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. Its distribution utilities serve approximately 108,100 electric customers and 87,500 gas customers; net utility plant was $1.4 billion at June 30, 2023. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total operating revenue | $103.4 million, up 4.5% | $323.6 million, up 11.0% |
| Operating income | $11.8 million, versus $11.9 million | $51.3 million, up from $47.7 million |
| Net income | $4.2 million, versus $4.9 million | $28.3 million, up from $26.4 million |
| Basic and diluted EPS | $0.25, versus $0.30 | $1.76, versus $1.65 |
| Cash flow from operations | Not separately provided | $62.4 million, versus $71.0 million |
| Capital expenditures | Not separately provided | $57.6 million, versus $45.3 million |
| Adjusted gross margin | $53.5 million, up $1.7 million | $135.1 million, up $6.7 million |
Electric adjusted gross margin increased 2.5% to $24.2 million in the quarter and 5.6% to $50.9 million year to date. Gas adjusted gross margin increased 3.9% to $29.3 million in the quarter and 5.0% to $84.2 million year to date. These are non-GAAP measures that exclude depreciation and amortization from gross margin.
Operating expenses increased primarily because depreciation and amortization rose $1.8 million in the quarter and $3.0 million year to date, reflecting higher utility plant in service and amortization of deferred costs. Net interest expense increased $0.7 million in the quarter and $1.6 million year to date, primarily because of higher short-term borrowing costs. The effective income tax rate for the first six months was 24%, compared with 22% in 2022.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $6.8 million at June 30, 2023, compared with $9.0 million at December 31, 2022.
- Short-term debt outstanding was $131.7 million, compared with $116.0 million at year-end 2022. The $200 million revolving credit facility had $68.3 million available.
- Long-term debt, net of issuance costs, was $493.1 million, including $6.9 million of current maturities. Total stockholders’ equity was $484.4 million.
- The company was in compliance with its credit facility covenants, including the requirement that funded debt to capitalization not exceed 65%.
- The average short-term borrowing rate increased to 6.3% in the second quarter and 6.1% for the first six months, versus 2.1% and 1.7%, respectively, in 2022.
- On July 6, 2023, Fitchburg issued $25.0 million of notes, consisting of $12.0 million due 2033 at 5.70% and $13.0 million due 2053 at 5.96%, primarily to refinance existing debt and for general corporate purposes.
- Unitil paid $13.1 million in dividends during the first six months. The quarterly dividend was increased to $0.405 per share, representing an annualized rate of $1.62 per share.
Material Changes Versus the Prior Comparable Period
- Electric and gas adjusted gross margins improved because of higher regulated rates and customer growth, despite lower usage volumes.
- Electric sales declined 5.4% in the quarter and 5.0% year to date. Gas therm sales increased 0.2% in the quarter but declined 5.1% year to date.
- Warmer winter weather reduced first-half gas demand; effective degree days were 9.2% below the 2022 level.
- Electric and gas customer counts increased by approximately 200 and 800, respectively, from the prior year.
- Revenue decoupling now covers substantially all annual electric sales and approximately 43% of annual gas sales, reducing earnings sensitivity to changes in sales volumes in covered areas.
- Operating cash flow declined $8.6 million, while capital expenditures increased $12.3 million, resulting in greater reliance on short-term borrowings.
- Regulatory assets declined to $108.3 million from $148.0 million at June 30, 2022, while net utility plant increased to $1.36 billion from $1.28 billion.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide specific earnings or revenue guidance. Management expects results to remain seasonal, with gas-related earnings historically strongest in the first and fourth quarters. Rate proceedings and infrastructure cost-recovery mechanisms remain central to the outlook.
- Northern Utilities filed a Maine rate case seeking an $11.8 million, or 9.4%, increase in base distribution revenue for the rate year beginning February 1, 2024. Its $2.1 million infrastructure replacement adjustment was approved effective May 1, 2023.
- Fitchburg filed notice of intent to pursue a base rate case for rates effective July 1, 2024. Its Massachusetts electric and gas rates also include approved cost-recovery mechanisms for capital, gas-system enhancement and other exogenous costs.
- Granite State filed a final limited FERC rate adjustment seeking a $1.0 million annual revenue increase effective September 1, 2023; the matter remained pending at filing.
- Potential risks include severe weather and storms, commodity price and supply conditions, interest-rate increases, access to financing, regulatory changes, climate and environmental requirements, cybersecurity and operational disruptions, pension obligations, and restrictions under debt covenants.
- Environmental obligations totaled $4.7 million at June 30, 2023. The Rochester, New Hampshire manufactured-gas-plant site has $2.5 million accrued, with reasonably possible remediation costs estimated as high as $5.6 million.
- Massachusetts clean-energy and offshore-wind contracts remain subject to development, regulatory and litigation risks. The company and other electric distribution companies were evaluating requests from NECEC for schedule relief and a change-in-law amendment.
- The company reported no outstanding guarantees at June 30, 2023 and stated that pending legal proceedings are not expected to have a material effect.
Most Important Facts to Verify
- Whether pending and proposed rate cases produce the anticipated revenue recovery and authorized returns.
- The pace of capital spending and whether operating cash flow is sufficient to fund investment without materially increasing short-term debt.
- Exposure to higher variable borrowing costs and refinancing requirements, including the credit facility maturity in 2027.
- Progress and final cost of environmental remediation, particularly the Rochester site and the Kensington investigation.
- Outcomes of Massachusetts clean-energy, offshore-wind and decarbonization proceedings, including any effects on contractual obligations or customer rates.
- Weather-normalized demand trends and the extent to which revenue decoupling protects margins from lower electric and gas volumes.