Unitil Corporation 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company providing electric and natural gas distribution in New Hampshire, Massachusetts and Maine, plus natural gas transmission and non-regulated energy-brokering services. The filing covers the three and six months ended June 30, 2014, compared with the corresponding 2013 periods.
- Distribution utilities served approximately 102,400 electric customers and 75,900 natural gas customers.
- Net utility plant was $681.7 million at June 30, 2014.
- The natural gas business is seasonal, with strongest results generally occurring in the first and fourth quarters.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30, 2014 | Three Months Ended June 30, 2013 | Six Months Ended June 30, 2014 | Six Months Ended June 30, 2013 |
|---|---|---|---|---|
| Total operating revenue | $73.3 million | $66.4 million | $229.4 million | $184.6 million |
| Operating income | $7.1 million | $4.5 million | $32.5 million | $26.4 million |
| Net income | $1.1 million | $(0.1) million | $13.7 million | $10.7 million |
| Basic and diluted EPS | $0.08 | $(0.01) | $0.99 | $0.78 |
| Operating margin | Approximately 9.7% | Approximately 6.8% | Approximately 14.2% | Approximately 14.3% |
Gas sales margin, a non-GAAP measure defined as gas operating revenue less cost of gas sales, was $16.3 million in the second quarter and $52.8 million for the first six months, increases of 21.6% and 20.3%, respectively. Electric sales margin was $18.9 million in the quarter and $38.1 million for the six months, increases of 5.6% and 5.0%.
- Gas operating revenue increased 16.7% in the quarter and 27.4% year to date. Six-month gas therm sales increased 12.9%, supported by colder weather, customer additions and approved rate increases.
- Electric operating revenue increased 7.5% in the quarter and 21.6% year to date. Six-month electric sales increased 2.0%.
- O&M expense increased 1.3% in the quarter and 6.9% year to date, primarily due to compensation, benefits and higher utility operating costs.
- Depreciation and amortization increased 7.4% in both the quarter and six-month period, reflecting utility plant additions and storm-cost amortization.
- Net interest expense increased $0.7 million in the quarter and $1.3 million year to date, principally because of lower interest income on regulatory assets.
Cash Flow, Debt and Liquidity
- Six-month cash provided by operating activities was $63.6 million, compared with $70.3 million in 2013.
- Cash used in investing activities was $29.1 million, compared with $37.0 million in 2013, principally for property, plant and equipment additions.
- Cash used in financing activities was $31.9 million, compared with $36.0 million in 2013. Dividends paid were $9.6 million.
- Cash and cash equivalents were $12.0 million at June 30, 2014, compared with $9.4 million at December 31, 2013.
- Total long-term debt was $287.1 million, including $2.5 million due currently. Short-term debt was $35.0 million.
- The revolving credit facility has a $120.0 million limit, $35.0 million outstanding and $85.0 million available at June 30, 2014. It expires October 4, 2018 and includes a funded-debt-to-capitalization covenant of no more than 65%; Unitil was in compliance.
- A customer information system financing arrangement had $5.0 million funded against maximum availability of $15.0 million and was recorded as a capital lease obligation.
- Projected 2014 capital spending was $91 million to $96 million.
Material Changes Versus the Prior Comparable Period
- First-half net income increased 28%, from $10.7 million to $13.7 million, while EPS increased from $0.78 to $0.99.
- Quarterly net income improved from a $0.1 million loss to $1.1 million of income.
- Results benefited from colder weather, higher gas and electric sales, customer growth and rate increases approved in New Hampshire, Maine and Massachusetts.
- Gas sales margin increased more than electric sales margin, while higher operating, depreciation, property-tax and interest expenses partially offset margin gains.
- Net utility plant increased from $665.6 million at December 31, 2013 to $681.7 million at June 30, 2014.
- Retirement benefit obligations increased from $77.3 million at year-end 2013 to $80.8 million at June 30, 2014.
Guidance, Outlook, Risks and Unusual Items
- Management projected 2014 capital spending of $91 million to $96 million. The filing does not provide an earnings or revenue forecast.
- Approved rate actions included revenue increases for Northern Utilities, Unitil Energy, Fitchburg and Granite State. Fitchburg’s order also authorized recovery of $5.0 million of deferred storm costs over three years and $0.9 million of hardship-account amounts over five years.
- Fitchburg’s estimated Sawyer Passway manufactured-gas-plant remediation obligation was reduced from $12.0 million to $5.5 million; $0.3 million had been spent in 2014. The remaining amount was recorded as a current environmental obligation, with expected regulatory recovery.
- The company has approximately $28.5 million of guarantees on energy and gas-storage contracts, with the longest term extending through April 2015. It also guarantees certain Unitil Realty and Granite State debt.
- Key risks include regulatory decisions and cost recovery, weather and demand variability, storm restoration costs, energy commodity prices, interest rates, pension obligations, financing availability, restrictive debt covenants, environmental liabilities, operating hazards, competition and counterparty performance.
- The Fitchburg gas explosion investigation and Massachusetts storm-related litigation remain pending; management does not believe these matters will materially affect financial condition or results.
- The company stated that there were no material changes to the risk factors disclosed in its 2013 Form 10-K and no material subsequent events through the filing date.
- The board declared a regular quarterly dividend of $0.345 per share, equivalent to a stated annual rate of $1.38 per share.
Most Important Facts for Investors to Verify
- Whether approved rate increases and storm-cost recovery mechanisms continue to support margins after favorable first-half weather effects normalize.
- The timing and total cost of the 2014 capital program and the planned customer information system implementation.
- Short-term borrowing levels, interest-rate exposure and compliance with the 65% funded-debt-to-capitalization covenant.
- Recovery and timing of regulatory assets, environmental obligations and deferred storm costs.
- Potential outcomes of pending regulatory proceedings, service-quality requirements, environmental matters and storm-related litigation.
- The sustainability of the $0.345 quarterly dividend relative to seasonal cash flow, capital spending and debt requirements.