Tag Archives: web

SJW Corp (SJW) CEO Richard Roth on Q2 2015 Results – Earnings Call Transcript

SJW Corp (NYSE: SJW ) Q2 2015 Earnings Conference Call July 30, 2015 13:00 ET Executives Suzy Papazian – General Counsel Richard Roth – Chairman, President & CEO James Lynch – CFO Analysts Michael Gaugler – Janney Montgomery Operator Welcome to the SJW Corp. Second Quarter 2015 Financial Results Call. [Operator Instructions]. I would now like to introduce your host for today’s conference Suzy Papazian, General Counsel. Please go ahead. Suzy Papazian Thanks Operator. Welcome to the second quarter 2015 financial results conference call for SJW Corp. Presenting today are Richard Roth, Chairman of the Board, President and Chief Executive Officer; and James Lynch, Chief Financial Officer. Before we begin today’s presentation, I would like to remind you that yesterday’s press release and this presentation may contain forward-looking statements. These statements are based on estimates and assumptions made by the company in void [ph] it’s experience, it’s circle trends, current conditions and expected future development as well as other factors that the company believes are appropriate under the circumstances. Many factors could cause the company’s actual results and performance to differ materially from those expressed or implied by the forward-looking statements. For description of some of the factors that could cause actual results to be different from statements in the presentation, we refer you to the press release and to our most recent Form 10-K and 10-Q filed with the Securities and Exchange Commission, copies of which may be obtained at www.sjwcorp.com All forward-looking statements are made as of today, and SJW Corp. disclaims any duty to update or revise such statements. You will have the opportunity to ask questions at the end of the presentation. As a reminder, this webcast is being recorded and an archive of the webcast will be available until October 26, 2015. You can access the press release and the webcast at our corporate website. I will now turn the call over to Rich. Richard Roth Thank you, Suzy. Welcome everyone and thank you for joining us. On the call with me today are Jim Lynch, our Chief Financial Officer and our Palle Jensen, our Senior Vice President of Regulatory Affairs. SJWs second quarter performance reflected lower usage as a result of water use restrictions imposed due to the California drought, while San Jose water company continues to provide high quality and reliable water service the company has as required by the California Public Utility Commission implemented a drought contingency plan that includes water allocations and drought surcharges for only the second time in the company’s 149 year history. San Jose, water company drought contingency plan established it’s monthly allocation for residential and landscape customers based upon 2013 average use less 30%. The reduction requested by the Santa Clara Valley Water District, Santa Clara counties water resource management agency. In contrast the drought in Texas is officially over as a result of record rainfall in 2015 that helped refill parched reservoirs and aquifers [ph]. SW, Texas [ph] our Texas water utility continues to experience robust organic customer growth since it’s acquisition in 2006 SJWTX has grown from approximately 7000 to 12000 connections owing to an aggressive acquisition program and strong organic customer growth. The pace of organic growth continues to accelerate with June marking a single month record for new connections with strong customer growth, a robust portfolio water supplies and rates in place at least for 2017, we’re pleased with this small but growing part of our SJW. San Jose Water Company’s 2015 general rate case application continues to be processed by the CPUC. Evidentiary hearings to address all remaining unsettled issues took place in June and we expect the timely decision that will establish new rates for 2016 through 2018. In the event of the timely decision is not received San Jose Water Company has filed to activate the interim rate mechanism that would provide the company with interim rate relief, retroactive to January 1st, 2016. Jim Lynch will now discuss more detail, SJW second quarter and year-to-date results as well as other financial matters. After Jim’s remarks I will provide additional information on our regulatory filings and other key operational and business matters. Jim? James Lynch Net income for the quarter was 7.5 million or $0.36 per diluted share. This compares to 6.8 million and $0.34 per diluted share for the second quarter of 2014, year-to-date net income was 12.2 million or $0.59 per diluted share compared to 7.8 million or $0.38 per diluted share for the same period in 2014. Second quarter revenue increased to $72.4 million, a 3% increase over the second quarter of 2014 and for the first six months of 2015 revenue was a 134.5 million or an 8% increase over the first six months of 2014. Our quarterly and year-to-date results reflect the impact of new rates authored by the California Public Utilities Commission last August. The rate increases contributed $11.8 million in new revenue in the second quarter and 20.8 million year-to-date. In addition year-to-date results include 1.9 million an additional first quarter revenue related to the California Commissions decision on the effective date of our 2014 rates. Second quarter and year-to-date results also reflect the impact of lower usage in our California service area as a result of drought related conservation activities. As Rick mentioned the Santa Clara Valley Water District said it’s 2015 water usage target at 30% below 2013 usage levels. This was followed by the CPUCs authorization in June of 2015 to activate San Jose water companies water shortage contingency plan that includes mandatory usage reductions and drought surcharges. Overall customer usage declined 13% in the second quarter resulting in a $9.3 million reduction in revenue compared to the second quarter of 2014. Year-to-date customer usage declined 10% resulting in a $13.2 million revenue reduction compared to the same period in the prior year. Compared to 2013, our usage in our California service area is down approximately 23% through the first six months of 2015. The water shortage contingency plan provides for the establishment of a drought memorandum account to track drought surcharges. Amounts collected in the account will be used to offset future amounts recorded in the company’s mandatory conservation revenue adjustment account or MCRAM, recall that the MCRAM was established to track revenue shortfalls along with the mandatory conservation memorandum account or MCMA account to track operational and administrative cost associated with implementing the water district 2015 and 2014 conservation goals. In March of 2015, the company filed it’s first filing under the MCRAM for the recovery of approximately 9.6 million in authorized revenue lost due to conservation net of the MCMA accounts. The filing covered amount accumulated in the accounts from March 31st 2014 through December 31, 2014. The company will recognize amounts requested in the filing net of certain supply cost balances once collection is authorized by the CPUC. We anticipate authorization will occur during the second half of the year. Future amounts accumulated in the accounts will be recognized once recovery or refund is determined to be probable. The drought memorandum account MCRAM and MCMA will remain in effect until state order drought water restrictions are lifted. Turning to water production second quarter operating results benefited from the use of approximately 550 million gallons of surface water from San Jose Water Company’s Lake [indiscernible]. This compares to less than 60 million gallons used in the second quarter of 2014. Through the first six months of 2015, we used 1.5 billion gallons compared to 92 million gallons in the same period of 2014. The increased surface water supply resulted in a $1.2 million reduction in water production expenses for the quarter and 3.3 million year-to-date. We do not anticipate any meaningful benefit from surface water supplies through the remainder of 2015. Production cost also benefited from lower usage in both our California and Texas service areas. In California due to the drought and in Texas due to higher than normal rainfall experienced in our service area during the first half of the year. As a result of this drought and usage we experienced lower production cost of 7.4 million for the quarter and 8.9 million year-to-date. This benefit was partially offset by the impact of increases in purchase water expense and ground water production charges of 2.3 million for the quarter and 3.8 million year-to-date. Non-production operating expenses included an 800,000 increase for the quarter and $1.6 million increase year-to-date in pension cost. The increase was driven primarily as a result of the decline in the discount rate from December 31, 2013 to December 31, 2014 and new mortality table is used to calculate the expense. In addition both the quarter and year-to-date include higher cost incurred in connection with our 2015 California general rate case and conservation activities in our California service area. Another point of note in the second quarter of 2014 the company recorded a $2 million gain on the sale of certain investment securities and a $880,000 tax benefit on the recognition of enterprise owned tax credits. No similar amounts were recorded in 2015. Turning to our capital expenditure program we added approximately 21 million in utility plant during the second quarter which brings our 2015 total to $37 million or approximately 30% of our 2015 utility plant capital expenditures including our Montevina plant retrofit project we are on target to add approximately a $125 million in utility plant in 2015 growing rate base in both our California and Texas service areas. From a liquidity perspective year-to-date cash flows from operations increased by approximately $20 million or 80% due in large part to higher income and the collection of a $6 million income tax receivable that was generated at the end of 2014. In addition we experienced a $6 million benefit from the collection of true-up revenue recognized in 2014 in connection with our 2012 California rate case decision. We recall that $46.5 million in net true-up revenue is being collected over a 36 month period that commenced in October of 2014. At the end of the quarter we had $76.8 million available under our bank lines of credit for short term financing of utility plant additions in operating activities. The borrowing rate on credit line advances during the second quarter averaged 1.5%. With that I will stop and turn the call back over to Rich. Richard Roth Thank you, Jim. In response to the governor’s and the state water resources control board’s mandatory state wide reduction of 25% for urban water systems. On May 11, 2015 San Jose Water Company filed with CPUC to activate schedule 14.1, an allocation based “water shortage contingency plan with staged mandatory reductions and drought surcharges.” Based upon a 30% reduction from 2013 usage. The activation of schedule 14.1 allowed San Jose Water Company to comply with current CPUC requirements and align restrictions with those mandated by local government agencies thus achieving greater consistency and limiting customer confusion. Although Governor Brown’s executive order caused for a state-wide 25% water reduction, the 30% requested by the Santa Clara Water District the regions water resource management agency more appropriately reflects local water supply conditions. Schedule 14.1 was approved by the CPUCs water division and became effective on June 14th. Subsequent to the approval the office of [indiscernible] advocates requested a review of San Jose Water Company’s drought contingency plan as they did with other Class A water utilities drought contingency plans. Our review request requires the water division to issue a resolution finding the program just and reasonable and we will be subject to approval by the full commission. CPUC action on RAs request will likely not occur until late August at the earliest and until that time the program remains in place as adopted. As you mentioned we have in place the mandatory conservation revenue adjustment memorandum account or MCRAM to track revenue lost due to reduced customer usage resulting from formal declaration of water conservation requirements. This memorandum account provides a high degree of assurance that any loss of revenue, net of production cost resulting from mandatory conservation rules may be required through an [indiscernible] at such time that the memorandum account balance exceeds 2% of annual authorized revenue requirement. Additionally drought surcharges collected under schedule 14.1 will be credited to the loss revenue memorandum account to offset revenues shortfalls associated with reduced water usage. Drought surcharges in excess of lost sales will ultimately be refunded to customers after the drought in the manner authorized by the CPUC. The net effect of the MCRAM is that servicing water company has a strong revenue protection for sales loss due to the drought and related mandatory conservation rules. Both the California and Texas droughts have increased public awareness of the need for investments necessary to ensure adequate, reliable water supply, as well as the need to replace aging infrastructure. San Jose Water Company and SJW have been industry leader in making necessary and prudent investments in utility plan. SJW’s capital improvement plans is approved by the CPUC and the Public Utility Commission of Texas provided necessary rates to support investments totaling $108 million and rate based capital expenditures in 2015. These prudent capital outlays will replace mains, wells, reservoirs, and other critical infrastructure. To further emphasize this important point, SJW has from 2010 through June 30, 2015, and thus approximately $471 million in utility plan. Furthermore, SJW expects to invest subject to regulatory approval, an additional $662 million as part of our core capital improvement programs for 2015 throughout 2019 to ensure our water systems continue to deliver safe reliable and high quality water service to our customers. These investments directly correlate to an increase in rate base, the earnings for investor owned utilities. Additionally, in July, San Jose Water Company signed a definitive agreement to rebuild the Montevina Water Treatment Plant by employing a progressive design build approach along for operational flexibility. The company will be able to continue to optimize the use of available surface water during construction. Rate recovery is processed via annual advise set of filings and through completion in 2017. This project is on track to add a total of $62 million to utility plan. Structural water supply challenges are requiring SJW to quickly and effectively adapt to new mandates in usage patterns. SJW recognizes the critical need to engage in farm customers and other stakeholders of these mandates, how conservation efforts impact rates and the value of water. To that end, San Jose Water Company is executing a comprehensive customer communications program that speaks to these needs via a variety of communication platforms. Web based communications offer an effective and efficient tool to deliver timely and relevant customer information. San Jose Water Company is now six weeks into its draft contingency plan and we are pleased with the positive impacts our enhanced communication efforts are producing. San Jose Water Company recognizes that it is widely important to deliver exceptional customer service at all times, especially during the drought when we have asked our customers to increase their conservation efforts. Accordingly, we are continually analyzing and refining our business processes to find the resources required to comply with hiding regulatory oversight, address structural water supply challenges and continue to provide excellent water services at a reasonable price. Although there may be some regulatory lag in receiving final authorization to collect revenue due to loss sales, I believe SJW will emerge from the drought a better and stronger company, both financially and operationally. In dealing with the current drought, SJW has been forced to be operationally more flexible and innovative switching between various water supplies adapting to different levels of search water quality and effectively operating our water systems in widely varying conditions. Additionally, SJW recognizes that customer communication must now be a core competency. We are clearly on our way to building a first class customer communications function using multiple communication modalities. We are also making significant progress in increasing the speed and efficiency of customers interactions. Digital transactions now comprise the vast majority of all transactions at SJW. In summary, SJW are much from our experiences dealing with the drought which has furthered our capabilities to succeed and transfer demanding and difficult business and regulatory environments. Our systems are efficient and in good conditions, our investments have been prudent, and our business model is intelligent and durable. Over the long haul, SJW should continue to enjoy sustained growth and profitability, earnings and dividends for our shareholders. With that, I will turn the call back to the operator for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] And our first question comes from Michael Gaugler from Janney Montgomery. Your line is now open, please go ahead. Michael Gaugler Good morning, everyone. Richard Roth Good morning, Michael. Michael Gaugler Rich, something you didn’t really touch on and I guess it’s probably just because of the drought, is the real estate operations. And I want to appreciate an update there on what you’re thinking in terms of that line of the business? Richard Roth Sure. Michael, we’re in the process of gradually getting out of the business of real estate. We have some properties that are already in the process of being marketed and sold, and other ones for variety of reasons would be sold over the course of time. I think the critical factor here is just when the market is right, we don’t have to sell these assets but we will sell those assets when the market is right and when an attractive offer comes along. So, we think that the proceeds from the real estate will likely be reinvested in utility plan. We think that’s our core competency and so we’ll be gradually moving out of that business. Michael Gaugler Okay. That’s all I have. Thanks, Rich. Richard Roth Thanks. Operator Thank you. [Operator Instructions] And I’m not showing any further questions at this time. I would now turn the call back to management for any closing remarks. Richard Roth Thank you, and thank you everyone for listening. And we look forward to talking to you at the end of the third quarter. Operator Ladies and gentlemen, thank you for your participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone, have a great day. 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.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

Cleco’s (CNL) CEO Bruce Williamson on Q2 2015 Results – Earnings Call Transcript

Cleco Corporation (NYSE: CNL ) Q2 2015 Earnings Conference Call July 28, 2015 9:30 AM ET Executives Sybil Montegut – Senior Investor Relations Analyst Bruce Williamson – Chairman, President and Chief Executive Officer Tom Miller – Senior Vice President and Chief Financial Officer Darren Olagues – President of Cleco Power Analysts Paul Ridzon – Keybanc Brian Russo – Ladenburg Thalmann Kent Escalera – RBC Capital Markets Operator Welcome to the Cleco Corporation Second Quarter 2015 Earnings Call. My name is Sophia, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to, Sybil Montegut, Senior Investor Relations Analyst. Sybil, you may begin. Sybil Montegut Good morning, and welcome to Cleco Corporation’s 2015 second quarter earnings call. You can access this call and slide presentation live via the Internet from Cleco’s website at www.cleco.cominvestors. Telephone and Internet replays can be accessed through our website. The dial-in number for the telephone replay is 888-843-7419 if in the U.S., or 630-652-3042 if outside the U.S. The conference ID is 38458259. With me on the call today is Bruce Williamson, Chairman, President and Chief Executive Officer of Cleco Corporation; and Tom Miller, Senior Vice President, Chief Financial Officer and Treasurer, along with other members of Cleco management. Before we begin, please keep in mind that during the conference call, we will make some forward-looking statements. These statements are subject to many risks and uncertainties. Actual results may differ materially from those contemplated in our forward-looking statements. Please refer to our cautionary note regarding forward-looking statements and risk factors in various reports filed with the U.S. Securities and Exchange Commission, or SEC, including our 2014 Annual Report on Form 10-K, our 2015 Quarterly Report on Form 10-Q, current reports on Form 8-K and other reports filed with the SEC. In addition, please note that the date of this conference call is July 28, 2015, and any forward-looking statements that we make today are based on assumptions as of this date. With that, I will turn the call over to Bruce. Bruce Williamson Thanks, Sybil. Good morning and thank you for joining us. Let’s start with the agenda for today’s call, which is on Slide 3 of our presentation for those of you following along via the webcast. I’ll begin with a quick recap of second quarter earnings, followed by an update on the merger transaction. Tom will then provide an overview of second quarter and year-to-date financial results and then we’ll move to Q&A. Please turn with me to Slide 4. We continue to be impacted in 2015 with lower rates that came about as a result of the formula rate plan extension that began July 1 of last year and the loss of a wholesale customer late last year. That said, we had slightly warmer weather and fewer planned outages this quarter. Tom will provide more detail on second quarter results and our year-to-date earnings later in the call. Please turn to Slide 5 for the transaction update. As many of you are aware, last week we released an update regarding our strategic transaction. Since receiving Federal Energy Regulatory Commission or FERC approval, we are now within one approval of finalizing the merger led by Macquarie Infrastructure and Real Assets and British Columbia Investment Management Corporation, in order to deliver exceptional value to our public shareholders. In addition to FERC, we’ve received approval from the committee on foreign investment in the United States, the Federal Communications Commission has also granted consent to the merger. We filed applications with both of these agencies during the second quarter and I told you on our call last quarter that we filed for approval into the Hart-Scott-Rodino Act and I am happy to report that the waiting period has expired. And as I stated before on the previous calls, we received outstanding shareholder support for the transaction at a Special Shareholder Meeting in February. This now only leaves the Louisiana Public Service Commission or LPSC as our final approval to obtain. Recently, we’ve been working with the LPSC Staff’s counsel and consultants and interveners by answering their remaining beta request, as they may submit their testimony on the transaction. As many of you are aware the commission’s staff requested two extensions to the front-end of the full procedural schedule in order to allow time and work needed to review the final beta request and complete the analysis and prepare their testimony. However, the extension did not impact the end date of the full litigated schedule. We expect the LPSC staff and potentially any interveners to file their testimony later this week with the documents typically becoming available on the LPSC’s website a few days later. We will also post links for the testimony on our website. If you have any questions or need additional information, please contact our Investor Relations department. We have been and will continue to work closely with the staff, their counsel and their consultants and any interveners to resolve remaining items in an expeditious manner. So we expect the merger transaction to close later this year. And with that, I will turn the call over to Tom to discuss financial results in more detail. Tom Miller Thanks, Bruce. Good morning, everyone. Please turn to Slide 6 for a review of our second quarter operational results. GAAP earnings for the quarter were $0.50 per share, or $0.10 lower than the second quarter last year. Second quarter operational earnings were $0.53 per share, or $0.04 lower than the second quarter of 2014. 2015 operational earnings for the quarter exclude $0.02 per share of tax levelization and a penny a share of merger costs. Power’s non-fuel revenue was flat from this period last year. Lower net sales to wholesale customers including the exploration of a wholesale contract decreased earnings by $0.16 per share. The July 2014 FRP extension decreased revenue by $0.07 per share for the quarter. And anticipated refunds associated with FERC transmission, return on equity, and energy efficiency programs decreased earnings by $0.03 per share. These decreases were offset by $0.22 per share earnings increase related to the absence of the one-time customer refund in the second quarter last year that was part of the FRP extension. Warmer weather and higher customer usage in 2015 added $0.04 per share. Our other revenue increased earnings by $0.01 per share primarily related to higher transmission revenue. In terms of expenses, lower 2015 cost increased earnings by $0.02 per share, primarily due to $0.05 per share related to fewer planned outages at our generation facilities compared to second quarter last year and $0.01 per share related to lower depreciation and amortization expense and $0.01 per share of lower miscellaneous expense. These increases to earnings were partially offset by $0.03 per share of higher pension expense due to lower discount rates and the adoption of new mortality tables and $0.02 per share related to higher non-recoverable fuel expenses related to MISO transmission expenses as a result of the new wholesale customer and higher administrative fees. Lower interest expense increased earnings by $0.01 per share primarily related to the absence of a customer surcredit. AFUDC decreased earnings by $0.03, primarily due to the completion of MATS capital spend. And, finally, higher income taxes decreased earnings by $0.05 per share, $0.04 of those were related to the absence of a 2014 favorable settlement with taxing authorities and $0.01 per share to record tax expense at the projected annual effective tax rate. Now, please turn to Slide 7 for a review of year-to-date results. GAAP earnings were $0.94 for the first six months of 2015, a decrease of $0.09 per share compared to the same period last year. Operational earnings were $0.98 per diluted share for the first six months, a decrease of $0.02 per share compared to the first six months last year. Operational earnings exclude non-operational items associated with $0.04 of merger cost. Looking from left to right on the operational earnings reconciliation chart, power’s non-fuel base revenue was down $0.03 per share from this time last year. Lower net sales to wholesale customers including the expiration of a wholesale contract decreased earnings by $0.14 per share. The July 2014 FRP extension decreased revenues by $0.10 per share and anticipated refunds to customers associated with FERC transmission ROE and energy efficiency programs decreased earnings by $0.03 per share. Offsetting these decreases were an increase of $0.22 per share related to the absence of the one-time customer refunds in 2014 as part of the FRP extension, slightly more favorable weather contributed to earnings of $0.01 per share and lower site-specific refunds increased earnings by $0.01. Other revenue increased earnings by $0.04 per share primarily related to higher transmission revenue. Lower expenses increased earnings by $0.09 per share, primarily due to $0.20 per share related to fewer planned outages at our generation facilities for the first half of the year, $0.05 per share related to lower depreciation and amortization expense. These increases to earnings were partially offset by $0.06 of higher pension expense due to discount rates and the adoption of the new mortality tables. $0.05 per share related to higher non-recoverable fuel expense related to MISO transmission expenses. $0.04 per share from the absence of the recovery of capacity expense related to cost of tooling agreement and $0.01 per share of higher miscellaneous expenses. Lower interest expense increased earnings by $0.01 per share due to the absence of a customer surcredit, AFUDC decreased earnings by $0.04 per share primarily due to completion of MATS capital spend. And, finally, higher income taxes decreased earnings by $0.09 per share, $0.04 of these were related to the absence of a 2014 favorable tax settled – tax settlement with taxing authorities, $0.03 per share to record tax expense at the projected annual effective tax rate, and $0.02 per share related to a settlement with taxing authorities this year. Operator, at this time, we will open the call for questions. Question-and-Answer Session Operator Thank you. [Operator Instructions] And your first question comes from Paul Ridzon from Keybanc. Paul Ridzon Good morning. How are you? Bruce Williamson Good. Paul Ridzon I got a quick question, industrial sales were down, I think, 20% in the first quarter and then down again in this quarter. Is that one customer is that – kind of what’s going on there? Bruce Williamson Tom? Tom Miller Paul, that remains the same customer we talked about last year, the last quarter, pardon me. Paul Ridzon Good, Tom. Is this is – or are they coming back? Tom Miller We think they are going to be coming back, but it’s not a permanent loss. Darren Olagues Paul, it’s Darren, this is not a permanent loss as Tom said, we expect to see those industrial sales pick back up from that customer. Paul Ridzon And can you talk what sector they are? Darren Olagues Sorry, Paul, you broke up. Paul Ridzon Can you talk what sector they are at? Darren Olagues Paper products. Paul Ridzon Paper? And is there – call it that in the procedural schedule settlement timeline? Darren Olagues No, there is – if I understand your question, is there a procedural schedule for – with the settlement timeline to it? Paul Ridzon Yes. Darren Olagues There is not public – the only public schedule is the fully litigated schedule that I think is on the commission’s left side. Paul Ridzon And then lastly, are these higher pension costs captured in rates or will they be captured in July, when you – due to the annual rate proceeding? Darren Olagues Paul, they are not captured, we – at each rate case, costs are projected at the time to the test year and to that process, but there is no tracker or rider that trues that up, that will be at the next rate case reset in which we would recalibrate rates to reflect that. Paul Ridzon So it’s not part of the FRP? Darren Olagues It’s not part of the FRP. Paul Ridzon And then, what period does this FERC refund go back, does that all go back to 2012? Tom Miller Yes, it goes back to when we started in December 2013. Paul Ridzon Okay, thank you very much. Tom Miller Thank you very much. Operator And the next question comes from Brian Russo from Ladenburg Thalmann. Brian Russo Hi, good morning. Just to clarify, staff and intervener testimony is due tomorrow, July, 29, is that correct? Tom Miller Correct. Brian Russo Okay, and it will be posted shortly thereafter within a day or two or could we expect it tomorrow? Bruce Williamson I guess, in theory it’s expected tomorrow, but we try to always head this for when things get put on the calendars and then get ultimately uploaded to the website. So I would say, maybe by Friday. Darren? Brian Russo Okay. Darren Olagues Yes, that’s right. No later than Friday. Brian Russo Okay and then, when is hearing is scheduled to start? Bruce Williamson I mean, there is no – other than the schedule that’s been laid out, there is no specific hearing dates that have been set. I think tomorrow, Friday would be, we’ll set down the dues of staff as well as any interveners that file testimony. That will then drive the process, the process will be fluid from there. But there is no specific hearing date that has been scheduled other than what’s on the public schedule, again the fully litigated schedule that’s out there. Brian Russo Okay. Got it. That’s all I had. Thank you very much. Bruce Williamson Thanks, Brian. Operator And the following question comes from Kent Escalera from RBC. Kent Escalera Hey, good morning. I was just wondering if – sort of a follow-up on these other question, whether there have been any substantive issue that have come in your discussions so far with the PSC and whether you could speak to that dialogue at all? Bruce Williamson I’ll let Darren to have a word. Darren Olagues I mean, I wouldn’t want to go into the details of those discussions. I would tell you that, the commission staff and I guess, to a large degree any interveners are concerned with the same things that we have been concerned with is making sure that the employees, communities, that the health of the company, the health of the utility is all protected and strengthened through the regulatory commitment that we put out there. And we think we put forth a solid list of commitment. Those same concerns that we were trying to address are the same concerns I think what we are hearing from staff. So, we’ll get a view as to what of their assessment of that offering and that proposal we made tomorrow. But I’d rather not go in any details of the specific points. Kent Escalera Okay, thanks. Darren Olagues Okay. Operator And we have no further questions at this time. Bruce Williamson Okay, well, thank you for your questions this morning. I want to close the call today by thanking all of you for your continued interest in Cleco. 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.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!

GreenHunter Resources’ (GRH) CEO Gary Evans Discusses Q1 2015 Results – Earnings Call Transcript

GreenHunter Resources, Inc. (NYSEMKT: GRH ) Q1 2015 Earnings Conference Call May 15, 2015 09:00 ET Executives Kirk Trosclair – Executive Vice President and Chief Operating Officer Gary Evans – Chairman and Interim Chief Executive Officer Analysts Brian Butler – Stifel Operator Good morning. My name is Mariama and I will be your conference operator today. At this time, I would like to welcome everyone to the GreenHunter Resources First Quarter 2015 Financial and Operating Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Executive Vice President and Chief Operating Officer, Mr. Trosclair, you may begin your conference. Kirk Trosclair Thank you, operator. Welcome everyone to today’s first quarter financial and operating results conference call. Before we start today, I will go ahead and read the Safe Harbor statement before we get started. Today is Friday, May 15, 2015. And before we begin with the content of today’s call, I would like to advise you that today’s call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The following discussion provides information, which management believes is relevant to an assessment and understanding of our financial condition and results of operations. The discussion contains forward-looking statements that involve risk and uncertainties and may include statements regarding our expectations, beliefs, intentions, or strategies regarding the future. Actual events or results may differ materially from those indicated in such forward-looking statements. This discussion should be understood in conjunction with the financial statements accompanying notes and risk factors included in our SEC filings. The discussion should not be construed to imply that results contained herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment by our management. Actual events or results may differ materially from those indicated in such forward-looking statements. This disclaimer is an effect for the duration of this conference call. Okay. We will get started here on the first quarter financial and operational highlights. We know it’s only been pretty much exactly 30 days since we have had our 10-K operations update call, but we have had some changes and want to give you an update on all of different projects with the use of proceeds in the capital that we are putting to work from our funding process, which happened in April 15, which we haven’t announced to you guys on the call in the K. So, we will go back through the first quarter here just some of the highlights that we hit in the first quarter and substantially improved our operating margins related to water disposal itself year-on-year from 32% in the first quarter of 2014 to 42% in the first quarter of 2015. Also improved the operating margins as it related to internal trucking, you can see how those went from 12% last year up into the 20s of this year. We mentioned this on the 10-K call as well that’s mostly due to eliminating significant portion of the third-party trucking that we were utilizing inside of our own group and dispatching those trucks in handling the billing for those third-party companies. We have pretty much stopped that and using our internal trucks first and foremost, when you can see what happens with the results when we do that having much more control over that fleet. We also decreased our SG&A from $2.1 million, down to $1.7 million in the first quarter, which is equated to a decrease of 19%. And then also we had mentioned to you guys that we had our first deployment of our rented MAG Tank, which we sent out in late February and so that was – that was really good news in the first quarter. On March 16, we closed our sale of the last remaining renewable asset in the Mesquite Lake project biomass plant for $2 million. And then we also in the first quarter we finished paying off the 2.2 promissory note that with the financing in place for the initial purchase of the first three disposal wells in Appalachia. So, we retired that debt setting us 66,000 or so a month in principal and interest. And then as you all know where at the same time, we have the call on April 15, we announced the new money, the $16 million financing for the capital projects, which we will go into more detail about the actual percentage of completion and where we are at with those projects right now. The operational numbers on the results of the first three months, you can see where the loss from continuing operations was $1.4 million in 2015 and $1.3 million, that’s pretty flat in that area. The revenues were down basically this quarter $5.1 million to $8.5 million. And I will go through the reasons why on that in a second. The majority of that was due to our increased margins in third party trucking, I mean internal trucking by not having that third party expense out there. And then you also were made aware of in our K from the call that we still had a couple of wells that were running at 50% capacity and one of the wells that was down in the first quarter. So and then we also had a – from year-on-year we had a MAG Tank sale in the first quarter of 2014 that we did not have a sale in the first quarter of 2015. So that’s the majority of the difference in your revenues. So we also provided you guys in there a pro forma on the selected balance sheet. If you had a chance to review the press release this morning and in the filings, you will see that we placed the pro forma to show you how much we have improved the balance sheet with the funding that we have in place. And I will go into some more details how that use of proceeds is being put to work currently right now. So I think what we will do is just go straight into that and give you an update on all the projects. And since it’s been a short time and really after I give you this update we will probably just go ahead and open it up for questions. And I had failed to mention earlier that Gary is on the line as well with me. And we can answer those questions for you as soon as I go through the update on the projects itself. So I guess the biggest improvements that we have had is obviously been done in the Mills – at the Mills facility, that is our largest project, our hub. And we have – I will give you basically some updates on each individual step of what’s been taking place since we started putting the capital to work. But before I do that, I guess I want to give you guys an update. We announced the funding on April 15 and there was a good process for us here at GreenHunter Resources, it really made us dot our eyes and cross our tees and get everything cleaned up in the back office. You know that when you do a senior secured funding like that you really have to have everything in order and it really it was a good process for us. And it will help out here going forward. We were delayed a little bit in funding because of some of that and had to jump through hoops to get all this type of back end paperwork and recording of some leases that were not recorded and things like that. But we have gotten that cleaned up and we have been funded as of two weeks ago. And we are ready and proceeding as quickly as we can with the projects. So at Mills the last time we had spoken we had only had maybe 10% or 15% of the actual injection lines in the ground. The pipe was actually on-site, but it was not deployed. Now we have made considerable progress and all but one line has been laid to all of the additional four injections wells at the Mills Hunter facility. The final line will be complete in approximately two weeks. It’s the furthest away from the injection facility. And we will get that complete in the next couple weeks. All the roads and the creek borings have been done. And we have witnessed those yesterday. I was in the field in Appalachia and we saw where those guys had just completed all the bores. So that allows them to really move forward and finish this rather quickly. The pump house section is currently 90% complete. The last few electrical items are being installed today. And we should have the completion of the pump house to write it at about 100% by the end of next week. The construction on the third pump house, we had to do a little redesigning of the facility, which will in turn save us the money and become more efficient on our processes. So we started construction of that third pump house. We witnessed that yesterday and it’s been under construction for about three weeks now and will be complete in about five to six weeks for the second two wells. So what’s crucial to understand there is that the initial pump house that’s almost 100% complete, will feed the two wells that will go online first. If you remember, we had mentioned in the last call, we will have two wells that will go online in approximately – now that we have a little delay, will probably in the second week of June for those, the first two wells to get operational. And then in that time, we’re finalizing the third pump house and all of the lines will be complete, all the pumps would be in, and the second two wells to make the total of six wells at Mills Hunter will go online near the end of June. The secondary containment is complete, about 95% complete. We have to do a little dressing up on the walls and then we’re awaiting the installation of the 20,000 barrel tank, which is about three to four weeks out. The first set of the aged pumps will arrive next week and be installed in the first pump house and then the following set of pumps will come in the following week. And then as you remember in the use of proceeds, we also have other aged pumps coming in to change out the existing pumps at all of our facilities, which will help us decrease that maintenance expense at all of the facilities. But we will wait to deploy those additional pumps at the other facilities once we complete Mills, that’s our number one priority right now is getting Mills up and running. An update on the Ritchie Number 2, we had mentioned I think when we were on the call K, that we were actually just completing the drilling of that well. The well is complete and it’s ready for injection. We’ve done everything we can do on our side. We’re awaiting the final permit from the West Virginia DEP, which we hope to have in the next 30, 45 days. It’s been brought to our kitchen that those guys at the WVDEP, our backlog quite a bit at this point and that’s why we were typically getting those permits and turned around in less than 60 days. And it’s already been 60 days since we filed, but – so they have up to six months and we just – we anticipate we will see in the next 30, 45 days. We are also looking at some additional wells around the Ritchie County area. As you can imagine that’s a hotbed for Marcellus and the Stacked Utica play in the Northern portion of West Virginia there, it is right off of Route 50. So we look to doing somewhat similar to what we did on at Mills and find additional wells that we can hook into the existing facility and maximize our efficiency there. The trucks we – that’s part of the use of proceeds as well. We’re evaluating bids right now on new and some pre-owned trucks that are out there to mix and match between straight trucks and tractor-trailers. The availability on 407 trucks out there is still pretty tight at this point, but we have gotten in several bids over the last couple of weeks and we plan to make that decision and get those trucks ordered possibly today or no later than Monday or Tuesday of next week. The MAG Tank, we’re still working on securing some new contracts. As you are definitely aware with commodity prices kind of had a low rebound this week, but has been a little slow in Appalachia on the completion side, therefore slowed down the process of actual deployment of tanks. We have been in contact with our clients that had requested the court back in February and in March. And they are still very interested. It’s just a little slowdown in the actual drilling program and the completion that follow. So we still anticipate that to pickup during the second half of the year. We are – something that’s new right now to tell you guys about, we’ve started in the first quarter and into the second quarter, the initial stages of securing some LOIs for a pooling agreement with several E&P companies to utilize brine and freshwater pipeline network in the Southeastern Ohio area and basically taking that down through via the trunk line to the Ohio River for anticipation of barging brine further south. So just to give you an update on that, now you guys can ask some questions about the Coast Guard on the permitting. We have hired an internal government relations manager, who will help us expedite that process and we have also hired outside help to basically provide a detailed plan to the Coast Guard of how we plan to execute the barging of oilfield waste. We were actually at the site yesterday with one of the professionals from the Appalachian region who barge this product up and down the Ohio River every day and looking at the dockside facility and given us some recommendations on how we can expedite that as far as once we have given the forego ahead to have a dock in place and ready to go. So all-in-all everything, the outlook for the company with the funding in place is really good. We have a lot of work to do in a short time to get it done. And I can’t express my gratitude enough to our management staff and our field employees out there in the Appalachian region here in the office, in the corporate office that had helped us get everything done and expedite the process. So with that, I’ll go ahead and open it up to some questions. Question-and-Answer Session Operator [Operator Instructions] Your first question comes from the line of Michael Hoffman from Stifel. Your line is open. Brian Butler Michael, this morning. Kirk Trosclair Good morning, Mike. Brian Butler This is Brian. Kirk Trosclair Hi, Brian. Brian Butler Hi, just kind of on a macro activity level on the Utica and Marcellus. You touched on it a little bit about completions going on. But can we get a little bit more color on kind of where the drilling stands and the trend. Is it rising, declining and then what you kind of just thoughts on it progressing through 2015? Gary Evans This is Gary. Maybe I can respond to that a little better. Of all the shale plays in the United States, the Marcellus and Utica has seen the least drop in activity, predominantly for a couple of different reasons. Number one, it’s the lowest finding cost reserves in the country with respect to gas, but number two, most of the companies are very well-capitalized, larger companies and they have ongoing programs. So we’re turning down about 20 to 25,000 barrels a day of water that we can’t handle because we’re full. And based on the drilling programs and the budgets that had been established by our customers and others, we don’t see that changing. As soon as we get all these wells up and running they will be full. And so we got to go to the next level of where do we go to take this from 30,000 barrels a day to 50 to 60,000 barrels a day. So, we are in a very unique area. Water has to be handled properly. There’s people bringing water six and eight hour truck drives to get disposal. So we don’t see that changing. The permitting process is a long process. The states are not – they don’t bend over backwards to get these permits push through. So we’re in a unique part of the country that is going to require us to continue to build out new disposal capacity. Brian Butler Okay, that’s helpful. And on that new capacity, it sounds like almost all of its going to be up and running on – at the beginning of the third quarter. Is that the right way to think about, does it ramp immediately to near capacity, full capacity or is there a ramp up timeline as the next capacity comes on? Gary Evans It’s a ramp up there. As Kirk mentioned, we’ll be able to turn a couple of wells on mid to late June, they could add between 5 and 8,000 barrels a day of capacity, then there would be other wells coming on. So it will be a gradual increase in June, July, August. Would you agree with that, Kirk? Kirk Trosclair Yes, I agree, Gary. I mean – the volumes are there, but we definitely want to – we are known for protecting our wells and we don’t want to just turn this, pick it on and start pumping aggressively at that point, we’d like to take it easy for the first couple of days and really massage the well and then go to full capacity after that. So yes there will be a small ramp up period and then obviously you’re going to have your cash flow lag as invoices go out and you start to see them payables come in. So you will have somewhat of a lag but it won’t be that much. Brian Butler Okay. And of those wells that are coming on, kind of in the next, call it month or so. That’s the two wells at the Mills facility and the Ritchie well, right? Kirk Trosclair And as the Ritchie well is ready to go we are just waiting on the state. Brian Butler Right. But that’s 30 days or 45 days, so it’s not going to taking anything for a month? Kirk Trosclair Mills Hunter, Brian, already has two active injection wells currently today that we are injecting into now. And then the second too will come on in a couple weeks through two or three weeks out. And then following that will be the last two wells, which will go, one will be like a week later and then the final well which is the furthest away from the injection facility is the one injection line that still has to be completed and that will be the last one to come on. So you will have two come on at same time, then one first to follow and then the last one will come on sometime late June timeframe. Brian Butler Right. That’s just to know [indiscernible] that will be in addition to that once you get the permit? Kirk Trosclair That’s correct. Brian Butler And that’s typically incremental 16,000 plus barrels per day. Kirk Trosclair Because if you remember, right, we had to pull back our injection capacity at the Ritchie while we were drilling that well until we get the permit for the new Ritchie number two we are running at half capacity at the Ritchie number one. Brian Butler Okay. So then thinking it through by the end of the third quarter we should expect these are at – all the new wells are more or less that capacity or very close? Gary Evans That’s correct. But end of the third quarter you should have them all operating at 100% utilization and capacity, ready to go. Brian Butler Okay, that’s good. And then on the new plan for the barging, so what’s the timeline now look like for when you might actually see barrels offloaded on from the barges? Kirk Trosclair We are still looking at September, August timeframe. So we have given the new group that we have hired to help along with our government relations manager a 90-day push period to try to get this thing done. They have already been to DC once last week – week before last. And they have got several more meetings lined up with some dignitaries and congressional health and we are trying to get with the coast guard to work through the issues to lay out the plans on how we proposed to operate at the terminals. I would propose to do everything to the – to load the barges and offload down at Mills and just have everything in place once for that final go ahead. Brian Butler Okay. And then we will have another one now kind of in the fourth quarter hopefully you will be able to taking volumes from the barges? Kirk Trosclair That’s correct. Brian Butler Okay. And last one here, just any update on – or maybe one more – two more – any update on the MLP status? Gary Evans We received a letter from the IRS about a month and a half ago asking specific questions about our business. We responded to that letter and we have been told that other water companies are looking to go public got similar letters. And we are waiting for that response. So, it’s back in the IRS hands. I will still say though they have given out some more information it appears that water is going to be clear. Their real focus has been on chemical companies’ ethylene, polyethylene, various chemical products that we are trying to do MLP. So we feel pretty good about the feedback we have been hearing regarding our sector. Brian Butler Okay. And then this one for you a little last one. Just regulation wise, with news about seismic activity on the disposal wells, any color on what maybe going on or if there is any pending changes? Gary Evans Our neck of the woods, we haven’t seen anything. The areas that had seismic issues, there had been areas that have either been injecting into a much deeper horizons or near falls. And we have been very careful in the selection of our disposal wells, not to have either. So I haven’t noticed anything in West Virginia or Ohio that would lead us to be concerned that they were going to – the stage we are going tightening up activity or producing permitting activity in anyway. It’s been in other parts of the country. Brian Butler Okay, great. Kirk Trosclair To validate that Brian, we had a meeting yesterday with one of our customers on one of our sites. And he had just left meeting at the Ohio Department of Natural Resources. And they had a meeting on that same very subject. And the guys in the DNR told him that there has been no change. They don’t foresee anything coming down the pipe for the next foreseeable future. And so that was promising to hear that coming from one of our customers as well and the USA guys. Brian Butler Okay, great. Very helpful. Thank you very much guys. Kirk Trosclair Thank you. Operator There are no further questions at this time. I will turn the call back over to the presenters. Kirk Trosclair Thank you so much operator. And with that, no other questions, I think that will conclude today’s call. Thanks for dialing in and we will talk to you next quarter. Bye. Operator This concludes today’s conference call. 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.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you!