Questar Corporation (STR)

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Questar (STR)

Q1 2013 Earnings Call

May 01, 2013 9:30 am ET

Executives

Kevin W. Hadlock - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Ronald W. Jibson - Chairman, Chief Executive Officer, President, Chief Executive Officer of Questar Gas Company, Chief Executive Officer of Wexpro, President of Questar Gas Company and President of Wexpro

Craig C. Wagstaff - Executive Vice President and Chief Operating Officer of Questar Gas

James R. Livsey - Executive Vice President and Chief Operating Officer of Wexpro

R. Allan Bradley - Executive Vice President, Chief Executive Officer Questar Pipeline and President of Questar Pipeline

Analysts

Michael Bates - D.A. Davidson & Co., Research Division

Timm Schneider - Citigroup Inc, Research Division

Presentation

Operator

Good morning. My name is Lisa, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2013 Earnings Release Conference Call. [Operator Instructions] Thank you. Mr. Kevin Hadlock, you may begin your conference.

Kevin W. Hadlock

Thank you, Lisa. Good morning everyone, and thank you for joining us for Questar's First Quarter 2013 Earnings Conference Call. I am Kevin Hadlock, Questar's Chief Financial Officer. With me today are Ron Jibson, Chairman, President and CEO of Questar Corporation; Jim Livsey, Executive Vice President and COO of Wexpro; Allan Bradley, President and CEO of Questar Pipeline; and Craig Wagstaff, Executive Vice President and COO of Questar Gas.

During this call, we will be referring to our first quarter 2013 earnings presentation that can be found on our website at www.questar.com.

Moving to Slide 2. Before we begin, let me remind you that we will be making forward-looking statements during our call today, and actual results could differ from our estimates for a variety of reasons that we described in our SEC filings.

Also, this call may reference non-GAAP financial measures. Our slides in the appendix of the presentation provides reconciliations to these measures. Let's begin with a review of the first quarter on Slide 4.

Today, we reported first quarter 2013 net income of $72.9 million or $0.41 per diluted share. These results compared to net income of $75.2 million or $0.42 per diluted share in the first quarter of 2012. Adjusted EBITDA was strong in the first quarter totaling $183.8 million, an increase of about 5%, compared to last year's first quarter.

Combined O&M and G&A expense was down 4%, compared to the first quarter of 2012. Capital investment for the first quarter was $84 million, a decrease of about 19%, compared to the prior year.

Turning to Slide 5. All business units performed as expected in the first quarter. Consolidated net income was down $2.3 million or $0.01 per diluted share versus the first quarter of 2012. Corporate and other operations reported a net loss of $6.2 million in the first quarter of 2013, compared to a net loss of $600,000 in the first quarter of 2012. This was driven by higher estimated state income tax due to state tax law changes, higher mark to market valuations under deferred compensation due to the recent rise in Questar's share price and start-up losses at Questar Fueling, which are aggregated at the corporate level.

Moving to Slide 6. Questar Gas, our retail gas distribution utility showed a slight decrease in gross margin to $128 million. Adjusted EBITDA was higher by $2.8 million and net income was up by $2.1 million compared to the same period last year. This increase was due to higher recovery of infrastructure replacement investment and customer growth, partially offset by increase employee related and other cost.

Questar Gas' capital investment in the first quarter was $31.7 million, a decrease of $13.1 million, compared to the first quarter of 2012, driven primarily by the timing of capital investment as construction was delayed due to colder than normal weather in the first quarter this year.

Turning to Slide 7. Wexpro, our cost-of-service natural gas development company grew adjusted EBITDA to $62.4 million, up $7.9 million or about 14%, compared to the same period last year. Net income was up $2 million to $26.3 million, an increase of 8% over the first quarter of 2012. These results were driven largely by a higher 12-month average investment base, which increased $59.1 million. Wexpro invested capital of $37.8 million in the first quarter, down $5.6 million compared to last year's first quarter.

Moving to Slide 8. Revenue at Questar Pipeline, our interstate natural gas pipeline and storage business, was down $1.2 million in the first quarter, primarily due to lower revenues from natural gas liquids. Adjusted EBITDA was also slightly lower.

Questar Pipeline earned net income of $15.8 million, down $800,000 versus the first quarter of 2012. Capital investment in the first quarter was $14.1 million, which was $2 million higher than the prior year.

Moving to Slide 9. With regard to cost, Questar's consolidated operating and maintenance cost in the first quarter were down $8.5 million, compared to the same period last year, due largely to lower Questar Gas demand-side management costs, lower Questar Pipeline compressor maintenance spend and lower Wexpro well work over spend. General and administrative expenses were up $4.7 million, primarily due to higher employee-related costs.

Production and other taxes were $1 million higher, driven by higher Questar Gas property taxes. Depreciation in the first quarter of 2013 was up $4.3 million, compared to the same period last year due to higher capital investment. Consolidated interest expense was essentially flat versus the first quarter of 2012.

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