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 and six months ended June 30, 2022, compared with the same periods in 2021. The distribution utilities served approximately 107,700 electric customers and 86,600 gas customers, and net utility plant was $1,279.1 million at June 30, 2022.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total operating revenue | $98.9 million, up from $96.6 million | $291.5 million, up from $235.4 million |
| Operating income | $11.9 million, up from $10.8 million | $47.7 million, up from $44.2 million |
| Net income | $4.9 million, up from $2.7 million | $26.4 million, up from $21.6 million |
| EPS | $0.30, up from $0.18 | $1.65, up from $1.44 |
| Electric adjusted gross margin | $23.6 million, down from $24.3 million | $48.2 million, up from $48.0 million |
| Gas adjusted gross margin | $28.2 million, up from $25.0 million | $80.2 million, up from $72.8 million |
| Cash flow from operations | Not separately reported | $71.0 million, down from $84.4 million |
| Capital expenditures | Not separately reported | $45.3 million, up from $42.5 million |
Operating expenses were $87.0 million in the second quarter and $243.8 million for the first six months. Operation and maintenance expense increased 5.1% in the quarter and 7.0% year to date, primarily from higher professional fees and labor costs. Net interest expense was $6.3 million in the quarter and $12.5 million year to date, down $0.5 million year to date.
Second-quarter electric sales decreased 1.6%, while six-month electric sales were essentially unchanged. Gas therm sales increased 2.2% in the quarter and 3.3% year to date. Cooler late-spring weather reduced electric demand, while colder winter weather and customer growth supported gas sales.
Liquidity, Debt and Capitalization
- Cash and cash equivalents were $5.1 million at June 30, 2022, compared with $6.5 million at December 31, 2021.
- Short-term borrowings were $46.2 million, compared with $64.1 million at December 31, 2021.
- Long-term debt, net of issuance costs, was $503.3 million, including $8.2 million of current maturities.
- Total stockholders’ equity was $464.3 million and total capitalization was $959.4 million.
- The $120.0 million revolving credit facility had $73.8 million available at June 30, 2022. The facility expires July 25, 2023, subject to extension provisions.
- The Company was in compliance with its debt covenants, including the requirement that funded debt to capitalization not exceed 65%.
- Operating cash flow of $71.0 million exceeded capital expenditures of $45.3 million, while financing activities used $27.1 million, including $12.6 million of dividends and net short-term debt repayments.
- Quarterly dividends were increased to $0.39 per share, representing an annualized rate of $1.56 per share.
Material Changes Versus the Prior Comparable Period
- Net income increased 81% in the second quarter and 22% for the first six months.
- Gas gross margin increased primarily because of higher approved rates, including the New Hampshire base-rate case, as well as customer growth and colder weather.
- Electric gross margin was essentially flat in the quarter and increased modestly year to date; higher rates and lower depreciation offset weather-related sales pressure.
- Revenue increased substantially year to date because of higher pass-through electric and gas supply costs and higher gas sales. These supply costs are generally recovered from customers and do not directly affect earnings.
- Unitil Energy became subject to revenue decoupling effective June 1, 2022. The Company stated that substantially all annual electric sales volumes were then decoupled.
- Northern Utilities’ New Hampshire gas operations were approved for revenue decoupling effective August 1, 2022, expected to increase the portion of total gas volumes subject to decoupling to approximately 43%.
- Net utility plant increased from $1,257.2 million at December 31, 2021 to $1,279.1 million at June 30, 2022.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a specific earnings or financial outlook. Management stated that future operating cash flows, available borrowing capacity and access to debt and equity markets are expected to be sufficient for working capital and capital investment needs.
- Key risks include regulatory decisions affecting rates and cost recovery, interest-rate increases, access to financing, weather variability, severe storms, commodity supply and pricing, cyberattacks, operational disruptions, climate-related regulation and changing customer energy preferences.
- COVID-19 had not disrupted utility service through the filing date, but management continued to identify potential effects on employees, contractors, customer demand, supply availability, cash flows and operating costs.
- Fitchburg’s proposed 1,600-megawatt offshore wind portfolio remained pending before the Massachusetts Department of Public Utilities. Related long-term clean-energy obligations could materially affect contractual commitments if contingencies are satisfied.
- Environmental investigations and remediation continued at former manufactured-gas-plant sites and Unitil Energy’s Kensington facility. Recorded environmental obligations were $2.8 million at June 30, 2022; management did not identify material losses reasonably likely to exceed recorded amounts.
- Regulatory accounting depends on the continued probable recovery of regulatory assets. Total regulatory assets were $148.0 million, including $41.4 million classified as current.
- The Company had approximately $0.7 million of guarantees outstanding on energy and gas storage management contracts, generally with maturities under one year.
- The Company reported no material changes to the risk factors in its 2021 Form 10-K, no material subsequent events, and no material impact from legal proceedings.
Investor Verification Checklist
- Verify the timing and final revenue impact of the Unitil Energy and Northern Utilities New Hampshire rate cases and related step adjustments.
- Assess whether revenue decoupling reduces future sensitivity to electric and gas sales volumes and weather.
- Monitor refinancing and interest-rate exposure as the revolving credit facility approaches its July 2023 maturity and short-term borrowing costs increase.
- Review capital expenditure requirements, regulatory recovery mechanisms and the effect on operating cash flow and dividend coverage.
- Track pending Massachusetts offshore wind contracts and potential long-term power purchase obligations.
- Evaluate environmental remediation developments and whether future costs remain recoverable through rates.
- Reconcile non-GAAP adjusted gross margins to GAAP results and distinguish pass-through commodity revenue from earnings-generating distribution margins.