Unitil Corporation 2021 Q1 Form 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 gas distribution, supported by Granite State Gas Transmission, a regulated interstate gas pipeline. The filing covers the unaudited three months ended March 31, 2021, compared with the three months ended March 31, 2020.
Financial Performance and Key Metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total operating revenue | $138.8 million | $130.4 million | +$8.4 million, 6.4% |
| Operating income | $33.4 million | $27.6 million | +$5.8 million |
| Net income | $18.9 million | $15.2 million | +$3.7 million, 24.3% |
| Basic and diluted EPS | $1.26 | $1.02 | +$0.24 |
| Cash from operating activities | $47.7 million | $27.9 million | +$19.8 million |
| Capital expenditures | $14.1 million | $16.8 million | -$2.7 million |
| Net utility plant at period-end | $1,192.3 million | $1,125.1 million | +$67.2 million |
- Gas operating revenue increased to $78.7 million from $70.2 million. Gas adjusted gross margin, a non-GAAP measure, rose 12.7% to $47.8 million, primarily from $3.3 million of higher rates, colder weather and customer growth.
- Electric operating revenue was $60.1 million versus $60.2 million. Electric adjusted gross margin increased 2.6% to $23.7 million.
- Operating margin was approximately 24.1%, compared with 21.2% in the prior-year quarter. Net margin was approximately 13.6%, compared with 11.7%.
- Gas therm sales increased 6.1%; electric kilowatt-hour sales increased 0.7%. Residential electric sales rose 7.3%, while commercial and industrial electric sales declined 4.1% amid the pandemic.
- Operation and maintenance expense decreased $0.9 million, while depreciation and amortization increased $1.4 million due primarily to higher utility plant in service. Net interest expense increased $0.5 million to $6.7 million.
- Cash and cash equivalents were $6.1 million at March 31, 2021. Short-term borrowings were $37.3 million, leaving $82.7 million available under the $120.0 million revolving credit facility. Long-term debt, net of issuance costs, was $524.3 million, including $8.5 million current.
- Total capitalization was $919.1 million, consisting of $515.8 million of long-term debt less current portion and $403.3 million of stockholders’ equity.
- The Board declared a quarterly common-stock dividend of $0.38 per share, or a current annualized rate of $1.52 per share.
Material Changes Versus the Prior Comparable Period
- Net income and EPS benefited from higher gas margins, colder winter weather, customer growth and lower O&M expense.
- Gas weather was 8.1% colder than the prior-year quarter, although 6.6% below normal. Weather-normalized gas therm sales, excluding decoupled sales, increased 0.1%.
- Electric results were relatively stable because higher residential demand and customer growth offset lower commercial and industrial usage and increased depreciation.
- Allowance for doubtful accounts increased to $4.4 million from $1.8 million at March 31, 2020, reflecting higher expected credit losses.
- Long-term debt increased from $442.6 million, net of issuance costs, to $524.3 million, principally reflecting debt issued in September 2020 and the $4.7 million Unitil Realty loan.
- Operating cash flow improved substantially, while capital expenditures declined year over year. Financing cash outflows increased to $33.5 million, primarily due to short-term debt repayments, long-term debt repayments and dividends.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal earnings or revenue guidance. Management stated that operating cash flow, available borrowing capacity and access to private and public capital markets should be sufficient to fund working capital and planned capital investments.
- Unitil reported uninterrupted electric and gas service through the filing date despite COVID-19. Pandemic-related risks include customer demand changes, bad debts, service and supply disruptions, employee and contractor constraints, and higher operating costs.
- Regulatory recovery remains central to the business. Unitil Energy filed a New Hampshire base-rate case requesting a permanent annual revenue increase of $12.0 million and temporary rates that could increase annual revenue by up to $5.8 million. The proceeding remains subject to regulatory review.
- Northern Utilities faces an investigation into approximately $36.8 million of customer-information-system costs; a third-party audit identified potential excess costs of approximately $5.0 million. Management believes the costs were prudently incurred and expects no material effect from the investigation.
- Pending regulatory matters include COVID-19 cost and revenue recovery proceedings, renewable and offshore-wind power contracts, Massachusetts gas decarbonization planning, environmental remediation and FERC transmission-rate matters.
- Environmental obligations totaled $2.1 million at March 31, 2021, including an accrued $0.8 million for estimated Rochester, New Hampshire manufactured-gas-plant remediation costs. Management reported no material losses reasonably likely to be incurred above recorded amounts.
- The company had approximately $0.7 million of guarantees outstanding on energy and gas-storage management contracts, generally with terms of less than one year.
- Key ongoing risks include regulatory decisions and cost recovery, weather variability, interest rates, access to financing, pension obligations, severe storms, cybersecurity, environmental requirements, commodity supply and COVID-19 effects.
Important Facts for Investors to Verify
- Review the outcome and timing of Unitil Energy’s New Hampshire rate case and the requested temporary rates.
- Monitor the Northern Utilities customer-information-system cost investigation and any disallowance of the approximately $36.8 million project cost.
- Assess debt maturities, refinancing requirements and compliance with the credit-facility covenant limiting funded debt to capitalization to 65%.
- Evaluate the sustainability of earnings growth after accounting for colder weather, rate increases and seasonal gas demand.
- Track pandemic-related receivables, bad-debt expense and regulatory recovery mechanisms.
- Review the financial and regulatory exposure from Massachusetts offshore-wind and other long-term clean-energy contracts.
- Consider pension and post-retirement obligations, regulatory assets of $152.7 million, and the continued recoverability of deferred costs through customer rates.