Ladies and gentlemen, thank you for standing by. And welcome to the Unitil Corporation First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. I would now like to hand the conference over to your speaker for today, Mr. Todd Diggins, Director of Finance. Sir, you may begin.

Good afternoon. And thank you for joining us to discuss Unitil Corporation's first quarter 2020 financial results. With me today are Tom Meissner, Chairman, President and Chief Executive Officer; Larry Brock, Senior Vice President, Chief Financial Officer and Treasurer; Dan Hurstak, Controller; and Todd Black, Senior Vice President, External Affairs and Customer Relations. We will discuss financial and other information about our first quarter results on this call. As we mentioned in the press release announcing the call, we have posted that information including a presentation to the Investors section of our website at www.unitil.com. We will refer to that information during this call. On Slide 2, the comments made today about future operating results or future events are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted. Statements made on this call should be considered together with cautionary statements and other information contained in our most recent annual report on Form 10-K and other documents we have filed with or furnished to the Securities and Exchange Commission. Forward-looking statements speak only as of today, and we assume no duty to update them. This presentation contains non-GAAP measures. The accompanying supplemental information more fully describes these non-GAAP measures and includes a reconciliation to the nearest GAAP measures. The company believes these non-GAAP measures are useful in evaluating its performance. I'm moving on to Slide 3. Before we start, I'd like to introduce some recent changes in senior management. Larry Brock was recently appointed as Senior Vice President, Chief Financial Officer and Treasurer. Larry has been with Unitil for over 25 years, serving most recently as Chief Accounting Officer and Controller. Larry's vast experience ensures strong leadership to guide Unitil forward. Dan Hurstak has also joined the management team as the company's new Controller. Dan has nearly 20 years of accounting experience, most recently serving as Vice President, Corporate Accounting for Fidelity Investments. Prior to that, Dan worked for 15 years at PricewaterhouseCoopers. I will now turn the call over to Chairman, President and CEO, Tom Meissner.

Thank you, Todd, and thanks, everyone, for joining us today. I'm going to begin on Slide 5. But first, let me just say that our thoughts and sympathies are with the victims of the coronavirus and their families. This is a very difficult time for our customers and communities and our highest priority continues to be the safety of our employees and that of our customers. In response to the ongoing pandemic, we implemented our crisis response plan to execute preventative and proactive measures during this unprecedented time. We are pleased that there's been no interruption or degradation in our customer service as a result of this emergency, and no impact on our ability to provide safe and reliable service. The gas and electric services we provide are more essential today than they've ever been before for our customers and our communities. To help our customers during this difficult time, we've suspended all service disconnections and late payment fees. In addition, we've created a fund to provide financial assistance to residential customers who've suffered COVID-19-related job loss or reduced wages. In total, we've donated $225,000 to agencies within our service areas to help relief efforts. We also have an employee fundraising campaign ongoing that has raised additional funding for COVID-19 relief efforts, and we've seen strong response from our employees. Operationally, the company has continued to provide safe and reliable service throughout this ongoing emergency. We quickly adopted protocols to ensure social distancing in the field while ensuring operational continuity. Office workers have seamlessly transitioned from work to home where appropriate. And even with employees working remotely, we continue to answer customer inquiries and have seen no decline in the level of service. On top of the ongoing COVID-19 emergency, we also successfully responded to two storm events that created…

Thanks, Tom. Good afternoon, everyone. I'll begin my remarks on Slide 9. Before reviewing our gas and electric sales activity, I'd like to briefly talk about warmer winter weather that Tom previously mentioned. To put the warm winter weather into perspective, quarter one winter weather was 11.5% warmer than 2019 and 13.2% warmer than normal, based on the company's Degree Day analysis. This was one of the warmest winters on record in our service areas, and unfavorably impacted sales in both the gas and electric divisions. In total, the company estimates that if weather had been closer to normal, net income would have been higher by about $3.1 million or $0.20 per share. Turning to Slide 10. Our year-to-date gas adjusted gross margin is $42.4 million, which is a decrease of $1.1 million over 2019. This decrease was primarily driven by the warmer winter weather and lower sales, which had an impact compared to 2019 of $3.2 million. This decrease in margin was partially offset by the positive impacts of higher gas distribution rates in 2020 of $1.4 million and customer growth impact of $0.7 million. Natural gas therm sales decreased 6.7% compared to the first quarter of 2019. Given the milder winter weather in 2020, the company estimates that weather-normalized gas therm sales, excluding decoupled sales, were up 1% year-over-year. We are currently serving 1.3% or about 1,100 more gas customers than at the same time in 2019. Next, on Slide 11. Our year-to-date electric adjusted gross margin is $23.1 million, which is flat to 2019. Electric sales margins in the period were positively affected by higher electric distribution rates of $0.6 million. However, this positive difference was offset by the impact of the warmer winter weather and lower average usage of the same $0.6 million. Total electric kilowatt…

[Operator Instructions] Our first question comes from Julien Dumoulin-Smith of Bank of America. Your line is open.

This is Alex Morgan dialing-in for Julien. I just had one quick question. But first, I definitely wanted to congratulate you, Laurence and Dan. My question is on the mild weather that you experienced, thanks for being clear on the negative impact of $0.20. I was hoping you might be able to talk a little bit about if you plan to mitigate any of that with O&M cost savings in 2020 specifically? Thank you so much.

In terms of the current year, I think, clearly, the weather impact is just one of the challenges we're going to face. And then the next impact is going to be from the ongoing shutdowns from COVID-19 pandemic. There clearly will be some offsets. We've seen reductions in healthcare expenses. Certainly, travel is down. Training is down. Other discretionary expenses are down. And we're currently delaying hiring in large part because it's impractical to actually conduct hiring at the moment. So, there will be some offsets, but it's difficult to quantify offsets that are going to significantly offset the decline that we saw in sales in Q1.

Thank you. Our next question comes from Shelby Tucker of RBC Capital Markets. Your line is open.

Larry, congratulations on the promotion. My question is about decoupling. You have that in Massachusetts. To what extent would you be trying to seek maybe some type of decoupling in the other two states, New Hampshire and Maine? And if you were to consider that, what either regulatory or legislative steps would you need to follow to achieve that?

Shelby, this is Tom. In New Hampshire, interestingly enough, we're required to file decoupling proposals by statute as part of our next rate case filings. So, we do anticipate filing for decoupling, both gas and electric in New Hampshire in our next rate case cycle. In Maine, we haven't really discussed whether we will be pursuing that or not, though, I think we will be giving strong consideration to filing a decoupling proposal in Maine as well, especially since we'll be doing so in New Hampshire for Northern.

And then on the point of whether legislation would be required at all. I mean, obviously, New Hampshire, not the case, but for Maine?

Not that I'm aware of. No, I don't believe legislation would be required.

[Operator Instructions] Our next question comes from Wayne Archambo of Monarch Partners. Your line is open.

Fitchburg Electric is certainly a one-off asset of yours within the mix of the Maine and New Hampshire properties. Do you see other properties similar to that in either Massachusetts or any water utilities in New Hampshire or Maine that you'd be interested in acquiring? Is there much available in the marketplace for such unique property, one-off properties? And would you be at all interested in acquiring?

I wouldn't say that there's an abundance of properties available, but I will say that we're always on the lookout for properties that would fit with our current portfolio of utilities. And certainly, I think if there was opportunities in the jurisdictions where we already operate, certainly, especially with gas and electric, not so sure about water, but I wouldn't exclude that as a possibility. Then yes, I think that, that would be something we would like to consider.

Is there much available? Are there many of these one-off local properties out there that are for sale?

I don't think there's any currently for sale. And for the most part, the properties that we would be interested in are subsidiaries of larger companies, who may or may not consider divesting of smaller properties up here in New England.

Would you consider any properties outside of the three-state area? Is there anything available in any of the other states in New England at all?

We would certainly consider, I think, states in New England. I think if we were going to go outside of New England, we'd have to think long and hard about that. And I can say that I know there's some gas properties that have come up or will be coming up in other parts of the country. And I think the big concern there is not wanting to acquire gas utilities in warm weather regions that may be subject to moratoriums on gas service. I think we feel pretty comfortable where we operate being a gas and electric company in a cold weather region that we're relatively insulated from some of the movement in that regard.

In your mind, what sort of borrowing capacity do you feel you have if you were to make any acquisitions? What sort of debt levels are you willing to take on if you were to do something? Or would it be funded through cash flow?

No, we could certainly finance acquisitions and -- as we have in the past. And certainly, I think anything up to 50% of our current market cap would be reasonable for us. But I can't say that we have a specific level that we looked at.

Thank you. I'm not showing any more questions. Ladies and gentlemen that conclude today's conference. Thank you for your participating. You may have a great day.