” portfolio is down 2.7%, while the S&P is down 2.0%. Reese has just launched an ETF – the Validea Market Legends ETF (NASDAQ: VALX ). It gives investors an opportunity to invest in accordance to Reese’s modeling of gurus. While the “5 Guru” model takes the leading 2 stocks from the leading gurus, VALX takes 10 of these guru strategies and combines them together in a 100-stock portfolio. So far this year, VALX is down 2.2%. Because of Reese’s past performance, VALX and the “5 Gurus” bear watching… 1 For more on these investment gurus, see John Reese and Jack Forehand’s book, The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies . Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Unitil’s (UTL) CEO Bob Schoenberger on Q4 2014 Results – Earnings Call Transcript

Unitil Corporation (NYSE: UTL ) Q4 2014 Earnings Conference Call January 28, 2015 14:00 ET Executives David Chong – Director, Finance and Assistance Treasurer Bob Schoenberger – Chairman, President and Chief Executive Officer Mark Collin – Senior Vice President, Chief Financial Officer and Treasurer Tom Meissner – Senior Vice President and Chief Operating Officer Larry Brock – Chief Accounting Officer and Controller Analysts Shelby Tucker – RBC Capital Markets Dave Parker – Robert W. Baird & Company Operator Good day, ladies and gentlemen and welcome to the Fourth Quarter 2014 Unitil Earnings Conference Call. My name is Tony and I will be your moderator for today. At this time, all participants are in 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 Mr. David Chong, Director of Finance. Please proceed. David Chong Good afternoon and thank you for joining us to discuss Unitil Corporation’s fourth 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; Tom Meissner, Senior Vice President and Chief Operating Officer; and Larry Brock, Chief Accounting Officer and Controller. We will discuss financial and other information about our fourth 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 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 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 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, 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. Bob Schoenberger Thanks, David. I would also like to thank everyone for joining us today. I will give a summary of our year end financial performance. If you turn to Slide 4 of our presentation, today we announced 2014 net income of $24.7 million or $1.79 per share, an increase of $3.1 million or $0.22 per share compared to 2013. This 14% increase in earnings in 2014 over prior year was driven by higher natural gas and electric sales margins partially offset by higher net operating expenses. Turning to Slide 5, the graph shows that our financial results have increased sharply over the past few years. The continued growth of our natural gas business along with recently completed gas and electric rate cases helped the company to achieve strong financial results in 2014. As we look forward to 2015, the continued expansion of our natural gas utility business and investments in the company’s gas and electric distribution infrastructure will provide a strong foundation for sustained future growth. On Slide 6, we are benefiting from improved economic activity underlying our service areas. Currently, average unemployment is just above 5% in the three states served by Unitil and signs of an improving economy are everywhere. We estimate that there is approximately $0.5 billion of new commercial construction underway in two of the largest cities we serve, Portland, Maine and Portsmouth, New Hampshire. We are benefiting from this economic growth and our focus on converting more and more of our customers to natural gas. Since 2010, our weather normalized gas unit sales have grown annually at 4.7%. And in 2014, our gas customer count grew 2.6%. Slide 7 highlights our historic annual return on equity. Strong customer growth paired with successful base rate cases continues to drive the company’s return on equity. In 2014, we earned a 9.2% return on equity, which is in line with the ROEs allowed by our regulators. As Mark will discuss later, 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, on Slide 8, as you may have already seen, we recently announced an increase to our quarterly dividend from $0.345 to $0.35 a share. This equates to an annual increase in the dividend of $0.02 per share. We recognized the importance of the dividend to our shareholders. This increase reflects the confidence we have in our business. Going forward, we will continue to assess our dividend level to provide this continuing source of value to our shareholders. So, I will turn the call over to Tom Meissner, our Chief Operating Officer, to discuss details of our capital budget for 2015 and other operational highlights. Tom Meissner Thanks, Bob and good afternoon. As Bob mentioned, we have seen significant growth in our gas distribution business both in terms of the number of customers served in sales growth as well as the increased level of investment we are making to modernize and expand the reach of our system. Over the next few slides, I will go through our 2015 capital budget highlighting our growth spending, infrastructure replacement programs and our electric substation construction plans. If you turn to Slide 9, we have provided a more detailed look at our 2015 capital budget and our historical growth in rate base. We plan to spend about $58 million on gas projects, $31 million on electric projects, and $9 million on business systems and supporting technology for a total of $98 million of spending in 2015. Spending on new customer additions will be a significant component of this budget. In 2015, we plan to spend about $35 million or 36% of our total capital budget on expansion of our gas and electric distribution systems to achieve new customer growth. Of this, $21 million will be spent on expansion of our natural gas delivery system targeting new customers and increased sales, while on the electric side we plan to spend about $14 million on growth in expansion. Our capital spending plan continues to drive growth in our gas and electric rate base, which has resulted in annual growth rates of 10% and 3% respectively since 2009. We expect our gas rate base to continue to grow on the order of 10% in the future given our system expansion initiatives and infrastructure replacement programs. Now, turning to Slide 10, this slide highlights our infrastructure replacement programs, which consists primarily of cast iron and bare steel placement. We plan to spend about $22 million on infrastructure replacement programs in 2015 and we will be replacing about 14 miles of cast iron and bare steel gas mains annually through 2017. After 2017, our New Hampshire pipe replacement program will be finished and we expect to level out at about 9 miles per year thereafter. As a result of our infrastructure replacement programs, our customers currently enjoy a modern system with over 90% of our gas mains consisting of plastic or protected steel. Lastly, as a reminder, the majority of our infrastructure replacement projects are recovered under a capital cost recovery tracking mechanism, which provides for annual recovery of capital spending. Slide 11 provides an overview of our current electric distribution substation projects in New Hampshire. Construction began in 2014 on two new substations that will be completed over the next three years. These electric substations will be completed at an estimated cost of $12 million and $11 million respectively and will provide the capacity needed for continued load growth on our New Hampshire systems while addressing constraints at existing substations and improving reliability. Now, I will turn the call over to Mark Collin who will discus our financial results for the quarter and year end. Mark Collin Thanks, Tom. Good afternoon. As Bob stated earlier, net income increased by $3.1 million or 14% to $24.7 million for this past year ended December 31, 2014. Results were positively affected by higher natural gas and electric sales margins partially offset by higher net operating expenses. For the quarter, net income was $9.4 million or $0.69 per share compared to net income of $10.3 million or $0.75 per share for the same period in 2013. Earnings in the fourth quarter reflect warmer weather than the fourth quarter of the prior year as well as lower gas margins due to an increase in the amount of margin recovered through fixed charges, which results in less seasonality in our gas margins. That is more of our gas margin is now recovered during the non-heating period of the year. Turning to Slide 12, natural gas sales margins were $97.4 million in 2014, an increase of $12.2 million or 14.3% compared to 2013. Natural gas sales margin in 2014 were positively affected by higher therm unit sales, a growing customer base and recently approved distribution rates. Therm sales of natural gas were up 7.7% in 2014 driven by colder winter weather in the first quarter of 2014 and new customer additions in 2014 compared to 2013. There were 5.9% more heating degree days in 2014 compared to the prior year, which we estimate positively impacted earnings by about $0.06 per share. Excluding the effect of weather on sales, weather normalized gas therm sales in 2014 are estimated to be up a very healthy 5.2% compared to the prior year. Slide 13 highlights our electric business sales and margin. Electric sales margins were $80.8 million in 2014, an increase of $4.6 million or 6% compared to 2013. These increases reflect recently approved electric distribution rates and higher electric kilowatt hour sales and billing demands. Total electric kilowatt hour sales increased 0.6% in 2014 compared to the prior year. Commercial and industrial customer kilowatt hour sales were up 1.4% and billing demands were also up slightly for this customer group year-over-year. Turning to Slide 14, operation and maintenance expenses increased $4.4 million in 2014 compared to 2013. The change in O&M expenses reflects higher compensation and benefit cost of $2.8 million and higher utility operating cost of $1.6 million. The increase in utility operating costs included $0.7 million in higher electric and natural gas maintenance cost, $0.6 million in higher bad debt expense, and higher all other utility operating costs net of $0.3 million. Depreciation and amortization expense increased $3.6 million in 2014 compared to the prior year reflecting higher depreciation of $2.2 million on higher utility plant assets in service, higher amortization of major storm restoration costs of $1.3 million, and an increase in all other amortization of $0.1 million. The increase to major storm restoration cost amortization is currently recovered in electric rates. Taxes other than income taxes increased $2.2 million in 2014 compared to 2013 primarily reflecting higher local property taxes on higher levels of utility plant in service. Net interest expense increased $2.1 million in 2014 compared to the prior year reflecting lower interest income on regulatory assets and higher interest on long-term debt related to the issuance of $50 million of new long-term debt in October 2014. We also announced in December 2014 that Standard & Poor’s assigned a BBB+ issuer rating to Unitil Corporation and its utility subsidiaries. Now, turning to Slide 15, we have provided an update on 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 Corporation on a consolidated basis earned a total return on equity of 9.2% in 2014. Also as we discussed in the past and as shown on the table on the right, we have constructive regulatory rate plans and 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. 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. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Shelby Tucker of RBC Capital Markets. Please proceed. Shelby Tucker Good afternoon guys. I have a question on the dividend and first of all, congratulations on increasing the dividend. Bob, could you maybe go through your policy on the dividend or how you are thinking about the dividend as you continue to grow your gas business? Bob Schoenberger Yes, first, how you are doing, Shelby? Shelby Tucker Good, thank you. Bob Schoenberger Yes, I mean, over the last couple of years, we have been telling our shareholders that as we began to realize the earnings power of the assets that we operate that it was our intent to return to a dividend policy where we would target a payout ratio of 70% to 75%. And once we have achieved that, it was our intent and desire to begin to implement a dividend policy with regular annual dividend increases. So, this $0.02 increase is really kind of a signal that we have full confidence in our business plan. And as we achieve that payout ratio over the next couple of years, our intent is to again begin to implement regular annual dividend increases and the Board will consider that each year based on our forecast. Shelby Tucker So, one of the things about this 2014 was you had the benefit of the first quarter weather. If that does not repeat in fact if weather does not go in your favor in ‘15, does that change how you look at the dividend or are you looking at a consistent level year-in, year-out irrespective of weather? Bob Schoenberger Yes. Again, I think we feel very good about 2015 again the year from a weather point of view, January has been cold. As you may have seen the forecast for the end of January and the beginning of February is very cold that may not rise to the level of last year, but we expect that, that’s going to have a positive impact. We will be bringing on a number of large customers that we connected to our system late last year, which we will begin to see the revenues from that. So, again, we feel good about 2015 and obviously, the Board will consider on a going forward basis how the company is doing compared to its forecast, but again our goal is to get back to a policy of regular dividend increases. And again, I think we can grow our EPS 6% to 8% a year for the next 3 to 5 years and the policy on our dividends will reflect that. Shelby Tucker Great. And then on the – just an update on the storm we just went through, anything should be aware of on your system? Bob Schoenberger Yes, lots of snow up to 3 feet at my house, but zero outages. We had no outages anywhere in our system. So, we came to the storm with flying colors and again, largely because it was light fluffy snow, but we did have good wins that were forecasted, but again, I think part of what we are seeing is not only the fact that the snow was light and fluffy, but also I think we are beginning to see the benefit of the enhanced tree trimming program that we have been implementing over the last 3 or 4 years. Shelby Tucker Great. Congratulations guys. Bob Schoenberger Thank you. Mark Collin Thank you, Shelby. Operator Your next question comes from the line of Dave Parker of Robert W. Baird & Company. Please proceed. Dave Parker Good afternoon. I will echo Shelby’s comments. Congratulations on a good year, good couple of years. Bob Schoenberger Thank you, Dave. Mark Collin Thanks, Dave. Dave Parker A couple of questions just on the presentation, thanks for dialing up for us what the continued opportunity is here to grow earnings. If we look past ‘15, I hate to put words in your mouth, but with the pipe replacement program and some of the upgrades you have got going on the electric system that this kind of CapEx rate of close to $100 million is probably sustainable for the next couple of years? Is that a fair observation or fair assessment? Bob Schoenberger Yes. I think obviously you are right about the amount of spending in 2015. In that amount, there is probably $15 million, $20 million of one-time items to two electric substations Tom referred to before and the change out of our customer information system. So, on a going forward basis beyond 2015, I’d say probably our core and correct me if I am wrong, Mark – our core capital spend is probably going to be more on the order of $80 million, $85 million little higher. Tom Meissner Yes, I am not sure it’s going to drop significantly over the next couple of years until we get through 2017. Bob Schoenberger So, same level of spending over the next couple of years. Dave Parker Okay, alright. Alright, good. And then I assume if economic activity continues to expand obviously post ‘17, I know it’s kind of up for grabs, but if your crystal ball is better than mine, then please if you can share with me? But it sounds good enough for me. Another with weather being pretty favorable and obviously you had some benefit for earned ROEs and your trend kind of being for what you earned last year on a combined basis close to the bottom end of the authorized range, do we expect a downdraft do you think in ‘15 from an earned ROE basis or now that you have got rate relief, is it actually – may we see better earned ROEs in the future? Mark Collin Yes, I think there is a couple of aspects to that. One is as we talked about before, the Fitchburg rate cases were completed on the electric side was completed for rates effective June 1, 2014. So, we only got a partial year of that rate case. And that was an important one for us to get the Fitchburg operating subsidiary back up to a more reasonable rate of return. So, we will get a full year of that in ‘15. We will also have some additional cost trackers as part of our rate plans in northern utilities. And we also have a scheduled filing for our Granite pipeline. So, I think when you bring all that together, our goal is to continue to achieve at or about what our authorized rate of return is. And I think we are in that range. I don’t think you are going to see any deterioration of that in the near-term. I think if anything we will be trying to improve upon that. Dave Parker Alright, great. Thanks. Good answer. And on a Granite State, absent that rate filing, any other anticipated regulatory filings in the next couple of years? Mark Collin Well, in addition as I said, we do have the trackers, particularly on the infrastructure replacement. In northern utilities, there is a new tracker that we filed for our gas division in Massachusetts under new legislation there for infrastructure replacement that we expect to be a rate filing that will have regular increases for infrastructure replacement in Massachusetts. And then our rate plan for the electric division in New Hampshire is essentially coming to an end and we would expect to be looking at going back in ‘16 relative to our New Hampshire operations to reestablish a longer term rate plan there, because that’s worked very well for us. And I think it will be good to kind of renew that effort and get on a longer term plan for that. Dave Parker Great, thanks for the update and again congratulations. Mark Collin Thank you. Bob Schoenberger Thank you too. Operator [Operator Instructions] There are no further questions in the queue at the moment. Bob Schoenberger Thank you for joining us for the fourth quarter conference call. We look forward to talking to you next quarter. Thank you and goodbye. Operator Ladies and gentlemen, thank you. That concludes today’s presentation. You may now disconnect and everyone have a great day. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. 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