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 serving approximately 107,700 electric and 86,600 gas customers. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Results are seasonal, particularly for the gas business, which generally benefits from heating demand in the first and fourth quarters. Net utility plant was $1,259.9 million at March 31, 2022.
Financial performance and key metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Operating revenue | $192.6 million | $138.8 million | +$53.8 million |
| Operating income | $35.8 million | $33.4 million | +$2.4 million |
| Net income | $21.5 million | $18.9 million | +$2.6 million |
| Basic and diluted EPS | $1.35 | $1.26 | +$0.09 |
| Cash flow from operations | $29.1 million | $47.7 million | -$18.6 million |
| Capital expenditures | $15.4 million | $14.1 million | +$1.3 million |
Operating margin was approximately 18.6% in Q1 2022 versus 24.1% in Q1 2021, primarily because revenue growth included substantially higher pass-through energy costs. Net margin was approximately 11.2% versus 13.6%.
- Electric operating revenue was $89.2 million, up 48.4%; electric adjusted gross margin, a non-GAAP measure, was $24.6 million, up 3.8%.
- Gas operating revenue was $103.4 million, up 31.4%; gas adjusted gross margin was $52.0 million, up 8.8%.
- Total electric sales increased 1.4% to 430.0 million kWh. Gas therm sales increased 3.8% to 98.8 million therms.
- GAAP gross margin increased to $61.1 million from $56.6 million.
- Operation and maintenance expense increased $1.5 million, depreciation and amortization increased $0.6 million, and taxes other than income taxes increased $0.6 million.
- Net interest expense declined $0.5 million to $6.2 million, while income tax expense increased $0.9 million to $7.4 million. The effective tax rate was 26% in both periods.
Balance sheet, debt and liquidity
| Balance-sheet item | March 31, 2022 | December 31, 2021 |
|---|---|---|
| Total assets | $1,552.3 million | $1,540.3 million |
| Cash and cash equivalents | $6.5 million | $6.5 million |
| Short-term debt | $64.0 million | $64.1 million |
| Long-term debt, net | $504.8 million | $506.0 million |
| Total stockholders’ equity | $465.3 million | $448.5 million |
The $120.0 million revolving credit facility had $64.0 million outstanding and $56.0 million available at March 31, 2022. Gross borrowings during the quarter were $96.8 million and gross repayments were $96.9 million. The company was in compliance with its debt covenants, including the 65% funded-debt-to-capitalization limit.
Operating cash flow of $29.1 million funded capital expenditures of $15.4 million and substantially supported $13.7 million of financing cash outflows, including $6.3 million of dividends. Credit ratings were BBB+ from Standard & Poor’s for Unitil and its principal utility subsidiaries; Moody’s ratings ranged from Baa1 to Baa2.
Material changes versus the prior comparable period
- Revenue growth was driven mainly by higher electricity and gas supply costs recovered through customer rates, higher approved rates, customer growth and colder weather.
- Electric adjusted gross margin increased $0.9 million, reflecting higher rates and customer growth.
- Gas adjusted gross margin increased $4.2 million, including $2.8 million from higher rates and $1.4 million from customer growth and colder weather.
- Average effective degree days were 4.6% higher than in Q1 2021 but 1.3% below normal. Weather-normalized gas therm sales, excluding decoupled sales, increased an estimated 1.8%.
- Electric customers increased by approximately 550 and gas customers by approximately 1,000 year over year.
- Net income benefited from stronger adjusted gross margins, lower interest expense and lower retirement benefit costs, partly offset by higher labor, professional, depreciation, payroll tax and income tax expenses.
- Cash flow from operations declined because of working-capital and regulatory-account changes, despite higher net income.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings or revenue guidance. Management stated that operating cash flows, available borrowing capacity and access to private and public capital markets are expected to be sufficient for working-capital and capital-investment needs.
- Unitil Energy’s permanent rate case settlement remained pending before the New Hampshire Public Utilities Commission. Northern Utilities’ New Hampshire base-rate case also remained pending.
- Regulatory proceedings concerning COVID-19-related bad debt, waived fees and other customer-protection costs remained pending. Recovery treatment differs by jurisdiction.
- Massachusetts proceedings regarding gas utilities’ role in achieving 2050 net-zero greenhouse-gas goals could affect future gas utility planning, investment and business models.
- Fitchburg’s proposals for additional offshore wind contracts were expected to be filed with the Massachusetts Department of Public Utilities by the end of May 2022. The company stated that certain long-term clean-energy obligations could materially affect contractual commitments once contingencies are satisfied.
- Key risks include regulatory disallowance or delayed recovery, interest-rate increases, access to financing, severe weather and storms, commodity-price and supply disruptions, cyberattacks, climate and environmental requirements, pension obligations, and COVID-19 effects.
- The company reported approximately $0.7 million of limited guarantees on energy and gas-storage contracts and $2.7 million of environmental obligations at March 31, 2022. It stated that no material environmental losses were reasonably likely beyond recorded amounts.
- The company reported no material subsequent events through the filing date and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Progress and final outcomes of Unitil Energy and Northern Utilities rate cases, including treatment of COVID-19-related costs.
- Actual utility capital spending, regulatory-asset recovery and cash-flow performance over the remainder of 2022.
- Refinancing requirements as the July 2023 revolving credit facility maturity approaches and as long-term debt maturities occur.
- Exposure to higher short-term interest rates, which would increase expense on variable-rate borrowings.
- Approval, pricing and contingent obligations related to Fitchburg’s renewable and offshore-wind contracts.
- Potential financial effects of Massachusetts decarbonization policies and other environmental or climate-related regulation.
- The sustainability of the $0.39 quarterly dividend, equivalent to a stated annualized rate of $1.56 per share, relative to future cash generation and capital needs.