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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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Empire District Electric’s (EDE) CEO Brad Beecher on Q4 2014 Results – Earnings Call Transcript

Empire District Electric Co (NYSE: EDE ) Q4 2014 Earnings Conference Call February 6, 2015 13:00 ET Executives Dale Harrington – Director, IR Brad Beecher – President & CEO Laurie Delano – VP, Finance & CFO Analysts Brian Russo – Ladenburg Thalmann Paul Zimbardo – UBS Michael Goldenberg – Luminus Management Tim Winter – Gabelli & Company Operator Welcome to the Empire District Electric Company Fourth Quarter 2014 Results Conference Call and Webcast. [Operator Instructions]. I would now like to turn the conference over to Dale Harrington. Please go ahead, sir. Dale Harrington Thank you, Dan and good afternoon, everyone. I would like to welcome you to our year-end 2014 earnings conference call but let me begin by introducing Brad Beecher, President and Chief Executive Officer and Laurie Delano, Vice President Finance and Chief Financial Officer who in a few moments will be providing an overview of our 2014 results and our 2015 expectations as well as some highlights on other key matters. Our press release announcing 2014 results was issued yesterday afternoon. The press release and a live webcast of this call including our slide presentation are available on our website at www.empiredistrict.com. A replay of the call will be available on our website through May 6th of this year. Before we begin I must remind you that our discussion today includes forward-looking statements and the use of non-GAAP financial measures. Slide 2 of our accompanying slide deck and the disclosures in our SEC filings present a list of some of the risks and factors that could cause future results to differ materially from our expectation. I will caution that these lists are not exhaustive and the statements made in our discussion today are subject to risks and uncertainties that are difficult to predict. Our SEC filings are also available upon request or maybe obtained from our website or from the SEC. I would also direct you to our earnings press release for further information on why we believe the presentation of estimated earnings per share impact of individual items and the presentation of gross margin each of which are non-GAAP presentations is beneficial for investors in understanding our financial results. And with that I will now turn the call over to Brad Beecher. Brad Beecher Thank you, Dale. Good afternoon everyone and thank you for joining us. 2014 was a good year for Empire shareholders. The one year total shareholder return was about 35.6%, record earnings record high stock prices, a strong balance sheet with improved retained earnings and a sustainable growing dividend that increased by 2% in the fourth quarter were highlights for the year. Today we will discuss further our financial results for the fourth quarter and 12 months ended December 31, 2014 period, recent activities impacting the company and our outlook for 2015. As shown on slide 3, yesterday we reported consolidated earnings for the fourth quarter of 2014 of 11.1 million or $0.26 per share compared to the same quarter in 2013 when earnings were 15.2 million or $0.35 per share. Earnings for the 12 months ended December 31, 2014 period were 67.1 million or a $1.55 per share. 12 months ended 2013 earnings were 63.4 million or a $1.48 per share. During their meeting yesterday the Board of Directors declared a quarterly dividend of $0.26 per share payable March 16, 2015 for shareholders of record as of March 2nd. In December we completed in-service testing for the Asbury Air Quality Control System. The Missouri Public Service Commission staff determined that as of December 15, 2014 the Asbury AQCS equipment hadn’t met the in-service criteria. The determination by the staff that the in-service criteria have been met is a vital step for the rate case we filed in Missouri on August 29th of last year. As you may recall in order for the commission staff to allow a December 31 true-up date it was required that that Asbury be in service prior to February 1, 2015. Recovery of costs associated with the Asbury AQCS is the primary component of the Missouri Case. I will remind you that we’re seeking the increased electric rates by about $24.3 million annually or about 5.5%. Missouri Commission staff has indicated in testimony filed January 29th that the true-up period for this case will in [ph] December 31, 2014. Local public hearings for this case have been scheduled for February 19 in Joplin and February 20th in Reeds Spring. The Missouri Commission has scheduled an evidentiary hearing at its offices in Jefferson City, the weeks of April 6 through 10 and April 13 through 17. In the interim the Missouri Commission staff will be conducting a construction audit and prudence review on the Asbury Project. True-up direct testimony is scheduled to be filed on April 30th and a true-up evidentiary hearing occur in May 13th. New customer rates as a result of this case will be effective no later than July 26, 2015. Initially we provided a cost estimate for the Asbury AQCS project without AFUDC of between a $112 million and a $130 million. We later updated investors that we expected to be in the bottom half of the range. Today as a result of solid project management I’m proud to report we expect cost to be around a 112 million without AFUDC and around a 120 million including AFUDC. In December we filed a request with the Kansas Corporation Commission for an environmental cost recovery rider, rates from our Kansas request will be effective no later than August 3, 2015. Additionally we plan to file a request for an environmental cost recovery rider in Arkansas later this month. In Oklahoma we filed a request on January 9th to amend our Southwest Power Pool Transmission Tariff. Our proposed amendment request the removal of a requirement to file a base rate case by July 2015. The SPP tariff was established in January 2012 to allow recovery of our Oklahoma share of transmission charges assessed by the Southwest Power Pool. A requirement of that tariff was that Empire must file a base rate case by July 2015 because of the Asbury Air Quality Control System completion in early ’15 and the Riverton 12 combined cycle [ph] conversion projects scheduled for 2016 and Oklahoma filing in 2015 would necessitate a second rate case filing in 2016. Since rate cases are costly for customers we are asking for this Oklahoma requirement to be removed. If our request is approved we would plan to file a single rate case in 2016 to capture costs from both the Asbury and Riverton projects. We announced yesterday that our 2015 earnings guidance falls within the weather normalized range of a $1.30 to a $1.45 per share down from our 2014 results of a $1.55 per share. The lower range reflects the full year of high expense primarily related to the Asbury AQCS upgrade and a new maintenance contract for the Riverton facility offset with only a partial year of new Missouri rates to recover their Asbury investment and other increased cost. I will now turn the call over to Laurie to provide additional details of our financials. Laurie Delano Thank you, Brad. Good afternoon everyone. I’m very pleased to be reviewing such positive financial results with you today, the information I would discuss today will supplement the press release we issued late yesterday and as always the earnings per share numbers referenced throughout the call are provided on an after-tax estimated basis. I will briefly touch on our 2014 fourth quarter results before I discuss our annual results. Our fourth quarter earnings of $0.26 per share reflect a more normal quarter of winter weather when compared to the previous year’s fourth quarter. They also reflect increases in operating and maintenance expenses when compared to last year. Slide 4, shows the quarter-over-quarter changes that impacted our earnings. Gross margins for revenues less fuel and purchase power expense decreased $1.5 million decreasing earnings by $0.02 per share quarter-over-quarter. We estimate the impact of the warmer weather and other volume metric factors compared to last year decreased revenue by about $3.2 million, decreasing margin by about $0.03 per share. This decrease was driven primarily by an 8.1% decrease in sales for our residential customers. Commercial sales were only down about 1%, the weather impact on commercial sales was mitigated in part of increased sales throughout our territory as well as increased sales at the New Mercy Hospital as it prepares to open in March. Increases in operating and maintenance expenses, decreased earnings about $0.06 per share driven by increased transmission operation and production maintenance expenses. Small changes in depreciation, AFUDC and other income and expense rounded out the remaining $0.01 per share decrease in earnings for the fourth quarter. Turning to our annual rates, as Brad mentioned earlier, our net income increased $3.7 million or $0.07 per share. Slide 5, provides a breakdown of the various components that resulted in this year-over-year per share increase. Consolidated gross margin increased $17.1 million over 2013 adding an estimated $0.25 per share. As shown on in the callout box on slide 5, we estimate that increased customer rates from our Missouri rate case effective in April 1 of 2013 added about $12.5 million to revenue or about $0.16 per share to margin. We estimate weather and other volume metric increases on the electric side of the business added an estimate $4.6 million to revenue year-over-year or about $0.05 per share to margin. The weather effect from the gas segment added about a penny per share. The volume metric change was driven by a combination of weather and higher commercial sales again including positive impacts from the construction of the New Mercy hospital. Increased customer accounts added an estimate $1.5 million year-over-year increasing margin about a penny per share. Changes in other miscellaneous revenues primarily related to SPP transmission revenues and non-volume fuel related items netted together rounded out the remaining increase in electric segment, revenues adding a combined net impact of $0.02 per share to margin. Increases in our consolidated operating and maintenance expense offset the positive margin impact decreasing earnings about $0.17 per share. The callout box on slide 5 provides a breakdown of this impact. As we’ve discussed on previous calls the largest individual O&M increase was for transmission operation expenses primarily related to SPP charges. This added expense reduced earnings about $0.08 per share. Increases in distribution and production maintenance along with general LIBOR cost combined to reduced earnings about $0.11 per share, other smaller cost increases reduced earnings to a total of $0.02 per share. These increases were offset by the effect of lower healthcare cost about $0.02 per share as well as the $0.02 per share positive effect of the regulatory reversal of a gain on sale of the assets that we recorded in 2013. And as you all will recall we also recorded a similar entry in 2013 for our planned disallowance. This 2013 write-off also has the impact of increasing earnings year-over-year by $0.03 per share. Continuing on with slide 5, depreciation and amortization expenses decreased earnings per share $0.05 driven by higher levels of plant and service and increased depreciation rates resulting from our April 2013 Missouri case. Increases in property taxes brought earnings down another $0.02 per share. Increased allowance for funds used during construction or AFUDC added about $0.06 per share to earnings reflecting our Asbury and Riverton construction projects. Small changes in other income and deductions in the effects of additional stock issued under our various stock plans round out the remaining $0.03 decrease in earnings per share. On our balance sheet we have $90.3 million in retained earnings as of December 31, 2014. We had $44 million of short term debt outstanding at the end of 2014 and we currently have $68 million outstanding. We received the proceeds from our $60 million private placement of first mortgage bonds on December 1. As Brad said we announced in our press release yesterday that we expect our full year 2015 weather normalized earnings to be within the range of a $1.30 to a $1.45 per share. Before I talk about the drivers for our new guidance I would like to review our actual 2014 results as compared to our original 2014 guidance. Slide 6 provides this information, in developing our 2014 guidance we assumed 30 year average weather, modest growth as Joplin continued the three building projects and the extra quarter of Missouri rates from our 2013 rate case and revenues from our 2013 Arkansas rate case filing. This was offset with a corresponding effect of increased O&M expenses. Our actual 2014 results of a $1.55 were higher than the midpoint of our original guidance range primarily due to one higher than expected electric and gas sales and two lower than expected operating and depreciation expenses. Higher sales added about $0.03 to our earnings per share on the electric side of the business, and about a penny to our gas segment results. Favorable weather and higher commercial sales again inclusive of the New Mercy hospital were the primary drivers. Decreased cost totaling $0.06 per share were driven by lower than expected generating plant operating expenses and lower than expected SPP charges. Also depreciation was lower due to the timing of various in-service dates of our construction projects. On slide 7 we highlight the drivers of our decrease in earnings expectations in 2015. First as in the past our estimates are based on normal weather with a modest positive sales growth as we have previously disclosed we still expect this growth to be at a level of less than 1% per year over the next several years. We’re also assuming our Missouri rate case will be effective as filed. We also assume our Arkansas and Kansas rate case filings will go into effect as filed. Operating and maintenance expenses will be higher primarily due to a new maintenance contract for our Riverton facility. Depreciation expense will increase reflecting the Asbury AQCS project in service for a full year and an estimated 20 year life rate and we will also see increased depreciation for assets placed in service since our last case. The impact on depreciation from the Asbury AQCS project alone is approximately $0.09 on an earnings per share basis. We will also see increases in property tax and interest expense. The higher interest expense reflects our December 2014 debt issuance and expected issuance in 2015. Our AFUDC impact will be lower in 2015 now that as Asbury is complete and in service. Other factors considered in our range are variations in customer growth and usage as well as variations in operating and maintenance expense. Again our range does not take into account any changes to our Missouri rate case filing or reflect any December 31, 2014 true-up numbers. As a reminder we have summarized the components of our Missouri rate case as currently filed on slide 8. On slide 9, we provide the historical and projected capital expenditures and net plant in-service numbers that reflect our current capital expenditure plan. No changes have been made since the update we provided last quarter. The 2015 expenditures reflect our ongoing cost for the Riverton combined cycle project. On this slide w also present our net plant levels less deferred taxes to approximate our estimated rate base. To finance these projects we expect to issue some debt financing in the middle of 2015. Right now we believe the debt offering will be in the range of $60 million but could be subject to change based on expenditure timing and other factors. This financing combined with the addition of internal equity from our dividend reinvestment and stock purchase plans and our combined build of retained earnings will help keep us near our target 50:50 debt equity capital structure. I will now turn the discussion back over to Brad. Brad Beecher Thank you, Laurie. As Laurie referenced and as shown in slide 10, in addition to the work completed in Asbury we’re moving ahead with construction at our Riverton power plant. The foundation work is complete and most of the major equipment is on-site for the Riverton Unit 12 conversion. As of December 31, our total cost of this project is 88.5 million. As a reminder we estimate our total cost of completion to be between a 165 million to a 175 million. We continue to successful execute our growth strategy to build rate base infrastructure to serve our customers and meet environmental regulations. The completion of the Asbury AQCS and on-going Riverton 12 combined cycle projects are the largest additions to these plan. Empire remains a high quality, pure play, regulated electric and natural gas utility. We’re focused on our vision of making lives better every day with reliable energy and service. We’re committed to meeting today’s energy challenges with least cost resources while ensuring reliable energy for our customers and attractive return for our shareholders and a rewarding environment for our employees. I will now turn the call back to the operator for your questions. Question-and-Answer Session Operator [Operator Instructions]. And our first question comes from Brian Russo of Ladenburg Thalmann. Please go ahead. Brian Russo When I look at kind of the midpoint of your 2015 guidance, kind of implies about an 8% earned ROE which is quite a meaningful amount of regulatory lag versus you know kind of 9-8 current allowed ROE. I just want to maybe drill deeper into the lag. I think you quantified the impact for the Asbury depreciation. Could we quantify the O&M impact as well and then kind of differentiate what structural lag versus what’s just timing lag related to your base rate cases. Laurie Delano We don’t really anticipate a huge O&M impact from the Asbury project, we will see an increase in our consumables, limestone, activated carbon and those sorts of things. However we actually recovered those back through our fuel adjustment. Obviously we will see an increase in property taxes from the Asbury project and if you look at the slide where our rate case summarization takes place you will see that we have asked for about $2.9 million in property taxes associated with that case. So that kind of gives you a feel for what that directionally might be. Brian Russo Okay, can you remind us of the lag that you experience on transmission cost and property taxes each year? Brad Beecher Today neither property taxes or transmission expenses are recovered in trackers and so they go through a normal procedure. So in this case what we’re recovering in our rates is reflective of the rates that we received in April of 2013. So, we have asked for in this current case the transmission expenses to be included in our fuel adjustment cost to help reduce that lag in the future. But that’s something that will have to be taken in account in this current case. Your other question, you had asked earlier relating to structural lag versus lag on timing of the cases. I have a hard time differentiating that, in Missouri we have a 11 month process and using this case is a good example for illustration is any – we have filed the case at the end of August of last year. We will expect rates by about July, we’re going to get a true-up through the end of the year and so that’s about as tight as we can cut it as it relates to the biggest CapEx expenditure. So we have 6 or 7 months lag on those big CapEx after they go in service before we get recovery in rates. And so that’s what we experienced on Asbury and we’re seeing today and it’s the kind of representative of the kind of lag we will see on Riverton 12 as well. Brian Russo Okay. In your last Missouri rate case you guys actually settled and rates went into effect in April. Was that several months earlier than the 11 month process or was the filing date different than this go around [ph]? Brad Beecher Brian, my memory is the rates went into effect a little bit early and when you get into settlement sometimes that’s one of the variables that we consider when we’re deciding whether to sell or not, it’s where the rates can go in a little bit early. I don’t recall the exact dates on the last case we will have to – we can dig that out later. Brian Russo Okay, so I guess if you did settled rates went into effect earlier obviously there would be less lag in ’15? Brad Beecher If that were to happen, that’s true. Brian Russo And then just back to your comment, the lag experience with Asbury this year and then the lag associated with Riverton upgrade next year. Is it kind of implied that you’re going to be experiencing similar regulatory lag in ’16 and ’15 and 2017 should be the year where we see improved returns? Brad Beecher What I was trying to get across is we’re going to have similar lag on Riverton 12 as we have on Asbury AQCS so that would say we’re going to have lag in 2016 and you can look at our CapEx forecast for ’16, ’17 and ’18 and we do drop off after Riverton 12 and that should give our shareholders a little bit of a better change to recover their allowed rate of return. Operator Our next question comes from Julien Dumoulin-Smith of UBS. Please go ahead. Paul Zimbardo It’s actually Paul Zimbardo. First question, on the estimated rate base slides, it looks like there is a little bit of a change from the last quarter, is that just bonus depreciation or something of alike? Laurie Delano For the rate base slides, yes, that would be correct. Paul Zimbardo And does that impact the rate case filing at all? Brad Beecher So, when we made the rate case filing bonus depreciation had not yet been extended and so our filing did not reflect that and same way when we put this slide together last quarter it had not yet being extended. So that accelerated depreciation will be reflected as one of the many true-ups that will happen at the end of the December 31 true-up. And as you pointed out bonus depreciation is a reduction or offset to rate base. Paul Zimbardo So a follow-up on the last question about quantifying some of those 2015 earnings driver, I apologize if I missed it, did you say what the impact of the new maintenance contract was– Laurie Delano I didn’t say but on the slide that summarizes our rate case filing assumptions, we call that out at $3.9 million. Operator [Operator Instructions]. Our next question comes from Michael Goldenberg of Luminus Management. Please go ahead. Michael Goldenberg So I want to go back to 2016, I understand 2015 is a big down year but I was under the assumption – I think we have discussed on a several occasion, you kind of always seem to point investors to when you think about long term, when you think about 2016, do rate base times equity times ROE and all these little changes in O&M are long haul, they even out and then structural lag probably should be more than let’s say a 100 bps that was kind of the impression that I think over the years have got. Is it fair to say that that may no longer be the best way to think about the company structurally? Brad Beecher If you look at the last several years for EDE we have been closer to 200 basis points regulatory lag and we have been looking at about 8% ROE in something that’s in that 10% kind of ROE range as people think about our allowed ROEs and so we have had closer to 200 basis points of lag historically. For 2014 we were at about 8.75% I think actually ROE, so we got down to about a 150 basis point to lag [inaudible]. In the big CapEx years we’re going to struggle a little bit more but as growth has come down in our industry and I’m really talking about our sales growth, it really tends to exacerbate regulatory lag when you don’t have any new kilowatt hour sales to help pay for increased expenses. Michael Goldenberg So help me understand this then, generally the way the rate cases work even with in stage with structural lag in your first year of rate case, let’s say it’s a three year cycle. Your drag is generally the lowest right when you get the rates and then I agree that if you have a lot of CapEx then by the end of year three that structural lag increases and that’s generally the way it works so. I kind of thought or was working on the assumption that if you take the period of July ’15 through June ’16, structure, that should be the time of your least drag. Is that not the right way or is the drag actually going to then get even worse? Brad Beecher I think you’re thinking about it correctly. Once our rates go into effect in ’15 until such time as we start big depreciation expense on Riverton 12 going into service, that will be the time of least regulatory lag in that kind of window, that year after you get rates and before you start depreciation and O&M on the new assets coming into service. Michael Goldenberg Okay and just to be precise, Riverton depreciation starts when? Laurie Delano Well we’re assuming that Riverton will come online in mid-2016 and so you would assume that deprecation would start immediately after it comes online Michael Goldenberg So then we would see drags of even more than 200 bps? Laurie Delano Well we haven’t really quantified that but – I mean it’s – you’re going to see the same, a little bit the same scenario again depending on what the depreciation amount is for Riverton and the other thing you see is AFUDC benefit dropping off when that plant comes into service, you know that’s happening on the Asbury project also. Brad Beecher And then as we’ve talked about earlier when the new plants come online we have got property taxes that get assessed [ph] and we have lag on property taxes as well. Michael Goldenberg But yes you get the revenue step up to make up for all of that and give you as much to the bottom-line as AFUDC used to, isn’t that the general concept, that when a plant goes into service. If everything is done ideally then revenue just increases for the amount that the expenses are and the net income stays roughly the same for a $1 off CapEx whether it’s AFUDC or cash. Laurie Delano Yes, when your rates go into effect that’s true but in those intervening months until they go into effect the time that plant comes online that’s where you’re going to drag. Michael Goldenberg And then just finally, conceptually thinking, yes it’s very good ’14 right? You made $1.55 and that’s before rate case, now you actually are going to get new rates and you do know how to CapEx and yet your earnings are going down and just judging by the structure of going into ’16 and then more depreciation. It’s hard to see how structurally putting in all this CapEx is actually – instead given the situation Missouri, does it actually incentivize investment where the company actually financially hurts from putting in more and more CapEx? Brad Beecher Well in the end our business model in Missouri is we earn a return on assets that we build to serve our customers. We’re going through structural pain and this is a perfect example, Asbury went into service. It’s been used to service customers, we’re depreciating it today and expensing it in early ’15. We’re paying property taxes, we’re paying O&M and we’re getting no recovery from customers until rates go into effect no later than July 26th and that is Missouri structural lag and it is a disincentive but it is the world that we live in. We’ve worked very, very hard in the Missouri legislature last couple of years trying to get some relief on plan in-service, trying to get relief on property taxes and we have so far being unsuccessful. Operator [Operator Instructions]. And another question just came in from Tim Winter of Gabelli & Company. Please go ahead. Tim Winter I just had one follow-up, Brad. Where is the legislation stand right now in Missouri to give property taxes and transmission expenses [ph] and whatever else included. Brad Beecher At the current time Tim to my knowledge there is not any legislation filed related to plant in-service and/or property taxes. We have got a lot of uncertainty in the state right now as the governor is got a statewide energy plan underway, I don’t know if you participated but there has been input meetings across the state and we would expect a statewide energy plan to come out sometime May kind of timeframe. We have got 111(d) and how that’s going to get finalized. So right now we’re still – I’m expecting a pretty quiet year in Jeff City, not saying that something can’t get done but I’m expecting a pretty quiet year in Jeff City, not saying that something can’t get done but I’m expecting a pretty quiet year in Jeff City as it relates to this topic. Tim Winter The statewide energy plan include something about – would address this issue? Because you’re not the only utility in the state that has this issue. Brad Beecher We’re absolutely not the only utility in the state with this issue. The statewide energy plan is comprehensive, it’s everything that you can think about from solar to distributed generation to responses and emergencies to what we need to build assets just about everything has been talked about in one work group or another. So, it’s a work in progress, it’s being led by a member of the governor staff and so we will have to see where it goes. But we certainly brought up this concern. Operator And this concludes our question and answer session. I would like to turn the conference back over to Brad Beecher for any closing remarks. Brad Beecher Thank you. Before we close I remind you that Laurie and I will be at the UBS Analyst Day in Boston on March 3rd and 4th and Laurie and Dale will be the AJA Mini-Forum in Dallas on March 17th and 18th. Also we will be saying goodbye to Jen Watson at the end of April as she has decided to retire. Jen has served Empire in the Secretary and Treasurer positions since 1995. We thank Jen for her service and wish her the best. The Board has named Dale Harrington to replace Jen as Secretary beginning May 1, 2015. Dale will also continue in this role of Director of Investor Relations. Thank you for joining us today and have a great weekend. Operator The conference is now concluded. Thank you for attending today’s presentation. 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. 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