Unitil Corporation 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company distributing electricity and natural gas in New Hampshire, Massachusetts and Maine, with an interstate gas transmission subsidiary. The filing covers the three months ended March 31, 2024, compared with the same period in 2023. Unitil served approximately 108,500 electric and 88,400 gas customers and had $1.43 billion of net utility plant at March 31, 2024.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total operating revenue | $178.7 million | $220.2 million | Down $41.5 million |
| Operating income | $44.2 million | $39.5 million | Up $4.7 million |
| Net income | $27.2 million | $24.1 million | Up $3.1 million |
| Basic and diluted EPS | $1.69 | $1.51 | Up $0.18 |
| Cash from operating activities | $26.6 million | $15.3 million | Up $11.3 million |
| Capital expenditures | $20.2 million | $22.2 million | Down $2.0 million |
Operating margin was approximately 24.7% versus 17.9% in the prior-year quarter. Net margin was approximately 15.2% versus 10.9%. Electric adjusted gross margin, a non-GAAP measure, was $27.1 million, up $0.4 million. Gas adjusted gross margin was $61.0 million, up $6.1 million. Combined adjusted gross margin was $88.1 million versus $81.6 million.
Electric revenue declined 32.0% to $73.6 million, primarily because lower wholesale supply costs were passed through to customers. Gas revenue declined 6.2% to $105.1 million for the same reason and because of lower gas usage. Electric sales were essentially unchanged, while gas therm sales decreased 1.8% as winter weather was warmer. Customer counts increased by approximately 500 electric customers and 1,100 gas customers year over year.
Operating expenses were $134.5 million, down from $180.7 million, reflecting lower pass-through energy costs. O&M expense increased 0.6% to $18.2 million; depreciation and amortization increased 7.8% to $18.0 million; taxes other than income taxes increased 5.5% to $7.7 million; and net interest expense increased to $7.3 million from $7.1 million. The effective income tax rate was 26% in both periods.
Liquidity, Debt and Capital
- Cash and cash equivalents were $6.3 million at March 31, 2024.
- Short-term borrowings were $169.9 million, up from $162.0 million at December 31, 2023 and $140.2 million at March 31, 2023.
- The $200 million revolving credit facility had $30.1 million of availability at March 31, 2024, including a $25 million letter-of-credit sublimit. The facility matures September 29, 2027, subject to possible extensions.
- Long-term debt, net of issuance costs, totaled $512.8 million, including $4.9 million of current maturities. Total capitalization was $1.02 billion, including $510.8 million of stockholders’ equity.
- Unitil was in compliance with its credit facility covenants, including the 65% funded-debt-to-capitalization limit. The company and its utility subsidiaries were rated BBB+ by S&P; Moody’s ratings ranged from Baa1 to Baa2.
- Operating cash flow exceeded capital expenditures by $6.4 million before dividends. Dividends paid were $6.8 million. The board declared a quarterly dividend of $0.425 per share, equivalent to an annualized rate of $1.70 per share.
Material Changes Versus the Prior Comparable Period
- Net income increased 12.9% and EPS increased 11.9%, driven mainly by higher regulated rates, customer growth and a $6.1 million increase in gas adjusted gross margin.
- Revenue decreased 18.8% because lower electricity and gas commodity costs were passed through to customers and did not materially affect earnings.
- Warmer winter weather reduced gas demand, but the earnings impact was limited by revenue decoupling and rate mechanisms. Approximately 42% of annual gas therm sales were decoupled, and substantially all electric sales were decoupled.
- Net utility plant increased to $1.43 billion from $1.34 billion at March 31, 2023, contributing to higher depreciation and property taxes.
- Short-term debt increased year over year, and average short-term borrowing rates rose to 6.7% from 5.9%.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a specific earnings or financial guidance target. Management states that first-quarter results are seasonal and are not necessarily indicative of full-year results.
- Fitchburg’s electric and gas base-rate proceedings sought net distribution revenue increases of approximately $4.1 million and $6.7 million, respectively, with decisions expected in June 2024. Northern Utilities’ Maine TIRA filing for a $2.4 million annual rate increase was approved effective May 1, 2024.
- Unitil Energy requested recovery of approximately $3.9 million of storm reserve under-collections and carrying costs over three years; the matter remained pending.
- Massachusetts climate and decarbonization proceedings may require non-pipeline alternatives analyses, climate compliance plans and changes to revenue decoupling. These matters could affect future investments and cost recovery.
- Fitchburg and other Massachusetts utilities were evaluating bids received under a new offshore-wind solicitation; selection was scheduled for August 7, 2024. Prior offshore-wind projects were terminated, with Unitil’s $1.1 million share of termination payments recorded as a regulatory liability for customer benefit.
- Environmental obligations totaled $4.8 million. The Rochester manufactured-gas-plant site had $2.5 million accrued, with reasonably possible remediation costs as high as $5.6 million; recovery through rates is expected under existing mechanisms.
- Key risks include regulatory disallowance or delayed recovery of costs, interest-rate increases, reliance on short-term borrowings, severe weather and storms, cyberattacks, commodity and capacity risks, environmental liabilities, climate-related regulation, labor availability and access to debt or equity financing.
- No material changes were reported to the risk factors in the 2023 Form 10-K. Management concluded that disclosure controls were effective and that pending legal and administrative matters were not expected to have a material effect.
Investor Verification Checklist
- Verify the amount and timing of pending Massachusetts rate-case decisions and their effect on future revenue and cash flow.
- Monitor short-term debt utilization, credit-facility availability, borrowing rates and compliance with the 65% leverage covenant.
- Assess whether continued capital investment and higher depreciation and interest costs are being recovered through rates.
- Evaluate the financial implications of Massachusetts decarbonization requirements, non-pipeline alternatives and offshore-wind procurement.
- Review storm-cost recovery filings, regulatory assets and liabilities, and the collectability of deferred costs.
- Track Rochester and other manufactured-gas-plant remediation outcomes and potential costs above recorded environmental obligations.
- Consider the effect of warmer or more volatile weather despite the company’s extensive revenue-decoupling mechanisms.