Unitil Corporation 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company serving approximately 107,100 electric customers and 85,600 gas customers in New Hampshire, Massachusetts, and Maine. Its principal businesses are electric and natural-gas distribution, supported by Granite State Gas Transmission. The filing covers the quarter and six months ended June 30, 2021, with unaudited results compared with the corresponding 2020 periods.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total operating revenue | $96.6 million, up from $83.9 million | $235.4 million, up from $214.3 million |
| Operating income | $10.8 million, down from $11.1 million | $44.2 million, up from $38.7 million |
| Net income | $2.7 million, or $0.18 per diluted share | $21.6 million, or $1.44 per diluted share |
| Prior-year net income | $3.1 million, or $0.21 per share | $18.3 million, or $1.23 per share |
| Operating cash flow | Not separately reported for the quarter | $84.4 million, versus $58.3 million |
| Capital expenditures | Not separately reported in the consolidated cash flow statement | $42.5 million, versus $48.8 million |
Gas operating revenue increased 18.7% to $40.0 million in the second quarter and 14.2% to $118.7 million for the first six months. Electric operating revenue increased 12.7% to $56.6 million in the quarter and 5.7% to $116.7 million year to date. A substantial portion of purchased gas and electricity costs is recovered through pass-through mechanisms and therefore does not directly affect earnings.
Gas adjusted gross margin, a non-GAAP measure, increased 9.2% to $25.0 million in the quarter and 11.5% to $72.8 million year to date. Electric adjusted gross margin increased 8.5% to $24.3 million in the quarter and 5.5% to $48.0 million year to date. Combined gas and electric adjusted gross margin was $49.3 million in the quarter and $120.8 million for the six months, compared with $45.3 million and $110.8 million, respectively.
Reported GAAP gross margin was $34.5 million for the quarter and $91.1 million year to date. The filing does not provide a consolidated net-profit margin, but net income represented approximately 2.8% of quarterly revenue and 9.2% of six-month revenue based on reported figures.
Material Changes Versus the Prior Comparable Period
- Second-quarter net income declined $0.4 million, or $0.03 per share, despite higher gas and electric adjusted margins, primarily because operating expenses increased.
- Six-month net income increased $3.3 million, or $0.21 per share, reflecting stronger adjusted margins, partially offset by higher operating expenses, depreciation, interest expense, and income taxes.
- Second-quarter O&M expense increased $2.9 million, or 19.9%, driven by higher labor costs, utility operating costs, and professional fees. Six-month O&M expense increased $2.0 million, or 6.2%.
- Depreciation and amortization increased $1.3 million in the quarter and $2.7 million year to date, primarily due to higher utility plant in service.
- Net interest expense increased $0.4 million in the quarter and $0.9 million year to date, reflecting higher interest on long-term debt.
- Gas therm sales increased 0.2% in the quarter and 4.2% for the six months. Electric kilowatt-hour sales increased 5.7% and 3.0%, respectively.
- Customer counts increased by approximately 1,200 for gas and 876 for electric compared with June 30, 2020.
Cash Flow, Debt, Liquidity, and Capitalization
- Cash provided by operating activities was $84.4 million for the six months, compared with $58.3 million in 2020.
- Capital expenditures were $42.5 million, primarily for utility plant additions, compared with $48.8 million in 2020.
- Cash used in financing activities was $42.9 million, including $25.0 million of net short-term debt repayments, $7.3 million of long-term debt repayments, and $11.5 million of dividends paid.
- Cash and cash equivalents were $5.0 million at June 30, 2021, compared with $6.0 million at December 31, 2020.
- Long-term debt, net of issuance costs, was $524.3 million, including a $19.0 million current portion. Short-term debt was $29.7 million.
- The $120.0 million revolving credit facility had $90.3 million available at June 30, 2021. The facility matures July 25, 2023, subject to potential extensions.
- Unitil was in compliance with its credit agreement covenants, including the requirement that funded debt not exceed 65% of capitalization. Total capitalization was $906.1 million, including $400.8 million of stockholders’ equity.
- Net utility plant was $1.21 billion at June 30, 2021, up from $1.15 billion at June 30, 2020.
- The company declared quarterly common dividends of $0.38 per share, representing an annualized rate of $1.52 per share.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
The filing does not provide formal earnings guidance. Management expects operating cash flow, available borrowing capacity, and access to debt and equity markets to be sufficient for working capital and planned capital investments. Utility earnings remain seasonal, particularly because of gas heating demand, and are affected by weather, customer usage, regulatory decisions, and the timing of rate recovery.
- Unitil Energy received approval for a temporary annual electric distribution revenue increase of $4.5 million effective June 1, 2021. Its base-rate case requested a permanent $12.0 million annual increase.
- Northern Utilities filed a New Hampshire base-rate case after quarter-end requesting a permanent annual revenue increase of $7.8 million and temporary rates of up to $3.2 million annually.
- Northern Utilities’ Maine customer-information-system cost investigation remains pending. The third-party audit identified potential excess costs of approximately $5.0 million out of $36.8 million; management disputes the findings and expects no material ultimate effect.
- COVID-19 proceedings concerning bad debt, service protections, waived fees, and incremental operating costs remain pending. New Hampshire regulators declined to authorize a regulatory asset for certain incremental pandemic-related bad debt and waived late fees, indicating those matters would be addressed in future rate cases.
- Massachusetts regulatory proceedings address grid modernization, gas-system safety, decarbonization, and long-term renewable procurement, including potential offshore wind and clean-energy obligations.
- Environmental matters include remediation of former manufactured-gas-plant sites and newly identified soil and groundwater contamination at Unitil Energy’s Kensington facility. Recorded environmental obligations totaled $2.1 million at June 30, 2021.
- Retirement benefit obligations were $165.1 million. The company had contributed $2.7 million to its pension plan and $1.6 million to its postretirement benefit plan during 2021 through June 30.
- Outstanding guarantees on certain energy and gas-storage contracts were approximately $0.7 million, with durations of less than one year.
- Key risks include regulatory cost recovery and rate decisions, weather, commodity and transmission costs, interest rates, access to capital, pension funding, severe storms, cyberattacks, climate-related regulation, operational hazards, and the continuing effects of COVID-19.
Most Important Facts for Investors to Verify
- Progress and ultimate outcomes of the Unitil Energy and Northern Utilities rate cases, including approved permanent rates and temporary-rate timing.
- Regulatory treatment of pandemic-related bad debt, customer arrearages, service protections, and deferred costs.
- Actual operating cash flow, capital spending, and short-term borrowing needs through the 2021 heating season.
- Debt maturities, refinancing requirements, credit ratings, covenant compliance, and available revolving-credit capacity.
- Recovery or disallowance risk for the Northern Utilities customer-information-system costs and other regulatory assets.
- Potential financial effects of Massachusetts renewable-energy, grid-modernization, decarbonization, and long-term power-purchase obligations.
- Weather-normalized gas and electric demand, customer growth, and the effect of decoupling on future margins.
- Development of environmental remediation liabilities, pension obligations, and associated regulatory recovery.