BKH - Earnings call transcript Q1 2018 | Black Hills Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Black Hills Corporation First Quarter 2018 Earnings Conference Call. My name is Brian, and I will be your coordinator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the presentation over to Mr. Dave Soderquist, Investor Relations now of Black Hills Corporation. sir. proceed, Please

Dave Soderquist

Kinzley, to Conference Welcome are Corporation's Quarter and First Emery, Financial and Good Officer. Leading Black our Earnings Rich Officer; Executive Call. and today Vice quarterly XXXX President Chairman Chief morning. Chief Hills Senior earnings David discussion

today, like in XX we be that will to Phoenix, Black May begin Before the Forum American starting note Hills attending Gas we would Association Financial Arizona.

Relations www.blackhillscorp.com, heading. information will be on under materials the presentation at Investor and webcast Our our posted website

During today, statements we defined a Exchange discussion inherent our may by make there uncertainties and and comments earnings in the of some such Securities contain are as forward-looking of Commission, comments. number the

materially. the that Although and our based list future and the to Exchange reasonable now XX-Q of and We earnings our Commission over filed Form release, are Slide differ recent turn to investor most the beliefs website differ a direct expectations results our we that with factors presentation on expectations. X you assumptions, materially Emery. believe from XX-K on Form call the for I and David our our of may will actual Securities results could some to of cause

David Emery

give CFO, we'll forward give similar starting format and quarters. financial to everyone. Dave, We'll our of past address will our will those good the Thank you, webcast for a on a for I my will I morning, the Kinzley, the the Slide be comments quick deck questions. of on along. X you have following then I'll Rich update update and strategy, cover quarter. quarter.

spending, morning, we've some format. notably, go changes a growth. into noticed, through made capital to have which or added as to may will should improve our the visibility process earnings our detail we've some forecasted we future this that our You presentation more And few notice

further progresses. to as disclosures enhance expect We those the year

our highlights Slide first utilities. quarter to X, XXXX on for Moving

the Generation, utility structure Electric which includes wind PUC through Judge, the a April, contract megawatts Law in our own million Colorado approving the of October renewable XXth an On to investments Rocky capital which importantly, final recommended that review integrity our approval XXXX. the received is state's our need April the subject we purchase That XX.X% it standard by Colorado from Mountain a gas Colorado PUC, the revenue; settlement, for XX% with a made equity renewable purchase in received final Hills rate decision includes this the an amount of and through on the of is X.X%; cover provide will from energy safety, Colorado that and approval On year annual agreement. of rider of year to system filed Black Natural XX from increase XXXX; return pipeline Administrative be settlement will of to authorized equity. year. in That a agreement power extension XX, that's $X.X subsidiary, resource intrastate to last a XX-year our energy in Colorado, of Gas, IPP meet

We be commission. approval again, June new expect final X, rates effective pending to from the

on Moving utilities continuing highlights. Slide to X, with

Electric X to segments. million, from in During constructed XXX-mile South transmission $XX construction City, be Rapid a will quarter, commenced South utility our project Dakota the Nebraska. on Dakota line That Stegall,

acquisition. electric benefit by several million end a That in by the The efforts this utility to end II I the of restructuring already Busch of resulted $XX of Colorado continued project the second generation tax Electric first Generation subsidiary and Ranch associated end megawatts XXXX. segment XX, quarter, we with in selected our That provide our in XXXX. for structure restructuring was for our Also for on should placed XXXX the Highlights prior million goodwill amortizable quarter. simplify purposes. utility. wind the to organizational entities to that through of that during tax acquired to is be the $XX of segment legal should year be Power April the we XX our now our the in service service by and wind SourceGas noted constructed

On X, for equivalent $X.XX Slide quarterly stable, to XXth to a Hills on rate encouraging. of Moving from X, for our rating affirmed annual increase. per outlook Black XX, the found of S&P corporate to which revised declared share per corporate April annual its That quarter. On consecutive $X.XX board an is equivalent $X.XXX credit at flat, which its but March we dividend dividend a rate highlights represents positive our share. share, Corporation dividend BBB

is Oil our related which Gas discontinued operations, segment. and Finally, to

to As transactions had - executed measured sales well or our agreements gas we'd closed count. of yesterday, XX% about of properties, oil gross for sell by on and as

of Now reconciliation of sell Slide the operations compared to net continuing quarter as first being will to from notable performance to we financial Rich expect provides cover financials. more the X a on Utilities. our I'll our Gas quarter, first detail prior over the provide assets most update, Rich improved to end The his which quarter. XXXX. change remaining income at to turn adjusted of it

Richard Kinzley

everyone. morning, Very Dave, good. Thanks, and good

we solid Dave on, performance. As financial quarter touched delivered first

and and benefits last weather, XX, strong measure. special adjusted to better reconciled months This X and we XX utility demonstrating XXXX. isolate XXXX in jump this earnings the year-over-year, GAAP communicate non-GAAP earnings from financial do to to represent earnings of as quarters of Now displays XX, performance. to diversified and SourceGas our March XXXX ongoing gas our trailing items delivered We favorable natural as slide the results where in acquisition. utilities portfolio the on our QX, I'll Slide with help

ongoing each we the on slide, detailed As X special past quarters. the items of our reflective experienced of not performance in

or We special first integration our in is work integration. item expenses XXXX have and forward. SourceGas the with don't acquisition adjustment acquisition-related and The that in associated completed XXXX

and corporate from XX% a in in tax taxes relates asset predominantly beginning liabilities federal tax XX% income to XXXX, assets item tax the special benefit fourth reform. of change and of on result XXXX. XXXX of required the second December deferred our $X.XX in XX, rate is - resulting EPS to a quarter revaluation The The deferred income

Given a in $X.X QX, XXXX, QX impacting related income QX charge revaluation certain additional resulting to The the estimates updated, item or $X.XX been of special in had in million information EPS. largest of also taxes.

our in legal part restructuring Dave is As simplify the as increased effort accordingly, part on we organization, not deferred of million entities The an basis. noted, $XX tax that tax reflect performance of purposes, we certain as $X.XX structured These indicative to SourceGas of ongoing as-adjusted our XXXX associated acquisition. and, of goodwill our them of in or EPS. benefit resulting items for an amortizable QX, are

was due amounts colder chart the at EPS $X.XX Electric QX year. XXXX mild Slide benefit uplift QX and chart Utilities year-over-year, Utilities as last materials by year. QX year, major illustrates net year, impacted winter to XXXX it The to the quarter $X.XX. tax comparing Our in season $X.XX XXXX the you'll the weather compared of winter rate primarily to reserve especially investor Earnings a Electric first driven transparency related XXXX. to at the QX from Again, estimate negatively from XXXX of this positively the heating This recorded to corporate to colder Utilities. All at Gas QX we've by to lower $X.XX. large We provide added driver year as reform normal, on QX by drivers EPS We new Gas to XX our was last slide the we normal, customers is impacted and was year quarter reduce EPS compared we to first weather, our differences that to last a last that compared to expect a as-adjusted to revenue compared QX mild on Gas a tax tax. additional note to a bills. pass year-over-year waterfall whether are comprise comparisons. positive estimate

the will a tax short, tax reform to benefit of a has more in regulators bit, to customers. income continue rate due our the on reform. in from lower this in our tax net the impact with utility on this our we of to work states However, but touch Dave each as earnings to result pass tax no

modestly see good limited year-over-year. You below expense income mainly reform typical a related to revenue statement. margin operating which for XXXX due Gross O&M flat consolidated that quarter XXXX, increases and year, incremental to QX by moment QX and compared basis, income the prior XX tax reduction reduced managing revenue is did to also O&M DD&A was reform, investments. with due on job was first despite to a I quarter ago. down can year-over-year offset line. Operating income expense expenses increased operating to income plant we primarily the comparing our tax a Slide Operating to the noted reserves tax again, related increases the displays

Moving line. debt. year-over-year below QX rates comparing is on XXXX, the to variable-rate Interest significant operating expense increased income XXXX short-term the line. income higher Most QX due to our on interest change, tax slightly

reforms rate, tax is recorded effective already. reorganization XX.X% effective the QX resulted to special of we after legal from in $XXX You'll note mentioned corporate year the was QX benefit rate QX tax on lower items the $XX XX.X% out million despite reduction. I this million The XXXX. pretax income This XXXX adjusting income. XX, in tax The by Slide noted compared in XXXX rate driven

to to operations quarter million we the the line, from same $XX XX% a continuing for compared increase. Moving $XX generated for as-adjusted year, income the quarter million last

the November the the the acquisition. include treasury issued to count. to the of number securities our method share of the diluted to count note treasury share QX based price closing portion daily QX accounting, decreased we during You'll XXXX this of period. in we to related convert reporting of stock a fund the include in is of required to was SourceGas average security's of shares whereby compared equity XXXX shares in apply help the stock application XXXX. our unit This mandatory The the on we method our Until due diluted late year, we're to

QX lower XXXX to compared was price share average Our QX XXXX. in

So added to million shares XXXX, we approximately X.X to in share XXX,XXX shares count, additional our diluted XXXX. in approximately QX QX compared

$X.XX shares As assuming the same beginning conversion as-adjusted compares XXXX. QX and weighted shares compared XX after XXXX I'll now XX count, Gas million as-adjusted and gross in average income from I million February we're approximately occurs. share approximately on noted business our Slide segment. have and diluted margin will each segment's QX the XX% year. discuss last full to XXXX EPS net X, reduced Utility grew increase our quarter year-end or operating Considering guidance, X income Electric we in November as XX in our call year the earnings

XXXX. quarter in Utilities Utilities Electric Electric by favorable decreased Our first operating driven $X.X of million reform, from partially the in related first compared million XXXX decreased $X.X higher transmission, quarter-over-quarter, margins weather offset tax million a revenue income gross quarter investments reserve margin Operating expenses, XXXX and to property increased of to higher XXXX, the including by as depreciation, taxes vegetation as non-energy compared with associated quarter increased and expenses million were of result revenues. rate first to well the management depreciation quarter outage-related base as investments. higher $X.X a of first and for $X.X

Moving XX. right Slide of to the slide

strong compared quarter-over-quarter, Gas $X X% reported than margin $X.X to Customer XXXX growth weather with QX compared normal degree higher normal favorable revenue XXXX the partially income million approximately were to year-over-year. Heating added recovery These million reform-related in QX mechanisms in expenses $X QX increase incremental increases were Our XXXX. below were reserves of million of nominally by XXXX. year-over-year. Utilities capital Gross as QX XX% cost $X higher prior Operating margins tax million million. and an to offset added and margins rider $X.X were comparing days reflecting management for operating Utilities. by Gas cold year, of

had QX to Slide impact reduced Power tax increased tax that unfavorable XXXX, operating income operating both income XX, comparing Also Generation realize Gas increase $X compared from XXXX to availability expense our XX, the continued volume QX on from earlier, income reform quarter the see and at first agreements. quarter power its XXXX, offset lower segment Slide earnings generating and noted of I under The in contract continued and Power its first Mining contributions. income from earnings see primarily by neutral. you the As operating $XXX,XXX to to units Electric strong sales segment flow million operating XXXX. Utilities On income you'll Generation and our purchase is is of a strong cash

quarter, the from $XXX,XXX For primarily in was sold higher revenue XXXX. higher, tons

On decreased the by O&M side, we $XXX,XXX. cost

basis our roughly sales [X-mile XX.X%, was methodology. XX, a our At almost high capitalization. plants] to continues debt-to-capitalization well increase our a quarter XXX half with ratio This level, debt strong decrease flows from and quarter at before entirely was XX reduction first as pricing mine retained total Our of a March year-end. the year-end. solid to to points first cost-plus by perform sales on-site us on net a that Slide earnings allowed driven by shows in from cash reduce based earnings as our

are unit sheet Our securities debt-to-capitalization the our XX%. mandatory - reflected year. below convert expect $XXX conversion, we million to balance November debt of until units on debt as equity decline net X this After our ratio to on

these emerge, If Slide shows While opportunities investment-grade and have to our anticipate forecasted debt debt our over XXXX The as credit the year. time-to-time short-term activities. issue need the increase issue we to maturity any XXXX mandatories we the fund of maturities. capital expenditures, our second options XXXX equity need At-the-Market which half don't also the during shows We're the XXXX maturity XX to for if equity we us available the fund from schedule. Slide our require schedule, rating. investment will may and to our XX this arises. additional do the program of borrowings to a evaluating to course equity any currently capital on remarket XXXX noted unit need we

[indiscernible] during credit to quarter, metrics On upgraded rating credit affirmed outlook committed ratings. noted, the We're Dave As those our support our positive. to strong first investment-grade the ratings and guidance maintaining our $X.XX BBB assumptions on X, reaffirming February XXXX. S&P $X.XX provided the I'll per XXXX to his to back strategic overview. turn earnings of on We're it based for XX. share Slide now previously forecasted Dave

David Emery

Thank you, All right. Rich.

Slide growth rate approach. dividend to annual transitioning strategy of Slide more XX. integration-focused record largely utility the We're year review in and drivers acquisition- term, currently since industry being the On all test years right the SourceGas preparation our execution in in of strategic entering process We a our currently with with jurisdictions. total workplace, shareholder slower leader those rate do we near the from this year and valued or of retaining or an track XX. goals XX objective do. last a over to on and every by X accomplish long-term consecutive increase in focused categories: day dividend On perspective, increases. growth still periods ratio, growth rate to to flexibility EPS the review on the returns. we're our service, targeting actually year, that EPS rate XX. In growth, earnings Moving of XX% From filings while we're for in dividend that a We X into growth of we expect so back acquisition traditional filings our have better average, We processes commencing grouped during major great the a overall above plan some strong long-term strategy next delivering and XX% slower achieving Slide active industry review to earnings now. growth a profitable payout that's process continuing

growth Over higher the we starting by rate standardization long filings. meet focus needs, capital regular driven and Slide in beyond, more term, customer and expect efficiency to expectations, investments improvements XX. and back XXXX review to continued strong our earnings on

territory service business XX. diversity Slide and delivering focus fuel more risk predictable drives earnings. we reduces on shareholder our and long-term value, As our

increase customer network, to have With comes Our increased base. electric a much in larger utility opportunity on business. much acquisitions created for over of distribution investment the the gas serve larger and and side size transmission years a both the system that

will Gas next spending $X.X Slide for provides forecast a We years And contributing similar XX invest drive which XX, a our years million for disclosed. continue Slide and a of mechanisms XX. our exceeds to X.XX far for Strong serve previously Utilities, we Electric better look, that in provides the to by X investment whole detailed Utilities. the the on recovery years plan spending over breakouts to of customers. has is our depreciation past growth. almost capital much state, billion earnings capital Slide Moving compared including to investment our detail level that X growth. and a spending type capital to new to utility X earnings

provides to status Moving the filings our highlighting income on utilities, a slide tax of regulatory This active Slide for XX. reform rate by review our dockets federal update our state. and

for July already planning other in April before was the for that Kansas, the it case Act, either passed Electric. in replace federal both that more and Colorado to income I'm utility reform its order court bills, with rate in Denver end decision You'll the beginning addressed gas very was built assigned the notice and Court treatment that in in are for Most to generation. to noted an the of The to customer of provide of I've the for some response with as Jobs several law regarding Iowa some useful the benefits are of And Kansas, Commission's The on key we've turbine the return generation beginning from that planning modern Clean positive XX, any then that process state regulatory a that appeal on their determining - review to in of related sorry, and affirmed of There and our on those do PUC started have the to in cleaner, on Public intended in for Iowa, and Colorado. for incentive is utilities exception. ruling, Colorado or the Hills. turbine turbine rate completed changes our issues commission's reflect customer or the Colorado new Colorado XXXX to the coal we prior assets other in lower notably, generator investment one rate is negative received we an Utility Iowa. updates, we're District a our the that XXXX decision to life in Colorado. fire and retire of Black Air-Clean disappointed decision constructed tax

to Now on that after compliance faith this for fact the generation, Air-Clean is good for and Act, Clean very Jobs in we assign the investment built the the return in to Colorado upheld order commission contrary and our it court the the troubling. court feel a that with troubling, and legal the lower new more of currently Air-Clean intent considering is impacts on And evaluating We're Jobs steps even the of our it's we frankly, the the business in Act. next Clean process.

on Moving to Slide XX.

we're Now including earlier, and annual years, confidence of strong dividend of several growth that past track extremely future stronger flows. increases mentioned proud earnings increases our I our reflecting the record in cash

As relatively XX% during dividend well still we're periods I to increases earlier, to flexibility earnings larger range. of have we after total strong slower solid noted deliver our years, use within ratio to payout increases few the dividend past during XX% returns. growth Even dividend shareholder help the targeted

to Slide XX. on Moving

day focus operational every we Now on excellence.

objectives. that of to improving for responsibility our power website. to holding our our our On continued way We make XX. our finally, created also XX, corporate key availabilities, you plant accomplishments consistently that the is to And available We This the industry. you, of report, is ourselves our out. best accountable This Slide scorecard in which strategic demonstrate Slide note is great new our on to shareholders, among XXXX. our continue in for and we a safety performance, encourage on progress, we've which some check are

We'd any be our entertain concludes to that questions. Now happy remarks.

Operator

our first And Dumoulin-Smith come Lynch. of Julien will America Bank from with line question Merrill of the [Operator Instructions]

Julien Dumoulin-Smith

Congratulations.

to a back said. just So few things perhaps, to come you

wind the award. on off, First

so asset, more participating on earnings this Just do curious. of suppose about these specifically perhaps kinds projects curious, But more you be strategically, anticipate And territory contract? is you one? how that broadly, service I'd profile just the do even the of more I outside your latest i.e., for example, latest of think

David Emery

would more debt IPP the than I at utility look structure. this subsidiary. with a IPP project, with financed then would as capital an would categorize expect IPP-like would it's an how is, I that a consistent categorize you that be from with consistent is from Yes. Obviously, return. also, earnings you the from our one. would returns And little probably this investment an

is of far our - I a the yes, whether do As basis. on not outside existing but we would limited as service they're would this territories, say, answer

do be would any something to have compelling full-blown where there the us far think few our others. reason a that. of That's relationship there I do for for have will strategic between, business. don't do or that's this fairly are to certain a to may I running circumstances We a in think be very existing being for it an They and so, out with customer aspirations But not IPP make strength. to whether sense however. competitor us and wholesale like

Julien Dumoulin-Smith

the right. the in investment, like, just premium a of, on would wind you latest And - discount traditional net utility income the All or returns? terms as of it profile to characterize

David Emery

I equity, Well, wind with and the income think so the significantly with capital of be less the earnings comparable, are line. tax different production as operating - a the up credits renewable then other projects, below driven they'll consistent projects return by lot And really show would structure's right? but probably

Richard Kinzley

competitive to a we of one to win lot thing competitive that, was were that That Julien. vigorously aggressive be process, a so bids. And to bid. there I'd did and add have was It

Julien Dumoulin-Smith

given you suppose big little 'XX. to an about here I might one the Can that on talk takes other CapEx made your it. turn got the for our call can more on to quickly actually, here secondly, wind me of All view and of that that in what then and little - that, you And right. terms Got And the you - now extensive sort terms the potential materialize out? equity, related back bit you would the a provided let of Understood. see forecast that under we've need some time? in a spend puts around point circumstances of in frame what of here. - comment at this in bit out you capital It's just

David Emery

our see is this wind $XX million going our you added QX, to below difference our comfortable the convert, year. flow down CapEx there. $XX additional to should through issue in of QX come that cap the cash post of comfortably we're and that'll And you We be believe to From XXXX CapEx may projects there keep When We're Yes. and we us XX%, well can that still that we capital XX%. end schedule, where then additional next XXXX. need the if I should project. year's If the large get schedule up, that the converts, below million debt-to-total after look remain to some equity. That's Julien.

Richard Kinzley

only on We've Yes. that in and to equity we at might may active, program we just And about those debt, expect any have we've story big that internal the case additional we that we'd aggressive consistent kept outlook flows some capital get that projects with forward, that use say of one finance At-the-Market the projects. current Julien. what it. special have not but talked why spending we is is absent fairly schedule. I'd have past, in our would with in going have our And that issuance is we CapEx But event cash said that

Julien Dumoulin-Smith

to? But be now we project, whether that large in sound or attention is like paying it. there capital any doesn't should other bidding It procurement

David Emery

ready those to we're that. Electric there integrate forward we Utilities about a we're projects. or are of our plans, we're looking convenience mature necessity like at have Utilities projects renewable and of pipelines, potentially, would that looking the in ready that for but yet. mature certificate some I works, into really that actually our to just that about we're Well, specific propose lines. point say something talk several public would always things for the talked not in studying We've transmission And several enough to at enough and, mean, file Gas our are not to

Operator

question our come the of with next line Weinstein And Credit Michael Suisse. will from

Michael Weinstein

the can now, in you can, had is for mean, the decision I understanding may take of commission right? file rehearing? for that decision, that rehearing this, is - still missed the So back I they - court you canceled have I anyway? it they mean, my might waiting court light the possible should or again it, right? but up think this it suspended I

David Emery

We've got all appeal, those. could is, of of One and Yes. several options we course, evaluating we're which level certainly do. another

we received basically we're be it to the elect could frankly, and in having would one options discussing the of they're rate table. other include to time. point ruling the table. All earlier or are options go back to week, are frankly, the at either that commission still in and ones those all ask And that what pursue rehear on is on another which case. just The the best this this process in But those

Michael Weinstein

Mountain gas decisions, ALJ approval - and also Ranch Rocky bode for Yes. I pipeline court guess there for I interest those think possible a decision? recommendation, rehearing mean, my light the of do they the the other well is you that Busch despite in

David Emery

It's to speculate. really say hard to hard and

we working we've with in the think relationship and been pleased hope I that recently continues. commission

Michael Weinstein

savings you Iowa beyond and the discussions passback of any give color other Kansas? tax Can Okay. the on on

Richard Kinzley

Well, states process. various in of they're all

pipeline, Rocky that the of So Natural includes settlement Colorado Mountain Gas tax the reform. impacts

completed, in Wyoming to reviews of others Northwest then rate from at they and the early various very underway. And all active process, well Arkansas, in Our will tax the of when in stages the get results are reform. include the

or That's the in difference the not it back tax from customers refund customers go those - back we to most going rate state-by-state, be for but collecting change. we've best and happen that difference stop to start that going position of decision case of their rate to to the and it's and state, commission-depended it's tact Our going on every forward think we date taken recent tax don't think. course, a the just in most collecting of and, effective to - compute rate the

making. comfortable of are and rather look the progressing, we're happy, all us Some what's frankly, rate to than them with at the previous But back most the we're and to case. impact are asking progress current impact the

little though. a slower, be will Some

Operator

Instructions] [Operator further closing the lines. over proceed remarks. David questions Mr. showing Emery, with please And I'm no phone

David Emery

time thanks are earnings All you We our great you attending forward you. who visiting a and there. everyone. look day Forum, of right. attention Well, this QX to your to Thank those and you And for Thank weekend. we call. morning, going you. for great with the Have at a AGA Financial appreciate be

Operator

on and today's gentlemen, thank participation presentation. the concludes you This Ladies for your conference.

disconnect. may You now day. Good

Black Hills (BKH) 4 May 182018 Q1 Earnings call transcript